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Atlantic Coast Financial Corporation Reports Third Quarter 2013 Results

  Atlantic Coast Financial Corporation Reports Third Quarter 2013 Results

Business Wire

JACKSONVILLE, Fla. -- October 29, 2013

Atlantic Coast Financial Corporation (the "Company") (NASDAQ: ACFC), the
holding company for Atlantic Coast Bank (the "Bank"), today reported financial
results for the quarter and nine months ended September 30, 2013.

For the third quarter of 2013, the Company reported a net loss of $0.9 million
or $0.38 per diluted share compared with a net loss of $1.7 million or $0.66
per diluted share in the year-earlier quarter and a net loss of $1.6 million
or $0.62 per diluted share in the second quarter of 2013. For the first nine
months of 2013, the net loss totaled $4.5 million or $1.81 per diluted share
compared with a net loss in the year-earlier period of $6.4 million or $2.55
per diluted share.

The Company's results through September 30, 2013, included costs associated
with the previously announced merger with Bond Street Holdings, Inc., which
stockholders rejected at a special meeting held on June 11, 2013. In order to
more clearly assess the fundamental operations of the Company, management
believes it is appropriate to adjust the reported net losses for the first
nine months of 2013 to exclude these merger-related costs. On this as-adjusted
basis, the adjusted net loss for the nine months ended September 30, 2013, was
$3.2 million or $1.29 per diluted share. Adjusted net loss is a non-GAAP
measurement; see reconciliation of GAAP and non-GAAP measures at page 7 of
this release.

Significant developments in the third quarter included:

  *The net loss decreased 44% to $0.9 million for the third quarter of 2013
    from $1.7 million for the same quarter in 2012 and decreased 40% from $1.6
    million for the second quarter of 2013. The adjusted net loss decreased
    49% to $3.2 million for the nine months ended September 30, 2013, from
    $6.4 million for the nine months ended September 30, 2012.
  *Non-performing assets decreased 27% to $25.1 million or 3.51% of total
    assets at September 30, 2013, from $34.2 million or 4.35% of total assets
    at September 30, 2012, and decreased 1% from $25.2 million or 3.40% of
    total assets at June 30, 2013.
  *Annualized net charge-offs to average loans decreased to 1.87% for the
    third quarter of 2013 from 2.78% for the year-earlier third quarter and
    increased from 1.79% in the second quarter of 2013.
  *Total assets were $714.1 million at September 30, 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.
  *On September 10, 2013, the Company named John K. Stephens, Jr. as the new
    Chief Executive Officer of the Company and the Bank; Stephens, who brings
    with him over 25 years of banking experience, also will serve as a
    director of the Company and the Bank. Stephens' appointment is contingent
    upon receipt of regulatory non-objection. Additionally, the Boards of
    Directors of the Company and the Bank each has four new members, all with
    extensive management experience and three of whom have served as
    executives of large community or national banks. The appointment of James
    D. Hogan, one of the new directors, is contingent upon receipt of
    regulatory non-objection.

Regulatory 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 called 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 December 31, 2012. The Bank was not in compliance with
the capital levels required by the Order at December 31, 2012, and remained
non-compliant at September30, 2013.

Following the rejection of a proposed merger of the Company with Bond Street
Holdings, Inc. by stockholders in June 2013, the Company's Board of Directors
began evaluating various strategic alternatives to raise capital. Currently,
the Company plans to pursue additional equity capital through a public
offering or private placement.

                                                               
                       Sept. 30,   June 30,   March 31,   Dec. 31,   Sept. 30,
Key Capital Measures
                       2013        2013       2013        2012       2012
Tier 1 (core)
capital ratio
                       4.88%       4.83%      5.03%       5.13%      5.11%
(to adjusted total
assets)
Total risk-based
capital ratio
                       10.30%      9.55%      9.81%       9.78%      10.50%
(to risk-weighted
assets)
Tier 1 (core)
risk-based capital     9.04%       8.29%      8.54%       8.52%      9.23%
ratio
                                                                     

  *The increase in the key capital measures as of September 30, 2013, was
    primarily due to the continued decrease in the Company's asset balance,
    partially offset by the impact of the Company's 2013 third quarter net
    loss on equity.

