ITEM 1. FINANCIAL STATEMENTS
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Information)
(unaudited)
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
5,606
|
|
|
$
|
3,744
|
|
Short-term interest-earning deposits
|
|
|
28,580
|
|
|
|
56,149
|
|
Total cash and cash equivalents
|
|
|
34,186
|
|
|
|
59,893
|
|
Securities available-for-sale
|
|
|
40,759
|
|
|
|
65,293
|
|
Portfolio loans, net of allowance of $8,220 in 2017 and $8,162 in 2016
|
|
|
714,370
|
|
|
|
639,245
|
|
Other loans:
|
|
|
|
|
|
|
|
|
Held-for-sale
|
|
|
6,528
|
|
|
|
7,147
|
|
Warehouse loans held-for-investment
|
|
|
67,349
|
|
|
|
80,577
|
|
Total other loans
|
|
|
73,877
|
|
|
|
87,724
|
|
Federal Home Loan Bank stock, at cost
|
|
|
6,445
|
|
|
|
8,792
|
|
Land, premises and equipment, net
|
|
|
14,583
|
|
|
|
14,945
|
|
Bank owned life insurance
|
|
|
17,770
|
|
|
|
17,535
|
|
Other real estate owned
|
|
|
242
|
|
|
|
2,886
|
|
Accrued interest receivable
|
|
|
1,921
|
|
|
|
1,979
|
|
Deferred tax assets, net
|
|
|
5,620
|
|
|
|
6,752
|
|
Other assets
|
|
|
2,810
|
|
|
|
2,415
|
|
Total assets
|
|
$
|
912,583
|
|
|
$
|
907,459
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand
|
|
$
|
70,673
|
|
|
$
|
59,696
|
|
Interest-bearing demand
|
|
|
122,107
|
|
|
|
106,004
|
|
Savings and money market
|
|
|
281,961
|
|
|
|
224,987
|
|
Time
|
|
|
213,058
|
|
|
|
237,726
|
|
Total deposits
|
|
|
687,799
|
|
|
|
628,413
|
|
Federal Home Loan Bank advances
|
|
|
132,425
|
|
|
|
188,758
|
|
Accrued expenses and other liabilities
|
|
|
2,076
|
|
|
|
3,270
|
|
Total liabilities
|
|
|
822,300
|
|
|
|
820,441
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock: $0.01 par value; 25,000,000 shares authorized; none issued and outstanding at June 30, 2017 and December 31, 2016
|
|
|
–
|
|
|
|
–
|
|
Common stock: $0.01 par value; 100,000,000 shares authorized; 15,553,709 issued and outstanding at June 30, 2017 and 15,509,061 issued and outstanding at December 31, 2016
|
|
|
156
|
|
|
|
155
|
|
Additional paid-in capital
|
|
|
100,329
|
|
|
|
100,361
|
|
Common stock held by:
|
|
|
|
|
|
|
|
|
Employee stock ownership plan shares of 64,672 at June 30, 2017 and 67,067 at December 31, 2016
|
|
|
(1,405
|
)
|
|
|
(1,457
|
)
|
Benefit plans
|
|
|
(99
|
)
|
|
|
(99
|
)
|
Retained deficit
|
|
|
(7,647
|
)
|
|
|
(10,316
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,051
|
)
|
|
|
(1,626
|
)
|
Total stockholders’ equity
|
|
|
90,283
|
|
|
|
87,018
|
|
Total liabilities and stockholders’ equity
|
|
$
|
912,583
|
|
|
$
|
907,459
|
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Dollars in Thousands, Except Share Information)
(unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
8,028
|
|
|
$
|
7,938
|
|
|
$
|
15,497
|
|
|
$
|
15,438
|
|
Securities and interest-earning deposits in other financial institutions
|
|
|
393
|
|
|
|
568
|
|
|
|
812
|
|
|
|
1,264
|
|
Total interest and dividend income
|
|
|
8,421
|
|
|
|
8,506
|
|
|
|
16,309
|
|
|
|
16,702
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,261
|
|
|
|
847
|
|
|
|
2,349
|
|
|
|
1,644
|
|
Securities sold under agreements to repurchase
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1
|
|
Federal Home Loan Bank advances
|
|
|
509
|
|
|
|
1,254
|
|
|
|
937
|
|
|
|
2,562
|
|
Other borrowings
|
|
|
–
|
|
|
|
1
|
|
|
|
–
|
|
|
|
1
|
|
Total interest expense
|
|
|
1,770
|
|
|
|
2,102
|
|
|
|
3,286
|
|
|
|
4,208
|
|
Net interest income
|
|
|
6,651
|
|
|
|
6,404
|
|
|
|
13,023
|
|
|
|
12,494
|
|
Provision for portfolio loan losses
|
|
|
191
|
|
|
|
199
|
|
|
|
291
|
|
|
|
349
|
|
Net interest income after provision for portfolio loan losses
|
|
|
6,460
|
|
|
|
6,205
|
|
|
|
12,732
|
|
|
|
12,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
454
|
|
|
|
563
|
|
|
|
888
|
|
|
|
1,196
|
|
Gain on sale of securities available-for-sale
|
|
|
400
|
|
|
|
–
|
|
|
|
400
|
|
|
|
828
|
|
Gain on sale of loans held-for-sale
|
|
|
391
|
|
|
|
949
|
|
|
|
1,933
|
|
|
|
1,363
|
|
Gain on sale of portfolio loans
|
|
|
–
|
|
|
|
218
|
|
|
|
–
|
|
|
|
218
|
|
Bank owned life insurance earnings
|
|
|
118
|
|
|
|
115
|
|
|
|
235
|
|
|
|
232
|
|
Interchange fees
|
|
|
339
|
|
|
|
349
|
|
|
|
668
|
|
|
|
707
|
|
Other
|
|
|
217
|
|
|
|
355
|
|
|
|
356
|
|
|
|
566
|
|
Total noninterest income
|
|
|
1,919
|
|
|
|
2,549
|
|
|
|
4,480
|
|
|
|
5,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
3,527
|
|
|
|
3,512
|
|
|
|
7,014
|
|
|
|
6,970
|
|
Occupancy and equipment
|
|
|
548
|
|
|
|
603
|
|
|
|
1,103
|
|
|
|
1,205
|
|
Federal Deposit Insurance Corporation insurance premiums
|
|
|
121
|
|
|
|
166
|
|
|
|
256
|
|
|
|
338
|
|
Foreclosed assets, net
|
|
|
219
|
|
|
|
254
|
|
|
|
299
|
|
|
|
254
|
|
Data processing
|
|
|
582
|
|
|
|
513
|
|
|
|
1,193
|
|
|
|
969
|
|
Outside professional services
|
|
|
562
|
|
|
|
539
|
|
|
|
1,099
|
|
|
|
1,010
|
|
Collection expense and repossessed asset losses
|
|
|
95
|
|
|
|
117
|
|
|
|
234
|
|
|
|
262
|
|
Other
|
|
|
842
|
|
|
|
926
|
|
|
|
1,848
|
|
|
|
1,700
|
|
Total noninterest expense
|
|
|
6,496
|
|
|
|
6,630
|
|
|
|
13,046
|
|
|
|
12,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
1,883
|
|
|
|
2,124
|
|
|
|
4,166
|
|
|
|
4,547
|
|
Income tax expense
|
|
|
691
|
|
|
|
788
|
|
|
|
1,497
|
|
|
|
1,687
|
|
Net income
|
|
$
|
1,192
|
|
|
$
|
1,336
|
|
|
$
|
2,669
|
|
|
$
|
2,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.17
|
|
|
$
|
0.19
|
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.17
|
|
|
$
|
0.19
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Dollars in Thousands)
(unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,192
|
|
|
$
|
1,336
|
|
|
$
|
2,669
|
|
|
$
|
2,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period
|
|
|
741
|
|
|
|
440
|
|
|
|
1,542
|
|
|
|
2,532
|
|
Less reclassification adjustments for gains recognized in income
|
|
|
(400
|
)
|
|
|
–
|
|
|
|
(400
|
)
|
|
|
(828
|
)
|
Net unrealized gains
|
|
|
341
|
|
|
|
440
|
|
|
|
1,142
|
|
|
|
1,704
|
|
Income tax effect
|
|
|
(124
|
)
|
|
|
(164
|
)
|
|
|
(567
|
)
|
|
|
(891
|
)
|
Net of tax effect
|
|
|
217
|
|
|
|
276
|
|
|
|
575
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
217
|
|
|
|
276
|
|
|
|
575
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,409
|
|
|
$
|
1,612
|
|
|
$
|
3,244
|
|
|
$
|
3,673
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
(Dollars in Thousands, Except Share Information)
(unaudited)
|
|
Common
Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Employee
Stock
Ownership
Plan Shares
|
|
|
Benefit
Plans
|
|
|
Retained
Deficit
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months
ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2016
|
|
|
15,509,061
|
|
|
$
|
155
|
|
|
$
|
100,361
|
|
|
$
|
(1,457
|
)
|
|
$
|
(99
|
)
|
|
$
|
(10,316
|
)
|
|
$
|
(1,626
|
)
|
|
$
|
87,018
|
|
Employee stock ownership
plan shares earned, 2,395 shares
|
|
|
–
|
|
|
|
–
|
|
|
|
(34
|
)
|
|
|
52
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
18
|
|
Restricted stock awards
|
|
|
44,648
|
|
|
|
1
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1
|
|
Distribution from
Rabbi Trust
|
|
|
–
|
|
|
|
–
|
|
|
|
2
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2
|
|
Net income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,669
|
|
|
|
–
|
|
|
|
2,669
|
|
Other
comprehensive income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
575
|
|
|
|
575
|
|
Balance at June
30, 2017
|
|
|
15,553,709
|
|
|
$
|
156
|
|
|
$
|
100,329
|
|
|
$
|
(1,405
|
)
|
|
$
|
(99
|
)
|
|
$
|
(7,647
|
)
|
|
$
|
(1,051
|
)
|
|
$
|
90,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the six months ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
15,509,061
|
|
|
$
|
155
|
|
|
$
|
100,458
|
|
|
$
|
(1,561
|
)
|
|
$
|
(248
|
)
|
|
$
|
(16,734
|
)
|
|
$
|
(1,332
|
)
|
|
$
|
80,738
|
|
Employee stock ownership
plan shares earned, 2,395 shares
|
|
|
–
|
|
|
|
–
|
|
|
|
(37
|
)
|
|
|
52
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
15
|
|
Distribution from
Rabbi Trust
|
|
|
–
|
|
|
|
–
|
|
|
|
(17
|
)
|
|
|
–
|
|
|
|
37
|
|
|
|
–
|
|
|
|
–
|
|
|
|
20
|
|
Net income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,860
|
|
|
|
–
|
|
|
|
2,860
|
|
Other
comprehensive income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
813
|
|
|
|
813
|
|
Balance at June
30, 2016
|
|
|
15,509,061
|
|
|
$
|
155
|
|
|
$
|
100,404
|
|
|
$
|
(1,509
|
)
|
|
$
|
(211
|
)
|
|
$
|
(13,874
|
)
|
|
$
|
(519
|
)
|
|
$
|
84,446
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Dollars in Thousands)
(unaudited)
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,669
|
|
|
$
|
2,860
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Provision for portfolio loan losses
|
|
|
291
|
|
|
|
349
|
|
Gain on sale of loans held-for-sale
|
|
|
(1,933
|
)
|
|
|
(1,363
|
)
|
Originations of loans held-for-sale
|
|
|
(30,433
|
)
|
|
|
(40,707
|
)
|
Proceeds from sales of loans held-for-sale
|
|
|
43,765
|
|
|
|
38,251
|
|
Gain on sale of portfolio loans
|
|
|
–
|
|
|
|
(218
|
)
|
Loss on foreclosed assets, net
|
|
|
299
|
|
|
|
254
|
|
Gain on sale of securities available-for-sale
|
|
|
(400
|
)
|
|
|
(828
|
)
|
Gain on sale of branch
|
|
|
–
|
|
|
|
(137
|
)
|
Employee stock ownership plan compensation expense
|
|
|
18
|
|
|
|
15
|
|
Restricted stock awards
|
|
|
1
|
|
|
|
–
|
|
Amortization of premiums and deferred fees, net of accretion of discounts on investment securities and loans
|
|
|
726
|
|
|
|
75
|
|
Amortization of prepayment penalties resulting from repayment of Federal Home Loan Bank advances
|
|
|
–
|
|
|
|
1,382
|
|
Depreciation expense
|
|
|
557
|
|
|
|
517
|
|
Deferred tax benefit
|
|
|
794
|
|
|
|
–
|
|
Net change in cash surrender value of bank owned life insurance
|
|
|
(235
|
)
|
|
|
(232
|
)
|
Net change in accrued interest receivable
|
|
|
58
|
|
|
|
(154
|
)
|
Net change in other assets
|
|
|
(301
|
)
|
|
|
(452
|
)
|
Net change in accrued expenses and other liabilities
|
|
|
(1,194
|
)
|
|
|
2,190
|
|
Net cash provided by operating activities
|
|
|
14,682
|
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from maturities and payments of investment securities
|
|
|
77,502
|
|
|
|
6,423
|
|
Proceeds from sales of securities available-for-sale
|
|
|
5,400
|
|
|
|
41,852
|
|
Purchase of securities available-for-sale
|
|
|
(57,149
|
)
|
|
|
(5,000
|
)
|
Funding of warehouse loans held-for-investment
|
|
|
(557,197
|
)
|
|
|
(680,564
|
)
|
Proceeds from repayments of warehouse loans held-for-investment
|
|
|
570,425
|
|
|
|
633,778
|
|
Purchase of portfolio loans
|
|
|
(18,290
|
)
|
|
|
(7,130
|
)
|
Proceeds from sales of portfolio loans
|
|
|
–
|
|
|
|
10,391
|
|
Net change in portfolio loans
|
|
|
(68,632
|
)
|
|
|
(57,136
|
)
|
Purchase of premises and equipment
|
|
|
(195
|
)
|
|
|
(444
|
)
|
Proceeds from disposal of premises and equipment
|
|
|
–
|
|
|
|
331
|
|
Proceeds from sale of other real estate owned
|
|
|
2,345
|
|
|
|
492
|
|
Purchase of Federal Home Loan Bank stock
|
|
|
(11,438
|
)
|
|
|
(5,899
|
)
|
Redemption of Federal Home Loan Bank stock
|
|
|
13,785
|
|
|
|
3,528
|
|
Net cash paid in sale of branch
|
|
|
–
|
|
|
|
(13,256
|
)
|
Net cash used in investing activities
|
|
|
(43,444
|
)
|
|
|
(72,634
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
59,386
|
|
|
|
28,050
|
|
Repayment of securities sold under agreements to repurchase
|
|
|
–
|
|
|
|
(9,991
|
)
|
Proceeds from Federal Home Loan Bank advances
|
|
|
295,200
|
|
|
|
604,500
|
|
Repayment of Federal Home Loan Bank advances
|
|
|
(351,533
|
)
|
|
|
(551,833
|
)
|
Proceeds from other borrowings
|
|
|
–
|
|
|
|
5,000
|
|
Repayment of other borrowings
|
|
|
–
|
|
|
|
(5,000
|
)
|
Shares purchased for and distributions from Rabbi Trust
|
|
|
2
|
|
|
|
20
|
|
Net cash provided by financing activities
|
|
|
3,055
|
|
|
|
70,746
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(25,707
|
)
|
|
|
(86
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
59,893
|
|
|
|
23,581
|
|
Cash and cash equivalents, end of period
|
|
$
|
34,186
|
|
|
$
|
23,495
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3,216
|
|
|
$
|
4,133
|
|
Income taxes paid
|
|
|
1,225
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash information:
|
|
|
|
|
|
|
|
|
Loans transferred to other real estate
|
|
$
|
–
|
|
|
$
|
235
|
|
Loans transferred to held-for-sale
|
|
|
11,515
|
|
|
|
–
|
|
Loans transferred to portfolio
|
|
|
641
|
|
|
|
400
|
|
Income tax expense from unrealized holding gains and losses on securities available-for-sale arising during the period
|
|
|
338
|
|
|
|
485
|
|
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2017
(unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements (the Financial Statements) and these notes to the Financial Statements (these Notes) include Atlantic Coast
Financial Corporation (the Company) and its wholly owned subsidiary, Atlantic Coast Bank (the Bank). All significant inter-company
balances and transactions have been eliminated in consolidation. The principal activity of the Company is the ownership of the
Bank’s common stock, and as such, the terms “Company” and “Bank” are used interchangeably throughout
the Financial Statements and these Notes in this Quarterly Report on Form 10-Q (this Report) and, unless context indicates otherwise,
refer to the activities of the Company and the Bank.
The accompanying condensed consolidated
balance sheet as of December 31, 2016, which was derived from the Company’s audited consolidated financial statements, and
the unaudited condensed consolidated financial statements as of June 30, 2017, and for the three and six months ended June 30,
2017 and 2016, have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.
GAAP) for interim financial information of smaller reporting companies and with the instructions for Form 10-Q and Article 8 and
Article 9 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for a
complete financial statement presentation. In the opinion of management, all adjustments (all of which are normal and recurring
in nature) considered necessary (i) for a fair presentation and (ii) to make such statements not misleading, have been included.
Operating results for the three and six
months ended June 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31,
2017. The audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016 (the 2016 10-K), should be read in conjunction with these Financial Statements.
Certain items in the prior period financial
statements have been reclassified to conform to the current period presentation. The reclassifications had no effect on net income,
the balance of retained deficit or stockholders’ equity as previously reported.
The preparation of the Financial Statements
in conformity with U.S. GAAP requires management to make estimates and assumptions based on experience and available information
that affect the amounts reported in the Financial Statements and these Notes, and actual results could differ materially from these
estimates. Estimates associated with the allowance for portfolio loan losses (the allowance), measuring for impairment of troubled
debt restructurings (TDR), the fair values of securities, other financial instruments and other real estate owned (OREO) and the
realization of deferred tax assets are particularly susceptible to material change in the near term.
Accumulated other comprehensive income
consists solely of the effects of unrealized gains and losses on securities available-for-sale, net of income taxes, which include
a disproportionate tax effect of $0.7 million at both June 30, 2017 and December 31, 2016. This disproportionate tax effect is
a result of the reversal of the deferred tax valuation allowance in 2015.
NOTE 2. IMPACT OF CERTAIN ACCOUNTING
PRONOUNCEMENTS
Recently Issued Standards Adopted
In May 2017, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU) 2017-09,
Scope Modification Accounting (Stock Compensation)
(ASU 2017-09).
ASU 2017-09 reduces diversity in practice by clarifying which changes to the terms or conditions of a share-based payment award
require an entity to apply modification accounting. The guidance in this standard is effective for interim and annual periods beginning
after December 15, 2017, and early adoption was permitted. The Company adopted ASU 2017-09 for the second quarter of 2017, with
no material impact on the Financial Statements.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 2. IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS
(continued)
Recently Issued Standards Adopted (continued)
In March 2017, the FASB issued ASU 2017-08,
Premium Amortization on Purchased Callable Debt Securities
(ASU 2017-08). ASU 2017-08 requires premiums on purchased callable
debt securities to be amortized to the earliest call date. The guidance in this standard is effective for interim and annual periods
beginning after December 15, 2018, and early adoption was permitted. The Company adopted ASU 2017-08 for the first quarter of 2017,
with no material impact on the Financial Statements.
In January 2017, the FASB issued ASU 2017-03,
Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings
(ASU 2017-03). ASU 2017-03 provides amendments which includes the text of
SEC Staff Announcement: Disclosure of the Impact That
Recently Issued Accounting Standards Will Have on the Financial Statements of a Registrant When Such Standards Are Adopted in a
Future Period
(Staff Accounting Bulletin Topic 11.M). The guidance requires additional disclosures related to the effect that
recently issued accounting standards will have on the Company’s financial statements, when adopted in a future period. In
cases where a the effect of adoption cannot be reasonably estimated, then additional qualitative disclosures should be considered
to assist the reader in assessing the significance of the standard's impact on the Company’s financial statements. The Company
has enhanced its disclosures regarding the impact of recently issued accounting standards to be adopted in a future period.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09). ASU 2016-09 reduces complexity in accounting standards
related to the accounting for employee share-based payment transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance in this standard is
effective for interim and annual periods beginning after December 15, 2016, and early adoption was permitted. The Company adopted
ASU 2016-09 for the first quarter of 2017, with no material impact on the Financial Statements. Additionally, the Company retained
its existing accounting policy election to estimate award forfeitures.
Recently Issued Standards Not Yet Adopted
In August 2016, the FASB issued ASU 2016-15,
Classification of Certain Cash Receipts and Cash Payments
(ASU 2016-15). The guidance will reduce the diversity in how certain
cash receipts and cash payments are presented in the statement of cash flows. ASU 2016-15 provides guidance as to the presentation
on the statement of cash flows for eight specific cash flow issues. The guidance in this standard is effective for annual periods
beginning after December 15, 2018, and interim periods within those annual periods beginning after December 15, 2019, and early
adoption is permitted. The Company is in the process of evaluating the impact of adopting this standard on its financial statements;
however, adoption is not expected to materially impact the financial statements.
In June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments
(ASU 2016-13). ASU 2016-13 significantly changes how entities will
measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.
