The management of Atlantic Coast Financial
Corporation (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s
internal control over financial reporting is designed to provide reasonable assurance, based on an appropriate cost-benefit analysis,
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those
policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and
that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors
of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, with the participation of our Chief
Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in
Internal Control – Integrated Framework (2013)
. Based on management’s
assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting
as of December 31, 2016.
The Company’s independent registered
certified public accounting firm, Dixon Hughes Goodman LLP, has issued a report on the effectiveness of the Company’s internal
control over financial reporting. This report appears on page 91 of this Annual Report on Form 10-K.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2016, 2015 and 2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Financial Statement Presentation
The accompanying consolidated financial statements
(the Financial Statements) and these notes to consolidated financial statements (these Notes) include Atlantic Coast Financial
Corporation (the Company), a Maryland corporation, and its wholly owned subsidiary, Atlantic Coast Bank (the Bank). The Company
is 100% owned by public stockholders and the Bank is 100% owned by the Company. The principal activity of the Company is the ownership
of the Bank’s common stock, as such, the terms “Company” and “Bank” are used interchangeably throughout
these Notes.
All significant inter-company balances and
transactions have been eliminated in consolidation. The consolidated balance sheets as of December 31, 2016 and 2015, and the consolidated
financial statements for the years ended December 31, 2016, 2015 and 2014 have been prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP). In the opinion of management, all adjustments (all of which are
normal and recurring in nature) considered necessary (i) for a fair presentation and (ii) to make such statements not misleading,
have been included.
Nature of Operations
The Bank provides a broad range of banking
services to individual and business customers primarily in Northeast Florida, Central Florida and Southeast Georgia. The Bank’s
primary deposit products are noninterest-bearing and interest-bearing demand, savings and money market, and time deposit accounts,
and its primary lending products are commercial real estate loans, consumer loans, residential mortgages and home equity loans.
Substantially all loans are secured by specific items of collateral, including business assets, consumer assets, and commercial
and residential real estate. There are no significant concentrations of loans to any one industry or customer. However, any customers'
ability to repay their loans is dependent on the real estate and general economic conditions in the area.
Operating Segments
The chief decision-makers monitor operating
results and make resource allocation decisions on a company-wide basis. Accordingly, the Company does not have multiple operating
segments.
Reclassifications
Certain items in the prior period financial
statements have been reclassified to conform to the current period presentation. The reclassifications had no effect on net income,
retained deficit or stockholders’ equity as previously reported.
Use of Estimates
The preparation of the Financial Statements in conformity with U.S.
GAAP requires management to make estimates and assumptions based on experience and available information that affect the amounts
reported in the Financial Statements and these Notes, and actual results could differ materially from these estimates. Estimates
associated with the allowance for portfolio loan losses (the allowance), measuring for impairment of troubled debt restructurings
(TDR), the fair values of securities, other financial instruments and other real estate owned (OREO) and the realization of deferred
tax assets are particularly susceptible to material change in the near term.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant
market information and other assumptions, as more fully disclosed in
Note 5. Fair Value of Financial Instruments
of these
Notes. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments,
and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions
could significantly affect the estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
is defined to include cash on hand, deposits with other financial institutions with maturities less than 90 days and short-term
interest-earning deposits in investment companies. The Company reports net cash flows for customer loan transactions and deposit
transactions.
Restrictions on Cash
The Bank was not required to maintain cash on hand or on deposit
with the Federal Reserve Bank of Atlanta as of December 31, 2016 and 2015 to meet regulatory reserve and clearing requirements.
There were no restrictions on cash as of December 31, 2016 and 2015.
Investment Securities
Investment securities are classified as
available-for-sale when they might be sold before maturity and are carried at fair value, with unrealized holding gains and losses
reported separately in other comprehensive income, net of tax. Investment securities are classified as held-to-maturity and carried
at amortized cost when management has the positive intent and ability to hold them to maturity.
The fair values for investment securities
are determined by quoted market prices, if available (Level 1). For securities where quoted market prices are not available, fair
values are calculated based on quoted market prices of similar securities (Level 2). For securities where quoted market prices
or quoted market prices of similar securities are not available, fair values are calculated using discounted cash flows or other
market indicators (Level 3).
Interest income from investment securities
includes amortization of purchase premium or discount. Premiums and discounts on investment securities are amortized on the level-yield
method without anticipating prepayments. Gains and losses on sales of investment securities are recorded on the trade date and
are determined using the specific identification method.
Management evaluates investment securities
for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions
warrant such an evaluation. In determining OTTI, management considers many factors, including: (1) the length of time and the extent
to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether
the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security
or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether other-than-temporary
decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at the
determination date.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Investment Securities (continued)
When OTTI is determined to have occurred, the amount of the OTTI
recognized in earnings depends on whether we intend to sell the security or it is more likely than not that we will be required
to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If we intend to sell the
security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis,
less any current-period credit loss, the OTTI recognized in earnings is equal to the entire difference between its amortized cost
basis and its fair value at the balance sheet date. If we do not intend to sell the security and it is not more likely than not
that we will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI
is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total
related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized as
a charge to earnings. The amount of the OTTI related to other factors is recognized in other comprehensive income, net of applicable
taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
The Company recorded no OTTI for the years ended December 31, 2016, 2015 and 2014.
Portfolio Loans
Portfolio loans that management has the intent and ability to hold
for the foreseeable future or until maturity or pay off are reported at the principal balance outstanding, net of unearned loan
fees and costs, premiums on loans purchased, and an allowance for portfolio loan losses. The Bank may also purchase portfolio loans
that conform to our underwriting standards, principally one- to four-family residential mortgages, in the form of whole loans for
interest rate risk management and portfolio diversification and to supplement our organic growth.
Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield
method over the estimated life of the portfolio loan. Interest income includes amortization of purchase premiums or discounts on
portfolio loans purchased. Premiums and discounts are amortized on the level yield-method over the estimated life of the portfolio
loan.
Accrual of interest income on all portfolio loans is discontinued,
and the loan is placed on nonperforming status at the time any such portfolio loan is 90 days delinquent unless the credit is well
secured and in process of collection. Past due status is based on the contractual terms of the portfolio loan. In all cases, portfolio
loans are placed on nonperforming status or charged-off at an earlier date if collection of principal or interest is considered
doubtful.
Portfolio loans for which terms have been modified to grant a concession
to the borrower as a result of the borrower's financial difficulties are considered TDRs. TDRs are measured for impairment based
upon the present value of estimated future cash flows using the loan’s existing rate at inception of the loan or the appraised
value of the collateral if the loan is collateral-dependent. Impairment of homogeneous loans, such as one- to four-family residential
loans, that have been modified as TDRs is calculated in the aggregate based on the present value of estimated future cash flows.
Portfolio loans modified as TDRs with market rates of interest are classified as impaired portfolio loans. Once the TDR loan has
performed for 12 months in accordance with the modified terms it is classified as a performing impaired loan.
All interest accrued but not received on portfolio loans placed
on nonperforming status is reversed against interest income. Interest received on such loans is accounted for on the cash-basis
or cost-recovery method, until qualifying for return to accrual. Portfolio loans are returned to accrual status when all the principal
or interest amounts contractually due are brought current and future payments are reasonably assured.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Allowance for Portfolio Loan Losses
An allowance is maintained to reflect probable incurred losses in
the loan portfolio. The allowance is based on ongoing assessments of the estimated losses incurred in the loan portfolio and is
established as these losses are recognized through a provision for portfolio loan losses (provision expense) charged to earnings.
Generally, portfolio loan losses are charged against the allowance when management believes the uncollectibility of a loan balance
is confirmed. Subsequent recoveries, if any, are credited to the allowance.
Although the real estate values in our markets have recovered, as
well as the improvement in the U.S. economy in general, we believe it is still possible that collateral for certain nonperforming
one- to four-family residential and home equity loans, will not be sufficient to fully repay such loans. Therefore, the Company
charges one- to four-family residential and home equity loans down by the expected loss amount at the time they become nonperforming,
which is generally 90 days past due. This process accelerates the recognition of charge-offs on one- to four-family residential
and home equity loans, but has no impact on the impairment evaluation process.
The reasonableness of the allowance is reviewed and established
by management, within the context of applicable accounting and regulatory guidelines, based upon its evaluation of then-existing
economic and business conditions affecting the Bank’s key lending areas. Senior credit officers monitor those conditions
continuously and reviews are conducted quarterly with the Bank’s senior management and the Board of Directors.
When establishing the allowance, management categorizes loans into
risk categories generally based on the nature of the collateral and basis of repayment. These risk categories and the relevant
risk characteristics are as follows:
Real Estate Loans
|
·
|
One-
to four-family residential loans have historically had less credit risk than other loan types as they tend to be smaller balance
loans without concentrations to a single borrower or group of borrowers. Repayment depends on the individual borrower’s
capacity. If the real estate market deteriorates and the value of residential real estate declines, there is a potential risk
of loss if actions such as foreclosure or short sale become necessary to collect the loan and private mortgage insurance was not
purchased. In addition, depending on the state in which the collateral is located, the risk of loss may increase, due to the time
required to complete the foreclosure process on a property.
|
|
·
|
Multi-family
residential real estate loans generally involve a greater degree of credit risk than residential real estate loans, but are normally
smaller individual loan balances than commercial real estate loans. Multi-family residential real estate loans involve a greater
degree of credit risk as compared to residential real estate loans due to the reliance on the successful operation of the project.
These loans are also more sensitive to adverse economic conditions.
|
|
·
|
Commercial
real estate loans generally have greater credit risk as compared to one- to four-family residential real estate loans, as they
usually involve larger loan balances secured by non-homogeneous or specific use properties. Repayment of these loans typically
relies on the continued successful operation of a business or the generation of lease income by the property and is therefore
more sensitive to adverse conditions in the economy and real estate market.
|
|
·
|
Land
loans generally involve a greater degree of credit risk as compared to residential real estate loans due to the lack of cash flow
and reliance on the borrower’s financial capacity. These loans are also more sensitive to adverse economic conditions.
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Allowance for Portfolio Loan Losses (continued)
Real Estate Construction Loans
|
·
|
Real estate construction loans, including one- to four-family, commercial
and acquisition and development loans, generally have greater credit risk than traditional one- to four-family residential and
commercial real estate loans. The repayment of these loans can be dependent on the sale of the property to third parties or the
successful completion of the improvements by the builder for the end user. In the event a loan is made on property that is not
yet approved for the planned development, there is risk that approvals will not be granted or will be delayed. Construction loans
also run the risk that improvements will not be completed on time or in accordance with specifications and projected costs. Construction
loans include Small Business Administration (SBA) and U.S. Department of Agriculture (USDA) construction loans, which generally
have less credit risk than traditional construction loans due to a portion of the balance being guaranteed upon completion of the
construction.
|
Other Portfolio Loans
|
·
|
Home equity loans and home equity lines of credit are similar to one-
to four-family residential loans and generally carry less risk than other loan types as they tend to be smaller balance loans without
concentrations to a single borrower or group of borrowers. However, similar to one- to four-family residential loans, there is
a potential risk of loss if the real estate market deteriorates and the value of residential real estate declines.
|
|
·
|
Consumer loans often are secured by depreciating collateral, including
automobiles and mobile homes, or are unsecured and may carry more risk than real estate secured loans. Consumer loan collections
are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job
loss, divorce, illness, or personal bankruptcy.
|
|
·
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Commercial loans are secured by business assets or may be unsecured,
and repayment is directly dependent on the continued successful operation of the borrower’s business and ability to convert
the assets to operating revenue. These possess greater risk than most other types of loans should the repayment capacity of the
borrower not be adequate.
|
Management’s methodology for assessing the reasonableness
of the allowance consists of several key elements, which include a general loss component by type of portfolio loan and specific
allowances for identified problem portfolio loans. The allowance also incorporates the results of measuring impaired portfolio
loans.
The general loss component of the allowance is calculated by applying
loss factors, adjusted for other qualitative factors to outstanding unimpaired loan balances. Loss factors are based on the Bank’s
recent loss experience, including recent short sales and sales of nonperforming loans. The Company uses a 3-year historical loss lookback period in its allowance model, adjusted for qualitative
factors. Qualitative factors consider current market
conditions that may impact real estate values within the Bank’s primary lending areas, and other significant factors that,
in management’s judgment, may affect the ability to collect loans in the portfolio as of the evaluation date. Other significant
qualitative factors that exist as of the balance sheet date that are considered in determining the adequacy of the allowance include
the following: (1) current delinquency levels and trends; (2) nonperforming asset levels, trends, and related charge-off history;
(3) economic trends – local and national; (4) changes in loan policy; (5) expertise of management and staff of the Bank;
(6) volumes and terms of loans; and (7) concentrations of credit considering the impact of recent short sales and sales of nonperforming
loans.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Allowance for Portfolio Loan Losses (continued)
The specific loss component of the allowance generally relates to
portfolio loans that have been classified as doubtful, substandard, or special mention according to the Company’s internal
asset risk classification system. Substandard portfolio loans include those characterized by the distinct possibility that the
Company may sustain some loss if the deficiencies are not corrected. Portfolio loans classified as doubtful have all the weaknesses
inherent in loans classified as substandard with the added characteristic that the weaknesses present make collection or liquidation
in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Portfolio loans that
do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess
weaknesses that deserve management’s close attention, are deemed to be special mention. Risk ratings are updated any time
the facts and circumstances warrant.
For portfolio loans that are also identified as impaired, an allowance
is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than
the carrying value. A portfolio loan is considered impaired when, based on current information and events, it is probable that
the Company will be unable to collect the scheduled payments of principal or interest according to the contractual terms of the
loan agreement. Factors used by management to determine impairment include payment status, collateral value and the probability
of collecting scheduled principal or interest payments when due. Portfolio loans that experience insignificant payment delays and
payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan, the borrower, and
the amount of the shortfall in relation to the principal or interest owed. TDRs with a borrower for whom the Bank has granted a
concession to the borrower because of the borrower’s financial difficulties are considered impaired portfolio loans. Impairment
is measured on a loan-by-loan basis for non-homogeneous portfolio loans, such as commercial real estate, commercial real estate
construction, and commercial business loans, by either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral
dependent.
Management also evaluates the allowance based on a review of certain
large balance individual loans. This evaluation is inherently subjective as it requires material estimates, including the amounts
and timing of future cash flows management expects to receive on impaired loans, which may be susceptible to significant change
and risks. The determination of the fair value of collateral considers recent trends in valuation as indicated by short sales and
sales of nonperforming portfolio loans of the applicable loan category. No specific allowance is recorded unless fair value is
less than carrying value.
Large groups of smaller balance, homogeneous portfolio loans, such
as individual consumer and residential loans, are collectively evaluated for impairment and are excluded from the specific impairment
evaluation. For these portfolio loans, the allowance is calculated in accordance with the general loss policy described above.
Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures, unless the loan
has been modified as a TDR as discussed below.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Allowance for Portfolio Loan Losses (continued)
Portfolio loans are charged off against the allowance account when
the following conditions are present:
Real Estate Loans
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·
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One- to four-family residential loans are charged down by the expected
loss amount at the time they become nonperforming, which is generally 90 days past due. Impairment allowances on nonperforming
collateral-dependent loans, particularly one- to four-family residential loans, may not be recoverable and represent a potential
loss, depending on real estate values in our markets and the U.S. economy in general. Therefore, this process accelerates the recognition
of charge-offs, but has no impact on the impairment evaluation procedures. Additional losses, if any, are charged off against the
allowance once a property is foreclosed or a short sale occurs.
|
|
·
|
Multi-family residential real estate loans, commercial real estate
loans, and land loans typically have specific reserves established once a loan is classified as substandard or impaired unless
the collateral is adequate to cover the balance of the loan plus selling costs. Generally, the specific reserve on a loan will
be charged off once the property has been foreclosed and title to the property transferred to the Bank.
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Real Estate Construction Loans
|
·
|
Real estate construction loans include one- to four-family, commercial
and acquisition and development loans. These loans typically have specific reserves established once a loan is classified as substandard
or impaired unless the collateral is adequate to cover the balance of the loan plus selling costs. Generally, the specific reserve
on a loan will be charged off once the property has been foreclosed and title to the property transferred to the Bank.
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Other Portfolio Loans
|
·
|
First lien position home equity loans are charged down by the expected
loss amount at the time they become nonperforming, which is generally 90 days past due. In the case of second lien position loans,
the entire loan balance is charged off at 90 days past due. Impairment allowances on nonperforming collateral-dependent loans,
particularly one- to four-family residential loans, may not be recoverable and represent a potential loss, depending on real estate
values in our markets and the U.S. economy in general. Therefore, this process accelerates the recognition of charge-offs, but
has no impact on the impairment evaluation procedures. Additional losses, if any, are charged off against the allowance once a
property is foreclosed or a short sale occurs.
