Atlantic Coast Financial Corporation Reports First Quarter 2013 Results

  Atlantic Coast Financial Corporation Reports First Quarter 2013 Results

Recently Announced Merger Amendment Lifts Contingency to Provide Stockholders
                     with Cash Payment in Full at Closing

Business Wire

JACKSONVILLE, Fla. -- May 15, 2013

Atlantic Coast Financial Corporation (the "Company,") (NASDAQ symbol: ACFC),
the holding company for Atlantic Coast Bank (the "Bank"), today reported
financial results for the first quarter ended March 31, 2013.

For the first quarter of 2013, the Company reported a net loss of $2.0 million
or $0.81 per diluted share compared with a net loss of $1.7 million or $0.69
per diluted share in the year-earlier quarter and a net loss of $0.3 million
or $0.12 per diluted share in the fourth quarter of 2012. The Company's net
loss for the first quarter of 2013 compared with the net loss in the
year-earlier quarter reflected primarily increased non-interest expenses and
lower net interest and non-interest income, which was partially offset by a
reduction in the provision for loan losses. The Company's net loss for the
first quarter of 2013 compared with the linked-quarter net loss reflected
primarily a decrease in non-interest income.

Regarding the previously announced merger between the Company and Bond Street
Holdings, Inc. ("Bond Street") dated February 25, 2013, the Company recently
reported that the definitive merger agreement has been amended to eliminate
the transaction's $2.00 per share contingency consideration. Accordingly, the
Company's stockholders will receive upon closing of the transaction the entire
$5.00 per share in cash for each share owned. The merger, which is expected to
close by the end of the second quarter of 2013, has been approved by the
Federal Reserve Bank of Atlanta, but remains subject to the approval of
stockholders of the Company at a special meeting called for that purpose on
June 11, 2013, additional regulatory approvals and other customary closing
conditions. Upon completion of the transaction, Atlantic Coast Bank will merge
into Bond Street's banking subsidiary, Florida Community Bank, N.A., a
community-oriented bank holding company with $3.2 billion in total assets that
operates 41 community banking branches along both Florida coasts and in the
Orlando area.

Notable highlights of the Company's first quarter included:

  *Non-performing assets decreased 37% to $29.3 million or 3.92% of total
    assets at March31, 2013, from $46.1 million or 5.94% of total assets at
    March 31, 2012, and decreased 11% from $33.0 million or 4.26% of total
    assets at December 31, 2012.
  *Annualized net charge-offs to average loans decreased to 1.60% for the
    first quarter of 2013 from 3.91% for the year-earlier first quarter and
    from 2.83% in the fourth quarter of 2012.
  *Total assets were $747.6 million at March 31, 2013, compared with $772.6
    million at December31, 2012, as the Company has continued to manage asset
    size consistent with its overall capital management strategy.

Commenting on the first quarter results, G. Thomas Frankland, President and
Chief Executive Officer, said, "We continue to see measurable improvement in
credit quality as indicated by reduced non-performing loans and lower net loan
charge-offs. Notwithstanding this progress, other issues remain pressing,
particularly the immediate need for the Company to address capital levels
mandated by our regulators and the impact of our high-cost wholesale debt,
which continues to pressure our net interest margin and drag on our liquidity.
The significance of the wholesale debt is evident in its fair-value which as
of March 31, 2013 exceeded the book value by $27.7 million due to the high
interest rate of the debt and remaining term. As we announced earlier, our
pending merger with Bond Street Holdings, Inc. focuses specifically on those
issues – immediately satisfying our capital mandate and resolving our
high-cost debt, and as a result, we believe this transaction will successfully
achieve the Company's goal of providing maximum value to our stockholders.
Additionally, after the merger this strategic alternative should result in a
sound banking platform for the long term as part of a large and strong
community bank, with the least amount of execution risk."