The guidance will replace the current “incurred loss” model with an “expected loss” model for instruments
measured at amortized cost. Additionally, the guidance will require allowances for investment securities classified as available-for-sale,
rather than reduce the carrying amount under the other-than-temporary impairment (OTTI) model. It also simplifies the accounting
model for purchased credit-impaired investment securities and loans. The guidance in this standard is effective for interim and
annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after
December 15, 2018. The Company is in the process of evaluating the impact of adopting this standard on its financial statements;
however, adoption will result in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is effective.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 2. IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS
(continued)
Recently Issued Standards Not Yet Adopted (continued)
In February 2016, the FASB issued ASU 2016-02,
Leases
(ASU 2016-02). ASU 2016-02 requires lessees to present right-of-use assets and lease liabilities on the balance sheet,
as well as to disclose key information regarding leasing arrangements. The guidance in this standard is effective for interim and
annual periods beginning after December 15, 2018. The Company is in the process of evaluating the impact of adopting this standard
on its financial statements; however, adoption will result in new assets and liabilities being recorded on the balance sheet as
of the beginning of the first reporting period in which the guidance is effective.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09). ASU 2014-09 is a comprehensive new revenue recognition model requiring
a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration
it expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts
with Customers – Deferral of Effective Date
, which deferred the effective date of ASU 2014-09. As a result, the guidance
in this standard may be applied using either a full retrospective or a modified retrospective approach and is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted. The Company
is in the process of evaluating the impact of adopting this standard on its financial statements, as well as evaluating which transition
method it will apply upon adoption; however, adoption is not expected to materially impact the financial statements.
NOTE 3. TRANSACTIONS WITH RELATED PARTIES
Transactions between Atlantic Coast
Bank and Customers Bank
Jay S. Sidhu and Bhanu Choudhrie are directors
of the Company and Customers Bancorp, Inc., the parent company of Customers Bank. Mr. Sidhu is also Chairman and Chief Executive
Officer of Customers Bancorp, Inc. and Customers Bank.
On August 26, 2016, the Bank entered into
three amended $15.0 million participation agreements (each was previously $10.0 million) related to warehouse lines of credit secured
by one- to four-family residential loans originated by third party originators under purchase and assumption agreements (warehouse
loans held-for-investment) with Customers Bank (collectively, the Customers Participation Agreements), which were originally entered
into on March 27, 2015 and first amended on March 23, 2016. Under the Customers Participation Agreements, the Bank has an interest
in existing lines of credit related to warehouse loans held-for-investment currently serviced by Customers Bank. The Bank receives
the full amount of interest earned on the warehouse loans held-for-investment. Customers Bank receives the fees paid for each individual
funding request. Customers Bank services the warehouse loans held-for-investment funding requests, manages the collateral receipt
and shipment, receives and posts pay downs, and remits principal and interest to the Bank. Under the Customers Participation Agreements,
Customers Bank is required to administer the participating lines of credit using the same standards the Bank would use to administer
its own accounts. Additionally, the Bank has access to each funding request and all daily activity reporting to monitor its exposure.
The Customers Participation Agreements
were entered into in the ordinary course of the Bank’s business, were made on substantially the same terms as those prevailing
at the time for comparable agreements with non-affiliated business partners and did not involve more than normal risk or present
other unfavorable features. The outstanding balance in warehouse loans held-for-investment related to the Customers Participation
Agreements was $30.0 million and $25.0 million as of June 30, 2017 and December 31, 2016, respectively. During the three and six
months ended June 30, 2017, the Bank earned $68,000 and $107,000, respectively, of interest income related to the Customers Participation
Agreements. During the three and six months ended June 30, 2016, the Bank earned $150,000 and $153,000, respectively, of interest
income related to the Customers Participation Agreements.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 4. FAIR VALUE
Asset and liability fair value measurements
(in this Note and
Note 5. Fair Value of Financial Instruments
of these Notes) have been categorized based upon the fair
value hierarchy described below:
|
·
|
Level
1 – Valuation is based upon quoted market prices for identical instruments in active markets.
|
|
·
|
Level 2 – Valuation is based upon
observable inputs other than quoted market prices included within Level 1, including quoted market prices for similar instruments
in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market.
|
|
·
|
Level 3 – Valuation is generated
from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect
estimates or assumptions that market participants would use in pricing the assets or liabilities. Valuation techniques include
use of option pricing models, discounted cash flow models, and similar techniques.
|
Assets measured at fair value on a recurring
basis as of June 30, 2017 and December 31, 2016, are summarized below:
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
5,629
|
|
|
$
|
–
|
|
|
$
|
5,629
|
|
|
$
|
–
|
|
Mortgage-backed securities – residential
|
|
|
25,976
|
|
|
|
–
|
|
|
|
25,976
|
|
|
|
–
|
|
Collateralized mortgage obligations – U.S. government
|
|
|
2,693
|
|
|
|
–
|
|
|
|
2,693
|
|
|
|
–
|
|
Corporate debt
|
|
|
6,336
|
|
|
|
–
|
|
|
|
6,336
|
|
|
|
–
|
|
Corporate equity
|
|
|
125
|
|
|
|
–
|
|
|
|
125
|
|
|
|
–
|
|
Total
|
|
$
|
40,759
|
|
|
$
|
–
|
|
|
$
|
40,759
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored enterprises
|
|
$
|
19,997
|
|
|
$
|
–
|
|
|
$
|
19,997
|
|
|
$
|
–
|
|
State and municipal
|
|
|
4,991
|
|
|
|
–
|
|
|
|
4,991
|
|
|
|
–
|
|
Mortgage-backed securities – residential
|
|
|
27,328
|
|
|
|
–
|
|
|
|
27,328
|
|
|
|
–
|
|
Collateralized mortgage obligations – U.S. government
|
|
|
3,059
|
|
|
|
–
|
|
|
|
3,059
|
|
|
|
–
|
|
Corporate debt
|
|
|
9,918
|
|
|
|
–
|
|
|
|
9,918
|
|
|
|
–
|
|
Total
|
|
$
|
65,293
|
|
|
$
|
–
|
|
|
$
|
65,293
|
|
|
$
|
–
|
|
The fair values of securities available-for-sale
are determined by quoted market prices, if available (Level 1). For securities available-for-sale where quoted market prices are
not available, fair values are calculated based on quoted market prices of similar securities (Level 2). For securities available-for-sale
where quoted market prices or quoted market prices of similar securities are not available, fair values are calculated using discounted
cash flows or other market indicators (Level 3).
There were no Level 3 investments measured
on a recurring basis as of June 30, 2017 and December 31, 2016, and there were no transfers into or out of Level 3 investments
during the three and six months ended June 30, 2017 and the year ended December 31, 2016. Discounted cash flows are calculated
using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality.
During times when trading is less liquid, broker quotes are used (if available) to validate the model. Rating agency and industry
research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.
There were no liabilities measured at fair
value on a recurring basis as of June 30, 2017 and December 31, 2016.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 4. FAIR VALUE
(continued)
Assets measured at fair value on a nonrecurring
basis as of June 30, 2017 and December 31, 2016, are summarized below:
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
242
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
242
|
|
Impaired loans – collateral dependent (reported on
the consolidated balance sheets in portfolio loans, net)
|
|
|
8,060
|
|
|
|
–
|
|
|
|
–
|
|
|
|
8,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
2,886
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
2,886
|
|
Impaired loans – collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
7,978
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,978
|
|
Quantitative information about Level 3
fair value measurements as of June 30, 2017 and December 31, 2016, is as follows:
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable Inputs
|
|
Range
(Weighted
Average)
(1)
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
242
|
|
|
Broker price
opinions, appraisal of collateral
(2), (3)
|
|
Appraisal
adjustments
(4)
|
|
0.0% to 60.9% (26.3%)
|
|
|
|
|
|
|
|
|
Liquidation expenses
|
|
10.0% (10.0%)
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans –
collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
8,060
|
|
|
Appraisal of collateral
(2)
|
|
Appraisal adjustments
(4)
|
|
0.0 to 57.2%
|
|
|
|
|
|
|
|
|
Liquidation expenses
|
|
0.0% to 10.0% (9.6%)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
2,886
|
|
|
Broker price opinions,
appraisal of collateral
(2), (3)
|
|
Appraisal adjustments
(4)
|
|
0.0% to 64.0% (8.5%)
|
|
|
|
|
|
|
|
|
Liquidation expenses
|
|
10.0% (10.0%)
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans –
collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
7,978
|
|
|
Appraisal of collateral
(2)
|
|
Appraisal adjustments
(4)
|
|
0.0% to 83.0%
|
|
|
|
|
|
|
|
|
Liquidation expenses
|
|
0.0% to 10.0% (9.9%)
|
|
(1)
|
The range and weighted average of other appraisal adjustments and liquidation expenses are presented
as a percent of the appraised value.
|
|
(2)
|
Fair value is generally determined through independent appraisals of the underlying collateral,
which generally include various Level 3 inputs which are not identifiable.
|
|
(3)
|
Includes qualitative adjustments by management and estimated liquidation expenses.
|
|
(4)
|
Appraisals may be adjusted by management for qualitative factors such as economic conditions.
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 4. FAIR VALUE
(continued)
The fair value of OREO is determined using
inputs which include current and prior appraisals and estimated costs to sell (Level 3). Costs relating to improvement of property
may be capitalized, whereas costs relating to the holding of property are expensed. There were no write-downs on OREO for the three
months ended June 30, 2017, while write-downs on OREO for the six months ended June 30, 2017 were $80,000. There were no write-downs
on OREO for each of the three and six months ended June 30, 2016. The fair values of impaired loans that are collateral-dependent
are based on a valuation model which incorporates the most current real estate appraisals available, as well as assumptions used
to estimate the fair value of all non-real estate collateral as defined in the Bank’s internal loan policy (Level 3).
There are no liabilities measured at fair
value on a nonrecurring basis as of June 30, 2017 and December 31, 2016.
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair value
of financial instruments, not previously presented, as of June 30, 2017 and December 31, 2016, were as follows:
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
5,606
|
|
|
$
|
5,606
|
|
|
$
|
5,606
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Short-term interest-earning deposits
|
|
|
28,580
|
|
|
|
28,580
|
|
|
|
28,580
|
|
|
|
–
|
|
|
|
–
|
|
Portfolio loans, net
|
|
|
714,370
|
|
|
|
709,114
|
|
|
|
–
|
|
|
|
701,054
|
|
|
|
8,060
|
|
Loans held-for-sale
|
|
|
6,528
|
|
|
|
6,783
|
|
|
|
–
|
|
|
|
6,783
|
|
|
|
–
|
|
Warehouse loans held-for-investment
|
|
|
67,349
|
|
|
|
67,349
|
|
|
|
–
|
|
|
|
67,349
|
|
|
|
–
|
|
Federal Home Loan Bank stock, at cost
|
|
|
6,445
|
|
|
|
6,445
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6,445
|
|
Bank owned life insurance
|
|
|
17,770
|
|
|
|
17,780
|
|
|
|
–
|
|
|
|
17,780
|
|
|
|
–
|
|
Accrued interest receivable
|
|
|
1,921
|
|
|
|
1,921
|
|
|
|
–
|
|
|
|
1,921
|
|
|
|
–
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
687,799
|
|
|
|
688,213
|
|
|
|
–
|
|
|
|
688,213
|
|
|
|
–
|
|
Federal Home Loan Bank advances
|
|
|
132,425
|
|
|
|
133,419
|
|
|
|
–
|
|
|
|
133,419
|
|
|
|
–
|
|
Accrued interest payable (reported on consolidated balance sheets in accrued expenses and other liabilities)
|
|
|
191
|
|
|
|
191
|
|
|
|
–
|
|
|
|
191
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
3,744
|
|
|
$
|
3,744
|
|
|
$
|
3,744
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Short-term interest-earning deposits
|
|
|
56,149
|
|
|
|
56,149
|
|
|
|
56,149
|
|
|
|
–
|
|
|
|
–
|
|
Portfolio loans, net
|
|
|
639,245
|
|
|
|
652,133
|
|
|
|
–
|
|
|
|
644,155
|
|
|
|
7,978
|
|
Loans held-for-sale
|
|
|
7,147
|
|
|
|
7,281
|
|
|
|
–
|
|
|
|
7,281
|
|
|
|
–
|
|
Warehouse loans held-for-investment
|
|
|
80,577
|
|
|
|
80,577
|
|
|
|
–
|
|
|
|
80,577
|
|
|
|
–
|
|
Federal Home Loan Bank stock, at cost
|
|
|
8,792
|
|
|
|
8,792
|
|
|
|
–
|
|
|
|
–
|
|
|
|
8,792
|
|
Bank owned life insurance
|
|
|
17,535
|
|
|
|
17,546
|
|
|
|
–
|
|
|
|
17,546
|
|
|
|
–
|
|
Accrued interest receivable
|
|
|
1,979
|
|
|
|
1,979
|
|
|
|
–
|
|
|
|
1,979
|
|
|
|
–
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
628,413
|
|
|
|
628,714
|
|
|
|
–
|
|
|
|
628,714
|
|
|
|
–
|
|
Federal Home Loan Bank advances
|
|
|
188,758
|
|
|
|
189,842
|
|
|
|
–
|
|
|
|
189,842
|
|
|
|
–
|
|
Accrued interest payable (reported on consolidated balance sheets in accrued expenses and other liabilities)
|
|
|
121
|
|
|
|
121
|
|
|
|
–
|
|
|
|
121
|
|
|
|
–
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
(continued)
Carrying amount is the estimated fair value
for cash and cash equivalents, accrued interest, demand and savings deposits and variable rate loans or deposits that re-price
frequently and fully. Fair value of securities held-to-maturity is based on market prices of similar securities. For fixed rate
loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based
on discounted cash flows using current market rates applied to the estimated life without considering the need for adjustments
for market illiquidity or credit risk. Fair value of loans held-for-sale is based on quoted market prices, where available, or
is determined based on discounted cash flows using current market rates applied to the estimated life and credit risk. Carrying
amount is the estimated fair value for warehouse loans held-for-investment, due to the rapid repayment of the loans (generally
less than 30 days). Fair value of bank owned life insurance is based on the insurance contract cash surrender value or quoted market
prices of the underlying securities or similar securities. Fair value of the Federal Home Loan Bank (FHLB) advances and securities
sold under agreements to repurchase (repurchase agreements) is based on current rates for similar financing. It was not practicable
to determine the fair value of the FHLB stock due to restrictions placed on its transferability. The estimated fair value of other
financial instruments and off-balance-sheet commitments approximate cost and are not considered significant to this presentation.
The Bank is a member of the FHLB and as
such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with
the FHLB. The stock is bought from and sold to the FHLB based upon its $100.00 par value. The stock does not have a readily determinable
fair value and, as such, is classified as restricted stock, carried at cost and evaluated for impairment. Accordingly, the stock’s
value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination
of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of
the decline in net assets of the FHLB as compared to the capital stock amount and the length of time that such a situation has
persisted, (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation
to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the
liquidity position of the FHLB. The Company did not consider the FHLB stock to be impaired as of June 30, 2017 and December 31,
2016.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 6. INVESTMENT SECURITIES
The following table summarizes the amortized
cost and fair value of the investment securities and the corresponding amounts of unrealized gains and losses therein as of June
30, 2017 and December 31, 2016:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
5,512
|
|
|
$
|
117
|
|
|
$
|
–
|
|
|
$
|
5,629
|
|
|
$
|
5,629
|
|
Mortgage-backed securities – residential
|
|
|
26,318
|
|
|
|
–
|
|
|
|
(342
|
)
|
|
|
25,976
|
|
|
|
25,976
|
|
Collateralized mortgage obligations – U.S. government
|
|
|
2,760
|
|
|
|
–
|
|
|
|
(67
|
)
|
|
|
2,693
|
|
|
|
2,693
|
|
Corporate debt
|
|
|
6,538
|
|
|
|
5
|
|
|
|
(207
|
)
|
|
|
6,336
|
|
|
|
6,336
|
|
Corporate equity
|
|
|
115
|
|
|
|
10
|
|
|
|
–
|
|
|
|
125
|
|
|
|
125
|
|
Total investment securities
|
|
$
|
41,243
|
|
|
$
|
132
|
|
|
$
|
(616
|
)
|
|
$
|
40,759
|
|
|
$
|
40,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government–sponsored enterprises
|
|
$
|
19,999
|
|
|
$
|
–
|
|
|
$
|
(2
|
)
|
|
$
|
19,997
|
|
|
$
|
19,997
|
|
State and municipal
|
|
|
5,024
|
|
|
|
2
|
|
|
|
(35
|
)
|
|
|
4,991
|
|
|
|
4,991
|
|
Mortgage-backed securities – residential
|
|
|
28,515
|
|
|
|
–
|
|
|
|
(1,187
|
)
|
|
|
27,328
|
|
|
|
27,328
|
|
Collateralized mortgage obligations – U.S. Government
|
|
|
3,152
|
|
|
|
–
|
|
|
|
(93
|
)
|
|
|
3,059
|
|
|
|
3,059
|
|
Corporate debt
|
|
|
10,000
|
|
|
|
226
|
|
|
|
(308
|
)
|
|
|
9,918
|
|
|
|
9,918
|
|
Total investment securities
|
|
$
|
66,690
|
|
|
$
|
228
|
|
|
$
|
(1,625
|
)
|
|
$
|
65,293
|
|
|
$
|
65,293
|
|
The amortized cost and fair value of investment
securities, segregated by contractual maturity as of June 30, 2017, are shown below:
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(Dollars in Thousands)
|
|
Due in one year or less
|
|
$
|
–
|
|
|
$
|
–
|
|
Due in more than one to five years
|
|
|
408
|
|
|
|
409
|
|
Due in more than five to ten years
|
|
|
9,328
|
|
|
|
9,183
|
|
Due after ten years
|
|
|
2,314
|
|
|
|
2,373
|
|
Mortgage-backed securities – residential
|
|
|
26,318
|
|
|
|
25,976
|
|
Collateralized mortgage obligations – U.S. government
|
|
|
2,760
|
|
|
|
2,693
|
|
Corporate equity
(1)
|
|
|
115
|
|
|
|
125
|
|
|
|
$
|
41,243
|
|
|
$
|
40,759
|
|
|
(1)
|
No contractual maturity.
|
Expected maturities may differ from contractual
maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Investment securities
not due at a single maturity date, including mortgage-backed securities and collateralized mortgage obligations, are shown separately.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 6. INVESTMENT SECURITIES
(continued)
The following table summarizes the investment
securities with unrealized losses as of June 30, 2017 and December 31, 2016, aggregated by investment category and length of time
in a continuous unrealized loss position:
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
(Dollars in Thousands)
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – residential
|
|
$
|
25,945
|
|
|
$
|
(342
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
25,945
|
|
|
$
|
(342
|
)
|
Collateralized mortgage obligations – U.S. Government
|
|
|
–
|
|
|
|
–
|
|
|
|
2,692
|
|
|
|
(67
|
)
|
|
|
2,692
|
|
|
|
(67
|
)
|
Corporate debt
|
|
|
5,297
|
|
|
|
(207
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
5,297
|
|
|
|
(207
|
)
|
|
|
$
|
31,242
|
|
|
$
|
(549
|
)
|
|
$
|
2,692
|
|
|
$
|
(67
|
)
|
|
$
|
33,934
|
|
|
$
|
(616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government–sponsored enterprises
|
|
$
|
19,997
|
|
|
$
|
(2
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
19,997
|
|
|
$
|
(2
|
)
|
State and municipal
|
|
|
3,921
|
|
|
|
(36
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
3,921
|
|
|
|
(36
|
)
|
Mortgage-backed securities – residential
|
|
|
27,291
|
|
|
|
(1,187
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
27,291
|
|
|
|
(1,187
|
)
|
Collateralized mortgage obligations – U.S. Government
|
|
|
–
|
|
|
|
–
|
|
|
|
3,059
|
|
|
|
(92
|
)
|
|
|
3,059
|
|
|
|
(92
|
)
|
Corporate debt
|
|
|
4,692
|
|
|
|
(308
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
4,692
|
|
|
|
(308
|
)
|
|
|
$
|
55,901
|
|
|
$
|
(1,533
|
)
|
|
$
|
3,059
|
|
|
$
|
(92
|
)
|
|
$
|
58,960
|
|
|
$
|
(1,625
|
)
|
Other-Than-Temporary Impairment
Management evaluates investment securities
for OTTI on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation. As of
June 30, 2017, the Company’s security portfolio consisted of 23 investment securities (all classified as available-for-sale),
11 of which were in an unrealized loss position. The unrealized losses were primarily related to debt securities whose underlying
collateral is residential mortgages and all of these debt securities were issued by government sponsored organizations, as discussed
below.
As of June 30, 2017, $28.6 million, or
approximately 70.3% of the debt securities held by the Company, including 9 of the Company’s debt securities in an unrealized
loss position, were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, which are
institutions the U.S. government has affirmed its commitment to support.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 6. INVESTMENT SECURITIES
(continued)
Other-Than-Temporary Impairment (continued)
The decline in fair value of the Company’s
debt securities in an unrealized loss position was attributable to changes in interest rates and not credit quality. It is not
more likely than not the Company will be required to sell these securities before their anticipated recovery; however, from time
to time the Company makes decisions to sell securities available-for-sale as part of its balance sheet and risk management strategies.
Therefore, the Company does not consider these debt securities to be other-than-temporarily impaired as of June 30, 2017.
The Company did not hold any non-agency
collateralized mortgage-backed securities or collateralized mortgage obligations as of June 30, 2017 and December 31, 2016, and
did not record OTTI related to such securities during the three and six months ended June 30, 2017 and 2016.
The 10-year treasury rate as of June 30,
2017 and December 31, 2016, was 2.31% and 2.45%, respectively.
Proceeds from Investment Securities
Proceeds from sales, payments, maturities,
and calls of securities available-for-sale were $61.6 million and $82.9 million for the three and six months ended June 30, 2017,
respectively. Proceeds from sales, payments, maturities, and calls of securities available-for-sale were $3.1 million and $48.3
million for the three and six months ended June 30, 2016, respectively.
Gross gains of $0.4 million were realized
during each of the three and six months ended June 30, 2017, while no gross losses were realized during the three and six months
ended June 30, 2017. The net gain on sale of securities available-for-sale for each of the three and six months ended June 30,
2017, includes $0.4 million of accumulated other comprehensive income reclassifications from unrealized holding gains. No gross
gains were realized during the three months ended June 30, 2016, while gross gains of $1.0 million were realized during the six
months ended June 30, 2016. No gross losses were realized during the three months ended June 30, 2016, while gross losses of $0.2
million were realized during the six months ended June 30, 2016. The net gain on sale of securities available-for-sale for the
six months ended June 30, 2016, includes $0.8 million of accumulated other comprehensive income reclassifications from unrealized
holding gains.
