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Atlantic Coast Financial Corporation Reports Second Quarter 2012 Results

"These positive results notwithstanding, our company faces significant ongoing challenges," Frankland continued. "Clearly, the uncertain state of the economy erodes customer and investor confidence, which has many significant ramifications, not the least of which is the impact on the capital markets as we work through our strategic alternatives process. In addition, the Company has been operating under a Supervisory Agreement with its primary regulators since December 2010 and is not currently in compliance with an Individual Minimum Capital Requirement. These circumstances will likely lead to additional enforcement actions by our regulators in the future. In light of these challenges, our Board and management remains focused on raising capital for the Bank in combination with steps to continuously reduce operating expenses, aggressively improve credit quality, and develop increasing revenue through our warehouse and small business lending platforms, along with increasing retail banking deposits."

Capital Update

The Bank's Tier 1 leverage ratio, Tier 1 risk-based capital ratio and Total risk-based capital ratio were 5.36%, 9.57%, and 10.83%, respectively, at June 30, 2012. The Company remained under an Individual Minimum Capital Requirement (the "IMCR") agreement with the OCC, which mandates that Atlantic Coast Bank must achieve a 7% Tier 1 (core) capital ratio. In light of the IMCR and the losses the Company has incurred over the past four years, the Company's Board of Directors began a review of strategic alternatives late in 2011, which includes consideration of a potential business combination, rights offering or other capital-raising actions. This process continues, however, there can be no assurances as to the outcome of these efforts.

Asset Quality   At
June 30, 2012  

March 31, 2012

  Dec. 31, 2011   June 30, 2011
($ in millions)

Non-performing loans

$

33.1

$

41.8

$ 46.6 $ 38.0
Non-performing loans to total loans 7.07 % 8.38 % 8.94 % 7.00 %
Other real estate owned $ 7.7 $ 4.3 $ 5.8 $ 9.0
Non-performing assets $ 40.8 $ 46.1 $ 52.4 $ 47.0
Non-performing assets to total assets 5.24 % 5.94 % 6.65 % 5.86 %
Troubled debt restructurings performing

for less than 12 months under terms of modification

$ 20.0 $ 19.9 $ 19.3 $ 14.4
Total non-performing assets and troubled debt restructurings performing for less than 12 months under terms of modification $ 60.8   $ 66.0   $ 71.7   $ 61.4  

Troubled debt restructurings performing for more than 12 months under terms of modification

$ 12.0   $ 11.6   $ 12.7   $ 14.3  
  • The decrease in non-performing loans in the second quarter of 2012 on a linked-quarter basis primarily reflected a transfer of $4.8 million of non-performing loans to other real estate owned, $1.5 million for the disposal of non-performing loans through short sales, and a $1.2 million charge-off related to the bulk sale of non-performing residential loans of $4.0 million that closed in July 2012.
  • Other real estate owned balances increased in the second quarter of 2012 from the first quarter of the year primarily due to the aforementioned transfer from non-performing loans, less $1.3 million in foreclosed asset sales.
Provision / Allowance for Loan Losses At and for the

Three Months Ended

  At and for the

Six Months Ended

June 30, 2012   March 31, 2012   June 30, 2011 June 30, 2012   June 30, 2011
($ in millions)
Provision for loan losses $

3.7

  $ 3.5   $ 3.0   $ 7.2   $ 5.8  
Allowance for loan losses $ 12.3   $ 13.5   $ 13.7   $ 12.3   $ 13.7  
Allowance for loan losses to total loans   2.64 %   2.71 %   2.52 %   2.64 %   2.52 %
Allowance for loan losses to non-performing loans   37.30 %   32.32 %   36.00 %   37.30 %   36.00 %
Net charge-offs $ 4.9   $ 5.5   $ 2.8   $ 10.4   $ 5.4  
Net charge-offs to average outstanding loans   3.69 %   3.91 %   1.95 %   3.80 %   1.85 %
  • Net charge-offs in the second quarter of 2012 included $1.2 million related to the bulk sale of $4.0 million of non-performing residential loans that settled in July 2012. Approximately $0.8 million of this charge-off had been reserved prior to the second quarter of 2012 and the remaining $0.4 million was recognized in the provision for loan losses in the current second quarter.
  • The increase in the provision for loan losses from the first quarter of 2012 primarily reflected a $0.4 million additional loss related to the aforementioned sale, partially offset by lower home equity and other consumer losses.
Net Interest Income   Three Months Ended   Six Months Ended
June 30, 2012   March 31, 2012   June 30, 2011 June 30, 2012   June 30, 2011
($ in millions)
Net interest income $