                     
Credit Quality         At
                       Sept. 30,  June 30,  March 31,  Dec. 31,  Sept. 30,
                       2013        2013       2013        2012       2012
                       (Dollars in millions)
Non-performing loans   $  13.6     $ 12.4     $  19.2     $ 24.9     $  26.3
Non-performing loans
to total portfolio        3.49 %     3.12 %      4.58 %     5.76 %      5.81 %
loans
Other real estate      $  11.5     $ 12.8     $  10.1     $ 8.1      $  7.9
owned
Non-performing         $  25.1     $ 25.2     $  29.3     $ 33.0     $  34.2
assets
Non-performing
assets to total           3.51 %     3.40 %      3.92 %     4.26 %      4.35 %
assets
Troubled debt
restructurings
performing for less    $  22.3     $ 21.4     $  17.8     $ 20.0     $  18.5
than 12 months under
terms of
modification
Total non-performing
assets and troubled
debt restructurings
performing for less    $  47.4    $ 46.6    $  47.1    $ 53.0    $  52.7 
than 12 months under
terms of
modification
Troubled debt
restructurings
performing for more    $  12.3    $ 14.6    $  13.4    $ 12.5    $  12.5 
than 12 months under
terms of
modification
                                                                     

  *Non-performing loans increased in the third quarter of 2013 compared with
    the second quarter of 2013, which we also refer to as the linked quarter,
    primarily due to a $1.5 million real estate secured commercial loan that
    is now classified as non-performing, partially offset by transfers of $0.9
    million into other real estate owned ("OREO"). OREO decreased over the
    linked quarter due to $2.2 million of sales of OREO, partially offset by
    the aforementioned transfers from non-performing loans.
  *Overall, the Company continues to see a slowing in the pace of loans being
    reclassified as non-performing, particularly in categories such as
    one-to-four family residential and home equity loans.
  *The increase in troubled debt restructurings in the third quarter of 2013
    compared with the prior-year quarter primarily reflected the renewal of a
    $5.5 million land loan that was previously reported as impaired but
    performing.

                                                      
Provision /          At and for the                      At and for the
Allowance for Loan
Losses               Three Months Ended                  Nine Months Ended
                     Sept. 30,  June 30,   Sept. 30,   Sept. 30,  Sept. 30,
                     2013        2013        2012        2013        2012
                     (Dollars in millions)
Provision for loan   $ 1.3      $ 1.2      $ 3.5      $ 3.7      $ 10.7  
losses
Allowance for loan   $ 9.5      $ 10.0     $ 12.7     $ 9.5      $ 12.7  
losses
Allowance for loan
losses to total       2.44  %    2.53  %    2.82  %    2.44  %    2.82  %
portfolio loans
Allowance for loan
losses to             70.00 %    81.09 %    48.45 %    70.00 %    48.45 %
non-performing
loans
Net charge-offs      $ 1.8      $ 1.8      $ 3.1      $ 5.0      $ 13.5  
Net charge-offs to
average               1.87  %    1.79  %    2.78  %    1.65  %    3.81  %
outstanding
portfolio loans
                                                                     

  *The decline in the provision for loan losses in the third quarter and for
    the first nine months of 2013 compared with the year-earlier quarter and
    nine-month period reflected reduced non-performing loans and a decline in
    early-stage delinquencies of one-to-four family residential and home
    equity loans. The decline during the first nine months of 2013 compared to
    first nine months of 2012 also reflected provisioning in the 2012 period
    for certain residential loans charged-off in the second quarter of 2012
    and disposed of through a bulk sale, and two commercial loans that were
    charged-off in the first quarter of 2012 and disposed of through sales.
  *The decrease in net charge-offs in the third quarter of 2013 compared with
    the third quarter of 2012 primarily reflected $0.4 million less in
    charge-offs in the third quarter of 2013 related to one-to-four family
    residential loans and home equity loans, and $0.6 million less in
    charge-offs related to construction loans in the third quarter of 2013.
  *The decrease in net charge-offs in the first nine months of 2013 compared
    with the first nine months of 2012 primarily reflected $4.7 million less
    in charge-offs in 2013 related to one-to-four family residential loans and
    home equity loans, $1.2 million less in charge-offs in 2013 for
    collateral-dependent commercial real estate loans, $0.6 million less in
    charge-offs related to construction loans in the first nine months of
    2013, $0.6 million less in charge-offs related to residential land loans
    in 2013, and $1.0 million less in charge-offs in the first nine months of
    2013 related to collateral-dependent commercial land loans.