On February 18, 2016, the Company sold
$15.8 million of investment securities previously classified as held-to-maturity, representing the Company’s entire balance
of such investment securities on that date. As a result, the investment securities were reclassified to available-for-sale as of
December 31, 2015. The Company has not classified any investment securities purchased, since this transaction, as held-to-maturity.
Therefore, there were no proceeds from payments, maturities, and calls of securities held-to-maturity for each of the three and
six months ended June 30, 2017 and 2016.
Gains and losses on sales of investment
securities are recorded on the trade date and are determined using the specific identification method. There were no unsettled
investment securities transactions at June 30, 2017 and December 31, 2016.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
Following is a comparative composition
of net portfolio loans as of June 30, 2017 and December 31, 2016:
|
|
June 30,
2017
|
|
|
% of
Total Loans
|
|
|
December 31,
2016
|
|
|
% of
Total Loans
|
|
|
|
(Dollars in Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
285,220
|
|
|
|
39.9
|
%
|
|
$
|
276,193
|
|
|
|
43.1
|
%
|
Multi-family
|
|
|
73,166
|
|
|
|
10.2
|
%
|
|
|
70,452
|
|
|
|
11.0
|
%
|
Commercial
|
|
|
184,192
|
|
|
|
25.7
|
%
|
|
|
104,143
|
|
|
|
16.3
|
%
|
Land
|
|
|
16,733
|
|
|
|
2.3
|
%
|
|
|
17,218
|
|
|
|
2.7
|
%
|
Total real estate loans
|
|
|
559,311
|
|
|
|
78.1
|
%
|
|
|
468,006
|
|
|
|
73.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
15,206
|
|
|
|
2.1
|
%
|
|
|
22,687
|
|
|
|
3.5
|
%
|
Commercial
|
|
|
13,788
|
|
|
|
2.0
|
%
|
|
|
14,432
|
|
|
|
2.3
|
%
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
%
|
|
|
–
|
|
|
|
–
|
%
|
Total real estate construction loans
|
|
|
28,994
|
|
|
|
4.1
|
%
|
|
|
37,119
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
36,280
|
|
|
|
5.0
|
%
|
|
|
37,748
|
|
|
|
5.9
|
%
|
Consumer
|
|
|
37,074
|
|
|
|
5.2
|
%
|
|
|
39,232
|
|
|
|
6.1
|
%
|
Commercial
|
|
|
54,207
|
|
|
|
7.6
|
%
|
|
|
57,947
|
|
|
|
9.1
|
%
|
Total other portfolio loans
|
|
|
127,561
|
|
|
|
17.8
|
%
|
|
|
134,927
|
|
|
|
21.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
|
715,866
|
|
|
|
100.0
|
%
|
|
|
640,052
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses
|
|
|
(8,220
|
)
|
|
|
|
|
|
|
(8,162
|
)
|
|
|
|
|
Net deferred portfolio loan costs
|
|
|
5,606
|
|
|
|
|
|
|
|
5,685
|
|
|
|
|
|
Premiums and discounts on purchased loans, net
|
|
|
1,118
|
|
|
|
|
|
|
|
1,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans, net
|
|
$
|
714,370
|
|
|
|
|
|
|
$
|
639,245
|
|
|
|
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents the contractual
aging of the recorded investment in past due loans by class of portfolio loans as of June 30, 2017 and December 31, 2016:
|
|
Current
|
|
|
30 – 59 Days
Past Due
|
|
|
60 – 89 Days
Past Due
|
|
|
> 90 Days
Past Due
|
|
|
Total
Past Due
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
283,510
|
|
|
$
|
504
|
|
|
$
|
369
|
|
|
$
|
837
|
|
|
$
|
1,710
|
|
|
$
|
285,220
|
|
Multi-family
|
|
|
73,166
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
73,166
|
|
Commercial
|
|
|
183,939
|
|
|
|
–
|
|
|
|
–
|
|
|
|
253
|
|
|
|
253
|
|
|
|
184,192
|
|
Land
|
|
|
11,223
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,510
|
|
|
|
5,510
|
|
|
|
16,733
|
|
Total real estate loans
|
|
|
551,838
|
|
|
|
504
|
|
|
|
369
|
|
|
|
6,600
|
|
|
|
7,473
|
|
|
|
559,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
15,206
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
15,206
|
|
Commercial
|
|
|
13,788
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
13,788
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
28,994
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
28,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
35,728
|
|
|
|
234
|
|
|
|
99
|
|
|
|
219
|
|
|
|
552
|
|
|
|
36,280
|
|
Consumer
|
|
|
36,563
|
|
|
|
383
|
|
|
|
51
|
|
|
|
77
|
|
|
|
511
|
|
|
|
37,074
|
|
Commercial
|
|
|
53,498
|
|
|
|
72
|
|
|
|
–
|
|
|
|
637
|
|
|
|
709
|
|
|
|
54,207
|
|
Total other portfolio loans
|
|
|
125,789
|
|
|
|
689
|
|
|
|
150
|
|
|
|
933
|
|
|
|
1,772
|
|
|
|
127,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
706,621
|
|
|
$
|
1,193
|
|
|
$
|
519
|
|
|
$
|
7,533
|
|
|
$
|
9,245
|
|
|
$
|
715,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
273,564
|
|
|
$
|
1,320
|
|
|
$
|
390
|
|
|
$
|
919
|
|
|
$
|
2,629
|
|
|
$
|
276,193
|
|
Multi-family
|
|
|
70,452
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
70,452
|
|
Commercial
|
|
|
101,867
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,276
|
|
|
|
2,276
|
|
|
|
104,143
|
|
Land
|
|
|
11,670
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,548
|
|
|
|
5,548
|
|
|
|
17,218
|
|
Total real estate loans
|
|
|
457,553
|
|
|
|
1,320
|
|
|
|
390
|
|
|
|
8,743
|
|
|
|
10,453
|
|
|
|
468,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
22,687
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
22,687
|
|
Commercial
|
|
|
14,432
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
14,432
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
37,119
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
37,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
37,037
|
|
|
|
201
|
|
|
|
510
|
|
|
|
–
|
|
|
|
711
|
|
|
|
37,748
|
|
Consumer
|
|
|
38,412
|
|
|
|
506
|
|
|
|
165
|
|
|
|
149
|
|
|
|
820
|
|
|
|
39,232
|
|
Commercial
|
|
|
57,124
|
|
|
|
321
|
|
|
|
–
|
|
|
|
502
|
|
|
|
823
|
|
|
|
57,947
|
|
Total other portfolio loans
|
|
|
132,573
|
|
|
|
1,028
|
|
|
|
675
|
|
|
|
651
|
|
|
|
2,354
|
|
|
|
134,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
627,245
|
|
|
$
|
2,348
|
|
|
$
|
1,065
|
|
|
$
|
9,394
|
|
|
$
|
12,807
|
|
|
$
|
640,052
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
The decrease in commercial real estate
loans greater than 90 days past due is primarily related to one loan, which was current as of June 30, 2017. However, due to other
circumstances surrounding this loan, the loan remained classified as a nonperforming portfolio loan as of June 30, 2017.
NOTE 7. PORTFOLIO LOANS
(continued)
Nonperforming
portfolio loans, including nonaccrual portfolio loans, as of June 30, 2017 and December 31, 2016 were $9.8 million and $10.1 million,
respectively. There were no portfolio loans over 90 days past-due and still accruing interest as of June 30, 2017 and December
31, 2016. Nonperforming portfolio loans include both smaller balance homogeneous loans that are collectively evaluated for impairment
and larger individually evaluated loans classified as impaired loans
that are not accruing
interest.
The following table presents performing
and nonperforming portfolio loans by class of loans as of June 30, 2017 and December 31, 2016:
|
|
Performing
|
|
|
Nonperforming
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
284,232
|
|
|
$
|
988
|
|
|
$
|
285,220
|
|
Multi-family
|
|
|
73,166
|
|
|
|
–
|
|
|
|
73,166
|
|
Commercial
|
|
|
181,953
|
|
|
|
2,239
|
|
|
|
184,192
|
|
Land
|
|
|
11,223
|
|
|
|
5,510
|
|
|
|
16,733
|
|
Total real estate loans
|
|
|
550,574
|
|
|
|
8,737
|
|
|
|
559,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
15,206
|
|
|
|
–
|
|
|
|
15,206
|
|
Commercial
|
|
|
13,788
|
|
|
|
–
|
|
|
|
13,788
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
28,994
|
|
|
|
–
|
|
|
|
28,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
35,962
|
|
|
|
318
|
|
|
|
36,280
|
|
Consumer
|
|
|
36,936
|
|
|
|
138
|
|
|
|
37,074
|
|
Commercial
|
|
|
53,570
|
|
|
|
637
|
|
|
|
54,207
|
|
Total other portfolio loans
|
|
|
126,468
|
|
|
|
1,093
|
|
|
|
127,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
706,036
|
|
|
$
|
9,830
|
|
|
$
|
715,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
274,660
|
|
|
$
|
1,533
|
|
|
$
|
276,193
|
|
Multi-family
|
|
|
70,452
|
|
|
|
–
|
|
|
|
70,452
|
|
Commercial
|
|
|
101,867
|
|
|
|
2,276
|
|
|
|
104,143
|
|
Land
|
|
|
11,670
|
|
|
|
5,548
|
|
|
|
17,218
|
|
Total real estate loans
|
|
|
458,649
|
|
|
|
9,357
|
|
|
|
468,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
22,687
|
|
|
|
–
|
|
|
|
22,687
|
|
Commercial
|
|
|
14,432
|
|
|
|
–
|
|
|
|
14,432
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
37,119
|
|
|
|
–
|
|
|
|
37,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
37,690
|
|
|
|
58
|
|
|
|
37,748
|
|
Consumer
|
|
|
38,995
|
|
|
|
237
|
|
|
|
39,232
|
|
Commercial
|
|
|
57,445
|
|
|
|
502
|
|
|
|
57,947
|
|
Total other portfolio loans
|
|
|
134,130
|
|
|
|
797
|
|
|
|
134,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
629,898
|
|
|
$
|
10,154
|
|
|
$
|
640,052
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The Company utilizes an internal asset
classification system for multi-family, commercial and land portfolio loans as a means of reporting problem and potential problem
loans. Under the risk rating system, the Company classifies problem and potential problem loans as “Special Mention”,
“Substandard” or “Doubtful”, which correspond to risk ratings five, six and seven, respectively. Portfolio
loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories,
but possess weaknesses that deserve management’s close attention are deemed to be Special Mention, or risk rated five. Substandard
portfolio loans, or risk rated six, include those characterized by the distinct possibility the Company may sustain some loss if
the deficiencies are not corrected. Portfolio loans classified as Doubtful, or risk rated seven, have all the weaknesses inherent
in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full,
on the basis of currently existing facts, conditions and values, highly questionable and improbable. Generally, the Company reviews
all revolving credit relationships, regardless of amount, and any other loan relationship in excess of $500,000 on an annual basis.
However, risk ratings are updated any time the facts and circumstances warrant.
The Company evaluates residential and consumer
portfolio loans based on whether the loans are performing or nonperforming, as well as other factors. Residential loans are charged
down by the expected loss amount at the time they become nonperforming, which is generally 90 days past due. Consumer loans, including
automobile, manufactured housing, unsecured, and other secured loans are charged-off, net of expected recovery, when the loan becomes
significantly past due over a range of up to 180 days, depending on the type of loan.
The following table presents the risk category
of multi-family, commercial and land portfolio loans evaluated by internal asset classification as of June 30, 2017 and December
31, 2016:
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
$
|
73,166
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
73,166
|
|
Commercial
|
|
|
180,539
|
|
|
|
1,336
|
|
|
|
2,317
|
|
|
|
–
|
|
|
|
184,192
|
|
Land
|
|
|
11,223
|
|
|
|
–
|
|
|
|
5,510
|
|
|
|
–
|
|
|
|
16,733
|
|
Total real estate loans
|
|
|
264,928
|
|
|
|
1,336
|
|
|
|
7,827
|
|
|
|
–
|
|
|
|
274,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
13,788
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
13,788
|
|
Total real estate construction loans
|
|
|
13,788
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
13,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
52,913
|
|
|
|
381
|
|
|
|
913
|
|
|
|
–
|
|
|
|
54,207
|
|
Total other portfolio loans
|
|
|
52,913
|
|
|
|
381
|
|
|
|
913
|
|
|
|
–
|
|
|
|
54,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk graded portfolio loans
|
|
$
|
331,629
|
|
|
$
|
1,717
|
|
|
$
|
8,740
|
|
|
$
|
–
|
|
|
$
|
342,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
$
|
70,419
|
|
|
$
|
–
|
|
|
$
|
33
|
|
|
$
|
–
|
|
|
$
|
70,452
|
|
Commercial
|
|
|
100,423
|
|
|
|
1,362
|
|
|
|
2,358
|
|
|
|
–
|
|
|
|
104,143
|
|
Land
|
|
|
11,708
|
|
|
|
–
|
|
|
|
5,510
|
|
|
|
–
|
|
|
|
17,218
|
|
Total real estate loans
|
|
|
182,550
|
|
|
|
1,362
|
|
|
|
7,901
|
|
|
|
–
|
|
|
|
191,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
14,432
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
14,432
|
|
Total real estate construction loans
|
|
|
14,432
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
14,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
56,640
|
|
|
|
301
|
|
|
|
1,006
|
|
|
|
–
|
|
|
|
57,947
|
|
Total other portfolio loans
|
|
|
56,640
|
|
|
|
301
|
|
|
|
1,006
|
|
|
|
–
|
|
|
|
57,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk graded portfolio loans
|
|
$
|
253,622
|
|
|
$
|
1,663
|
|
|
$
|
8,907
|
|
|
$
|
–
|
|
|
$
|
264,192
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
When establishing the allowance, management
categorizes loans into risk categories generally based on the nature of the collateral and basis of repayment. These risk categories
and the relevant risk characteristics are as follows:
Real Estate Loans
|
·
|
One-
to four-family residential loans have historically had less credit risk than other loan types as they tend to be smaller balance
loans without concentrations to a single borrower or group of borrowers. Repayment depends on the individual borrower’s
capacity. If the real estate market deteriorates and the value of residential real estate declines, there is a potential risk
of loss if actions such as foreclosure or short sale become necessary to collect the loan and private mortgage insurance was not
purchased. In addition, depending on the state in which the collateral is located, the risk of loss may increase, due to the time
required to complete the foreclosure process on a property.
|
|
·
|
Multi-family residential real estate loans
generally involve a greater degree of credit risk than residential real estate loans, but are normally smaller individual loan
balances than commercial real estate loans. Multi-family residential real estate loans involve a greater degree of credit risk
as compared to residential real estate loans due to the reliance on the successful operation of the project. These loans are also
more sensitive to adverse economic conditions.
|
|
·
|
Commercial real estate loans generally
have greater credit risk as compared to one- to four-family residential real estate loans, as they usually involve larger loan
balances secured by non-homogeneous or specific use properties. Repayment of these loans typically relies on the continued successful
operation of a business or the generation of lease income by the property and is therefore more sensitive to adverse conditions
in the economy and real estate market.
|
|
·
|
Land loans generally involve a greater
degree of credit risk as compared to residential real estate loans due to the lack of cash flow and reliance on the borrower’s
financial capacity. These loans are also more sensitive to adverse economic conditions.
|
Real Estate Construction Loans
|
·
|
Real estate construction loans, including
one- to four-family, commercial and acquisition and development loans, generally have greater credit risk than traditional one-
to four-family residential and commercial real estate loans. The repayment of these loans can be dependent on the sale of the property
to third parties or the successful completion of the improvements by the builder for the end user. In the event a loan is made
on property that is not yet approved for the planned development, there is risk that approvals will not be granted or will be delayed.
Construction loans also run the risk that improvements will not be completed on time or in accordance with specifications and projected
costs. Construction loans include Small Business Administration (SBA) and U.S. Department of Agriculture (USDA) construction loans,
which generally have less credit risk than traditional construction loans due to a portion of the balance being guaranteed upon
completion of the construction.
|
Other Portfolio Loans
|
·
|
Home equity loans and home equity lines
of credit are similar to one- to four-family residential loans and generally carry less risk than other loan types as they tend
to be smaller balance loans without concentrations to a single borrower or group of borrowers. However, similar to one- to four-family
residential loans, there is a potential risk of loss if the real estate market deteriorates and the value of residential real estate
declines.
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
Other Portfolio Loans (continued)
|
·
|
Consumer loans often are secured by depreciating
collateral, including automobiles and mobile homes, or are unsecured and may carry more risk than real estate secured loans. Consumer
loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness, or personal bankruptcy.
|
|
·
|
Commercial loans are secured by business
assets or may be unsecured, and repayment is directly dependent on the continued successful operation of the borrower’s business
and ability to convert the assets to operating revenue. These possess greater risk than most other types of loans should the repayment
capacity of the borrower not be adequate.
