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TheStreet Open House

Atlantic Coast Financial Corporation Reports Fourth Quarter And 2011 Results

Stock quotes in this article: ACFC

Based on the Bank's non-compliance with the IMCR, current economic and market conditions, and the Company's recent operating results, the Company's Board of Directors began a review of strategic alternatives late in 2011, engaging Stifel, Nicolaus & Company, Incorporated to assist the Board in exploring alternatives to enhance stockholder value, including consideration of a potential business combination in addition to a previously disclosed rights offering. As part of its review of strategic alternatives, the Company requested and has received approval from its primary regulator, the Federal Reserve Board (the "Federal Reserve"), to pursue strategic alternatives that may lead to a transaction that requires stockholder approval. With the Federal Reserve's consent, the Company has begun to take the necessary actions to explore its strategic alternatives. There can be no assurances that the Company will complete a business combination or raise additional capital. The Board of Directors is reviewing all possible strategic alternatives and the relative benefits of such alternatives to stockholders.

Commenting on the fourth quarter results, G. Thomas Frankland, President and Chief Executive Officer, said, "Although the economy continues to show few signs of real strengthening in our markets, we saw small indications of progress in certain key credit quality metrics during the fourth quarter of 2011, such as a leveling-off of non-performing assets from the third quarter. Despite limited positive signals, we recognize that the prospects of a meaningful economic rebound are unlikely in the near term, and we remain cautiously optimistic that the small improvements we witnessed in credit quality as 2011 came to an end represent the beginning of stronger trends. Considering the ongoing challenges we face, our management team remains committed to strategies that improve the performance of our organization, reduce costs, strengthen our capital, and transition the Bank to a retail community banking model."

Frankland added, "With respect to our core banking operations, we are pleased that the Bank's retail deposit franchise continued to show solid results, as illustrated by a successful deposit campaign conducted in the fourth quarter. During the fourth quarter, we increased core deposits and replaced maturing broker time deposits by adding more than $16 million in new customer deposits with a campaign that involved all employees of the Company. We also continued the growth momentum in our warehouse lending business, which ended the year with an outstanding balance of $57.8 million or 115% higher than last year. Finally, we are very pleased with our small business lending group that began operations in late 2010 and ended the year with a strong pipeline and great promise for 2012."

     
Asset Quality Quarter Ended
Dec. 31,

2011

     

Sept. 30, 2011

     

Dec. 31, 2010

($ in millions)
Non-performing loans

$

46.6

$ 44.2 $ 28.1
Non-performing loans to total loans 8.94 % 8.31 % 4.99 %
Other real estate owned $ 5.8 $ 7.1 $ 10.0
Non-performing assets $ 52.4 $ 51.3 $ 38.1
Non-performing assets to total assets 6.65 % 6.47 % 4.60 %
Troubled debt restructurings performing for less than 12 months under terms of modification $ 15.3 $ 15.9 $ 26.3
Total non-performing assets and troubled debt restructurings performing for less than 12 months under terms of modification $ 67.7   $ 67.2   $ 64.4  
Troubled debt restructurings performing for more than 12 months under terms of modification $ 16.7   $ 18.2   $ 13.6  
 
  • The increase in non-performing loans in the fourth quarter of 2011 on a linked-quarter basis reflected primarily the addition of two commercial real estate loan relationships totaling $3.0 million brought about in part by the Bank's aggressive collection approach taken to ensure borrowers adhere to the terms of their loan agreements. For both loans, the Bank believes collateral is adequate, and it does not expect to incur further loss. These increases were partially offset by higher charge-downs and disposition activity during the fourth quarter.
  • Other real estate owned balances declined in the fourth quarter compared with the third quarter of 2011 primarily as a result of asset sales during the quarter.

