The management of Atlantic Coast Financial
Corporation (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s
internal control over financial reporting is designed to provide reasonable assurance, based on an appropriate cost-benefit analysis,
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those
policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and
that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors
of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, with the participation of our Chief
Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in
Internal Control – Integrated Framework (2013)
. Based on management’s
assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting
as of December 31, 2017.
The Company’s independent registered
certified public accounting firm, Dixon Hughes Goodman LLP, has issued a report on the effectiveness of the Company’s internal
control over financial reporting. This report appears on page 85 of this Annual Report on Form 10-K.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Financial Statement Presentation
The accompanying consolidated financial statements
(the Financial Statements) and these notes to consolidated financial statements (these Notes) include Atlantic Coast Financial
Corporation (the Company), a Maryland corporation, and its wholly owned subsidiary, Atlantic Coast Bank (the Bank). The Company
is 100% owned by public stockholders and the Bank is 100% owned by the Company. The principal activity of the Company is the ownership
of the Bank’s common stock, as such, the terms “Company” and “Bank” are used interchangeably throughout
these Notes.
All significant inter-company balances and
transactions have been eliminated in consolidation. The consolidated balance sheets as of December 31, 2017 and 2016, and the consolidated
financial statements for the years ended December 31, 2017, 2016 and 2015 have been prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP). In the opinion of management, all adjustments (all of which are
normal and recurring in nature) considered necessary (i) for a fair presentation and (ii) to make such statements not misleading,
have been included.
Nature of Operations
The Bank provides a broad range of banking
services to individual and business customers primarily in Northeast Florida, Central Florida and Southeast Georgia. The Bank’s
primary deposit products are noninterest-bearing and interest-bearing demand, savings and money market, and time deposit accounts,
and its primary lending products are commercial real estate loans, consumer loans, residential mortgages and home equity loans.
Substantially all loans are secured by specific items of collateral, including business assets, consumer assets, and commercial
and residential real estate. There are no significant concentrations of loans to any one industry or customer. However, any customers'
ability to repay their loans is dependent on the real estate and general economic conditions in the area.
Operating Segments
The chief decision-makers monitor operating
results and make resource allocation decisions on a company-wide basis. Accordingly, the Company does not have multiple operating
segments.
Reclassifications
Certain items in the prior period financial
statements have been reclassified to conform to the current period presentation. The reclassifications had no effect on net income,
retained deficit or stockholders’ equity as previously reported.
Use of Estimates
The preparation of the Financial Statements
in conformity with U.S. GAAP requires management to make estimates and assumptions based on experience and available information
that affect the amounts reported in the Financial Statements and these Notes, and actual results could differ materially from these
estimates. Estimates associated with the allowance for portfolio loan losses (the allowance), measuring for impairment of troubled
debt restructurings (TDR), the fair values of securities, other financial instruments and other real estate owned (OREO) and the
realization of deferred tax assets are particularly susceptible to material change in the near term.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
Fair Value of Financial Instruments
Fair values of financial instruments are estimated
using relevant market information and other assumptions, as more fully disclosed in
Note 5. Fair Value of Financial Instruments
of these Notes. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit
risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or
in market conditions could significantly affect the estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash
and cash equivalents is defined to include cash on hand, deposits with other financial institutions with maturities less than 90
days and short-term interest-earning deposits in investment companies. The Company reports net cash flows for customer loan transactions
and deposit transactions.
Restrictions on Cash
The Bank was not required to maintain cash on hand or on deposit
with the Federal Reserve Bank of Atlanta as of December 31, 2017 and 2016 to meet regulatory reserve and clearing requirements.
There were no restrictions on cash as of December 31, 2017 and 2016.
Investment Securities
Investment securities are classified as available-for-sale
when they might be sold before maturity and are carried at fair value, with unrealized holding gains and losses reported separately
in other comprehensive income, net of tax. Investment securities are classified as held-to-maturity and carried at amortized cost
when management has the positive intent and ability to hold them to maturity.
The fair values for investment securities are
determined by quoted market prices, if available (Level 1). For securities where quoted market prices are not available, fair values
are calculated based on quoted market prices of similar securities (Level 2). For securities where quoted market prices or quoted
market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators
(Level 3).
Interest income from investment securities
includes amortization of purchase premium or discount. Premiums and discounts on investment securities are amortized on the level-yield
method without anticipating prepayments. Gains and losses on sales of investment securities are recorded on the trade date and
are determined using the specific identification method.
Management evaluates investment securities
for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions
warrant such an evaluation. In determining OTTI, management considers many factors, including: (1) the length of time and the extent
to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether
the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security
or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether other-than-temporary
decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at the
determination date.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
Investment Securities (continued)
When OTTI is determined to have occurred, the amount of the OTTI recognized in earnings depends on whether
the Company intends to sell the security or it is more likely than not that it will be required to sell the security before recovery
of its amortized cost basis, less any current-period credit loss. If the Company intends to sell the security or it is more likely
than not that it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit
loss, the OTTI recognized in earnings is equal to the entire difference between its amortized cost basis and its fair value at
the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that we will be
required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI is separated into
the amount representing the credit loss and the amount related to all other factors. The amount of the total related to the credit
loss is determined based on the present value of cash flows expected to be collected and is recognized as a charge to earnings.
The amount of the OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous
amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment. The Company recorded
no OTTI for the years ended December 31, 2017, 2016 and 2015.
Portfolio Loans
Portfolio loans that management has the intent
and ability to hold for the foreseeable future or until maturity or pay off are reported at the principal balance outstanding,
net of unearned loan fees and costs, premiums on loans purchased, and an allowance for portfolio loan losses. The Bank may also
purchase portfolio loans that conform to our underwriting standards, principally one- to four-family residential mortgages, in
the form of whole loans for interest rate risk management and portfolio diversification and to supplement our organic growth.
Interest income is accrued on the unpaid principal
balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the
level-yield method over the estimated life of the portfolio loan. Interest income includes amortization of purchase premiums or
discounts on portfolio loans purchased. Premiums and discounts are amortized on the level yield-method over the estimated life
of the portfolio loan.
Accrual of interest income on all portfolio
loans is discontinued, and the loan is placed on nonperforming status at the time any such portfolio loan is 90 days delinquent
unless the credit is well secured and in process of collection. Past due status is based on the contractual terms of the portfolio
loan. In all cases, portfolio loans are placed on nonperforming status or charged-off at an earlier date if collection of principal
or interest is considered doubtful.
Portfolio loans for which terms have been
modified to grant a concession to the borrower as a result of the borrower's financial difficulties are considered TDRs. 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. TDRs are measured for impairment based upon the present value of
estimated future cash flows using the loan’s existing rate at inception of the loan or the appraised value of the collateral
if the loan is collateral-dependent. Impairment of homogeneous loans, such as one- to four-family residential loans, that have
been modified as TDRs is calculated in the aggregate based on the present value of estimated future cash flows. Portfolio loans
modified as TDRs with market rates of interest are classified as impaired portfolio loans. Once the TDR loan has performed for
12 months in accordance with the modified terms it is classified as a performing impaired loan.
All interest accrued but not received on portfolio
loans placed on nonperforming status is reversed against interest income. Interest received on such loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return to accrual. Portfolio loans are returned to accrual status when
all the principal or interest amounts contractually due are brought current and future payments are reasonably assured.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
Allowance for Portfolio Loan Losses
An allowance is maintained to reflect probable
incurred losses in the loan portfolio. The allowance is based on ongoing assessments of the estimated losses incurred in the loan
portfolio and is established as these losses are recognized through a provision for portfolio loan losses (provision expense) charged
to earnings. Generally, portfolio loan losses are charged against the allowance when management believes the uncollectibility of
a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
Although the real estate values in our
markets have recovered, as well as the general improvement in the U.S. economy, we believe it is still possible that collateral
for certain nonperforming one- to four-family residential and home equity loans, will not be sufficient to fully repay such loans.
Therefore, the Company charges one- to four-family residential and home equity loans down by the expected loss amount at the time
they become nonperforming, which is generally 90 days past due. This process accelerates the recognition of charge-offs on one-
to four-family residential and home equity loans, but has no impact on the impairment evaluation process.
The reasonableness of the allowance is reviewed
and established by management, within the context of applicable accounting and regulatory guidelines, based upon its evaluation
of then-existing economic and business conditions affecting the Bank’s key lending areas. Senior credit officers monitor
those conditions continuously and reviews are conducted quarterly with the Bank’s senior management and the Board of Directors.