|
Activity in the allowance for the three
months ended June 30, 2017 and 2016 was as follows:
|
|
Beginning
Balance
|
|
|
Charge-Offs
|
|
|
Recoveries
|
|
|
Provisions
|
|
|
Ending Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
2,911
|
|
|
$
|
(24
|
)
|
|
$
|
63
|
|
|
$
|
(183
|
)
|
|
$
|
2,767
|
|
Multi-family
|
|
|
295
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(105
|
)
|
|
|
190
|
|
Commercial
|
|
|
2,551
|
|
|
|
–
|
|
|
|
–
|
|
|
|
172
|
|
|
|
2,723
|
|
Land
|
|
|
197
|
|
|
|
–
|
|
|
|
3
|
|
|
|
5
|
|
|
|
205
|
|
Total real estate loans
|
|
|
5,954
|
|
|
|
(24
|
)
|
|
|
66
|
|
|
|
(111
|
)
|
|
|
5,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
160
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(63
|
)
|
|
|
97
|
|
Commercial
|
|
|
93
|
|
|
|
–
|
|
|
|
–
|
|
|
|
18
|
|
|
|
111
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
253
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(45
|
)
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
574
|
|
|
|
(116
|
)
|
|
|
6
|
|
|
|
253
|
|
|
|
717
|
|
Consumer
|
|
|
386
|
|
|
|
(150
|
)
|
|
|
88
|
|
|
|
66
|
|
|
|
390
|
|
Commercial
|
|
|
1,059
|
|
|
|
(119
|
)
|
|
|
6
|
|
|
|
(48
|
)
|
|
|
898
|
|
Total other portfolio loans
|
|
|
2,019
|
|
|
|
(385
|
)
|
|
|
100
|
|
|
|
271
|
|
|
|
2,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
46
|
|
|
|
–
|
|
|
|
–
|
|
|
|
76
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,272
|
|
|
$
|
(409
|
)
|
|
$
|
166
|
|
|
$
|
191
|
|
|
$
|
8,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
3,007
|
|
|
$
|
(115
|
)
|
|
$
|
345
|
|
|
$
|
(22
|
)
|
|
$
|
3,215
|
|
Multi-family
|
|
|
216
|
|
|
|
–
|
|
|
|
–
|
|
|
|
48
|
|
|
|
264
|
|
Commercial
|
|
|
1,573
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(21
|
)
|
|
|
1,552
|
|
Land
|
|
|
210
|
|
|
|
–
|
|
|
|
11
|
|
|
|
(75
|
)
|
|
|
146
|
|
Total real estate loans
|
|
|
5,006
|
|
|
|
(115
|
)
|
|
|
356
|
|
|
|
(70
|
)
|
|
|
5,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
180
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2
|
)
|
|
|
178
|
|
Commercial
|
|
|
158
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7
|
|
|
|
165
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
338
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5
|
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
818
|
|
|
|
(112
|
)
|
|
|
6
|
|
|
|
167
|
|
|
|
879
|
|
Consumer
|
|
|
830
|
|
|
|
(134
|
)
|
|
|
56
|
|
|
|
(19
|
)
|
|
|
733
|
|
Commercial
|
|
|
581
|
|
|
|
–
|
|
|
|
–
|
|
|
|
169
|
|
|
|
750
|
|
Total other portfolio loans
|
|
|
2,229
|
|
|
|
(246
|
)
|
|
|
62
|
|
|
|
317
|
|
|
|
2,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
201
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(53
|
)
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,774
|
|
|
$
|
(361
|
)
|
|
$
|
418
|
|
|
$
|
199
|
|
|
$
|
8,030
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
Activity in the allowance for the six months
ended June 30, 2017 and 2016 was as follows:
|
|
Beginning
Balance
|
|
|
Charge-Offs
|
|
|
Recoveries
|
|
|
Provisions
|
|
|
Ending Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
3,090
|
|
|
$
|
(58
|
)
|
|
$
|
117
|
|
|
$
|
(382
|
)
|
|
$
|
2,767
|
|
Multi-family
|
|
|
268
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(78
|
)
|
|
|
190
|
|
Commercial
|
|
|
2,209
|
|
|
|
–
|
|
|
|
–
|
|
|
|
514
|
|
|
|
2,723
|
|
Land
|
|
|
207
|
|
|
|
–
|
|
|
|
3
|
|
|
|
(5
|
)
|
|
|
205
|
|
Total real estate loans
|
|
|
5,774
|
|
|
|
(58
|
)
|
|
|
120
|
|
|
|
49
|
|
|
|
5,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
159
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(62
|
)
|
|
|
97
|
|
Commercial
|
|
|
120
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(9
|
)
|
|
|
111
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
279
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(71
|
)
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
560
|
|
|
|
(116
|
)
|
|
|
11
|
|
|
|
262
|
|
|
|
717
|
|
Consumer
|
|
|
457
|
|
|
|
(226
|
)
|
|
|
149
|
|
|
|
10
|
|
|
|
390
|
|
Commercial
|
|
|
880
|
|
|
|
(119
|
)
|
|
|
6
|
|
|
|
131
|
|
|
|
898
|
|
Total other portfolio loans
|
|
|
1,897
|
|
|
|
(461
|
)
|
|
|
166
|
|
|
|
403
|
|
|
|
2,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
212
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(90
|
)
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,162
|
|
|
$
|
(519
|
)
|
|
$
|
286
|
|
|
$
|
291
|
|
|
$
|
8,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
3,142
|
|
|
$
|
(127
|
)
|
|
$
|
353
|
|
|
$
|
(153
|
)
|
|
$
|
3,215
|
|
Multi-family
|
|
|
217
|
|
|
|
–
|
|
|
|
–
|
|
|
|
47
|
|
|
|
264
|
|
Commercial
|
|
|
1,337
|
|
|
|
–
|
|
|
|
–
|
|
|
|
215
|
|
|
|
1,552
|
|
Land
|
|
|
260
|
|
|
|
–
|
|
|
|
22
|
|
|
|
(136
|
)
|
|
|
146
|
|
Total real estate loans
|
|
|
4,956
|
|
|
|
(127
|
)
|
|
|
375
|
|
|
|
(27
|
)
|
|
|
5,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
144
|
|
|
|
–
|
|
|
|
–
|
|
|
|
34
|
|
|
|
178
|
|
Commercial
|
|
|
116
|
|
|
|
–
|
|
|
|
–
|
|
|
|
49
|
|
|
|
165
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
260
|
|
|
|
–
|
|
|
|
–
|
|
|
|
83
|
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
972
|
|
|
|
(136
|
)
|
|
|
11
|
|
|
|
32
|
|
|
|
879
|
|
Consumer
|
|
|
871
|
|
|
|
(337
|
)
|
|
|
150
|
|
|
|
49
|
|
|
|
733
|
|
Commercial
|
|
|
556
|
|
|
|
–
|
|
|
|
–
|
|
|
|
194
|
|
|
|
750
|
|
Total other portfolio loans
|
|
|
2,399
|
|
|
|
(473
|
)
|
|
|
161
|
|
|
|
275
|
|
|
|
2,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
130
|
|
|
|
–
|
|
|
|
–
|
|
|
|
18
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,745
|
|
|
$
|
(600
|
)
|
|
$
|
536
|
|
|
$
|
349
|
|
|
$
|
8,030
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents ending balances
for the allowance and portfolio loans based on the impairment method as of June 30, 2017:
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total Ending
Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
–
|
|
|
$
|
2,767
|
|
|
$
|
2,767
|
|
Multi-family
|
|
|
–
|
|
|
|
190
|
|
|
|
190
|
|
Commercial
|
|
|
190
|
|
|
|
2,533
|
|
|
|
2,723
|
|
Land
|
|
|
–
|
|
|
|
205
|
|
|
|
205
|
|
Total real estate loans
|
|
|
190
|
|
|
|
5,695
|
|
|
|
5,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
97
|
|
|
|
97
|
|
Commercial
|
|
|
–
|
|
|
|
111
|
|
|
|
111
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
208
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
717
|
|
|
|
717
|
|
Consumer
|
|
|
–
|
|
|
|
390
|
|
|
|
390
|
|
Commercial
|
|
|
449
|
|
|
|
449
|
|
|
|
898
|
|
Total other portfolio loans
|
|
|
449
|
|
|
|
1,556
|
|
|
|
2,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
–
|
|
|
|
122
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance for portfolio loan losses balance
|
|
$
|
639
|
|
|
$
|
7,581
|
|
|
$
|
8,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
–
|
|
|
$
|
285,220
|
|
|
$
|
285,220
|
|
Multi-family
|
|
|
–
|
|
|
|
73,166
|
|
|
|
73,166
|
|
Commercial
|
|
|
3,392
|
|
|
|
180,800
|
|
|
|
184,192
|
|
Land
|
|
|
5,510
|
|
|
|
11,223
|
|
|
|
16,733
|
|
Total real estate loans
|
|
|
8,902
|
|
|
|
550,409
|
|
|
|
559,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
15,206
|
|
|
|
15,206
|
|
Commercial
|
|
|
–
|
|
|
|
13,788
|
|
|
|
13,788
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
28,994
|
|
|
|
28,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
36,280
|
|
|
|
36,280
|
|
Consumer
|
|
|
–
|
|
|
|
37,074
|
|
|
|
37,074
|
|
Commercial
|
|
|
971
|
|
|
|
53,236
|
|
|
|
54,207
|
|
Total other portfolio loans
|
|
|
971
|
|
|
|
126,590
|
|
|
|
127,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending portfolio loans balance
|
|
$
|
9,873
|
|
|
$
|
705,993
|
|
|
$
|
715,866
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents ending balances
for the allowance and portfolio loans based on the impairment method as of December 31, 2016:
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total Ending
Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
–
|
|
|
$
|
3,090
|
|
|
$
|
3,090
|
|
Multi-family
|
|
|
–
|
|
|
|
268
|
|
|
|
268
|
|
Commercial
|
|
|
201
|
|
|
|
2,008
|
|
|
|
2,209
|
|
Land
|
|
|
–
|
|
|
|
207
|
|
|
|
207
|
|
Total real estate loans
|
|
|
201
|
|
|
|
5,573
|
|
|
|
5,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
159
|
|
|
|
159
|
|
Commercial
|
|
|
–
|
|
|
|
120
|
|
|
|
120
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
279
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
560
|
|
|
|
560
|
|
Consumer
|
|
|
–
|
|
|
|
457
|
|
|
|
457
|
|
Commercial
|
|
|
279
|
|
|
|
601
|
|
|
|
880
|
|
Total other portfolio loans
|
|
|
279
|
|
|
|
1,618
|
|
|
|
1,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
–
|
|
|
|
212
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance for portfolio loan losses balance
|
|
$
|
480
|
|
|
$
|
7,682
|
|
|
$
|
8,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
–
|
|
|
$
|
276,193
|
|
|
$
|
276,193
|
|
Multi-family
|
|
|
33
|
|
|
|
70,419
|
|
|
|
70,452
|
|
Commercial
|
|
|
2,763
|
|
|
|
101,380
|
|
|
|
104,143
|
|
Land
|
|
|
5,510
|
|
|
|
11,708
|
|
|
|
17,218
|
|
Total real estate loans
|
|
|
8,306
|
|
|
|
459,700
|
|
|
|
468,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
22,687
|
|
|
|
22,687
|
|
Commercial
|
|
|
–
|
|
|
|
14,432
|
|
|
|
14,432
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
37,119
|
|
|
|
37,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
37,748
|
|
|
|
37,748
|
|
Consumer
|
|
|
–
|
|
|
|
39,232
|
|
|
|
39,232
|
|
Commercial
|
|
|
519
|
|
|
|
57,428
|
|
|
|
57,947
|
|
Total other portfolio loans
|
|
|
519
|
|
|
|
134,408
|
|
|
|
134,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending portfolio loans balance
|
|
$
|
8,825
|
|
|
$
|
631,227
|
|
|
$
|
640,052
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
Portfolio loans for which concessions have
been granted as a result of the borrower’s financial difficulties are considered a TDR. These concessions, which in general
are applied to all categories of portfolio loans, may include a reduction in the interest rate on the loan, payment extensions,
forgiveness of principal, or a combination of these or other actions intended to maximize collection. The resulting TDR impairment
is included in specific reserves.
For homogeneous loan categories, such as
one- to four-family residential loans and home equity loans, the amount of impairment resulting from the modification of the loan
terms is calculated in aggregate by category of portfolio loan. The resulting impairment is included in specific reserves. If an
individual homogeneous loan defaults under terms of the TDR and becomes nonperforming, the Bank follows its usual practice of charging
the loan down to its estimated fair value and the charge-off is considered as a factor in determining the amount of the general
component of the allowance. For larger non-homogeneous loans, each loan that is modified is evaluated individually for impairment
based on either discounted cash flow or, for collateral-dependent loans, the appraised value of the collateral less selling costs.
If the loan is not collateral-dependent, the amount of the impairment, if any, is recorded as a specific reserve in the allowance.
If the loan is collateral-dependent, the amount of the impairment is charged off. There was an allocated allowance for loans, including
TDRs, individually evaluated for impairment of approximately $0.6 million and $0.5 million at June 30, 2017 and December 31, 2016,
respectively.
Portfolio loans modified as TDRs with market
rates of interest are classified as impaired portfolio loans. Once the TDR has performed for 12 months in accordance with the modified
terms it is classified as a performing impaired loan. TDRs which do not perform in accordance with modified terms are reported
as nonperforming portfolio loans. The policy for returning a nonperforming loan to accrual status is the same for any loan irrespective
of whether the loan has been modified. As such, loans which are nonperforming prior to modification continue to be accounted for
as nonperforming loans (and are reported as impaired nonperforming loans) until they have demonstrated the ability to maintain
sustained performance over a period of time, but no less than six months. Following this period such a modified loan is returned
to accrual status and is classified as impaired and reported as a performing TDR. TDRs classified as impaired loans as of June
30, 2017 and December 31, 2016 were as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(Dollars in Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
17,787
|
|
|
$
|
20,060
|
|
Multi-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
3,139
|
|
|
|
2,488
|
|
Land
|
|
|
6,289
|
|
|
|
6,311
|
|
Total real estate loans
|
|
|
27,215
|
|
|
|
28,859
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,158
|
|
|
|
4,230
|
|
Consumer
|
|
|
1,316
|
|
|
|
1,573
|
|
Commercial
|
|
|
429
|
|
|
|
181
|
|
Total other portfolio loans
|
|
|
5,903
|
|
|
|
5,984
|
|
|
|
|
|
|
|
|
|
|
Total TDRs classified as impaired loans
|
|
$
|
33,118
|
|
|
$
|
34,843
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The TDR balances included performing TDRs
of $15.9 million and $20.3 million as of June 30, 2017 and December 31, 2016, respectively. There were no commitments to lend additional
amounts on TDRs as of June 30, 2017 and December 31, 2016.
The Bank is proactive in modifying residential,
home equity and consumer loans in early stage delinquency because management believes modifying the loan prior to it becoming nonperforming
results in the least cost to the Bank. The Bank also modifies commercial real estate and other large commercial loans as TDRs rather
than pursuing other means of collection when it believes the borrower is committed to the successful repayment of the loan and
the business operations are likely to support the modified loan terms.
The following table presents information
on TDRs during the six months ended June 30, 2017 and 2016:
|
|
Number of
Contracts
|
|
|
Pre-Modification
Outstanding Recorded
Investments
|
|
|
Post-Modification
Outstanding Recorded
Investments
|
|
|
|
(Dollars in Thousands)
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
4
|
|
|
$
|
831
|
|
|
$
|
831
|
|
Commercial
|
|
|
1
|
|
|
|
679
|
|
|
|
679
|
|
Land
|
|
|
2
|
|
|
|
195
|
|
|
|
195
|
|
Total real estate loans
|
|
|
7
|
|
|
|
1,705
|
|
|
|
1,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
5
|
|
|
|
430
|
|
|
|
430
|
|
Consumer
|
|
|
7
|
|
|
|
133
|
|
|
|
133
|
|
Commercial
|
|
|
2
|
|
|
|
215
|
|
|
|
215
|
|
Total other portfolio loans
|
|
|
14
|
|
|
|
778
|
|
|
|
778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
21
|
|
|
$
|
2,483
|
|
|
$
|
2,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
18
|
|
|
|
2,261
|
|
|
|
2,261
|
|
Total real estate loans
|
|
|
18
|
|
|
|
2,261
|
|
|
|
2,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
14
|
|
|
|
874
|
|
|
|
874
|
|
Consumer
|
|
|
5
|
|
|
|
198
|
|
|
|
198
|
|
Total other portfolio loans
|
|
|
19
|
|
|
|
1,072
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
37
|
|
|
$
|
3,333
|
|
|
$
|
3,333
|
|
All of the Company’s portfolio loans
that were restructured as TDRs during the six months ended June 30, 2017 and 2016, resulted in modifications to either rate, term,
amortization or balance. Such modifications are only granted to borrowers who have demonstrated the capacity to repay under the
modified terms.
During the six months ended June 30, 2017,
there was one subsequent default on portfolio loans that were restructured as TDRs in the previous twelve months. The subsequent
default was a home equity loan with a recorded investment of $8,000.
During the six months ended June 30, 2016, there were no subsequent
defaults on portfolio loans that were restructured as TDRs in the previous twelve months.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents information
about impaired portfolio loans as of June 30, 2017:
|
|
Recorded
Investment
|
|
|
Unpaid
Principal Balance
|
|
|
Related
Allowance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Multi-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
726
|
|
|
|
726
|
|
|
|
–
|
|
Land
|
|
|
5,510
|
|
|
|
5,510
|
|
|
|
–
|
|
Total real estate loans
|
|
|
6,236
|
|
|
|
6,236
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Consumer
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
32
|
|
|
|
32
|
|
|
|
–
|
|
Total other portfolio loans
|
|
|
32
|
|
|
|
32
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with no related allowance recorded
|
|
$
|
6,268
|
|
|
$
|
6,268
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
18,657
|
|
|
$
|
19,208
|
|
|
$
|
1,403
|
|
Multi-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
2,665
|
|
|
|
2,665
|
|
|
|
190
|
|
Land
|
|
|
779
|
|
|
|
829
|
|
|
|
114
|
|
Total real estate loans
|
|
|
22,101
|
|
|
|
22,702
|
|
|
|
1,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,309
|
|
|
|
4,466
|
|
|
|
549
|
|
Consumer
|
|
|
1,456
|
|
|
|
1,525
|
|
|
|
204
|
|
Commercial
|
|
|
939
|
|
|
|
939
|
|
|
|
449
|
|
Total other portfolio loans
|
|
|
6,704
|
|
|
|
6,930
|
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with an allowance recorded
|
|
$
|
28,805
|
|
|
$
|
29,632
|
|
|
$
|
2,909
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents information
about impaired portfolio loans as of December 31, 2016:
|
|
Recorded
Investment
|
|
|
Unpaid
Principal Balance
|
|
|
Related
Allowance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Multi-family
|
|
|
33
|
|
|
|
33
|
|
|
|
–
|
|
Commercial
|
|
|
589
|
|
|
|
589
|
|
|
|
–
|
|
Land
|
|
|
5,510
|
|
|
|
5,510
|
|
|
|
–
|
|
Total real estate loans
|
|
|
6,132
|
|
|
|
6,132
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Consumer
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
61
|
|
|
|
61
|
|
|
|
–
|
|
Total other portfolio loans
|
|
|
61
|
|
|
|
61
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with no related allowance recorded
|
|
$
|
6,193
|
|
|
$
|
6,193
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
21,335
|
|
|
$
|
21,869
|
|
|
$
|
1,514
|
|
Multi-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
2,174
|
|
|
|
2,174
|
|
|
|
201
|
|
Land
|
|
|
801
|
|
|
|
851
|
|
|
|
108
|
|
Total real estate loans
|
|
|
24,310
|
|
|
|
24,894
|
|
|
|
1,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,231
|
|
|
|
4,388
|
|
|
|
408
|
|
Consumer
|
|
|
1,728
|
|
|
|
1,832
|
|
|
|
201
|
|
Commercial
|
|
|
840
|
|
|
|
840
|
|
|
|
279
|
|
Total other portfolio loans
|
|
|
6,799
|
|
|
|
7,060
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with an allowance recorded
|
|
$
|
31,109
|
|
|
$
|
31,954
|
|
|
$
|
2,711
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents interest income
on impaired portfolio loans by class of portfolio loans for the three months ended June 30, 2017 and 2016:
|
|
Average Balance
|
|
|
Interest Income
Recognized
|
|
|
Cash Basis Interest
Income
Recognized
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
18,427
|
|
|
$
|
200
|
|
|
$
|
–
|
|
Multi-family
|
|
|
10
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
3,413
|
|
|
|
24
|
|
|
|
6
|
|
Land
|
|
|
6,277
|
|
|
|
11
|
|
|
|
–
|
|
Total real estate loans
|
|
|
28,127
|
|
|
|
235
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,222
|
|
|
|
49
|
|
|
|
–
|
|
Consumer
|
|
|
1,460
|
|
|
|
22
|
|
|
|
–
|
|
Commercial
|
|
|
1,066
|
|
|
|
8
|
|
|
|
–
|
|
Total other portfolio loans
|
|
|
6,748
|
|
|
|
79
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,875
|
|
|
$
|
314
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
21,550
|
|
|
$
|
232
|
|
|
$
|
–
|
|
Multi-family
|
|
|
77
|
|
|
|
1
|
|
|
|
–
|
|
Commercial
|
|
|
2,718
|
|
|
|
19
|
|
|
|
–
|
|
Land
|
|
|
6,352
|
|
|
|
11
|
|
|
|
–
|
|
Total real estate loans
|
|
|
30,697
|
|
|
|
263
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,930
|
|
|
|
58
|
|
|
|
–
|
|
Consumer
|
|
|
2,024
|
|
|
|
25
|
|
|
|
–
|
|
Commercial
|
|
|
841
|
|
|
|
4
|
|
|
|
–
|
|
Total other portfolio loans
|
|
|
7,795
|
|
|
|
87
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,492
|
|
|
$
|
350
|
|
|
$
|
–
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents interest income
on impaired portfolio loans by class of portfolio loans for the six months ended June 30, 2017 and 2016:
|
|
Average Balance
|
|
|
Interest Income
Recognized
|
|
|
Cash Basis Interest
Income
Recognized
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
19,996
|
|
|
$
|
387
|
|
|
$
|
–
|
|
Multi-family
|
|
|
17
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
3,078
|
|
|
|
48
|
|
|
|
32
|
|
Land
|
|
|
6,300
|
|
|
|
19
|
|
|
|
–
|
|
Total real estate loans
|
|
|
29,391
|
|
|
|
454
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,270
|
|
|
|
99
|
|
|
|
–
|
|
Consumer
|
|
|
1,592
|
|
|
|
45
|
|
|
|
–
|
|
Commercial
|
|
|
937
|
|
|
|
17
|
|
|
|
–
|
|
Total other portfolio loans
|
|
|
6,799
|
|
|
|
161
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,190
|
|
|
$
|
615
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
21,248
|
|
|
$
|
468
|
|
|
$
|
–
|
|
Multi-family
|
|
|
87
|
|
|
|
2
|
|
|
|
–
|
|
Commercial
|
|
|
2,547
|
|
|
|
45
|
|
|
|
–
|
|
Land
|
|
|
6,704
|
|
|
|
66
|
|
|
|
–
|
|
Total real estate loans
|
|
|
30,586
|
|
|
|
581
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,844
|
|
|
|
115
|
|
|
|
–
|
|
Consumer
|
|
|
1,929
|
|
|
|
52
|
|
|
|
–
|
|
Commercial
|
|
|
753
|
|
|
|
9
|
|
|
|
–
|
|
Total other portfolio loans
|
|
|
7,526
|
|
|
|
176
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,112
|
|
|
$
|
757
|
|
|
$
|
–
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The Company had $1.3 million and $1.6 million
of one- to four-family residential and home equity loans in process of foreclosure as of June 30, 2017 and December 31, 2016, respectively.
The Company has originated portfolio loans
with the Company’s directors and executive officers and their associates. These loans totaled $1.8 million and $1.9 million
as of June 30, 2017 and December 31, 2016, respectively. The activity on these loans during the six months ended June 30, 2017
and the year ended December 31, 2016, was as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,856
|
|
|
$
|
1,919
|
|
New portfolio loans and advances on existing loans
|
|
|
–
|
|
|
|
–
|
|
Effect of changes in related parties
|
|
|
–
|
|
|
|
–
|
|
Repayments
|
|
|
(27
|
)
|
|
|
(63
|
)
|
Ending balance
|
|
$
|
1,829
|
|
|
$
|
1,856
|
|
NOTE 8. OTHER LOANS
The Company’s other loans are comprised
of loans secured by one- to four-family residential homes originated internally and held-for-sale (mortgage loans held-for-sale),
small business loans originated internally and held-for-sale (SBA/USDA loans held-for-sale), and warehouse loans held-for-investment.
The Company originates mortgage loans held-for-sale with the intent to sell the loans and the servicing rights to investors. The
Company originates SBA/USDA loans held-for-sale with the intent to sell the guaranteed portion of the loans to investors, while
maintaining the servicing rights. The Company originates warehouse loans held-for-investment and permits third-party originators
to sell the loans and servicing rights to investors in order to repay the warehouse balance outstanding.
The Company internally originated approximately
$13.0 million and $22.0 million of mortgage loans held-for-sale during the three and six months ended June 30, 2017, respectively.
The Company internally originated approximately $24.9 million and $36.0 million of mortgage loans held-for-sale during the three
and six months ended June 30, 2016, respectively. The gain recorded on sale of mortgage loans held-for-sale during the three and
six months ended June 30, 2017 was $0.3 million and $1.1 million, respectively. The gain recorded on sale of mortgage loans held-for-sale
during the three and six months ended June 30, 2016 was $0.3 million and $0.5 million, respectively.
During the three and six months ended June
30, 2017, the Company internally originated approximately $1.4 million and $8.4 million, respectively, of SBA/USDA loans held-for-sale.
During the three and six months ended June 30, 2016, the Company internally originated approximately $4.1 million and $4.7 million,
respectively, of SBA/USDA loans held-for-sale. The gain recorded on sales of SBA/USDA loans held-for-sale was $38,000 and $783,000
during the three and six months ended June 30, 2017, respectively. The gain recorded on sales of SBA/USDA loans held-for-sale was
$609,000 and $834,000 during the three and six months ended June 30, 2016, respectively.