       
Provision / Allowance for Loan Losses At and for the

Three Months Ended

At and for the

Year Ended

Dec. 31, 2011

   

Sept. 30, 2011

   

Dec. 31, 2010

Dec. 31, 2011

   

Dec. 31, 2010

($ in millions)
Provision for loan losses

$

5.2

  $ 4.4   $ 6.9   $ 15.4   $ 21.2  
Allowance for loan losses $ 15.5   $ 15.2   $ 13.3   $ 15.5   $ 13.3  
Allowance for loan losses to total loans   2.98 %   2.85 %   2.37 %   2.98 %   2.37 %
Allowance for loan losses to non-performing loans   33.31 %   34.35 %   47.44 %   33.31 %   47.44 %
Net charge-offs $ 4.9   $ 2.9   $ 4.5   $ 13.2   $ 21.7  
Net charge-offs to average outstanding loans   3.34 %   1.99 %   2.84 %   2.25 %   3.47 %
 
  • The increase in provision for loan losses on a linked-quarter basis reflected primarily charge-offs on two commercial loans, which also accounted for the increase in net charge-offs on a linked-quarter basis.
  • The provision for loan losses decreased year over year in line with reduced net charge-offs, partially offset by higher general loan loss reserves for increased non-performing home equity loans.
         
Net Interest Income Three Months Ended Year Ended

Dec. 31, 2011

   

Sept. 30, 2011

   

Dec. 31, 2010

Dec. 31, 2011

   

Dec. 31, 2010

($ in millions)
Net interest income

$

5.3

  $ 5.5   $ 5.9   $ 21.5   $ 23.7  
Net interest margin   2.80 %   2.89 %   2.84 %   2.83 %   2.79 %
 
  • The Company's lower net interest income for the fourth quarter of 2011 on a linked-quarter basis reflected primarily a decline in net interest margin due to reduced yields on investments and, to a lesser degree, loans. The reduced margin on investments follows the restructuring of the investment portfolio, completed in the third quarter of 2011, which resulted in a gain on sale of securities of $2.5 million with resulting reinvestment in lower yielding securities.
  • The decline in net interest income for 2011 versus 2010 was due mainly to a lower level of interest-earning assets in 2011, as the Company continued to reduce its balance sheet as part of its capital management strategy. In addition, net interest margin continues to be under pressure as yields on earning assets have declined due to the historically low interest rate environment, while the Bank's cost of funds are beginning to level off. Yields on investment securities and loans were 3.09% and 5.75% for the year ended December 31, 2011, as compared with 3.78% and 5.98% in 2010, respectively. The total cost of funds for full year 2011 declined to 2.4% from 2.6% in 2010. The average cost of deposits for the year ended December 31, 2011, was 1.3% as compared with 1.9% for the same period in 2010; while the rates paid for borrowed funds was 4.4% in 2011, an increase of 0.2% over 2010. The Bank's cost of borrowed funds is substantially at fixed rates.

         
Non-Interest Income /

Non-Interest Expense

Three Months Ended Year Ended

Dec. 31, 2011

   

Sept. 30, 2011

   

Dec. 31, 2010

Dec. 31, 2011

   

Dec. 31, 2010

($ in millions)
Non-interest income

$

2.1

  $ 4.7   $ 2.7   $ 11.2   $ 8.3  
Non-interest expense $ 6.6   $ 7.1   $ 6.8   $ 28.1   $ 24.9  
Efficiency ratio   89.38 %   69.90 %   79.93 %   85.74 %   77.97 %
 
  • The decline in non-interest income for the fourth quarter of 2011 on a linked-quarter basis as well as in comparison to the year-earlier quarter primarily reflected reduced gains on sales of available-for-sale securities totaling $146,000 in the fourth quarter of 2011 versus $2.5 million in the third quarter of 2011 and $481,000 in the fourth quarter of 2010.
  • The increase in non-interest income for 2011 compared with 2010 reflected primarily a year-over-year increase in gains on sales of available-for-sale securities.
  • The decline in non-interest expense in the fourth quarter of 2011 on a linked-quarter basis and compared with the year-earlier quarter reflected reduced salary and benefit expenses and lower expenses on foreclosed assets. The increase in non-interest expense for 2011 versus 2010 reflected increased operating expenses of approximately $1.8 million related to the Mortgage Banking and Small Business lending areas. In addition, the Company recorded additional compensation and benefit expense of $822,000 related to the restoration of supplemental executive retirement plans that partially vested with the completion of the Company's second-step conversion and offering in February 2011. Lastly, collection expenses and expenses related to foreclosed assets increased $625,000 and $244,000, respectively. Elevated foreclosure and collections expenses are expected to continue in the near term due to the extended amount of time involved in the Florida foreclosure process.