5.1

  $ 5.0   $ 5.4   $ 10.1   $ 10.7  
Net interest margin   2.76 %   2.65 %   2.86 %   2.70 %   2.81 %
Yield on investment securities   2.32 %   2.50 %   3.31 %   2.41 %   3.25 %
Yield on loans   5.80 %   5.61 %   5.70 %   5.70 %   5.76 %
Total cost of funds   2.04 %   2.16 %   2.36 %   2.12 %   2.44 %
Average cost of deposits   0.80 %   1.00 %   1.32 %   0.90 %   1.40 %
Rates paid on borrowed funds   4.44 %   4.44 %   4.28 %   4.42 %   4.46 %
  • The Company's net interest income improved sequentially for the second quarter of 2012 primarily because of reductions in the cost of deposits.
  • The decline in net interest income for the second quarter of 2012 compared with the year-earlier quarter reflected primarily a reduction in loans outstanding, particularly portfolio loans, and the impact of lower interest rates on funds reinvested in investment securities and other interest-earning assets. Approximately half of this impact on interest income has been offset by reduced interest expense for deposits. The reduction in portfolio loans is consistent with the Company's capital management strategy and its efforts to increase levels of primary liquidity due to reductions in sources of secondary liquidity. In addition, net interest margin continues to be under pressure as yields on interest-earning assets, particularly for shorter-term assets, have remained at historically low interest rates, a trend that is expected to continue until mid 2014.
Non-Interest Income /

Non-Interest Expense

  Three Months Ended   Six Months Ended
June 30, 2012   March 31, 2012   June 30, 2011 June 30, 2012   June 30, 2011
($ in millions)
Non-interest income $

1.8

  $ 2.2   $ 2.6   $ 4.0   $ 4.4  
Non-interest expense $ 6.0   $ 5.4   $ 6.5   $ 11.4   $ 14.3  
Efficiency ratio   87.03 %   75.26 %   81.83 %   81.05 %   94.56 %
  • The decline in non-interest income for the second quarter of 2012 on a linked-quarter basis primarily reflected a reduction in gains on sales of Small Business Administration (SBA) loans, as well as lower gains on the sales of originated mortgages.
  • The decline in non-interest income for the second quarter of 2012 compared with the year-earlier quarter primarily reflected reductions in gains on the sales of investment securities, service fees and bank-owned life insurance, which together were partially offset by increased gains on the sales of SBA loans.
  • The increase in non-interest expense in the second quarter of 2012 on a linked-quarter basis primarily reflected increased collection costs of $0.2 million caused by the payment of property taxes and higher foreclosure costs due to net gains of $0.2 million in the first quarter of 2012 compared with a net loss of $0.1 million in the second quarter of 2012.
  • The decline in non-interest expense in the second quarter of 2012 compared with the year-earlier quarter reflected reduced compensation and benefit expenses due to expense-reduction initiatives and lower expenses on foreclosed assets due to gains on disposal of other real estate owned in the first quarter of 2012.

