Atlantic Coast Financial Corporation Reports First Quarter 2013 Results

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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

JACKSONVILLE, Fla.--(BUSINESS WIRE)-- 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 March 31, 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 December 31, 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 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 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 Measures

March 31,

2013

Dec. 31,

2012

Sept. 30,

2012

June 30,

2012

March 31,

2012

Tier 1 (core) capital ratio (to adjusted total assets)

5.03%5.13%5.11%5.36%5.71%

Total risk-based capital ratio (to risk-weighted assets)

9.81%9.78%10.50%10.83%11.18%
Tier 1 (core) risk-based capital ratio8.54%8.52%9.23%9.57%9.91%
 
Asset QualityAt

March 31,

2013

Dec. 31,

2012

Sept. 30,

2012

June 30,

2012

March 31,

2012

($ in millions)
Non-performing loans$19.2$24.9$26.3$33.1$41.8
Non-performing loans to total loans4.58%5.76%5.81%7.07%8.38%
Other real estate owned$10.1$8.1$7.9$7.7$4.3
Non-performing assets$29.3$33.0$34.2$40.8$46.1
Non-performing assets to total assets3.92%4.26%4.35%5.24%5.94%

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

$17.8$20.0$18.5$20.0$19.9

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

$47.1 $53.0 $52.7 $60.8 $66.0 

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

$13.4 $12.5 $12.5 $12.0 $11.6 
  • 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.

  

Provision / Allowance for Loan Losses

At and for the

Three Months Ended

March 31,

2013

 

Dec. 31,

2012

 

March 31,

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 loans 2.50% 2.52% 2.71%
Allowance for loan losses to non-performing loans 54.62% 43.76% 32.32%
Net charge-offs$1.7 $3.6 $5.5 
Net charge-offs to average outstanding loans 1.60% 2.83% 3.91%
  • 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 $0.7 million less in charge-offs in first quarter 2013 related to one-to-four family residential loans and home equity loans.
  
Net Interest IncomeThree Months Ended

March 31,

2013

 

Dec. 31,

2012

 

March 31,

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 ExpenseThree Months Ended

March 31,

2013

 

Dec. 31,

2012

 

March 31,

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.

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ATLANTIC COAST FINANCIAL CORPORATION

Unaudited Financial Highlights

(In thousands, except per share amounts)

 

 

March 31,

2013

Dec. 31,

2012

Sept. 30,

2012

June 30,

2012

March 31,

2012

Total assets$747,578$772,619$784,810$778,534$776,831
Cash and cash equivalents77,48667,82863,84064,77247,117
Securities available-for-sale154,371159,746155,368146,383131,910
 
Portfolio loans receivable, gross417,939432,090452,120467,819498,921
Allowance for loan losses 10,466  10,889  12,729  12,339  13,516 
Portfolio loans receivable, net 407,473  421,201  439,391  455,480  485,405 
 
Other loans:
Held-for-sale loans2,7704,0892,4546,9724,262
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

499,760507,906500,481498,010