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|
·
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Consumer loans, including auto, manufactured housing, unsecured, and
other secured loans, are charged-off, net of expected recovery, when the loan becomes significantly past due over a range of up
to 180 days, depending on the type of loan. Loans with non-real estate collateral are written down to the value of the collateral,
less cost to sell, when repossession of collateral has occurred.
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|
·
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Commercial loans secured by business assets, including inventory and
receivables, will typically have specific reserves established once a loan is classified as substandard or impaired. The specific
reserve will be charged off once the outcomes of attempts to legally collect the collateral are known and have been exhausted.
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ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Troubled Debt Restructurings
Portfolio loans for which concessions have been granted as a result
of the borrower’s financial difficulties are considered a TDR. These concessions, which in general are applied to all categories
of portfolio loans, may include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, or
a combination of these or other actions intended to maximize collection. The resulting TDR impairment is included in specific
reserves.
Other Loans (Loans Held-for-Sale and Warehouse Loans Held-for-Investment)
Other loans are comprised of loans secured by one- to four-family
residential homes originated internally and held-for-sale (mortgage loans held-for-sale), small business loans originated internally
and held-for-sale (SBA/USDA loans held-for-sale), and warehouse lines of credit secured by one- to four-family residential loans
originated by third party originators under purchase and assumption agreements (warehouse loans held-for-investment).
The Company originates mortgage loans held-for-sale with the intent
to sell the loans and the servicing rights to investors. Mortgage loans held-for-sale are carried at the lower of cost or market
in the aggregate with adjustments for unrealized losses recorded in a valuation account by a charge against current earnings. Sales
in the secondary market are recognized when full acceptance has been received.
The Company originates SBA/USDA loans held-for-sale
through the 7(a) Program of the SBA, the 504 Program of the SBA and the B&I Program of the USDA. SBA/USDA loans held-for-sale
are carried at the lower of cost or market in the aggregate with adjustments for unrealized losses recorded in a valuation account
by a charge against current earnings.
The SBA 7(a) loans are guaranteed by
the SBA up to 75% of the loan amount up to a maximum guaranty cap of $3,750,000. The Bank typically, but not always, sells
the guaranteed portion of the SBA 7(a) loans into the secondary market at a premium. The Bank earns a 1% servicing fee on the
amount sold. These loans are non-recourse, other than for proof of fraud or misrepresentation on the part of the lender. The
Bank generally retains the unguaranteed portion of SBA 7(a) loans. In the 504 program, the Bank and the SBA are in different
lien positions. The typical structure of an SBA 504 loan is that the Bank is in a first lien position at a 50% loan-to-value
(LTV), and the SBA is in a second lien position at a 40% LTV. The remaining 10% is an equity investment from the borrower.
USDA Business & Industry (B&I) loans are guaranteed on a scaled basis from 60% to 80% based on the size of
the originated loan. The Bank typically, but not always, sells the guaranteed portion of the B&I loans on the
secondary market at a premium. The Bank retains servicing for the B&I loan, but only earns a servicing fee on the portion
that is sold. The servicing fees are determined by the secondary market, and range from 0.25% to 1%. These loans are
non-recourse, other than for proof of fraud or misrepresentation on the part of the lender. The Bank generally retains the
unguaranteed portion of the USDA B&I loans.
Servicing assets are initially recognized
at fair value. For subsequent measurement of servicing rights, the Company elected the amortization method. Under the amortization
method, servicing assets are amortized in proportion to, and over the period of, estimated servicing income, and assessed for impairment
based on fair value at each reporting period.
The Company originates warehouse loans held-for-investment
and permits the third-party originator to sell the loans and servicing rights to investors in order to repay the warehouse balance
outstanding. Warehouse loans held-for-investment possess less risk than other types of loans as they are secured by one- to four-family
residential loans, which tend to be smaller balance loans without concentrations to a single borrower or group of borrowers. Additionally,
due to the generally short duration of time the Company holds these loans, the collateral arrangements related to the loans, and
other factors, management has determined that no allowance for loan losses is necessary.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments,
including commitments to make loans and unused lines of credit, issued to meet customers' financing needs. The face amount for
these items represents the exposure to loss, before considering collateral or ability to repay. Such financial instruments are
recorded when they are funded.
Concentration of Credit Risk
A majority of the Company’s business activity is with customers
located in Northeast Florida, Central Florida and Southeast Georgia. Additionally, an estimated 74% of the Company’s portfolio
loans were originated with borrowers in Florida and Georgia, with most of those originations occurring in Northeast Florida, Central
Florida and Southeast Georgia. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the
economy and real estate markets in Northeast Florida, Central Florida and Southeast Georgia.
The Company’s exposure to credit risk is also affected by
changes in the economy and real estate markets in New York, as an estimated 9% of the Company’s portfolio loans were originated
with borrowers in New York.
Federal Home Loan Bank Stock
The Bank is a member of the Federal Home Loan Bank (the FHLB) of
Atlanta. Members are required to own a certain amount of FHLB stock based on the level of borrowings and other factors, and may
invest in additional amounts. FHLB stock has no quoted market value, is carried at cost, classified as a restricted security, and
periodically evaluated for impairment based on ultimate recovery of cost. Both cash and stock dividends issued by the FHLB are
reported as income.
Land, Premises, and Equipment
Land is carried at cost. Buildings and furniture, fixtures and equipment
are carried at cost, less accumulated depreciation and amortization. Premises and equipment are depreciated using the straight-line
and accelerated methods over the estimated useful lives of the assets. Buildings and related components have useful lives ranging
from 15 to 39 years. Furniture, fixtures, and equipment have useful lives ranging from 1 to 15 years. Interest expense associated
with the construction of new facilities is capitalized at the weighted average cost of funds.
Bank Owned Life Insurance
The Bank has purchased life insurance policies on certain employees.
Bank owned life insurance (BOLI) is recorded at the amount that can be realized under the insurance contract at the balance sheet
date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. The Bank
is subject to a policy that restricts financial institutions from investing more than 25% of total capital in BOLI without first
obtaining approval from its Board of Directors. The Bank was in compliance with this policy as of December 31, 2016.
Other Real Estate Owned and Foreclosed Assets
Assets acquired through or in lieu of loan foreclosure are initially
recorded at fair value, at the date of foreclosure, based on an independent appraisal, less estimated selling costs establishing
a new cost basis. If fair value declines subsequent to foreclosure, the asset value is written down through expense. Costs relating
to improvement of property are capitalized, whereas costs relating to holding of the property are expensed.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2016, 2015 and
2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Long-Term Assets
Premises and equipment, non-maturity deposits and other intangible
assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when
control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage
of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity.
Loss Contingencies
Loss contingencies, including claims and legal actions arising
in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and amount or range of
loss can be reasonably estimated. Management does not believe there are currently any such matters that will have a material effect
on the Financial Statements.
Income Taxes
Income tax expense is the total of the current year income tax
due or refundable and the change in deferred tax assets and liabilities. The Company files consolidated income tax returns and
allocates tax liabilities and benefits among subsidiaries pursuant to a tax sharing agreement. Deferred tax assets and liabilities
are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is more
likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than 50% likely to be realized on examination. For tax
positions not meeting the "more likely than not" test, no tax benefit is recorded.
The Company recognizes interest expense and
penalties related to income tax matters, if any, in income tax expense. Income tax returns for 2013, 2014, and 2015 are still open
to examination by the Internal Revenue Service.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net
income by the basic weighted average number of common shares and common stock equivalents outstanding for the period. The basic
weighted average common shares and common stock equivalents are computed using the treasury stock method. The basic weighted average
common shares and common stock equivalents outstanding for the period are adjusted for average unallocated employee stock ownership
plan (ESOP) shares, average director’s deferred compensation shares and average unearned restricted stock awards. Diluted
earnings per common share is computed by dividing net income by the weighted average number of common shares and common stock equivalents
outstanding for the period increased for the dilutive effect of unvested stock options and stock awards. The dilutive effect of
the unvested stock options and stock awards is calculated under the treasury stock method utilizing the average market value of
the Company’s stock for the period.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Dividends
Banking regulations require the Company and the Bank to maintain
certain capital levels and may limit the dividends paid by the Bank to the Company or by the Company to stockholders.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive
income (or loss). Other comprehensive income (or loss) includes the net change in unrealized appreciation and depreciation on investment
securities available-for-sale, net of taxes, which are recognized as separate components of equity, and the amount of the total
OTTI related to factors other than credit loss, net of taxes, which are recognized as separate components of equity.
Accumulated other comprehensive income consists
solely of the effects of unrealized gains and losses on securities available-for-sale, net of income taxes, which include a disproportionate
tax effect of $0.7 million at both December 31, 2016 and 2015. This disproportionate tax effect is a result of the reversal of
the deferred tax valuation allowance in June 2015.
Benefit Plans
Profit-sharing and 401(k) plan expense is the amount contributed
by the Company as determined by the Board of Directors. Deferred compensation plan expense is allocated over years of service.
Rabbi Trusts
Vested but unpaid benefits for the executive deferred compensation
plan, director retirement plan and the supplemental executive retirement plan for certain executives are funded with the Company’s
own common stock held in rabbi trusts. Unpaid benefits are recorded as contra accounts to stockholders’ equity at cost and
are reduced as benefits are paid out by the trustee over the terms defined by the plans.
Employee Stock Ownership Plan
Since the Company sponsors ESOP with an employer loan, neither
the ESOP's loan payable or the Company's loan receivable are reported in the Company's consolidated balance sheet. Likewise, the
Company does not recognize interest income or interest cost on the loan. Unallocated shares held by the ESOP are recorded as unearned
ESOP shares in the consolidated statement of changes in stockholders' equity. As shares are committed to be released for allocation,
the Company recognizes compensation expense equal to the average market price of the shares for the period. Dividends on allocated
ESOP shares reduce retained earnings. Dividends on unearned ESOP shares are used to reduce the ESOP loan balance at the Company.
The Company loaned $0.7 million to a trust for the ESOP, enabling
it to purchase 68,434 shares of common stock for allocation under the ESOP.
Stock-Based Compensation
The Company records compensation cost for restricted stock or
stock options awarded to employees in return for employee service. The cost is measured at the grant-date fair value of the award
and recognized as compensation expense over the employee service period, which is normally the vesting period. A Black-Scholes
model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the
date of grant is used for restricted stock awards.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 2. IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS
Recently Issued Standards Not Yet Adopted
In August 2016, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2016-15,
Classification of Certain Cash Receipts and Cash Payments
(ASU 2016-15).
The guidance will reduce the diversity in how certain cash receipts and cash payments are presented in the statement of cash flows.
ASU 2016-15 provides guidance as to the presentation on the statement of cash flows for eight specific cash flow issues. The guidance
in this standard is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods
beginning after December 15, 2019, and early adoption is permitted. The Company is in the process of evaluating the impact of adopting
this standard on its financial statements; however, adoption is not expected to materially impact the financial statements.
In June 2016, the FASB issued ASU 2016-13,
Measurement of
Credit Losses on Financial Instruments
(ASU 2016-13). ASU 2016-13 significantly changes how entities will measure credit losses
for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance will
replace the current “incurred loss” model with an “expected loss” model for instruments measured at amortized
cost. Additionally, the guidance will require allowances for investment securities classified as available-for-sale, rather than
reduce the carrying amount under the other-than-temporary impairment (OTTI) model. It also simplifies the accounting model for
purchased credit-impaired investment securities and loans. The guidance in this standard is effective for interim and annual periods
beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018.
The Company is in the process of evaluating the impact of adopting this standard on its financial statements; however, adoption
will result in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the
guidance is effective.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09). ASU 2016-09 reduces complexity in accounting standards
related to the accounting for employee share-based payment transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance in this standard is
effective for interim and annual periods beginning after December 15, 2016, and early adoption is permitted. The Company has evaluated
the impact of adopting this standard on its financial statements, and does not expect adoption to materially impact the financial
statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
(ASU 2016-02). ASU 2016-02 requires lessees to present right-of-use assets and lease liabilities on the balance sheet, as well
as to disclose key information regarding leasing arrangements. The guidance in this standard is effective for interim and annual
periods beginning after December 15, 2018. The Company is in the process of evaluating the impact of adopting this standard on
its financial statements; however, adoption will result in new assets and liabilities being recorded on the balance sheet as of
the beginning of the first reporting period in which the guidance is effective.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts
with Customers
(ASU 2014-09). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize
revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive
in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers
– Deferral of Effective Date
, which deferred the effective date of ASU 2014-09. As a result, the guidance in this standard
may be applied using either a full retrospective or a modified retrospective approach and is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2017, and early adoption is not permitted. The Company is in the process
of evaluating the impact of adopting this standard on its financial statements, as well as evaluating which transition method it
will apply upon adoption; however, adoption is not expected to materially impact the financial statements.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 3. TRANSACTIONS WITH RELATED PARTIES
Transactions between Atlantic Coast Bank and Customers Bank
Jay S. Sidhu and Bhanu Choudhrie are directors of the Company
and Customers Bancorp, Inc., the parent company of Customers Bank. Mr. Sidhu is also Chairman and Chief Executive Officer of Customers
Bancorp, Inc. and Customers Bank.
On December 18, 2015, the Bank purchased $44.9 million of multi-family
mortgages, comprised entirely of loans in New York and Pennsylvania, from Customers Bank for $45.3 million, at a premium of 1.00%.
Additionally, on September 29, 2015, the Bank purchased $35.7 million of multi-family mortgages, comprised entirely of loans in
New Jersey, New York and Pennsylvania, from Customers Bank for $36.1 million, at a premium of 1.00%. These loan purchase transactions
were made in the ordinary course of the Bank’s business, on substantially the same terms as those prevailing at the time
for comparable transactions with non-affiliated business partners and did not involve more than normal risk or present other unfavorable
features.
On August 26, 2016, the Bank entered into three
amended $15.0 million participation agreements (each was previously $10.0 million) related to warehouse loans held-for-investment
with Customers Bank (collectively, the Customers Participation Agreements), which were originally entered into on March 27, 2015
and first amended on March 23, 2016. Under the Customers Participation Agreements, the Bank has an interest in existing lines of
credit related to warehouse loans held-for-investment currently serviced by Customers Bank.
The Bank receives the full amount of interest earned on the
warehouse loans held-for-investment. Customers Bank receives the fees paid for each individual funding request. Customers Bank
services the warehouse loans held-for-investment funding requests, manages the collateral receipt and shipment, receives and posts
pay downs, and remits principal and interest to the Bank. Under the Customers Participation Agreements, Customers Bank is required
to administer the participating lines of credit using the same standards the Bank would use to administer its own accounts. Additionally,
the Bank has access to each funding request and all daily activity reporting to monitor its exposure.
The Customers Participation Agreements
were entered into in the ordinary course of the Bank’s business, were made on substantially the same terms as those prevailing
at the time for comparable agreements with non-affiliated business partners and did not involve more than normal risk or present
other unfavorable features. The outstanding balance in warehouse loans held-for-investment related to the Customers Participation
Agreements was $25.0 million as of December 31, 2016, while there was no outstanding balance as of December 31, 2015. During the
years ended December 31, 2016 and 2015, the Bank earned $573,000 and $226,000, respectively, of interest income related to the
Customers Participation Agreements. The Bank did not earn any interest income related to the Customers Participation Agreements
during the year ended December 31, 2014.
On March 26, 2014, the Bank purchased $16.2 million of one-
to four-family mortgages, comprised entirely of loans within its markets, from Customers Bank for $16.5 million, at a premium of
1.75%. This loan purchase transaction was made in the ordinary course of the Bank’s business, on substantially the same terms
as those prevailing at the time for comparable transactions with non-affiliated business partners and did not involve more than
normal risk or present other unfavorable features.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 4. FAIR VALUE
Asset and liability fair value measurements (in this Note and
Note 5. Fair Value of Financial Instruments
of these Notes) have been categorized based upon the fair value hierarchy described
below:
|
·
|
Level 1 – Valuation is based upon quoted market prices for identical
instruments in active markets.
|
|
·
|
Level 2 – Valuation is based upon observable inputs other than
quoted market prices included within Level 1, including quoted market prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market.
|
|
·
|
Level 3 – Valuation is generated from model-based techniques
that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates or assumptions
that market participants would use in pricing the assets or liabilities. Valuation techniques include use of option pricing models,
discounted cash flow models, and similar techniques.
|
Assets measured at fair value on a recurring basis as of December
31, 2016 and 2015 are summarized below:
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored enterprises
|
|
$
|
19,997
|
|
|
$
|
-
|
|
|
$
|
19,997
|
|
|
$
|
-
|
|
State and municipal
|
|
|
4,991
|
|
|
|
-
|
|
|
|
4,991
|
|
|
|
-
|
|
Mortgage-backed securities – residential
|
|
|
27,328
|
|
|
|
-
|
|
|
|
27,328
|
|
|
|
-
|
|
Collateralized mortgage obligations – U.S. Government
|
|
|
3,059
|
|
|
|
-
|
|
|
|
3,059
|
|
|
|
-
|
|
Corporate Debt
|
|
|
9,918
|
|
|
|
-
|
|
|
|
9,918
|
|
|
|
-
|
|
Total
|
|
$
|
65,293
|
|
|
$
|
-
|
|
|
$
|
65,293
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored enterprises
|
|
$
|
4,871
|
|
|
$
|
-
|
|
|
$
|
4,871
|
|
|
$
|
-
|
|
State and municipal
|
|
|
5,142
|
|
|
|
-
|
|
|
|
5,142
|
|
|
|
-
|
|
Mortgage-backed securities – residential
|
|
|
101,654
|
|
|
|
-
|
|
|
|
101,654
|
|
|
|
-
|
|
Collateralized mortgage obligations – U.S. Government
|
|
|
8,443
|
|
|
|
-
|
|
|
|
8,443
|
|
|
|
-
|
|
Total
|
|
$
|
120,110
|
|
|
$
|
-
|
|
|
$
|
120,110
|
|
|
$
|
-
|
|
The fair values of securities available-for-sale are determined
by quoted market prices, if available (Level 1). For securities available-for-sale where quoted market prices are not available,
fair values are calculated based on quoted market prices of similar securities (Level 2). For securities available-for-sale where
quoted market prices or quoted market prices of similar securities are not available, fair values are calculated using discounted
cash flows or other market indicators (Level 3).