When establishing the allowance, management
categorizes loans into risk categories generally based on the nature of the collateral and basis of repayment. These risk categories
and the relevant risk characteristics are as follows:
Real Estate Loans
|
·
|
One- to four-family residential loans
have historically had less credit risk than other loan types as they tend to be smaller balance loans without concentrations to
a single borrower or group of borrowers. Repayment depends on the individual borrower’s capacity. If the real estate market
deteriorates and the value of residential real estate declines, there is a potential risk of loss if actions such as foreclosure
or short sale become necessary to collect the loan and private mortgage insurance was not purchased. In addition, depending on
the state in which the collateral is located, the risk of loss may increase, due to the time required to complete the foreclosure
process on a property.
|
|
·
|
Multi-family residential real estate loans
generally involve a greater degree of credit risk than residential real estate loans. Multi-family residential real estate loans
involve a greater degree of credit risk as compared to residential real estate loans due to the reliance on the successful operation
of the project. These loans are also more sensitive to adverse economic conditions.
|
|
·
|
Commercial real estate loans generally
have greater credit risk as compared to one- to four-family residential real estate loans, as they usually involve larger loan
balances secured by non-homogeneous or specific use properties. Repayment of these loans typically relies on the continued successful
operation of a business or the generation of lease income by the property and is therefore more sensitive to adverse conditions
in the economy and real estate market.
|
|
·
|
Land
loans generally involve a greater degree of credit risk as compared to residential real estate loans due to the lack of cash flow
and reliance on the borrower’s financial capacity. These loans are also more sensitive to adverse economic conditions.
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
Allowance for Portfolio Loan Losses (continued)
Real Estate Construction Loans
|
·
|
Real estate construction loans, including
one- to four-family, commercial and acquisition and development loans, generally have greater credit risk than traditional one-
to four-family residential and commercial real estate loans. The repayment of these loans can be dependent on the sale of the property
to third parties or the successful completion of the improvements by the builder for the end user. In the event a loan is made
on property that is not yet approved for the planned development, there is risk that approvals will not be granted or will be delayed.
Construction loans also run the risk that improvements will not be completed on time or in accordance with specifications and projected
costs. Construction loans include Small Business Administration (SBA) and U.S. Department of Agriculture (USDA) construction loans,
which generally have less credit risk than traditional construction loans due to a portion of the balance being guaranteed upon
completion of the construction.
|
Other Portfolio Loans
|
·
|
Home equity loans and home equity lines
of credit are similar to one- to four-family residential loans and generally carry less risk than other loan types as they tend
to be smaller balance loans without concentrations to a single borrower or group of borrowers. However, similar to one- to four-family
residential loans, there is a potential risk of loss if the real estate market deteriorates and the value of residential real estate
declines. Such loans may be of increased risk if the lien position on the collateral is secondary.
|
|
·
|
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.
|
Management’s methodology for assessing
the reasonableness of the allowance consists of several key elements, which include a general loss component by type of portfolio
loan and specific allowances for identified problem portfolio loans. The allowance also incorporates the results of measuring impaired
portfolio loans.
The general loss component of the allowance
is calculated by applying loss factors, adjusted for other qualitative factors to outstanding unimpaired loan balances. Loss factors
are based on the Bank’s recent loss experience, including recent short sales and sales of nonperforming loans. The Company
uses a 3-year historical loss lookback period in its allowance model, adjusted for qualitative factors. Qualitative factors consider
current market conditions that may impact real estate values within the Bank’s primary lending areas, and other significant
factors that, in management’s judgment, may affect the ability to collect loans in the portfolio as of the evaluation date.
Other significant qualitative factors that exist as of the balance sheet date that are considered in determining the adequacy of
the allowance include the following: (1) current delinquency levels and trends; (2) nonperforming asset levels, trends, and related
charge-off history; (3) economic trends – local and national; (4) changes in loan policy; (5) expertise of management and
staff of the Bank; (6) volumes and terms of loans; and (7) concentrations of credit considering the impact of recent short sales
and sales of nonperforming loans.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
Allowance for Portfolio Loan Losses (continued)
The specific loss component of the allowance
generally relates to portfolio loans that have been classified as doubtful, substandard, or special mention according to the Company’s
internal asset risk classification system. Substandard portfolio loans include those characterized by the distinct possibility
that the Company may sustain some loss if the deficiencies are not corrected. Portfolio loans classified as doubtful have all the
weaknesses inherent in loans classified as substandard with the added characteristic that the weaknesses present make collection
or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Portfolio
loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories,
but possess weaknesses that deserve management’s close attention, are deemed to be special mention. Risk ratings are updated
any time the facts and circumstances warrant.
For portfolio loans that are also identified
as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired
loan is lower than the carrying value. A portfolio loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of principal or interest according to the contractual
terms of the loan agreement. Factors used by management to determine impairment include payment status, collateral value and the
probability of collecting scheduled principal or interest payments when due. Portfolio loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan, the borrower,
and the amount of the shortfall in relation to the principal or interest owed. TDRs with a borrower for whom the Bank has granted
a concession to the borrower because of the borrower’s financial difficulties are considered impaired portfolio loans. Impairment
is measured on a loan-by-loan basis for non-homogeneous portfolio loans, such as commercial real estate, commercial real estate
construction, and commercial business loans, by either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral
dependent.
Management also evaluates the allowance based
on a review of certain large balance individual loans. This evaluation is inherently subjective as it requires material estimates,
including the amounts and timing of future cash flows management expects to receive on impaired loans, which may be susceptible
to significant change and risks. The determination of the fair value of collateral considers recent trends in valuation as indicated
by short sales and sales of nonperforming portfolio loans of the applicable loan category. No specific allowance is recorded unless
fair value is less than carrying value.
Large groups of smaller balance, homogeneous
portfolio loans, such as individual consumer and residential loans, are collectively evaluated for impairment and are excluded
from the specific impairment evaluation. For these portfolio loans, the allowance is calculated in accordance with the general
loss policy described above. Accordingly, individual consumer and residential loans are not separately identified for impairment
disclosures, unless the loan has been modified as a TDR as discussed below.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
Allowance for Portfolio Loan Losses
(continued)
Portfolio loans are charged off against
the allowance account when the following conditions are present:
Real Estate Loans
|
·
|
One- to four-family residential loans
are charged down by the expected loss amount at the time they become nonperforming, which is generally 90 days past due. Impairment
allowances on nonperforming collateral-dependent loans, particularly one- to four-family residential loans, may not be recoverable
and represent a potential loss, depending on real estate values in our markets and the U.S. economy in general. Therefore, this
process accelerates the recognition of charge-offs, but has no impact on the impairment evaluation procedures. Additional losses,
if any, are charged off against the allowance once a property is foreclosed or a short sale occurs.
|
|
·
|
Multi-family residential real estate loans,
commercial real estate loans, and land loans typically have specific reserves established once a loan is classified as substandard
or impaired unless the collateral is adequate to cover the balance of the loan plus selling costs. Generally, the specific reserve
on a loan will be charged off once the property has been foreclosed and title to the property transferred to the Bank.
|
Real Estate Construction Loans
|
·
|
Real estate construction loans include
one- to four-family, commercial and acquisition and development loans. These loans typically have specific reserves established
once a loan is classified as substandard or impaired unless the collateral is adequate to cover the balance of the loan plus selling
costs. Generally, the specific reserve on a loan will be charged off once the property has been foreclosed and title to the property
transferred to the Bank.
|
Other Portfolio Loans
|
·
|
First lien position home equity loans
are charged down by the expected loss amount at the time they become nonperforming, which is generally 90 days past due. In the
case of second lien position loans, the entire loan balance is charged off at 90 days past due. Impairment allowances on nonperforming
collateral-dependent loans, particularly one- to four-family residential loans, may not be recoverable and represent a potential
loss, depending on real estate values in our markets and the U.S. economy in general. Therefore, this process accelerates the recognition
of charge-offs, but has no impact on the impairment evaluation procedures. Additional losses, if any, are charged off against the
allowance once a property is foreclosed or a short sale occurs.
|
|
·
|
Consumer loans, including auto, manufactured
housing, unsecured, and other secured loans, are charged-off, net of expected recovery, when the loan becomes significantly past
due over a range of up to 180 days, depending on the type of loan. Loans with non-real estate collateral are written down to the
value of the collateral, less cost to sell, when repossession of collateral has occurred.
|
|
·
|
Commercial loans secured by business assets,
including inventory and receivables, will typically have specific reserves established once a loan is classified as substandard
or impaired. The specific reserve will be charged off once the outcomes of attempts to legally collect the collateral are known
and have been exhausted.
