UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the
Securities Exchange Act of 1934 (Amendment
No. )
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the Registrant
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Preliminary
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Definitive
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Definitive
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Soliciting
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(2)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on
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Check box if any part of the fee is offset as provided by Exchange
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Amount previously paid:
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Form, Schedule or Registration Statement no.:
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April 18, 2017
Dear Fellow Stockholder:
We cordially invite
you to attend the 2017 Annual Meeting of Stockholders of Atlantic Coast Financial Corporation, the parent company of Atlantic Coast
Bank. The Annual Meeting will be held at the Sheraton Jacksonville Hotel located at 10605 Deerwood Park Blvd., Jacksonville, Florida
32256, at 10:00 a.m., local time, on May 22, 2017.
The enclosed notice of
Annual Meeting of Stockholders and proxy statement describe the matters to be acted on at the Annual Meeting, which includes:
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the election of three nominees for director
named in the enclosed proxy statement, each for a term of three years;
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the ratification of our Audit Committee’s
appointment of Dixon Hughes Goodman LLP as our independent registered public accounting firm for the year ending December 31, 2017;
and
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the transaction of any other business
as may properly come before the Annual Meeting and any postponement(s) or adjournment(s) thereof.
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Our Board of Directors
has determined that the matters to be acted on at the Annual Meeting are in our best interest and the best interest of our stockholders.
For the reasons set forth in the proxy statement, our Board of Directors unanimously recommends a vote “FOR” each of
the director nominees named in the enclosed proxy statement and “FOR” the ratification of our Audit Committee’s
appointment of Dixon Hughes Goodman LLP as our independent registered public accounting firm for the year ending December 31, 2017.
Following the voting,
we will report on our consolidated operations. Our directors and officers will be present to respond to any questions that stockholders
may have.
Also enclosed for your
review is our Annual Report on Form 10-K for the year ended December 31, 2016, which contains detailed information concerning our
activities and operating performance as well as our consolidated audited financial statements. On behalf of the Board of Directors,
we urge you to vote your shares of common stock as soon as possible even if you currently plan to attend the Annual Meeting. Record
holders of our common stock may vote their shares prior to the Annual Meeting by completing and mailing the enclosed proxy card
in accordance with the instructions on the proxy card. Beneficial owners of our common stock may vote their shares prior to the
Annual Meeting by following the instructions provided by their broker. Voting your shares prior to the meeting will not prevent
you from voting in person, but will ensure that your vote is counted if you are unable to attend the Annual Meeting.
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Sincerely,
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John K. Stephens, Jr.
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President and Chief Executive Officer
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ATLANTIC COAST FINANCIAL CORPORATION
4655 Salisbury Road, Suite 110
Jacksonville, Florida 32256
(800) 342-2824
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 22, 2017
IMPORTANT NOTICE REGARDING THE AVAILABILITY
OF PROXY
MATERIALS FOR THE STOCKHOLDER MEETING TO
BE HELD ON MAY 22, 2017
The Proxy Statement and Annual Report on
Form 10-K for the year ended December 31, 2016 are available at:
http://www.irinfo.com/acfc/acfc.html
Notice is hereby given
that the 2017 Annual Meeting of Stockholders of Atlantic Coast Financial Corporation will be held at the Sheraton Jacksonville
Hotel located at 10605 Deerwood Park Blvd., Jacksonville, Florida 32256, at 10:00 a.m., local time, on May 22, 2017. A proxy card
and a proxy statement for the Annual Meeting are enclosed. The meeting is being held for the purpose of considering and acting
upon:
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1.
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the election as directors of three nominees named in the enclosed proxy statement, each for a term
of three years;
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2.
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the ratification of our Audit Committee’s appointment of Dixon Hughes Goodman LLP as our
independent registered public accounting firm for the year ending December 31, 2017; and
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3.
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any other business as may properly come before the Annual Meeting and any postponement(s) or adjournment(s)
thereof.
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Our Board of Directors
has not received notice of any other business to come before the Annual Meeting. Action may be taken on the foregoing proposals
at the Annual Meeting on the date specified above, or on any date or dates to which the Annual Meeting may be adjourned or postponed.
Stockholders of record at the close of business on March 31, 2017, are the stockholders entitled to vote at the Annual Meeting,
and any adjournments or postponements thereof.
EVEN IF YOU PLAN TO ATTEND
THE ANNUAL MEETING, PLEASE VOTE YOUR SHARES OF COMMON STOCK WITHOUT DELAY. RECORD HOLDERS OF OUR COMMON STOCK MAY VOTE THEIR SHARES
PRIOR TO THE ANNUAL MEETING BY COMPLETING AND MAILING THE ENCLOSED PROXY CARD IN ACCORDANCE WITH THE INSTRUCTIONS ON THE PROXY
CARD. BENEFICIAL OWNERS OF OUR COMMON STOCK MAY VOTE THEIR SHARES PRIOR TO THE ANNUAL MEETING BY FOLLOWING THE INSTRUCTIONS PROVIDED
BY THEIR BROKER. YOU MAY REVOKE A PROXY AT ANY TIME BEFORE WE VOTE AT THE ANNUAL MEETING. YOU MAY DO SO BY EXECUTING AND RETURNING
A PROXY CARD DATED LATER THAN A PREVIOUSLY SUBMITTED PROXY OR BY SUBMITTING A WRITTEN REVOCATION TO OUR CORPORATE SECRETARY BEFORE
THE VOTE IS TAKEN AT THE ANNUAL MEETING. IF YOU HOLD SHARES OF COMMON STOCK THROUGH A BROKER, YOU SHOULD FOLLOW THE INSTRUCTIONS
OF YOUR BROKER REGARDING VOTING AND REVOCATION OF PROXIES. IF YOU ATTEND THE ANNUAL MEETING YOU MAY REVOKE YOUR PROXY AND VOTE
IN PERSON ON EACH MATTER PROPERLY BROUGHT BEFORE THE ANNUAL MEETING AND ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF. HOWEVER, IF
YOUR SHARES ARE NOT REGISTERED IN YOUR NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR BROKER TO VOTE IN PERSON AT THE ANNUAL
MEETING.
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By Order of the Board of Directors
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Tracy L. Keegan
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EVP, Chief Financial Officer and Corporate Secretary
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Jacksonville, Florida
April 18, 2017
A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
Proxy Statement
ATLANTIC COAST FINANCIAL CORPORATION
4655 Salisbury Road, Suite 110
Jacksonville, Florida 32256
(800) 342-2824
ANNUAL MEETING OF STOCKHOLDERS
May 22, 2017
This proxy statement is
being furnished in connection with the solicitation of proxies on behalf of our Board of Directors to be used at our 2017 Annual
Meeting of Stockholders (the Annual Meeting), and all adjournments or postponements of the Annual Meeting, which will be held at
the Sheraton Jacksonville Hotel located at 10605 Deerwood Park Blvd., Jacksonville, Florida 32256, at 10:00 a.m., local time, on
May 22, 2017. The accompanying Notice of Annual Meeting of Stockholders and this proxy statement are first being mailed to stockholders
on or about April 18, 2017.
REVOCATION OF PROXIES
Stockholders who execute
proxies in the form solicited hereby retain the right to revoke them in the manner described below. Unless revoked, the shares
represented by such proxies will be voted at the Annual Meeting and all adjournments or postponements thereof. Proxies solicited
on behalf of our Board of Directors will be voted in accordance with the directions given thereon.
You can vote your shares
of our common stock prior to the Annual Meeting by signing and returning the enclosed proxy card to us, in accordance with instructions
set forth on the proxy card. Proxies received by us, which are signed, but contain no instructions for voting, will be voted in
accordance with our Board of Directors’ recommendations for the proposals set forth in this proxy statement.
Proxies may be revoked by
sending written notice of revocation to our Corporate Secretary, Tracy L. Keegan, at our address shown above, by delivering a duly
executed proxy bearing a later date, or by attending the Annual Meeting and voting in person. The presence at the Annual Meeting
of any stockholder who had given a proxy shall not revoke such proxy unless the stockholder delivers his or her ballot in person
at the Annual Meeting or delivers a written revocation to our Corporate Secretary prior to the voting of such proxy.
VOTING SECURITIES AND PRINCIPAL HOLDERS
THEREOF
Holders of our common stock,
par value $0.01 per share, as of the close of business on March 31, 2017, are entitled to one vote for each share then held. As
of March 31, 2017, there were 15,553,709 shares of our common stock issued and outstanding. The presence in person or by proxy
of a majority of the outstanding shares of common stock entitled to vote is necessary to constitute a quorum at the Annual Meeting.
Abstentions and broker non-votes will be counted for purposes of determining that a quorum is present.
As to the election of directors,
the proxy card included with this proxy statement enables a stockholder to vote FOR the election of one or more of the nominees
for director named in this proxy statement, or to WITHHOLD authority to vote for one or more of such nominees. Directors are elected
by a plurality of votes cast, without regard to either broker non-votes or proxy cards for which the authority to vote for the
nominees being proposed is withheld. Cumulative voting is not permitted with respect to the election of directors.
As to the ratification of
the appointment of Dixon Hughes Goodman LLP as our independent registered public accounting firm, a stockholder may: (i) vote FOR
the proposal; (ii) vote AGAINST the proposal; or (iii) ABSTAIN from voting on such proposal. The approval of these proposals will
be determined by a majority of the votes cast at the Annual Meeting, without regard to abstentions or broker non-votes.
Persons and groups who beneficially
own in excess of 5% of our common stock are required to file certain reports with the Securities and Exchange Commission regarding
such ownership pursuant to the Securities Exchange Act of 1934, as amended.
The following table sets
forth, as of the dates indicated in the footnotes below, the shares of common stock beneficially owned by each person who has reported
to the Securities and Exchange Commission beneficial ownership of more than 5% of the outstanding shares of our common stock, based
on the reports filed by these persons.
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Name
and Address of Beneficial Owners
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Amount
of Shares Owned and
Nature
of Beneficial Ownership
(1)
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Percent
of Shares of
Common Stock Outstanding
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FJ Capital Management LLC
1313 Dolley Madison Blvd.,
Suite 306
McLean, Virginia 22101
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1,517,200
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(2)
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9.75
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%
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Bhanu Choudhrie
1 Vincent Square
London, SWIP 2PN
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1,411,477
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(3)
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9.08
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%
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RMB
Capital Holdings LLC
115
S. LaSalle Street, 34
th
Floor
Chicago,
Illinois 60603
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1,374,455
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(4)
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8.84
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%
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The Albury Investment Partnership
88 Phillip Street, Aurora
Place, Suite 4, Level 40
Sydney, Australia NSW 2000
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1,328,666
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(5)
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8.54
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%
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TFO
USA Limited
555
5
th
Avenue, 6
th
Floor
New
York, New York 10017
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1,012,238
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(6)
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6.51
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%
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PL Capital LLC
47 East Chicago Avenue, Suite 328
Naperville,
Illinois 60540
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1,000,000
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(7)
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6.43
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%
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EJF Capital LLC
2107 Wilson Boulevard, Suite 410
Arlington,
Virginia 22201
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904,707
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(8)
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5.82
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%
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(1)
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In accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, as amended, a person is deemed to be the beneficial owner for purposes of this table, of any shares of common stock
if such person has shared voting or investment power with respect to such security, or has a right to acquire beneficial ownership
at any time within 60 days from the date as of which beneficial ownership is being determined. As used herein, “voting power”
is the power to vote or direct the voting of shares, and “investment power” is the power to dispose or direct the
disposition of shares, and includes all shares held directly as well as by spouses and minor children, in trust and other indirect
ownership, over which shares the named individuals effectively exercise sole or shared voting or investment power.
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(2)
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Based on a Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2017
by Financial Opportunity Fund LLC, Bridge Equities III LLC, Bridge Equities VIII LLC, FJ Capital Management LLC, Martin S. Friedman,
SunBridge Manager LLC, SunBridge Holdings LLC, and Realty Investment Company Inc. (the FJ Group), each member of the FJ Group shares
voting and investment power over all or a portion of the 1,517,200 shares. Mr. Friedman is CEO of FJ Capital Management LLC, and
managing member of Financial Opportunity Fund LLC.
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(3)
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Based on a Schedule 13D filed with the Securities and Exchange Commission on April 23, 2014, Bhanu
Choudhrie, one of our directors, Emblem Investments LLC, and Emblem Capital Limited had shared voting and investment power over
1,409,077 shares. Mr. Choudhrie is a manager of Emblem Investments LLC and Emblem Capital Limited. Mr. Choudhrie also owns 2,400
shares of restricted stock, for which he has sole voting and investment power.
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(4)
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Based on a Schedule 13G/A filed with the Securities and Exchange Commission on February 13, 2017,
by RMB Capital Holdings LLC, RMB Capital Management LLC, Iron Road Capital Partners LLC, RMB Mendon Managers LLC, and Mendon Capital
Advisors Corp. (the RMB Group), each member of the RMB Group shares voting and investment power over all or a portion of the 1,374,455
shares.
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(5)
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Based on a Schedule 13D/A filed with the Securities and Exchange Commission on May 6, 2014, The
Albury Investment Partnership, The Albury Investment Trust – Rose Capital Pty Limited and Seumas Dawes have shared voting
and investment power over all 1,328,666 shares. Mr. Dawes is Director and managing member of The Albury Investment Partnership
and The Albury Investment Trust – Rose Capital Pty Limited.
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(6)
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Based on a Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2017,
TFO USA Limited has sole voting and investment power over all 1,012,238 shares.
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(7)
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Based on a Schedule 13D filed with the Securities and Exchange Commission on August 7, 2015, PL
Capital LLC, Financial Edge Fund LP, Financial Edge – Strategic Fund LP, PL Capital – Focused Fund LP, Goodbody/PL
Capital LP, Goodbody/PL Capital LLC, PL Capital Advisors LLC, John W. Palmer and Richard J. Lashley have shared voting and investment
power over all or a portion of the 1,000,000 shares.
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(8)
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Based on a Schedule 13G filed with the Securities and Exchange Commission on August 31, 2016 by
EJF Capital LLC, Emanuel J. Friedman, and EJF Sidecar Fund, Series LLC – Series E (the EJF Group), each member of the EJF
Group shares voting and investment power over all of the 904,707 shares. Mr. Friedman is controlling member of EJF Capital LLC,
which is the managing member of EJF Sidecar Fund, Series LLC – Series E.