There were no Level 3 investments measured on a recurring basis
as of December 31, 2016 and 2015, and there were no transfers into or out of Level 3 investments during the years ended December
31, 2016 and 2015. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss
severities, volatility, credit spread and optionality. During times when trading is less liquid, broker quotes are used (if available)
to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are
reviewed and incorporated into the calculations.
There were no liabilities measured at fair value on a recurring
basis as of December 31, 2016 and 2015.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 4. FAIR VALUE
(continued)
Assets measured at fair value on a nonrecurring basis as of
December 31, 2016 and 2015 are summarized below:
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
2,886
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,886
|
|
Impaired loans –
collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
7,978
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
3,232
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,232
|
|
Impaired loans –
collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200
|
|
Quantitative information about Level 3 fair value measurements
as of December 31, 2016 and 2015 as follows:
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable Input
|
|
Range (Weighted
Average)
(1)
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
2,886
|
|
|
Broker price opinions, appraisal of collateral
(2), (3)
|
|
Appraisal adjustments
(4)
Liquidation
expenses
|
|
|
0.0% to 64.0% (8.5%)
10.0% (10.0%)
|
|
Impaired loans – collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
7,978
|
|
|
Appraisal of collateral
(2)
|
|
Appraisal adjustments
(4)
Liquidation expenses
|
|
|
0.0% to 83.0%
(24.4%)
0.0% to 10.0% (9.9%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
3,232
|
|
|
Broker price opinions, appraisal of collateral
(2), (3)
|
|
Appraisal adjustments
(4)
Liquidation expenses
|
|
|
0.0% to 32.4% (4.5%)
10.0% (10.0%)
|
|
Impaired loans – collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
200
|
|
|
Appraisal of collateral
(2)
|
|
Appraisal adjustments
(4)
Liquidation expenses
|
|
|
0.0%
(0.0%)
10.0% (10.0%)
|
|
_________
(1)
|
|
The range and weighted average of other appraisal adjustments and liquidation expenses
are presented as a percent of the appraised value.
|
(2)
|
|
Fair value is generally determined through independent appraisals of the underlying
collateral, which generally include various level 3 inputs which are not identifiable.
|
(3)
|
|
Includes qualitative adjustments by management and estimated liquidation expenses.
|
(4)
|
|
Appraisals may be adjusted by management for qualitative factors such as economic
conditions.
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 4. FAIR VALUE
(continued)
The fair value of OREO is determined using inputs which include
current and prior appraisals and estimated costs to sell (Level 3). Costs relating to improvement of property may be capitalized,
whereas costs relating to the holding of property are expensed. Write-downs on OREO for the years ended December 31, 2016, 2015
and 2014 were $39,000, $605,000 and $13,000, respectively. The fair values of impaired loans that are collateral-dependent are
based on a valuation model which incorporates the most current real estate appraisals available, as well as assumptions used to
estimate the fair value of all non-real estate collateral as defined in the Bank’s internal loan policy (Level 3).
There are no liabilities measured at fair value on a nonrecurring
basis as of December 31, 2016 and 2015.
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair value of financial instruments,
not previously presented, as of December 31, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Carrying
Amount
|
|
|
Estimated Fair
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
3,744
|
|
|
$
|
3,744
|
|
|
$
|
3,744
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Short-term interest-earning deposits
|
|
|
56,149
|
|
|
|
56,149
|
|
|
|
56,149
|
|
|
|
-
|
|
|
|
-
|
|
Portfolio loans, net
|
|
|
639,245
|
|
|
|
652,133
|
|
|
|
-
|
|
|
|
644,155
|
|
|
|
7,978
|
|
Loans held-for-sale
|
|
|
7,147
|
|
|
|
7,281
|
|
|
|
-
|
|
|
|
7,281
|
|
|
|
-
|
|
Warehouse loans held-for-investment
|
|
|
80,577
|
|
|
|
80,577
|
|
|
|
-
|
|
|
|
80,577
|
|
|
|
-
|
|
Federal Home Loan Bank stock, at cost
|
|
|
8,792
|
|
|
|
8,792
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,792
|
|
Bank owned life insurance
|
|
|
17,535
|
|
|
|
17,546
|
|
|
|
-
|
|
|
|
17,546
|
|
|
|
-
|
|
Accrued interest receivable
|
|
|
1,979
|
|
|
|
1,979
|
|
|
|
-
|
|
|
|
1,979
|
|
|
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
628,413
|
|
|
|
628,714
|
|
|
|
-
|
|
|
|
628,714
|
|
|
|
-
|
|
Federal Home Loan Bank advances
|
|
|
188,758
|
|
|
|
189,842
|
|
|
|
-
|
|
|
|
189,842
|
|
|
|
-
|
|
Accrued interest payable (reported on consolidated balance sheets in accrued expenses and other liabilities)
|
|
|
121
|
|
|
|
121
|
|
|
|
-
|
|
|
|
121
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
6,108
|
|
|
$
|
6,108
|
|
|
$
|
6,108
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Short-term interest-earning deposits
|
|
|
17,473
|
|
|
|
17,473
|
|
|
|
17,473
|
|
|
|
-
|
|
|
|
-
|
|
Portfolio loans, net
|
|
|
603,507
|
|
|
|
617,487
|
|
|
|
-
|
|
|
|
617,287
|
|
|
|
200
|
|
Loans held-for-sale
|
|
|
6,591
|
|
|
|
6,948
|
|
|
|
-
|
|
|
|
6,948
|
|
|
|
-
|
|
Warehouse loans held-for-investment
|
|
|
44,074
|
|
|
|
44,074
|
|
|
|
-
|
|
|
|
44,074
|
|
|
|
-
|
|
Federal Home Loan Bank stock, at cost
|
|
|
9,517
|
|
|
|
9,517
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,517
|
|
Bank owned life insurance
|
|
|
17,070
|
|
|
|
17,087
|
|
|
|
-
|
|
|
|
17,087
|
|
|
|
-
|
|
Accrued interest receivable
|
|
|
2,107
|
|
|
|
2,107
|
|
|
|
-
|
|
|
|
2,107
|
|
|
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
555,821
|
|
|
|
557,635
|
|
|
|
-
|
|
|
|
557,635
|
|
|
|
-
|
|
Securities sold under agreements to repurchase
|
|
|
9,991
|
|
|
|
9,991
|
|
|
|
-
|
|
|
|
9,991
|
|
|
|
-
|
|
Federal Home Loan Bank advances
|
|
|
207,543
|
|
|
|
210,520
|
|
|
|
-
|
|
|
|
210,520
|
|
|
|
-
|
|
Accrued interest payable (reported on consolidated balance sheets in accrued expenses and other liabilities)
|
|
|
81
|
|
|
|
81
|
|
|
|
-
|
|
|
|
81
|
|
|
|
-
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
(continued)
Carrying amount is the estimated fair value for cash and cash
equivalents, accrued interest, demand and savings deposits and variable rate loans or deposits that re-price frequently and fully.
Fair value of securities held-to-maturity is based on market prices of similar securities. For fixed rate loans or deposits
and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash
flows using current market rates applied to the estimated life without considering the need for adjustments for market illiquidity
or credit risk. Fair value of loans held-for-sale is based on quoted market prices, where available, or is determined based on
discounted cash flows using current market rates applied to the estimated life and credit risk. Carrying amount is the estimated
fair value for warehouse loans held-for-investment, due to the rapid repayment of the loans (generally less than 30 days). Fair
value of BOLI is based on the insurance contract cash surrender value or quoted market prices of the underlying securities or similar
securities. Fair value of the FHLB advances and securities sold under agreements to repurchase (repurchase agreements) is based
on current rates for similar financing. It was not practicable to determine the fair value of the FHLB stock due to restrictions
placed on its transferability. The estimated fair value of other financial instruments and off-balance-sheet commitments approximate
cost and are not considered significant to this presentation.
The Bank is a member of the FHLB and as such, is required to
maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. The stock
is bought from and sold to the FHLB based upon its $100.00 par value. The stock does not have a readily determinable fair value
and, as such, is classified as restricted stock, carried at cost and evaluated for impairment. Accordingly, the stock’s value
is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination
of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of
the decline in net assets of the FHLB as compared to the capital stock amount and the length of time that such a situation has
persisted, (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation
to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the
liquidity position of the FHLB. The Company did not consider the FHLB stock to be impaired as of December 31, 2016 and 2015.
NOTE 6. INVESTMENT SECURITIES
On February 18, 2016, the Bank sold a portion of its investment
securities portfolio. Included in the sale was $15.8 million of investment securities previously classified as held-to-maturity.
As a result, the investment securities were reclassified from held-to-maturity to available-for-sale as of December 31, 2015. The
reclassification was made based on the underlying fair value of the investment securities as of December 31, 2015, which was $16.8
million, and resulted in $0.7 million of unrealized gains ($0.4 million net of tax effect), which are reflected in the Financial
Statements as a component of other comprehensive income for the year ended December 31, 2015.
The sale of these investment securities was executed due to
favorable conditions not foreseen at the initial purchase date. The Bank does not expect to acquire investment securities, with
the intent to hold to maturity, in the near future.
At December 31, 2016 and 2015, $65.3 million and $120.1 million,
respectively, of investment securities, representing the entire balance in investment securities, were classified as available-for-sale.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 6. INVESTMENT SECURITIES
(continued)
The following table summarizes the amortized cost and fair value
of the investment securities and the corresponding amounts of unrealized gains and losses therein as of December 31, 2016 and 2015:
|
|
Amortized
Cost
|
|
|
Unrealized/
Unrecognized
Gains
|
|
|
Unrealized/
Unrecognized
Losses
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government–sponsored
enterprises
|
|
$
|
19,999
|
|
|
$
|
-
|
|
|
$
|
(2
|
)
|
|
$
|
19,997
|
|
|
$
|
19,997
|
|
State and municipal
|
|
|
5,024
|
|
|
|
2
|
|
|
|
(35
|
)
|
|
|
4,991
|
|
|
|
4,991
|
|
Mortgage-backed securities – residential
|
|
|
28,515
|
|
|
|
-
|
|
|
|
(1,187
|
)
|
|
|
27,328
|
|
|
|
27,328
|
|
Collateralized mortgage obligations – U.S. Government
|
|
|
3,152
|
|
|
|
-
|
|
|
|
(93
|
)
|
|
|
3,059
|
|
|
|
3,059
|
|
Corporate debt
|
|
|
10,000
|
|
|
|
226
|
|
|
|
(308
|
)
|
|
|
9,918
|
|
|
|
9,918
|
|
Total investment securities
|
|
$
|
66,690
|
|
|
$
|
228
|
|
|
$
|
(1,625
|
)
|
|
$
|
65,293
|
|
|
$
|
65,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government–sponsored
enterprises
|
|
$
|
5,000
|
|
|
$
|
-
|
|
|
$
|
(129
|
)
|
|
$
|
4,871
|
|
|
$
|
4,871
|
|
State and municipal
|
|
|
5,048
|
|
|
|
94
|
|
|
|
-
|
|
|
|
5,142
|
|
|
|
5,142
|
|
Mortgage-backed securities – residential
|
|
|
102,277
|
|
|
|
726
|
|
|
|
(1,349
|
)
|
|
|
101,654
|
|
|
|
101,654
|
|
Collateralized mortgage obligations – U.S. Government
|
|
|
8,711
|
|
|
|
-
|
|
|
|
(268
|
)
|
|
|
8,443
|
|
|
|
8,443
|
|
Total investment securities
|
|
$
|
121,036
|
|
|
$
|
820
|
|
|
$
|
(1,746
|
)
|
|
$
|
120,110
|
|
|
$
|
120,110
|
|
The amortized cost and fair value of investment securities,
segregated by contractual maturity as of December 31, 2016, are shown below:
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(Dollars in Thousands)
|
|
Due in one year or less
|
|
$
|
-
|
|
|
$
|
-
|
|
Due from more than one to five years
|
|
|
413
|
|
|
|
407
|
|
Due from more than five to ten years
(1)
|
|
|
12,794
|
|
|
|
12,700
|
|
Due after ten years
|
|
|
1,817
|
|
|
|
1,802
|
|
U.S. Government-sponsored enterprises
|
|
|
19,999
|
|
|
|
19,997
|
|
Mortgage-backed securities – residential
|
|
|
28,515
|
|
|
|
27,328
|
|
Collateralized mortgage obligations – U.S. Government
|
|
|
3,152
|
|
|
|
3,059
|
|
|
|
$
|
66,690
|
|
|
$
|
65,293
|
|
_______
|
(1)
|
Includes $5.0 million (amortized cost) of corporate debt, consisting of one instrument with a scheduled maturity date of March
2026, however, the corporate debt instrument includes a special feature which makes it callable starting in March 2021.
|
Expected maturities may differ from contractual maturities if
borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Investment securities not
due at a single maturity date, including mortgage-backed securities and collateralized mortgage obligations, are shown separately.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 6. INVESTMENT SECURITIES
(continued)
The following table summarizes the investment securities with
unrealized losses as of December 31, 2016 and 2015, aggregated by investment category and length of time in a continuous unrealized
loss position:
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government–sponsored enterprises
|
|
$
|
19,997
|
|
|
$
|
(2
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,997
|
|
|
$
|
(2
|
)
|
State and municipal
|
|
|
3,921
|
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,921
|
|
|
|
(36
|
)
|
Mortgage-backed securities – residential
|
|
|
27,291
|
|
|
|
(1,187
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
27,291
|
|
|
|
(1,187
|
)
|
Collateralized mortgage obligations – U.S. Government
|
|
|
-
|
|
|
|
-
|
|
|
|
3,059
|
|
|
|
(92
|
)
|
|
|
3,059
|
|
|
|
(92
|
)
|
Corporate debt
|
|
|
4,692
|
|
|
|
(308
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,692
|
|
|
|
(308
|
)
|
|
|
$
|
55,901
|
|
|
$
|
(1,533
|
)
|
|
$
|
3,059
|
|
|
$
|
(92
|
)
|
|
$
|
58,960
|
|
|
$
|
(1,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government–sponsored enterprises
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,871
|
|
|
$
|
(129
|
)
|
|
$
|
4,871
|
|
|
$
|
(129
|
)
|
State and municipal
(1)
|
|
|
423
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
423
|
|
|
|
-
|
|
Mortgage-backed securities – residential
|
|
|
25,578
|
|
|
|
(106
|
)
|
|
|
51,936
|
|
|
|
(1,243
|
)
|
|
|
77,514
|
|
|
|
(1,349
|
)
|
Collateralized mortgage obligations – U.S. Government
|
|
|
-
|
|
|
|
-
|
|
|
|
8,443
|
|
|
|
(268
|
)
|
|
|
8,443
|
|
|
|
(268
|
)
|
|
|
$
|
26,001
|
|
|
$
|
(106
|
)
|
|
$
|
65,250
|
|
|
$
|
(1,640
|
)
|
|
$
|
91,251
|
|
|
$
|
(1,746
|
)
|
____
(1)
|
|
The state and municipal unrealized losses are less than $500 and, therefore, are rounded
to zero in this table.
|
Other-Than-Temporary Impairment
Management evaluates investment securities for OTTI on at least
a quarterly basis and more frequently when economic or market conditions warrant such an evaluation. As of December 31, 2016, the
Company’s security portfolio consisted of 21 investment securities (all classified as available-for-sale), 18 of which were
in an unrealized loss position. All unrealized losses were related to debt securities whose underlying collateral is residential
mortgages and all of these debt securities were issued by government sponsored organizations, as discussed below.
As of December 31, 2016, $50.4
million, or approximately 77.2% of the debt securities held by the Company, including 10 of the Company’s debt
securities in an unrealized loss position, were issued by U.S. government-sponsored entities and agencies, primarily Fannie
Mae and Freddie Mac, which are institutions the U.S. government has affirmed its commitment to support.
