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Atlantic Coast Financial Corporation Reports Second Quarter 2013 Results

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

For the second quarter of 2013, the Company reported a net loss of $1.6 million or $0.62 per diluted share compared with a net loss of $3.0 million or $1.20 per diluted share in the year-earlier quarter and a net loss of $2.0 million or $0.81 per diluted share in the first quarter of 2013. For the first six months of 2013, the net loss totaled $3.6 million or $1.43 per diluted share compared with a net loss in the year-earlier period of $4.7 million or $1.89 per diluted share.

The Company's results for the first half of 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 second quarter and first half of 2013 to exclude these merger-related costs. On this basis, the adjusted net loss for the second quarter and first six months of 2013 was $0.4 million or $0.17 per diluted share and $2.3 million or $0.91 per diluted share, respectively. Adjusted net loss is a non-GAAP measurement; see reconciliation of GAAP and non-GAAP measures later in this release.

Significant developments in the second quarter included:

  • The adjusted net loss decreased 86% to $0.4 million for the second quarter of 2013 from $3.0 million for the same quarter in 2012, and 78% from $1.9 million in the first quarter of 2013. The adjusted net loss decreased 51% to $2.3 million for the six months ended June 30, 2013, from $4.7 million for the six months ended June 30, 2012.
  • Non-performing assets decreased 38% to $25.2 million or 3.40% of total assets at June 30, 2013, from $40.8 million or 5.24% of total assets at June 30, 2012, and decreased 14% from $29.3 million or 3.92% of total assets at March 31, 2013.
  • Annualized net charge-offs to average loans decreased to 1.79% for the second quarter of 2013 from 3.69% for the year-earlier second quarter and increased from 1.60% in the first quarter of 2013.
  • Total assets were $742.2 million at June 30, 2013, compared with $772.6 million at December 31, 2012, as the Company has continued to manage asset size consistent with its overall capital management strategy.
  • During the second quarter of 2013, the Company became aware that a change in the ownership of the Company, as defined by the Internal Revenue Code, occurred during the first quarter of 2013. Accordingly, utilization of the Company's federal and state deferred tax assets, which currently total $29.3 million, is expected to be limited to approximately $0.3 million per year, the actual realization of which being dependent upon the Company generating taxable income.

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 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 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 June 30, 2013.

           

Key Capital Measures

June 30,

2013

March 31,

2013

Dec. 31,

2012

Sept. 30,

2012

June 30,

2012

Tier 1 (core) capital ratio

(to adjusted total assets)

4.83% 5.03% 5.13% 5.11% 5.36%
Total risk-based capital ratio

(to risk-weighted assets)

9.55% 9.81% 9.78% 10.50% 10.83%
Tier 1 (core) risk-based capital ratio 8.29% 8.54% 8.52% 9.23% 9.57%
 

Following the rejection of the proposed merger of Atlantic Coast Financial Corporation with Bond Street Holdings, Inc., the Company's Board of Directors has begun to evaluate other strategic alternatives to raise capital as soon as possible, including a possible recapitalization.

   
Asset Quality At

June 30, 2013

 

March 31, 2013

 

Dec. 31, 2012

 

Sept. 30, 2012

 

June 30, 2012

(Dollars in millions)
Non-performing loans $ 12.4 $ 19.2 $ 24.9 $ 26.3 $ 33.1
Non-performing loans to total loans 3.12 % 4.58 % 5.76 % 5.81 % 7.07 %
Other real estate owned $ 12.8 $ 10.1 $ 8.1 $ 7.9 $ 7.7
Non-performing assets $ 25.2 $ 29.3 $ 33.0 $ 34.2 $ 40.8
Non-performing assets to total assets 3.40 % 3.92 % 4.26 % 4.35 % 5.24 %

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

$ 21.4 $ 17.8 $ 20.0 $ 18.5 $ 20.0

Total non-performing assets and troubled debt restructurings performing for less than 12 months under terms of modification