During the three and six months ended June
30, 2017, the Company originated approximately $299.6 million and $557.2 million, respectively, of warehouse loans held-for-investment
through third parties. During the three and six months ended June 30, 2016, the Company originated approximately $386.2 million
and $680.6 million, respectively, of warehouse loans held-for-investment through third parties. Loan sales under the warehouse
loans held-for-investment lending program, which are done at par, earned interest on outstanding balances of $0.5 million and $0.9
million for the three and six months ended June 30, 2017, respectively. These loan sales also earned interest on outstanding balances
of $0.6 million and $1.0 million for the three and six months ended June 30, 2016, respectively. The weighted average number of
days outstanding of warehouse loans held-for-investment was approximately 10 days for each of the three and six months ended June
30, 2017, respectively, and 12 days and 13 days for the three and six months ended June 30, 2016, respectively.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 8. OTHER LOANS
(continued)
As of June 30, 2017 and December 31, 2016,
the balance in warehouse loans held-for-investment did not include any past due, nonperforming, classified, restructured, or impaired
loans. Warehouse loans held-for-investment possess less risk than other types of loans as they are secured by one- to four-family
residential loans which tend to be smaller balance loans without concentrations to a single borrower or group of borrowers. Due
to the generally short duration of time warehouse loans held-for-investment are outstanding, the collateral arrangements related
to warehouse loans held-for-investment and other factors, management has determined that no allowance for loan losses is necessary.
NOTE 9. FEDERAL HOME LOAN BANK ADVANCES
As of June 30, 2017 and December 31, 2016,
advances from the FHLB were as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Maturity on January 30, 2017, fixed rate at 0.61%
|
|
$
|
–
|
|
|
$
|
50,000
|
|
Maturity on June 20, 2017, fixed rate 0.73%
|
|
|
–
|
|
|
|
833
|
|
Maturity on June 20, 2017, fixed rate 0.91%
|
|
|
–
|
|
|
|
10,000
|
|
Maturity on June 19, 2018, fixed rate at 1.31%
|
|
|
10,425
|
|
|
|
10,425
|
|
Maturity on June 20, 2019, fixed rate at 1.27%
|
|
|
2,000
|
|
|
|
2,500
|
|
Maturity on May 18, 2020, fixed rate at 1.56%
|
|
|
40,000
|
|
|
|
–
|
|
Maturity on June 8, 2021, fixed rate at 2.59%
|
|
|
20,000
|
|
|
|
20,000
|
|
Maturity on June 8, 2021, fixed rate at 2.58%
|
|
|
15,000
|
|
|
|
15,000
|
|
Maturity on June 8, 2021, fixed rate at 2.58%
|
|
|
15,000
|
|
|
|
15,000
|
|
Daily rate credit, no maturity date, adjustable rate at 1.32% as of June 30, 2017 and at 0.80% as of December 31, 2016
|
|
|
30,000
|
|
|
|
65,000
|
|
Total
|
|
$
|
132,425
|
|
|
$
|
188,758
|
|
The FHLB advances had a weighted-average
maturity of 30 months and a weighted-average rate of 1.87% at June 30, 2017. The Company had $377.4 million in portfolio loans
posted as collateral for these advances as of June 30, 2017.
The Bank’s remaining
borrowing capacity with the FHLB was $145.0 million at June 30, 2017. The FHLB requires that the Bank collateralize the
excess of the fair value of the FHLB advances over the book value with portfolio loans and investment securities. In the
event the Bank prepays advances prior to maturity, it must do so at the fair value of such FHLB advances. As of June 30,
2017, fair value exceeded the book value of the individual advances by $1.0 million, which was collateralized by portfolio
loans (included in the $377.4 million discussed above). The Bank has the ability to supplement its loan collateral with
investment securities as needed to secure the FHLB borrowings or prepay advances to reduce the amount of collateral required
to secure the debt. Unpledged investment securities available for collateral amounted to $36.8 million as of June 30,
2017.
NOTE 10. INCOME TAXES
Income tax expense for the six months ending
June 30, 2017 and 2016 was as follows:
|
|
Six months ending June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Dollars in Thousands)
|
|
Income before income tax expense
|
|
$
|
4,166
|
|
|
$
|
4,547
|
|
Effective tax rate
|
|
|
35.93
|
%
|
|
|
37.10
|
%
|
Income tax expense
|
|
$
|
1,497
|
|
|
$
|
1,687
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 10. INCOME TAXES
(continued)
The Company considers at each reporting
period all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation
allowance is needed to reduce its deferred tax assets to an amount that is more likely than not to be realized. A determination
of the need for a valuation allowance for the deferred tax assets is dependent upon management’s evaluation of both positive
and negative evidence.
As of June 30, 2017, the Company evaluated
the expected realization of its federal and state deferred tax assets. Based on this evaluation it was concluded that no valuation
allowance was required for the federal and state deferred tax assets, with the exception of the remaining deferred tax asset related
to a capital loss carryover, which resulted in a valuation allowance of $27,000 as of June 30, 2017.
During the six months ended June 30, 2017,
the Company used $163,000 of federal net operating loss carryover and $136,000 of state net operating loss carryovers. During the
six months ended June 30, 2016, the Company used $2.8 million of federal net operating loss carryover and $2.1 million of state
net operating loss carryover.
Under the rules of Internal Revenue Code
section 382 (IRC § 382), a change in the ownership of the Company occurred during the first quarter of 2013. During the second
quarter of 2013, the Company became aware of the change in ownership based on applicable filings made by stockholders with the
Securities and Exchange Commission (the SEC). In accordance with IRC § 382, the Company determined the gross amount of net
operating loss carryover that it could utilize was limited to approximately $325,000 per year, excluding any net operating loss
carryover that may be generated in the future. For federal purposes, only post-change net operating loss carryforward remains.
For state purposes, post-change, non-limited net operating loss carryforward remains. During the six months ended June 30, 2017,
$251,000 of state net operating losses were generated.
As of June 30, 2017, the Company has a
federal net operating loss carryover of $5.2 million which will expire between 2027 and 2033. There is no valuation allowance on
this carryover. As of June 30, 2017, the Company has a state net operating loss carryover of $6.0 million which will expire between
2017 and 2033. There is no valuation allowance on this carryover.
NOTE 11. EARNINGS PER COMMON SHARE
Basic earnings per common share is computed
by dividing net income by the weighted average number of common shares and common stock equivalents outstanding for the period.
The basic weighted average common shares and common stock equivalents are computed using the treasury stock method. The basic weighted
average common shares and common stock equivalents outstanding for the period is adjusted for average unallocated employee stock
ownership plan shares, average director’s deferred compensation shares and average unearned restricted stock awards. Diluted
earnings per common share is computed by dividing net income by the weighted average number of common shares and common stock equivalents
outstanding for the period increased for the dilutive effect of unvested stock options and stock awards. The dilutive effect of
the unvested stock options and stock awards is calculated under the treasury stock method utilizing the average market value of
the Company’s stock for the period.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
NOTE 11. EARNINGS PER COMMON SHARE
(continued)
The following table summarizes the basic
and diluted earnings per common share computation for the three and six months ended June 30, 2017 and 2016:
|
|
Three months ending June 30,
|
|
|
Six months ending June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Dollars in Thousands, Except Per Share Information)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,192
|
|
|
$
|
1,336
|
|
|
$
|
2,669
|
|
|
$
|
2,860
|
|
Weighted average common shares outstanding
|
|
|
15,553,709
|
|
|
|
15,508,969
|
|
|
|
15,542,536
|
|
|
|
15,508,969
|
|
Less: average unallocated employee stock ownership plan shares
|
|
|
(67,067
|
)
|
|
|
(71,857
|
)
|
|
|
(67,067
|
)
|
|
|
(71,857
|
)
|
Less: average director’s deferred compensation shares
|
|
|
(19,338
|
)
|
|
|
(19,247
|
)
|
|
|
(20,926
|
)
|
|
|
(20,921
|
)
|
Less: average unvested restricted stock awards
|
|
|
(44,648
|
)
|
|
|
–
|
|
|
|
(33,548
|
)
|
|
|
–
|
|
Weighted average common shares outstanding, as adjusted
|
|
|
15,422,656
|
|
|
|
15,417,865
|
|
|
|
15,420,995
|
|
|
|
15,416,191
|
|
Basic earnings per common share
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.17
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,192
|
|
|
$
|
1,336
|
|
|
$
|
2,669
|
|
|
$
|
2,860
|
|
Weighted average common shares outstanding, as adjusted (from above)
|
|
|
15,422,656
|
|
|
|
15,417,865
|
|
|
|
15,420,995
|
|
|
|
15,416,191
|
|
Add: dilutive effects of assumed exercise of stock options and stock awards
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Weighted average dilutive shares outstanding
|
|
|
15,422,656
|
|
|
|
15,417,865
|
|
|
|
15,420,995
|
|
|
|
15,416,191
|
|
Diluted earnings per common share
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.17
|
|
|
$
|
0.19
|
|
During the three and six months ended June
30, 2017 and 2016, all of the Company’s stock options and stock awards were antidilutive and, therefore, were excluded from
the calculation of diluted earnings per common share.
NOTE 12. STOCK-BASED COMPENSATION
2016 Omnibus Incentive Plan
The Company’s Board of Directors
awarded 44,648 shares of restricted stock, with a grant date fair value of $7.78, under the 2016 Omnibus Incentive Plan (the 2016
Incentive Plan) on February 15, 2017. A summary of the status of the shares as of and for the six months ended June 30, 2017 is
presented below:
|
|
Shares
|
|
|
Weighted-Average
Grant-Date Fair Value Per Share
|
|
Non-vested as of January 1, 2017
|
|
|
–
|
|
|
$
|
–
|
|
Granted
|
|
|
44,648
|
|
|
|
7.78
|
|
Vested
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Non-vested as of June 30, 2017
|
|
|
44,648
|
|
|
|
7.78
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
June 30, 2017
(unaudited)
There was $314,000 of unrecognized compensation
expense related to non-vested shares awarded under the 2016 Incentive Plan at June 30, 2017. The expense is expected to be recognized
over a weighted-average period of 4.1 years.
NOTE 13. REGULATORY SUPERVISION
The Bank’s actual and required capital
levels and ratios as of June 30, 2017 and December 31, 2016 were as follows:
|
|
Actual
|
|
|
Required to be Well-
Capitalized Under Prompt
Corrective Action
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in Thousands)
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
96,064
|
|
|
|
12.94
|
%
|
|
$
|
74,250
|
|
|
|
10.00
|
%
|
Common equity tier 1 capital (to risk weighted assets)
|
|
|
87,844
|
|
|
|
11.83
|
%
|
|
|
48,262
|
|
|
|
6.50
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
87,844
|
|
|
|
11.83
|
%
|
|
|
59,400
|
|
|
|
8.00
|
%
|
Tier 1 capital (to adjusted total assets)
|
|
|
87,844
|
|
|
|
10.06
|
%
|
|
|
43,640
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
92,822
|
|
|
|
14.83
|
%
|
|
$
|
62,580
|
|
|
|
10.00
|
%
|
Common equity tier 1 capital (to risk weighted assets)
|
|
|
84,984
|
|
|
|
13.58
|
%
|
|
|
40,677
|
|
|
|
6.50
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
84,984
|
|
|
|
13.58
|
%
|
|
|
50,064
|
|
|
|
8.00
|
%
|
Tier 1 capital (to adjusted total assets)
|
|
|
84,984
|
|
|
|
9.44
|
%
|
|
|
45,020
|
|
|
|
5.00
|
%
|
The Bank’s capital classification
under Prompt Corrective Action (PCA) defined levels as of June 30, 2017 was well-capitalized.
Beginning on January 1, 2016, as a result
of the commencement of the phase-in of amended regulatory risk-based capital rules, the Bank must maintain a capital conservation
buffer to avoid restrictions on capital distributions or discretionary bonus payments. The capital conservation buffer must consist
solely of common equity tier 1 capital, but it applies to all three risk-weighted measurements (total risk based capital to risk-weighted
assets ratio, common equity tier 1 capital to risk-weighted assets ratio, tier 1 capital to risk-weighted assets ratio) in addition
to the minimum risk-weighted capital requirements. The capital conservation buffer required for 2016 was common equity equal to
0.625% of risk-weighted assets, the buffer required for 2017 is common equity equal to 1.25% of risk-weighted assets, and will
increase by 0.625% per year until reaching 2.5% beginning January 1, 2019. The Bank’s actual
capital
conservation buffer was 4.94% as of June 30, 2017.
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and
Analysis (this MD&A) is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by
reference to, the unaudited Condensed Consolidated Financial Statements and accompanying Notes to the unaudited Condensed Consolidated
Financial Statements of Atlantic Coast Financial Corporation (the Company) appearing elsewhere in this Quarterly Report on Form
10-Q (this Report). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes
to Consolidated Financial Statements and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities
and Exchange Commission on March 14, 2017 (the 2016 10-K).
Cautionary Note Regarding Forward-Looking
Statements
This Report contains forward-looking
statements concerning the Company and its wholly owned subsidiary, Atlantic Coast Bank (the Bank), that involve risks and uncertainties,
as well as assumptions that, if they do not materialize or prove to be correct, could cause our results to differ materially from
those expressed in or implied by such forward-looking statements. All statements other than statements of historical fact are statements
that could be deemed forward-looking statements, including, but not limited to, statements concerning: our plans, strategies and
objectives for future operations; new loans and other products, services or developments; future economic conditions, performance
or outlook; the outcome of contingencies; the continued suspension of dividends or share repurchases; potential acquisitions or
divestitures; expected cash flows or capital expenditures; our beliefs or expectations; activities, events or developments that
we intend, expect, project, believe or anticipate will or may occur in the future; and assumptions underlying any of the foregoing.
Forward-looking statements may be identified by their use of forward-looking terminology, such as “believes,” “expects,”
“may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,”
“anticipates,” “projects” and similar words or expressions. You should not place undue reliance on these
forward-looking statements, which reflect management’s opinions only as of the date of the filing of this Report and are
not guarantees of future performance or actual results. Forward-looking statements are made in reliance on the safe harbor provisions
of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of
1934, as amended (the Exchange Act). The following are some of the factors we believe could cause our actual results to differ
materially from our historical results or our current expectations or projections:
|
·
|
our ability to respond to changes in
the legislative or regulatory environment and governmental initiatives affecting the banking and financial services industry and
to comply with and remain abreast of recently enacted, modified or proposed federal, state and local laws, regulations and rules;
|
|
·
|
local, regional, national and international
economic conditions and the impact they may have on us and our customers, and our assessment of that impact on our estimates, including,
but not limited to, the allowance for portfolio loan losses;
|
|
·
|
changes in the financial performance
or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and other credit agreements,
and the impact of such changes on our levels of nonperforming assets;
|
|
·
|
changes in sources and uses of funds,
including loans, deposits and borrowings, and our ability to retain and grow core deposits and maintain unsecured federal funds
lines and secured lines of credit with correspondent banks;
|
|
·
|
changes in interest rates, composition
and costs of deposits, loan demand, and the values and liquidity of loan collateral, securities, and interest sensitive assets
and liabilities;
|
|
·
|
the concentration of our loan portfolio
in real estate based loans and the geographic concentration of those loans secured by one- to four-family residential real estate;
|
|
·
|
the potential threat of cyber-attacks
on our network and the information stored on our servers, and our ability to implement information technology software and security
measures to effectively neutralize cyber-security threats; and
|
|
·
|
our ability to successfully implement
changes in accounting policies, rules and practices.
|
Additional details and discussions concerning
some of the factors that could affect our forward-looking statements or future results are set forth in the 2016 10-K under Item
1A. “Risk Factors” and in Part II. Item 1A. “Risk Factors” in this Report, which lists of factors, together
with the foregoing list of factors, are not exhaustive. Additional risks and uncertainties not known to us or that we currently
believe not to be material also may adversely impact our business, financial condition, results of operations and cash flows. Should
any risks or uncertainties develop into actual events, these developments could have a material adverse effect on our business,
financial condition, results of operations and cash flows. The forward-looking statements contained in this Report are made as
of the date hereof and we disclaim any intention or obligation, other than imposed by law, to update or revise any forward-looking
statements or to update the reasons actual results could differ materially from those projected in the forward-looking statements,
whether as a result of new information, future events or developments or otherwise.
General Description of Business
The Company and the Bank have traditionally
focused on attracting deposits and investing those funds primarily in loans, including commercial real estate loans, consumer loans,
first mortgages on owner-occupied, one- to four-family residences and home equity loans. Additionally, the Bank invests funds in
multi-family residential loans, commercial business loans, and commercial and residential construction loans. The Bank also invests
funds in investment securities, primarily those issued by U.S. government-sponsored agencies or entities, including Fannie Mae,
Freddie Mac and Ginnie Mae.
Revenues are derived principally from interest
on loans and other interest-earning assets, such as investment securities. To a lesser extent, revenue is generated from service
charges, gains on the sale of loans and other income.
The Bank offers a variety of deposit accounts
having a wide range of interest rates and terms, which generally include noninterest-bearing and interest-bearing demand, savings
and money market, and time deposit accounts with terms ranging from three months to five years. Deposits are primarily solicited
in the Bank’s market areas of the Northeast Florida and Southeast Georgia to fund loan demand and other liquidity needs;
however, the Bank also solicits deposits in Central Florida.
Recent Events
Conversion to Florida State-chartered
Commercial Bank
On December 27, 2016, the Bank consummated
the conversion of its charter from that of a federally-chartered savings bank to that of a Florida state-chartered commercial bank
supervised by the Florida Office of Financial Regulation (the OFR) and the Federal Deposit Insurance Corporation (the FDIC). The
conversion is not expected to affect the Bank’s customers in any way. Bank depositors will continue to have the protection
of Federal Deposit Insurance provided by the FDIC.
Critical Accounting Policies
Certain accounting policies
are important to the presentation of the Company’s financial condition, because they require management to make difficult,
complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these
policies are susceptible to material changes as a result of changes in facts and circumstances, including, without limitation,
changes in interest rates, performance of the economy, financial condition of borrowers, and laws and regulations. Management believes
that its critical accounting policies include: (i) determining the allowance for portfolio loan losses (the allowance) and the
provision for portfolio loan losses (provision expense); (ii) measuring for impairment in troubled debt restructurings (TDR); (iii)
determining the fair value of investment securities; (iv) determining the fair value of other real estate owned (OREO); and (v)
accounting for deferred income taxes.
There have been no material
updates to these accounting policies or estimates affected by these accounting policies during the first six months of 2017. For
additional discussion of our critical accounting policies and estimates, see the
Critical Accounting Policies
discussion
in
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
in the 2016 10-K.
Comparison of Financial Condition at
June 30, 2017 and December 31, 2016
General
Total assets increased $5.1 million, or
0.6%, to $912.6 million at June 30, 2017, as compared to $907.5 million at December 31, 2016. The increase in assets was funded
primarily by increases in non-maturing deposits of $84.0 million, and stockholders’ equity of $3.3 million, as discussed
below, partially offset by a reduction of $56.3 million in Federal Home Loan Bank (FHLB) advances and a decrease in time deposits
of $24.6 million. Net portfolio loans increased $75.1 million, while cash and cash equivalents decreased $25.7 million, investment
securities decreased $24.5 million and other loans decreased $13.8 million. Total deposits increased $59.4 million, or 9.5%, to
$687.8 million at June 30, 2017, from $628.4 million at December 31, 2016. Noninterest-bearing demand accounts increased $11.0
million, interest-bearing demand accounts increased by $16.1 million, savings and money market accounts increased $56.9 million,
and time deposits decreased by $24.6 million during the six months ended June 30, 2017. Total borrowings decreased by $56.3 million
to $132.4 million at June 30, 2017, from $188.7 million at December 31, 2016, due to the aforementioned decrease in FHLB advances
during the first half of 2017, as the Company continues to focus on core deposit growth. Stockholders’ equity increased by
$3.3 million to $90.3 million at June 30, 2017, from $87.0 million at December 31, 2016, primarily due to net income of $2.7 million
and other comprehensive income of $0.6 million for the six months ended June 30, 2017.
Following are the summarized comparative
balance sheets as of June 30, 2017 and December 31, 2016:
|
|
June 30,
|
|
|
December 31,
|
|
|
Increase / (Decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34,186
|
|
|
$
|
59,893
|
|
|
$
|
(25,707
|
)
|
|
|
(42.9
|
)%
|
Investment securities
|
|
|
40,759
|
|
|
|
65,293
|
|
|
|
(24,534
|
)
|
|
|
(37.6
|
)%
|
Portfolio loans
|
|
|
722,590
|
|
|
|
647,407
|
|
|
|
75,183
|
|
|
|
11.6
|
%
|
Allowance for portfolio loan losses
|
|
|
8,220
|
|
|
|
8,162
|
|
|
|
58
|
|
|
|
0.7
|
%
|
Portfolio loans, net
|
|
|
714,370
|
|
|
|
639,245
|
|
|
|
75,125
|
|
|
|
11.8
|
%
|
Other loans (held-for-sale and warehouse loans held-for-investment)
|
|
|
73,877
|
|
|
|
87,724
|
|
|
|
(13,847
|
)
|
|
|
(15.8
|
)%
|
Other assets
|
|
|
49,391
|
|
|
|
55,304
|
|
|
|
(5,913
|
)
|
|
|
(10.7
|
)%
|
Total assets
|
|
$
|
912,583
|
|
|
$
|
907,459
|
|
|
$
|
5,124
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand
|
|
$
|
70,673
|
|
|
$
|
59,696
|
|
|
$
|
10,977
|
|
|
|
18.4
|
%
|
Interest-bearing demand
|
|
|
122,107
|
|
|
|
106,004
|
|
|
|
16,103
|
|
|
|
15.2
|
%
|
Savings and money market
|
|
|
281,961
|
|
|
|
224,987
|
|
|
|
56,974
|
|
|
|
25.3
|
%
|
Time
|
|
|
213,058
|
|
|
|
237,726
|
|
|
|
(24,668
|
)
|
|
|
(10.4
|
)%
|
Total deposits
|
|
|
687,799
|
|
|
|
628,413
|
|
|
|
59,386
|
|
|
|
9.5
|
%
|
Federal Home Loan Bank advances
|
|
|
132,425
|
|
|
|
188,758
|
|
|
|
(56,333
|
)
|
|
|
(29.8
|
)%
|
Accrued expenses and other liabilities
|
|
|
2,076
|
|
|
|
3,270
|
|
|
|
(1,194
|
)
|
|
|
(36.5
|
)%
|
Total liabilities
|
|
|
822,300
|
|
|
|
820,441
|
|
|
|
1,859
|
|
|
|
0.2
|
%
|
Total stockholders’ equity
|
|
|
90,283
|
|
|
|
87,018
|
|
|
|
3,265
|
|
|
|
3.8
|
%
|
Total liabilities and stockholders’ equity
|
|
$
|
912,583
|
|
|
$
|
907,459
|
|
|
$
|
5,124
|
|
|
|
0.6
|
%
|
Cash and Cash Equivalents
Cash and cash equivalents decreased $25.7
million to $34.2 million at June 30, 2017 from $59.9 million at December 31, 2016. The Bank has increased contingent liquidity
capacity and sources to meet potential funding requirements, including availability from the FHLB, the Federal Reserve Bank of
Atlanta and other private institutional sources to fund the origination of loans, fund other interest-earning assets, and pay-off
liabilities.