                                                      
Net Interest Income   Three Months Ended                 Nine Months Ended
                      Sept. 30,  June 30,  Sept. 30,   Sept. 30,  Sept. 30,
                      2013        2013       2012        2013        2012
                      (Dollars in millions)
Net interest income   $  3.8     $ 4.2     $  4.7     $  12.3    $  14.8 
Net interest margin     2.22 %    2.35 %     2.55 %     2.33 %     2.65 %
Yield on investment     1.54 %    1.46 %     1.89 %     1.43 %     2.22 %
securities
Yield on loans          5.88 %    5.85 %     5.73 %     5.83 %     5.71 %
Total cost of funds     1.82 %    1.80 %     2.00 %     1.84 %     1.92 %
Average cost of         0.69 %    0.69 %     0.90 %     0.67 %     0.76 %
deposits
Rates paid on           4.67 %    4.62 %     4.48 %     4.61 %     4.44 %
borrowed funds
                                                                     

  *The decline in net interest income for the third quarter of 2013 compared
    with the linked quarter and year-earlier quarter, as well as the decline
    in net interest income for the first nine months of 2013 compared with the
    same period in 2012, primarily reflected a reduction in portfolio and
    other loans outstanding, as the Company continues to attempt to preserve
    capital, 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 of Atlanta ("FHLB") debt.
  *Net interest margin for the third quarter and first nine months of 2013
    declined compared with the same periods in 2012 due to the impact of lower
    interest rates on funds reinvested in investment securities, partially
    offset by reductions in the cost of deposits and lower interest expense
    for FHLB advances following prepayment of debt in the first quarter of
    2013 totaling $25.0 million that had scheduled maturities in the third and
    fourth quarters of 2013. Net interest margin for the third quarter of 2013
    declined compared to the linked quarter due to the impact of lower
    interest rates on funds reinvested in investment securities.
  *The increase in yield on investment securities for the third quarter of
    2013 compared with the second quarter of 2013 was primarily due to the
    purchase of $19.5 million of investment securities with a yield greater
    than the average yield of our portfolio. The decline in yield on
    investment securities for the third quarter and first nine months of 2013
    compared with the year-earlier periods was due to lower yields on
    reinvested securities and increased amortization of purchase premiums due
    to higher prepayments.
  *The cost of deposits for the third quarter and first nine months of 2013
    declined compared with the same periods in 2012 due to planned re-pricing
    of deposit products consistent with prevailing rates in the Bank's market
    during the second half of 2012. On a linked-quarter basis, the cost of
    deposits was unchanged as deposit pricing has stabilized.

                                                              
Non-Interest Income /
                            Three Months Ended                   Nine Months Ended
Non-Interest Expense
                            Sept. 30,  June 30,    Sept. 30,   Sept. 30,   Sept. 30,
                            2013        2013         2012        2013         2012
                            (Dollars in millions)
Non-interest income         $ 1.6      $ 1.7       $ 2.7      $ 5.0       $ 6.7   
Non-interest expense        $ 5.0      $ 6.2       $ 5.6      $ 18.1      $ 17.0  
Adjusted non-interest       $ 5.0      $ 5.1       $ 5.6      $ 16.8      $ 17.0  
expense*
Efficiency ratio             93.37 %    105.67 %    75.03 %    104.51 %    78.96 %
Adjusted efficiency          93.37 %    86.43  %    75.03 %    97.05  %    78.96 %
ratio*
_________________________
* See reconciliation of GAAP and non-GAAP measures later in this release.


  *The decrease in non-interest income for the third quarter and first nine
    months of 2013 compared with the year-earlier periods primarily reflected
    a decrease in gains on the sale of securities, as well as a decrease in
    gains on the sale of loans held-for-sale from mortgage origination
    activity following a reorganization of this business in the second half of
    2012 in order to reduce non-interest expense.
  *The decrease in adjusted non-interest expense in the third quarter of 2013
    compared with the year-earlier quarter primarily reflected lower
    compensation costs, outside professional services, and collection and
    credit expense, which were partially offset by increased foreclosure
    costs.
  *The decrease in adjusted non-interest expense in the first nine months of
    2013 compared with the same period in 2012 primarily reflected decreased
    compensation costs, partially offset by the FHLB prepayment penalty,
    increased collection and credit expense, 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. 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)
                                                                             