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ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
Other Loans (Loans Held-for-Sale and Warehouse
Loans Held-for-Investment)
Other loans are comprised of loans secured
by one- to four-family residential homes originated internally and held-for-sale (mortgage loans held-for-sale), small business
loans originated internally and held-for-sale (SBA/USDA loans held-for-sale), and warehouse lines of credit secured by one- to
four-family residential loans originated by third party originators under purchase and assumption agreements (warehouse loans held-for-investment).
The Company originates mortgage loans held-for-sale with the intent
to sell the loans and the servicing rights to investors. Mortgage loans held-for-sale are carried at the lower of cost or market
in the aggregate with adjustments for unrealized losses recorded in a valuation account by a charge against current earnings. Sales
in the secondary market are recognized when full acceptance has been received.
The Company originates SBA/USDA loans held-for-sale
through the 7(a) Program of the SBA, the 504 Program of the SBA and the B&I Program of the USDA. SBA/USDA loans held-for-sale
are carried at the lower of cost or market in the aggregate with adjustments for unrealized losses recorded in a valuation account
by a charge against current earnings.
The SBA 7(a) loans are guaranteed by the SBA
up to 75% of the loan amount up to a maximum guaranty cap of $3,750,000. The Bank typically, but not always, sells the guaranteed
portion of the SBA 7(a) loans into the secondary market at a premium. The Bank earns a 1% servicing fee on the amount sold. These
loans are non-recourse, other than for proof of fraud or misrepresentation on the part of the lender. The Bank generally retains
the unguaranteed portion of SBA 7(a) loans. In the 504 program, the Bank and the SBA are in different lien positions. The typical
structure of an SBA 504 loan is that the Bank is in a first lien position at a 50% loan-to-value (LTV), and the SBA is in a second
lien position at a 40% LTV. The remaining 10% is an equity investment from the borrower. USDA Business & Industry (B&I)
loans are guaranteed on a scaled basis from 60% to 80% based on the size of the originated loan. The Bank typically, but not always,
sells the guaranteed portion of the B&I loans on the secondary market at a premium. The Bank retains servicing for the B&I
loan, but only earns a servicing fee on the portion that is sold. The servicing fees are determined by the secondary market, and
range from 0.25% to 1%. These loans are non-recourse, other than for proof of fraud or misrepresentation on the part of the lender.
The Bank generally retains the unguaranteed portion of the USDA B&I loans.
Servicing assets are initially recognized at
fair value. For subsequent measurement of servicing rights, the Company elected the amortization method. Under the amortization
method, servicing assets are amortized in proportion to, and over the period of, estimated servicing income, and assessed for impairment
based on fair value at each reporting period.
The Company originates warehouse loans held-for-investment
and permits the third-party originator to sell the loans and servicing rights to investors in order to repay the warehouse balance
outstanding. Warehouse loans held-for-investment possess less risk than other types of loans as they are secured by one- to four-family
residential loans, which tend to be smaller balance loans without concentrations to a single borrower or group of borrowers. Additionally,
due to the generally short duration of time the Company holds these loans, the collateral arrangements related to the loans, and
other factors, management has determined that no allowance for loan losses is necessary.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet
credit instruments, including commitments to make loans and unused lines of credit, issued to meet customers' financing needs.
The face amount for these items represents the exposure to loss, before considering collateral or ability to repay. Such financial
instruments are recorded when they are funded.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
Concentration of Credit Risk
A majority of the Company’s business
activity is with customers located in Northeast Florida, Central Florida and Southeast Georgia. Additionally, an estimated 76%
of the Company’s portfolio loans were originated in Northeast Florida, Central Florida and Southeast Georgia. Therefore,
the Company’s exposure to credit risk is significantly affected by changes in the economy and real estate markets in Northeast
Florida, Central Florida and Southeast Georgia.
The Company’s exposure to credit risk
is also affected by changes in the economy and real estate markets in New York, as an estimated 8% of the Company’s portfolio
loans were originated with borrowers in New York.
Federal Home Loan Bank Stock
The Bank is a member of the Federal Home Loan
Bank (the FHLB) of Atlanta. Members are required to own a certain amount of FHLB stock based on the level of borrowings and other
factors, and may invest in additional amounts. FHLB stock has no quoted market value, is carried at cost, classified as a restricted
security, and periodically evaluated for impairment based on ultimate recovery of cost. Both cash and stock dividends issued by
the FHLB are reported as income.
Land, Premises, and Equipment
Land is carried at cost. Buildings and furniture,
fixtures and equipment are carried at cost, less accumulated depreciation and amortization. Premises and equipment are depreciated
using the straight-line and accelerated methods over the estimated useful lives of the assets. Buildings and related components
have useful lives ranging from 15 to 39 years. Furniture, fixtures, and equipment have useful lives ranging from 1 to 15 years.
Interest expense associated with the construction of new facilities is capitalized at the weighted average cost of funds.
Bank Owned Life Insurance
The Bank has purchased life insurance policies
on certain employees. Bank owned life insurance (BOLI) is recorded at the amount that can be realized under the insurance contract
at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable
at settlement. The Bank is subject to a policy that restricts financial institutions from investing more than 25% of total capital
in BOLI without first obtaining approval from its Board of Directors. The Bank was in compliance with this policy as of December
31, 2017.
Other Real Estate Owned and Foreclosed Assets
Assets acquired through or in lieu of loan
foreclosure are initially recorded at fair value, at the date of foreclosure, based on an independent appraisal, less estimated
selling costs establishing a new cost basis. If fair value declines subsequent to foreclosure, the asset value is written down
through expense. Costs relating to improvement of property are capitalized, whereas costs relating to holding of the property are
expensed.
Long-Term Assets
Premises and equipment, non-maturity deposits
and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount
may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
Transfers of Financial Assets
Transfers of financial assets are accounted
for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when
(1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it
from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them before their maturity.
Loss Contingencies
Loss contingencies, including claims and legal
actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and amount
or range of loss can be reasonably estimated. Management does not believe there are currently any such matters that will have a
material effect on the Financial Statements.
Income Taxes
Income tax expense is the total of the
current year income tax due or refundable and the change in deferred tax assets and liabilities. The Company files consolidated
income tax returns and allocates tax liabilities and benefits among subsidiaries pursuant to a tax sharing agreement. Deferred
tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases
of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the
amount expected to be realized. In December 2017, a law was enacted which changed the corporate federal income tax rate from 34%
to 21%, beginning January 1, 2018. Accordingly, the Company’s deferred tax assets and liabilities were revalued at December
31, 2017 using the 21% corporate federal income tax rate resulting in a $1.6 million increase in tax expense in 2017.
A tax position is recognized as a benefit only
if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed
to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely to be realized on examination.
For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.
The Company recognizes interest expense and
penalties related to income tax matters, if any, in income tax expense. Income tax returns for 2014, 2015, and 2016 are still open
to examination by the Internal Revenue Service.
Earnings Per Common Share
Basic earnings per common share is computed
by dividing net income by the basic weighted average number of common shares and common stock equivalents outstanding for the period.
The basic weighted average common shares and common stock equivalents are computed using the treasury stock method. The basic weighted
average common shares and common stock equivalents outstanding for the period are adjusted for average unallocated employee stock
ownership plan (ESOP) shares, average director’s deferred compensation shares and average unearned restricted stock awards.
Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and common
stock equivalents outstanding for the period increased for the dilutive effect of unvested stock options and stock awards. The
dilutive effect of the unvested stock options and stock awards is calculated under the treasury stock method utilizing the average
market value of the Company’s stock for the period.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
Dividends
Banking regulations require the Company and
the Bank to maintain certain capital levels and may limit the dividends paid by the Bank to the Company or by the Company to stockholders.
Comprehensive Income
Comprehensive income consists of net income
and other comprehensive income (or loss). Other comprehensive income (or loss) includes the net change in unrealized appreciation
and depreciation on investment securities available-for-sale, net of taxes, which are recognized as separate components of equity,
and the amount of the total OTTI related to factors other than credit loss, net of taxes, which are recognized as separate components
of equity.
Accumulated other comprehensive income consists solely of the effects of unrealized gains and losses on
securities available-for-sale, net of income taxes, which include a disproportionate tax effect of $0.7 million at both December
31, 2017 and 2016. This disproportionate tax effect
,
for both years, is a result of the reversal of the deferred tax valuation allowance in June 2015.
Benefit Plans
Profit-sharing and 401(k) plan expense is the
amount contributed by the Company as determined by the Board of Directors. Deferred compensation plan expense is allocated over
years of service.