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)

       

 

June 30, 2012

March 31, 2012 Dec. 31, 2011

June 30, 2011

Total assets $ 778,534 $ 776,831 $ 788,967 $ 801,774
Cash and cash equivalents 64,772 47,117 41,017 27,824
Securities available for sale 146,383 131,910 126,821 125,293
 
Loans held for sale 57,806 59,399 61,619 52,617
Loans receivable, gross 467,819 498,921 521,233 543,276
Allowance for loan losses   12,339   13,516   15,526   13,684
Loans receivable, net   455,480   485,405   505,707   529,592
 
Total deposits 500,481 498,010 508,411 497,526
Federal Home Loan Bank advances 135,000 135,000 135,000 151,000
Securities sold under agreements to purchase 92,800 92,800 92,800 92,800
Stockholders' equity 43,990 45,315 46,294 54,081
 

June 30, 2012

  March 31,

2012

  Dec. 31,

2011

  June 30,

2011

Interest income $ 8,623 $ 8,749 $ 9,246 $ 9,631
Interest expense   3,519     3,766     3,963     4,206  
Net interest income 5,104 4,983 5,283 5,425
Provision for loan losses   3,741     3,475     5,201     2,967  
Net interest income after provision for loan losses 1,363 1,508 82 2,458
Non-interest income 1,799 2,155 2,134 2,555
Non-interest expense   6,008     5,372     6,629     6,530  
Loss before income taxes (2,846 ) (1,709 ) (4,413 ) (1,517 )
Income tax (expense) benefit   (150 )   --     424     --  
Net loss $ (2,996 ) $ (1,709 ) $ (3,989 ) $ (1,517 )
 
Net loss per basic and diluted share $ (1.20 ) $ (0.69 ) $ (1.61 ) $ (0.61 )
 
Basic and diluted weighted average shares outstanding   2,497     2,494     2,483     2,484  

ATLANTIC COAST FINANCIAL CORPORATION

Selected Consolidated Financial Ratios and Other Data (Unaudited)

(Dollars in thousands)

   
At and for the

Three Months Ended

June 30,

At and for the

Six Months Ended

June 30,

2012   2011 2012   2011
Interest rate
Net interest spread 2.60 % 2.72 % 2.54 % 2.66 %
Net interest margin 2.76 % 2.86 % 2.70 % 2.81 %
 
Average balances
Loans receivable $ 533,021 $ 585,034 $ 547,088 $ 587,010
Total interest-earning assets 740,867 759,972 746,714 762,862
Total assets 776,635 807,614 780,893 811,721
Deposits 497,540 501,356 500,964 508,761
Total interest-bearing liabilities 686,262 707,915 690,451 713,763
Total liabilities 730,594 751,962 734,351 757,197
Stockholders' equity 46,041 55,652 46,542 54,524
 
Performance ratios (annualized)
Return on average total assets -1.54 % -0.75 % -1.21 % -1.22 %
Return on average stockholders' equity -26.03 % -10.90 % -20.22 % -18.12 %
Ratio of operating expenses to

average total assets

3.09 % 3.23 % 2.91 % 3.54 %
Efficiency ratio 87.03 % 81.83 % 81.05 % 94.56 %
Ratio of average interest-earning assets to average interest-bearing liabilities 107.96 % 107.35 % 108.15 % 106.88 %
 
Asset quality ratios
Non-performing loans $ 33,084 $ 38,013 $ 33,084 $ 38,013
Foreclosed assets 7,708 8,969 7,708 8,969
Impaired loans 39,123 44,256 39,123 44,256
Non-performing assets to total assets 5.24 % 5.86 % 5.24 % 5.86 %
Non-performing loans to total loans 7.07 % 7.00 % 7.07 % 7.00 %
Allowance for loan losses to

non-performing loans

37.30 % 36.00 % 37.30 % 36.00 %
Allowance for loan losses to total loans 2.64 % 2.52 % 2.64 % 2.52 %
Net charge-offs to average outstanding loans (annualized) 3.69 % 1.95 % 3.80 % 1.85 %
 
Capital ratios
Stockholders' equity to total assets 5.65 % 6.75 % 5.65 % 6.75 %
Average stockholders' equity to average total assets 5.93 % 6.89 % 5.96 % 6.72 %




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