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.

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, and market disruptions and other effects of terrorist activities. 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.

                   

ATLANTIC COAST FINANCIAL CORPORATION Unaudited Financial Highlights(In thousands, except per share amounts)

 

 

Dec. 31, 2011

Sept. 30, 2011

June 30, 2011

March 31, 2011

Dec. 31, 2010

Total assets $ 788,967 $ 792,402 $ 801,774 $ 810,101 $ 827,442
Cash and cash equivalents 41,017 15,323 27,824 11,818 8,550
Securities available for sale 126,821 130,052 125,293 156,995 149,090
 
Loans held for sale 61,619 64,280 52,617 35,011 49,318
Loans receivable, gross 521,233 532,174 543,276 551,297 563,096
Allowance for loan losses   15,526   15,188   13,684   13,563   13,344
Loans receivable, net   505,707   516,986   529,592   537,734   549,752
 
Total deposits 508,411 507,938 497,526 507,706 528,497
Federal Home Loan Bank advances 135,000 135,000 151,000 145,000 150,000
Securities sold under agreements to purchase 92,800 92,800 92,800 92,800 92,800
Stockholders' equity 46,294 50,697 54,081 54,867 44,791
    Three Months Ended

Dec. 31,

  Year Ended

Dec. 31,

2011   2010 2011   2010
Interest income $ 9,246 $ 10,762 $ 38,281 $ 44,855
Interest expense   3,963     4,881     16,756     21,192  
Net interest income 5,283 5,881 21,525 23,663
Provision for loan losses   5,201     6,924     15,383     21,230  

Net interest income (loss) after provision for loan losses

82 (1,043 ) 6,142 2,433
Non-interest income 2,134 2,678 11,232 8,262
Non-interest expense   6,629     6,841     28,085     24,891  
Loss before income taxes (4,413 ) (5,206 ) (10,711 ) (14,196 )
Income tax benefit   424     --     424     --  
Net loss $ (3,989 ) $ (5,206 ) $ (10,287 ) $ (14,196 )
 
Net loss per basic and diluted share $ (1.61 ) $ (2.02 ) $ (4.13 ) $ (5.51 )
 

Basic and diluted weighted average shares outstanding

  2,483     2,581     2,490     2.578  

   

ATLANTIC COAST FINANCIAL CORPORATION Unaudited Financial Highlights (Continued)(In thousands, except per share amounts)

 
For the Three Months Ended
Dec. 31,     Sept. 30,     June 30,     March 31,
2011 2011 2011 2011
Interest income $ 9,246 $ 9,610 $ 9,631 $ 9,794
Interest expense   3,963     4,098     4,206     4,489  
Net interest income 5,283 5,512 5,425 5,305
Provision for loan losses   5,201     4,419     2,967     2,797  

Net interest income after provision for loan losses

82 1,093 2,458 2,508
Non-interest income 2,134 4,654 2,555 1,889
Non-interest expense   6,629     7,106     6,530     7,820  
Loss before income taxes (4,413 ) (1,359 ) (1,517 ) (3,423 )
Income tax benefit   424     --     --     --  
Net loss $ (3,989 ) $ (1,359 ) $ (1,517 ) $ (3,423 )
 
Net loss per basic and diluted share $ (1.61 ) $ (0.55 ) $ (0.61 ) $ (1.36 )
 

Basic and diluted weighted average shares outstanding

  2,483     2,484     2,484     2,512  
 

Net loss per basic and diluted shares, as well as the number of basic and diluted shares outstanding, have been restated to give effect to the Company's conversion from a mutual holding company structure to a stock holding company form of organization, which was completed on February 3, 2011. In the conversion and offering, the Company issued 0.1960 share of Atlantic Coast Financial Corporation common stock for each share of Atlantic Coast Federal Corporation common stock previously outstanding (other than those owned by Atlantic Coast Federal, MHC) and sold approximately 1,711,000 new shares of common stock. The net loss per basic and diluted share for the fourth quarter ended December 31, 2010, as originally reported, was $0.40, and the number of basic and diluted weighted average shares outstanding for that quarter, as reported, was 13,167,000.

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