                    Sept. 30,     June 30,      March 31,     Dec. 31,      Sept. 30,
                     2013          2013          2013          2012          2012
Total assets         $ 714,114     $ 742,194     $ 747,578     $ 772,619     $ 784,810
Cash and cash          82,584        77,959        77,486        67,828        63,840
equivalents
Securities             158,070       160,856       154,371       159,746       155,368
available-for-sale
Securities             19,498        --            --            --            --
held-to-maturity
                                                                             
Portfolio loans        389,590       396,314       417,939       432,090       452,120
receivable, gross
Allowance for loan    9,522       10,029      10,466      10,889      12,729  
losses
Portfolio loans       380,068     386,285     407,473     421,201     439,391 
receivable, net
                                                                             
Other loans:
Held-for-sale          1,083         2,217         2,770         4,089         2,454
loans
Warehouse loans       21,165      60,653      54,055      68,479      71,859  
Total other loans     22,248      62,870      56,825      72,568      74,313  
                                                                             
Total deposits         476,043       502,144       502,354       499,760       507,906
Securities sold
under agreements       92,800        92,800        92,800        92,800        92,800
to purchase
Federal Home Loan      110,000       110,000       110,000       135,000       135,000
Bank advances
                                                                             
Common stock,
retained earnings      35,089        36,006        37,546        39,574        39,852
and other equity
Accumulated other
comprehensive         (5,214  )    (4,841  )    (200    )    686         3,228   
income (loss)
Total
stockholders'         29,875      31,165      37,346      40,260      43,080  
equity
                                                                             
                     For the Three Months Ended
                     Sept. 30,     June 30,      March 31,     Dec. 31,      Sept. 30,
                     2013          2013          2013          2012          2012
Interest income      $ 7,015       $ 7,386       $ 7,535       $ 7,919       $ 8,213
Interest expense      3,191       3,207       3,198       3,487       3,497   
Net interest           3,824         4,179         4,337         4,432         4,716
income
Provision for loan    1,286       1,219       1,234       1,746       3,529   
losses
Net interest
income after           2,538         2,960         3,103         2,686         1,187
provision for loan
losses
Non-interest           1,559         1,733         1,715         3,408         2,734
income
Non-interest          5,026       6,247       6,857       6,387       5,590   
expense
Loss before income     (929    )     (1,554  )     (2,039  )     (293    )     (1,669  )
taxes
Income tax            --          --          --          --          --      
(expense) benefit
Net loss             $ (929    )   $ (1,554  )   $ (2,039  )   $ (293    )   $ (1,669  )
                                                                             
Net loss per basic   $ (0.38   )   $ (0.62   )   $ (0.81   )   $ (0.12   )   $ (0.66   )
and diluted share
                                                                             
Basic and diluted
weighted average      2,505       2,504       2,504       2,499       2,498   
shares outstanding
                                                                             

                                                  
     ATLANTIC COAST FINANCIAL CORPORATION
     Selected Consolidated Financial Ratios and Other Data (Unaudited)
     (Dollars in thousands)
                                                     
                         At and for the              At and for the

                         Three Months Ended          Nine Months Ended

                         Sept. 30,                   Sept. 30,
                         2013         2012          2013         2012
     Interest rate
     Net interest          2.12    %     2.40    %     2.20    %     2.49    %
     spread
     Net interest          2.22    %     2.55    %     2.33    %     2.65    %
     margin
                                                                   
     Average balances
     Portfolio loans     $ 383,439     $ 451,020     $ 402,099     $ 473,924
     receivable, net
     Total
     interest-earning      689,509       739,646       705,141       744,341
     assets
     Total assets          728,576       776,794       742,989       779,517
     Deposits              489,914       498,483       499,802       500,131
     Total
     interest-bearing      651,624       685,649       659,176       688,839
     liabilities
     Total liabilities     698,518       732,485       707,734       733,724
     Stockholders'         30,058        44,309        35,255        45,793
     equity
                                                                   