Capital

The Company has experienced steady erosion of its capital due to significant
net losses over the past five consecutive years. Effective August 10, 2012,
the Bank's Board of Directors agreed to the issuance of a Consent Order (the
"Order") by the Office of the Comptroller of the Currency. Among other things,
the Order calls for the Bank to achieve and maintain a Tier 1 capital ratio of
9% of adjusted total assets and a Total risk-based capital ratio of 13% of
risk-weighted assets by December31, 2012. The Bank was not in compliance with
the capital levels required by the Order at December31, 2012, and remained
non-compliant at March 31, 2013. The Board of Directors believes the
completion of the pending merger with Bond Street represents the best overall
solution to fulfill the capital mandate, with fewer regulatory and execution
risks, and will benefit Atlantic Coast Bank's customers and result in a more
competitive bank franchise in the marketplace.

                                                            
Key Capital         March 31,   Dec. 31,   Sept. 30,   June 30,    March 31,
Measures
                    2013        2012       2012        2012        2012
Tier 1 (core)
capital ratio          5.03 %     5.13 %     5.11  %     5.36  %     5.71  %
(to adjusted
total assets)
Total
risk-based
capital ratio          9.81 %     9.78 %     10.50 %     10.83 %     11.18 %
(to
risk-weighted
assets)
Tier 1 (core)
risk-based             8.54 %     8.52 %     9.23  %     9.57  %     9.91  %
capital ratio
                                                                             
Asset Quality       At
                    March 31,   Dec. 31,   Sept. 30,   June 30,    March 31,

                    2013        2012       2012        2012        2012
                    ($ in millions)
Non-performing      $  19.2     $ 24.9     $ 26.3      $ 33.1      $ 41.8
loans
Non-performing
loans to total         4.58 %     5.76 %     5.81  %     7.07  %     8.38  %
loans
Other real          $  10.1     $ 8.1      $ 7.9       $ 7.7       $ 4.3
estate owned
Non-performing      $  29.3     $ 33.0     $ 34.2      $ 40.8      $ 46.1
assets
Non-performing
assets to total        3.92 %     4.26 %     4.35  %     5.24  %     5.94  %
assets
Troubled debt
restructurings
performing for
less than 12        $  17.8     $ 20.0     $ 18.5      $ 20.0      $ 19.9
months under
terms of
modification
Total
non-performing
assets and
troubled debt
restructurings      $  47.1    $ 53.0    $ 52.7     $ 60.8     $ 66.0  
performing for
less than 12
months under
terms of
modification
Troubled debt
restructurings
performing for
more than 12        $  13.4    $ 12.5    $ 12.5     $ 12.0     $ 11.6  
months under
terms of
modification

  *Non-performing loans decreased in the first quarter of 2013 compared with
    the linked quarter, primarily due to transfers of $4.3 million of
    non-performing loans to other real estate owned ("OREO") and the return to
    performing status of a $1.0 million residential mortgage loan. OREO
    increased over the linked quarter due to the aforementioned transfers from
    non-performing loans less approximately $2.1 million of sales of OREO.
  *The Company continues to see a slowing pace of loans that are being
    reclassified as non-performing, particularly categories such as
    one-to-four family residential loans and home equity loans.

                                         
                                            At and for the
Provision / Allowance for Loan Losses
                                            Three Months Ended
                                            March 31,   Dec. 31,    March 31,
                                                                 
                                            2013        2012        2012
                                            ($ in millions)
Provision for loan losses                   $ 1.2      $ 1.7      $ 3.5   
Allowance for loan losses                   $ 10.5     $ 10.9     $ 13.5  
Allowance for loan losses to total           2.50  %    2.52  %    2.71  %
loans
Allowance for loan losses to                 54.62 %    43.76 %    32.32 %
non-performing loans
Net charge-offs                             $ 1.7      $ 3.6      $ 5.5   
Net charge-offs to average outstanding       1.60  %    2.83  %    3.91  %
loans

  *The decline in the provision for loan losses in the first quarter of 2013
    compared with both the linked quarter and year-earlier quarter reflected
    reduced non-performing loans and a decline in early-stage delinquencies of
    one-to-four family residential and home equity loans.
  *The decrease in net charge-offs in the first quarter of 2013 compared with
    the linked quarter was primarily due to a $1.7 million charge-off in the
    fourth quarter of 2012 for a loan associated with owner-occupied
    commercial real estate.
  *The decrease in net charge-offs in the first quarter of 2013 compared with
    the first quarter of 2012 primarily reflected a $1.7 million charge-off in
    the first quarter of 2012 related to a short sale of a retail strip
    center, as well as $0.9 million in charge-offs in the first quarter of
    2012 related to collateral-dependent commercial land loans and
    $0.7million less in charge-offs in first quarter 2013 related to
    one-to-four family residential loans and home equity loans.

