Atlantic Coast Financial Corporation Reports Third Consecutive Quarterly Profit

Atlantic Coast Financial Corporation ("Atlantic Coast" or the "Company," NASDAQ: ACFC), the holding company for Atlantic Coast Bank (the "Bank"), today reported earnings per share of $0.03 for the third quarter ended September 30, 2014, maintaining a profitable trend that started in the first quarter of 2014 and continued in the second quarter of 2014.

Commenting on the third quarter and first nine months of 2014, John K. Stephens, Jr., President and Chief Executive Officer, said, "We are pleased to report continued momentum in our business, as reflected by our third consecutive quarterly increase in earnings per share, as well as sequential growth in quarterly net income over the past nine months. We have continued to implement new strategies and shape a new vision for Atlantic Coast, as the premier community bank in our market, in order to capitalize on growth opportunities and improving economic conditions. We also have strengthened our team leadership and have added necessary staff to virtually all areas of Atlantic Coast, bringing additional experience and capabilities to take full advantage of the opportunities before us. These steps have gained traction, as seen by our steadily increasing net interest margin and renewed loan growth, coupled with stable credit quality, all of which we believe will contribute to ongoing growth and profitability for the Company."

Significant highlights of the third quarter and first nine months of 2014 included:

• Net income improved to $0.5 million or $0.03 per diluted share during the quarter ended September 30, 2014, from a net loss of $0.9 million or $0.38 per diluted share for the year-earlier quarter.
• Net income improved to $0.9 million or $0.06 per diluted share for the nine months ended September 30, 2014, versus a net loss of $4.5 million or $1.81 per diluted share for the same period in 2013. Excluding costs associated with a proposed merger that stockholders rejected in June 2013, the adjusted net loss was $3.2 million or $1.29 per diluted share during the nine months ended September 30, 2013 (adjusted net loss and adjusted loss per diluted share are non-GAAP financial measures; see reconciliation of GAAP to non-GAAP financial measures at page 6 in this release).
• Total loans (including portfolio loans, held-for-sale loans, and warehouse loans) increased to $457.7 million at September 30, 2014, from $432.6 million at June 30, 2014 and $394.1 million at December 31, 2013, primarily due to an equal mix of organic growth and loan purchases, partially offset by principal amortization and increased prepayments of one- to four-family residential mortgages and home equity loans.
• Nonperforming assets decreased 63% to $9.4 million or 1.31% of total assets at September 30, 2014, from $25.1 million or 3.51% of total assets at September 30, 2013, and were essentially flat compared with $9.4 million or 1.33% of total assets at June 30, 2014.
• Total assets declined to $713.9 million at September 30, 2014, compared with $733.6 million at December 31, 2013, primarily due to a planned reduction in higher cost certificates of deposit. Wholesale borrowings also were slightly lower at the end of the third quarter of 2014.
• The Company's ratios of Tier 1 (core) capital to adjusted total assets and total risk-based capital to risk-weighted assets were 10.17% and 17.83%, respectively, and each ratio continued to exceed the levels – 9% and 13%, respectively – required by the Bank's Consent Order (the "Order") entered into with the Office of the Comptroller of the Currency (the "OCC") effective August 10, 2012.

Jay Lent, Executive Vice President and Chief Financial Officer, added, "With the Company's improving financial performance and ongoing profitability, we continue to evaluate the allowance against our deferred tax asset, and we are increasingly confident that at some point during the next 12 months a portion of the allowance can be reversed. This, of course, will be dependent upon continued profitability. Currently, our deferred tax asset of $17.3 million is fully reserved by a valuation allowance of an equal amount, and if and when all necessary accounting conditions are met, we expect the elimination of some or all of the valuation allowance would take the form of a tax-effected credit to income tax expense."

The decrease in total risk-based capital to risk-weighted assets and Tier 1 (core) capital to risk-weighted assets as of September 30, 2014, compared with those at June 30, 2014, was primarily due to an increase in risk-weighted assets as the Bank continued to shift its asset base to higher interest-earning loans with higher risk weighting. The decrease also was due to a decrease in the fair value of investment securities, which had a negative impact on equity and, therefore, on capital ratios through accumulated other comprehensive income. The decrease in total risk-based capital to risk-weighted assets and Tier 1 (core) capital to risk-weighted assets as of September 30, 2014, compared with those at December 31, 2013, was primarily due to an increase in risk-weighted assets. The shift in asset base was partially offset by a year-to-date increase in the fair value of investment securities, the latter of which had a positive impact on equity and, therefore, on capital ratios through accumulated other comprehensive income.