$ 46.6   $ 47.1   $ 53.0   $ 52.7   $ 60.8  

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

$ 14.6   $ 13.4   $ 12.5   $ 12.5   $ 12.0  
 
  • Non-performing loans declined in the second quarter of 2013 compared with the linked quarter, primarily due to transfers of $4.9 million of non-performing loans to other real estate owned ("OREO"). OREO increased over the linked quarter due to the aforementioned transfers from non-performing loans less approximately $2.4 million of sales of OREO. The increase in OREO has been partially offset by strong asset sales.
  • The Company continues to see a slowing in the pace of loans that are being reclassified as non-performing, particularly categories such as one-to-four family residential loans and home equity loans.
  • The increase in troubled debt restructurings in the second quarter of 2013 compared with the prior-year and linked quarters primarily reflected the renewal of a $5.5 million land loan that was previously reported as impaired but performing.

     

Provision / Allowance for Loan Losses

At and for the

Three Months Ended

At and for the

Six Months Ended

June 30, 2013

 

March 31, 2013

 

June 30, 2012

June 30, 2013

 

June 30, 2012

(Dollars in millions)
Provision for loan losses $ 1.2   $ 1.2   $ 3.7   $ 2.4   $ 7.2  
Allowance for loan losses $ 10.0   $ 10.5   $ 12.3   $ 10.0   $ 12.3  
Allowance for loan losses to total loans   2.53 %   2.50 %   2.64 %   2.53 %   2.64 %

Allowance for loan losses to non-performing loans

  81.09 %   54.62 %   37.30 %   81.09 %   37.30 %
Net charge-offs $ 1.8   $ 1.7   $ 4.9   $ 3.5   $ 10.4  

Net charge-offs to average outstanding loans

  1.79 %   1.60 %   3.69 %   1.69 %   3.80 %
 
  • The decline in the provision for loan losses in the second quarter and for the first six months of 2013 compared with the year-earlier quarter and six month period reflected reduced non-performing loans and a decline in early-stage delinquencies of one-to-four family residential and home equity loans. It also reflected provisioning for certain residential loans disposed of in the first and second quarters of 2012 and two commercial loans that were disposed of in July 2012, which did not recur in 2013.
  • The decrease in net charge-offs in the second quarter of 2013 compared with the second quarter of 2012 primarily reflected $3.5 million less in charge-offs in the second 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 residential land loans in the second quarter of 2013, partially offset by a $0.7 million charge-off in the second quarter of 2013 for a collateral-dependent commercial real estate property.
  • The decrease in net charge-offs in the first six months of 2013 compared with the first six months of 2012 primarily reflected $4.2 million less in charge-offs in 2013 related to one-to-four family residential loans and home equity loans, $1.3 million less in charge-offs in 2013 for collateral-dependent commercial real estate property, $0.6 million less in charge-offs related to residential land loans in 2013, and $0.9 million less in charge-offs in the first six months of 2013 related to collateral-dependent commercial land loans.
     
Net Interest Income Three Months Ended Six Months Ended

June 30, 2013

 

March 31, 2013

 

June 30, 2012

June 30, 2013

 

June 30, 2012

(Dollars in millions)
Net interest income $ 4.2   $ 4.3   $ 5.1   $ 8.5   $ 10.1  
Net interest margin   2.35 %   2.42 %   2.76 %   2.39 %   2.70 %
Yield on investment securities   1.46 %   1.28 %   2.32 %   1.37 %   2.41 %
Yield on loans   5.85 %   5.77 %   5.80 %   5.81 %   5.70 %
Total cost of funds   1.80 %   1.80 %   1.96 %   1.82 %   2.00 %
Average cost of deposits   0.69 %   0.70 %   0.80 %   0.69 %   0.90 %
Rates paid on borrowed funds   4.62 %   4.56 %   4.43 %   4.59 %   4.43 %
 
  • The decline in net interest income for the second quarter of 2013 compared with the linked quarter and year-earlier quarter, as well as the decline in net interest income for the first six months of 2013 compared with the same period in 2012 primarily reflected a reduction in portfolio and other 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 of Atlanta ("FHLB") debt.
  • Net interest margin for the second quarter and first half of 2013 declined compared with 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 which had scheduled maturities in the third and fourth quarters of 2013.
  • The decline in yield on investment securities for the second quarter and first half 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 second quarter and first half 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 relatively unchanged as deposit pricing has stabilized.