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PROPOSAL I - ELECTION OF DIRECTORS
Our Board of Directors currently
consists of seven directors. Our Bylaws divide our directors into three classes that are as nearly equal in number as possible.
We currently have three classes with one class consisting of three directors and two classes consisting of two directors. Our directors
are generally elected at our annual meeting of stockholders for a three-year term expiring at the third succeeding annual meeting
of stockholders after their election, or such shorter period as our Board of Directors may determine or if the director is elected
to fill a vacancy, and until their respective successors have been duly elected and qualified. The terms of office of our three
classes of directors expire on a staggered basis such that the terms of one of the three classes expires at each annual meeting
of our stockholders, unless the term of a director in that class ended early due to the earlier death, resignation, retirement,
or removal of the director.
Based on the recommendation
of the Governance and Nominating Committee of our Board of Directors, our Board of Directors has nominated Jay S. Sidhu, John K.
Stephens, Jr., and W. Eric Palmer for new three-year terms expiring at the 2020 Annual Meeting of Stockholders. Each of the nominees
is currently a member of our Board of Directors. In accordance with our Bylaws, a director holds office until the Annual Meeting
of Stockholders for the year in which that director’s term expires, and until that director’s successor is duly elected
and qualified (subject, however, to the director’s prior death, resignation, retirement, or removal from office). If Mr.
Sidhu, Mr. Stephens, and Mr. Palmer are re-elected as directors, our Board of Directors will continue to consist of seven members
and have three classes of directors with one class consisting of three directors and two classes consisting of two directors, as
reflected in the table below.
The following table sets
forth the beneficial ownership of shares of our common stock of our directors, including the nominees, our Chief Executive Officer
and other named executive officers, as of March 31, 2017.
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Name
(1)
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Age
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Positions
Held with Atlantic Coast Financial
Corporation
(2)
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Director
Since
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Term
to
Expire
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Shares
of Common
Stock Beneficially
Owned
(3)
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Percent
of
Class
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DIRECTOR NOMINEES
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Jay S. Sidhu
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65
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Vice Chairman, Director
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2010
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2020
(4)
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155,685
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(5)
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1.00
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%
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John K. Stephens, Jr.
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53
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Director, President and
Chief Executive Officer
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2013
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2020
(4)
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58,576
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(6)
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*
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W. Eric Palmer
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54
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Director
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2005
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2020
(4)
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7,665
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(7)
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*
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DIRECTORS CONTINUING IN OFFICE
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Bhanu Choudhrie
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38
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Director
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2010
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2018
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1,411,477
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(8)
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9.10
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%
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James D. Hogan
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72
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Director
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2013
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2018
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12,400
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(9)
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*
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Dave Bhasin
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66
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Director
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2013
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2019
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15,926
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(10)
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*
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John J. Dolan
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60
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Chairman, Director
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2013
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2019
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12,400
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(11)
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*
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NAMED EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
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Tracy L. Keegan
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51
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Executive Vice President, Chief Financial Officer and Corporate
Secretary
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N/A
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N/A
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10,102
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(12)
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*
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Phillip S. Buddenbohm
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46
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Executive Vice President and Chief Credit Officer
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N/A
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N/A
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14,486
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(13)
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*
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All directors and executive officers as a group (9
persons)
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1,688,615
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(14)
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10.89
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%
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(1)
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The mailing address for each person listed is 4655 Salisbury Road, Suite 110, Jacksonville, Florida
32256.
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(2)
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Each of our directors and executive officers is also a director and/or executive officer of Atlantic
Coast Bank.
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(3)
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See definition of “beneficial ownership” at footnote (1) to the table in “Voting
Securities and Principal Holders Thereof.”
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(4)
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If elected at the Annual Meeting.
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(5)
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Includes 1,746 shares of common stock held in Mr. Sidhu’s 401(k) plan account, 2,400 shares
of restricted stock, and 20,148 shares of common stock that can be acquired pursuant to stock options within 60 days of March 31,
2017.
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(6)
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Includes 619 shares of common stock held in Mr. Stephens’ employee stock ownership plan account
and 27,267 shares of restricted stock.
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(7)
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Includes 425 shares of common stock held in a director retirement plan account, 1,176 shares of
common stock that can be acquired pursuant to stock options exercisable within 60 days of March 31, 2017, 2,400 shares of restricted
stock, and 19 shares of common stock held by Mr. Palmer’s children.
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(8)
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Includes 2,400 shares of restricted stock and 1,409,077 shares of common stock held by companies
controlled by Mr. Choudhrie, see footnote (3) to the table in “Voting Securities and Principal Holders Thereof” for
more information.
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(9)
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Includes 2,400 shares of restricted stock.
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(10)
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Includes 8,526 shares of common stock held in a director deferred compensation plan account and
2,400 shares of restricted stock.
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(11)
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Includes 2,400 shares of restricted stock.
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(12)
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Includes 180 shares of common stock held in Ms. Keegan’s employee stock ownership plan account
9,326 shares of restricted stock.
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(13)
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Includes 8,055 shares of restricted stock, 265 shares of common stock held in Mr. Buddenbohm’s
401(k) plan account and 2,064 shares of common stock held in Mr. Buddenbohm’s employee stock ownership plan account.
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(14)
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No directors or executive officers have pledged any of our common stock.
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Directors
Director Nominees
W. Eric Palmer
.
Mr. Palmer is a life-long resident of Jacksonville, Florida. He has been employed by the Mayo Clinic for the past 25 years. He
currently serves as an Operations Administrator for the Provider Relation Departments. He previously served as the Operations Manager
for Primary Care, the Director and Section Head of Patient Financial Services and as Section Manager of Accounts Receivable. Mr.
Palmer is active in a number of Jacksonville area civic organizations, which provide an opportunity for the community to learn
more about Atlantic Coast Bank and its products and services. Mr. Palmer was associated with Atlantic Coast Federal Credit Union
as a member of its Credit Union Service Organization and its Community Advisory Board. In those roles, Mr. Palmer interacted with
members and member organizations and helped identify business development opportunities.
Originally, Mr. Palmer was nominated
as a director in order to use his previous experience and familiarity with the Atlantic Coast Federal Credit Union members to assist
management in the transition from a credit union to a publicly traded bank holding company. Mr. Palmer also brings to our Board
of Directors and organization knowledge and insight about our Northeast Florida markets through his involvement in Jacksonville
civic organizations which is useful to Atlantic Coast Bank’s product design and marketing plans.
Jay S. Sidhu
.
Mr. Sidhu, who has been named Vice Chairman of our Board of Directors, is a director and the Chairman and Chief Executive Officer
of Customers Bancorp, Inc. (Customers), Wyomissing, Pennsylvania, where he has served since June 2009. Since Mr. Sidhu joined Customers,
the company has grown from $250 million in assets to over $8 billion in assets. Mr. Sidhu was the Chairman and Chief Executive
Officer of Sidhu Advisors, LLC, a private equity and financial services consulting company, from 2006 until 2009. Previously, Mr.
Sidhu served as Chairman and Chief Executive Officer of Sovereign Bancorp, Inc. (Sovereign), Philadelphia, Pennsylvania, where
he was employed from 1986 until 2006. Under his leadership, Sovereign grew from a small thrift with less than $1 billion in assets
to a nearly $90 billion financial institution, ranking as the 17
th
largest bank in the United States, with a branch
network of 800 locations serving customers from Maryland to New Hampshire. Mr. Sidhu has extensive experience in the financial
services industry, as well as his capital markets background. Mr. Sidhu brings to our Board of Directors significant experience
in public company operations and management, and is expected to contribute meaningfully to the Board of Director's work in evaluating
strategic opportunities, and offering guidance with respect to credit management.
John K. Stephens
.
Mr. Stephens is a 26-year veteran of the banking and financial services industry. Mr. Stephens joined us as President and Chief
Executive Officer in October 2013. Prior to joining us, from May 2011 until September 2013, Mr. Stephens served as President of
Orlando, Florida-based Tower Bridge Capital, Inc., a privately held mezzanine debt and strategic advisory firm focused on emerging
growth companies. From 2006 to 2011, he served as Chief Lending Officer for the Central and North Florida operations of Fifth Third
Bank, N.A., overseeing a loan portfolio of almost $2 billion and was responsible for strategic leadership for all wholesale banking
activities in that market area. Mr. Stephens began his career in 1986 with Wachovia Bank, N.A., now Wells Fargo & Company,
where he started as a regional banking officer, later became a relationship manager responsible for originating and managing senior
debt and ancillary service relationships with corporate clients, and was ultimately selected to start and lead a leveraged finance
group.
Mr. Stephens brings significant and varied banking experience to our Board of Directors, including work within the
Northeast Florida market.
Directors Continuing
In Office
Dave Bhasin
.
Mr. Bhasin is Chief Executive Officer of D.B. Concepts, Inc., a privately-held company he started in 2000, which operates franchised
restaurants with locations throughout East Pennsylvania. In addition, he is the founder and president of various related private
companies that own the restaurants and related real estate. Prior to starting D.B. Concepts, Inc., Mr. Bhasin held various technology
and business management positions with Air Products & Chemicals, Inc. Mr. Bhasin’s extensive business background provides
valuable business and entrepreneurial insight and perspective to our Board of Directors.
Bhanu Choudhrie
.
Elected to our Board of Directors in July 2010, Mr. Choudhrie rejoined C&C Alpha Group Ltd (C&C Alpha), a London-based
private equity group, as Executive Director in August 2014. Mr. Choudhrie previously served in the same position at C&C Alpha
from 2006 until February 2014. Prior to this, Mr. Choudhrie served as Executive Director of C&C Business Solutions. He is a
private equity investor with investments in the United States, United Kingdom, Europe and Asia, and is currently a director of
Customers Bancorp, Inc. (Customers Bancorp) in Pennsylvania and Quatro Management, Inc. in New York.
Mr. Choudhrie benefits
us with his business and financial services industry experiences as well as his knowledge of global economic trends and conditions
that frequently impact U.S. financial institutions.
John J. Dolan
.
Mr. Dolan, has been Chairman of our Board of Directors since 2016. He has been the Managing Member of Dolan Finance, LLC, since
February 2015, which serves as general partner for Dolan Real Estate Finance, LP, which is a private investment fund that deals
in financing short-term commercial real estate transactions. He was retired from January 2012 until February 2015. In January 2016,
Mr. Dolan began to serve as a Partner in Profit Focus, LLC, a C-Level advisory and coaching firm, providing high level financial
and strategic consulting services to enable entities to optimize their financial performance and increase their strategic focus.
Mr. Dolan was employed by First Commonwealth Financial Corporation and its predecessor (First Commonwealth) headquartered in Indiana,
Pennsylvania, from 1980 until December 2011. Mr. Dolan most recently served as the President and Chief Executive Officer of First
Commonwealth after serving First Commonwealth as Chief Financial Officer for 20 years, and was also a director of First Commonwealth
from 2007 to December 2011. He helped transform First Commonwealth from a bank with $200 million in assets to a publicly traded
bank holding company with $6 billion in assets. Mr. Dolan brings to our Board of Directors extensive experience as the strategic
and financial leader of a community bank, including raising capital, the development of executive management, and achieving growth
through acquisitions.
James D. Hogan
.
Mr. Hogan has been a director since December 2013, as well as serving in various executive management roles from 2013 through 2015.
Mr. Hogan first joined us as Executive Vice President and interim Chief Financial Officer in December 2013 and served in that role
through April 2014. Subsequently, Mr. Hogan served as our Chief Risk Officer from May 2014 to May 2015, while also serving again
as interim Chief Financial Officer from March 2015 to May 2015. Prior to joining us, Mr. Hogan served as Executive Vice President
and interim Chief Financial Officer of Customers Bancorp and Customers Bank (collectively with Customers Bancorp, Customers), both
headquartered in Southeast Pennsylvania, from October 2012 to August 2013. Mr. Hogan also served as Customers’ Executive
Vice President and Director of Enterprise Risk Management from June 2010 to October 2012. From 2005 to 2010, Mr. Hogan was retired,
but continued to work occasionally, primarily in private consulting. Mr. Hogan was Executive Vice President and Chief Financial
Officer of the Philadelphia-based Sovereign Bancorp, Inc. (Sovereign), now Santander Bank, from 2001 to 2005. Prior to Sovereign,
he was Executive Vice President and Corporate Controller of Firstar Bancorp (now US Bancorp) from 1987 to 2001, and was the Controller
of The Idaho First National Bank (now West One Bank) from 1978 to 1987. Mr. Hogan became a certified public accountant in 1970,
keeping an active license through 2005, and began his career as a bank audit specialist with Coopers and Lybrand (now PriceWaterhouseCoopers).
Mr. Hogan’s extensive and lengthy experience in the banking industry as a chief financial officer as well as in the risk
management and audit related areas provide significant value to the Board of Directors.
Executive Officers Who Are Not Directors
Tracy L. Keegan
.
Ms. Keegan has served as Executive Vice President and Chief Financial Officer of Atlantic Coast Financial Corporation since May
2015 and in the same position for Atlantic Coast Bank since March 2015. Prior to joining Atlantic Coast Bank, from June 2014 to
February 2015, Ms. Keegan worked for the Seminole Tribe of Florida as a banking expert and consultant. From April 2012 to May 2014,
she served as Executive Vice President and as both Chief Financial Officer and Chief Operating Officer for First Southern Bancorp,
Inc., Boca Raton, Florida. From June 2011 to March 2012, Ms. Keegan served as Executive Vice President and Chief Financial Officer
for Florida Community Bank. From June 2010 to May 2011, Ms. Keegan served as Director of Investor Relations for EverBank Financial
Corp (EverBank), during the transition and integration of the subsidiary banks of Bank of Florida Corporation (Bank of Florida),
which were acquired by EverBank. Ms. Keegan had served as Executive Vice President and Chief Financial Officer of Bank of Florida
since 2006. Ms. Keegan has been a member of the Florida State Board of Accountancy since July 2014 and has 28 years of management
experience in banking.
Phillip S. Buddenbohm
.
Mr. Buddenbohm has served as Executive Vice President and Chief Credit Officer of Atlantic Coast Financial Corporation since 2013
and of Atlantic Coast Bank since 2007. He previously served as Senior Vice President of Credit Administration from 2005 until 2007.
Formerly a Vice President in the Consumer Services Division of National Commerce Financial Corporation in Memphis, Tennessee, Mr.