Rabbi Trusts
Vested but unpaid benefits for the executive
deferred compensation plan, director retirement plan and the supplemental executive retirement plan for certain executives are
funded with the Company’s own common stock held in rabbi trusts. Unpaid benefits are recorded as contra accounts to stockholders’
equity at cost and are reduced as benefits are paid out by the trustee over the terms defined by the plans.
Employee Stock Ownership Plan
Since the Company sponsors ESOP with an employer
loan, neither the ESOP's loan payable or the Company's loan receivable are reported in the Company's consolidated balance sheet.
Likewise, the Company does not recognize interest income or interest cost on the loan. Unallocated shares held by the ESOP are
recorded as unearned ESOP shares in the consolidated statement of changes in stockholders' equity. As shares are committed to be
released for allocation, the Company recognizes compensation expense equal to the average market price of the shares for the period.
Dividends on allocated ESOP shares reduce retained earnings. Dividends on unearned ESOP shares are used to reduce the ESOP loan
balance at the Company.
Stock-Based Compensation
The Company records compensation cost for restricted
stock or stock options awarded to employees in return for employee service. The cost is measured at the grant-date fair value of
the award and recognized as compensation expense over the employee service period, which is normally the vesting period. A Black-Scholes
model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the
date of grant is used for restricted stock awards.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 2. IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS
Recently Issued Standards Adopted
In February 2018, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02,
Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income
(ASU 2018-02). The guidance permits entities to reclassify stranded
tax effects in accumulated other comprehensive income to retained earnings as a result of the Tax Cuts and Jobs Act enacted
on December 22, 2017. The updated guidance is effective for interim and annual reporting periods beginning after December 15,
2018, with early adoption permitted. The Company adopted ASU 2018-02 for the fourth quarter of 2017, resulting in a $111,000
increase to retained earnings and an offsetting decrease of $111,000 to accumulated other comprehensive income.
In May 2017, the FASB issued 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.
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.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 2. IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS
(continued)
Recently Issued Standards Not Yet Adopted
(continued)
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 held-to-maturity,
rather than reduce the carrying amount under the other-than-temporary impairment (OTTI) model. It also simplifies the accounting
model for purchased credit-impaired investment securities and loans. The guidance in this standard is effective for interim and
annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after
December 15, 2018. The Company is in the process of evaluating the impact of adopting this standard on its financial statements;
however, adoption will result in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is effective.
In 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. Additionally, the adoption is expected to increase
risk-weighted assets, which will impact certain capital ratios.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial
Liabilities
(ASU 2016-01). The amendments in ASU 2016-1: (a) require equity investments (except for those accounted for under
the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes
in fair value recognized in net income; (b) simplify the impairment assessment of equity securities without readily determinable
fair values by requiring a qualitative assessment to identify impairment; (c) eliminate the requirement for public business entities
to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial
instruments measured at amortized cost on the balance sheet; (d) require public business entities to use the exit price notion
when measuring the fair value of financial instruments for disclosure purposes; (e) require an entity to present separately in
other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific
credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial
instruments; (f) require separate presentation of financial assets and financial liabilities by measurement category and form of
financial assets on the balance sheet or the notes to the financial statements; and (g) clarify that an entity should evaluate
the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s
other deferred tax assets. The guidance in this standard is effective for interim and annual periods beginning after December 15,
2017. The Company has evaluated the impact of adopting this standard on its financial statements, and has determined the adoption
will not materially impact the financial statements.
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 it expects to receive in exchange for 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 has evaluated the impact of adopting this standard on its financial statements, and has determined
the adoption will not materially impact the financial statements because the standard does not apply to financial instruments,
which account for the majority of the Company’s revenues.
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 $42.7 million and $25.0 million as of December 31, 2017 and 2016. During the years ended December 31, 2017, 2016
and 2015, the Bank earned $230,000, $573,000 and $226,000, respectively, of interest income related to the Customers Participation
Agreements.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
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.
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 4. FAIR VALUE
(continued)
Assets measured at fair value on a recurring
basis as of December 31, 2017 and 2016 are summarized below:
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
5,526
|
|
|
$
|
–
|
|
|
$
|
5,526
|
|
|
$
|
–
|
|
Mortgage-backed securities – residential
|
|
|
23,528
|
|
|
|
–
|
|
|
|
23,528
|
|
|
|
–
|
|
Collateralized mortgage obligations – U.S. Government
|
|
|
2,301
|
|
|
|
–
|
|
|
|
2,301
|
|
|
|
–
|
|
Corporate Debt
|
|
|
6,328
|
|
|
|
–
|
|
|
|
6,328
|
|
|
|
–
|
|
Total
|
|
$
|
37,683
|
|
|
$
|
–
|
|
|
$
|
37,683
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored enterprises
|
|
$
|
19,997
|
|
|
$
|
–
|
|
|
$
|
19,997
|
|
|
$
|
–
|
|
State and municipal
|
|
|
4,991
|
|
|
|
–
|
|
|
|
4,991
|
|
|
|
–
|
|
Mortgage-backed securities – residential
|
|
|
27,328
|
|
|
|
–
|
|
|
|
27,328
|
|
|
|
–
|
|
Collateralized mortgage obligations – U.S. Government
|
|
|
3,059
|
|
|
|
–
|
|
|
|
3,059
|
|
|
|
–
|
|
Corporate Debt
|
|
|
9,918
|
|
|
|
–
|
|
|
|
9,918
|
|
|
|
–
|
|
Total
|
|
$
|
65,293
|
|
|
$
|
–
|
|
|
$
|
65,293
|
|
|
$
|
–
|
|
The fair values of securities available-for-sale
are determined by quoted market prices, if available (Level 1). For securities available-for-sale where quoted market prices are
not available, fair values are calculated based on quoted market prices of similar securities (Level 2). For securities available-for-sale
where quoted market prices or quoted market prices of similar securities are not available, fair values are calculated using discounted
cash flows or other market indicators (Level 3).
There were no Level 3 investments measured
on a recurring basis as of December 31, 2017 and 2016, and there were no transfers into or out of Level 3 investments during the
years ended December 31, 2017, 2016 and 2015. Discounted cash flows are calculated using spread to swap and LIBOR curves that are
updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is less liquid, broker
quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals
on individual securities are reviewed and incorporated into the calculations.
There were no liabilities measured at fair
value on a recurring basis as of December 31, 2017 and 2016.
Assets measured at fair value on a nonrecurring
basis as of December 31, 2017 and 2016 are summarized below:
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
1,739
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,739
|
|
Impaired loans – collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
6,207
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 4. FAIR VALUE
(continued)
Quantitative information about Level 3 fair
value measurements as of December 31, 2017 and 2016 as follows:
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable Input
|
|
Range (Weighted
Average)
(1)
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
1,739
|
|
|
Broker price opinions, appraisal of collateral
(2), (3)
|
|
Appraisal adjustments
(4)
Liquidation expenses
|
|
0.0% to 60.9% (14.7%)
10.0% (10.0%)
|
Impaired loans – collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
6,207
|
|
|
Appraisal of collateral
(2)
|
|
Appraisal adjustments
(4)
Liquidation expenses
|
|
0.0% to 62.7%
(29.4%)
0.0% to 10.0% (9.4%)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
2,886
|
|
|
Broker price opinions, appraisal of collateral
(2), (3)
|
|
Appraisal adjustments
(4)
Liquidation expenses
|
|
0.0% to 64.0% (8.5%)
10.0% (10.0%)
|
Impaired loans – collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
7,978
|
|
|
Appraisal of collateral
(2)
|
|
Appraisal adjustments
(4)
Liquidation expenses
|
|
0.0% to 83.0%
(24.4%)
0.0% to 10.0% (9.9%)
|
|
(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.
|
The fair value of OREO is determined using
inputs which include current and prior appraisals and estimated costs to sell (Level 3). Costs relating to improvement of property
may be capitalized, whereas costs relating to the holding of property are expensed. Write-downs on OREO for the years ended December
31, 2017, 2016 and 2015 were $84,000, $39,000 and $605,000, respectively. The fair values of impaired loans that are collateral-dependent
are based on a valuation model which incorporates the most current real estate appraisals available, as well as assumptions used
to estimate the fair value of all non-real estate collateral as defined in the Bank’s internal loan policy (Level 3).
