Atlantic Coast Financial Corporation Reports Second Quarter 2017 Earnings of $0.08 Per Diluted Share

Atlantic Coast Financial Corporation (NASDAQ: ACFC):

• Portfolio loans increased nearly $57 million since June 2016.
• Deposits increased over $117 million during the last 12 months.
• Other real estate owned (OREO) declined to less than $0.3 million due to the sale of a $2.4 million foreclosed property.

Atlantic Coast Financial Corporation (Atlantic Coast or the Company, NASDAQ: ACFC), the holding company for Atlantic Coast Bank (the Bank), today reported earnings per diluted share of $0.08 and $0.17 for the three and six months ended June 30, 2017, respectively, compared with earnings of $0.09 and $0.19 for the three and six months ended June 30, 2016, respectively.

Commenting on the Company's results, John K. Stephens, Jr., President and Chief Executive Officer, said, "Atlantic Coast again delivered a solid financial and operational performance in the second quarter of 2017, driven by continued momentum in portfolio lending and deposit growth. These increases underscore the success of our strategy to shift to a commercial business banking franchise and to expand our platform to attractive new markets in central Florida, while we continue to capitalize on our increasing standing in all of our markets. At the same time, we are pleased to note overall credit quality remained stable, while the sale of our last significant foreclosed property resulted in the lowest level of OREO in more than 10 years. Looking forward, our pipelines and new business development efforts are robust and we remain excited about the growth opportunities within our footprint, especially considering our growing focus on commercial lending. I believe our strengths position us well to achieve our aspirational goals and we have the team, talent and tools needed to do so."

Other significant highlights of the second quarter and first half of 2017 included:

• Net interest income improved to $6.7 million and $13.0 million for the three and six months ended June 30, 2017, respectively, from $6.4 million and $12.5 million for the three and six months ended June 30, 2016, respectively. Net interest margin was 3.19% for each of the three and six months ended June 30, 2017, respectively, up from 3.06% and 3.03% for the three and six months ended June 30, 2016, respectively.
• Total loans (including portfolio loans, loans held-for-sale, and warehouse loans held-for-investment) increased 8% to $788.2 million at June 30, 2017, from $727.0 million at December 31, 2016, and 4% from $758.6 million at June 30, 2016. The Company's loan growth since both June 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.

• Deposits increased 10% to $687.8 million at June 30, 2017, from $628.4 million at December 31, 2016, and 21% from $570.5 million at June 30, 2016. Deposits, excluding brokered deposits, increased 16% to $647.4 million at June 30, 2017, from $558.0 million at December 31, 2016, and 25% from $517.0 million at June 30, 2016. Wholesale funding, which includes brokered deposits and Federal Home Loan Bank advances, decreased 33% to $172.8 million at June 30, 2017, from $259.2 million at December 31, 2016, and 45% from $315.1 million at June 30, 2016. The increase in non-brokered deposits, and resulting decreased reliance on wholesale funding, was driven primarily by the Company's commercial deposit strategies put in place during 2016.
• Total assets increased to $912.6 million at June 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), and decreased from $921.8 million at June 30, 2016, primarily due to a decrease in investment securities and other loans, which were partially offset by an increase in portfolio loans and cash and cash equivalents.
• Nonperforming assets, as a percentage of total assets, were 1.10% at June 30, 2017, compared with 1.44% at December 31, 2016, and 0.67% at June 30, 2016. Because of the Company's generally stable credit quality throughout 2016 and continuing through the first half of 2017 due to an overall slowing pace of loan reclassifications to nonperforming, the Company was able to reduce its loan loss provision for the three and six months ended June 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 12.94% and 10.06%, respectively, at June 30, 2017, and each continued to exceed the levels – 10% and 5%, respectively – currently required for the Bank to be considered well-capitalized.

Tracy L. Keegan, Executive Vice President and Chief Financial Officer, added, "Improving net interest margin for both the second quarter and year-to-date period compared with the same periods last year again highlights our operational performance and momentum. With respect to margin, we were pleased to achieve 13 and 16 basis point improvements, respectively, as we continue to reduce our total cost of funds and grow higher-yielding assets. However, competitive conditions continue to be a factor in pricing both loans and deposits and is something that we continually monitor regarding its impact on margin going forward. While all banks are subject to similar pricing issues, we remain confident in Atlantic Coast's specific strategies to drive long-term growth and improved shareholder value."

The year-over-year increase in capital ratios at June 30, 2017 was due primarily to an increase in capital related to higher earnings over the past year. The decrease in risk-weighted capital ratios at June 30, 2017, compared with 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.

While nonperforming assets have declined for three consecutive quarters, the current level exceeded that of the year-earlier period, reflecting 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 June 30, 2017, compared with that at June 30, 2016 and December 31, 2016, primarily due to the sale of a $2.4 million foreclosed property in May 2017.

The Company's provision for portfolio loan losses has trended within a relatively narrow range over the past year. It was slightly lower for the three months ended June 30, 2017, compared with the second quarter last year, and was down 17% for the first six months ended June 30, 2017, versus the first half of 2016. This reflects a trend of solid economic conditions in 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 June 30, 2017, compared with that at June 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 June 30, 2017, is sufficient to absorb losses in portfolio loans as of the end of the period.

Net charge-offs remained at a low level during the three and six months ended June 30, 2017, but were higher compared with the same periods in 2016 and during the three months ended March 31, 2017, primarily due to the charge-off of one home equity loan and one commercial loan.

The increase in net interest margin during the three and six months ended June 30, 2017, compared with net interest margin for the three and six months ended June 30, 2016, primarily reflected a decrease in rates paid on borrowed funds. Also contributing to the increase in net interest margin was 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 slight decrease in net interest margin during the three months ended June 30, 2017, compared with net interest margin for the three months ended March 31, 2017, reflected an increase in rates paid on funds, as well as a decrease in the yield earned on loans and investment securities.

The decrease in noninterest income for the three months ended June 30, 2017, compared with that of the three months ended June 30, 2016 and March 31, 2017, primarily reflected lower gains on the sale of loans held-for-sale associated with the volatility in U.S. Department of Agriculture (USDA) lending and the related gains on the sale of USDA loans, partially offset by higher gains on the sale of investment securities. The decrease in noninterest income for the three months ended June 30, 2017, compared with that of the three months ended June 30, 2016, also reflected lower gains on the sale of portfolio loans. The decrease in noninterest income for the six months ended June 30, 2017, compared with that of the six months ended June 30, 2016, primarily reflected lower gains on the sale of investment securities, lower gains on the sale of portfolio loans and reduced service charges and fees, partially offset by higher gains on the sale of loans held-for-sale.

Noninterest expense decreased nominally during the three months ended June 30, 2017, compared with that of the three months ended June 30, 2016 and March 31, 2017. The increase in noninterest expense during the six months ended June 30, 2017, compared with that of the six months ended June 30, 2016, primarily reflected increased data processing expenses associated with ongoing efforts to improve the Company's IT infrastructure, as well as increased interchange expense and other miscellaneous operating expenses.

The decrease in income tax expense for the three months ended June 30, 2017, compared with that of the three months ended June 30, 2016, as well as for the six months ended June 30, 2017, compared with that of the six months ended June 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 continue growing our portfolio and deposits; our ability to expand our market presence in central Florida; our ability to capitalize on our pipeline and new business opportunities; the potential impact of competitive conditions on margin; our ability to improve shareholder value; the strength of our ratio of allowance for portfolio loan losses to total portfolio loans; 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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