Effective August 10, 2012, the Bank's Board of Directors agreed to the issuance of the Order. Among other things, the Order called for the Bank to achieve and maintain a Tier 1 (core) 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 in compliance with the capital levels required by the Order as of September 30, 2014.

Overall, the Company has continued to see improving credit quality during the past 12 months as the pace of loans being reclassified to nonperforming has slowed, particularly in categories such as one- to four-family residential and home equity loans. Nonperforming assets were relatively flat at September 30, 2014, compared with the prior quarter, as increases in nonperforming loans during the third quarter of 2014 were offset by the disposition of nonperforming loans throughout the same period. The amount of troubled debt restructurings increased in the third quarter of 2014, primarily due to an increase in one- to four-family residential loans being modified. The decrease in nonperforming assets at September 30, 2014, compared with the year-earlier period, reflected a fourth quarter 2013 bulk transaction to dispose of nonperforming assets.

The decline in the provision for portfolio loan losses in the third quarter and first nine months of 2014 compared with the third quarter and first nine months of 2013 reflected reduced nonperforming loans and a decline in early-stage delinquencies of one- to four-family residential and home equity loans. The decline in the allowance for portfolio loan losses at September 30, 2014, compared with the allowance for portfolio loan losses at September 30, 2013, reflected a fourth quarter 2013 bulk transaction to dispose of nonperforming assets. Management believes the allowance for portfolio loan losses as of September 30, 2014, is sufficient to absorb losses in portfolio loans as of the end of the third quarter. The decline in net charge-offs for the third quarter and first nine months of 2014 compared with the third quarter and first nine months of 2013 reflected a decrease in charge-offs in most of the Company's loan categories, with the most significant decrease in the third quarter of 2014 and the first nine months of 2014 attributable to one-to-four family residential loans, home equity loans, commercial real estate loans, and consumer loans.

The increase in net interest margin during the third quarter and first nine months of 2014 compared with the third quarter and first nine months of 2013 was primarily due to the Company redeploying excess liquidity to grow its portfolio loans, held-for-sale loans, and warehouse loans, coupled with an increase in noninterest-bearing deposits, and the maturity of high-cost repurchase agreements. Throughout 2013, prior to completing a capital raise in December 2013, the Company attempted to preserve capital, a plan that included limiting its investments in portfolio loans. The increase in net interest margin during 2014 primarily reflects an increase in interest-earning assets outstanding.

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* This is a non-GAAP measure, see reconciliation of GAAP to non-GAAP financial measures at page 6 in this release.

The decrease in noninterest income during the first nine months of 2014 compared with the first nine months of 2013 primarily reflected lower gains on loans held-for-sale and a decrease in service charges and fees. The increase in noninterest expense sequentially during the most recent two quarters of 2014 reflects the addition of approximately 35 employees in various areas of the Company, including branch operations and lending, to enhance customer service and promote loan and deposit growth. The Company believes it is now adequately staffed for its current business needs and anticipates little, if any, further additions to its current employee headcount. The decrease in adjusted noninterest expense for the first nine months of 2014 compared with the first nine months of 2013 primarily reflected a decrease in collection expenses, insurance costs, and taxes, partially offset by an increase in compensation and benefits. Because of the Company's strengthened capital position, the Company expects to further reduce its risk-related operating expenses, including, but not limited to, OCC assessments, FDIC insurance costs, accounting costs, foreclosed asset and collection expenses, and D&O insurance costs as the Bank enters 2015.

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. Investors may obtain additional information about Atlantic Coast Financial Corporation on the Internet at www.AtlanticCoastBank.net, under Investor Information.

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 "believe," "expects," "may," " will," "should," "plan," "intend," "on condition," "target," "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: the ability to capitalize on growth opportunities and improving economic conditions; the ability to take full advantage of opportunities presented; the continued growth and profitability of the Bank; the ability to reverse the valuation allowance against the deferred tax asset; the allowance for portfolio loan losses being sufficient to absorb losses in respect of portfolio loans; expectations regarding being adequately staffed for current business needs; the ability to make further additions to current employee headcount as necessary; and the ability to reduce risk-related operating expenses 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; and market disruptions. 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. 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.

ATLANTIC COAST FINANCIAL CORPORATION
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share amounts)

To supplement our condensed consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), we provide additional measures of adjusted noninterest expense, adjusted net income (loss), adjusted income (loss) per diluted share, and adjusted efficiency ratio. The Company's management believes that these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. The Company's management also believes that these non-GAAP financial measures enhance the ability of investors to analyze Atlantic Coast's business trends and performance. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. A reconciliation of these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP follows.