Investment Securities
Investment securities are comprised primarily
of debt securities of U.S. government-sponsored enterprises and mortgage-backed securities. The investment portfolio decreased
$24.5 million to $40.8 million at June 30, 2017, from $65.3 million at December 31, 2016, primarily due to the maturity of $75.0
million of short-term U.S. Treasury Bills and the sale of $5.0 million of corporate debt during the first half of 2017, partially
offset by the purchase of $57.0 million of short-term U.S. Treasury Bills during the first half of 2017.
All of the $40.8 million and $65.3 million
as of June 30, 2017 and December 31, 2016, respectively, of investment securities were classified as available-for-sale.
As of June 30, 2017, $28.6 million, or
70.3%, of the debt securities held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Fannie
Mae and Freddie Mac, which are institutions the U.S. government has affirmed its commitment to support.
As of June 30, 2017, no investment securities
were pledged as collateral for the FHLB advances or any other borrowings.
Portfolio Loans
Below is a comparative composition of net
portfolio loans as of June 30, 2017 and December 31, 2016, excluding loans held-for-sale and warehouse lines of credit secured
by one- to four-family residential loans originated by third party originators under purchase and assumption agreements (warehouse
loans held-for-investment):
|
|
June 30,
2017
|
|
|
% of Total
Portfolio Loans
|
|
|
December 31,
2016
|
|
|
% of Total
Portfolio Loans
|
|
|
|
(Dollars in Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
285,220
|
|
|
|
39.9
|
%
|
|
$
|
276,193
|
|
|
|
43.1
|
%
|
Multi-family
|
|
|
73,166
|
|
|
|
10.2
|
%
|
|
|
70,452
|
|
|
|
11.0
|
%
|
Commercial
|
|
|
184,192
|
|
|
|
25.7
|
%
|
|
|
104,143
|
|
|
|
16.3
|
%
|
Land
|
|
|
16,733
|
|
|
|
2.3
|
%
|
|
|
17,218
|
|
|
|
2.7
|
%
|
Total real estate loans
|
|
|
559,311
|
|
|
|
78.1
|
%
|
|
|
468,006
|
|
|
|
73.1
|
%
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
15,206
|
|
|
|
2.1
|
%
|
|
|
22,687
|
|
|
|
3.5
|
%
|
Commercial
|
|
|
13,788
|
|
|
|
2.0
|
%
|
|
|
14,432
|
|
|
|
2.3
|
%
|
Acquisition and development
|
|
|
–
|
|
|
|
−
|
%
|
|
|
–
|
|
|
|
−
|
%
|
Total real estate construction loans
|
|
|
28,994
|
|
|
|
4.1
|
%
|
|
|
37,119
|
|
|
|
5.8
|
%
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
36,280
|
|
|
|
5.0
|
%
|
|
|
37,748
|
|
|
|
5.9
|
%
|
Consumer
|
|
|
37,074
|
|
|
|
5.2
|
%
|
|
|
39,232
|
|
|
|
6.1
|
%
|
Commercial
|
|
|
54,207
|
|
|
|
7.6
|
%
|
|
|
57,947
|
|
|
|
9.1
|
%
|
Total other portfolio loans
|
|
|
127,561
|
|
|
|
17.8
|
%
|
|
|
134,927
|
|
|
|
21.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
|
715,866
|
|
|
|
100.0
|
%
|
|
|
640,052
|
|
|
|
100.0
|
%
|
Allowance for portfolio loan losses
|
|
|
(8,220
|
)
|
|
|
|
|
|
|
(8,162
|
)
|
|
|
|
|
Net deferred portfolio loan costs
|
|
|
5,606
|
|
|
|
|
|
|
|
5,685
|
|
|
|
|
|
Premiums and discounts on purchased loans, net
|
|
|
1,118
|
|
|
|
|
|
|
|
1,670
|
|
|
|
|
|
Portfolio loans, net
|
|
$
|
714,370
|
|
|
|
|
|
|
$
|
639,245
|
|
|
|
|
|
Total portfolio loans increased $75.8 million,
or 11.8%, to $715.9 million at June 30, 2017, as compared to $640.1 million at December 31, 2016, primarily due to originations
of $71.9 million of commercial real estate loans and $10.7 million of multi-family loans, as well as the purchase of $18.3 million
of portfolio loans, partially offset by principal amortization and increased prepayments of one- to four-family residential mortgages
and home equity loans during the six months ended June 30, 2017. The increase in prepayments on one- to four-family residential
mortgages is consistent with the current low interest rate environment.
Total portfolio loan growth was also partially
offset by gross loan charge-offs of $0.5 million during the first half of 2017; however, the Company did not have any transfers
to OREO of nonperforming loans during the first half of 2017.
All portfolio loans originated to small
businesses, including Small Business Administration (SBA) and U.S. Department of Agriculture (USDA) loans originated internally
and held-for-sale (SBA/USDA loans held-for-sale), are included in the commercial category of either the Company’s real estate
loans, real estate construction loans or other portfolio loans. The Company sells the guaranteed portion of SBA/USDA loans held-for-sale
upon completion of loan funding and approval by the SBA or USDA, as applicable. The unguaranteed portion of SBA/USDA loans held-for-sale,
which remains in the commercial category of the Company’s real estate construction loans or other portfolio loans, was $17.0
million and $10.7 million at June 30, 2017 and December 31, 2016, respectively. The Company plans to expand the SBA/USDA loans
held-for-sale business line going forward.
Growth in mortgage origination, the SBA/USDA
portfolio and other commercial business loan production is expected to exceed principal amortization and loan pay-offs in the near
future, but we can give no assurances regarding such growth.
The composition of the Bank’s portfolio
loans is weighted toward one- to four-family residential mortgage loans. As of June 30, 2017, first mortgages (including residential
construction loans) and home equity loans totaled $336.7 million, or 47.0% of total portfolio loans. Approximately $22.3 million,
or 61.5%, of loans recorded as home equity loans and $322.8 million, or 95.9%, of loans collateralized by one- to four-family residential
properties were in a first lien position as of June 30, 2017.
The composition of first mortgages and
home equity loans by state as of June 30, 2017 was as follows:
|
|
Florida
|
|
|
Georgia
|
|
|
Other
States
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
One- to four-family residential mortgages
|
|
$
|
214,675
|
|
|
$
|
46,371
|
|
|
$
|
24,174
|
|
|
$
|
285,220
|
|
Home equity and lines of credit
|
|
|
19,467
|
|
|
|
15,914
|
|
|
|
899
|
|
|
|
36,280
|
|
One- to four-family construction loans
|
|
|
14,804
|
|
|
|
402
|
|
|
|
–
|
|
|
|
15,206
|
|
|
|
$
|
248,946
|
|
|
$
|
62,687
|
|
|
$
|
25,073
|
|
|
$
|
336,706
|
|
Allowance for Portfolio Loan Losses
The allowance was $8.2 million, or 1.1%
of total portfolio loans, at June 30, 2017, compared to $8.2 million, or 1.3% of total portfolio loans, at December 31, 2016.
The activity in the allowance for the six
months ended June 30, 2017 and 2016 was as follows:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
8,162
|
|
|
$
|
7,745
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
(58
|
)
|
|
|
(127
|
)
|
Multi-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
Land
|
|
|
–
|
|
|
|
–
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
(116
|
)
|
|
|
(136
|
)
|
Consumer
|
|
|
(226
|
)
|
|
|
(337
|
)
|
Commercial
|
|
|
(119
|
)
|
|
|
–
|
|
Total charge-offs
|
|
|
(519
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
117
|
|
|
|
353
|
|
Multi-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
Land
|
|
|
3
|
|
|
|
22
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
11
|
|
|
|
11
|
|
Consumer
|
|
|
149
|
|
|
|
150
|
|
Commercial
|
|
|
6
|
|
|
|
–
|
|
Total recoveries
|
|
|
286
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(233
|
)
|
|
|
(64
|
)
|
Provision for portfolio loan losses
|
|
|
291
|
|
|
|
349
|
|
Balance at end of period
|
|
$
|
8,220
|
|
|
$
|
8,030
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average outstanding portfolio loans
|
|
|
0.07
|
%
|
|
|
0.02
|
%
|
The increase in net charge-offs during
the six months ended June 30, 2017 compared to the same period in 2016, were primarily the result of decreased recoveries related
to one- to four-family residential mortgage loans, as well as the charge-off of one commercial loan.
Below is a comparative composition of nonperforming
assets as of June 30, 2017 and December 31, 2016:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(Dollars in Thousands)
|
|
Nonperforming assets:
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
988
|
|
|
$
|
1,533
|
|
Multi-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
2,239
|
|
|
|
2,276
|
|
Land
|
|
|
5,510
|
|
|
|
5,548
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
318
|
|
|
|
58
|
|
Consumer
|
|
|
138
|
|
|
|
237
|
|
Commercial
|
|
|
637
|
|
|
|
502
|
|
Total nonperforming loans
|
|
|
9,830
|
|
|
|
10,154
|
|
Other real estate owned
|
|
|
242
|
|
|
|
2,886
|
|
Total nonperforming assets
|
|
$
|
10,072
|
|
|
$
|
13,040
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans to total portfolio loans
|
|
|
1.4
|
%
|
|
|
1.6
|
%
|
Nonperforming assets to total assets
|
|
|
1.1
|
%
|
|
|
1.4
|
%
|
Nonperforming loans were $9.8 million,
or 1.4% of total portfolio loans, at June 30, 2017, as compared to $10.1 million, or 1.6% of total portfolio loans, at December
31, 2016. The decrease in nonperforming loans was primarily due to nonperforming one- to four-family residential mortgages being
reclassified to performing, as well as principal reductions and loan pay-offs of other existing nonperforming loans, partially
offset by certain home equity loans and small business loans (included in commercial other portfolio loans) being classified as
nonperforming.
During the past few years, and continuing
into the first half of 2017, the market for disposing of nonperforming assets has become more active. These types of transactions
may result in additional losses over the amounts provided for in the allowance; however, the Company continues to monitor and attempt
to reduce nonperforming assets through the least costly means possible. The allowance is determined by the information available
at the time such determination is made and reflects management’s estimate of loss.
As of June 30, 2017 and December 31, 2016,
all nonperforming loans were classified as nonaccrual and there were no loans 90 days past due and accruing interest.
OREO was $0.2 million at June 30, 2017,
down $2.7 million from $2.9 million at December 31, 2016, as the Company disposed of a $2.6 million foreclosed property, which
resulted in a $0.2 million loss, and had writedowns of OREO of $0.1 million.
Impaired Loans
The following table shows impaired loans
segregated by performing and nonperforming status and the associated allowance as of June 30, 2017 and December 31, 2016:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Balance
|
|
|
Allowance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
611
|
|
|
$
|
218
|
|
Nonperforming
(1)
|
|
|
9,830
|
|
|
|
632
|
|
|
|
10,154
|
|
|
|
260
|
|
Troubled debt restructuring by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing troubled debt restructurings – commercial
|
|
|
1,487
|
|
|
|
7
|
|
|
|
308
|
|
|
|
2
|
|
Performing troubled debt restructurings – residential
|
|
|
23,756
|
|
|
|
2,270
|
|
|
|
26,229
|
|
|
|
2,231
|
|
Total impaired loans
|
|
$
|
35,073
|
|
|
$
|
2,909
|
|
|
$
|
37,302
|
|
|
$
|
2,711
|
|
|
(1)
|
Balances include nonperforming TDRs of $7.9 million as of June 30, 2017 and nonperforming TDRs
of $8.2 million as of December 31, 2016. There were $0.2 million of specific reserves for these nonperforming TDRs as of both June
30, 2017 and December 31, 2016.
|
Impaired loans include large, non-homogeneous
loans where it is probable that the Bank will not receive all principal and interest when contractually due. Impaired loans also
include TDRs, which totaled $33.1 million as of June 30, 2017, as compared to $34.8 million at December 31, 2016. A portfolio loan
that is modified as a TDR with a market rate of interest is classified as an impaired loan and reported as a nonperforming TDR
in the year of restructure and until the loan has performed for 12 months in accordance with the modified terms. At June 30, 2017,
approximately $15.9 million of restructured loans, previously disclosed as being impaired and nonperforming TDRs, have demonstrated
12 months of performance under restructured terms and are reported as performing TDRs in this Report. The Company’s performing
TDRs are still considered impaired.
Other Loans
Other loans was comprised of loans secured
by one- to four-family residential homes originated internally (mortgage loans held-for-sale), SBA/USDA loans held-for-sale and
warehouse loans held-for-investment.
The following table shows other loans,
segregated by held-for-sale and warehouse loans held-for-investment, as of June 30, 2017 and December 31, 2016:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(Dollars in Thousands)
|
|
Other loans:
|
|
|
|
|
|
|
|
|
Held-for-sale
|
|
$
|
6,528
|
|
|
$
|
7,147
|
|
Warehouse loans held-for-investment
|
|
|
67,349
|
|
|
|
80,577
|
|
Total other loans
|
|
$
|
73,877
|
|
|
$
|
87,724
|
|
Other loans decreased $13.8 million, or
15.8%, to $73.9 million at June 30, 2017, as compared to $87.7 million at December 31, 2016, primarily due to a decrease in both
originations of mortgage loans held-for-sale and warehouse loans held-for-investment. The decrease in mortgage loans held-for-sale
and warehouse loans held-for-investment was primarily due to the generally slowing pace of mortgage refinancing nationwide, as
well as the seasonality of mortgage lending, which tends to negatively affect the first half of each year. The aforementioned impact
on mortgage loans held-for-sale was partially offset by our overall balance sheet strategy, which continues to emphasize originating
certain loans, such as mortgages, to be sold, rather than to be held in our portfolio.
The Company internally originated $22.1
million and sold $32.1 million of mortgage loans held-for-sale during the six months ended June 30, 2017. The Company internally
originated $36.0 million and sold $29.9 million of mortgage loans held-for-sale during the six months ended June 30, 2016. The
gain recorded on sales of mortgage loans held-for-sale during the first half of 2017 and 2016 was $1.1 million and $0.5 million,
respectively. During the six months ended June 30, 2017, the Company internally originated $8.4 million and sold $8.0 million of
SBA/USDA loans held-for-sale, compared to originations of $4.7 million and sold of $7.0 million during the six months ended June
30, 2016. The gain recorded on sales and servicing of SBA/USDA loans held-for-sale during both the first half of 2017 and 2016
was $0.8 million. The Bank plans to expand its held-for-sale business lines going forward.
Loans originated and sold under the Company’s
warehouse loans held-for-investment lending program were $557.2 million and $570.4 million, respectively, for the six months ended
June 30, 2017, as compared to originations and sales of $680.6 million and $633.8 million, respectively, for the six months ended
June 30, 2016. Loan sales under the warehouse loans held-for-investment lending program, which are done at par, earned interest
on outstanding balances of $0.9 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively. For the
six months ended June 30, 2017, the weighted average number of days outstanding of warehouse loans held-for-investment was 10 days.
Despite the decrease in production through the first half of 2017, and due to the favorable interest rate environment, we expect
that production of warehouse loans held-for-investment will continue to be a strategic focus of the Bank.
Deferred Income Taxes
As of June 30, 2017 and December 31, 2016,
the Company evaluated the expected realization of its federal and state deferred tax assets. Based on this evaluation it was concluded
that no valuation allowance was required for the federal and state deferred tax assets, with the exception of the remaining deferred
tax asset related to a capital loss carryover, which resulted in a valuation allowance of $27,000 as of both June 30, 2017 and
December 31, 2016.
The future realization of the Company’s
net operating loss carryovers is currently limited to $325,000 per year.
Deposits
Total deposits were $687.8 million at June
30, 2017, an increase of $59.4 million from $628.4 million at December 31, 2016. The increase was comprised of an increase of $84.0
million in non-maturing deposits, partially offset by a decrease of $24.6 million in time deposits.
Non-maturing deposits increased to $474.7
million at June 30, 2017, due to an $11.0 million increase in noninterest-bearing demand deposits, a $16.1 million increase in
interest-bearing demand deposits and a $56.9 million increase in savings and money market deposits. The increase in non-maturing
deposits was due to our continued strategy to grow core deposits, which includes a focus on the development of commercial relationships.
Time deposits decreased to $213.1 million as of June 30, 2017, due to a decrease of $30.0 million in brokered deposits, a decrease
of $2.5 million in non-brokered Internet certificates of deposit and a decrease of $2.4 million in our standard certificates of
deposit, partially offset by an increase of $10.3 million in deposits related to a retail certificates of deposit promotion.
Management believes near
term deposit growth will be moderate with an emphasis on core deposit growth. The Bank expects to continue to supplement its core
deposit growth, if needed, with strategic retail certificates of deposit promotions, certificates of deposit sourced through a
well-known national non-broker Internet deposit program, which has been successfully utilized in the past, brokered deposits or
the creation of new business deposit products. Significant changes in the short-term interest rate environment could affect the
availability of deposits in the markets we serve and, therefore, may cause the Bank to change its strategy.
Federal Home Loan
Bank Advances
As of June 30, 2017 and December 31, 2016,
advances from the FHLB were as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Maturity on January 30, 2017, fixed rate at 0.61%
|
|
$
|
–
|
|
|
$
|
50,000
|
|
Maturity on June 20, 2017, fixed rate 0.73%
|
|
|
–
|
|
|
|
833
|
|
Maturity on June 20, 2017, fixed rate 0.91%
|
|
|
–
|
|
|
|
10,000
|
|
Maturity on June 19, 2018, fixed rate at 1.31%
|
|
|
10,425
|
|
|
|
10,425
|
|
Maturity on June 20, 2019, fixed rate at 1.27%
|
|
|
2,000
|
|
|
|
2,500
|
|
Maturity on May 18, 2020, fixed rate at 1.56%
|
|
|
40,000
|
|
|
|
–
|
|
Maturity on June 8, 2021, fixed rate at 2.59%
|
|
|
20,000
|
|
|
|
20,000
|
|
Maturity on June 8, 2021, fixed rate at 2.58%
|
|
|
15,000
|
|
|
|
15,000
|
|
Maturity on June 8, 2021, fixed rate at 2.58%
|
|
|
15,000
|
|
|
|
15,000
|
|
Daily rate credit, no maturity date, adjustable rate at 1.32% as of June 30, 2017 and at 0.80% as of December 31, 2016
|
|
|
30,000
|
|
|
|
65,000
|
|
Total
|
|
$
|
132,425
|
|
|
$
|
188,758
|
|
The FHLB advances had a weighted-average
maturity of 30 months and a weighted-average rate of 1.87% at June 30, 2017. The Company had $377.4 million in portfolio loans
posted as collateral for these advances as of June 30, 2017.
The Bank’s remaining borrowing capacity
with the FHLB was $145.0 million at June 30, 2017. The FHLB requires that the Bank collateralize the excess of the fair value of
the FHLB advances over the book value with portfolio loans and investment securities. In the event the Bank prepays advances prior
to maturity, it must do so at the fair value of such FHLB advances. As of June 30, 2017, fair value exceeded the book value of
the individual advances by $1.0 million, which was collateralized by portfolio loans (included in the $377.4 million discussed
above). The Bank has the ability to supplement its loan collateral with investment securities as needed to secure the FHLB borrowings
or prepay advances to reduce the amount of collateral required to secure the debt. Unpledged investment securities available for
collateral amounted to $36.8 million as of June 30, 2017.
See “Liquidity” discussion
below in this MD&A for further information regarding the Company’s FHLB advances, as well as information regarding the
Company’s other liquidity sources.
Stockholders’
Equity
Stockholders’ equity increased by
$3.3 million to $90.3 million at June 30, 2017, from $87.0 million at December 31, 2016, primarily due to net income of $2.7 million
and other comprehensive income of $0.6 million for the six months ended June 30, 2017. The other comprehensive income during the
first half of 2017, which reduced the Company’s accumulated other comprehensive loss as of June 30, 2017, was primarily due
to a positive change in the fair value of investment securities as interest rates decreased during the first six months of 2017.
The Company’s equity to assets ratio
increased to 9.9% at June 30, 2017, compared with 9.6% at December 31, 2016. As of June 30, 2017, the Bank’s total risk based
capital to risk-weighted assets ratio was 12.94%, common equity tier 1 capital to risk-weighted assets ratio was 11.83%, tier 1
capital to risk-weighted assets ratio was 11.83% and tier 1 capital to adjusted assets ratio was 10.06%. These ratios as of December
31, 2016 were 14.83%, 13.58%, 13.58% and 9.44%, respectively. The decrease in risk-weighted capital ratios as of June 30, 2017,
compared with those as of December 31, 2016, was primarily due to an increase in risk-weighted assets, due to growth in portfolio
loans and a decrease in cash and cash equivalents and investment securities, as well as an increase in the risk weighting of certain
portfolio loan categories, partially offset by an increase in capital. The Bank’s capital classification under PCA defined
levels as of June 30, 2017 was well-capitalized.