Buddenbohm has 24 years of experience in lending, credit administration and branch services.
Board Structure and Risk
Oversight
The Chairman of our Board
of Directors and our Chief Executive Officer are positions held by separate individuals. John J. Dolan is the Chairman of our Board
of Directors and John K. Stephens, Jr. is our President and Chief Executive Officer. During fiscal 2015, and through his retirement
from our Board of Directors in February 2016, Kevin G. Champagne served as the Chairman of our Board of Directors. The Chief Executive
Officer is responsible for setting our strategic direction, day-to-day leadership, and performance, while the Chairman of the Board
provides guidance to the Chief Executive Officer, sets the agenda for Board meetings, and presides over meetings of our full Board.
By maintaining the separate positions of Chairman and Chief Executive Officer, our Board of Directors believes it enhances its
ability to provide strong, independent oversight of our management and affairs. In addition, the separation of the Chairman of
the Board and Chief Executive Officer allows the Chief Executive Officer to better focus his efforts on strengthening our franchise
and increasing stockholder value. The suitability of this structure is reviewed on an annual basis by our Board of Directors.
Our Board of Directors and
management have established a risk governance process to manage the material risks that are inherent in the financial services
industry, as well as those that are most immediate to us. Our full Board of Directors is actively engaged in monitoring all of
our risks. However, in 2014, our Board of Directors established the Risk Committee as a standing committee of our Board of Directors
to focus on helping management with critical risk areas. The other committees of our Board of Directors also assist in overseeing
the various management committees of Atlantic Coast Bank that utilize measurement and management processes designed for their respective
areas of authority.
Organizationally, we measure
and manage risk according to three broad categories: market risk (including liquidity), credit risk and operational risk (including
compliance). These broad categories have been separated into specific risk types, and the responsibilities for measurement and
management of these risks are assigned to the committees of our Board of Directors and management committees.
Board Independence
Our Board of Directors
consists of a majority of “independent directors” within the meaning of the NASDAQ corporate governance listing standards.
Our Board of Directors has determined in its business judgment that each of our directors and nominees for director is “independent”
within the meaning of the NASDAQ corporate governance listing standards with the exception of James D. Hogan, who is our former
Chief Risk Officer and interim Chief Financial Officer, Jay S. Sidhu, who has a loan from Atlantic Coast Bank and is a director
and an executive officer of Customers, a counterparty to our related party transactions during 2016 and 2015, and John K. Stephens,
Jr., who is our President and Chief Executive Officer. Our Board of Directors has adopted a policy that its independent directors
shall meet in executive session periodically, and at least twice per year, which meetings may be held in conjunction with regularly
scheduled board meetings. In determining the independence of the non-executive directors, our Board of Directors also reviewed
Mr. Choudhrie’s position as a director of Customers, a counterparty to our related party transactions during 2016 and 2015.
Meetings of our Board of Directors and
its Committees
Our business is conducted
through regular and special meetings of our full Board of Directors and its standing committees. The standing committees consist
of the Executive Committee, Strategic Committee, Audit Committee, Risk Committee, Compensation Committee, and Governance and Nominating
Committee. During the year ended December 31, 2016, our Board of Directors had twelve regular meetings and four special meetings.
During 2016, each Director attended at least 75% of the meetings of our Board of Directors and committees on which he served.
Executive Committee
Our Executive Committee
currently consists of directors Dolan, who serves as Chairman, Bhasin, Sidhu, and Stephens. Our Executive Committee is generally
authorized to act on behalf of our full Board of Directors when certain business matters require prompt action. During the year
ended December 31, 2016, our Executive Committee did not meet as the full board held special meetings in lieu of committee meetings.
Strategic Committee
Our Strategic Committee
currently consists of directors Sidhu, who serves as Chairman, Dolan, and Stephens. Our Strategic Committee assists our Board of
Directors in planning the long-term strategy of the Company. During 2016, the Strategic Committee met four times.
Audit Committee
Our Audit Committee currently
consists of directors Dolan, who serves as Chairman, Choudhrie, and Palmer. Our Audit Committee assists our Board of Directors
in fulfilling its oversight responsibility relating to the integrity of our financial statements and the financial reporting processes;
the systems of internal control over financial reporting; compliance with legal and regulatory requirements; the performance of
our internal audit function; and our relationship with our independent registered public accounting firm. The committee hires,
and reviews the reports prepared by, our registered public accounting firm and reviews substantially all of our periodic public
financial disclosures. The committee is empowered to investigate any matter, with full access to all of our books, records, facilities
and personnel that are necessary, and has the authority to retain at our expense legal, accounting or other advisors, consultants
or experts, as it deems appropriate. Our Board of Directors has determined in its business judgment that each member of our Audit
Committee is, and in 2016 was, “independent” as defined in the NASDAQ corporate governance listing standards for audit
committee members and under the rules of the Securities and Exchange Commission and possesses “financial sophistication,”
as defined under the NASDAQ corporate governance listing standards. Our Board of Directors has determined in its business judgment
that based on his financial and banking experience, director Dolan qualifies as an “audit committee financial expert”
as that term is used in the rules of the Securities and Exchange Commission. Our Board of Directors has adopted a written charter
for our Audit Committee, which is available on our website at
www.atlanticcoastbank.net
, by clicking on Investor Relations
and then Governance Documents. Our Audit Committee met twelve times during the fiscal year ended December 31, 2016.
Risk Committee
Our Risk Committee currently
consists of directors Hogan, who serves as Chairman, Bhasin, Choudhrie, Dolan, Sidhu, and Stephens. Our Risk Committee is responsible
for managing the material risks that are inherent to us. Our Risk Committee measures and manages risk according to three broad
categories: (1) credit risk, (2) market risk, including liquidity, and (3) operational risk, including compliance. During the fiscal
year ended December 31, 2016, our Risk Committee met eleven times.
Compensation Committee
Our Compensation Committee
is responsible for recommending to our full Board of Directors the compensation of the Chief Executive Officer and executive management,
and reviewing and administering the overall compensation policy of Atlantic Coast Financial Corporation and Atlantic Coast Bank.
Our Compensation Committee currently consists of directors Bhasin, who serves as Chairman, Choudhrie, and Palmer. Our Board of
Directors has determined in its business judgment that each member of our Compensation Committee is, and in 2016 was, “independent”
as defined in the NASDAQ corporate governance listing standards and rules of the Securities and Exchange Commission for Compensation
Committee members. Our Board of Directors has adopted a written charter for our Compensation Committee, which is available on
our website at
www.atlanticcoastbank.net
, by clicking on Investor Relations and then Governance Documents. Our Compensation
Committee met eight times during the year ended December 31, 2016.
The role of our Compensation
Committee is to review annually the compensation levels of the executive officers and recommend compensation changes to our Board
of Directors. Our Compensation Committee is composed entirely of outside, non-employee directors. It is intended that the executive
compensation program will enable us to attract, motivate and retain talented executive officers who are capable of achieving our
business objectives and enhancing long-term stockholder value. Our Compensation Committee has adopted a compensation strategy that
seeks to provide competitive, performance-based compensation strongly aligned with our financial and stock performance. The key
elements of our compensation program for executives are: base salary, annual cash incentive compensation and stock-based award
compensation. As deemed necessary to determine that the key elements of our executive compensation strategy are appropriate for
our industry and market, our Compensation Committee may utilize the services of third party compensation consultants to gain perspective
on similar executive positions in peer groups of publicly traded financial institutions. Our Compensation Committee obtained services
from a compensation consultant in 2016.
Our Compensation Committee
directly reviews the performance of our Chief Executive Officer. Our Chief Executive Officer evaluates the performance and makes
recommendations to our Compensation Committee for the other executive officers. However, our Compensation Committee has the sole
authority to recommend changes regarding the total compensation of all executive officers to our full Board of Directors. Under
our Board’s policies, the Chief Executive Officer and any other director who is also one of our executive officers do not
participate in our Board of Directors’ determination of their own compensation.
Compensation Committee
Interlocks and Insider Participation
No member of our Compensation
Committee in 2016 was an employee or officer of the Company or was formerly an officer of the Company. Director Choudhrie serves
on the Board of Directors of Customers, which in 2016 engaged in certain transactions with Atlantic Coast Bank, which are described
in more detail below, under “Transactions with Certain Related Persons.”
Governance and Nominating
Committee
Our Governance and Nominating
Committee currently consists of directors Choudhrie, who serves as Chairman, Bhasin, and Palmer, each of whom our Board of Directors
has determined in its business judgment is, and in 2016 was, “independent” as defined in the NASDAQ corporate governance
listing standards. Our Board of Directors has adopted a written charter for our Governance and Nominating Committee, which is
available on our website at
www.atlanticcoastbank.net
, by clicking on Investor Relations and then Governance Documents.
Our Governance and Nominating Committee met four times during the year ended December 31, 2016.
The functions of our Governance
and Nominating Committee include the following:
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leading the search for individuals qualified
to become members of our Board of Directors and selecting director nominees to be presented for stockholder approval;
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developing and recommending to our Board
of Directors other specific criteria not specified in its charter for the selection of individuals to be considered for election
or re-election to our Board of Directors;
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adopting procedures for
the submission of recommendations by stockholders for nominees to our Board of Directors
and
considering recommendations by stockholders for director nominations;
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reviewing the structure of our Board of
Directors and its committees and making recommendations to our Board of Directors with respect to the size and composition of our
Board of Directors and its committees;
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reviewing and assessing our Corporate
Governance Guidelines and recommending to our Board of Directors any proposed revisions thereto;
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reviewing policies and procedures regarding
any related party transaction and approving or ratifying any such related party transactions as the committee deems appropriate;
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considering and making recommendations
regarding the performance of our Board of Directors and its committees;
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considering and making recommendations
regarding the continuing education guidelines for our Board of Directors; and
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annually reviewing the adequacy of its
charter and recommending any proposed changes to our Board of Directors.
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Our Governance and Nominating
Committee identifies nominees by first evaluating the current members of our Board of Directors willing to continue in service.
Current members of our Board of Directors with the experience, qualifications, attributes and skills that are relevant to our business
and who are willing to continue in service are first considered for re-nomination, balancing the value of continuity of service
by existing members of our Board of Directors with that of obtaining a new perspective. In addition, our Governance and Nominating
Committee is authorized by its charter to engage a third party to assist in the identification of director nominees. While the
committee does not have a formal diversity policy in the consideration of director nominees, the committee guidelines do require
diversity to be taken into account. The committee considers a number of other criteria, as set forth below, in its consideration
of nominees for our Board of Directors.
Our Governance and Nominating
Committee seeks to identify candidates who, at a minimum, satisfy the following criteria:
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the highest personal and professional
ethics and integrity and whose values are compatible with our values;
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experience and achievements that have
given them the opportunity to exercise and develop good business judgment;
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a willingness to devote the necessary
time to the work of our Board of Directors and its committees, which includes being available for board and committee meetings;
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involvement in other activities or interests
that do not create a conflict with their responsibilities to us and our stockholders; and
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the capacity and desire to represent and
balance the best interests of the communities that we serve, including our stockholders and our customers, and not primarily a
special interest group or constituency.
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Our Governance and Nominating
Committee will also take into account whether a candidate satisfies the criteria for “independence” under the NASDAQ
corporate governance listing standards and applicable rules of the Securities and Exchange Commission.
Our Governance and Nominating
Committee has adopted procedures for the submission of recommendations for director nominees by our stockholders. While stockholder
nominees are generally considered by our Board of Directors in the same way that the Board considers other proposed nominees, the
committee may choose not to act on an unsolicited recommendation if no vacancy exists on our Board of Directors and the committee
does not perceive a need to increase the size or change the composition of our Board of Directors. Stockholders can submit the
names of qualified candidates for director by writing to the Chairman of our Governance and Nominating Committee at 4655 Salisbury
Road, Suite 110, Jacksonville, Florida 32256. The Chairman must receive a submission not less than 120 days prior to the date of
our proxy materials for the preceding year’s annual meeting.
The submission must include
the following information:
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a statement that the proponent making
the submission is a stockholder and is proposing a candidate for consideration by our Governance and Nominating Committee;
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the name and address of the recommending
stockholder as they appear on our stockholder records, and the number of shares of our common stock that are owned beneficially
by such stockholder (if the stockholder is not a holder of record, appropriate evidence of the stockholder’s ownership should
be provided);
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the name, address and contact information
for the candidate as they appear on our stockholder records, and the number of shares of our common stock that are owned by the
candidate (if the candidate is not a holder of record, appropriate evidence of the candidate’s beneficial ownership should
be provided);
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a statement of the candidate’s business
and educational experience;
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such other information regarding the candidate
as would be required to be included in the proxy statement pursuant to Schedule 14A of the Securities Exchange Act of 1934, as
amended;
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a statement detailing any relationship
between the candidate and any of our customers, suppliers or competitors or those of our affiliates;
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detailed information about any relationship
or understanding between the recommending stockholder and the candidate; and
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a statement from the candidate that the
candidate is willing to be considered and willing to serve as a director if nominated and elected.
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A nomination submitted by
a stockholder for presentation by the stockholder at an annual meeting of stockholders must comply with the procedural and informational
requirements of our Bylaws and the rules of the Securities and Exchange Commission, including those discussed on page 27 under
“Advanced Notice of Business to be Conducted at Annual Meeting” and on page 28 under “Stockholder Proposals.”
Stockholder Communication
with our Board of Directors
A stockholder who wants
to communicate with our Board of Directors or with any individual director can write to us at 4655 Salisbury Road, Suite 110, Jacksonville,
Florida 32256, in each case to the attention of our Corporate Secretary. The letter should indicate that the author is a stockholder
and, if shares are not held of record, should include appropriate evidence of stock ownership.
Depending on the subject
matter, management will:
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forward the communication to the director,
directors, or committee to whom it is addressed;
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attempt to handle the inquiry directly,
or forward the communication for response by another employee. For example, a request for information about a stock-related matter
may be forwarded to our stockholder relations officer; or
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not forward the communication if it is
primarily commercial in nature, relates to an improper or irrelevant topic, or is unduly hostile, threatening, illegal or otherwise
inappropriate.
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At each Board of Directors
meeting, management shall present a summary of all communications received since the last meeting that were not forwarded and make
those communications available to the directors.