                                
Net Interest Income                Three Months Ended
                                   March 31,   Dec. 31,   March 31,
                                                       
                                   2013        2012       2012
                                   ($ in millions)
Net interest income                $  4.3     $ 4.4     $  5.0  
Net interest margin                  2.42 %    2.37 %     2.65 %
Yield on investment securities       1.28 %    1.55 %     2.50 %
Yield on loans                       5.77 %    5.70 %     5.61 %
Total cost of funds                  1.80 %    1.88 %     2.04 %
Average cost of deposits             0.70 %    0.74 %     0.99 %
Rates paid on borrowed funds         4.56 %    4.48 %     4.43 %

  *The decline in net interest income for the first quarter of 2013 compared
    with the linked quarter and year-earlier quarter reflected primarily a
    reduction in portfolio and warehouse loans outstanding and the impact of
    lower interest rates on funds reinvested in investment securities
    partially offset by decreased interest expense for deposits and Federal
    Home Loan Bank ("FHLB") debt.
  *Net interest margin for the first quarter of 2013 declined compared with
    the year-earlier quarter due to the change in mix of interest earning
    assets as the Bank strived to increase its investment in assets with
    greater liquidity, partially offset by reductions in the cost of deposits.
    The increase in net interest margin in the first quarter of 2013 compared
    to the linked quarter is primarily due to lower interest expense for FHLB
    advances following pre-payment of debt totaling $25 million with scheduled
    maturity in the third and fourth quarter of 2013.

    The decline in yield on investment securities for the first quarter of
    2013 on both linked quarter and year earlier quarter is due to lower yield
    on reinvested securities and increased amortization of purchase premium
    due to higher prepayments.

                                        
Non-Interest Income / Non-Interest         Three Months Ended
Expense
                                           March 31,    Dec. 31,    March 31,
                                                                 
                                           2013         2012        2012
                                           ($ in millions)
Non-interest income                        $ 1.7       $ 3.4      $ 2.2   
Non-interest expense                       $ 6.9       $ 6.4      $ 5.4   
Efficiency ratio                            113.30 %    81.47 %    75.26 %

  *The decrease in non-interest income for the first quarter of 2013 compared
    with the linked quarter primarily reflected gains of $1.4 million on sales
    of investment securities in the fourth quarter of 2012 whereas there were
    no sales of investment securities in the first quarter of 2013.
  *The decrease in non-interest income for the first quarter of 2013 compared
    with the year-earlier quarter primarily reflected a decrease in gains on
    the sale of loans held-for-sale from mortgage banking activity.
  *The increase in non-interest expense in the first quarter of 2013 compared
    with the linked quarter primarily reflected a $.5 million prepayment
    penalty associated with $25 million of FHLB advances which based on
    reduced interest expense repays in approximately nine months. Other
    non-interest expense variances between the two quarters offset.
  *The increase in non-interest expense in the first quarter of 2013 compared
    with the year-earlier quarter primarily reflected additional professional
    and outside services expense due to the pending merger, increased
    collection and credit expense, a prepayment penalty related to the
    prepayment of FHLB debt, and higher FDIC insurance expense.

About the Company

Atlantic Coast Financial Corporation is the holding company for Atlantic Coast
Bank, a federally chartered and insured stock savings bank. It is a
community-oriented financial institution serving northeastern Florida and
southeastern Georgia markets through 12 locations, with a focus on the
Jacksonville metropolitan area. Investors may obtain additional information
about Atlantic Coast Financial Corporation on the Internet at
www.AtlanticCoastBank.net, under Investor Information.