The decline in fair value of the Company’s debt securities
in an unrealized loss position was attributable to changes in interest rates and not credit quality. It is not more likely than
not the Company will be required to sell these securities before their anticipated recovery; however, from time to time the Company
makes decisions to sell securities available-for-sale as part of its balance sheet and risk management strategies. Therefore, the
Company does not consider these debt securities to be other-than-temporarily impaired as of December 31, 2016.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 6. INVESTMENT SECURITIES
(continued)
Other-Than-Temporary Impairment (continued)
The Company did not hold any non-agency collateralized mortgage-backed
securities or collateralized mortgage obligations as of December 31, 2016 and 2015, and did not record OTTI related to such securities
during the years ended December 31, 2016, 2015 and 2014.
The 10-year treasury rate as of December 31, 2016 and 2015,
was 2.45% and 2.27%, respectively.
Proceeds from Investment Securities
Proceeds from sales, payments, maturities, and calls of securities
available-for-sale were $85.7 million, $15.1 million and $89.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Gross gains of $1.5 million were realized during the year ended
December 31, 2016. Gross losses of $0.2 million were realized during the year ended December 31, 2016. The net gain on sale of
securities available-for-sale for the year ended December 31, 2016, includes $1.3 million of accumulated other comprehensive income
reclassifications from unrealized holding gains. No gross gains were realized during the year ended December 31, 2015. Gross losses
of $9,000 were realized during the year ended December 31, 2015. The net loss on sale of securities available-for-sale for the
year ended December 31, 2015, includes $9,000 of accumulated other comprehensive loss reclassifications from unrealized holding
gains. Gross gains of $0.4 million were realized during the year ended December 31, 2014. Gross losses of $0.2 million were realized
during the year ended December 31, 2014. The net gain on sale of securities available-for-sale for the year ended December 31,
2014, includes $0.2 million of accumulated other comprehensive income reclassifications from unrealized holding gains.
On February 18, 2016, the Company sold $15.8 million of investment
securities previously classified as held-to-maturity, which were reclassified to available-for-sale as of December 31, 2015. Therefore,
there were no proceeds from payments, maturities, and calls of securities held-to-maturity for the year ended December 31, 2016.
Proceeds from payments, maturities, and calls of securities held-to-maturity were $1.9 million and $1.4 million for the years ended
December 31, 2015 and 2014. The Company did not sell any investment securities classified as held-to-maturity during the years
ended December 31, 2015 and 2014.
Gains and losses on sales of investment securities are recorded
on the trade date and are determined using the specific identification method. There were no unsettled investment securities transactions
at December 31, 2016 and 2015.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
The following is a comparative composition of net portfolio
loans as of December 31, 2016 and 2015:
|
|
December 31,
2016
|
|
|
% of
Total Loans
|
|
|
December 31,
2015
|
|
|
% of
Total Loans
|
|
|
|
(Dollars in Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
276,193
|
|
|
|
43.1
|
%
|
|
$
|
276,286
|
|
|
|
45.8
|
%
|
Multi-family
|
|
|
70,452
|
|
|
|
11.0
|
%
|
|
|
83,442
|
|
|
|
13.9
|
%
|
Commercial
|
|
|
104,143
|
|
|
|
16.3
|
%
|
|
|
61,613
|
|
|
|
10.2
|
%
|
Land
|
|
|
17,218
|
|
|
|
2.7
|
%
|
|
|
16,472
|
|
|
|
2.7
|
%
|
Total real estate loans
|
|
|
468,006
|
|
|
|
73.1
|
%
|
|
|
437,813
|
|
|
|
72.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
22,687
|
|
|
|
3.5
|
%
|
|
|
22,526
|
|
|
|
3.7
|
%
|
Commercial
|
|
|
14,432
|
|
|
|
2.3
|
%
|
|
|
12,527
|
|
|
|
2.1
|
%
|
Acquisition and development
|
|
|
-
|
|
|
|
−
|
%
|
|
|
-
|
|
|
|
−
|
%
|
Total real estate construction loans
|
|
|
37,119
|
|
|
|
5.8
|
%
|
|
|
35,053
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
37,748
|
|
|
|
5.9
|
%
|
|
|
41,811
|
|
|
|
6.9
|
%
|
Consumer
|
|
|
39,232
|
|
|
|
6.1
|
%
|
|
|
44,506
|
|
|
|
7.4
|
%
|
Commercial
|
|
|
57,947
|
|
|
|
9.1
|
%
|
|
|
44,076
|
|
|
|
7.3
|
%
|
Total other portfolio loans
|
|
|
134,927
|
|
|
|
21.1
|
%
|
|
|
130,393
|
|
|
|
21.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
|
640,052
|
|
|
|
100.0
|
%
|
|
|
603,259
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses
|
|
|
(8,162
|
)
|
|
|
|
|
|
|
(7,745
|
)
|
|
|
|
|
Net deferred portfolio loan costs
|
|
|
5,685
|
|
|
|
|
|
|
|
5,465
|
|
|
|
|
|
Premiums and discounts on purchased loans, net
|
|
|
1,670
|
|
|
|
|
|
|
|
2,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans, net
|
|
$
|
639,245
|
|
|
|
|
|
|
$
|
603,507
|
|
|
|
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents the contractual aging of the recorded
investment in past due loans by class of portfolio loans as of December 31, 2016 and 2015:
|
|
Current
|
|
|
30 – 59 Days
Past Due
|
|
|
60 – 89 Days
Past Due
|
|
|
> 90 Days
Past Due
|
|
|
Total
Past Due
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
273,564
|
|
|
$
|
1,320
|
|
|
$
|
390
|
|
|
$
|
919
|
|
|
$
|
2,629
|
|
|
$
|
276,193
|
|
Multi-family
|
|
|
70,452
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,452
|
|
Commercial
|
|
|
101,867
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,276
|
|
|
|
2,276
|
|
|
|
104,143
|
|
Land
|
|
|
11,670
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,548
|
|
|
|
5,548
|
|
|
|
17,218
|
|
Total real estate loans
|
|
|
457,553
|
|
|
|
1,320
|
|
|
|
390
|
|
|
|
8,743
|
|
|
|
10,453
|
|
|
|
468,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
22,687
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,687
|
|
Commercial
|
|
|
14,432
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,432
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
37,119
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
37,037
|
|
|
|
201
|
|
|
|
510
|
|
|
|
-
|
|
|
|
711
|
|
|
|
37,748
|
|
Consumer
|
|
|
38,412
|
|
|
|
506
|
|
|
|
165
|
|
|
|
149
|
|
|
|
820
|
|
|
|
39,232
|
|
Commercial
|
|
|
57,124
|
|
|
|
321
|
|
|
|
-
|
|
|
|
502
|
|
|
|
823
|
|
|
|
57,947
|
|
Total other portfolio loans
|
|
|
132,573
|
|
|
|
1,028
|
|
|
|
675
|
|
|
|
651
|
|
|
|
2,354
|
|
|
|
134,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
627,245
|
|
|
$
|
2,348
|
|
|
$
|
1,065
|
|
|
$
|
9,394
|
|
|
$
|
12,807
|
|
|
$
|
640,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
271,340
|
|
|
$
|
2,079
|
|
|
$
|
1,065
|
|
|
$
|
1,802
|
|
|
$
|
4,946
|
|
|
$
|
276,286
|
|
Multi-family
|
|
|
83,442
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
83,442
|
|
Commercial
|
|
|
61,485
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
|
|
128
|
|
|
|
61,613
|
|
Land
|
|
|
16,431
|
|
|
|
41
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
|
16,472
|
|
Total real estate loans
|
|
|
432,698
|
|
|
|
2,120
|
|
|
|
1,065
|
|
|
|
1,930
|
|
|
|
5,115
|
|
|
|
437,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
22,526
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,526
|
|
Commercial
|
|
|
12,527
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,527
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
35,053
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
40,966
|
|
|
|
643
|
|
|
|
99
|
|
|
|
103
|
|
|
|
845
|
|
|
|
41,811
|
|
Consumer
|
|
|
43,429
|
|
|
|
616
|
|
|
|
181
|
|
|
|
280
|
|
|
|
1,077
|
|
|
|
44,506
|
|
Commercial
|
|
|
43,574
|
|
|
|
-
|
|
|
|
383
|
|
|
|
119
|
|
|
|
502
|
|
|
|
44,076
|
|
Total other portfolio loans
|
|
|
127,969
|
|
|
|
1,259
|
|
|
|
663
|
|
|
|
502
|
|
|
|
2,424
|
|
|
|
130,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
595,720
|
|
|
$
|
3,379
|
|
|
$
|
1,728
|
|
|
$
|
2,432
|
|
|
$
|
7,539
|
|
|
$
|
603,259
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
Nonperforming
portfolio loans, including nonaccrual portfolio loans, as of December 31, 2016 and 2015 were $10.1 million and $4.2 million, respectively.
There were no portfolio loans over 90 days past-due and still accruing interest as of December 31, 2016 and 2015. Nonperforming
portfolio loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and larger individually
evaluated loans classified as impaired loans
that
are not accruing interest.
The following table presents performing and nonperforming portfolio
loans by class of loans as of December 31, 2016 and 2015:
|
|
Performing
|
|
|
Nonperforming
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
274,660
|
|
|
$
|
1,533
|
|
|
$
|
276,193
|
|
Multi-family
|
|
|
70,452
|
|
|
|
-
|
|
|
|
70,452
|
|
Commercial
|
|
|
101,867
|
|
|
|
2,276
|
|
|
|
104,143
|
|
Land
|
|
|
11,670
|
|
|
|
5,548
|
|
|
|
17,218
|
|
Total real estate loans
|
|
|
458,649
|
|
|
|
9,357
|
|
|
|
468,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
22,687
|
|
|
|
-
|
|
|
|
22,687
|
|
Commercial
|
|
|
14,432
|
|
|
|
-
|
|
|
|
14,432
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
37,119
|
|
|
|
-
|
|
|
|
37,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
37,690
|
|
|
|
58
|
|
|
|
37,748
|
|
Consumer
|
|
|
38,995
|
|
|
|
237
|
|
|
|
39,232
|
|
Commercial
|
|
|
57,445
|
|
|
|
502
|
|
|
|
57,947
|
|
Total other portfolio loans
|
|
|
134,130
|
|
|
|
797
|
|
|
|
134,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
629,898
|
|
|
$
|
10,154
|
|
|
$
|
640,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
273,354
|
|
|
$
|
2,932
|
|
|
$
|
276,286
|
|
Multi-family
|
|
|
83,442
|
|
|
|
-
|
|
|
|
83,442
|
|
Commercial
|
|
|
61,485
|
|
|
|
128
|
|
|
|
61,613
|
|
Land
|
|
|
16,428
|
|
|
|
44
|
|
|
|
16,472
|
|
Total real estate loans
|
|
|
434,709
|
|
|
|
3,104
|
|
|
|
437,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
22,526
|
|
|
|
-
|
|
|
|
22,526
|
|
Commercial
|
|
|
12,527
|
|
|
|
-
|
|
|
|
12,527
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
35,053
|
|
|
|
-
|
|
|
|
35,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
41,382
|
|
|
|
429
|
|
|
|
41,811
|
|
Consumer
|
|
|
44,083
|
|
|
|
423
|
|
|
|
44,506
|
|
Commercial
|
|
|
43,807
|
|
|
|
269
|
|
|
|
44,076
|
|
Total other portfolio loans
|
|
|
129,272
|
|
|
|
1,121
|
|
|
|
130,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
599,034
|
|
|
$
|
4,225
|
|
|
$
|
603,259
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
The Company utilizes an internal asset classification system
for multi-family, commercial and land portfolio loans as a means of reporting problem and potential problem loans. Under the risk
rating system, the Company classifies problem and potential problem loans as “Special Mention”, “Substandard”
or “Doubtful”, which correspond to risk ratings five, six and seven, respectively. Portfolio loans that do not currently
expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses
that deserve management’s close attention are deemed to be Special Mention, or risk rated five. Substandard portfolio loans,
or risk rated six, include those characterized by the distinct possibility the Company may sustain some loss if the deficiencies
are not corrected. Portfolio loans classified as Doubtful, or risk rated seven, have all the weaknesses inherent in those classified
Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, highly questionable and improbable. Generally, the Company reviews all revolving credit
relationships, regardless of amount, and any other loan relationship in excess of $500,000 on an annual basis. However, risk ratings
are updated any time the facts and circumstances warrant.
The Company evaluates residential and consumer portfolio loans
based on whether the loans are performing or nonperforming, as well as other factors. Residential loans are charged down by the
expected loss amount at the time they become nonperforming, which is generally 90 days past due. Consumer loans, including automobile,
manufactured housing, unsecured, and other secured loans are charged-off, net of expected recovery, when the loan becomes significantly
past due over a range of up to 180 days, depending on the type of loan.