Code of Ethics
Our Board of Directors
has adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, and a Code of
Ethics for our Chief Executive Officer and Senior Financial Officers. The codes are intended to promote honest and ethical conduct,
full and accurate reporting and compliance with laws. The codes are available on our website at
www.atlanticcoastbank.net
,
by clicking on Investor Relations and then Governance Documents. Amendments to and waivers from the codes that are required to
be disclosed to stockholders will be posted on our website.
Attendance at Annual Meetings of Stockholders
Although we do not have
a formal written policy regarding director attendance at annual meetings of stockholders, it is expected that directors will make
every effort to attend our annual meetings. All of the members of our Board of Directors attended the prior year’s annual
meeting of stockholders.
Audit Committee Report
Our Audit Committee has issued the following
report:
The Audit Committee of the
Board of Directors has reviewed and discussed the audited consolidated financial statements of the Company and Atlantic Coast Bank
with management of the Company and Dixon Hughes Goodman LLP, independent registered public accountants for the Company for the
year ended December 31, 2016. Management represented to the Audit Committee that the Company’s audited consolidated financial
statements were prepared in accordance with U.S. generally accepted accounting principles.
The Audit Committee has
discussed with Dixon Hughes Goodman LLP the matters required to be discussed by PCAOB Auditing Standard No. 16, “Communications
with Audit Committees.” The Audit Committee has received the written disclosures and confirming letter from Dixon Hughes
Goodman LLP required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees”
and in compliance with PCAOB Rule 3520, and has discussed with Dixon Hughes Goodman LLP its independence from the Company.
Based on these reviews and
discussions with management of the Company and Dixon Hughes Goodman LLP referred to above, the Audit Committee has recommended
to our Board of Directors that the audited consolidated financial statements of the Company and its subsidiaries for the fiscal
year ended December 31, 2016 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
This Audit Committee
Report does not constitute soliciting material and this Audit Committee Report should not be deemed filed or incorporated by reference
into any of our other previous or future filings by the Company under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this Audit Committee Report by
reference therein.
This report has been provided
by the Audit Committee.
John J. Dolan, Chairman
Bhanu Choudhrie
W. Eric Palmer
Jacksonville, Florida
March 9, 2017
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities
Exchange Act of 1934, as amended, requires our directors, executive officers and beneficial owners of greater than 10% of our common
stock to file reports on Forms 3, 4, and 5 with the Securities and Exchange Commission disclosing ownership and changes in ownership
of our common stock. Securities and Exchange Commission rules require disclosure in a company’s annual proxy statement or
Annual Report on Form 10-K of the failure of an officer, director or 10% beneficial owner of our common stock to file a Form 3,
4, or 5 on a timely basis.
Based solely on a review
of Forms 3, 4, and 5 filed during or with respect to 2016, and written representations from the applicable reporting persons, we
believe that all of our officers and directors complied with all their applicable filing requirements during the fiscal year ended
December 31, 2016.
EXECUTIVE COMPENSATION
Compensation Discussion
and Analysis
General
This Compensation Discussion
and Analysis provides information regarding the philosophy, objectives, and elements of our compensation program, policies, and
practices with respect to the compensation of our executive officers who appear in the “Summary Compensation Table”
below (referred to collectively throughout this section as our named executive officers). Our named executive officers for the
fiscal year ended December 31, 2016 were:
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John K. Stephens, Jr., our President and
Chief Executive Officer
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Tracy L. Keegan, our Executive Vice President,
Chief Financial Officer and Corporate Secretary
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Phillip S. Buddenbohm, our Executive Vice
President and Chief Credit Officer
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Compensation Philosophy
and Objectives
The compensation programs
and policies of the Company are designed to enhance stockholder value by aligning the financial interests of the named executive
officers with those of the stockholders. The Company competes with other financial institutions by seeking to attract and retain
a highly qualified and capable management team and by utilizing compensation programs that reward exceptional performance. The
Compensation Committee and the Board of Directors believe that its executive management compensation programs should:
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Reflect the qualifications, skills, experience
and responsibilities of each officer on the management team;
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Serve to attract and retain the most qualified
individuals available to the Company by being competitive with compensation that is paid to persons having similar positions and
responsibilities within other financial institutions in the same or other market areas from which we compete for talent; and
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Provide each officer on the management
team with appropriate incentive to perform at his or her best, on both a short-term and long-term basis, in a manner that is consistent
with the overall strategic goals of the Company and enhances long-term stockholder value.
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The compensation of the
named executive officer is reviewed and approved annually by the Compensation Committee, with recommendations provided to the Board
of Directors. Their review includes base salaries (the “fixed” portion of compensation) and performance-based incentive
compensation (the “variable” or incentive portion of compensation).
We believe in providing
executives with base salaries that target the 50
th
percentile of market compensation. We believe in providing the executive
the opportunity to earn total compensation (which included performance-based compensation) at the 75
th
percentile, or
higher, should performance warrant.
The key elements of our
compensation program for executive include base salary and incentive compensation, which includes annual cash incentive compensation
and stock-based award compensation. As seemed necessary to determine that the key elements of our executive compensation strategy
are appropriate for our industry and market, our Compensation Committee may utilize the services of third party compensation consultants
to gain perspective on similar executive positons in peer groups of publicly traded financial institutions.
Peer Group
In developing our compensation
philosophies and practices in 2016, we, with the assistance of our outside, independent consulting firm, Compensation Advisors,
identified a group of 17 other financial institutions with total assets between $500 million and $1.2 billion, with publicly available
compensation information. This peer group was composed of:
Community Bankers Trust
Corporation – Richmond, Virginia
Avenue Financial Holdings,
Inc., - Nashville, Tennessee
First Bancshares, Inc.
– Hattiesburg, Mississippi
Southern National Bancorp
of Virginia, Inc. – McLean, Virginia
Entegra Financial Corp.
– Franklin, North Carolina
Charter Financial Corporation
– West Point, Georgia
Porter Bancorp, Inc.
– Louisville, Kentucky
Commerce Union Bancshares,
Inc. – Brentwood, Tennessee
First Community Corporation
– Lexington, South Carolina
Auburn National Bancorporation,
Inc. – Auburn, Alabama
Security Federal Corporation
– Aiken, South Carolina
ASB Bancorp, Inc. –
Asheville, North Carolina
Carolina Bank Holdings,
Inc. – Greensboro, North Carolina
Peoples Financial Corporation
– Biloxi, Mississippi
United Security Bancshares,
Inc. – Thomasville, Alabama
Virginia National Bankshares
Corporation – Charlottesville, Virginia
Sunshine Bancorp, Inc.
– Plant City, Florida
Base Salaries
In 2016, we did not adjust
the base salaries of our named executive officers, leaving them as we set them in mid-2015. In early 2017, the Compensation Committee
discussed increasing the salaries of the named executive officers both to reward them for the performance of the Company and to
bring them closer to the 50
th
percentile of our peer group of other financial institutions. The Compensation Committee
recommended, and the Board of Directors approved, a 5% increase in each of the named executive officer’s salaries effective
February 6, 2017. As a result, as of that date, Mr. Stephens’ salary is $422,100, Ms. Keegan’s is $231,000, and Mr.
Buddenbohm’s is $199,520.
2016 Incentive
Compensation
After consultation with
Compensation Advisors, in 2016, the Compensation Committee recommended to the Board of Directors, which adopted, two incentive
compensation plans under our 2016 Omnibus Incentive Plan. The Compensation Committee concluded that the Company’s principal
strategic objectives should include return to stockholders, continuing improvement in earnings relative to our size, and our loan
underwriting and credit administration functions. To measure the Company’s progress in 2016 towards the achievement of those
objectives, the Compensation Committee identified certain key performance metrics which would fairly take into account the named
executive officers’ contribution thereto. The Compensation Committee identified these metrics to be earnings per share for
2016, return on average assets in the third and fourth quarters of 2016, and the amount of non-performing assets as a percentage
of total assets at December 31, 2016. We believe these metrics effectively measure and reflect our financial performance and return
to stockholders during the year, and serve as an accurate representation of the accomplishments, leadership, and performance of
our named executive officers.
One of these plans was
titled the Annual Incentive Plan, which provided an opportunity for the named executive officers to receive incentive awards based
on the three performance metrics listed above. Mr. Stephens could earn a target award of 40% of his salary, and Ms. Keegan and
Mr. Buddenbohm could each earn target awards equal to 25% of their salaries. As a percentage of the target awards, earnings per
share was weighted at 60%, with a target of $0.44. Return on average assets for the third and fourth quarters was weighted as 20%,
with a target of 0.88%, annualized. Non-performing assets as a percentage of total assets was also weighted as 20%, with a target
of 0.75%. A minimum performance threshold was set at 85% of the targets, with a payout of 50% of the target award. A performance
maximum was set at 115% of the targets, with a payout of 150% of the target award. 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 cash component of this award was intended to provide an immediate financial
benefit to the named executive officers to reward them for their efforts during 2016. The stock component of the award was intended
to tie its value to the potential long-term effects of the achievements and progress made in 2016. The three-year vesting schedule
was also intended to act as a retention tool for the named executive officers.
The second plan was titled
the Long Term Incentive Plan, which provided an opportunity for the named executive officers to receive incentive awards based
on earnings per share. Because the measurement period for that metric was only one year, the Long Term Incentive Plan did not technically
qualify as a long term plan under the 2016 Omnibus Incentive Plan. Therefore, the Board has elected to treat the Long Term Incentive
Plan as an Other Stock-Based Award. Under this award, Mr. Stephens could earn an award of 40% of his salary, and Ms. Keegan and
Mr. Buddenbohm could each earn an award equal to 25% of her or his respective salary. Awards would only be made if the Company’s
earnings per share was at least $0.44. Awards were made in restricted stock, which will cliff vest after five years. The all-stock
nature of the award and the five-year cliff vesting was intended to serve as a retention tool for the named executive officers
and to provide an incentive to them to continue to work in a manner intended to increase long-term stockholder value and return.
Based on our audited
financial statements, earnings per share was $0.42, the annualized return on average assets in the third and fourth quarters was
0.79%, and non-performing assets as a percentage of total assets was 1.44%. As permitted by the 2016 Omnibus Incentive Plan, the
Compensation Committee also took into account these certain extraordinary, out-of-the-ordinary-course-of-business factors in evaluating
the named executive officers’ effectiveness in managing and guiding the Company in the successful implementation of the Company’s
objectives:
|
|
·
|
The gains on sale of certain investment
securities, in order to manage interest rate risk, and the corresponding loss of income from those securities.
|
|
|
·
|
The gain on sale of certain portfolio
loans, also to manage interest rate risk.
|
|
|
·
|
The proactive transfer of two assets to
non-accrual status, in order to force the borrowers to take dispositive action.
|
|
|
·
|
Certain legal expenses associated with
transactions undertaken by prior management.
|
|
|
·
|
The gain on sale of our Garden City branch
office.
|
As a result of taking
into account these factors, the Compensation Committee adjusted the performance metrics to be earnings per share of $0.45, annualized
return on average assets in the third and fourth quarters of 1.14%, and non-performing assets as a percentage of total assets of
0.84%.
As a result of adjusting
the performance metrics: (i) Mr. Stephens received a cash payment of $119,820, 20,668 shares of restricted stock subject to five
year cliff vesting, and 6,599 shares of restricted stock subject to a prorata three year vesting schedule; (ii) Ms. Keegan received
a cash payment of $40,979, 7,069 shares of restricted stock subject to five year cliff vesting, and 2,257 shares of restricted
stock subject to a prorata three year vesting schedule; and (iii) Mr. Buddenbohm received a cash payment of $50,559, 6,105 shares
of restricted stock subject to five year cliff vesting period, and 1,950 shares of restricted stock subject to a prorata three
year vesting schedule.
When combined with the
named executive officers’ base salaries, the total compensation paid to our named executive officers was close to the compensation
paid by the 50
th
percentile of our peer group members, but did not reach our goal of being at the 75
th
percentile
upon our named executive officers having met the performance goals the Compensation Committee set for them.
2017 Incentive Compensation
For 2017, the Compensation
Committee is in the process of working with Compensation Advisors to design two incentive compensation plans under our 2016 Omnibus
Incentive Plan. The Compensation Committee intends that each of our named executive officers will participate in these plans and
that the plans, in conjunction with the now-adjusted base salaries, will provide each named executive officer the opportunity to
earn compensation at the 75
th
percentile of our identified peer group.
One of the plans is expected
to be similar to the Annual Incentive Plan for 2016. The Compensation Committee has not yet determined the performance metrics
or goals or target awards. However, the Compensation Committee expects to again use earnings per share, some measure of return
on assets, and an asset quality metric.
In 2017, the Compensation
Committee also intends to design a Long-Term Incentive Plan with a measurement period exceeding one year, for at least one performance
metric.
The Compensation Committee’s
goal in developing these two plans will be to reward the named executive officers for their contributions to our performance in
2017, incent them to manage our Company with a long-term vision, and to tie part of the value of their stock-based compensation
to their continued employment with the Company.
Summary Compensation
Table
The following table sets
forth, for the years ended December 31, 2016, 2015, and 2014, compensation for each of the individuals listed in the table below,
who are each referred to as “named executive officers.” ACFC has no executive officers other than the named executive
officers.
|
Name
and Principal Position
(1)
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
(2)
|
|
|
Stock
awards ($)
(3)
|
|
|
Non-equity
incentive plan
compensation ($)
(3)
|
|
|
All
other
compensation
(4)
($)
|
|
|
Total
($)
|
|
|
John K.
Stephens, Jr.