The Company continues to monitor strategies
to preserve capital to support our expected growth, including the continued suspension of cash dividends and its stock repurchase
program. Resumption of these programs is not expected to occur in the near term.
Comparison of Results of Operations
for the Three Months Ended June 30, 2017 and 2016
General
Net income for the three months ended June
30, 2017 and 2016 was $1.2 million and $1.3 million, respectively. The Company’s annualized return on average total assets
ratio and return on average stockholders’ equity ratio were 0.55% and 5.28%, respectively, for the three months ended June
30, 2017, compared with 0.60% and 6.36%, respectively, for the three months ended June 30, 2016. Net income for the three months
ended June 30, 2017, decreased $0.1 million as compared to net income in the same period in 2016, primarily due to a decrease in
noninterest income of $0.6 million, partially offset by an increase in net interest income of $0.3 million, a decrease in noninterest
expense of $0.1 million and a decrease in income tax expense of $0.1 million. Provision expense was virtually unchanged in the
three months ended June 30, 2017, as compared to the three months ended June 30, 2016.
Net interest income increased during the
three months ended June 30, 2017, as compared to the three months ended June 30, 2016, primarily due to the impact of increased
portfolio loans and other loans outstanding, higher interest rates on investment securities, and decreased interest expense for
FHLB advances, partially offset by lower interest rates on portfolio loans, the impact of lower balances in investment securities
and increased interest expense on deposits. Noninterest income decreased during the three months ended June 30, 2017, as compared
to the three months ended June 30, 2016, primarily due to lower gains on the sale of loans held-for-sale associated with the volatility
in USDA lending and the related gains on the sale of USDA loans and lower gains on the sale of portfolio loans, partially offset
by higher gains on the sale of investment securities. Noninterest expense decreased nominally during the three months ended June
30, 2017, as compared to the three months ended June 30, 2016.
Average Balances,
Net Interest Income, Yields Earned and Rates Paid
The following table sets
forth certain information for the three months ended June 30, 2017 and 2016. The average yields and costs are derived by dividing
income or expense by the average balance of assets or liabilities, respectively, for the periods presented.
|
|
Three Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield / Cost
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield / Cost
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(1)
|
|
$
|
754,805
|
|
|
$
|
8,028
|
|
|
|
4.25
|
%
|
|
$
|
725,679
|
|
|
$
|
7,938
|
|
|
|
4.38
|
%
|
Investment securities
(2)
|
|
|
49,188
|
|
|
|
289
|
|
|
|
2.35
|
%
|
|
|
80,259
|
|
|
|
417
|
|
|
|
2.08
|
%
|
Other interest-earning assets
(3)
|
|
|
29,752
|
|
|
|
104
|
|
|
|
1.39
|
%
|
|
|
30,479
|
|
|
|
151
|
|
|
|
1.99
|
%
|
Total interest-earning assets
|
|
|
833,745
|
|
|
|
8,421
|
|
|
|
4.04
|
%
|
|
|
836,417
|
|
|
|
8,506
|
|
|
|
4.07
|
%
|
Noninterest-earning assets
|
|
|
40,656
|
|
|
|
|
|
|
|
|
|
|
|
56,855
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
874,401
|
|
|
|
|
|
|
|
|
|
|
$
|
893,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand accounts
|
|
$
|
125,177
|
|
|
$
|
161
|
|
|
|
0.51
|
%
|
|
$
|
103,082
|
|
|
$
|
112
|
|
|
|
0.44
|
%
|
Savings deposits
|
|
|
60,175
|
|
|
|
18
|
|
|
|
0.12
|
%
|
|
|
58,417
|
|
|
|
15
|
|
|
|
0.10
|
%
|
Money market accounts
|
|
|
201,093
|
|
|
|
445
|
|
|
|
0.88
|
%
|
|
|
119,986
|
|
|
|
187
|
|
|
|
0.62
|
%
|
Time deposits
|
|
|
221,259
|
|
|
|
637
|
|
|
|
1.15
|
%
|
|
|
222,201
|
|
|
|
533
|
|
|
|
0.96
|
%
|
Securities sold under agreements to repurchase
|
|
|
–
|
|
|
|
–
|
|
|
|
−
|
%
|
|
|
–
|
|
|
|
–
|
|
|
|
−
|
%
|
Federal Home Loan Bank advances
|
|
|
106,220
|
|
|
|
509
|
|
|
|
1.92
|
%
|
|
|
249,405
|
|
|
|
1,254
|
|
|
|
2.01
|
%
|
Other borrowings
|
|
|
–
|
|
|
|
–
|
|
|
|
−
|
%
|
|
|
165
|
|
|
|
1
|
|
|
|
1.62
|
%
|
Total interest-bearing liabilities
|
|
|
713,924
|
|
|
|
1,770
|
|
|
|
0.99
|
%
|
|
|
753,256
|
|
|
|
2,102
|
|
|
|
1.12
|
%
|
Noninterest-bearing liabilities
|
|
|
70,241
|
|
|
|
|
|
|
|
|
|
|
|
55,950
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
784,165
|
|
|
|
|
|
|
|
|
|
|
|
809,206
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
90,236
|
|
|
|
|
|
|
|
|
|
|
|
84,066
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
874,401
|
|
|
|
|
|
|
|
|
|
|
$
|
893,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
6,651
|
|
|
|
|
|
|
|
|
|
|
$
|
6,404
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.05
|
%
|
|
|
|
|
|
|
|
|
|
|
2.95
|
%
|
Net interest-earning assets
|
|
$
|
119,821
|
|
|
|
|
|
|
|
|
|
|
$
|
83,161
|
|
|
|
|
|
|
|
|
|
Net interest margin
(4)
|
|
|
|
|
|
|
|
|
|
|
3.19
|
%
|
|
|
|
|
|
|
|
|
|
|
3.06
|
%
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
116.78
|
%
|
|
|
|
|
|
|
|
|
|
|
111.04
|
%
|
|
|
|
|
|
(1)
|
Includes portfolio loans and other loans. Calculated net of deferred loan fees. Nonaccrual loans
included as loans carrying a zero yield.
|
|
(2)
|
Calculated based on carrying value. State and municipal investment securities yields have not been
adjusted to full tax equivalents, as the numbers would not change materially from those presented in the table.
|
|
(3)
|
Includes FHLB stock at cost and term deposits with other financial institutions.
|
|
(4)
|
Net interest income divided by average interest-earning assets.
|
Rate/Volume Analysis
The following table presents
the dollar amount of changes in interest income for major components of interest-earning assets and in interest expense for major
components of interest-bearing liabilities for the three months ended June 30, 2017, as compared to the three months ended June
30, 2016. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable
to (1) changes in volume multiplied by the old interest rate; (2) changes in interest rate multiplied by the old volume; and (3)
changes not solely attributable to interest rate or volume, which have been allocated proportionately to the change due to volume
and the change due to interest rate.
|
|
Increase / (Decrease)
|
|
|
|
|
|
|
Due to
Volume
|
|
|
Due to
Rate
|
|
|
Total
Increase / (Decrease)
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(1)
|
|
$
|
313
|
|
|
$
|
(223
|
)
|
|
$
|
90
|
|
Investment securities
|
|
|
(177
|
)
|
|
|
49
|
|
|
|
(128
|
)
|
Other interest-earning assets
|
|
|
(4
|
)
|
|
|
(43
|
)
|
|
|
(47
|
)
|
Total interest-earning assets
|
|
|
132
|
|
|
|
(217
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand accounts
|
|
|
26
|
|
|
|
23
|
|
|
|
49
|
|
Savings deposits
|
|
|
–
|
|
|
|
3
|
|
|
|
3
|
|
Money market accounts
|
|
|
159
|
|
|
|
99
|
|
|
|
258
|
|
Time deposits
|
|
|
(2
|
)
|
|
|
106
|
|
|
|
104
|
|
Securities sold under agreements to repurchase
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Federal Home Loan Bank advances
|
|
|
(689
|
)
|
|
|
(56
|
)
|
|
|
(745
|
)
|
Other borrowings
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
Total interest-bearing liabilities
|
|
|
(507
|
)
|
|
|
175
|
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
639
|
|
|
$
|
(392
|
)
|
|
$
|
247
|
|
|
(1)
|
Includes portfolio loans and other loans. Calculated net of deferred loan fees. Nonaccrual loans
included as loans carrying a zero yield.
|
Loan growth and the decrease
in wholesale borrowings, partially offset by the decrease in investment securities, have been the primary contributors to the increase
in net interest income in the second quarter of 2017. Decreased loan yields and increased deposit costs, partially offset by lower
borrowing costs resulted in the unfavorable variance due to rate. In general, the prolonged low interest rate environment has resulted
in net interest margin compression broadly for the banking industry, including the Company.
Interest Income
Total interest income
decreased $0.1 million to $8.4 million for the three months ended June 30, 2017, as compared to $8.5 million for the three months
ended June 30, 2016, due to the decrease in loan yields on portfolio loans and lower balances in investment securities, partially
offset by higher balances in portfolio loans and higher interest rates on investment securities. Interest income on loans increased
to $8.0 million for the three months ended June 30, 2017 from $7.9 million for the three months ended June 30, 2016. This increase
was due to an increase in the average balance of loans, which increased $29.1 million to $754.8 million for the three months ended
June 30, 2017 from $725.7 million for the three months ended June 30, 2016, offset by a decrease in average yield on loans of 13
basis points to 4.25% for the three months ended June 30, 2017. This decrease in average yield on loans is due to a strategic shift
to more adjustable rate loans, in order to take advantage of, as well as limit the negative impact of, a potential rising rate
environment.
The average balance of
loans increased due to an increase in the average balance of portfolio loans, partially offset by a decrease in the average balance
of loans held-for-sale and warehouse loans held-for-investment. Despite the increase in originations and purchases of portfolio
loans during the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, interest income decreased
slightly, due to the decrease in yields on such loans. Additionally, fee income was approximately the same during the second quarter
of 2017, as compared to the second quarter of 2016. Originations of loans held-for-sale increased during the three months ended
June 30, 2017, as compared to the three months ended June 30, 2016, resulting in a increase in interest income from such loans.
Originations of warehouse loans held-for-investment and the weighted average number of days outstanding for warehouse loans held-for-investment
both decreased during the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, resulting in a
slight decrease in interest income and fee income. The decrease in originations of warehouse loans held-for-investment is due to
a decrease in home purchase and refinance volume, which resulted in decreased volume with our counterparties.
Interest income earned
on investment securities decreased $0.1 million to $0.3 million for the three months ended June 30, 2017 from $0.4 million for
the three months ended June 30, 2016. This decrease was primarily due to a decrease in the average balance of investment securities
of $31.1 million to $49.2 million during the three months ended June 30, 2017, partially offset by higher interest rates on investment
securities during the same period.
Interest Expense
Interest expense declined
by $0.3 million to $1.8 million for three months ended June 30, 2017 from $2.1 million for the three months ended June 30, 2016,
due to the decrease in interest expense on FHLB advances, partially offset by increased interest expenses on deposits. The increase
in interest expense on deposits in the second quarter of 2017, as compared to the second quarter of 2016, was primarily due to
higher average rates paid on deposits and an increase in the average balance in such deposits. The average cost of deposits, including
noninterest-bearing deposits, increased 14 basis points to 0.75% for the three months ended June 30, 2017, as compared to 0.61%
for the three months ended June 30, 2016. The decrease in interest expense on FHLB advances for the three months ended June 30,
2017, as compared to the three months ended June 30, 2016, was due to a decrease in the average balance of FHLB advances, as well
as lower average rates paid on such advances, resulting from the Bank’s aggressive strategies to manage interest rates.
The Bank’s overall
cost of funds, including noninterest-bearing deposits, was 0.91% for the three months ended June 30, 2017, down from 1.04% for
the three months ended June 30, 2016, primarily due to the lower average balances and interest rates related to FHLB advances and
increased noninterest-bearing deposits, partially offset by an increase in the average rates paid on interest-bearing deposits
and the average balance in such deposits.
Net Interest Income
Net interest income increased
$0.3 million to $6.7 million for the three months ended June 30, 2017, from $6.4 million for the three months ended June 30, 2016,
due to the increase in portfolio loans, higher interest rates on investment securities, and decreased interest expense for FHLB
advances, partially offset by lower interest rates on portfolio loans, the impact of lower balances in investment securities and
an increase in interest expense on deposits.
Our net interest rate
spread, which is the difference between the interest rate earned on interest-earning assets and the interest rate paid on interest-bearing
liabilities, increased 10 basis points to 3.05% for the three months ended June 30, 2017, as compared to 2.95% for the three months
ended June 30, 2016. Our net interest margin, which is net interest income expressed as a percentage of our average interest-earning
assets, increased 13 basis point to 3.19% for the three months ended June 30, 2017, as compared to 3.06% for the three months ended
June 30, 2016. The increase in the net interest rate spread and net interest margin primarily reflected the positive impact on
interest income from increasing balances in portfolio loans and other loans, the positive impact on interest income from higher
interest rates on investment securities, and the positive impact on interest expense from declining high fixed-interest rate debt
balances, partially offset by the negative impact on interest income from declining interest rates on portfolio loans, the negative
impact on interest income from lower balances in investment securities, and the negative impact on interest expense from higher
average rates paid on deposits and an increase in the average balance in such deposits.
Provision for Portfolio Loan Losses
Provision expense was $0.2 million during
each of the three months ended June 30, 2017 and 2016. The low level of provision expense during each of the three months ended
June 30, 2017 and 2016, primarily reflected solid economic conditions in the Company’s markets, which have led to lower levels
of charge-offs in recent years. The Company had net charge-offs of $0.2 million during the three months ended June 30, 2017, representing
0.14% of average portfolio loans, while net recoveries were $0.1 million for the three months ended June 30, 2016, representing
0.03% of average portfolio loans.
Noninterest Income
The components of noninterest income for
the three months ended June 30, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
Increase / (Decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
454
|
|
|
$
|
563
|
|
|
$
|
(109
|
)
|
|
|
(19.4
|
)%
|
Gain on sale of securities available-for-sale
|
|
|
400
|
|
|
|
–
|
|
|
|
400
|
|
|
|
n/a
|
|
Gain on sale of portfolio loans
|
|
|
–
|
|
|
|
218
|
|
|
|
(218
|
)
|
|
|
(100.0
|
)%
|
Gain on sale of loans held-for-sale
|
|
|
391
|
|
|
|
949
|
|
|
|
(558
|
)
|
|
|
(58.8
|
)%
|
Bank owned life insurance earnings
|
|
|
118
|
|
|
|
115
|
|
|
|
3
|
|
|
|
2.6
|
%
|
Interchange fees
|
|
|
339
|
|
|
|
349
|
|
|
|
(10
|
)
|
|
|
(2.9
|
)%
|
Other
|
|
|
217
|
|
|
|
355
|
|
|
|
(138
|
)
|
|
|
(38.9
|
)%
|
|
|
$
|
1,919
|
|
|
$
|
2,549
|
|
|
$
|
(630
|
)
|
|
|
(24.7
|
)%
|
Noninterest income for
the three months ended June 30, 2017 decreased $0.6 million to $1.9 million, as compared to $2.5 million for the three months ended
June 30, 2016. The decrease in noninterest income during the second quarter of 2017, as compared with the same period in 2016,
was primarily due to lower gains on the sale of loans held-for-sale associated with the volatility in USDA lending and the related
gains on the sale of USDA loans, lower gains on the sale of portfolio loans and the gain on the sale of a branch in 2016 (included
in Other in the table above), partially offset by higher gains on the sale of investment securities.
For the three months ended June 30, 2017,
gains on sales of mortgage loans held-for-sale was $474,000, deferred fees on mortgage loans held-for-sale was $121,000, gains
on sales of SBA/USDA loans held-for-sale was $58,000 and net losses recognized for the servicing of SBA/USDA loans held-for-sale
was $20,000. By comparison, for the three months ended June 30, 2016, gains on sales of mortgage loans held-for-sale was $406,000,
deferred fees on mortgage loans held-for-sale was $66,000, gains on sales of SBA/USDA loans held-for-sale was $561,000 and net
gains recognized for the servicing of SBA/USDA loans held-for-sale was $48,000.
The Company expects gains on sales of loans
held-for-sale to contribute significantly towards our noninterest income in the future, as the Company continues to emphasize the
business activity of internally originating mortgage loans to be sold and participation in government programs relating to commercial
business loans originated to be sold.
Noninterest Expense
The components of noninterest expense for
the three months ended June 30, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
Increase / (Decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in Thousands)
|
|
Compensation and benefits
|
|
$
|
3,527
|
|
|
$
|
3,512
|
|
|
$
|
15
|
|
|
|
0.4
|
%
|
Occupancy and equipment
|
|
|
548
|
|
|
|
603
|
|
|
|
(55
|
)
|
|
|
(9.1
|
)%
|
Federal Deposit Insurance Corporation insurance premiums
|
|
|
121
|
|
|
|
166
|
|
|
|
(45
|
)
|
|
|
(27.1
|
)%
|
Foreclosed assets, net
|
|
|
219
|
|
|
|
254
|
|
|
|
(35
|
)
|
|
|
(13.8
|
)%
|
Data processing
|
|
|
582
|
|
|
|
513
|
|
|
|
69
|
|
|
|
13.5
|
%
|
Outside professional services
|
|
|
562
|
|
|
|
539
|
|
|
|
23
|
|
|
|
4.3
|
%
|
Collection expense and repossessed asset losses
|
|
|
95
|
|
|
|
117
|
|
|
|
(22
|
)
|
|
|
(18.8
|
)%
|
Other
|
|
|
842
|
|
|
|
926
|
|
|
|
(84
|
)
|
|
|
(9.1
|
)%
|
|
|
$
|
6,496
|
|
|
$
|
6,630
|
|
|
$
|
(134
|
)
|
|
|
(2.0
|
)%
|
Noninterest expense decreased
$0.1 million to $6.5 million for the three months ended June 30, 2017, from $6.6 million for the three months ended June 30, 2016.
With the Company’s strengthened capital
and asset quality positions, management expects to maintain its lower levels of risk-related operating expenses, including regulatory
assessments, FDIC insurance costs and director & officer insurance costs, as well as to continue operating with lower levels
of foreclosed asset and collection expenses.
Income
Tax
The Company recorded $0.7 million and $0.8
million in income tax expense for the three months ended June 30, 2017 and 2016, respectively. The Company’s effective tax
rate was 36.7% and 37.1% for the second quarter of 2017 and 2016, respectively. This decrease was primarily due to decreased pretax
earnings during the three months ended June 30, 2017, as compared with the same period in 2016, while permanent differences remained
stable. The future realization of the Company’s net operating loss carryovers is currently limited to $325,000 per year.
Income taxes are discussed in further detail in
Note 11. Income Taxes
of the Notes contained in this Report.
Comparison of Results of Operations
for the Six Months Ended June 30, 2017 and 2016
General
Net income for the six months ended June
30, 2017 and 2016 was $2.7 million and $2.9 million, respectively. The Company’s annualized return on average total assets
ratio and return on average stockholders’ equity ratio were 0.62% and 5.98%, respectively, for the six months ended June
30, 2017, compared with 0.65% and 6.86 respectively, for the six months ended June 30, 2016. Net income for the six months ended
June 30, 2017, decreased $0.2 million as compared to net income in the same period in 2016, primarily due to a decrease in noninterest
income of $0.6 million and an increase in noninterest expense of $0.3 million, partially offset by an increase in net interest
income of $0.5 million and a decrease in income tax expense of $0.2 million. Provision expense was virtually unchanged in the six
months ended June 30, 2017, as compared to the six months ended June 30, 2016.
Net interest income increased during the
six months ended June 30, 2017, as compared to the six months ended June 30, 2016, primarily due to the impact of increased portfolio
loans and other loans outstanding, higher interest rates on investment securities, and decreased interest expense for FHLB advances,
partially offset by lower interest rates on portfolio loans, the impact of lower balances in investment securities and increased
interest expense on deposits. Noninterest income decreased during the six months ended June 30, 2017, as compared to the six months
ended June 30, 2016, primarily due to lower gains on the sale of investment securities, lower gains on the sale of portfolio loans
and reduced service charges and fees, partially offset by higher gains on the sale of loans held-for-sale. Noninterest expense
increased during the six months ended June 30, 2017, as compared to the three months ended June 30, 2016, primarily due to increased
data processing expenses, as well as increased interchange expense and other miscellaneous operating expenses.
Average Balances,
Net Interest Income, Yields Earned and Rates Paid
The following table sets
forth certain information for the six months ended June 30, 2017 and 2016. The average yields and costs are derived by dividing
income or expense by the average balance of assets or liabilities, respectively, for the periods presented.