The following table presents the risk category of multi-family,
commercial and land portfolio loans evaluated by internal asset classification as of December 31, 2016 and 2015:
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
$
|
70,419
|
|
|
$
|
-
|
|
|
$
|
33
|
|
|
$
|
-
|
|
|
$
|
70,452
|
|
Commercial
|
|
|
101,785
|
|
|
|
-
|
|
|
|
2,358
|
|
|
|
-
|
|
|
|
104,143
|
|
Land
|
|
|
11,708
|
|
|
|
-
|
|
|
|
5,510
|
|
|
|
-
|
|
|
|
17,218
|
|
Total real estate loans
|
|
|
183,912
|
|
|
|
-
|
|
|
|
7,901
|
|
|
|
-
|
|
|
|
191,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
14,432
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,432
|
|
Total real estate construction loans
|
|
|
14,432
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
55,278
|
|
|
|
1,663
|
|
|
|
1,006
|
|
|
|
-
|
|
|
|
57,947
|
|
Total other portfolio loans
|
|
|
55,278
|
|
|
|
1,663
|
|
|
|
1,006
|
|
|
|
-
|
|
|
|
57,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk graded portfolio loans
|
|
$
|
253,622
|
|
|
$
|
1,663
|
|
|
$
|
8,907
|
|
|
$
|
-
|
|
|
$
|
264,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
$
|
83,335
|
|
|
$
|
-
|
|
|
$
|
107
|
|
|
$
|
-
|
|
|
$
|
83,442
|
|
Commercial
|
|
|
60,203
|
|
|
|
1,193
|
|
|
|
217
|
|
|
|
-
|
|
|
|
61,613
|
|
Land
|
|
|
10,408
|
|
|
|
98
|
|
|
|
5,966
|
|
|
|
-
|
|
|
|
16,472
|
|
Total real estate loans
|
|
|
153,946
|
|
|
|
1,291
|
|
|
|
6,290
|
|
|
|
-
|
|
|
|
161,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
12,527
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,527
|
|
Total real estate construction loans
|
|
|
12,527
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
43,224
|
|
|
|
-
|
|
|
|
852
|
|
|
|
-
|
|
|
|
44,076
|
|
Total other portfolio loans
|
|
|
43,224
|
|
|
|
-
|
|
|
|
852
|
|
|
|
-
|
|
|
|
44,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk graded portfolio loans
|
|
$
|
209,697
|
|
|
$
|
1,291
|
|
|
$
|
7,142
|
|
|
$
|
-
|
|
|
$
|
218,130
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
When establishing the allowance, management categorizes loans
into risk categories generally based on the nature of the collateral and the basis of repayment. Activity in the allowance for
the years ended December 31, 2016, 2015 and 2014 was as follows:
|
|
Beginning
Balance
|
|
|
Charge-Offs
|
|
|
Recoveries
|
|
|
Provision
Expense
|
|
|
Ending Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
3,142
|
|
|
$
|
(353
|
)
|
|
$
|
561
|
|
|
$
|
(260
|
)
|
|
$
|
3,090
|
|
Multi-family
|
|
|
217
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
|
|
268
|
|
Commercial
|
|
|
1,337
|
|
|
|
-
|
|
|
|
-
|
|
|
|
872
|
|
|
|
2,209
|
|
Land
|
|
|
260
|
|
|
|
-
|
|
|
|
32
|
|
|
|
(85
|
)
|
|
|
207
|
|
Total real estate loans
|
|
|
4,956
|
|
|
|
(353
|
)
|
|
|
593
|
|
|
|
578
|
|
|
|
5,774
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
144
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
159
|
|
Commercial
|
|
|
116
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
120
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
279
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
972
|
|
|
|
(141
|
)
|
|
|
45
|
|
|
|
(316
|
)
|
|
|
560
|
|
Consumer
|
|
|
871
|
|
|
|
(566
|
)
|
|
|
310
|
|
|
|
(158
|
)
|
|
|
457
|
|
Commercial
|
|
|
556
|
|
|
|
(91
|
)
|
|
|
1
|
|
|
|
414
|
|
|
|
880
|
|
Total other portfolio loans
|
|
|
2,399
|
|
|
|
(798
|
)
|
|
|
356
|
|
|
|
(60
|
)
|
|
|
1,897
|
|
Unallocated
|
|
|
130
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
|
|
212
|
|
Total
|
|
$
|
7,745
|
|
|
$
|
(1,151
|
)
|
|
$
|
949
|
|
|
$
|
619
|
|
|
$
|
8,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
3,206
|
|
|
$
|
(313
|
)
|
|
$
|
356
|
|
|
$
|
(107
|
)
|
|
$
|
3,142
|
|
Multi-family
|
|
|
28
|
|
|
|
-
|
|
|
|
8
|
|
|
|
181
|
|
|
|
217
|
|
Commercial
|
|
|
1,023
|
|
|
|
-
|
|
|
|
51
|
|
|
|
263
|
|
|
|
1,337
|
|
Land
|
|
|
197
|
|
|
|
(56
|
)
|
|
|
138
|
|
|
|
(19
|
)
|
|
|
260
|
|
Total real estate loans
|
|
|
4,454
|
|
|
|
(369
|
)
|
|
|
553
|
|
|
|
318
|
|
|
|
4,956
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
|
|
144
|
|
Commercial
|
|
|
19
|
|
|
|
-
|
|
|
|
-
|
|
|
|
97
|
|
|
|
116
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225
|
|
|
|
260
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
992
|
|
|
|
(146
|
)
|
|
|
56
|
|
|
|
70
|
|
|
|
972
|
|
Consumer
|
|
|
844
|
|
|
|
(540
|
)
|
|
|
277
|
|
|
|
290
|
|
|
|
871
|
|
Commercial
|
|
|
663
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(107
|
)
|
|
|
556
|
|
Total other portfolio loans
|
|
|
2,499
|
|
|
|
(686
|
)
|
|
|
333
|
|
|
|
253
|
|
|
|
2,399
|
|
Unallocated
|
|
|
119
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
130
|
|
Total
|
|
$
|
7,107
|
|
|
$
|
(1,055
|
)
|
|
$
|
886
|
|
|
$
|
807
|
|
|
$
|
7,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
3,188
|
|
|
$
|
(606
|
)
|
|
$
|
224
|
|
|
$
|
400
|
|
|
$
|
3,206
|
|
Multi-family
|
|
|
59
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(31
|
)
|
|
|
28
|
|
Commercial
|
|
|
827
|
|
|
|
(191
|
)
|
|
|
83
|
|
|
|
304
|
|
|
|
1,023
|
|
Land
|
|
|
223
|
|
|
|
(8
|
)
|
|
|
42
|
|
|
|
(60
|
)
|
|
|
197
|
|
Total real estate loans
|
|
|
4,297
|
|
|
|
(805
|
)
|
|
|
349
|
|
|
|
613
|
|
|
|
4,454
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
16
|
|
Commercial
|
|
|
125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(106
|
)
|
|
|
19
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(90
|
)
|
|
|
35
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
1,046
|
|
|
|
(403
|
)
|
|
|
161
|
|
|
|
188
|
|
|
|
992
|
|
Consumer
|
|
|
1,223
|
|
|
|
(595
|
)
|
|
|
301
|
|
|
|
(85
|
)
|
|
|
844
|
|
Commercial
|
|
|
214
|
|
|
|
(119
|
)
|
|
|
6
|
|
|
|
562
|
|
|
|
663
|
|
Total other portfolio loans
|
|
|
2,483
|
|
|
|
(1,117
|
)
|
|
|
468
|
|
|
|
665
|
|
|
|
2,499
|
|
Unallocated
|
|
|
41
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78
|
|
|
|
119
|
|
Total
|
|
$
|
6,946
|
|
|
$
|
(1,922
|
)
|
|
$
|
817
|
|
|
$
|
1,266
|
|
|
$
|
7,107
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents ending balances for the allowance
and portfolio loans based on the impairment method as of December 31, 2016:
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total Ending
Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
-
|
|
|
$
|
3,090
|
|
|
$
|
3,090
|
|
Multi-family
|
|
|
-
|
|
|
|
268
|
|
|
|
268
|
|
Commercial
|
|
|
201
|
|
|
|
2,008
|
|
|
|
2,209
|
|
Land
|
|
|
-
|
|
|
|
207
|
|
|
|
207
|
|
Total real estate loans
|
|
|
201
|
|
|
|
5,573
|
|
|
|
5,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
159
|
|
|
|
159
|
|
Commercial
|
|
|
-
|
|
|
|
120
|
|
|
|
120
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
279
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
-
|
|
|
|
560
|
|
|
|
560
|
|
Consumer
|
|
|
-
|
|
|
|
457
|
|
|
|
457
|
|
Commercial
|
|
|
279
|
|
|
|
601
|
|
|
|
880
|
|
Total other portfolio loans
|
|
|
279
|
|
|
|
1,618
|
|
|
|
1,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
-
|
|
|
|
212
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance for portfolio loan losses balance
|
|
$
|
480
|
|
|
$
|
7,682
|
|
|
$
|
8,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
-
|
|
|
$
|
276,193
|
|
|
$
|
276,193
|
|
Multi-family
|
|
|
33
|
|
|
|
70,419
|
|
|
|
70,452
|
|
Commercial
|
|
|
2,763
|
|
|
|
101,380
|
|
|
|
104,143
|
|
Land
|
|
|
5,510
|
|
|
|
11,708
|
|
|
|
17,218
|
|
Total real estate loans
|
|
|
8,306
|
|
|
|
459,700
|
|
|
|
468,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
22,687
|
|
|
|
22,687
|
|
Commercial
|
|
|
-
|
|
|
|
14,432
|
|
|
|
14,432
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
37,119
|
|
|
|
37,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
-
|
|
|
|
37,748
|
|
|
|
37,748
|
|
Consumer
|
|
|
-
|
|
|
|
39,232
|
|
|
|
39,232
|
|
Commercial
|
|
|
519
|
|
|
|
57,428
|
|
|
|
57,947
|
|
Total other portfolio loans
|
|
|
519
|
|
|
|
134,408
|
|
|
|
134,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending portfolio loans balance
|
|
$
|
8,825
|
|
|
$
|
631,227
|
|
|
$
|
640,052
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents ending balances for the allowance
and portfolio loans based on the impairment method as of December 31, 2015:
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total Ending
Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
1,246
|
|
|
$
|
1,896
|
|
|
$
|
3,142
|
|
Multi-family
|
|
|
-
|
|
|
|
217
|
|
|
|
217
|
|
Commercial
|
|
|
219
|
|
|
|
1,118
|
|
|
|
1,337
|
|
Land
|
|
|
140
|
|
|
|
120
|
|
|
|
260
|
|
Total real estate loans
|
|
|
1,605
|
|
|
|
3,351
|
|
|
|
4,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
144
|
|
|
|
144
|
|
Commercial
|
|
|
-
|
|
|
|
116
|
|
|
|
116
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
260
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
480
|
|
|
|
492
|
|
|
|
972
|
|
Consumer
|
|
|
210
|
|
|
|
661
|
|
|
|
871
|
|
Commercial
|
|
|
83
|
|
|
|
473
|
|
|
|
556
|
|
Total other portfolio loans
|
|
|
773
|
|
|
|
1,626
|
|
|
|
2,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
-
|
|
|
|
130
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance for portfolio loan losses balance
|
|
$
|
2,378
|
|
|
$
|
5,367
|
|
|
$
|
7,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
19,315
|
|
|
$
|
256,971
|
|
|
$
|
276,286
|
|
Multi-family
|
|
|
107
|
|
|
|
83,335
|
|
|
|
83,442
|
|
Commercial
|
|
|
2,576
|
|
|
|
59,037
|
|
|
|
61,613
|
|
Land
|
|
|
7,074
|
|
|
|
9,398
|
|
|
|
16,472
|
|
Total real estate loans
|
|
|
29,072
|
|
|
|
408,741
|
|
|
|
437,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
22,526
|
|
|
|
22,526
|
|
Commercial
|
|
|
-
|
|
|
|
12,527
|
|
|
|
12,527
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
35,053
|
|
|
|
35,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,665
|
|
|
|
37,146
|
|
|
|
41,811
|
|
Consumer
|
|
|
1,472
|
|
|
|
43,034
|
|
|
|
44,506
|
|
Commercial
|
|
|
639
|
|
|
|
43,437
|
|
|
|
44,076
|
|
Total other portfolio loans
|
|
|
6,776
|
|
|
|
123,617
|
|
|
|
130,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending portfolio loans balance
|
|
$
|
35,848
|
|
|
$
|
567,411
|
|
|
$
|
603,259
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
Portfolio loans for which concessions have been granted as a
result of the borrower’s financial difficulties are considered a TDR. These concessions, which in general are applied to
all categories of portfolio loans, may include a reduction in the interest rate on the loan, payment extensions, forgiveness of
principal, or a combination of these or other actions intended to maximize collection. The resulting TDR impairment is included
in specific reserves.
For homogeneous loan categories, such as
one- to four-family residential loans and home equity loans, the amount of impairment resulting from the modification of the loan
terms is calculated in aggregate by category of portfolio loan. The resulting impairment is included in specific reserves. If an
individual homogeneous loan defaults under terms of the TDR and becomes nonperforming, the Bank follows its usual practice of charging
the loan down to its estimated fair value and the charge-off is considered as a factor in determining the amount of the general
component of the allowance. For larger non-homogeneous loans, each loan that is modified is evaluated individually for impairment
based on either discounted cash flow or, for collateral-dependent loans, the appraised value of the collateral less selling costs.
If the loan is not collateral-dependent, the amount of the impairment, if any, is recorded as a specific reserve in the allowance.
If the loan is collateral-dependent, the amount of the impairment is charged off. There was an allocated allowance for loans, including
TDRs, individually evaluated for impairment of approximately $0.5 million and $0.3 million at December 31, 2016 and 2015, respectively.
Portfolio loans modified as TDRs with market
rates of interest are classified as impaired portfolio loans. Once the TDR has performed for 12 months in accordance with the modified
terms it is classified as a performing impaired loan. TDRs which do not perform in accordance with modified terms are reported
as nonperforming portfolio loans. The policy for returning a nonperforming loan to accrual status is the same for any loan irrespective
of whether the loan has been modified. As such, loans which are nonperforming prior to modification continue to be accounted for
as nonperforming loans (and are reported as impaired nonperforming loans) until they have demonstrated the ability to maintain
sustained performance over a period of time, but no less than six months. Following this period such a modified loan is returned
to accrual status and is classified as impaired and reported as a performing TDR. TDRs classified as impaired loans as of December
31, 2016 and 2015 were as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
20,060
|
|
|
$
|
18,933
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
2,488
|
|
|
|
2,576
|
|
Land
|
|
|
6,311
|
|
|
|
7,075
|
|
Total real estate loans
|
|
|
28,859
|
|
|
|
28,584
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,230
|
|
|
|
4,601
|
|
Consumer
|
|
|
1,573
|
|
|
|
1,472
|
|
Commercial
|
|
|
181
|
|
|
|
320
|
|
Total other portfolio loans
|
|
|
5,984
|
|
|
|
6,393
|
|
|
|
|
|
|
|
|
|
|
Total TDRs classified as impaired loans
|
|
$
|
34,843
|
|
|
$
|
34,977
|
|
The TDR balances included performing TDRs of $20.3 million and
$30.5 million as of December 31, 2016 and 2015, respectively. There were no commitments to lend additional amounts on TDRs as of
December 31, 2016 and 2015.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
The Bank is proactive in modifying residential, home equity
and consumer loans in early stage delinquency because management believes modifying the loan prior to it becoming nonperforming
results in the least cost to the Bank. The Bank also modifies commercial real estate and other large commercial loans as TDRs rather
than pursuing other means of collection when it believes the borrower is committed to the successful repayment of the loan and
the business operations are likely to support the modified loan terms.
The following table presents information on TDRs during the
years ended December 31, 2016, 2015 and 2014:
|
|
Number of Contracts
|
|
|
Pre-Modification Outstanding
Recorded Investments
|
|
|
Post-Modification Outstanding
Recorded Investments
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
34
|
|
|
$
|
4,353
|
|
|
$
|
4,147
|
|
Land
|
|
|
2
|
|
|
|
98
|
|
|
|
98
|
|
Total real estate loans
|
|
|
36
|
|
|
|
4,451
|
|
|
|
4,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
17
|
|
|
|
1,115
|
|
|
|
1,115
|
|
Consumer
|
|
|
13
|
|
|
|
279
|
|
|
|
279
|
|
Total other portfolio loans
|
|
|
30
|
|
|
|
1,394
|
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
66
|
|
|
$
|
5,845
|
|
|
$
|
5,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
15
|
|
|
$
|
1,691
|
|
|
$
|
1,691
|
|
Land
|
|
|
5
|
|
|
|
754
|
|
|
|
724
|
|
Total real estate loans
|
|
|
20
|
|
|
|
2,445
|
|
|
|
2,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
13
|
|
|
|
1,711
|
|
|
|
1,711
|
|
Consumer
|
|
|
11
|
|
|
|
219
|
|
|
|
219
|
|
Commercial
|
|
|
1
|
|
|
|
77
|
|
|
|
77
|
|
Total other portfolio loans
|
|
|
25
|
|
|
|
2,007
|
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
45
|
|
|
$
|
4,452
|
|
|
$
|
4,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
36
|
|
|
$
|
8,145
|
|
|
$
|
8,145
|
|
Land
|
|
|
1
|
|
|
|
261
|
|
|
|
261
|
|
Total real estate loans
|
|
|
37
|
|
|
|
8,406
|
|
|
|
8,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
14
|
|
|
|
1,449
|
|
|
|
1,449
|
|
Consumer
|
|
|
15
|
|
|
|
912
|
|
|
|
912
|
|
Commercial
|
|
|
2
|
|
|
|
161
|
|
|
|
161
|
|
Total other portfolio loans
|
|
|
31
|
|
|
|
2,522
|
|
|
|
2,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
68
|
|
|
$
|
10,928
|
|
|
$
|
10,928
|
|
All of the Company’s portfolio loans that were restructured
as TDRs during the years ended December 31, 2016, 2015 and 2014, resulted in modifications to either rate, term, amortization or
balance. Such modifications are only granted to borrowers who have demonstrated the capacity to repay under the modified terms.
There were six subsequent defaults on portfolio loans that were
restructured as TDRs during the year ended December 31, 2016. The subsequent defaults included two one- to four-family residential
loans with a combined recorded investment of $0.4 million, one commercial real estate loan with a recorded investment of $2.0 million,
one land loan with a recorded investment of $5.5 million, and two home equity loans with a combined recorded investment of $30,000.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
There was one subsequent default on portfolio loans that were
restructured as TDRs during the year ended December 31, 2015. This subsequent default was a consumer loan with a recorded investment
of $4,000.
There were eight subsequent defaults on portfolio loans that
were restructured as TDRs during the year ended December 31, 2014. These subsequent defaults included five one- to four-family
residential loans with a combined recorded investment of $0.5 million, one commercial real estate loan with a recorded investment
of $0.6 million, one land loan with a recorded investment of $0.1 million, and one consumer loan with a recorded investment of
$0.1 million.
