Atlantic Coast Financial Corporation Reports Third Quarter 2017 Earnings of $0.07 Per Diluted Share

Atlantic Coast Financial Corporation ACFC

• Portfolio loans increased almost $100 million since September 2016.
• Deposits increased nearly $59 million during the last 12 months.
• Credit quality remained strong as nonperforming loans declined 12% to $9.5 million year over year.

Atlantic Coast Financial Corporation (Atlantic Coast or the Company)ACFC, the holding company for Atlantic Coast Bank (the Bank), today reported earnings per diluted share of $0.07 and $0.25 for the three and nine months ended September 30, 2017, respectively, compared with earnings of $0.10 and $0.29 for the three and nine months ended September 30, 2016, respectively.

Commenting on the Company's results, John K. Stephens, Jr., President and Chief Executive Officer, said, "I am pleased to report continued momentum in our business during the third quarter and ongoing progress in the implementation of strategies that are expected to enhance future operations. Earnings for the period, while remaining strong, were affected somewhat by unforeseen timing issues surrounding loan sale activity as a result of Hurricane Irma. We anticipate getting back on track with these transactions over the next few quarters. Additionally, I am pleased to note other key signs of the Company's solid performance, such as 9% loan growth over the trailing 12 months, matched by similar growth in deposits due primarily to strong expansion of our core deposit base. Importantly, these ongoing improvements have occurred against the backdrop of solid and stable credit quality metrics, as seen by an exceptionally low level of OREO at the end of the third quarter. As we now focus on the final quarter of the year and a successful conclusion to 2017, I believe we remain well positioned to pursue and capitalize on the growth opportunities before us and, in turn, continue to solidify our role as a leading community bank in our markets."

Other significant highlights of the third quarter and first nine months of 2017 included:

• Net interest income was $6.8 million and $19.8 million for the three and nine months ended September 30, 2017, respectively, compared with $6.9 million and $19.4 million for the three and nine months ended September 30, 2016, respectively. Net interest margin was 3.18% and 3.19% for the three and nine months ended September 30, 2017, respectively, compared with 3.19% and 3.08% for the three and nine months ended September 30, 2016, respectively.
• Total loans (including portfolio loans, loans held-for-sale, and warehouse loans held-for-investment) increased 9% to $790.5 million at September 30, 2017, from $727.0 million at December 31, 2016, and 2% from $774.3 million at September 30, 2016. The Company's loan growth since September 30, 2016 and December 31, 2016, was driven primarily by increased commercial real estate lending in all of its markets. This growth was somewhat offset by portfolio mortgage loan sales as part of the Company's interest rate risk and balance sheet management strategies and decreases in warehouse loans held-for-investment.
• Deposits increased 8% to $676.4 million at September 30, 2017, from $628.4 million at December 31, 2016, and 10% from $617.5 million at September 30, 2016. Deposits, excluding brokered certificates of deposit, increased 13% to $631.4 million at September 30, 2017, from $558.0 million at December 31, 2016, and 15% from $549.0 million at September 30, 2016. Wholesale funding, which includes brokered certificates of deposit and Federal Home Loan Bank advances, decreased 24% to $195.8 million at September 30, 2017, from $259.2 million at December 31, 2016, and 34% from $298.4 million at September 30, 2016. The increase in non-brokered deposits and resulting reduced reliance on wholesale funding was driven primarily by the Company's commercial deposit strategies put in place during 2016.
• Total assets increased to $921.9 million at September 30, 2017, from $907.5 million at December 31, 2016, primarily due to increases in portfolio loans, which were partially offset by a decrease in cash and cash equivalents, investment securities and other loans (loans held-for-sale and warehouse loans held-for-investment). Total assets at the end of the third quarter of 2017 decreased from $936.9 million at September 30, 2016, primarily due to a decrease in cash and cash equivalents, investment securities and other loans, which were partially offset by an increase in portfolio loans.
• Nonperforming assets, as a percentage of total assets, declined to 1.05% at September 30, 2017, from 1.44% at December 31, 2016, and 1.46% at September 30, 2016. Because of the Company's generally stable credit quality throughout 2016 and continuing through the first nine months of 2017, reflecting an overall slowing pace of loan reclassifications to nonperforming, the Company was able to reduce its loan loss provision for the three and nine months ended September 30, 2017, compared with the same periods in 2016, while maintaining, in management's view, an adequate ratio of allowance for portfolio loan losses to total portfolio loans.
• The Bank's ratios of total risk-based capital to risk-weighted assets and Tier 1 (core) capital to adjusted total assets were 12.99% and 10.03%, respectively, at September 30, 2017, and each continued to exceed the levels required by regulation, currently 10% and 5%, respectively, for a bank to be considered well-capitalized.

Tracy L. Keegan, Executive Vice President and Chief Financial Officer, added, "We were pleased to see net interest margin improve 11 basis points year to date versus the same period in 2016, although we did experience some margin pressure in the third quarter. This compression primarily reflected higher rates paid on deposits and borrowed funds within the context of competitive conditions that have restrained loan yields. Overall, the changes we have implemented in our funding strategies, together with steps taken to improve asset quality, have resulted in a stronger and more diversified balance sheet, one that appropriately supports the Company for continued growth and additional operational improvement."

The decrease in risk-weighted capital ratios at September 30, 2017, compared with September 30, 2016 and December 31, 2016, reflected an increase in risk-weighted assets, due to growth in portfolio loans and a decrease in cash and cash equivalents and investment securities, as well as an increase in the risk weighting of certain portfolio loan categories, partially offset by an increase in equity due to accumulated earnings.