(5)
|
|
2016
|
|
$
|
402,600
|
|
|
$
|
─
|
|
|
$
|
212,151
|
|
|
$
|
119,820
|
|
|
$
|
17,962
|
|
|
$
|
752,533
|
|
|
President and Chief Executive Officer
|
|
2015
|
|
|
339,231
|
|
|
|
100,000
|
|
|
|
─
|
|
|
|
─
|
|
|
|
54,326
|
|
|
|
493,557
|
|
|
|
|
2014
|
|
|
300,000
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
34,504
|
|
|
|
334,504
|
|
|
Tracy L. Keegan
(6)
|
|
2016
|
|
$
|
260,600
|
|
|
$
|
─
|
|
|
$
|
72,563
|
|
|
$
|
40,979
|
|
|
$
|
16,029
|
|
|
$
|
390,171
|
|
|
Executive Vice President and
|
|
2015
|
|
|
163,077
|
|
|
|
40,000
|
|
|
|
─
|
|
|
|
─
|
|
|
|
29,240
|
|
|
|
232,317
|
|
|
Chief Financial Officer
|
|
2014
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
Phillip S. Buddenbohm
|
|
2016
|
|
$
|
190,600
|
|
|
$
|
─
|
|
|
$
|
62,668
|
|
|
$
|
35,391
|
|
|
$
|
8,855
|
|
|
$
|
297,514
|
|
|
Executive Vice President and
|
|
2015
|
|
|
182,308
|
|
|
|
50,000
|
|
|
|
─
|
|
|
|
─
|
|
|
|
2,438
|
|
|
|
234,746
|
|
|
Chief Credit Officer
|
|
2014
|
|
|
150,000
|
|
|
|
─
|
|
|
|
─
|
|
|
|
─
|
|
|
|
2,393
|
|
|
|
152,393
|
|
|
|
(1)
|
Certain columns were intentionally omitted from the table because they contained no values.
|
|
|
(2)
|
Represents bonus payments made in in 2016 for performance in 2016.
|
|
|
(3)
|
Represents grants made on February 15, 2017, for performance in 2016.
|
|
|
(4)
|
The amounts in this column reflect the various benefits and payments received by the named executive
officers. A break-down of the various elements of compensation in this column is set forth in the table below for the year ended
December 31, 2016.
|
|
|
(5)
|
Mr. Stephens also serves as a member of our Board of Directors, but does not receive compensation
for his service as a director.
|
|
|
(6)
|
Ms. Keegan began working for Atlantic Coast Financial Corporation on March 23, 2015 in a financial
manager role prior to assuming her position as Executive Vice President and Chief Financial Officer on May 18, 2015, after receipt
of regulatory non objection on May 15, 2015.
|
All Other Compensation Table
|
Name
|
|
Cellular telephone
reimbursements ($)
|
|
|
401(k) plan
contributions ($)
|
|
|
Health
insurance
premiums ($)
|
|
|
Group Life
Insurance ($)
|
|
|
Long-term disability
premiums ($)
|
|
|
Total ($)
|
|
|
John K. Stephens, Jr.
|
|
$
|
600
|
|
|
$
|
10,600
|
|
|
$
|
5,619
|
|
|
$
|
720
|
|
|
$
|
423
|
|
|
$
|
17,962
|
|
|
Tracy L. Keegan
|
|
|
600
|
|
|
|
8,800
|
|
|
|
5,619
|
|
|
|
587
|
|
|
|
423
|
|
|
|
16,029
|
|
|
Phillip S. Buddenbohm
|
|
|
600
|
|
|
|
1,753
|
|
|
|
5,619
|
|
|
|
489
|
|
|
|
394
|
|
|
|
8,855
|
|
Grants of Plan Based
Awards
The Company made no grants
of equity incentive or compensation awards in 2016 and none of the named executive officers held any such awards at December 31,
2016.
However, on February 15,
2017, the Company made grants of restricted stock to each of the named executive officers for performance in 2016. Information
related to those grants is contained in the following table.
|
Name
|
|
Award Type
|
|
Grant Date
|
|
Restricted Stock
Awards (#)
|
|
|
Grant Date Fair Value
of Stock Awards ($)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John K. Stephens, Jr.
|
|
Restricted Stock
|
|
2/15/17
|
|
|
20,668
|
(1)
|
|
$
|
160,800
|
|
|
|
|
Restricted Stock
|
|
2/15/17
|
|
|
6,599
|
(2)
|
|
|
51,351
|
|
|
Tracy L. Keegan
|
|
Restricted Stock
|
|
2/15/17
|
|
|
7,069
|
(1)
|
|
$
|
55,000
|
|
|
|
|
Restricted Stock
|
|
2/15/17
|
|
|
2,257
|
(2)
|
|
|
17,563
|
|
|
Phillip S. Buddenbohm
|
|
Restricted Stock
|
|
2/15/17
|
|
|
6,105
|
(1)
|
|
$
|
47,500
|
|
|
|
|
Restricted Stock
|
|
2/15/17
|
|
|
1,950
|
(2)
|
|
|
15,168
|
|
|
|
1)
|
Will vest on February 15, 2022.
|
|
|
2)
|
Will vest in three, equal, annual installments beginning on February 15, 2018.
|
|
|
3)
|
Based on the fair market value per share on February 15, 2017, computed in accordance with the
2016 Omnibus Incentive Plan.
|
Named Executive Officer
Agreements
On April 1, 2016, Atlantic
Coast Bank entered into Employment Agreements (collectively, the Employment Agreements) with Mr. Stephens, Ms. Keegan, and Mr.
Buddenbohm (each, an Executive) on April 1, 2016. Each Employment Agreement is for a term of one year (which may be renewed for
successive periods of one year thereafter unless otherwise terminated as set forth in the Employment Agreement), provides for an
initial annual base salary ($402,000 for Mr. Stephens, $220,000 for Ms. Keegan, and $190,000 for Mr. Buddenbohm), and entitlement
to potential equity and non-equity incentive/bonus awards, reimbursement for business expenses, benefits under Atlantic Coast Bank’s
policies, perquisites customarily provided to Atlantic Coast Bank’s executive officers, supplemental life insurance coverage
equal to three times the Executive’s base salary, four weeks of vacation pay, and monthly disability benefits to age 65 not
to exceed the lesser of: (i) 60% of base salary (with such coverage to increase following any increase in the base salary) or (ii)
$25,000.
The Employment Agreements
may be terminated by Atlantic Coast Bank without Cause (as defined in the Employment Agreements), by Atlantic Coast Bank for Cause,
and by the Executive upon the Executive’s voluntary resignation. If terminated by Atlantic Coast Bank without Cause, the
Executive is entitled to a payment in an amount equal to two times the sum of: (i) the then current annual salary, plus (ii) the
annual premium for family medical, life and disability insurance coverages. In the event the Executive’s employment is terminated
within twelve months following the closing of a Change in Control (as defined in the Employment Agreements) other than for Cause
or by the Executive for Good Reason (as defined in the Employment Agreements), then the Executive is entitled to a payment in an
amount equal to two times (or three times in the case of Mr. Stephens) the sum of: (i) the then current annual salary, plus (ii)
the annual premium for family medical, life and disability insurance coverages, plus (iii) the average cash bonus received by the
Executive during the three-year period preceding the closing of such Change in Control. The amounts are payable in a single lump
sum. In addition, any unvested restricted stock awards, stock options, and other equity awards will become fully vested as of the
date of termination. However, if any portion of the foregoing payments would be subject to the excise tax imposed under Section
4999 of the Internal Revenue Code or would be non-deductible by us or Atlantic Coast Bank pursuant to Section 280G of the Internal
Revenue Code, then the payments will be reduced (but not below zero) if and to the extent necessary so that no portion of any payment
would be subject to the foregoing excise taxes or non-deductible by us or Atlantic Coast Bank pursuant to Section 280G of the Internal
Revenue Code.
The Employment Agreements
also include non-competition, non-solicitation, confidentiality, and other restrictive covenants binding on the Executive and provide
for Atlantic Coast Bank to withhold compensation if required pursuant to applicable law. Any incentive-based or other compensation
paid to the Executive under the Employment Agreement or any other agreement or arrangement with Atlantic Coast Bank that is subject
to recovery under any law, regulation or stock exchange listing requirement will be subject to such deduction and clawback as may
be required to be made pursuant to such law, regulation or requirement (or any policy adopted by Atlantic Coast Bank).
Potential Payments
upon Termination or Change in Control
The following table summarizes
the payments that would be made to Mr. Stephens, Ms. Keegan, and Mr. Buddenbohm at December 31, 2016, pursuant to the Employment
Agreements, under the circumstances indicated, and subject to the requirements described above.
The following table does
not take into account the salary increases effective February 6, 2017, or the grants made to the named executive officers on February
15, 2017, for performance in 2016.
|
Name
|
|
Voluntary
|
|
|
Involuntary
without cause
|
|
|
Involuntary
for cause
|
|
|
CIC with
Termination
|
|
|
Death
|
|
|
Disability
|
|
|
John K. Stephens, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary
|
|
$
|
-
|
|
|
$
|
804,000
|
|
|
$
|
-
|
|
|
$
|
1,206,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Insurance premiums
|
|
|
-
|
|
|
|
20,286
|
|
|
|
-
|
|
|
|
30,429
|
|
|
|
-
|
|
|
|
-
|
|
|
Bonus
|
|
|
-
|
|
|
|
66,667
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
Restricted stock grants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Insurance payments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,206,000
|
|
|
|
3,755,000
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
890,953
|
|
|
$
|
-
|
|
|
$
|
1,336,429
|
|
|
$
|
1,206,000
|
|
|
$
|
3,755,000
|
|
|
Tracy L. Keegan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary
|
|
$
|
-
|
|
|
$
|
440,000
|
|
|
$
|
-
|
|
|
$
|
440,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Insurance premiums
|
|
|
-
|
|
|
|
13,258
|
|
|
|
-
|
|
|
|
13,258
|
|
|
|
-
|
|
|
|
-
|
|
|
Bonus
|
|
|
-
|
|
|
|
33,333
|
|
|
|
-
|
|
|
|
33,333
|
|
|
|
-
|
|
|
|
-
|
|
|
Restricted stock grants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Insurance payments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
660,000
|
|
|
|
1,998,150
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
486,591
|
|
|
$
|
-
|
|
|
$
|
486,591
|
|
|
$
|
660,000
|
|
|
$
|
1,998,150
|
|
|
Phillip S. Buddenbohm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary
|
|
$
|
-
|
|
|
$
|
380,000
|
|
|
$
|
-
|
|
|
$
|
380,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Insurance premiums
|
|
|
-
|
|
|
|
13,004
|
|
|
|
-
|
|
|
|
13,004
|
|
|
|
-
|
|
|
|
-
|
|
|
Bonus
|
|
|
-
|
|
|
|
33,333
|
|
|
|
-
|
|
|
|
33,333
|
|
|
|
-
|
|
|
|
-
|
|
|
Restricted stock grants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Insurance payments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
570,000
|
|
|
|
2,274,300
|
|
|
SERP
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
-
|
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
7,000
|
|
|
Total
|
|
$
|
7,000
|
|
|
$
|
433,337
|
|
|
$
|
-
|
|
|
$
|
433,337
|
|
|
$
|
577,000
|
|
|
$
|
2,281,300
|
|
Outstanding Equity
Awards at Year End
The Company made no grants
of equity incentive or compensation awards in 2016 and none of the named executive officers held any such awards at December 31,
2016.
However, on February 15,
2017, the Company made grants of restricted stock to each of the named executive officers for performance in 2016. Information
related to those grants is contained in the following table.
|
Name
|
|
Number of shares of stock that
have not vested
|
|
|
Market value of shares of stock
that have not vested
(3)
|
|
|
John K. Stephens, Jr.
|
|
|
20,668
|
(1)
|
|
$
|
140,542
|
|
|
|
|
|
6,599
|
(2)
|
|
|
44,873
|
|
|
Tracy L. Keegan
|
|
|
7,069
|
(1)
|
|
$
|
48,069
|
|
|
|
|
|
2,257
|
(2)
|
|
|
15,348
|
|
|
Phillip S. Buddenbohm
|
|
|
6,105
|
(1)
|
|
$
|
41,514
|
|
|
|
|
|
1,950
|
(2)
|
|
|
13,260
|
|
|
|
1)
|
Will vest on February 15, 2022.
|
|
|
2)
|
Will vest in three, equal, annual installments beginning on February 15, 2018.
|
|
|
3)
|
Based on the closing price of $6.80 per share on December 30, 2016.
|
Compensation Plans
2016 Omnibus Incentive
Plan
General
.
Our
Compensation Committee administers the 2016 Omnibus Incentive Plan (the 2016 Incentive Plan). This will continue unless our Compensation
Committee or Board of Directors delegates such authority. Our Compensation Committee and any such delegate are referred to as the
“Administrator.” The Administrator may designate any of our officers, other employees, individuals engaged to become
employed by us, directors, consultants, or advisors.
Types of Awards.
Awards may consist of stock options, stock appreciation rights (SARs), performance shares, performance units, shares of common
stock, restricted stock, restricted stock units, incentive awards, and dividend equivalent units. Only our employees may receive
incentive stock options within the meaning of Section 422 of the Internal Revenue Code.
Shares Reserved under
the 2016 Incentive Plan
.
The 2016 Incentive Plan provides that 500,000 shares of common stock are reserved for issuance
under the 2016 Incentive Plan, subject to adjustment, as described below. In general, if it can be determined that shares will
not be issued pursuant to an award that had been previously granted, then such shares may again be used for new awards. The 2016
Incentive Plan also includes specific limits as to the size of specific awards that any participant may receive over certain periods
of time. Each of these limitations is subject to adjustment as described below.
Stock Options
.
The Administrator determines the number of shares subject to the stock options granted, whether a stock option is to be an incentive
stock option or non-qualified stock option and the grant date for the stock option, which may not be any date prior to the date
that the Administrator approves the grant. The Administrator fixes the stock option exercise price, which may never be less than
the fair market value of a share of our common stock on the date of grant. The Administrator determines the expiration date of
each stock option, except that the expiration date may not be later than 10 years after the date of grant. Stock options are exercisable
and vest at such times and are subject to such restrictions and conditions as the Administrator deems necessary or advisable, including
with respect to the manner of payment of the exercise price of such stock options.
SARs
.
A SAR
is the right of a participant to receive cash in an amount, and/or common stock with a fair market value, equal to the appreciation
of the fair market value of a share of our common stock during a specified period of time. The Administrator determines all terms
and conditions of each SAR, including: (1) whether the SAR is granted independent of a stock option or relates to a stock option;
(2) the grant date, which may not be a date prior to the date of the grant; (3) the number of shares of our common stock to which
the SAR relates; (4) the grant price, which may never be less than the fair market value of our common stock on the date of grant;
(5) the terms and conditions of exercise or maturity, including vesting; (6) a term that must end no later than 10 years after
the date of grant; and (7) whether the SAR will settle in cash, common stock, or a combination of the two.
Performance and Stock
Awards
.