The following table presents information about impaired portfolio
loans as of December 31, 2016:
|
|
Recorded
Investment
|
|
|
Unpaid
Principal Balance
|
|
|
Related
Allowance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Multi-family
|
|
|
33
|
|
|
|
33
|
|
|
|
-
|
|
Commercial
|
|
|
589
|
|
|
|
589
|
|
|
|
-
|
|
Land
|
|
|
5,510
|
|
|
|
5,510
|
|
|
|
-
|
|
Total real estate loans
|
|
|
6,132
|
|
|
|
6,132
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
61
|
|
|
|
61
|
|
|
|
-
|
|
Total other portfolio loans
|
|
|
61
|
|
|
|
61
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with no related allowance recorded
|
|
$
|
6,193
|
|
|
$
|
6,193
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
21,335
|
|
|
$
|
21,869
|
|
|
$
|
1,514
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
2,174
|
|
|
|
2,174
|
|
|
|
201
|
|
Land
|
|
|
801
|
|
|
|
851
|
|
|
|
108
|
|
Total real estate loans
|
|
|
24,310
|
|
|
|
24,894
|
|
|
|
1,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,231
|
|
|
|
4,388
|
|
|
|
408
|
|
Consumer
|
|
|
1,728
|
|
|
|
1,832
|
|
|
|
201
|
|
Commercial
|
|
|
840
|
|
|
|
840
|
|
|
|
279
|
|
Total other portfolio loans
|
|
|
6,799
|
|
|
|
7,060
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with an allowance recorded
|
|
$
|
31,109
|
|
|
$
|
31,954
|
|
|
$
|
2,711
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents information about impaired portfolio
loans as of December 31, 2015:
|
|
Recorded
Investment
|
|
|
Unpaid
Principal Balance
|
|
|
Related
Allowance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Multi-family
|
|
|
107
|
|
|
|
107
|
|
|
|
-
|
|
Commercial
|
|
|
514
|
|
|
|
514
|
|
|
|
-
|
|
Land
|
|
|
5,965
|
|
|
|
5,965
|
|
|
|
-
|
|
Total real estate loans
|
|
|
6,586
|
|
|
|
6,586
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
427
|
|
|
|
427
|
|
|
|
-
|
|
Total other portfolio loans
|
|
|
427
|
|
|
|
427
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with no related allowance recorded
|
|
$
|
7,013
|
|
|
$
|
7,013
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
19,315
|
|
|
$
|
19,597
|
|
|
$
|
1,246
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
2,062
|
|
|
|
2,062
|
|
|
|
219
|
|
Land
|
|
|
1,109
|
|
|
|
1,190
|
|
|
|
140
|
|
Total real estate loans
|
|
|
22,486
|
|
|
|
22,849
|
|
|
|
1,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,665
|
|
|
|
4,822
|
|
|
|
480
|
|
Consumer
|
|
|
1,472
|
|
|
|
1,472
|
|
|
|
210
|
|
Commercial
|
|
|
212
|
|
|
|
212
|
|
|
|
83
|
|
Total other portfolio loans
|
|
|
6,349
|
|
|
|
6,506
|
|
|
|
773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with an allowance recorded
|
|
$
|
28,835
|
|
|
$
|
29,355
|
|
|
$
|
2,378
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents interest income on impaired portfolio
loans by class of portfolio loans for the years ended December 31, 2016, 2015 and 2014:
|
|
Average Balance
|
|
|
Interest Income
Recognized
|
|
|
Cash Basis Interest
Income Recognized
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
21,461
|
|
|
$
|
1,011
|
|
|
$
|
-
|
|
Multi-family
|
|
|
70
|
|
|
|
3
|
|
|
|
-
|
|
Commercial
|
|
|
2,670
|
|
|
|
92
|
|
|
|
-
|
|
Land
|
|
|
6,694
|
|
|
|
86
|
|
|
|
-
|
|
Total real estate loans
|
|
|
30,895
|
|
|
|
1,192
|
|
|
|
-
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,508
|
|
|
|
212
|
|
|
|
-
|
|
Consumer
|
|
|
1,810
|
|
|
|
118
|
|
|
|
-
|
|
Commercial
|
|
|
770
|
|
|
|
58
|
|
|
|
-
|
|
Total other portfolio loans
|
|
|
7,088
|
|
|
|
388
|
|
|
|
-
|
|
Total
|
|
$
|
37,983
|
|
|
$
|
1,580
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
19,100
|
|
|
$
|
903
|
|
|
$
|
-
|
|
Multi-family
|
|
|
146
|
|
|
|
6
|
|
|
|
-
|
|
Commercial
|
|
|
3,230
|
|
|
|
124
|
|
|
|
-
|
|
Land
|
|
|
7,010
|
|
|
|
268
|
|
|
|
-
|
|
Total real estate loans
|
|
|
29,486
|
|
|
|
1,301
|
|
|
|
-
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,263
|
|
|
|
198
|
|
|
|
-
|
|
Consumer
|
|
|
1,481
|
|
|
|
95
|
|
|
|
-
|
|
Commercial
|
|
|
724
|
|
|
|
41
|
|
|
|
-
|
|
Total other portfolio loans
|
|
|
6,468
|
|
|
|
334
|
|
|
|
-
|
|
Total
|
|
$
|
35,954
|
|
|
$
|
1,635
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
17,278
|
|
|
$
|
919
|
|
|
$
|
-
|
|
Multi-family
|
|
|
93
|
|
|
|
8
|
|
|
|
-
|
|
Commercial
|
|
|
5,183
|
|
|
|
305
|
|
|
|
-
|
|
Land
|
|
|
7,036
|
|
|
|
268
|
|
|
|
-
|
|
Total real estate loans
|
|
|
29,590
|
|
|
|
1,500
|
|
|
|
-
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
3,845
|
|
|
|
192
|
|
|
|
-
|
|
Consumer
|
|
|
1,108
|
|
|
|
111
|
|
|
|
-
|
|
Commercial
|
|
|
719
|
|
|
|
120
|
|
|
|
-
|
|
Total other portfolio loans
|
|
|
5,672
|
|
|
|
423
|
|
|
|
-
|
|
Total
|
|
$
|
35,262
|
|
|
$
|
1,923
|
|
|
$
|
-
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 7. PORTFOLIO LOANS
(continued)
The Company had $1.6 million and $3.4 million of one- to four-family
residential and home equity loans in process of foreclosure as of December 31, 2016 and 2015, respectively.
The Company has originated portfolio loans with the Company’s
directors and executive officers and their associates. These loans totaled $1.9 million as of both December 31, 2016 and 2015.
The activity on these loans during the years ended December 31, 2016, 2015 and 2014, was as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,919
|
|
|
$
|
169
|
|
|
$
|
137
|
|
New portfolio loans and advances on existing portfolio loans
|
|
|
-
|
|
|
|
1,776
|
|
|
|
-
|
|
Effect of changes in related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
37
|
|
Repayments
|
|
|
(63
|
)
|
|
|
(26
|
)
|
|
|
(5
|
)
|
Ending balance
|
|
$
|
1,856
|
|
|
$
|
1,919
|
|
|
$
|
169
|
|
NOTE 8. OTHER LOANS
The Company’s other loans are comprised
of mortgage loans held-for-sale, SBA/USDA loans held-for-sale, and warehouse loans held-for-investment. The Company originates
mortgage loans held-for-sale with the intent to sell the loans and the servicing rights to investors. The Company originates SBA/USDA
loans held-for-sale with the intent to sell the guaranteed portion of the loans to investors, while maintaining the servicing rights.
The Company originates warehouse loans held-for-investment and permits third-party originators to sell the loans and servicing
rights to investors in order to repay the warehouse balance outstanding.
The Company internally originated approximately
$72.3 million, $35.3 million and $7.9 million of mortgage loans held-for-sale during the years ended December 31, 2016, 2015 and
2014, respectively. The gain recorded on sale of mortgage loans held-for-sale during the years ended December 31, 2016, 2015 and
2014 was $1.0 million, $0.8 million and $0.2 million, respectively.
During the years ended December 31, 2016,
2015 and 2014, the Company internally originated approximately $13.6 million, $3.9 million and $8.3 million, respectively, of SBA/USDA
loans held-for-sale. The gain recorded on sales of SBA/USDA loans held-for-sale was $1.0 million, $0.7 million and $0.7 million
during the years ended December 31, 2016, 2015 and 2014.
During the years ended December 31, 2016, 2015
and 2014, the Company originated approximately $1.8 billion, $1.1 billion and $457.5 million, respectively, of warehouse loans
held-for-investment through third parties. Loan sales under the warehouse loans held-for-investment lending program, which are
done at par, earned interest on outstanding balances of $2.7 million, $1.9 million and $0.9 million for the years ended December
31, 2016, 2015 and 2014, respectively. The weighted average number of days outstanding of warehouse loans held-for-investment was
approximately 12 days, 17 days and 19 days, respectively, for the years ended December 31, 2016, 2015 and 2014.
As of December 31, 2016 and 2015, the balance
in warehouse loans held-for-investment did not include any past due, nonperforming, classified, restructured, or impaired loans.
Warehouse loans held-for-investment possess less risk than other types of loans as they are secured by one- to four-family residential
loans which tend to be smaller balance loans without concentrations to a single borrower or group of borrowers. Due to the generally
short duration of time warehouse loans held-for-investment are outstanding, the collateral arrangements related to warehouse loans
held-for-investment and other factors, management has determined that no allowance for loan losses is necessary.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 9. LAND, PREMISES, AND EQUIPMENT,
NET
Land, premises, and equipment, net at December
31, 2016 and 2015 are summarized as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in Thousands)
|
|
Land
|
|
$
|
7,016
|
|
|
$
|
7,176
|
|
Buildings and leasehold improvements
|
|
|
12,003
|
|
|
|
12,274
|
|
Furniture, fixtures, and equipment
|
|
|
9,057
|
|
|
|
11,020
|
|
Land, premises, and equipment
|
|
|
28,076
|
|
|
|
30,470
|
|
Accumulated depreciation and amortization
|
|
|
(13,131
|
)
|
|
|
(14,998
|
)
|
Land, premises, and equipment, net
|
|
$
|
14,945
|
|
|
$
|
15,472
|
|
Depreciation expense was $1.1 million,
$0.9 million and $0.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.
NOTE 10. DEPOSITS
The Company had $390.7 million and $324.0 million in non-maturity
deposits at December 31, 2016 and 2015, respectively. Time deposits were $237.7 million and $231.8 million at December 31, 2016
and 2015, respectively. Scheduled maturities of time deposits at December 31, 2016 were as follows:
|
|
(Dollars in Thousands)
|
|
2017
|
|
$
|
148,846
|
|
2018
|
|
|
48,496
|
|
2019
|
|
|
25,362
|
|
2020
|
|
|
5,222
|
|
2021
|
|
|
9,793
|
|
Thereafter
|
|
|
7
|
|
Total time deposits
|
|
$
|
237,726
|
|
Time deposits in amounts equal to or greater than $250,000 were
approximately $30.1 million and $
17.9
million at December 31, 2016 and 2015, respectively.
Deposit amounts in excess of $250,000 are generally not insured by the Federal Deposit Insurance Corporation (FDIC).
As of December 31, 2016, the Company had
deposit relationships in excess of 5% of total deposits with one customer, which totaled $40.0 million, or 6.4% of total deposits.
Additionally, brokered deposits, which are reported on the consolidated balance sheets in either money market accounts or time
deposits, were $84.0 million, or 13.4% of total deposits, at December 31, 2016. As of December 31, 2015, the Company had deposit
relationships in excess of 5% of total deposits with one customer, which totaled $40.0 million, or 7.2% of total deposits. Brokered
deposits were $61.5 million, or 11.1% of total deposits, at December 31, 2015. Brokered deposits typically consist of smaller individual
balances that have liquidity characteristics and yields consistent with time deposits in amounts equal to or greater than $250,000.
Management does not view these concentrations as a liquidity risk.
Deposits from directors, executive officers and their associates
were approximately $0.2 million and $0.4 million at December 31, 2016 and 2015, respectively.
Interest expense on customer deposit accounts for the years
ending December 31, 2016, 2015 and 2014 is summarized as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
(Dollars in Thousands)
|
|
Interest-bearing demand
|
|
$
|
454
|
|
|
$
|
105
|
|
|
$
|
162
|
|
Savings and money market
|
|
|
938
|
|
|
|
693
|
|
|
|
665
|
|
Time
|
|
|
2,215
|
|
|
|
1,628
|
|
|
|
1,662
|
|
Total interest expense on deposits
|
|
$
|
3,607
|
|
|
$
|
2,426
|
|
|
$
|
2,489
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company had no outstanding balance on repurchase agreements
as of December 31, 2016, and repurchase agreements with a carrying amount of $10.0 million as of December 31, 2015. Information
concerning repurchase agreements as of and for the years ended December 31, 2016, 2015 and 2014, is summarized as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Average daily balance outstanding during the period
|
|
$
|
82
|
|
|
$
|
31,370
|
|
|
$
|
69,075
|
|
Maximum month-end balance during the period
|
|
$
|
-
|
|
|
$
|
66,300
|
|
|
$
|
78,300
|
|
Weighted average coupon interest rate during the period
|
|
|
0.80
|
%
|
|
|
4.89
|
%
|
|
|
4.96
|
%
|
Weighted average coupon interest rate at end of period
|
|
|
−
|
%
|
|
|
0.80
|
%
|
|
|
4.94
|
%
|
Weighted average maturity (months)
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
On June 22, 2015, the Company prepaid $56.3
million of repurchase agreements, representing the entire outstanding balance of repurchase agreements as of such date. Under the
terms of the repurchase agreements, any prepayment prior to maturity would result in a prepayment penalty equal to the amount that
the fair value exceeded the book value. As such, the Company paid $5.2 million in prepayment penalties.
On June 26, 2015, the Company entered into
a $10.0 million short-term variable rate repurchase agreement. Under the terms of this repurchase agreement, the instrument did
not have a stated maturity date and would continue until terminated by either the Company or the counterparty. Additionally, the
collateral required to be pledged by the Company was subject to an adjustment determined by the counterparty and was required to
be pledged in amounts equal to the debt plus the adjustment. On July 1, 2015, the Company paid off $10.0 million of repurchase
agreements, representing the entire outstanding balance of repurchase agreements as of such date. There was no penalty associated
with the pay-off.
On December 29, 2015, the Company entered
into a $10.0 million short-term variable rate repurchase agreement. Under the terms of this repurchase agreement, the instrument
did not have a stated maturity date and would continue until terminated by either the Company or the counterparty. Additionally,
the collateral required to be pledged by the Company was subject to an adjustment determined by the counterparty and was required
to be pledged in amounts equal to the debt plus the adjustment. On January 4, 2016, the Company paid off $10.0 million of repurchase
agreements, representing the entire outstanding balance of repurchase agreements as of such date. There was no penalty associated
with the pay-off.
The Company had no investment securities posted
as collateral under this new repurchase agreement as of December 31, 2016, while $10.1 million in investment securities were posted
as collateral under this new repurchase agreement as of December 31, 2015.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 12. FEDERAL HOME LOAN BANK ADVANCES
As of December 31, 2016 and 2015, advances
from the FHLB were as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Maturity on February 10, 2016, fixed rate at 0.35%
|
|
$
|
-
|
|
|
$
|
20,000
|
|
Maturity on June 20, 2016, fixed rate at 0.50%
|
|
|
-
|
|
|
|
55,000
|
|
Maturity on June 22, 2016, fixed rate at 0.54%
|
|
|
-
|
|
|
|
47,500
|
|
Maturity on January 30, 2017, fixed rate at 0.61%
|
|
|
50,000
|
|
|
|
-
|
|
Maturity on June 20, 2017, fixed rate 0.73%
|
|
|
833
|
|
|
|
2,500
|
|
Maturity on June 20, 2017, fixed rate 0.91%
|
|
|
10,000
|
|
|
|
10,000
|
|
Maturity on June 19, 2018, fixed rate at 1.31%
|
|
|
10,425
|
|
|
|
10,425
|
|
Maturity on June 20, 2019, fixed rate at 1.27%
|
|
|
2,500
|
|
|
|
3,500
|
|
Maturity on December 23, 2019, adjustable rate at 2.43%
(1)
|
|
|
-
|
|
|
|
20,000
|
|
Maturity on June 23, 2020, adjustable rate at 2.23%
(1)
|
|
|
-
|
|
|
|
15,000
|
|
Maturity on June 23, 2020, adjustable rate at 2.16%
(1)
|
|
|
-
|
|
|
|
15,000
|
|
Maturity on June 8, 2021, fixed rate at 2.59%
|
|
|
20,000
|
|
|
|
-
|
|
Maturity on June 8, 2021, fixed rate at 2.58%
|
|
|
15,000
|
|
|
|
-
|
|
Maturity on June 8, 2021, fixed rate at 2.58%
|
|
|
15,000
|
|
|
|
-
|
|
Daily rate credit, no maturity date, adjustable rate at 0.80% as of December 31, 2016 and at 0.49% as of December 31, 2015
|
|
|
65,000
|
|
|
|
10,000
|
|
Prepayment penalties
(2)
|
|
|
-
|
|
|
|
(1,382
|
)
|
Total
|
|
$
|
188,758
|
|
|
$
|
207,543
|
|
_______
|
(1)
|
As a result of the prepayment and restructure of three advances, totaling $50.0 million, on June
22, 2015, $3.5 million of deferred prepayment penalties were factored into the new interest rate of three advances, totaling $50.0
million, granted on June 22, 2015.
|
|
(2)
|
The prepayment penalties as of December 31, 2015,
were amortized through June 2016.
|
The FHLB advances had a weighted-average maturity
of 16 months and a weighted-average rate of 1.26% at December 31, 2016. The Company had $371.1 million in portfolio loans posted
as collateral for these advances as of December 31, 2016.
The Bank’s remaining borrowing capacity
with the FHLB was $92.1 million at December 31, 2016. The FHLB requires that the Bank collateralize the excess of the fair value
of the FHLB advances over the book value with cash and investment securities. In the event the Bank prepays advances prior to maturity,
it must do so at the fair value of such FHLB advances. As of December 31, 2016, fair value exceeded the book value of the individual
advances by $1.1 million, which was collateralized by portfolio loans (included in the $371.1 million discussed above). The Bank
has the ability to supplement its loan collateral with investment securities as needed to secure the FHLB borrowings or prepay
advances to reduce the amount of collateral required to secure the debt. Unpledged investment securities available for collateral
amounted to $41.2 million as of December 31, 2016.
NOTE 13. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company
has various outstanding commitments and contingent liabilities that are not reflected in the Financial Statements and these Notes.
