Coming off a quarter in which it earned just $24,000, Atlantic Coast Federal Corp. in Waycross, Ga., is taking steps to cut overhead, including selling a Florida branch and laying off 10% of its employees.
The holding company of Atlantic Coast Bank also said it would alter some of the terms of its employee benefit plans and scale back future executive salary increases.
The aggressive moves were announced Tuesday when the $961 million-asset Atlantic Coast reported that its first-quarter earnings had dropped about 97% from a year earlier.
It attributed the decline largely to a 7% increase in its noninterest expense and deteriorating asset quality, particularly in its Florida real estate portfolio. Though it is headquartered in Georgia, the federally chartered thrift has nine branches in northern Florida counties and only four in Georgia.
Atlantic Coast's nonperforming loans to total loans rose 103 basis points year over year and 54 basis points from the previous quarter, to 1.55%. Net chargeoffs to average outstanding loans rose 83 basis points on an annual basis, to 0.92%.
Executives of the company said high levels of net chargeoffs are likely for much of the year in light of the slack real estate market. Atlantic Coast increased its loan-loss provision 427%, to $1.6 million, year over year.
"During the first quarter, we continued to face strong headwinds from a depressed real estate market, both nationally and in northeast Florida, which maintained pressure on the credit quality of our loan portfolio," Robert J. Larison Jr., the president and chief executive officer, said in a press release.
Atlantic Coast said it had agreed to sell its branch in the Jacksonville suburb of Fernandina Beach to Citizens State Bank, a subsidiary of the $290 million-asset South Banking Co. of Alma, Ga. The branch, which opened in 2003, is easily the weakest of its 13 branches, with only $11 million of deposits and $5 million of net loans, according to Federal Deposit Insurance Corp. data.
The company said its branch deal reflects its belief that it "cannot implement its long-term strategy effectively within that market."
Pat Watson, a spokesman for Atlantic Coast, said in an interview last week that it still considered Jacksonville an attractive banking market. "But it's not bulletproof," he said.
The price of the deal was not disclosed. It is expected to close toward the end of the second quarter or in the early part of the third quarter.
Mr. Larison said the branch deal and the other cost-cutting moves are aimed at lowering an efficiency ratio that was 80.42% on March 31.
Not long ago Atlantic Coast was looking to expand, not downsize. In May 2007 it announced it would convert from a mutual holding company to a 100% stock-owned company and perhaps acquire other banks and open branches with proceeds from the public offering.
But the conversion plan was put on hold in December amid weak demand for bank and thrift stocks.
Atlantic Coast's shares have lost roughly 50% of their value in the last year. They were trading at $8.71 midday Monday.
After Tuesday's earnings report, the investment bank Sterne, Agee & Leach Inc. downgraded the stock, from "buy" to "hold."
Mike Shafir, an analyst with Sterne Agee, wrote in a research note issued Tuesday, "We underestimated the deteriorating credit environment in Atlantic Coast's markets, and now feel that the credit erosion in these markets will far outweigh the potential accretion to tangible book value in a second-step event."
In an interview, Mr. Shafir said its potential to go fully public is one of Atlantic Coast's most appealing features.
"This is an institution that clearly wants to do that," he said. "I don't see them going through that scenario in the near future because of their strong capital position, but if losses were to significantly escalate it would be a logical step to tap that market."
Atlantic Coast began as a credit union in 1939, became a thrift in 2000, and converted to a mutual holding company in 2004.