The Administrator has the authority to grant awards of shares of common stock, restricted stock, restricted
stock units, performance shares, or performance units. Restricted stock awards are shares of common stock subject to a risk of
forfeiture and/or restrictions on transfer, which may lapse upon the achievement of performance goals established by the Administrator
and/or upon completing a period of service. Restricted stock units represent the right to receive cash and/or shares of common
stock, the value of which is equal to the fair market value of one share of our common stock. Performance shares are the right
to receive shares of common stock to the extent performance goals are achieved or other requirements are met. Performance units
represent the right to receive cash and/or shares of common stock valued in relation to a unit that has a dollar value or the value
of which is equal to the fair market value of shares of common stock, to the extent performance goals are achieved or other requirements
are met.
The Administrator determines
all terms and conditions of the performance and stock awards, including: (1) the number of shares of common stock and/or units
to which such award relates; (2) whether performance goals must be achieved for the participant to realize any portion of the benefit
under the award; (3) the length of the vesting and/or performance period and, if different, the date of payment of the award; (4)
with respect to performance units, whether to measure the value of each unit in relation to a dollar value or the fair market value
of shares of common stock; and (5) with respect to performance units and restricted stock units, whether the awards will be settled
in cash, in shares of common stock (including restricted stock), or in a combination of the two. However, the 2016 Incentive Plan
requires a minimum vesting period on certain types of awards: any period of vesting applicable to restricted stock or restricted
stock units that are not subject to a performance goal and are granted to a participant other than a non-employee director may
not lapse more quickly than ratably over three years from the date of grant.
Performance Goals and
Incentive Awards
.
The Administrator has the authority to grant annual and long-term incentive awards. An incentive award
is the right to receive an award, to the extent performance goals are achieved. Performance goals are any goals the Administrator
establishes that relate to our performance. The Administrator determines all terms and conditions of an annual or long-term incentive
award, the performance period, the potential amount payable, and the timing of payment.
Dividend Equivalent Units.
The Administrator has the authority to grant dividend equivalent units in tandem with awards other than stock options or SARs.
A dividend equivalent unit is the right to receive a payment (in cash or shares) equal to the cash dividends paid with respect
to a share of our common stock.
Other Stock-Based Awards
.
The Administrator may grant to any participant shares of unrestricted stock as a replacement for other compensation to which such
participant is entitled, such as in payment of director fees, in lieu of cash compensation, in exchange for cancellation of a compensation
right, or as a bonus.
Minimum Vesting and Performance
Periods
.
Any period of vesting applicable to restricted stock or restricted stock units that are not subject to a performance
goal and are granted to a participant other than a non-employee director may not lapse more quickly than ratably over three years
from the date of grant. In addition, the performance period for an annual incentive award must relate to a period of at least one
year, and the performance period for a long-term incentive award must relate to a period longer than one year. Under certain circumstances,
the Administrator may adjust vesting or performance periods for certain types of awards.
Transferability
.
Awards are not transferable other than by will or the laws of descent and distribution, unless the Administrator allows a participant:
(i) to designate in writing a beneficiary to exercise the award or receive payment after the participant’s death, (ii) to
transfer an award to a former spouse incident to a divorce, or (iii) provided that the participant receives no consideration in
connection therewith, to otherwise transfer an award.
Adjustments.
If (1)
we are involved in a merger or other similar transaction, (2) we subdivide or combine shares of common stock or declare a dividend
payable in shares of common stock, other securities, or other property, (3) we pay a cash dividend that exceeds 10% of the fair
market value of a share of common stock or engage in an extraordinary repurchase of shares of common stock, or (4) any other event
occurs that in the judgment of the Administrator requires an adjustment to prevent dilution or enlargement of the benefits intended
to be made available under the 2016 Incentive Plan, then the Administrator will, in a manner it deems equitable to prevent dilution
or enlargement of such benefits, adjust: (A) the number and type of shares subject to the 2016 Incentive Plan; (B) the number and
type of shares subject to outstanding awards; (C) the grant, purchase or exercise price with respect to any award; and (D) to the
extent such discretion does not cause an award intended to qualify as performance-based compensation under Section 162(m) of the
Internal Revenue Code to lose its status as such, the performance goals of an award. In any such case, the Administrator may also
provide for a cash payment to the holder of an outstanding award in exchange for the cancellation of all or a portion of the award.
Change of Control
.
The 2016 Incentive Plan does not provide for automatic vesting of awards solely upon a change of control. However, in the event
of a change of control, the Administrator in its discretion may provide for immediate vesting or other adjustments to the awards.
Except as otherwise provided in any agreement between participant and us or an affiliate, if the receipt of any payment by a participant
under such circumstances described above would result in the payment of any excise tax provided for in Section 280G and Section
4999 of the Internal Revenue Code, then the amounts and benefits to such participant shall be reduced to the extent necessary so
as to maximize amounts and the value of benefits to the participant without causing any amount to become nondeductible by us pursuant
to Section 280G of the Internal Revenue Code.
Term of Plan
.
Unless earlier terminated by the Board of Directors or the Administrator, the 2016 Incentive Plan will remain in effect until May
23, 2026.
Termination and Amendment
.
Board of Directors or the Administrator may amend, alter, suspend, discontinue or terminate the 2016 Incentive Plan at any time,
subject to certain limitations as may be required by law or the listing requirements of a stock exchange or market, or that would
diminish the restrictions against repricing and backdating of outstanding stock options or SARs.
The Administrator may modify,
amend, or cancel any award or waive any restrictions or conditions applicable to any award or the exercise of the award, except
a participant must agree to any such change which would materially diminish the rights of the participant. The Administrator does
not need such consent for such changes which are pursuant to a change of control , required by law or listing requirements of a
stock exchange or market, are intended to preserve favorable accounting or tax treatment, or if such changes will not materially
and adversely affect the value of an award.
Recoupment and Disgorgement
of Awards
. The 2016 Incentive Plan gives the Administrator the authority to terminate or cause a participant to forfeit an
award, and require the participant to disgorge to the Company any gains attributable to an award, if the participant engages in
certain actions which are harmful to the Company, or if required by law or any listing standards to which we are subject.
Repricing and Backdating
Prohibited
.
In general, the administrator may not: (1) amend the terms of stock options or SARs to reduce the exercise
or grant; (2) cancel outstanding stock options or SARs in exchange for stock options or SARs with an exercise or grant price less
than the exercise or grant price of the original stock options or SARs; or (3) cancel outstanding stock options or SARs with an
exercise or grant price above the current Fair Market Value of a share of our common stock in exchange for cash or other securities.
The Administrator may not make a grant of a stock option or SAR with a grant date that is effective before the date the Administrator
takes action to approve such award.
2005 Stock Option
Plan
Our outside directors and
key employees and those of our Affiliates (as defined by the plan) were eligible to participate in and receive awards under the
Atlantic Coast Financial Corporation 2005 Stock Option Plan (the 2005 Stock Option Plan)) until its termination in July 2015. Under
the 2005 Stock Option Plan, we reserved 139,720 shares of common stock (as adjusted as a result of the second-step conversion from
a mutual holding company structure to the fully public stock holding company structure in February 2011) to be issued pursuant
to grants of stock option awards.
Amended and Restated
Supplemental Executive Retirement Plan
Atlantic Coast Bank adopted
the Atlantic Coast Bank Amended and Restated Supplemental Executive Retirement Plan, which was originally established on November
1, 2004 and was most recently amended and restated on January 1, 2005. Each employee who is selected by the Board of Directors
of Atlantic Coast Bank is eligible to participate in this plan. Mr. Buddenbohm, but not Mr. Stephens nor Ms. Keegan, is participating
in this plan.
Each participant in the
plan is entitled to a supplemental retirement benefit equal to the executive’s “appreciation benefit.” The participant’s
“appreciation benefit” is calculated based on the following formula: the “prior benefit” multiplied by
the “issue price” multiplied by the “exchange ratio.” The “prior benefit” is the number of
shares of our common stock equal to the participant’s accrued benefit under the plan as of December 11, 2009. The fair market
value of our common stock as of December 11, 2009 used to determine the “prior benefit” is $1.44. The “issue
price” is $10.00, which was the initial offering price of the shares of our common stock in connection with the second-step
conversion. The “exchange ratio” is 0.196, which was used to determine the number of shares of our common stock that
were exchanged for each share of common stock of Atlantic Coast Federal Corporation as a result of the second-step conversion.
Each participant became
100% vested in the participant’s appreciation benefit as a result of the completion of the second-step conversion. Payment
of the participant’s vested appreciation benefit will commence on January 1st of the year following the participant’s
separation from service at or after attaining age 65 (the normal retirement age) and will be payable in 20 equal annual installments.
If the participant’s separation from service occurs at or after attaining age 55 but before attaining the normal retirement
age (the early retirement age), the participant’s appreciation benefit shall be reduced by 5% for each year the participant’s
early retirement age is less than the normal retirement age. The reduced appreciation benefit will commence on January 1st of the
year following the participant’s separation from service and will be payable in 20 equal annual installments.
Information regarding Mr.
Buddenbohm’s participation in this plan is reflected in the following table.
|
Name
|
|
Plan Name
|
|
Number of years
credited service
|
|
|
Present value of
accumulated benefit
|
|
|
Payments during last
fiscal year
|
|
John K. Stephens, Jr.
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tracy L. Keegan
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Phillip S. Buddenbohm
|
|
Amended and Restated Supplemental Executive Retirement Plan
|
|
|
5
|
|
|
$
|
7,067
|
|
|
$
|
-
|
|
401(k) Plan
On January 1, 2016, Atlantic
Coast Bank adopted The Wealthy and Wise 401(k) Plan (the New 401(k) Plan), which is a multiple employer plan. The New 401(k) Plan
is a tax-qualified defined contribution retirement plan for all employees who have satisfied the plan’s eligibility requirements.
Employees who have completed three consecutive months of service will begin participation in the New 401(k) Plan on the first day
of the month coinciding with or following the date the employee has satisfied the eligibility requirements.
A participant may contribute
up to 75% of his or her compensation to the New 401(k) Plan on a pre-tax basis, subject to the limitations imposed by the Internal
Revenue Code. In addition to salary deferral contributions, Atlantic Coast Bank will make matching contributions under the New
401(k) Plan equal to the sum of 100% of the amount of the participant's elective deferrals that do not exceed 3% of the participant's
compensation, plus 50% of the amount of the participant's elective deferrals that exceed 3% of the participant's compensation,
but do not exceed 5% of the participant's compensation. A participant is always 100% vested in his or her salary deferral contributions
and, under the New 401(k) Plan, all employer contributions are always 100% vested. Generally, a participant (or participant’s
beneficiary) will be eligible to receive a distribution from his or her vested account at retirement (age 60), age 59½ (while
employed with Atlantic Coast Bank), death, disability, or termination of employment.
For the 2015 calendar year,
the maximum salary deferral contribution that could be made by a participant into the Company’s prior 401(k) Plan (the Old
401(k) Plan) was $18,000; provided, however, that a participant over age 50 could contribute an additional $6,000 to the Old 401(k)
Plan. In addition to salary deferral contributions, Atlantic Coast Bank made matching contributions under the Old 401(k) Plan equal
to 50% of the first 6% of the compensation that was deferred by the participant during the plan year. A participant was always
100% vested in his or her salary deferral contributions. Under the Old 401(k) Plan, all employer contributions vested at a rate
of 20% per year, beginning after the participant’s completion of his or her second year of service, such that the participant
would be fully vested upon completion of six years of credited service. However, a participant would have immediately become 100%
vested in the employer contributions upon his or her death, disability, or attainment of age 60 while employed with Atlantic Coast
Bank. Generally, a participant (or participant’s beneficiary) would have received a distribution from his or her vested account
at retirement (age 60), age 59½ (while employed with Atlantic Coast Bank), death, disability, or termination of employment.
Each participant has an
individual account under the New 401(k) Plan and may direct the investment of his or her account among a variety of investment
options or vehicles available. In addition, prior to January 1, 2016, participants in the Old 401(k) Plan could purchase shares
of Atlantic Coast Financial Corporation common stock.
Employee Stock Ownership
Plan
We maintain the Atlantic
Coast Financial Corporation Employee Stock Ownership Plan. Our employees who have been credited with at least 1,000 hours of service
during a twelve-month period are eligible to participate in the employee stock ownership plan. As part of the initial public offering
of Atlantic Coast Federal Corporation, the employee stock ownership plan borrowed funds from Atlantic Coast Federal Corporation
to purchase 465,520 shares of common stock, which served as collateral for the loan. Shares purchased by the employee stock ownership
plan are held in a suspense account for allocation among the participants’ accounts as the loan is repaid.
Contributions to the employee
stock ownership plan and shares released from the unallocated suspense account in an amount proportional to the repayment of the
employee stock ownership plan loan will be allocated to each eligible participant’s plan account, based on the ratio of each
participant’s compensation to the total compensation of all eligible participants. Vested benefits will be payable generally
upon the participants’ termination of employment, and will be paid in the form of common stock, or to the extent participants’
accounts contain cash, benefits will be paid in cash. However, participants have the right to elect to receive their benefits entirely
in the form of common stock. We are required to record compensation expense each year in an amount equal to the fair market value
of the shares released from the suspense account.
As a result of the second-step
conversion, the 139,656 shares of Atlantic Coast Federal Corporation held in the suspense account were converted to 27,372 shares
of our common stock, and all shares allocated to participants’ accounts were converted to shares of our common stock pursuant
to the 0.1960 exchange ratio. In addition, the employee stock ownership plan purchased 68,434 of shares of our common stock issued
in the conversion offering. The employee stock ownership plan funded its stock purchase with a loan from us equal to the aggregate
purchase price of the common stock. This loan will be repaid principally through Atlantic Coast Bank’s contribution to the
employee stock ownership plan and dividends payable on the common stock held by the employee stock ownership plan over the anticipated
20-year term of the loan, with payment in full by 2031. The interest rate for the employee stock ownership plan loan is an adjustable-rate
equal to the prime rate, as published in The Wall Street Journal. The interest rate is currently 3.50% and adjusts annually.
The trustee will hold the
shares purchased by the employee stock ownership plan and all remaining unallocated shares that were purchased in connection with
the initial public offering (95,806 shares in the aggregate) in an unallocated suspense account, and shares will be released to
the participants’ accounts as the new loan is repaid, on a pro-rata basis. The trustee will allocate the shares released
among the participants’ accounts on the basis of each participant’s proportional share of eligible plan compensation
relative to all participants’ proportional share of eligible plan compensation.
Compensation Committee Report
The Compensation Committee
of the Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with
management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation
Discussion and Analysis be included in this proxy statement.