     
Non-Interest Income /

Non-Interest Expense

Three Months Ended Six Months Ended

June 30, 2013

 

March 31, 2013

 

June 30, 2012

June 30, 2013

 

June 30, 2012

(Dollars in millions)
Non-interest income $ 1.7   $ 1.7   $ 1.8   $ 3.4   $ 4.0  
Non-interest expense $ 6.2   $ 6.9   $ 6.0   $ 13.1   $ 11.4  
Adjusted non-interest expense* $ 5.1   $ 6.7   $ 6.0   $ 11.8   $ 11.4  
Efficiency ratio   105.67 %   113.30 %   87.03 %   109.53 %   81.05 %
Adjusted efficiency ratio*   86.43 %   110.71 %   87.03 %   98.71 %   81.05 %
 

_________________________

* See reconciliation of GAAP and non-GAAP measures later in this release.

 
  • The decrease in non-interest income for the second quarter and first half of 2013 compared with the year-earlier periods reflected 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 second quarter of 2013 compared with the linked quarter primarily reflected a $0.5 million penalty in the first quarter of 2013 associated with a $25.0 million prepayment of FHLB advances, which is expected to be recouped in approximately nine months through reduced future interest expense, and decreased collection and credit expense.
  • The decrease in adjusted non-interest expense in the second quarter of 2013 compared with the year-earlier quarter primarily reflected decreased compensation costs.
  • The increase in adjusted non-interest expense in the first six months of 2013 compared with the same period in 2012 primarily reflected the FHLB prepayment penalty, increased collection and credit expense, and higher FDIC insurance expense, partially offset by decreased compensation costs.

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)

 

 

June 30, 2013

March 31, 2013

Dec. 31, 2012

Sept. 30, 2012

June 30, 2012

Total assets $ 742,194 $ 747,578 $ 772,619 $ 784,810 $ 778,534
Cash and cash equivalents 77,959 77,486 67,828 63,840 64,772
Securities available-for-sale 160,856 154,371 159,746 155,368 146,383
 
Portfolio loans receivable, gross 396,314 417,939 432,090 452,120 467,819
Allowance for loan losses   10,029     10,466     10,889     12,729     12,339  
Portfolio loans receivable, net   386,285     407,473     421,201     439,391     455,480  
 
Other loans:
Held-for-sale loans 2,217 2,770 4,089 2,454 6,972
Warehouse loans   60,653     54,055     68,479     71,859     50,834  
Total other loans   62,870     56,825     72,568     74,313     57,806  
 
Total deposits 502,144 502,354 499,760 507,906 500,481

Securities sold under agreements to purchase

92,800 92,800 92,800 92,800 92,800
Federal Home Loan Bank advances 110,000 110,000 135,000 135,000 135,000
 

Common stock, retained earnings and other equity

36,006 37,546 39,574 39,852 41,506
Other comprehensive income (loss)   (4,841 )   (200 )   686     3,228     2,484  
Total stockholders' equity   31,165     37,346     40,260     43,080     43,990  
 
For the Three Months Ended

June 30, 2013

March 31, 2013

Dec. 31, 2012

Sept. 30, 2012

June 30, 2012

Interest income $ 7,386 $ 7,535 $ 7,919 $ 8,213 $ 8,623
Interest expense   3,207     3,198     3,487     3,497     3,519  
Net interest income 4,179 4,337 4,432 4,716 5,104
Provision for loan losses   1,219     1,234     1,746     3,529     3,741  

Net interest income after provision for loan losses

2,960 3,103 2,686 1,187 1,363
Non-interest income 1,733 1,715 3,408 2,734 1,799
Non-interest expense   6,247     6,857     6,387     5,590     6,008  
Loss before income taxes (1,554 ) (2,039 ) (293 ) (1,669 ) (2,846 )
Income tax (expense) benefit   --     --     --     --     (150 )
Net loss $ (1,554 ) $ (2,039 ) $ (293 ) $ (1,669 ) $ (2,996 )
 