The principal commitments as of December 31, 2016 and 2015 are as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in Thousands)
|
|
Undisbursed portion of loans closed
|
|
$
|
4,118
|
|
|
$
|
4,417
|
|
Unused lines of credit and commitments to fund loans
|
|
|
110,426
|
|
|
|
85,514
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 13. COMMITMENTS AND CONTINGENCIES
(continued)
As of December 31, 2016, the undisbursed
portion of loans closed was primarily unfunded SBA loans with variable rates ranging from 4.25% to 6.25%, and the unused lines
of credit and commitments to fund loans were made up of both fixed rate and variable rate commitments. The fixed rate commitments
totaled $23.5 million and had interest rates that ranged from 2.45% to 18.00% and the variable rate commitments totaled $86.9 million
and had interest rates that ranged from 2.01% to 8.50%. As of December 31, 2015, the undisbursed portion of loans closed was primarily
unfunded SBA loans with variable rates ranging from 3.75% to 6.00%, and the unused lines of credit and commitments to fund loans
were made up of both fixed rate and variable rate commitments. The fixed rate commitments totaled $20.2 million and had interest
rates that ranged from 3.50% to 18.00% and the variable rate commitments totaled $65.3 million and had interest rates that ranged
from 1.67% to 8.25%.
As of December 31, 2016 and 2015, the Company had fully secured
outstanding standby letters of credit commitments totaling $623,000 and $133,000, respectively.
Since certain commitments to make loans, provide
lines of credit, and fund loans in process may expire without being used by the customer, the amount does not necessarily represent
future cash commitments. In addition, commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. The exposure to credit loss in the event of nonperformance by the other
party to these financial instruments is represented by the contractual amount of these instruments. The Company follows the same
credit policies to make such commitments as is followed for those loans recorded on the consolidated balance sheet.
The Company has employment agreements with
three of its officers, which were all effective as of December 31, 2016. However, as of December 31, 2016, the Company had no balance
accrued for any liabilities related to these agreements.
In addition to its borrowing capacity with
the FHLB, the Company maintained lines of credit with private financial institutions as of December 31, 2016 and 2015. These lines
of credit totaled $47.0 million and $20.0 million as of December 31, 2016 and 2015, respectively, for which no balance was outstanding
as of December 31, 2016 or 2015.
The Company has operating leases in place
for eight business locations. Lease payments in total over the next 5 years are approximately $1.2 million.
NOTE 14. INCOME TAXES
Income tax expense for the years ending December
31, 2016, 2015 and 2014 was as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Current – federal
|
|
$
|
961
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Current – state
|
|
|
139
|
|
|
|
-
|
|
|
|
-
|
|
Deferred – federal
|
|
|
2,409
|
|
|
|
(684
|
)
|
|
|
5,328
|
|
Deferred – state, net of federal tax effect
|
|
|
226
|
|
|
|
(31
|
)
|
|
|
453
|
|
Decrease in valuation allowance – federal
|
|
|
(93
|
)
|
|
|
(7,905
|
)
|
|
|
(5,328
|
)
|
Decrease in valuation allowance – state
|
|
|
(10
|
)
|
|
|
(887
|
)
|
|
|
(453
|
)
|
Income tax expense (benefit)
|
|
$
|
3,632
|
|
|
$
|
(9,507
|
)
|
|
$
|
-
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 14. INCOME TAXES
(continued)
The effective tax rate differs from the statutory
federal income tax rate for the years ending December 31, 2016, 2015 and 2014 as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Income taxes at current statutory rate of 34%
|
|
$
|
3,417
|
|
|
$
|
(608
|
)
|
|
$
|
451
|
|
Increase (decrease) from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal tax effect
|
|
|
318
|
|
|
|
(22
|
)
|
|
|
(52
|
)
|
Tax-exempt income
|
|
|
(32
|
)
|
|
|
(31
|
)
|
|
|
(32
|
)
|
Increase in cash surrender value of bank owned life insurance
|
|
|
(158
|
)
|
|
|
(163
|
)
|
|
|
(171
|
)
|
Stock option expense
|
|
|
171
|
|
|
|
6
|
|
|
|
2
|
|
Change related to Internal Revenue Code § 382 net operating loss carryover limitations
|
|
|
4
|
|
|
|
80
|
|
|
|
5,619
|
|
Change in federal valuation allowance
|
|
|
(93
|
)
|
|
|
(7,905
|
)
|
|
|
(5,328
|
)
|
Change in state valuation allowance
|
|
|
(10
|
)
|
|
|
(887
|
)
|
|
|
(453
|
)
|
Other, net
|
|
|
15
|
|
|
|
23
|
|
|
|
(36
|
)
|
Income tax expense (benefit)
|
|
$
|
3,632
|
|
|
$
|
(9,507
|
)
|
|
$
|
-
|
|
Effective tax rate
|
|
|
36.1
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Deferred tax assets and liabilities as of
December 31, 2016 and 2015 were as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses
|
|
$
|
3,027
|
|
|
$
|
2,887
|
|
Other real estate owned
|
|
|
894
|
|
|
|
1,010
|
|
Net operating loss carryover – limited by Internal Revenue Code § 382
|
|
|
2,010
|
|
|
|
2,552
|
|
Net operating loss carryover – unlimited
|
|
|
31
|
|
|
|
1,186
|
|
Net unrealized loss on securities available-for-sale
|
|
|
518
|
|
|
|
345
|
|
Deferred loan fees
|
|
|
210
|
|
|
|
567
|
|
Alternative minimum tax carryover
|
|
|
527
|
|
|
|
527
|
|
Other
|
|
|
905
|
|
|
|
1,036
|
|
Total deferred tax assets
|
|
|
8,122
|
|
|
|
10,110
|
|
Valuation allowance – federal
|
|
|
(24
|
)
|
|
|
(117
|
)
|
Valuation allowance – state
|
|
|
(3
|
)
|
|
|
(13
|
)
|
Total deferred tax assets, net of valuation allowance
|
|
|
8,095
|
|
|
|
9,980
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(514
|
)
|
|
|
(242
|
)
|
Deferred loan costs
|
|
|
(271
|
)
|
|
|
(194
|
)
|
Prepaid expenses
|
|
|
(272
|
)
|
|
|
(214
|
)
|
Other
|
|
|
(286
|
)
|
|
|
(223
|
)
|
Total deferred tax liability
|
|
|
(1,343
|
)
|
|
|
(873
|
)
|
Net deferred tax asset
|
|
$
|
6,752
|
|
|
$
|
9,107
|
|
The Company considers at each reporting period all available
evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed
to reduce its deferred tax assets to an amount that is more likely than not to be realized. A determination of the need for a valuation
allowance for the deferred tax assets is dependent upon management’s evaluation of both positive and negative evidence.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 14. INCOME TAXES
(continued)
Based on the assessment during the second quarter of 2015 of
this fact and all the other positive and negative evidence bearing on the likelihood of realization of the Company’s deferred
tax assets, management concluded that it is more likely than not that $8.5 million of the deferred tax assets, primarily comprised
of future tax benefits associated with the allowance for portfolio loan losses, net operating loss carryover and net unrealized
loss on securities available-for-sale, will be realized based upon future taxable income. Therefore, $8.5 million of the valuation
allowance was reversed during the second quarter of 2015, while $0.3 million of the valuation allowance remained as of June 30,
2015.
During the assessment in the second quarter of 2015, the positive
evidence considered by management in arriving at the conclusion to remove the valuation allowance included five consecutive profitable
quarters beginning with the first quarter of 2014, strong growth in core earnings, assessments of the current and future economic
and business conditions, which demonstrates demand for the Company’s products and services, the significant improvement in
credit measures, which impacts the sustainability of profitability and management’s ability to forecast future credit losses,
the probability of achieving forecasted future taxable income and the termination of a Consent Order with one of the Bank’s
regulatory agencies. At the same time, the negative evidence considered by management included the aforementioned cumulative loss
position, expiring tax credit carryovers, and the continuation of a Supervisory Agreement with one of the Company’s regulatory
agencies, which was terminated subsequent to the reversal of the valuation allowance.
As of December 31, 2016, the Company evaluated the expected
realization of its federal and state deferred tax assets. Based on this evaluation it was concluded that no valuation allowance
was required for the federal and state deferred tax assets, with the exception of the remaining deferred tax asset related to a
capital loss carryover, which resulted in a valuation allowance of $27,000 as of December 31, 2016. The valuation allowance was
$0.1 million as of December 31, 2015.
During the year ended December 31, 2016, the Company used $4.1
million of federal net operating loss carryover, while no federal net operating loss carryover was used during the years ended
December 31, 2015 and 2014. During the years ended December 31, 2016 and 2015, the Company used $2.6 million and $0.1 million,
respectively, of state net operating loss carryover, while no state net operating loss carryover was used during the year ended
December 31, 2014.
Under the rules of Internal Revenue Code section 382 (IRC §
382), a change in the ownership of the Company occurred during the first quarter of 2013. During the second quarter of 2013, the
Company became aware of the change in ownership based on applicable filings made by stockholders with the Securities and Exchange
Commission (the SEC). In accordance with IRC § 382, the Company determined the gross amount of net operating loss carryover
that it could utilize was limited to approximately $325,000 per year, excluding net operating loss carryovers which were generated
after the first quarter of 2013. The net operating loss carryovers generated after the first quarter of 2013 were fully used in
2016.
The Company has a federal net operating
loss carryover of $5.4 million which will expire between 2027 and 2033. There is no valuation allowance on this carryover. The
Company has a state net operating loss carryover of $5.9 million which will expire between 2017 and 2033. There is no valuation
allowance on this carryover.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 15. EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net
income by the weighted average number of common shares and common stock equivalents outstanding for the period. The basic weighted
average common shares and common stock equivalents are computed using the treasury stock method. The basic weighted average common
shares and common stock equivalents outstanding for the period is adjusted for average unallocated employee stock ownership plan
shares, average director’s deferred compensation shares and average unearned restricted stock awards. Diluted earnings per
common share is computed by dividing net income by the weighted average number of common shares and common stock equivalents outstanding
for the period increased for the dilutive effect of unvested stock options and stock awards. The dilutive effect of the unvested
stock options and stock awards is calculated under the treasury stock method utilizing the average market value of the Company’s
stock for the period.
The following table summarizes the basic and diluted earnings
per common share computation for the years ended December 31, 2016, 2015 and 2014:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
(Dollars in Thousands, Except Share Information)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,418
|
|
|
$
|
7,718
|
|
|
$
|
1,327
|
|
Weighted average common shares outstanding
|
|
|
15,508,933
|
|
|
|
15,508,969
|
|
|
|
15,508,969
|
|
Less: average unallocated employee stock ownership plan shares
|
|
|
(71,844
|
)
|
|
|
(76,647
|
)
|
|
|
(81,411
|
)
|
Less: average director’s deferred compensation shares
|
|
|
(19,743
|
)
|
|
|
(33,899
|
)
|
|
|
(35,234
|
)
|
Less: average unvested restricted stock awards
|
|
|
-
|
|
|
|
(136
|
)
|
|
|
(409
|
)
|
Weighted average common shares outstanding, as adjusted
|
|
|
15,417,346
|
|
|
|
15,398,287
|
|
|
|
15,391,915
|
|
Basic earnings per common share
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,418
|
|
|
$
|
7,718
|
|
|
$
|
1,327
|
|
Weighted average common shares outstanding, as adjusted (from above)
|
|
|
15,417,346
|
|
|
|
15,398,287
|
|
|
|
15,391,915
|
|
Add: dilutive effects of assumed exercise of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Add: dilutive effects of full vesting of stock awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average dilutive shares outstanding
|
|
|
15,417,346
|
|
|
|
15,398,287
|
|
|
|
15,391,915
|
|
Diluted earnings per common share
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
|
$
|
0.09
|
|
During the years ended December 31, 2016, 2015 and 2014, all
of the Company’s stock options and stock awards were antidilutive and, therefore, were excluded from the calculation of diluted
earnings per common share.
NOTE 16. EMPLOYEE BENEFITS
Defined Contribution Plan
Company employees meeting certain age and
length of service requirements may participate in a 401(k) plan sponsored by the Company. Plan participants may contribute between
1% and 75% of gross income, subject to an Internal Revenue Service maximum amount, with a Company match equal to 100% of the first
3% of the compensation contributed, plus 50% of the next 2% of the compensation contributed. For the years ended December 31, 2016,
2015 and 2014, the total plan expense was $382,000, $160,000 and $121,000, respectively.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 16. EMPLOYEE BENEFITS
(continued)
Supplemental Executive Retirement Plans and Director Retirement
Plan
Under the terms of the executive and senior officer supplemental
executive retirement plans (SERP) and the Director Retirement Plan, each participant will receive a periodic benefit payment beginning
on a date defined by each plan. Under the executive SERP, benefit payments begin the first month after the retirement date. Under
the Director Retirement Plan, benefit payments began on the first month following 100% vesting. Under the senior officer SERP,
benefit payments begin on January 1
st
of the year following the retirement date. Benefit payments are due over a period
of ten (10) to twenty (20) years after retirement and are based on the amount of each participant’s appreciation benefit
plus accrued interest on unpaid balances.
Vesting in the appreciation benefit for the executive SERPs
and Director Retirement Plan was contingent upon the occurrence of certain events. For the executive SERPs, such events included
the successful completion of the second step conversion, two consecutive quarters of positive income before the expense of participant
vesting by the Company, the participant's death or disability, a change-of control of the Company, or involuntary termination of
employment. For the Director Retirement Plan, such events included the successful completion of the second step conversion. The
vested appreciation benefit would have been payable over 15 years for executive SERPs and is payable over 10 years for the Director
Retirement Plan. The vested but unpaid appreciation benefits of the executive SERPs and Director Retirement Plan are credited for
interest at a rate of 3-month LIBOR plus 275 basis points.
Under the terms of the senior officer SERP, the appreciation
benefit was established upon completion of the second step conversion and becomes payable to the participant over 20 years following
separation from service due to retirement from the Company, which may be no earlier than age 55. In the event of a death of a participant
with 5 or more years of service, a lump sum payment is due to the participant's beneficiary. The participant forfeits their appreciation
benefit if the employee leaves the Company prior to retirement. The unpaid appreciation benefit for each participant is credited
for interest at a rate of 3-month LIBOR plus 275 basis points.
The executive SERPs and Director Retirement Plan were partially
funded through the creation of a rabbi trust (the Trust). The Trust purchased 34,009 shares of Company stock at $10.00 per share
during the second step conversion and has recorded the purchase as common stock held by benefits plans in stockholders’ equity.
Benefits paid by the Trust may be paid in cash or stock and the assets of the Trust are considered general assets of the Company.
Changes in the value of Company stock are recorded as adjustments to the benefits accrued for each participant.
The Company recorded expense of $13,000, $7,000 and $26,000
for SERP and Director Retirement Plans in 2016, 2015 and 2014, respectively, including increases for vesting, increases in the
market value of Company stock held in the Trust, and interest on unpaid appreciation benefits, net of the reversal of benefits
accrued for SERP participants who severed their employment prior to retirement.
Below is the amount of accrued liability and unvested appreciation
benefit under the SERP and Director Retirement Plan as of December 31, 2016 and 2015:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in Thousands)
|
|
Accrued liability:
|
|
|
|
|
|
|
|
|
Executive and senior officer SERP
|
|
$
|
209
|
|
|
$
|
197
|
|
Director retirement plan
|
|
$
|
70
|
|
|
$
|
107
|
|
Unvested appreciation benefit:
|
|
|
|
|
|
|
|
|
Executive
and senior officer SERP
|
|
$
|
136
|
|
|
$
|
1,959
|
|
Director retirement plan
|
|
$
|
-
|
|
|
$
|
-
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 16. EMPLOYEE BENEFITS
(continued)
Supplemental Executive Retirement Plan and Director Retirement
Plan (continued)
In October 2015, the Company’s Board of Directors approved
the payment and disbursement of vested appreciation benefits to participants under the Director Retirement Plan, which would have
normally been paid out and disbursed between April 2012 and October 2015. Such payments and disbursements were temporarily suspended
due to the Consent Order (the Order), dated August 10, 2012 and terminated March 26, 2015, between the Bank and the Office of Comptroller
Currency (the OCC), among other things. These catch up payments were made in November 2015, totaling $53,000 in cash, and some
of the catch up distributions were made in December 2015, totaling 4,688 shares. The remaining catch up distributions were made
early in 2016, totaling 3,771 shares.
The Company’s Board of Directors also approved resumption
of regularly scheduled payments and disbursements under the Director Retirement Plan. Regular payments and disbursements during
the year ended December 31, 2016 totaled $16,000 in cash and 175 shares, while regular payments and disbursements during the year
ended December 31, 2015 totaled $1,000 in cash and 43 shares. There were no regular payments and disbursements during the year
ended December 31, 2014.
Under the Director Retirement Plan, all cash payments during
2016 and 2015 were previously accrued for and all share distributions during 2016 and 2015 were of previously issued and outstanding
Company stock.