While nonperforming assets have declined for four consecutive quarters, the current level reflects the reclassification of two specific loans to nonperforming status during the third quarter of 2016. That aside, the Company's overall credit quality remains stable as the general pace of loans reclassified to nonperforming remained slow during the last 12 months. Importantly, OREO declined significantly as of September 30, 2017, compared with that at September 30, 2016 and December 31, 2016, primarily due to the sale of a $2.4 million foreclosed property in the second quarter of 2017.

The Company's provision for portfolio loan losses has remained within a relatively narrow range over the past year. However, it was down 24% for the three months ended September 30, 2017, compared with the third quarter last year, and was down 20% for the first nine months ended September 30, 2017, versus the first nine months of 2016. This reflects a trend of solid economic conditions across the Company's markets, which has led to continued low levels of net charge-offs during the last 12 months. The increase in the allowance for portfolio loan losses at September 30, 2017, compared with that at September 30, 2016, was attributable primarily to loan growth, which reflected organic growth supplemented by strategic loan purchases that were offset partially by loan sales, principal amortization, and increased prepayments of one- to four-family residential mortgages and home equity loans. Management believes the allowance for portfolio loan losses at September 30, 2017, is sufficient to absorb losses in portfolio loans as of the end of the period.

The slight decrease in net interest margin during the three months ended September 30, 2017, compared with net interest margin for the three months ended September 30, 2016 and June 30, 2017, reflected an increase in rates paid on deposits and borrowed funds, with little to no change in rates on new loans. In addition, margin remains relatively stable given the improved mix in core deposits and growth in noninterest-bearing accounts. The increase in net interest margin during the nine months ended September 30, 2017, compared with net interest margin for the nine months ended September 30, 2016, primarily reflected a decrease in rates paid on funds due to an increase in noninterest-bearing deposits, and an increase in higher-margin interest-earning assets outstanding, reflecting the Company's ongoing redeployment of excess liquidity to grow its portfolio loans, loans held-for-sale, and warehouse loans held-for-investment.

The decrease in noninterest income for the three months ended September 30, 2017, compared with that of the three months ended September 30, 2016 and June 30, 2017, primarily reflected lower gains on the sale of investment securities. Additionally, during the third quarter of 2017, gains on the sale of loans held-for-sale was negatively impacted by Hurricane Irma, which delayed the sale of certain loans the Company had anticipated selling during the quarter. The decrease in noninterest income for the three months ended September 30, 2017, compared with that of the three months ended September 30, 2016, also reflected reduced service charges and fees as well as a decrease in miscellaneous operating income related to an escrow account that was forfeited in the year-earlier period in connection with an OREO sale. The decrease in noninterest income for the nine months ended September 30, 2017, compared with that of the nine months ended September 30, 2016, primarily reflected lower gains on the sale of investment securities, lower gains on the sale of portfolio loans, reduced service charges and fees, and a decrease in miscellaneous operating income (as discussed above), partially offset by higher gains on the sale of loans held-for-sale.

The decrease in noninterest expense during the three months ended September 30, 2017, compared with that of the three months ended September 30, 2016 and June 30, 2017, primarily reflected the positive impact of an adjustment to the rate of accrual for FDIC insurance premiums, reducing the amount accrued through the first nine months in line with current expectations for the full year. The decrease in noninterest expense for the three months ended September 30, 2017, compared with that of the three months ended June 30, 2017, also reflected reduced foreclosed asset expense and a decrease in outside professional services expense, partially offset by an increase in occupancy and equipment expense. The nominal increase in noninterest expense during the nine months ended September 30, 2017, compared with that of the nine months ended September 30, 2016, primarily reflected increased data processing expenses associated with ongoing efforts to improve the Company's IT infrastructure, partially offset by a decrease in occupancy and equipment expense and the aforementioned adjustment to the rate of accrual for FDIC insurance premiums.

The decrease in income tax expense for the three and nine months ended September 30, 2017, compared with that of the three and nine months ended September 30, 2016, primarily reflected a decline in income before income tax expense, as well as a decrease in the effective tax rate.

About the Company

Atlantic Coast Financial Corporation is the holding company for Atlantic Coast Bank, a Florida state-chartered commercial bank. It is a community-oriented financial institution serving the Northeast Florida, Central Florida and Southeast Georgia markets. Investors may obtain additional information about Atlantic Coast Financial Corporation on the Internet at www.AtlanticCoastBank.net, under Investor Relations.

Forward-looking Statements

Statements in this press release that are not historical facts are forward-looking statements that reflect management's current expectations, assumptions and estimates of future performance and economic conditions, and involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein. Such statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally are identifiable by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "plans," "intends," "projects," "targets," "estimates," "preliminary," or "anticipates" or the negative thereof or comparable terminology, or by discussion of strategy or goals or other future events, circumstances or effects. Moreover, forward-looking statements in this release include, but are not limited to, those relating to: our ability to enhance future operations through current strategies; our expectation of a recovery in loan sale volume over the next few quarters; the strength of our ratio of allowance for portfolio loan losses to total portfolio loans; our continued growth and operational improvement; and the allowance for portfolio loan losses being sufficient to absorb losses in respect of portfolio loans. The Company's consolidated financial results and the forward-looking statements could be affected by many factors, including but not limited to: general economic trends and changes in interest rates; increased competition; changes in demand for financial services; the state of the banking industry generally; uncertainties associated with newly developed or acquired operations; market disruptions; and cyber-security risks. Further information relating to factors that may impact the Company's results and forward-looking statements are disclosed in the Company's filings with the Securities and Exchange Commission. In particular, please refer to "Item 1A. Risk Factors" beginning on page 38 of the Company's Annual Report on Form 10-K for the year ended December 31, 2016. The forward-looking statements contained in this release are made as of the date of this release, and the Company disclaims any intention or obligation, other than imposed by law, to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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