This Compensation Committee
Report does not constitute soliciting material and this Compensation Committee Report should not be deemed filed or incorporated
by reference into any of our other previous or future filings by the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this Compensation
Committee Report by reference therein.
This report has been provided
by the Compensation Committee.
Dave Bhasin, Chairman
Bhanu Choudhrie
W. Eric Palmer
Jacksonville, Florida
March 25, 2017
DIRECTOR COMPENSATION
General
Set forth below is information
regarding compensation paid to, or earned, by each of our non-employee directors for the year ended December 31, 2016.
|
Non-Employee Director Compensation
(1)
|
|
Name
|
|
Fees earned or
paid in cash ($)
|
|
|
Stock awards(2) ($)
|
|
|
All other
compensation ($)
|
|
|
Total ($)
|
|
Dave Bhasin
|
|
|
$ 23,5440
|
(3)
|
|
$
|
11,280
|
|
|
$
|
-
|
|
|
$
|
34,824
|
|
|
Kevin G. Champagne
(4)
|
|
|
7,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,125
|
|
Bhanu Choudhrie
|
|
|
23,544
|
|
|
|
11,280
|
|
|
|
-
|
|
|
|
34,824
|
|
|
John J. Dolan
|
|
|
27,292
|
|
|
|
11,280
|
|
|
|
-
|
|
|
|
38,572
|
|
|
James D. Hogan
|
|
|
23,544
|
|
|
|
11,280
|
|
|
|
-
|
|
|
|
34,839
|
|
|
W. Eric Palmer
(5)
|
|
|
23,544
|
|
|
|
11,280
|
|
|
|
5,414
|
(6)
|
|
|
40,238
|
|
|
Jay S.
Sidhu
(7)
|
|
|
24,432
|
|
|
|
11,280
|
|
|
|
-
|
|
|
|
35,712
|
|
|
|
(1)
|
The following columns were intentionally omitted from the table because the contained no values:
(a) all other compensation, (b) option awards, (c) non-equity incentive plan compensation, and (d) non-qualified deferred compensation
earnings.
|
|
|
(2)
|
These amounts represent quarterly grants of 800 shares of restricted stock. The first grant was
made on May 3, 2016, at $6.37 per share, the second grant was made on August 1, 2016, at $6.01 per share, and the third grant was
made on October 31, 2016, at $6.42 per share.
|
|
|
(3)
|
Mr. Bhasin elected to defer his cash compensation.
|
|
|
(4)
|
Mr. Champagne retired effective February 29, 2016.
|
|
|
(5)
|
As of December 31, 2016, Mr. Palmer had 1,176 outstanding option awards.
|
|
|
(6)
|
Represents payouts from former retirement plans.
|
|
|
(7)
|
As of December 31, 2016, Mr. Sidhu had 20,148 outstanding option awards.
|
Cash Compensation
Members of the Board of
Directors of Atlantic Coast Bank who are also members of the Board of Directors of Atlantic Coast Financial Corporation do not
receive separate compensation for their service on the Board of Directors or the committees of Atlantic Coast Bank. Members of
our Board of Directors receive a fee of $1,962 per month with the following exceptions: Mr. Dolan, as the Chairman of the Board
and Chairman of our Audit Committee, received a fee of $2,375 per month, Mr. Sidhu as Vice Chairman of the Board received a fee
of $2,073 per month. Other than as described above, committee members are not separately compensated for their service. Our directors
who are also our employees are not compensated for their service as a director.
Director Plans
2016 Incentive Plan
.
The directors are eligible to participate in our 2016 Incentive Plan. Please see the description of the plans set forth under
Executive
Compensation – Compensation Plans – 2016 Omnibus Incentive Plan
for further details.
Director Stock Purchase
Plan
. The Atlantic Coast Financial Corporation Director Stock Purchase Plan was adopted on June 1, 2010 and is intended
to encourage and facilitate the purchase of shares our common stock by directors. Under the plan, 29,400 shares of our common stock
may be issued, with an annual increase of 9,800 shares to be added to the plan on the first day of each calendar year, starting
on January 1, 2011 (as adjusted as a result of the second-step conversion). Stock subject to purchase under the plan are shares
of our common stock that have been authorized but unissued, or have been previously issued, or both.
The plan is open to all
of our directors. Each participant must enter into a stock purchase agreement with us, which will state the number of shares of
common stock that are eligible to be purchased by the participant during a specified period of time beginning on the offering date
and ending on a purchase date established by our Compensation Committee (the purchase period), provided however that the purchase
period does not last longer than 27 months following the offering date. Each agreement also provides the purchase price of the
shares of common stock that are eligible to be purchased by the participant. However, the purchase price of a share of common stock
will be not less than 85% of its fair market value on the date of the stock purchase agreement.
During the purchase period,
the participant designates a fixed dollar amount of his or her director fees to be withheld for the purchase of common stock equal
to the purchase price of the shares that are eligible to be purchased by the participant, as adjusted as a result of the second-step
conversion. We, or the appropriate participating subsidiary, credits these amounts to a plan account. Accounts are not credited
with interest. The amount of deductions remain in effect until changed by the participant and remain in effect for successive purchase
periods. Our Compensation Committee determines how often participants may change their deferral elections during a purchase period.
A participant’s stock purchases during a calendar year may not exceed the total dollar amount or number of shares specified
by our Compensation Committee.
At the end of the purchase
period, if the fair market value of a share of common stock is equal to or greater than the purchase price specified in the stock
purchase agreement, the shares covered by the agreement are automatically purchased by the participant with the funds held on behalf
of the participant in the plan account. However, the participant may elect not to purchase any shares or to purchase fewer than
all of the shares covered by the agreement. Any balance in the plan account held on behalf of the participant after purchase of
the shares is paid to the participant. If a participant does not purchase any shares, all funds in the plan account held on his
or her behalf are paid to the participant. The number of shares the participant purchases on each purchase date is determined by
dividing the total amount of payroll deductions withheld from the participant’s compensation since the prior purchase date
by the purchase price. As soon as practicable after each purchase date, the custodian causes to be credited to the participant’s
account the number of shares of common stock with respect to which the participant exercised his or her purchase rights under the
plan.
Termination of a participant’s
services for any reason, including disability or death or the failure of the participant to continuously remain our director or
a director of one of our subsidiaries will terminate his or her participation in the plan immediately. Fees contributed to the
participant’s account shall be returned to him or her or, in the case of death, to the person or persons entitled thereto
in accordance with the plan.
Director Retirement
Plan
. Atlantic Coast Bank has adopted the Atlantic Coast Bank 2005 Amended and Restated Director Retirement Plan, effective
June 17, 2010. Each member of the Board of Directors of Atlantic Coast Bank is eligible to participate in the plan. As a result
of the completion of the second-step conversion, each participant is entitled to receive his or her “appreciation benefit.”
The participant’s “appreciation benefit” will be payable in equal monthly installments of 120 months, commencing
on the first day of the month following the completion of the second-step conversion.
The participant’s
“appreciation benefit” is calculated based on the following formula: the sum of (i) the lesser of (A) the “prior
benefit component” multiplied by the “issue price,” or (B) the director’s accrued benefit under the old
agreement as of December 11, 2009 multiplied by 3% per annum, (ii) the “stock award component” multiplied by the “issue
price,” and (iii) the “stock ownership component,” multiplied by the “issue price.” The “prior
benefit component” is determined by dividing the director’s accrued benefit under the plan as of December 11, 2009
by $1.44, which is the fair market value of our common stock on December 11, 2009. The “stock award component” is equal
to 25% of the number of shares of our common stock awarded to the participant under the 2005 Recognition and Retention Plan that
were still held by the participant as of December 11, 2009. The “stock ownership component” is equal to 75% of the
amount of shares of our common stock that were beneficially owned by the participant as of December 11, 2009. The “issue
price” is the average selling price of a share of our common stock over the 30 day period immediately preceding the conversion,
minus $1.44. The aggregate value of the “prior benefit component,” the “stock award component,” and the
“stock ownership component” will be adjusted in accordance with the exchange ratio. Atlantic Coast Bank will pay interest
on the unpaid balance of the participant’s appreciation benefit at the rate of the monthly average of the three-month LIBOR
plus 275 basis points per annum until the appreciation benefit is paid in full.
Each participant became
100% vested in his appreciation benefit as a result of the completion of the second-step conversion on February 3, 2011. A portion
of the participant’s vested appreciation benefit was used to purchase shares of our common stock that was issued in connection
with the second-step conversion. Such purchased common stock is being held in a rabbi trust that was created by Atlantic Coast
Bank. As a result, to the extent the participant’s appreciation benefit is invested in our common stock, then the participant’s
appreciation benefit attributable to common stock will be distributed in-kind.
Director Deferred
Fee Plan.
We adopted the Atlantic Coast Financial Corporation Amended and Restated 2005 Director Deferred Fee Plan, effective
January 1, 2005. The plan allows for a participant to elect to defer a portion of his or her director fees to the plan. All amounts
contributed to the plan are credited to a bookkeeping account established on behalf of each participant. The participant’s
account balance is credited with earnings based on the participant’s choice among the investment alternatives made available
under the plan. However, participants are not permitted to invest in our common stock through this plan. Each participant has the
right to elect for the payment of his or her account balance to commence on either a specified date or within 30 days following
his or her separation from service (the commencement date). However, the participant’s account balance may be paid out prior
to the commencement date due to the participant’s death or disability, or if we experience a change in control. Generally,
the participant’s account balance is payable in a lump sum distribution. However, a participant can elect for his or her
account balance to be payable in equal monthly installments over a period not to exceed 10 years.
Director Deferred
Compensation Plan for Equity.
We adopted the Atlantic Coast Financial Corporation Amended and Restated 2007 Director Deferred
Compensation Plan for Equity in order to allow participants to defer receipt of board fees and annual cash incentives to the plan,
which is used to purchase “phantom shares” of our common stock. Each phantom share is deemed to be acquired at the
prevailing market rate of our common stock, and is credited to a bookkeeping account established on behalf of each participant.
The account is maintained in phantom shares for the duration of the participant’s participation in the plan. To the extent
dividends are issued on our common stock, dividends are credited to the phantom shares in the same proportion as the actual dividends
are credited to our common stock.
Each participant has the
right to elect for the payment of his or her account balance to commence on either a specified date or within 30 days following
his or her separation from service (the commencement date). However, the participant’s account balance may be paid out prior
to the commencement date due to the participant’s death or disability, or if we experience a change in control. Generally,
the participant’s account balance will be payable in a lump sum distribution. However, a participant can elect for his or
her account balance to be payable in equal monthly installments over a period not to exceed 10 years. All payments made under the
plan to the participant will be made in the form of our common stock.
EQUITY COMPENSATION PLAN
INFORMATION
The table below sets forth
information, as of December 31, 2016, regarding equity compensation plans categorized by those plans that have been approved by
stockholders and those plans that have not been approved by stockholders.
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Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
(1)
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Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(2)
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Number of Securities
Remaining Available for Future
Issuance Under Equity
Compensation Plans
(3)(4)
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Equity compensation plans approved by stockholders
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20,776
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$
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14.95
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|
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500,000
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Equity compensation plans not approved by stockholders
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|
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-
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|
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-
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|
|
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-
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Total
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20,776
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|
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$
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14.95
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|
|
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500,000
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(1)
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Consists of options to purchase 20,776 shares of common stock under the Atlantic Coast Federal
Corporation 2005 Stock Option Plan and 2016 Omnibus Incentive Plan.
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(2)
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The weighted average exercise price reflects the weighted average exercise price of stock options
awarded under the Atlantic Coast Federal Corporation 2005 Stock Option Plan.
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(3)
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In accordance with its provisions, the Atlantic Coast Federal Corporation 2005 Stock Option Plan
was terminated on July 27, 2015; therefore, no securities remain available for future issuance under this plan.
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(4)
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The Atlantic Coast Financial Corporation 2016 Omnibus Incentive Plan was approved at the Company’s
2016 Annual Meeting of Stockholders; therefore, 500,000 securities are available for future issuance under this plan.
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TRANSACTIONS
WITH CERTAIN RELATED PERSONS
We have a policy of granting
loans to officers and directors, which fully complies with all applicable federal regulations. Loans to directors and executive
officers are made in the ordinary course of business and on substantially the same terms and conditions as those of comparable
transactions with unaffiliated third parties prevailing at the time, in accordance with our underwriting guidelines, and do not
involve more than the normal risk of collectability or present other unfavorable features. In addition, all loans to directors
and executive officers are approved by at least a majority of the independent, disinterested members of our Board of Directors.
All loans Atlantic Coast
Bank makes to its directors and executive officers are subject to regulations restricting loans and other transactions with affiliated
persons of Atlantic Coast Bank. Loans to all directors and executive officers and their associates totaled approximately $1.9 million
at December 31, 2016. All loans to directors and executive officers were performing in accordance with their terms at December
31, 2016.
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,
Atlantic Coast 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, Atlantic
Coast 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, Atlantic Coast 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 Atlantic Coast 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, Atlantic Coast 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 Atlantic Coast 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, Atlantic Coast Bank earned $573,000 and $226,000, respectively,
of interest income related to the Customers Participation Agreements.
As further discussed
under “Board Independence,” our Board of Directors determined in its business judgment that Mr. Sidhu is not “independent”
and that Mr. Choudhrie is “independent” within the meaning of the NASDAQ corporate governance listing standard.
Our Board of Directors unanimously recommends
that you vote “FOR” each of the nominees to our Board named in this proxy statement. If not otherwise specified, proxies
will be voted “FOR” the election of each nominee for director named in this proxy statement as recommended by our Board.
PROPOSAL II – RATIFICATION OF THE APPOINTMENT
OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committee of
the Board of Directors appointed Dixon Hughes Goodman LLP, as the Company’s independent registered public accounting firm
for 2016 effective immediately following the filing of the Company’s 2015 Annual Report on Form 10-K. For reporting periods
presented prior to 2016, the Company’s independent registered public accounting firm was RSM US LLP. On March 16, 2016, the
Company filed its 2015 Annual Report on Form 10-K and its engagement of Dixon Hughes Goodman LLP as its independent registered
public accounting firm became effective. Dixon Hughes Goodman LLP reports directly to the Audit Committee. In selecting Dixon Hughes
Goodman LLP as the Company’s independent registered public accounting firm for 2017, the Audit Committee considered a number
of factors, including, but not limited to:
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·
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The professional qualifications of Dixon
Hughes Goodman LLP’s lead partner and other engagement personnel,
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·
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Dixon Hughes Goodman LLP’s independence
program and its process for maintaining its independence,
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·
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Dixon Hughes Goodman LLP’s depth
and understanding of the Company’s business, accounting policies and practices and internal controls over financial reporting,
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·
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The appropriateness of Dixon Hughes Goodman
LLP’s fees for audit services,
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·
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Dixon Hughes Goodman LLP’s known
legal risks and significant proceedings that may impair its ability to perform the Company’s annual audit, and
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·
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The most recent PCAOB inspection report
on Dixon Hughes Goodman LLP and the results of “peer review” examinations.