There are no liabilities measured at fair value
on a nonrecurring basis as of December 31, 2017 and 2016.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair value of
financial instruments, not previously presented, as of December 31, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Carrying
Amount
|
|
|
Estimated Fair
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
3,432
|
|
|
$
|
3,432
|
|
|
$
|
3,432
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Short-term interest-earning deposits
|
|
|
46,977
|
|
|
|
46,977
|
|
|
|
46,977
|
|
|
|
–
|
|
|
|
–
|
|
Portfolio loans, net
|
|
|
757,506
|
|
|
|
748,594
|
|
|
|
–
|
|
|
|
742,387
|
|
|
|
6,207
|
|
Loans held-for-sale
|
|
|
3,623
|
|
|
|
3,858
|
|
|
|
–
|
|
|
|
3,858
|
|
|
|
–
|
|
Warehouse loans held-for-investment
|
|
|
81,687
|
|
|
|
81,687
|
|
|
|
–
|
|
|
|
81,687
|
|
|
|
–
|
|
Federal Home Loan Bank stock, at cost
|
|
|
9,892
|
|
|
|
9,892
|
|
|
|
–
|
|
|
|
–
|
|
|
|
9,892
|
|
Bank owned life insurance
|
|
|
18,005
|
|
|
|
18,011
|
|
|
|
–
|
|
|
|
18,011
|
|
|
|
–
|
|
Accrued interest receivable
|
|
|
2,267
|
|
|
|
2,267
|
|
|
|
–
|
|
|
|
2,267
|
|
|
|
–
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
675,803
|
|
|
|
676,383
|
|
|
|
–
|
|
|
|
676,383
|
|
|
|
–
|
|
Federal Home Loan Bank advances
|
|
|
213,525
|
|
|
|
213,876
|
|
|
|
–
|
|
|
|
213,876
|
|
|
|
–
|
|
Accrued interest payable (reported on consolidated balance sheets in accrued expenses and other liabilities)
|
|
|
227
|
|
|
|
227
|
|
|
|
–
|
|
|
|
227
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
–
|
|
Carrying amount is the estimated fair value
for cash and cash equivalents, accrued interest, demand and savings deposits and variable rate loans or deposits that re-price
frequently and fully. Fair value of securities held-to-maturity is based on market prices of similar securities. For fixed rate
loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based
on discounted cash flows using current market rates applied to the estimated life without considering the need for adjustments
for market illiquidity or credit risk. Fair value of loans held-for-sale is based on quoted market prices, where available, or
is determined based on discounted cash flows using current market rates applied to the estimated life and credit risk. Carrying
amount is the estimated fair value for warehouse loans held-for-investment, due to the rapid repayment of the loans (generally
less than 30 days). Fair value of BOLI is based on the insurance contract cash surrender value or quoted market prices of the underlying
securities or similar securities. Fair value of the FHLB advances and securities sold under agreements to repurchase (repurchase
agreements) is based on current rates for similar financing. It was not practicable to determine the fair value of the FHLB stock
due to restrictions placed on its transferability. The estimated fair value of other financial instruments and off-balance-sheet
commitments approximate cost and are not considered significant to this presentation.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
(continued)
The Bank is a member of the FHLB and as such,
is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB.
The stock is bought from and sold to the FHLB based upon its $100.00 par value. The stock does not have a readily determinable
fair value and, as such, is classified as restricted stock, carried at cost and evaluated for impairment. Accordingly, the stock’s
value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination
of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of
the decline in net assets of the FHLB as compared to the capital stock amount and the length of time that such a situation has
persisted, (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation
to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the
liquidity position of the FHLB. The Company did not consider the FHLB stock to be impaired as of December 31, 2017 and 2016.
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 December
31, 2017 and 2016:
|
|
Amortized
Cost
|
|
|
Unrealized/
Unrecognized
Gains
|
|
|
Unrealized/
Unrecognized
Losses
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
5,500
|
|
|
$
|
34
|
|
|
$
|
(8
|
)
|
|
$
|
5,526
|
|
|
$
|
5,526
|
|
Mortgage-backed securities – residential
|
|
|
24,175
|
|
|
|
–
|
|
|
|
(647
|
)
|
|
|
23,528
|
|
|
|
23,528
|
|
Collateralized mortgage obligations – U.S. Government
|
|
|
2,390
|
|
|
|
–
|
|
|
|
(89
|
)
|
|
|
2,301
|
|
|
|
2,301
|
|
Corporate debt
|
|
|
6,536
|
|
|
|
34
|
|
|
|
(242
|
)
|
|
|
6,328
|
|
|
|
6,328
|
|
Total investment securities
|
|
$
|
38,601
|
|
|
$
|
68
|
|
|
$
|
(986
|
)
|
|
$
|
37,683
|
|
|
$
|
37,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2017, are shown below:
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Due in one year or less
|
|
$
|
–
|
|
|
$
|
–
|
|
Due from more than one to five years
|
|
|
967
|
|
|
|
964
|
|
Due from more than five to ten years
|
|
|
10,263
|
|
|
|
10,066
|
|
Due after ten years
|
|
|
806
|
|
|
|
824
|
|
Mortgage-backed securities – residential
|
|
|
24,175
|
|
|
|
23,528
|
|
Collateralized mortgage obligations – U.S. Government
|
|
|
2,390
|
|
|
|
2,301
|
|
|
|
$
|
38,601
|
|
|
$
|
37,683
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 6. INVESTMENT SECURITIES
(continued)
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.
The following table summarizes the investment
securities with unrealized losses as of December 31, 2017 and 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and
municipal
|
|
$
|
2,051
|
|
|
$
|
(8
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
2,051
|
|
|
$
|
(8
|
)
|
Mortgage-backed securities
– residential
|
|
|
–
|
|
|
|
–
|
|
|
|
23,500
|
|
|
|
(647
|
)
|
|
|
23,500
|
|
|
|
(647
|
)
|
Collateralized mortgage
obligations – U.S. Government
|
|
|
–
|
|
|
|
–
|
|
|
|
2,302
|
|
|
|
(89
|
)
|
|
|
2,302
|
|
|
|
(89
|
)
|
Corporate
debt
|
|
|
–
|
|
|
|
–
|
|
|
|
4,758
|
|
|
|
(242
|
)
|
|
|
4,758
|
|
|
|
(242
|
)
|
|
|
$
|
2,051
|
|
|
$
|
(8
|
)
|
|
$
|
30,560
|
|
|
$
|
(978
|
)
|
|
$
|
32,611
|
|
|
$
|
(986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
December 31, 2017, the Company’s security portfolio consisted of 23 investment securities (all classified as available-for-sale),
14 of which were in an unrealized loss position. All unrealized losses were related to debt securities whose underlying collateral
is residential mortgages and all of these debt securities were issued by government sponsored organizations, as discussed below.
As of December 31, 2017, $25.8 million, or
approximately 68.5% 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 CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
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 December 31, 2017.
The Company did not hold any non-agency collateralized
mortgage-backed securities or collateralized mortgage obligations as of December 31, 2017 and 2016, and did not record OTTI related
to such securities during the years ended December 31, 2017, 2016 and 2015.
Proceeds from Investment Securities
Proceeds from sales, payments, maturities,
and calls of securities available-for-sale were $85.4 million, $85.7 million and $15.1 million for the years ended December 31,
2017, 2016 and 2015, respectively.
Gross gains of $0.4 million were realized during
the year ended December 31, 2017, while no gross losses were realized during the year ended December 31, 2017. The net gain on
sale of securities available-for-sale for the year ended December 31, 2017, includes $0.4 million of accumulated other comprehensive
income reclassifications from unrealized holding gains. Gross gains of $1.5 million were realized during the year ended December
31, 2016. Gross losses of $0.2 million were realized during the year ended December 31, 2016. The net gain on sale of securities
available-for-sale for the year ended December 31, 2016, includes $1.3 million of accumulated other comprehensive income reclassifications
from unrealized holding gains. No gross gains were realized during the year ended December 31, 2015. Gross losses of $9,000 were
realized during the year ended December 31, 2015. The net loss on sale of securities available-for-sale for the year ended December
31, 2015, includes $9,000 of accumulated other comprehensive loss reclassifications from unrealized holding gains.
On February 18, 2016, the Company sold $15.8
million of investment securities previously classified as held-to-maturity, which were reclassified to available-for-sale as of
December 31, 2015. Therefore, there were no proceeds from payments, maturities, and calls of securities held-to-maturity for the
years ended December 31, 2017 and 2016. Proceeds from payments, maturities, and calls of securities held-to-maturity were $1.9
million for the year ended December 31, 2015. The Company did not sell any investment securities classified as held-to-maturity
during the years ended December 31, 2015.