Net loss per basic and diluted share $ (0.62 ) $ (0.81 ) $ (0.12 ) $ (0.66 ) $ (1.20 )
 
Basic and diluted weighted average shares outstanding   2,504     2,504     2,499     2,498     2,497  

       

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,

2013   2012 2013   2012
Interest rate
Net interest spread 2.20 % 2.60 % 2.24 % 2.54 %
Net interest margin 2.35 % 2.76 % 2.39 % 2.70 %
 
Average balances
Portfolio loans receivable, net $ 459,291 $ 533,021 $ 470,964 $ 547,088
Total interest-earning assets 710,255 740,867 713,086 746,714
Total assets 747,856 776,635 750,315 780,893
Deposits 503,467 497,540 504,828 500,964
Total interest-bearing liabilities 661,095 686,262 663,015 690,451
Total liabilities 710,982 730,594 712,419 734,351
Stockholders' equity 36,874 46,041 37,896 46,542
 
Performance ratios (annualized)
Return on average total assets -0.83 % -1.54 % -0.96 % -1.21 %
Return on average stockholders' equity -16.86 % -26.03 % -18.96 % -20.22 %
Ratio of operating expenses to average total assets 3.34 % 3.09 % 3.49 % 2.91 %
Efficiency ratio 105.67 % 87.03 % 109.53 % 81.05 %
Ratio of average interest-earning assets to average interest-bearing liabilities 107.44 % 107.96 % 107.55 % 108.15 %
 
Asset quality ratios
Non-performing loans $ 12,368 $ 33,084 $ 12,368 $ 33,084
Foreclosed assets 12,861 7,708 12,861 7,708
Impaired loans 26,230 39,123 26,230 39,123
Non-performing assets to total assets 3.40 % 5.24 % 3.40 % 5.24 %
Non-performing loans to total portfolio loans 3.12 % 7.07 % 3.12 % 7.07 %
Allowance for loan losses to non-performing loans 81.09 % 37.30 % 81.09 % 37.30 %
Allowance for loan losses to total portfolio loans 2.53 % 2.64 % 2.53 % 2.64 %
Net charge-offs to average outstanding portfolio loans (annualized) 1.79 % 3.69 % 1.69 % 3.80 %
 

Capital ratios (1)

Tangible stockholders' equity to tangible assets 4.20 % 5.64 % 4.20 % 5.64 %
Average stockholders' equity to average total assets 4.93 % 5.93 % 5.05 % 5.96 %
 

(1)

2013 capital ratios reflect a negative change in the fair value of investment securities in 2013 (primarily in the second quarter), 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 and provide additional insight into the Company's results.

 
Three Months Ended Six Months Ended

June 30, 2013

 

March 31, 2013

 

June 30, 2012

June 30, 2013

 

June 30, 2012

Non-interest expense as reported $ 6,247 $ 6,857 $ 6,008 $ 13,104 $ 11,380
Less merger-related costs   1,137     157     --     1,294     --  
Adjusted non-interest expense $ 5,110   $ 6,700   $ 6,008   $ 11,180   $ 11,380  
 
Net loss as reported $ (1,554 ) $ (2,039 ) $ (2,996 ) $ (3,593 ) $ (4,705 )
Less merger-related costs   1,137     157     --     1,294     --  
Adjusted net loss $ (417 ) $ (1,882 ) $ (2,996 ) $ (2,299 ) $ (4,705 )
 
Loss per diluted share as reported $ (0.62 ) $ (0.81 ) $ (1.20 ) $ (1.43 ) $ (1.89 )
Less merger related costs   0.45     0.06     --     0.52     --  
Adjusted loss per diluted share $ (0.17 ) $ (0.75 ) $ (1.20 ) $ (0.91 ) $ (1.89 )
 
Efficiency ratio as reported 105.67 % 113.30 % 87.03 % 109.53 % 81.05 %
Effect of merger-related costs   19.23 %   2.59 %   --     10.82 %   --  

Adjusted efficiency ratio

  86.43 %   110.71 %   87.03 %   98.71 %   81.05 %
 

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. 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.

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