     Performance
     ratios
     (annualized)
     Return on average     -0.51   %     -0.86   %     -0.81   %     -1.09   %
     total assets
     Return on average
     stockholders'         -12.36  %     -15.07  %     -17.10  %     -18.56  %
     equity
     Ratio of
     operating
     expenses to           2.76    %     2.88    %     3.25    %     2.90    %
     average total
     assets
     Efficiency ratio      93.37   %     75.03   %     104.51  %     78.96   %
     Ratio of average
     interest-earning
     assets to average     105.81  %     107.88  %     106.97  %     108.06  %
     interest-bearing
     liabilities
                                                                   
     Credit quality
     ratios
     Non-performing      $ 13,603      $ 26,272      $ 13,603      $ 26,272
     loans
     Foreclosed assets     11,472        7,903         11,472        7,903
     Impaired loans        26,190        40,201        26,190        40,201
     Non-performing
     assets to total       3.51    %     4.35    %     3.51    %     4.35    %
     assets
     Non-performing
     loans to total        3.49    %     5.81    %     3.49    %     5.81    %
     portfolio loans
     Allowance for
     loan losses to        70.00   %     48.45   %     70.00   %     48.45   %
     non-performing
     loans
     Allowance for
     loan losses to        2.44    %     2.82    %     2.44    %     2.82    %
     total portfolio
     loans
     Net charge-offs
     to average
     outstanding           1.87    %     2.78    %     1.65    %     3.81    %
     portfolio loans
     (annualized)
                                                                   
     Capital ratios ^
     (1)
     Tangible
     stockholders'         4.18    %     5.48    %     4.18    %     5.48    %
     equity to
     tangible assets
     Average
     stockholders'         4.13    %     5.70    %     4.75    %     5.87    %
     equity to average
     total assets
                                                                             
     2013 capital ratios reflect a negative change in the fair value of
^(1) investment securities in 2013 (primarily in the second quarter of 2013),
     affecting other comprehensive income, but not regulatory capital.
                                                                             

                                                    
ATLANTIC COAST FINANCIAL CORPORATION
Reconciliation of GAAP and Non-GAAP Measures
(In thousands, except per share amounts)
                                                       
The following table provides a reconciliation of net loss and loss per diluted
share in accordance with GAAP to adjusted net loss and adjusted loss per
diluted share, both non-GAAP measures, in accordance with applicable
regulatory requirements. The Company provides non-GAAP earnings information to
improve the comparability of its results, provide additional insight into the
Company's results, and to allow readers to more clearly assess the fundamental
operations of the Company.
                                                       
                 Three Months Ended                    Nine Months Ended
                 Sept. 30,  June 30,    Sept. 30,    Sept. 30,   Sept. 30,
                 2013        2013         2012         2013         2012
Non-interest
expense as       $ 5,026     $ 6,247      $ 5,590      $ 18,130     $ 16,970
reported
Less
merger-related    --        1,137      --         1,294      --     
costs
Adjusted
non-interest     $ 5,026    $ 5,110     $ 5,590     $ 16,836    $ 16,970 
expense
                                                                    
Net loss as      $ (929  )   $ (1,554 )   $ (1,669 )   $ (4,522 )   $ (6,374 )
reported
Less
merger-related    --        1,137      --         1,294      --     
costs
Adjusted net     $ (929  )   $ (417   )   $ (1,669 )   $ (3,228 )   $ (6,374 )
loss
                                                                    
Loss per
diluted share    $ (0.38 )   $ (0.62  )   $ (0.66  )   $ (1.81  )   $ (2.55  )
as reported
Less
merger-related    --        0.45       --         0.52       --     
costs
Adjusted loss
per diluted      $ (0.38 )   $ (0.17  )   $ (0.66  )   $ (1.29  )   $ (2.55  )
share
                                                                    
Efficiency
ratio as           93.37 %     105.67 %     75.03  %     104.51 %     78.96  %
reported
Effect of
merger-related    --        19.23  %    --         7.46   %    --     
costs
Adjusted
efficiency        93.37 %    86.44  %    75.03  %    97.05  %    78.96  %
ratio
                                                                             

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 demand for financial services, the
state of the banking industry generally, the uncertainties associated with
newly developed or acquired operations, and market disruptions. The Company
undertakes no obligation to publicly release revisions to these
forward-looking statements 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.

Contact:

Corporate Communications, Inc.
Patrick Watson, 615-324-7309
pat.watson@cci-ir.com