Gains and losses on sales of investment securities
are recorded on the trade date and are determined using the specific identification method. There were no unsettled investment
securities transactions at December 31, 2017 and 2016.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
The following is a comparative composition
of net portfolio loans as of December 31, 2017 and 2016:
|
|
December 31,
2017
|
|
|
% of
Total Loans
|
|
|
December 31,
2016
|
|
|
% of
Total Loans
|
|
|
|
(Dollars in Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
286,671
|
|
|
|
37.8
|
%
|
|
$
|
276,193
|
|
|
|
43.1
|
%
|
Multi-family
|
|
|
65,419
|
|
|
|
8.6
|
%
|
|
|
70,452
|
|
|
|
11.0
|
%
|
Commercial
|
|
|
220,282
|
|
|
|
29.0
|
%
|
|
|
104,143
|
|
|
|
16.3
|
%
|
Land
|
|
|
13,760
|
|
|
|
1.8
|
%
|
|
|
17,218
|
|
|
|
2.7
|
%
|
Total real estate loans
|
|
|
586,132
|
|
|
|
77.2
|
%
|
|
|
468,006
|
|
|
|
73.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
8,579
|
|
|
|
1.1
|
%
|
|
|
22,687
|
|
|
|
3.5
|
%
|
Commercial
|
|
|
17,309
|
|
|
|
2.3
|
%
|
|
|
14,432
|
|
|
|
2.3
|
%
|
Acquisition and development
|
|
|
–
|
|
|
|
−
|
%
|
|
|
–
|
|
|
|
−
|
%
|
Total real estate construction loans
|
|
|
25,888
|
|
|
|
3.4
|
%
|
|
|
37,119
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
34,477
|
|
|
|
4.5
|
%
|
|
|
37,748
|
|
|
|
5.9
|
%
|
Consumer
|
|
|
34,743
|
|
|
|
4.6
|
%
|
|
|
39,232
|
|
|
|
6.1
|
%
|
Commercial
|
|
|
78,451
|
|
|
|
10.3
|
%
|
|
|
57,947
|
|
|
|
9.1
|
%
|
Total other portfolio loans
|
|
|
147,671
|
|
|
|
19.4
|
%
|
|
|
134,927
|
|
|
|
21.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
|
759,691
|
|
|
|
100.0
|
%
|
|
|
640,052
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses
|
|
|
(8,600
|
)
|
|
|
|
|
|
|
(8,162
|
)
|
|
|
|
|
Net deferred portfolio loan costs
|
|
|
5,592
|
|
|
|
|
|
|
|
5,685
|
|
|
|
|
|
Premiums and discounts on purchased loans, net
|
|
|
823
|
|
|
|
|
|
|
|
1,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans, net
|
|
$
|
757,506
|
|
|
|
|
|
|
$
|
639,245
|
|
|
|
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents the contractual
aging of the recorded investment in past due loans by class of portfolio loans as of December 31, 2017 and 2016:
|
|
Current
|
|
|
30 – 59 Days
Past Due
|
|
|
60 – 89 Days
Past Due
|
|
|
> 90 Days
Past Due
|
|
|
Total
Past Due
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
283,676
|
|
|
$
|
1,681
|
|
|
$
|
723
|
|
|
$
|
591
|
|
|
$
|
2,995
|
|
|
$
|
286,671
|
|
Multi-family
|
|
|
65,419
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
65,419
|
|
Commercial
|
|
|
218,686
|
|
|
|
1,386
|
|
|
|
–
|
|
|
|
210
|
|
|
|
1,596
|
|
|
|
220,282
|
|
Land
|
|
|
8,250
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,510
|
|
|
|
5,510
|
|
|
|
13,760
|
|
Total real estate loans
|
|
|
576,031
|
|
|
|
3,067
|
|
|
|
723
|
|
|
|
6,311
|
|
|
|
10,101
|
|
|
|
586,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
8,579
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
8,579
|
|
Commercial
|
|
|
17,309
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
17,309
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
25,888
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
25,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
33,872
|
|
|
|
333
|
|
|
|
62
|
|
|
|
210
|
|
|
|
605
|
|
|
|
34,477
|
|
Consumer
|
|
|
34,223
|
|
|
|
301
|
|
|
|
131
|
|
|
|
88
|
|
|
|
520
|
|
|
|
34,743
|
|
Commercial
|
|
|
77,826
|
|
|
|
–
|
|
|
|
–
|
|
|
|
625
|
|
|
|
625
|
|
|
|
78,451
|
|
Total other portfolio loans
|
|
|
145,921
|
|
|
|
634
|
|
|
|
193
|
|
|
|
923
|
|
|
|
1,750
|
|
|
|
147,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
747,840
|
|
|
$
|
3,701
|
|
|
$
|
916
|
|
|
$
|
7,234
|
|
|
$
|
11,851
|
|
|
$
|
759,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
(continued)
Nonperforming portfolio loans, including nonaccrual
portfolio loans, as of December 31, 2017 and 2016 were $7.8 million and $10.1 million, respectively. There were no portfolio loans
over 90 days past-due and still accruing interest as of December 31, 2017 and 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 December 31, 2017 and 2016:
|
|
Performing
|
|
|
Nonperforming
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
285,535
|
|
|
$
|
1,136
|
|
|
$
|
286,671
|
|
Multi-family
|
|
|
65,419
|
|
|
|
–
|
|
|
|
65,419
|
|
Commercial
|
|
|
220,072
|
|
|
|
210
|
|
|
|
220,282
|
|
Land
|
|
|
8,250
|
|
|
|
5,510
|
|
|
|
13,760
|
|
Total real estate loans
|
|
|
579,276
|
|
|
|
6,856
|
|
|
|
586,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
8,579
|
|
|
|
–
|
|
|
|
8,579
|
|
Commercial
|
|
|
17,309
|
|
|
|
–
|
|
|
|
17,309
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
25,888
|
|
|
|
–
|
|
|
|
25,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
34,267
|
|
|
|
210
|
|
|
|
34,477
|
|
Consumer
|
|
|
34,646
|
|
|
|
97
|
|
|
|
34,743
|
|
Commercial
|
|
|
77,826
|
|
|
|
625
|
|
|
|
78,451
|
|
Total other portfolio loans
|
|
|
146,739
|
|
|
|
932
|
|
|
|
147,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
751,903
|
|
|
$
|
7,788
|
|
|
$
|
759,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
(continued)
The Company utilizes an internal asset classification
system for multi-family, commercial and land portfolio loans as a means of reporting problem and potential problem loans. Under
the risk rating system, the Company classifies problem and potential problem loans as “Special Mention”, “Substandard”
or “Doubtful”, which correspond to risk ratings five, six and seven, respectively. Portfolio loans that do not currently
expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses
that deserve management’s close attention are deemed to be Special Mention, or risk rated five. Substandard portfolio loans,
or risk rated six, include those characterized by the distinct possibility the Company may sustain some loss if the deficiencies
are not corrected. Portfolio loans classified as Doubtful, or risk rated seven, have all the weaknesses inherent in those classified
Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, highly questionable and improbable. Generally, the Company reviews all revolving credit
relationships, regardless of amount, and any other loan relationship in excess of $500,000 on an annual basis. However, risk ratings
are updated any time the facts and circumstances warrant.
The Company evaluates residential and consumer
portfolio loans based on whether the loans are performing or nonperforming, as well as other factors. Residential loans are charged
down by the expected loss amount at the time they become nonperforming, which is generally 90 days past due. Consumer loans, including
automobile, manufactured housing, unsecured, and other secured loans are charged-off, net of expected recovery, when the loan becomes
significantly past due over a range of up to 180 days, depending on the type of loan.