                                                                        
ATLANTIC COAST FINANCIAL CORPORATION

Unaudited Financial Highlights

(In thousands, except per share amounts)
                                                                                           
                       March 31,     Dec. 31,      Sept. 30,     June 30,      March 31,

                       2013          2012          2012          2012          2012
Total assets           $ 747,578     $ 772,619     $ 784,810     $ 778,534     $ 776,831
Cash and cash            77,486        67,828        63,840        64,772        47,117
equivalents
Securities               154,371       159,746       155,368       146,383       131,910
available-for-sale
                                                                                           
Portfolio loans          417,939       432,090       452,120       467,819       498,921
receivable, gross
Allowance for loan      10,466      10,889      12,729      12,339      13,516  
losses
Portfolio loans         407,473     421,201     439,391     455,480     485,405 
receivable, net
                                                                                           
Other loans:
Held-for-sale            2,770         4,089         2,454         6,972         4,262
loans
Warehouse loans         54,055      68,479      71,859      50,834      55,137  
Total other loans       56,825      72,568      74,313      57,806      59,399  
                                                                                           
Total deposits           502,354       499,760       507,906       500,481       498,010
Federal Home Loan        110,000       135,000       135,000       135,000       135,000
Bank advances
Securities sold
under agreements         92,800        92,800        92,800        92,800        92,800
to purchase
                                                                                           
Stockholders'            37,346        40,260        43,080        43,990        45,315
equity
                                                                                           
                       For the Three Months Ended
                       March 31,     Dec. 31,      Sept. 30,     June 30,      March 31,

                       2013          2012          2012          2012          2012
Interest income        $ 7,535       $ 7,919       $ 8,213       $ 8,623       $ 8,749
Interest expense        3,198       3,487       3,497       3,519       3,766   
Net interest             4,337         4,432         4,716         5,104         4,983
income
Provision for loan      1,234       1,746       3,529       3,741       3,475   
losses
Net interest
income after
provision                3,103         2,686         1,187         1,363         1,508

for loan losses
Non-interest             1,715         3,408         2,734         1,799         2,155
income
Non-interest            6,857       6,387       5,590       6,008       5,372   
expense
Loss before income       (2,039  )     (293    )     (1,669  )     (2,846  )     (1,709  )
taxes
Income tax              --          --          --          (150    )    --      
(expense) benefit
Net loss               $ (2,039  )   $ (293    )   $ (1,669  )   $ (2,996  )   $ (1,709  )
                                                                                           
Net loss per basic     $ (0.81   )   $ (0.12   )   $ (0.66   )   $ (1.20   )   $ (0.69   )
and diluted share
                                                                                           
Basic and diluted
weighted average        2,504       2,499       2,498       2,497       2,494   
shares outstanding

                                                  
ATLANTIC COAST FINANCIAL CORPORATION

Selected Consolidated Financial Ratios and Other Data (Unaudited)

(Dollars in thousands)
                                                     
                                                     At and for the

                                                     Three Months Ended

                                                     March 31,
                                                      2013       2012    
Interest rate
Net interest spread                                    2.28    %     2.48    %
Net interest margin                                    2.42    %     2.65    %
                                                                   
Average balances
Portfolio loans receivable, net                      $ 419,995     $ 561,156
Total interest-earning assets                          715,949       752,561
Total assets                                           752,802       785,151
Deposits                                               506,204       504,387
Total interest-bearing liabilities                     664,956       694,640
Total liabilities                                      713,871       738,107
Stockholders' equity                                   38,931        47,044
                                                                   
Performance ratios (annualized)
Return on average total assets                         -1.08   %     -0.87   %
Return on average stockholders' equity                 -20.95  %     -14.53  %
Ratio of operating expenses to average total           3.64    %     2.74    %
assets
Efficiency ratio                                       113.30  %     75.26   %
Ratio of average interest-earning assets to            107.67  %     108.34  %
average interest-bearing liabilities
                                                                   