Deferred Director Fee Plan
A deferred director fee compensation plan covers all non-employee
directors. Under the plan, directors may defer director fees. These fees are expensed as earned and the plan accumulates the fees
plus earnings. At December 31, 2016 and 2015, the liability for the plan was $118,000 and $147,000, respectively.
NOTE 17. EMPLOYEE STOCK OWNERSHIP PLAN
The Company established the ESOP through the purchase of 465,520
shares of common stock from Atlantic Coast Federal Corporation’s first step conversion in 2004, with proceeds from a ten-year
note in the amount of $4.7 million between the ESOP and Atlantic Coast Federal Corporation. Upon completion of the Company’s
second step conversion in 2011, all unallocated shares in the plan were exchanged for Atlantic Coast Financial Corporation shares
at a rate of 0.1960 shares of Atlantic Coast Financial Corporation for each share of Atlantic Coast Federal Corporation. As part
of the conversion, the Company loaned $0.7 million to the trust for the ESOP enabling it to purchase 68,434 shares of common stock
in the stock offering for allocation under such plan. The Company’s loan to the ESOP was combined with the remaining debt
from the original note, described below, and modified to be payable over 20 years. Further, the ESOP was modified such that unearned
shares held by the ESOP will be allocated over the same term as the debt.
The Company's Board of Directors determines the amount of contribution
to the ESOP annually, but is required to make contributions sufficient to service the ESOP's debt. Shares are released for allocation
to employees as the ESOP debt is repaid. Eligible employees receive an allocation of released shares at the end of the calendar
year on a relative compensation basis. An employee becomes eligible on January 1
st
or July 1
st
immediately
following the date they complete one year of service. In the event the Company pays dividends to stockholders, the dividends paid
on allocated ESOP shares will be paid to employee accounts, while the dividends paid on unallocated shares held by the ESOP will
be applied to the ESOP note payable.
Contributions to the ESOP were
$97,000, $94,000 and $91,000 for the years ended December 31, 2016, 2015 and 2014, respectively, and did not include
dividends on unearned shares during any of the years.
Compensation expense for shares committed to be released under
the ESOP was $30,000, $23,000 and $20,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 17. EMPLOYEE STOCK OWNERSHIP PLAN
(continued)
Shares held by the ESOP as of December 31, 2016 and 2015 were
as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Allocated to eligible employees
|
|
|
4,790
|
|
|
|
4,790
|
|
Unearned
|
|
|
67,067
|
|
|
|
71,857
|
|
Total ESOP shares
|
|
|
71,857
|
|
|
|
76,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
Fair value of unearned shares
|
|
$
|
456
|
|
|
$
|
421
|
|
NOTE 18. STOCK-BASED COMPENSATION
Plans Adopted in 2016
2016 Omnibus Incentive Plan
At the 2016 Annual Meeting of Stockholders,
the Company’s stockholders approved the 2016 Omnibus Incentive Plan (the 2016 Incentive Plan). Eligible participants under
the 2016 Incentive Plan are Company officers or other employees or individuals engaged to become officers or employees, any consultant
or advisor who provides service to the Company, and any Company directors, including non-employee directors. Under the 2016 Incentive
Plan, the Company may grant stock options, stock appreciation rights, performance shares, performance units, shares of common
stock, restricted stock, restricted stock units, incentive awards, dividend equivalent units, and other stock based awards. The
2016 Incentive Plan reserves 500,000 shares of common stock for issuance, subject to adjustment upon certain changes in capital
structure. The 2016 Incentive Plan also provides for limits on the size of certain awards that may be made to certain classes
of participants.
In 2016, the Company adopted, two incentive
compensation plans under the 2016 Incentive Plan. These plans provided for the grants of awards to the Company’s three executive
officers, based on the Company’s earnings per share, return on average assets in the third and fourth quarters, and the amount
of non-performing assets as a percentage of total assets. One of these plans was titled the Annual Incentive Plan, which provided
that our Chief Executive Officer (CEO) could earn a target award of 40% of his or her salary, and our Chief Financial Officer (CFO)
and Chief Credit Officer (CCO) could each earn a target award equal to 25% of his or her salary. As a percentage of the target
awards, earnings per share was weighted at 60%, return on average assets for the third and fourth quarters at 20%, and non-performing
assets as a percentage of total assets at 20%. A minimum performance threshold was set at 85% of each target. A performance maximum
was set at 115% of each target. Performance below the thresholds provided for no award for that metric and awards were prorated
between the threshold and the maximum. Awards were made 70% in cash and 30% in restricted stock to vest over a three-year period.
The second plan was titled the Long Term
Incentive Plan, which provided an opportunity for such three officers, discussed above, to receive incentive awards based on earnings
per share. Because the measurement period for that metric was only one year, the Company is treating this plan as another stock
based award. Under this plan, our CEO had the opportunity to earn an award of 40% of his or her salary, and our CFO and CCO each
had the opportunity to earn an award equal to 25% of his or her salary. Awards were made in restricted stock, which will cliff
vest after five years.
There were no awards made under the 2016 Incentive
Plan during the year ended December 31, 2016.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 18. STOCK-BASED COMPENSATION
(continued)
Plans Adopted in 2005
The Company established stock-based compensation plans following
Atlantic Coast Federal Corporation’s first step conversion in 2004. In 2005, the Company’s stockholders approved the
establishment of both the Atlantic Coast Federal Corporation 2005 Recognition and Retention Plan (the Recognition Plan) and the
Atlantic Coast Federal Corporation 2005 Stock Option Plan (the Stock Option Plan). Upon completion of the Company’s second
step conversion in 2011, all unallocated or unvested shares in the plans were exchanged for Atlantic Coast Financial Corporation
shares at a rate of 0.1960 shares of Atlantic Coast Financial Corporation for each share of Atlantic Coast Federal Corporation.
There was no compensation cost that has been charged against
income for the Recognition Plan or the Stock Option Plan for the year ended December 31, 2016. The compensation cost that has been
charged against income for the Recognition Plan was $2,000 and $3,000 during the years ended December 31, 2015 and 2014, respectively.
The compensation cost that has been charged against income for the Stock Option Plan for the years ended December 31, 2015 and
2014 was $12,000 and $23,000, respectively.
The Recognition Plan
The Recognition Plan became effective on July 1, 2005 and expired
on June 30, 2015. The Recognition Plan permitted the Company’s Board of Directors to award up to 55,888 shares of its common
stock to directors and key employees designated by the Board of Directors. Under the terms of the Recognition Plan, awarded shares
were restricted as to transferability and could not be sold, assigned, or transferred prior to vesting. Awarded shares vested at
a rate of 20% of the initially awarded amount per year, beginning on the first anniversary date of the award, and were contingent
upon continuous service by the recipient through the vesting date. An accelerated vesting occurred if there was a change in control
of the Company or death or disability of the participant. Any awarded shares which were forfeited were returned to the Company
and could have been re-awarded to another recipient.
There were no common stock share awards during the years ended
December 31, 2016 and 2015. A summary of the status of the shares of the Recognition Plan at December 31, 2016 and 2015 is presented
below:
|
|
|
Shares
|
|
|
Weighted-Average
Grant-Date Fair Value Per Share
|
|
Non-vested at January 1, 2015
|
|
|
|
274
|
|
|
$
|
14.95
|
|
Granted
|
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
|
(274
|
)
|
|
|
14.95
|
|
Forfeited
|
|
|
|
-
|
|
|
|
-
|
|
Non-vested at December 31, 2015
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
|
-
|
|
|
|
-
|
|
Non-vested at December 31,
2016
|
|
|
|
-
|
|
|
|
-
|
|
There was no unrecognized compensation expense related to non-vested
shares awarded under the Recognition Plan at December 31, 2016.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 18. STOCK-BASED COMPENSATION
(continued)
The Stock Option Plan
The Stock Option Plan became effective on July 28, 2005 and
expired on July 27, 2015. The Stock Option Plan permitted the Company’s Board of Directors to grant options to purchase up
to 139,720 shares of its common stock to the Company’s directors and key employees. Under the terms of the Stock Option Plan,
granted stock options have a contractual term of 10 years from the date of grant, with an exercise price equal to the market price
of the Company’s common stock on the date of grant. Key employees were eligible to receive incentive stock options or non-qualified
stock options, while outside directors were eligible for non-statutory stock options only.
The Stock Option Plan also permitted the Company’s Board
of Directors to issue key employees, simultaneous with the issuance of stock options, an equal number of Limited Stock Appreciation
Rights (Limited SAR). The Limited SARs were exercisable only upon a change of control and, if exercised, reduced one-for-one the
recipient’s related stock option grants. Under the terms of the Stock Option Plan, granted stock options vested at a rate
of 20% of the initially granted amount per year, beginning on the first anniversary date of the grant, and were contingent upon
continuous service by the recipient through the vesting date. Accelerated vesting occurred if there was a change in control of
the Company or death or disability of the participant. There were 97,314 stock options remaining to be awarded as of July 27, 2015,
the date the plan was terminated.
There were no incentive stock option awards during the years
ended December 31, 2016, 2015 and 2014.
A summary of the option activity under the Stock Option Plan
as of December 31, 2016 and 2015, and changes for the year then ended is presented below:
|
|
Shares
|
|
|
Weighted-Average
Exercise Price Per Share
|
|
|
Weighted-Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
(in Years)
|
|
|
(in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2015
|
|
|
64,959
|
|
|
|
49.40
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(42,615
|
)
|
|
|
65.14
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
22,344
|
|
|
|
19.39
|
|
|
|
4.2
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest
|
|
|
22,344
|
|
|
|
19.39
|
|
|
|
4.2
|
|
|
|
-
|
|
Exercisable at year end
|
|
|
22,344
|
|
|
|
19.39
|
|
|
|
4.2
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
22,344
|
|
|
|
19.39
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,568
|
)
|
|
|
78.16
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
20,776
|
|
|
|
14.95
|
|
|
|
3.5
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest
|
|
|
20,776
|
|
|
|
14.95
|
|
|
|
3.5
|
|
|
|
-
|
|
Exercisable at year end
|
|
|
20,776
|
|
|
|
14.95
|
|
|
|
3.5
|
|
|
|
-
|
|
The fair value of each option award was estimated on the date
of grant using the Black Scholes option-pricing model based on certain assumptions. Due to the somewhat limited daily trading volume
of shares of our Company stock, the volatility of the SNL thrift index was used in lieu of the historical volatility of our Company
stock. The risk free rate for periods within the contractual term of the option was based on the U.S. Treasury yield curve in effect
at the date of the grant. The expected life of the options was estimated based on historical employee behavior and represents the
period of time that options were expected to remain outstanding.
There was no unrecognized compensation cost related to non-vested
stock options granted under the Stock Option Plan as of December 31, 2016.
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 19. REGULATORY SUPERVISION
The Bank’s actual and required capital levels and ratios
as of December 31, 2016 and 2015 were as follows:
|
|
Actual
|
|
|
Required to be Well-
Capitalized Under Prompt
Corrective Action
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in Millions)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
92.8
|
|
|
|
14.83
|
%
|
|
$
|
62.6
|
|
|
|
10.00
|
%
|
Common equity tier 1 capital (to risk weighted assets)
|
|
|
85.0
|
|
|
|
13.58
|
%
|
|
|
40.7
|
|
|
|
6.50
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
85.0
|
|
|
|
13.58
|
%
|
|
|
50.1
|
|
|
|
8.00
|
%
|
Tier 1 capital (to adjusted total assets)
|
|
|
85.0
|
|
|
|
9.44
|
%
|
|
|
45.0
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
84.2
|
|
|
|
13.91
|
%
|
|
$
|
60.6
|
|
|
|
10.00
|
%
|
Common equity tier 1 capital (to risk weighted assets)
|
|
|
76.7
|
|
|
|
12.66
|
%
|
|
|
39.4
|
|
|
|
6.50
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
76.7
|
|
|
|
12.66
|
%
|
|
|
48.4
|
|
|
|
8.00
|
%
|
Tier 1 capital (to adjusted total assets)
|
|
|
76.7
|
|
|
|
9.49
|
%
|
|
|
40.4
|
|
|
|
5.00
|
%
|
The Bank’s capital classification under Prompt Corrective
Action (PCA) defined levels as of December 31, 2016 was well-capitalized.
Beginning on January 1, 2016, as a result of the commencement
of the phase-in of amended regulatory risk-based capital rules, the Company must maintain a capital conservation buffer to avoid
restrictions on capital distributions or discretionary bonus payments. The capital conservation buffer must consist solely of Common
Equity Tier 1 capital, but it applies to all three risk-weighted measurements (total risk based capital to risk-weighted assets
ratio, Common Equity Tier 1 capital to risk-weighted assets ratio, Tier 1 capital to risk-weighted assets ratio) in addition to
the minimum risk-weighted capital requirements. The capital conservation buffer required for 2016 is common equity equal to 0.625%
of risk-weighted assets and will increase by 0.625% per year until reaching 2.5% beginning January 1, 2019
NOTE 20. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed Balance Sheets – December 31, 2016 and 2015
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at subsidiary
|
|
$
|
1,068
|
|
|
$
|
1,308
|
|
Investment in subsidiary
|
|
|
85,841
|
|
|
|
77,335
|
|
Note receivable from employee stock ownership plan
|
|
|
1,757
|
|
|
|
1,853
|
|
Other assets
|
|
|
337
|
|
|
|
2,578
|
|
Total assets
|
|
$
|
89,003
|
|
|
$
|
83,074
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
1,985
|
|
|
$
|
2,336
|
|
Total stockholders’ equity
|
|
|
87,018
|
|
|
|
80,738
|
|
Total liabilities and stockholders’ equity
|
|
$
|
89,003
|
|
|
$
|
83,074
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years Ended December 31, 2016, 2015 and 2014
NOTE 20. PARENT COMPANY ONLY CONDENSED FINANCIAL
INFORMATION
(continued)
Condensed Statements Of Operations – Years ended December
31, 2016, 2015 and 2014
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
64
|
|
|
$
|
62
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
162
|
|
|
|
454
|
|
|
|
491
|
|
Equity in net income of subsidiary
|
|
|
8,801
|
|
|
|
5,034
|
|
|
|
1,317
|
|
Noninterest expense
|
|
|
(568
|
)
|
|
|
(464
|
)
|
|
|
(546
|
)
|
Total noninterest income and expense
|
|
|
8,395
|
|
|
|
5,024
|
|
|
|
1,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
8,459
|
|
|
|
5,086
|
|
|
|
1,327
|
|
Income tax expense (benefit)
|
|
|
2,041
|
|
|
|
(2,632
|
)
|
|
|
-
|
|
Net income
|
|
$
|
6,418
|
|
|
$
|
7,718
|
|
|
$
|
1,327
|
|
Condensed Statements Of Cash Flows – Years ended December
31, 2016, 2015 and 2014
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,418
|
|
|
$
|
7,718
|
|
|
$
|
1,327
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock ownership plan compensation expense
|
|
|
30
|
|
|
|
23
|
|
|
|
20
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
14
|
|
|
|
26
|
|
Net change in other assets
|
|
|
2,242
|
|
|
|
(2,578
|
)
|
|
|
70
|
|
Net change in accrued expenses and other liabilities
|
|
|
(351
|
)
|
|
|
(229
|
)
|
|
|
(86
|
)
|
Equity in undistributed income of subsidiary
|
|
|
(8,801
|
)
|
|
|
(5,034
|
)
|
|
|
(1,317
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(462
|
)
|
|
|
(86
|
)
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment received on employee stock ownership plan loan
|
|
|
96
|
|
|
|
94
|
|
|
|
91
|
|
Net cash provided by investing activities
|
|
|
96
|
|
|
|
94
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional cost associated with the issuance of common stock in a public offering in 2013
|
|
|
-
|
|
|
|
-
|
|
|
|
(112
|
)
|
Shares purchased for and distributions from Rabbi Trust
|
|
|
126
|
|
|
|
(30
|
)
|
|
|
-
|
|
Net cash used in financing activities
|
|
|
126
|
|
|
|
(30
|
)
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(240
|
)
|
|
|
(22
|
)
|
|
|
19
|
|
Cash and cash equivalents, beginning of year
|
|
|
1,308
|
|
|
|
1,330
|
|
|
|
1,311
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,068
|
|
|
$
|
1,308
|
|
|
$
|
1,330
|
|
NOTE
21.
BRANCH TRANSACTION
On November 20, 2015, the Bank announced
it had agreed to sell its branch in Garden City, Georgia (the Garden City branch) to Queensborough National Bank & Trust Company
(Queensborough). In the transaction, which closed on April 8, 2016, Queensborough acquired certain assets and assumed certain liabilities
of the Bank. The Garden City branch sale, which did not have a material impact on the Company's assets, loan portfolio or earnings,
resulted in $13.7 million of deposits, or approximately 2.5% of the Bank’s total deposits as of March 31, 2016, transferring
to Queensborough. The Company recorded a $0.1 million gain on the transaction.