The following table presents the risk category
of multi-family, commercial and land portfolio loans evaluated by internal asset classification as of December 31, 2017 and 2016:
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
$
|
65,419
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
65,419
|
|
Commercial
|
|
|
217,632
|
|
|
|
1,181
|
|
|
|
1,469
|
|
|
|
–
|
|
|
|
220,282
|
|
Land
|
|
|
8,250
|
|
|
|
–
|
|
|
|
5,510
|
|
|
|
–
|
|
|
|
13,760
|
|
Total real estate loans
|
|
|
291,301
|
|
|
|
1,181
|
|
|
|
6,979
|
|
|
|
–
|
|
|
|
299,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
17,309
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
17,309
|
|
Total real estate construction loans
|
|
|
17,309
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
17,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
76,159
|
|
|
|
–
|
|
|
|
2,292
|
|
|
|
–
|
|
|
|
78,451
|
|
Total other portfolio loans
|
|
|
76,159
|
|
|
|
–
|
|
|
|
2,292
|
|
|
|
–
|
|
|
|
78,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk graded portfolio loans
|
|
$
|
384,769
|
|
|
$
|
1,181
|
|
|
$
|
9,271
|
|
|
$
|
–
|
|
|
$
|
395,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
$
|
70,419
|
|
|
$
|
–
|
|
|
$
|
33
|
|
|
$
|
–
|
|
|
$
|
70,452
|
|
Commercial
|
|
|
101,785
|
|
|
|
–
|
|
|
|
2,358
|
|
|
|
–
|
|
|
|
104,143
|
|
Land
|
|
|
11,708
|
|
|
|
–
|
|
|
|
5,510
|
|
|
|
–
|
|
|
|
17,218
|
|
Total real estate loans
|
|
|
183,912
|
|
|
|
–
|
|
|
|
7,901
|
|
|
|
–
|
|
|
|
191,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
14,432
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
14,432
|
|
Total real estate construction loans
|
|
|
14,432
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
14,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
55,278
|
|
|
|
1,663
|
|
|
|
1,006
|
|
|
|
–
|
|
|
|
57,947
|
|
Total other portfolio loans
|
|
|
55,278
|
|
|
|
1,663
|
|
|
|
1,006
|
|
|
|
–
|
|
|
|
57,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk graded portfolio loans
|
|
$
|
253,622
|
|
|
$
|
1,663
|
|
|
$
|
8,907
|
|
|
$
|
–
|
|
|
$
|
264,192
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
(continued)
When establishing the allowance, management
categorizes loans into risk categories generally based on the nature of the collateral and the basis of repayment. Activity in
the allowance for the years ended December 31, 2017, 2016 and 2015 was as follows:
|
|
Beginning
Balance
|
|
|
Charge-Offs
|
|
|
Recoveries
|
|
|
Provision
Expense
|
|
|
Ending Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
3,090
|
|
|
$
|
(82
|
)
|
|
$
|
235
|
|
|
$
|
(559
|
)
|
|
$
|
2,684
|
|
Multi-family
|
|
|
268
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(98
|
)
|
|
|
170
|
|
Commercial
|
|
|
2,209
|
|
|
|
–
|
|
|
|
–
|
|
|
|
780
|
|
|
|
2,989
|
|
Land
|
|
|
207
|
|
|
|
–
|
|
|
|
5
|
|
|
|
(53
|
)
|
|
|
159
|
|
Total real estate loans
|
|
|
5,774
|
|
|
|
(82
|
)
|
|
|
240
|
|
|
|
70
|
|
|
|
6,002
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
159
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(104
|
)
|
|
|
55
|
|
Commercial
|
|
|
120
|
|
|
|
–
|
|
|
|
–
|
|
|
|
58
|
|
|
|
178
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
279
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(46
|
)
|
|
|
233
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
560
|
|
|
|
(183
|
)
|
|
|
33
|
|
|
|
194
|
|
|
|
604
|
|
Consumer
|
|
|
457
|
|
|
|
(411
|
)
|
|
|
240
|
|
|
|
59
|
|
|
|
345
|
|
Commercial
|
|
|
880
|
|
|
|
(119
|
)
|
|
|
27
|
|
|
|
554
|
|
|
|
1,342
|
|
Total other portfolio loans
|
|
|
1,897
|
|
|
|
(713
|
)
|
|
|
300
|
|
|
|
807
|
|
|
|
2,291
|
|
Unallocated
|
|
|
212
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(138
|
)
|
|
|
74
|
|
Total
|
|
$
|
8,162
|
|
|
$
|
(795
|
)
|
|
$
|
540
|
|
|
$
|
693
|
|
|
$
|
8,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
3,142
|
|
|
$
|
(353
|
)
|
|
$
|
561
|
|
|
$
|
(260
|
)
|
|
$
|
3,090
|
|
Multi-family
|
|
|
217
|
|
|
|
–
|
|
|
|
–
|
|
|
|
51
|
|
|
|
268
|
|
Commercial
|
|
|
1,337
|
|
|
|
–
|
|
|
|
–
|
|
|
|
872
|
|
|
|
2,209
|
|
Land
|
|
|
260
|
|
|
|
–
|
|
|
|
32
|
|
|
|
(85
|
)
|
|
|
207
|
|
Total real estate loans
|
|
|
4,956
|
|
|
|
(353
|
)
|
|
|
593
|
|
|
|
578
|
|
|
|
5,774
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
144
|
|
|
|
–
|
|
|
|
–
|
|
|
|
15
|
|
|
|
159
|
|
Commercial
|
|
|
116
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4
|
|
|
|
120
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
260
|
|
|
|
–
|
|
|
|
–
|
|
|
|
19
|
|
|
|
279
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
972
|
|
|
|
(141
|
)
|
|
|
45
|
|
|
|
(316
|
)
|
|
|
560
|
|
Consumer
|
|
|
871
|
|
|
|
(566
|
)
|
|
|
310
|
|
|
|
(158
|
)
|
|
|
457
|
|
Commercial
|
|
|
556
|
|
|
|
(91
|
)
|
|
|
1
|
|
|
|
414
|
|
|
|
880
|
|
Total other portfolio loans
|
|
|
2,399
|
|
|
|
(798
|
)
|
|
|
356
|
|
|
|
(60
|
)
|
|
|
1,897
|
|
Unallocated
|
|
|
130
|
|
|
|
–
|
|
|
|
–
|
|
|
|
82
|
|
|
|
212
|
|
Total
|
|
$
|
7,745
|
|
|
$
|
(1,151
|
)
|
|
$
|
949
|
|
|
$
|
619
|
|
|
$
|
8,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
3,206
|
|
|
$
|
(313
|
)
|
|
$
|
356
|
|
|
$
|
(107
|
)
|
|
$
|
3,142
|
|
Multi-family
|
|
|
28
|
|
|
|
–
|
|
|
|
8
|
|
|
|
181
|
|
|
|
217
|
|
Commercial
|
|
|
1,023
|
|
|
|
–
|
|
|
|
51
|
|
|
|
263
|
|
|
|
1,337
|
|
Land
|
|
|
197
|
|
|
|
(56
|
)
|
|
|
138
|
|
|
|
(19
|
)
|
|
|
260
|
|
Total real estate loans
|
|
|
4,454
|
|
|
|
(369
|
)
|
|
|
553
|
|
|
|
318
|
|
|
|
4,956
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
16
|
|
|
|
–
|
|
|
|
–
|
|
|
|
128
|
|
|
|
144
|
|
Commercial
|
|
|
19
|
|
|
|
–
|
|
|
|
–
|
|
|
|
97
|
|
|
|
116
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
35
|
|
|
|
–
|
|
|
|
–
|
|
|
|
225
|
|
|
|
260
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
992
|
|
|
|
(146
|
)
|
|
|
56
|
|
|
|
70
|
|
|
|
972
|
|
Consumer
|
|
|
844
|
|
|
|
(540
|
)
|
|
|
277
|
|
|
|
290
|
|
|
|
871
|
|
Commercial
|
|
|
663
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(107
|
)
|
|
|
556
|
|
Total other portfolio loans
|
|
|
2,499
|
|
|
|
(686
|
)
|
|
|
333
|
|
|
|
253
|
|
|
|
2,399
|
|
Unallocated
|
|
|
119
|
|
|
|
–
|
|
|
|
–
|
|
|
|
11
|
|
|
|
130
|
|
Total
|
|
$
|
7,107
|
|
|
$
|
(1,055
|
)
|
|
$
|
886
|
|
|
$
|
807
|
|
|
$
|
7,745
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
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, 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
|
|
$
|
–
|
|
|
$
|
2,684
|
|
|
$
|
2,684
|
|
Multi-family
|
|
|
–
|
|
|
|
170
|
|
|
|
170
|
|
Commercial
|
|
|
4
|
|
|
|
2,985
|
|
|
|
2,989
|
|
Land
|
|
|
–
|
|
|
|
159
|
|
|
|
159
|
|
Total real estate loans
|
|
|
4
|
|
|
|
5,998
|
|
|
|
6,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
55
|
|
|
|
55
|
|
Commercial
|
|
|
–
|
|
|
|
178
|
|
|
|
178
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
233
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
604
|
|
|
|
604
|
|
Consumer
|
|
|
–
|
|
|
|
345
|
|
|
|
345
|
|
Commercial
|
|
|
498
|
|
|
|
844
|
|
|
|
1,342
|
|
Total other portfolio loans
|
|
|
498
|
|
|
|
1,793
|
|
|
|
2,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
–
|
|
|
|
74
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance for portfolio loan losses balance
|
|
$
|
502
|
|
|
$
|
8,098
|
|
|
$
|
8,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
–
|
|
|
$
|
286,671
|
|
|
$
|
286,671
|
|
Multi-family
|
|
|
–
|
|
|
|
65,419
|
|
|
|
65,419
|
|
Commercial
|
|
|
1,319
|
|
|
|
218,963
|
|
|
|
220,282
|
|
Land
|
|
|
5,510
|
|
|
|
8,250
|
|
|
|
13,760
|
|
Total real estate loans
|
|
|
6,829
|
|
|
|
579,303
|
|
|
|
586,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
8,579
|
|
|
|
8,579
|
|
Commercial
|
|
|
–
|
|
|
|
17,309
|
|
|
|
17,309
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
25,888
|
|
|
|