Asset quality ratios
Non-performing loans                                 $ 19,160      $ 41,814
Foreclosed assets                                      10,139        4,336
Impaired loans                                         34,191        42,131
Non-performing assets to total assets                  3.92    %     5.94    %
Non-performing loans to total portfolio loans          4.58    %     8.38    %
Allowance for loan losses to non-performing            54.62   %     32.32   %
loans
Allowance for loan losses to total portfolio           2.50    %     2.71    %
loans
Net charge-offs to average outstanding portfolio       1.60    %     3.91    %
loans (annualized)
                                                                   
Capital ratios
Tangible stockholders' equity to tangible assets       4.99    %     5.83    %
Average stockholders' equity to average total          5.17    %     5.99    %
assets

Forward-looking Statements

This news release contains forward-looking statements within the meaning of
the federal securities laws. Statements in this release that are not strictly
historical are forward-looking and are based upon current expectations that
may differ materially from actual results. These forward-looking statements,
identified by words such as "will," "expected," "believe," and "prospects,"
involve risks and uncertainties that could cause actual results to differ
materially from those anticipated by the statements made herein. These risks
and uncertainties involve general economic trends and changes in interest
rates, increased competition, changes in consumer demand for financial
services, the possibility of unforeseen events affecting the industry
generally, the uncertainties associated with newly developed or acquired
operations, market disruptions and other effects of terrorist activities, and
the possibility that the aforementioned merger with Bond Street does not close
when expected or at all because required regulatory, stockholder or other
approvals and other conditions to closing are not received or satisfied on a
timely basis or at all. The Company undertakes no obligation to release
revisions to these forward-looking statements publicly to reflect events or
circumstances after the date hereof or to reflect the occurrence of unforeseen
events, except as required to be reported under the rules and regulations of
the Securities and Exchange Commission.

Additional Information

This communication is being made in respect of a proposed business combination
transaction involving Atlantic Coast Financial Corporation and Bond Street
Holdings, Inc. In connection with the proposed transaction, Atlantic Coast
Financial Corporation has filed with the Securities and Exchange Commission
(the "SEC") a definitive proxy statement that was distributed to the
stockholders of the Company in connection with their vote on the proposed
transaction. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION REGARDING THE
PROPOSED TRANSACTION, STOCKHOLDERS OF ATLANTIC COAST FINANCIAL CORPORATION ARE
URGED TO READ ALL FILINGS MADE BY THE COMPANY IN CONNECTION WITH THE
TRANSACTION, INCLUDING THE PROXY STATEMENT, CAREFULLY AND IN THEIR ENTIRETY
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. The definitive proxy
statement was mailed to stockholders of Atlantic Coast Financial Corporation.
Stockholders may obtain copies of all documents filed with the SEC regarding
this transaction, free of charge, at the SEC's website (www.sec.gov) and by
accessing Atlantic Coast Financial Corporation's website
(www.atlanticcoastbank.net) under the heading "Investor Relations" and then
under the link "SEC Filings." These documents may also be obtained free of
charge from Atlantic Coast Financial Corporation by requesting them in writing
to Atlantic Coast Financial Corporation, 10151 Deerwood Park Blvd., Building
200, Suite 100, Jacksonville, Florida 32256; Attention: Thomas B. Wagers, Sr.,
Chief Financial Officer, or by telephone at (904) 565-8570.

Atlantic Coast Financial Corporation and its directors and executive officers
may be deemed participants in the solicitation of proxies from Atlantic Coast
Financial Corporation's stockholders in connection with this transaction.
Information about the directors and executive officers of Atlantic Coast
Financial Corporation and information about other persons who may be deemed
participants in this transaction will be included in the proxy statement. You
can find information about Atlantic Coast Financial Corporation's executive
officers and directors in Atlantic Coast Financial Corporation's definitive
proxy statement filed with the SEC on May 13, 2013, and in the Company's
Annual Report on Form 10-K filed with the SEC on April 1, 2013, copies of
which are available at the SEC's website or from Atlantic Coast Financial
Corporation as described above.

Contact:

Atlantic Coast Financial Corporation
Thomas B. Wagers, Sr., 904-565-8570
Chief Financial Officer
 
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