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield / Cost
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Yield / Cost
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(1)
|
|
$
|
728,122
|
|
|
$
|
15,497
|
|
|
|
4.26
|
%
|
|
$
|
698,985
|
|
|
$
|
15,438
|
|
|
|
4.42
|
%
|
Investment securities
(2)
|
|
|
47,859
|
|
|
|
571
|
|
|
|
2.38
|
%
|
|
|
91,774
|
|
|
|
943
|
|
|
|
2.06
|
%
|
Other interest-earning assets
(3)
|
|
|
39,298
|
|
|
|
241
|
|
|
|
1.23
|
%
|
|
|
34,182
|
|
|
|
321
|
|
|
|
1.88
|
%
|
Total interest-earning assets
|
|
|
815,279
|
|
|
|
16,309
|
|
|
|
4.00
|
%
|
|
|
824,941
|
|
|
|
16,702
|
|
|
|
4.05
|
%
|
Noninterest-earning assets
|
|
|
41,880
|
|
|
|
|
|
|
|
|
|
|
|
51,817
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
857,159
|
|
|
|
|
|
|
|
|
|
|
$
|
876,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand accounts
|
|
$
|
120,491
|
|
|
$
|
295
|
|
|
|
0.49
|
%
|
|
$
|
103,766
|
|
|
$
|
226
|
|
|
|
0.44
|
%
|
Savings deposits
|
|
|
59,367
|
|
|
|
35
|
|
|
|
0.12
|
%
|
|
|
59,092
|
|
|
|
29
|
|
|
|
0.10
|
%
|
Money market accounts
|
|
|
188,930
|
|
|
|
787
|
|
|
|
0.83
|
%
|
|
|
115,781
|
|
|
|
343
|
|
|
|
0.59
|
%
|
Time deposits
|
|
|
229,253
|
|
|
|
1,232
|
|
|
|
1.08
|
%
|
|
|
225,255
|
|
|
|
1,046
|
|
|
|
0.93
|
%
|
Securities sold under agreements to repurchase
|
|
|
–
|
|
|
|
–
|
|
|
|
−
|
%
|
|
|
165
|
|
|
|
1
|
|
|
|
1.55
|
%
|
Federal Home Loan Bank advances
|
|
|
101,521
|
|
|
|
937
|
|
|
|
1.85
|
%
|
|
|
234,811
|
|
|
|
2,562
|
|
|
|
2.18
|
%
|
Other borrowings
(4)
|
|
|
1
|
|
|
|
–
|
|
|
|
1.26
|
%
|
|
|
82
|
|
|
|
1
|
|
|
|
1.62
|
%
|
Total interest-bearing liabilities
|
|
|
699,563
|
|
|
|
3,286
|
|
|
|
0.94
|
%
|
|
|
738,952
|
|
|
|
4,208
|
|
|
|
1.14
|
%
|
Noninterest-bearing liabilities
|
|
|
68,375
|
|
|
|
|
|
|
|
|
|
|
|
54,474
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
767,938
|
|
|
|
|
|
|
|
|
|
|
|
793,426
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
89,221
|
|
|
|
|
|
|
|
|
|
|
|
83,332
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
857,159
|
|
|
|
|
|
|
|
|
|
|
$
|
876,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
13,023
|
|
|
|
|
|
|
|
|
|
|
$
|
12,494
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.06
|
%
|
|
|
|
|
|
|
|
|
|
|
2.91
|
%
|
Net interest-earning assets
|
|
$
|
115,716
|
|
|
|
|
|
|
|
|
|
|
$
|
85,989
|
|
|
|
|
|
|
|
|
|
Net interest margin
(5)
|
|
|
|
|
|
|
|
|
|
|
3.19
|
%
|
|
|
|
|
|
|
|
|
|
|
3.03
|
%
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
116.54
|
%
|
|
|
|
|
|
|
|
|
|
|
111.64
|
%
|
|
|
|
|
|
(1)
|
Includes portfolio loans and other loans. Calculated net of deferred loan fees. Nonaccrual loans
included as loans carrying a zero yield.
|
|
(2)
|
Calculated based on carrying value. State and municipal investment securities yields have not been
adjusted to full tax equivalents, as the numbers would not change materially from those presented in the table.
|
|
(3)
|
Includes FHLB stock at cost and term deposits with other financial institutions.
|
|
(4)
|
Interest expense on other borrowings during the six months ended June 30, 2017, was less than $100.
|
|
(5)
|
Net interest income divided by average interest-earning assets.
|
Rate/Volume Analysis
The following table presents
the dollar amount of changes in interest income for major components of interest-earning assets and in interest expense for major
components of interest-bearing liabilities for the six months ended June 30, 2017, as compared to the six months ended June 30,
2016. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable
to (1) changes in volume multiplied by the old interest rate; (2) changes in interest rate multiplied by the old volume; and (3)
changes not solely attributable to interest rate or volume, which have been allocated proportionately to the change due to volume
and the change due to interest rate.
|
|
Increase / (Decrease)
|
|
|
|
|
|
|
Due to
Volume
|
|
|
Due to
Rate
|
|
|
Total
Increase / (Decrease)
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(1)
|
|
$
|
631
|
|
|
$
|
(572
|
)
|
|
$
|
59
|
|
Investment securities
|
|
|
(505
|
)
|
|
|
133
|
|
|
|
(372
|
)
|
Other interest-earning assets
|
|
|
43
|
|
|
|
(123
|
)
|
|
|
(80
|
)
|
Total interest-earning assets
|
|
|
169
|
|
|
|
(562
|
)
|
|
|
(393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand accounts
|
|
|
39
|
|
|
|
30
|
|
|
|
69
|
|
Savings deposits
|
|
|
–
|
|
|
|
6
|
|
|
|
6
|
|
Money market accounts
|
|
|
270
|
|
|
|
174
|
|
|
|
444
|
|
Time deposits
|
|
|
19
|
|
|
|
167
|
|
|
|
186
|
|
Securities sold under agreements to repurchase
|
|
|
(1
|
)
|
|
|
–
|
|
|
|
(1
|
)
|
Federal Home Loan Bank advances
|
|
|
(1,278
|
)
|
|
|
(347
|
)
|
|
|
(1,625
|
)
|
Other borrowings
|
|
|
(1
|
)
|
|
|
–
|
|
|
|
(1
|
)
|
Total interest-bearing liabilities
|
|
|
(952
|
)
|
|
|
30
|
|
|
|
(922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,121
|
|
|
$
|
(592
|
)
|
|
$
|
529
|
|
|
(1)
|
Includes portfolio loans and other loans. Calculated net of deferred loan fees. Nonaccrual loans
included as loans carrying a zero yield.
|
Loan growth and the decrease
in wholesale borrowings, partially offset by the decrease in investment securities, have been the primary contributors to the increase
in net interest income in the first half of 2017. Decreased loan yields and increased deposit costs, partially offset by lower
borrowing costs resulted in the unfavorable variance due to rate. In general, the prolonged low interest rate environment has resulted
in net interest margin compression broadly for the banking industry, including the Company.
Interest Income
Total interest income
decreased $0.4 million to $16.3 million for the six months ended June 30, 2017, as compared to $16.7 million for the six months
ended June 30, 2016, due to the decrease in loan yields on portfolio loans and lower balances in investment securities, partially
offset by higher balances in portfolio loans and higher interest rates on investment securities. Interest income on loans increased
to $15.5 million for the six months ended June 30, 2017 from $15.4 million for the six months ended June 30, 2016. This increase
was due to an increase in the average balance of loans, which increased $29.1 million to $728.1 million for the six months ended
June 30, 2017 from $699.0 million for the six months ended June 30, 2016, offset by a decrease in average yield on loans of 16
basis points to 4.26% for the six months ended June 30, 2017. This decrease in average yield on loans is due to a strategic shift
to more adjustable rate loans, in order to take advantage of, as well as limit the negative impact of, a potential rising rate
environment.
The average balance of
loans increased due to an increase in the average balance of portfolio loans, partially offset by a decrease in the average balance
of loans held-for-sale and warehouse loans held-for-investment. Despite the increase in originations and purchases of portfolio
loans during the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, interest income decreased slightly,
due to the decrease in yields on such loans. Additionally, fee income was approximately the same during the first half of 2017,
as compared to the first half of 2016. Originations of loans held-for-sale increased during the six months ended June 30, 2017,
as compared to the six months ended June 30, 2016, resulting in a increase in interest income from such loans. Originations of
warehouse loans held-for-investment and the weighted average number of days outstanding for warehouse loans held-for-investment
both decreased during the six months ended June 30, 2017, as compared to the three months ended June 30, 2016, resulting in a slight
decrease in interest income and fee income. The decrease in originations of warehouse loans held-for-investment is due to a decrease
in home purchase and refinance volume, which resulted in decreased volume with our counterparties.
Interest income earned
on investment securities decreased $0.4 million to $0.6 million for the six months ended June 30, 2017 from $1.0 million for the
six months ended June 30, 2016. This decrease was primarily due to a decrease in the average balance of investment securities of
$43.9 million to $47.9 million during the six months ended June 30, 2017, partially offset by higher interest rates on investment
securities during the same period.
Interest Expense
Interest expense declined
by $0.9 million to $3.3 million for six months ended June 30, 2017 from $4.2 million for the six months ended June 30, 2016, due
to the decrease in interest expense on FHLB advances, partially offset by increased interest expenses on deposits. The increase
in interest expense on deposits in the first half of 2017, as compared to the first half of 2016, was primarily due to higher average
rates paid on deposits and an increase in the average balance in such deposits. The average cost of deposits, including noninterest-bearing
deposits, increased 13 basis points to 0.72% for the six months ended June 30, 2017, as compared to 0.59% for the six months ended
June 30, 2016. The decrease in interest expense on FHLB advances for the six months ended June 30, 2017, as compared to the six
months ended June 30, 2016, was due to a decrease in the average balance of FHLB advances, as well as lower average rates paid
on such advances, resulting from the Bank’s aggressive strategies to manage interest rates.
The Bank’s overall
cost of funds, including noninterest-bearing deposits, was 0.87% for the six months ended June 30, 2017, down from 1.06% for the
six months ended June 30, 2016, primarily due to the lower average balances and interest rates related to FHLB advances and increased
noninterest-bearing deposits, partially offset by an increase in the average rates paid on interest-bearing deposits and the average
balance in such deposits.
Net Interest Income
Net interest income increased
$0.5 million to $13.0 million for the six months ended June 30, 2017, from $12.5 million for the six months ended June 30, 2016,
due to the increase in portfolio loans, higher interest rates on investment securities, and decreased interest expense for FHLB
advances, partially offset by lower interest rates on portfolio loans, the impact of lower balances in investment securities and
an increase in interest expense on deposits.
Our net interest rate
spread, which is the difference between the interest rate earned on interest-earning assets and the interest rate paid on interest-bearing
liabilities, increased 15 basis points to 3.06% for the six months ended June 30, 2017, as compared to 2.91% for the six months
ended June 30, 2016. Our net interest margin, which is net interest income expressed as a percentage of our average interest-earning
assets, increased 16 basis point to 3.19% for the six months ended June 30, 2017, as compared to 3.03% for the six months ended
June 30, 2016. The increase in the net interest rate spread and net interest margin primarily reflected the positive impact on
interest income from increasing balances in portfolio loans and other loans, the positive impact on interest income from higher
interest rates on investment securities, and the positive impact on interest expense from declining high fixed-interest rate debt
balances, partially offset by the negative impact on interest income from declining interest rates on portfolio loans, the negative
impact on interest income from lower balances in investment securities, and the negative impact on interest expense from higher
average rates paid on deposits and an increase in the average balance in such deposits.
Provision for Portfolio Loan Losses
Provision expense was $0.3 million during
each of the six months ended June 30, 2017 and 2016. The low level of provision expense during each of the six months ended June
30, 2017 and 2016, primarily reflected solid economic conditions in the Company’s markets, which have led to lower levels
of charge-offs in recent years. The Company had net charge-offs of $0.2 million during the six months ended June 30, 2017, representing
0.07% of average portfolio loans, while net charge-offs were $0.1 million for the six months ended June 30, 2016, representing
0.02% of average portfolio loans.
Noninterest Income
The components of noninterest income for
the six months ended June 30, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
Increase / (Decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
$
|
888
|
|
|
$
|
1,196
|
|
|
$
|
(308
|
)
|
|
|
(25.8
|
)%
|
Gain on sale of securities available-for-sale
|
|
|
400
|
|
|
|
828
|
|
|
|
(428
|
)
|
|
|
(51.7
|
)%
|
Gain on sale of portfolio loans
|
|
|
–
|
|
|
|
218
|
|
|
|
(218
|
)
|
|
|
(100.0
|
)%
|
Gain on sale of loans held-for-sale
|
|
|
1,933
|
|
|
|
1,363
|
|
|
|
570
|
|
|
|
41.8
|
%
|
Bank owned life insurance earnings
|
|
|
235
|
|
|
|
232
|
|
|
|
3
|
|
|
|
1.3
|
%
|
Interchange fees
|
|
|
668
|
|
|
|
707
|
|
|
|
(39
|
)
|
|
|
(5.5
|
)%
|
Other
|
|
|
356
|
|
|
|
566
|
|
|
|
(210
|
)
|
|
|
(37.1
|
)%
|
|
|
$
|
4,480
|
|
|
$
|
5,110
|
|
|
$
|
(630
|
)
|
|
|
(12.3
|
)%
|
Noninterest income for
the six months ended June 30, 2017 decreased $0.6 million to $4.5 million, as compared to $5.1 million for the six months ended
June 30, 2016. The decrease in noninterest income during the first half of 2017, as compared with the same period in 2016, was
primarily due to lower gains on the sale of investment securities, lower gains on the sale of portfolio loans, reduced service
charges and fees and the gain on the sale of a branch in 2016 (included in Other in the table above), partially offset by higher
gains on the sale of loans held-for-sale.
For the six months ended June 30, 2017,
gains on sales of mortgage loans held-for-sale was $1,338,000 (including a gain of $585,000 on the sale of a group of TDRs that
were transferred into held-for-sale during 2016), deferred fees on mortgage loans held-for-sale was $188,000, gains on sales of
SBA/USDA loans held-for-sale was $492,000 and net gains recognized for the servicing of SBA/USDA loans held-for-sale was $291,000.
By comparison, for the six months ended June 30, 2016, gains on sales of mortgage loans held-for-sale was $672,000, deferred fees
on mortgage loans held-for-sale was $143,000, gains on sales of SBA/USDA loans held-for-sale was $721,000 and net gains recognized
for the servicing of SBA/USDA loans held-for-sale was $112,000.
The Company expects gains on sales of loans
held-for-sale to contribute significantly towards our noninterest income in the future, as the Company continues to emphasize the
business activity of internally originating mortgage loans to be sold and participation in government programs relating to commercial
business loans originated to be sold.
Noninterest Expense
The components of noninterest expense for
the six months ended June 30, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
Increase / (Decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in Thousands)
|
|
Compensation and benefits
|
|
$
|
7,014
|
|
|
$
|
6,970
|
|
|
$
|
44
|
|
|
|
0.6
|
%
|
Occupancy and equipment
|
|
|
1,103
|
|
|
|
1,205
|
|
|
|
(102
|
)
|
|
|
(8.5
|
)%
|
Federal Deposit Insurance Corporation insurance premiums
|
|
|
256
|
|
|
|
338
|
|
|
|
(82
|
)
|
|
|
(24.3
|
)%
|
Foreclosed assets, net
|
|
|
299
|
|
|
|
254
|
|
|
|
45
|
|
|
|
17.7
|
%
|
Data processing
|
|
|
1,193
|
|
|
|
969
|
|
|
|
224
|
|
|
|
23.1
|
%
|
Outside professional services
|
|
|
1,099
|
|
|
|
1,010
|
|
|
|
89
|
|
|
|
8.8
|
%
|
Collection expense and repossessed asset losses
|
|
|
234
|
|
|
|
262
|
|
|
|
(28
|
)
|
|
|
(10.7
|
)%
|
Other
|
|
|
1,848
|
|
|
|
1,700
|
|
|
|
148
|
|
|
|
8.7
|
%
|
|
|
$
|
13,046
|
|
|
$
|
12,708
|
|
|
$
|
338
|
|
|
|
2.7
|
%
|
Noninterest expense increased
$0.3 million to $13.0 million for the six months ended June 30, 2017, from $12.7 million for the six months ended June 30, 2016.
The increase in noninterest expense during the first half of 2017, as compared with the same period in 2016, primarily reflected
increased data processing expenses associated with ongoing efforts to improve the Company's IT infrastructure, as well as increased
interchange expense and other miscellaneous operating expenses.
With the Company’s strengthened capital
and asset quality positions, management expects to maintain its lower levels of risk-related operating expenses, including regulatory
assessments, FDIC insurance costs and director & officer insurance costs, as well as to continue operating with lower levels
of foreclosed asset and collection expenses.
Income
Tax
The Company recorded $1.5 million and $1.7
million in income tax expense for the six months ended June 30, 2017 and 2016, respectively. The Company’s effective tax
rate was 35.9% and 37.1% for the first half of 2017 and 2016, respectively. This decrease was primarily due to decreased pretax
earnings during the six months ended June 30, 2017, as compared with the same period in 2016, as well as the expiration of temporary
differences during 2016, which led to an elevated effective tax rate in the first half of 2016. The future realization of the Company’s
net operating loss carryovers is currently limited to $325,000 per year. Income taxes are discussed in further detail in
Note
11. Income Taxes
of the Notes contained in this Report.
Liquidity
The Company maintains a liquidity position
it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business.
The Company relies on a number of different sources of funds in order to meet its liquidity demands. The Company’s primary
sources of funds are increases in deposit accounts and cash flows from loan payments, sales of residential and SBA/USDA loans in
the secondary market, sales of investment securities, and borrowings. The scheduled amortization of loans and investment securities,
as well as proceeds from borrowings, are generally predictable sources of funds. In addition, warehouse loans held-for-investment
repay rapidly, with an average duration of approximately 10 days during the six months ended June 30, 2017 and with repayments
generally funding advances. Other funding sources, however, such as inflows from new deposits, mortgage and investment securities
prepayments and mortgage loan sales are less predictable and greatly influenced by market interest rates, economic conditions and
competition.
We expect the Company’s primary sources
of funds to continue to be sufficient to meet demands, although we can give no assurances. The Bank has contingent liquidity capacity
available to meet potential funding requirements, including availability from the FHLB, the Federal Reserve Bank of Atlanta and
other institutional sources as discussed below. Management increased, and plans to continue to increase, the Bank’s higher
interest-earning assets, using cash and cash equivalents as the funding source, due to the low interest rate environment on alternative
investment options. Management expects that cash and cash equivalents will continue to be at a lower level throughout the remainder
of 2017.
As of June 30, 2017, the Bank had additional
borrowing capacity of $145.0 million with the FHLB. The Bank’s borrowing capacity with the Federal Reserve Bank of Atlanta,
as of June 30, 2017, included the ability to borrow up to approximately $25.7 million under the Primary Credit program, based solely
on the current amount of loans the Bank has designated for pledging with the Federal Reserve Bank of Atlanta, and $10.0 million
of daylight overdraft capacity. Additionally, as of June 30, 2017, the Bank had liquidity sources through a $10.0 million line
of credit for repurchase and reverse repurchase transactions, as well as one $20.0 million, one $17.0 million, one $10.0 million,
and three $5.0 million lines of credit, all with private financial institutions. As of June 30, 2017, the Bank had no outstanding
borrowings against the Primary Credit program, the daylight overdraft capacity or any of the aforementioned lines of credit with
private financial institutions. Unpledged investment securities were approximately $36.8 million as of June 30, 2017.
The Company utilizes brokered deposits
to meet funding needs at interest rates typically equal to or less than the Bank’s local market rates. As of June 30, 2017,
the Bank had brokered deposits of $82.6 million, and expects it will continue to utilize such deposits, as necessary, to supplement
retail deposit production. Additionally, the Company utilizes a non-brokered Internet certificate of deposit listing service to
meet funding needs at interest rates typically equal to or less than the Bank’s local market rates. As of June 30, 2017,
the Bank had deposits from this service of $6.7 million, and expects it will continue to utilize the program, as necessary, to
supplement retail deposit production.
Threats to our liquidity position and capital
levels include rapid declines in deposit balances due to market volatility caused by major changes in interest rates or negative
public perception about the Bank or the financial services industry in general. In addition, the amount of investment securities
that would otherwise be available to meet liquidity needs is limited due to the collateral requirements of our long-term debt.
Specifically, the Bank’s repurchase agreements, which did not have an outstanding balance at June 30, 2017, have collateral
requirements in excess of the debt. Additionally, the collateral requirements of the FHLB debt are supplemented with investment
securities collateral and the Bank is required to collateralize any prepayment penalty amount using investment securities.
For the first six months of 2017, cash
and cash equivalents decreased $25.7 million to $34.2 million as of June 30, 2017, as compared to $59.9 million as of December
31, 2016, due to the continued deployment of funds, as the Bank remains focused on its strategy to increase portfolio loans and
other higher yielding assets. For the first six months of 2017, cash used in investing activities of $43.4 million exceeded cash
provided by operating activities of $14.7 million and financing activities of $3.0 million. Primary sources of cash flows included
proceeds from repayment of warehouse loans held-for-investment of $570.4 million, proceeds from FHLB advances of $295.2 million,
net increases in deposits of $59.4 million, proceeds from sales of loans held-for-sale of $43.8 million, proceeds from the maturities
and payments of investment securities of $77.5 million and proceeds from the redemption of FHLB stock of $13.8 million. Primary
uses of cash flows included funding of warehouse loans held-for-investment of $557.2 million, the repayment of FHLB advances of
$351.5 million, net increases in portfolio loans of $68.6 million (excluding the purchase of such loans), the purchase of investment
securities of $57.1 million, originations of loans held-for-sale of $30.4 million, the purchase of portfolio loans of $18.3 million
and the purchase of FHLB stock of $11.4 million.
For the first six months of 2016, cash
used in investing activities of $72.6 million exceeded cash provided by financing activities of $70.7 million and operating activities
of $1.8 million. Primary sources of cash flows included proceeds from repayment of warehouse loans held-for-investment of $633.8
million, proceeds from FHLB advances of $604.5 million, proceeds from the sale of investment securities of $41.9 million, proceeds
from sales of loans held-for-sale of $38.3 million, net increases in deposits of $28.1 million and proceeds from the sale of portfolio
loans of $10.4 million. Primary uses of cash flows included funding of warehouse loans held-for-investment of $680.6 million, the
repayment of FHLB advances of $551.8 million, net increases in portfolio loans of $57.1 million (excluding the purchase of such
loans), originations of loans held-for-sale of $40.7 million, the net cash paid related to the sale of a branch of 13.3 million
and the repayment of repurchase agreements of $10.0 million.