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The report of Dixon Hughes
Goodman LLP on the Company’s consolidated financial statements for the year ended December 31, 2016 and the report of RSM
US LLP on the Company’s consolidated financial statements for the years ended December 31, 2015 and 2014 did not contain
an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the report periods and subsequent interim period through March 14, 2017, the Company did not have any disagreements with
Dixon Hughes Goodman LLP or RSM US LLP on any matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which if not resolved to the satisfaction of Dixon Hughes Goodman LLP or RSM US LLP would have caused
either of them to make reference thereto in its reports on the financial statements of the Company for such period. Additionally,
during the years ended December 31, 2016, 2015 and 2014, and the subsequent interim period through March 14, 2017, there were no
reportable events, requiring disclosure under Item 304(a)(1)(v) of Regulation S-K.
The audit reports of RSM
US LLP on the financial statements of the Company as of and for the fiscal years ended December 31, 2015 and 2014 did not contain
an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
The company provided to
RSM US LLP the disclosure contained in the Current Report on Form 8-K filed with the SEC on April 1, 2016 and requested RSM US
LLP furnish a letter addressed to the SEC stating whether it agreed with the statements contained therein and, if not, stating
the respects in which it did not agree. A copy of RSM US LLP’s letter, dated April 1, 2016, was filed as Exhibit 16.1 to
that Current Report.
During the years ended
December 31, 2015 and 2014 the Company did not consult with Dixon Hughes Goodman LLP regarding any of the matters or events set
forth in Item 304(a)(2) of Regulation S-K.
Although the ratification
of the appointment of Dixon Hughes Goodman LLP is not required by our Bylaws, our Board of Directors is submitting it to the stockholders
to ascertain their views. If the stockholders do not ratify the appointment, we will not be bound to seek another independent registered
public accountant for 2017, but the selection of other independent registered public accounting firms will be considered in future
years. At the Annual Meeting, our stockholders will consider and vote on the ratification of the engagement of Dixon Hughes Goodman
LLP for our fiscal year ending December 31, 2017. Representatives of Dixon Hughes Goodman LLP are expected to attend the Annual
Meeting, will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to
appropriate questions.
Set forth below is certain
information concerning aggregate fees billed for professional services rendered by Dixon Hughes Goodman, LLP during the fiscal
year ended December 31, 2016 and RSM US LLP during the fiscal year ended December 31, 2015.
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2016
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2015
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Audit Fees
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$
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235,000
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$
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245,478
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Audit Related Fees
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62,600
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23,500
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Tax Fees
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-
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-
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All Other Fees
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400
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-
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Total Fees
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$
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298,000
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|
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$
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268,978
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|
Audit Fees
Audit Fees for the audit
of our consolidated financial statements were $170,000 and $245,478 for fiscal years 2016 and 2015 respectively, and included fees
related to review of the financial statements included in our quarterly reports on Form 10-Q and review of our Annual Report on
Form 10-K. Audit fees also included $65,000 in fiscal year 2016 for the audit of internal controls over financial reporting.
Audit – Related
Fees
Audit related fees of $62,600
in 2016 were for annual benefit plan audits of our Employee Stock Ownership Plan and 401(k) Plan and for the HUD-assisted audit
that included fees for the annual audit and report on our financial statements, internal control, and compliance. Audit related
fees of $23,500 in 2015 were for the re-issuance of the December 31, 2013 audit opinion related to the annual benefit plan audit
of our 2014 401(k) Plan, and the HUD-assisted audit that included fees for the annual audit report of our financial statements,
internal control, and compliance.
All Other Fees
Fees of $400 paid to Dixon
Hughes Goodman LLP related to attending our 2016 annual meeting of shareholders.
Audit and Non-Audit Services
Pre-Approval Policy
The Audit Committee’s
charter provides that the Audit Committee must pre-approve services to be performed by our independent registered public accounting
firm. In accordance with that requirement, the Audit Committee pre-approved the engagement of Dixon Hughes Goodman LLP pursuant
to which it provided the audit and audit-related services described below for the fiscal year ended December 31, 2016. All of the
fees set forth below are pre-approved by the Audit Committee.
In order to ratify the appointment
of Dixon Hughes Goodman LLP as the independent registered public accounting firm for the year ending December 31, 2017, the proposal
must receive at least a majority of the votes cast at the Annual Meeting, without regard to abstentions or broker non-votes, either
in person or by proxy, in favor of such ratification.
Our Board of Directors
unanimously recommends that you vote “FOR” the ratification of our Audit Committee’s appointment of Dixon Hughes
Goodman LLP as our independent registered public accounting firm for the year ending December 31, 2017. If not otherwise specified,
proxies will be voted “FOR” approval of this proposal as recommended by our Board.
ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED
AT AN ANNUAL MEETING
Our Bylaws provide an advance
notice procedure for stockholder proposals and nominations for director, to be brought before an annual meeting of stockholders.
In order for a stockholder to properly bring business before an annual meeting, or to propose a nominee for director, our Corporate
Secretary must receive written notice at our principal executive office not less than 80 days nor more than 90 days prior to date
of the annual meeting; provided, however, that in the event that less than 90 days notice or prior public disclosure of the date
of the annual meeting is provided to stockholders, then, to be timely, written notice by the stockholder must be received not later
than the tenth day following the day on which notice of the meeting was mailed to stockholders or public announcement of the date
of such annual meeting was made. A stockholder may submit a stockholder proposal and/or nominate someone for director if the stockholder
is (1) a stockholder of record on the date such stockholder gives the notice described herein and on the record date for the determination
of stockholders entitled to vote at such annual meeting, and (2) complies with the notice procedures described herein and in our
Bylaws.
The notice with respect
to stockholder proposals that are not nominations for director must set forth as to each matter such stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and address of such stockholder as they appear on our books and
of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class or series and number of shares of our capital
stock which are owned beneficially or of record by such stockholder and such beneficial owner; (iv) a description of all arrangements
or understandings between such stockholder and any other person(s) (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in such business; and (v) a representation that such
stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. Any business
proposed to be brought before an annual meeting by a stockholder must be a proper matter for action by stockholders.
The notice with respect
to director nominations must include (i) as to each individual whom the stockholder proposes to nominate for election as a director,
(A) all information relating to such person that would indicate such person’s qualification to serve on our Board of Directors,
including an affidavit that such person would not be disqualified under the provisions of Article 2, Section 12 of the Bylaws and
(B) all other information relating to such individual that is required to be disclosed in connection with solicitations of proxies
for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended, or any successor rule or regulation; and (ii) as to the stockholder giving the notice, (A) the name and address
of such stockholder as they appear on our books and of the beneficial owner, if any, on whose behalf the nomination is made; (B)
the class or series and number of shares of our capital stock which are owned beneficially or of record by such stockholder and
such beneficial owner; (C) a description of all arrangements or understandings between such stockholder and each proposed nominee
and any other person(s) (including their names) pursuant to which the nomination(s) are to be made by such stockholder; (D) a representation
that such stockholder intends to appear in person or by proxy at the meeting to nominate the person(s) named in its notice; and
(E) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of directors pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, or any successor rule or regulation. Such notice must be accompanied by a written
consent of each proposed nominee to be named as a nominee and to serve as a director, if elected.
Nothing in this proxy statement
shall be deemed to require us to include in our proxy statement and proxy relating to an annual meeting any stockholder proposal
that does not meet all of the requirements for inclusion established by the Securities and Exchange Commission in effect at the
time such proposal is received.
The 2018 Annual Meeting
of Stockholders is expected to be held May 21, 2018. Accordingly, advance written notice for stockholder proposals and nominations
for director, to be brought before that annual meeting must be received by our Corporate Secretary no earlier than February 20,
2018 and no later than March 2, 2018. If notice is received outside of these dates, it will be considered untimely, and we will
not be required to present the matter at the stockholders meeting.
STOCKHOLDER PROPOSALS
In order to be eligible
for inclusion in our proxy materials for our 2018 Annual Meeting of Stockholders, any stockholder proposal to take action at such
meeting must be received at our principal executive office, 4655 Salisbury Road, Suite 110, Jacksonville, Florida 32256, Attention:
Corporate Secretary, no later than December 18, 2017. Any such proposals will need to be in writing and shall be subject to the
requirements of the proxy rules adopted under the Securities Exchange Act of 1934, as amended.
OTHER MATTERS
Our Board of Directors is
not aware of any business to come before the Annual Meeting other than the matters described above in this proxy statement.
However,
if any matters should properly come before the Annual Meeting, it is intended that the holders of the proxies will act at their
discretion in accordance with their best judgment.
MISCELLANEOUS
The cost of solicitation
of proxies will be borne by us. We will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy materials to the beneficial owners of common stock. We have retained Corporate Communications,
Inc., our regularly retained investor relations firm, to assist in the solicitation of proxies. Corporate Communications, Inc.
will not receive any additional compensation for this service. In addition to solicitations by mail, directors, officers and regular
employees may solicit proxies personally or by telephone without additional compensation. Our Annual Report on Form 10-K for the
year ended December 31, 2016, has been mailed to all stockholders of record as of March 31, 2017. Any stockholder who has not received
a copy of such annual report may obtain a copy by writing us at the address below. Such annual report is not to be treated as a
part of the proxy solicitation material nor as having been incorporated herein by reference.
HOUSEHOLDING OF PROXY STATEMENTS AND ANNUAL
REPORTS
We intend to deliver only
one annual report and proxy statement to multiple registered stockholders sharing the same address unless we have received contrary
instructions from one or more of the stockholders. If individual stockholders wish to receive a separate copy of the annual report
or proxy statement, they may call or write and request separate copies currently or in the future as follows:
Atlantic Coast Financial
Corporation
Attn: Investor Relations
4655 Salisbury Road, Suite
110
Jacksonville, Florida 32256
Phone: (904) 559-8599
IR@atlanticcoastbank.net
Registered stockholders
sharing the same address and receiving multiple copies of annual reports or proxy statements may request the delivery of a single
copy by writing or calling the above address or phone number.
BY ORDER OF THE BOARD OF DIRECTORS
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Tracy L. Keegan
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EVP, Chief Financial Officer and Corporate Secretary
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|
Jacksonville, Florida
April 18, 2017
ATLANTIC COAST FINANCIAL
CORPORATION ANNUAL MEETING PROXY CARD
The Board of Directors
recommends a vote “FOR” each nominee listed in Proposal 1, and “FOR” Proposal 2.
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FOR
ALL
|
WITHHOLD
ALL
|
FOR ALL
EXCEPT
|
|
1.
|
To elect as
directors the following three nominees named in the proxy statement, each to serve for a three-year term ending in 2020 and until
their respective successors have been elected and qualified:
W. Eric Palmer
Jay S. Sidhu
John K. Stephens,
Jr.
INSTRUCTION: To withhold your
vote for one of the individual nominees, mark “For All Except” and write the nominee’s name on the space provided.
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¨
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¨
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¨
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FOR
|
AGAINST
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ABSTAIN
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2.
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To ratify the appointment of Dixon Hughes Goodman LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2017.
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¨
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¨
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¨
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Please sign exactly as
your name(s) appears on this card. When signing as attorney, executor, administrator, trustee, guardian or other fiduciary, please
give your full title as such. If shares are held jointly, each holder should sign. If a corporation, limited liability company
or partnership, please sign in full corporate, limited liability company or partnership name by authorized officer.
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Dated: _________________, 2017
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¨
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Check Box if You Plan to Attend the Annual Meeting.
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PRINT NAME OF STOCKHOLDER
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PRINT NAME OF STOCKHOLDER
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SIGNATURE OF STOCKHOLDER
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SIGNATURE OF STOCKHOLDER
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REVOCABLE PROXY – ATLANTIC COAST
FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
May 22, 2017, 10:00 a.m., local time
This proxy is solicited on behalf of the
Board of Directors of Atlantic Coast Financial Corporation
You are receiving this
proxy card because you are a stockholder. This proxy card revokes all prior proxies given by you.
The undersigned hereby
appoints JOHN K. STEPHENS, JR., and TRACY L. KEEGAN, and each of them, with power to act without others and with full power of
substitution, as proxies and attorneys-in-fact (Proxies), and hereby authorizes them to represent and vote, as instructed on the
reverse side of this proxy card, all the shares of common stock of Atlantic Coast Financial Corporation (the Company) which the
undersigned is entitled to vote and, in their discretion, to vote upon such other business as may properly come before the 2017
Annual Meeting of Stockholders of the Company (the Annual Meeting) to be held at the Sheraton Jacksonville Hotel, 10605 Deerwood
Park Blvd., Jacksonville, Florida, at 10:00 a.m., local time, on May 22, 2017, or at any adjournments or postponements thereof,
with all powers which the undersigned would possess if present at the Annual Meeting.
If this proxy card has been properly executed
and the undersigned has provided no voting instructions, then the undersigned’s shares will be voted “FOR” the
election of the Board of Directors’ nominees and “FOR” Proposal 2.
Should the undersigned
be present and elect to vote at the Annual Meeting or at any adjournment or postponement thereof and, after notification to the
Corporate Secretary of the Company at the Annual Meeting of the stockholder’s decision to terminate this proxy, then the
power of the Proxies shall be deemed terminated. This proxy may also be revoked by written notice to the Corporate Secretary of
the Company at the address set forth on the Notice of Annual Meeting of Stockholders, or by the filing of a later-dated proxy,
prior to a vote being taken on a particular proposal at the Annual Meeting.
The undersigned acknowledges
receipt from the Company prior to the execution of this proxy of the Company’s Notice of the Annual Meeting of the Stockholders,
Proxy Statement dated April 18, 2017, and Annual Report on Form 10-K for the year ended December 31, 2016.
Please
complete, date, sign and promptly return
this proxy in the enclosed postage-prepaid
envelope.
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