25,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
34,477
|
|
|
|
34,477
|
|
Consumer
|
|
|
–
|
|
|
|
34,743
|
|
|
|
34,743
|
|
Commercial
|
|
|
976
|
|
|
|
77,475
|
|
|
|
78,451
|
|
Total other portfolio loans
|
|
|
976
|
|
|
|
146,695
|
|
|
|
147,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending portfolio loans balance
|
|
$
|
7,805
|
|
|
$
|
751,886
|
|
|
$
|
759,691
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents ending balances
for the allowance and portfolio loans based on the impairment method as of December 31, 2016:
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total Ending
Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
–
|
|
|
$
|
3,090
|
|
|
$
|
3,090
|
|
Multi-family
|
|
|
–
|
|
|
|
268
|
|
|
|
268
|
|
Commercial
|
|
|
201
|
|
|
|
2,008
|
|
|
|
2,209
|
|
Land
|
|
|
–
|
|
|
|
207
|
|
|
|
207
|
|
Total real estate loans
|
|
|
201
|
|
|
|
5,573
|
|
|
|
5,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
159
|
|
|
|
159
|
|
Commercial
|
|
|
–
|
|
|
|
120
|
|
|
|
120
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
279
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
560
|
|
|
|
560
|
|
Consumer
|
|
|
–
|
|
|
|
457
|
|
|
|
457
|
|
Commercial
|
|
|
279
|
|
|
|
601
|
|
|
|
880
|
|
Total other portfolio loans
|
|
|
279
|
|
|
|
1,618
|
|
|
|
1,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
–
|
|
|
|
212
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance for portfolio loan losses balance
|
|
$
|
480
|
|
|
$
|
7,682
|
|
|
$
|
8,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
–
|
|
|
$
|
276,193
|
|
|
$
|
276,193
|
|
Multi-family
|
|
|
33
|
|
|
|
70,419
|
|
|
|
70,452
|
|
Commercial
|
|
|
2,763
|
|
|
|
101,380
|
|
|
|
104,143
|
|
Land
|
|
|
5,510
|
|
|
|
11,708
|
|
|
|
17,218
|
|
Total real estate loans
|
|
|
8,306
|
|
|
|
459,700
|
|
|
|
468,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
22,687
|
|
|
|
22,687
|
|
Commercial
|
|
|
–
|
|
|
|
14,432
|
|
|
|
14,432
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
37,119
|
|
|
|
37,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
37,748
|
|
|
|
37,748
|
|
Consumer
|
|
|
–
|
|
|
|
39,232
|
|
|
|
39,232
|
|
Commercial
|
|
|
519
|
|
|
|
57,428
|
|
|
|
57,947
|
|
Total other portfolio loans
|
|
|
519
|
|
|
|
134,408
|
|
|
|
134,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending portfolio loans balance
|
|
$
|
8,825
|
|
|
$
|
631,227
|
|
|
$
|
640,052
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
(continued)
Portfolio loans for which concessions have
been granted as a result of the borrower’s financial difficulties are considered a TDR. These concessions, which in general
are applied to all categories of portfolio loans, may include a reduction in the interest rate on the loan, payment extensions,
forgiveness of principal, or a combination of these or other actions intended to maximize collection. The resulting TDR impairment
is included in specific reserves.
For homogeneous loan categories, such as one-
to four-family residential loans and home equity loans, the amount of impairment resulting from the modification of the loan terms
is calculated in aggregate by category of portfolio loan. The resulting impairment is included in specific reserves. If an individual
homogeneous loan defaults under terms of the TDR and becomes nonperforming, the Bank follows its usual practice of charging the
loan down to its estimated fair value and the charge-off is considered as a factor in determining the amount of the general component
of the allowance. For larger non-homogeneous loans, each loan that is modified is evaluated individually for impairment based on
either discounted cash flow or, for collateral-dependent loans, the appraised value of the collateral less selling costs. If the
loan is not collateral-dependent, the amount of the impairment, if any, is recorded as a specific reserve in the allowance. If
the loan is collateral-dependent, the amount of the impairment is charged off. There was an allocated allowance for loans, including
TDRs, individually evaluated for impairment of approximately $0.5 million at both December 31, 2017 and 2016.
Portfolio loans modified as TDRs with market
rates of interest are classified as impaired portfolio loans. Once the TDR has performed for 12 months in accordance with the modified
terms it is classified as a performing impaired loan. TDRs which do not perform in accordance with modified terms are reported
as nonperforming portfolio loans. The policy for returning a nonperforming loan to accrual status is the same for any loan irrespective
of whether the loan has been modified. As such, loans which are nonperforming prior to modification continue to be accounted for
as nonperforming loans (and are reported as impaired nonperforming loans) until they have demonstrated the ability to maintain
sustained performance over a period of time, but no less than six months. Following this period such a modified loan is returned
to accrual status and is classified as impaired and reported as a performing TDR. TDRs classified as impaired loans as of December
31, 2017 and 2016 were as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Dollars in Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
17,679
|
|
|
$
|
20,060
|
|
Multi-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
1,109
|
|
|
|
2,488
|
|
Land
|
|
|
6,136
|
|
|
|
6,311
|
|
Total real estate loans
|
|
|
24,924
|
|
|
|
28,859
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,043
|
|
|
|
4,230
|
|
Consumer
|
|
|
1,302
|
|
|
|
1,573
|
|
Commercial
|
|
|
620
|
|
|
|
181
|
|
Total other portfolio loans
|
|
|
5,965
|
|
|
|
5,984
|
|
|
|
|
|
|
|
|
|
|
Total TDRs classified as impaired loans
|
|
$
|
30,889
|
|
|
$
|
34,843
|
|
The TDR balances included performing TDRs of
$15.7 million and $20.3 million as of December 31, 2017 and 2016, respectively. There were no commitments to lend additional amounts
on TDRs as of December 31, 2017 and 2016.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
(continued)
The Bank is proactive in modifying residential,
home equity and consumer loans in early stage delinquency because management believes modifying the loan prior to it becoming nonperforming
results in the least cost to the Bank. The Bank also modifies commercial real estate and other large commercial loans as TDRs rather
than pursuing other means of collection when it believes the borrower is committed to the successful repayment of the loan and
the business operations are likely to support the modified loan terms.
The following table presents information on
TDRs during the years ended December 31, 2017, 2016 and 2015:
|
|
Number of Contracts
|
|
|
Pre-Modification Outstanding
Recorded Investments
|
|
|
Post-Modification Outstanding
Recorded Investments
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
11
|
|
|
$
|
2,046
|
|
|
$
|
2,046
|
|
Commercial
|
|
|
1
|
|
|
|
651
|
|
|
|
651
|
|
Land
|
|
|
3
|
|
|
|
231
|
|
|
|
231
|
|
Total real estate loans
|
|
|
15
|
|
|
|
2,928
|
|
|
|
2,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
8
|
|
|
|
659
|
|
|
|
659
|
|
Consumer
|
|
|
10
|
|
|
|
213
|
|
|
|
213
|
|
Commercial
|
|
|
3
|
|
|
|
520
|
|
|
|
520
|
|
Total other portfolio loans
|
|
|
21
|
|
|
|
1,392
|
|
|
|
1,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
36
|
|
|
$
|
4,320
|
|
|
$
|
4,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
34
|
|
|
$
|
4,353
|
|
|
$
|
4,147
|
|
Land
|
|
|
2
|
|
|
|
98
|
|
|
|
98
|
|
Total real estate loans
|
|
|
36
|
|
|
|
4,451
|
|
|
|
4,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
17
|
|
|
|
1,115
|
|
|
|
1,115
|
|
Consumer
|
|
|
13
|
|
|
|
279
|
|
|
|
279
|
|
Total other portfolio loans
|
|
|
30
|
|
|
|
1,394
|
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
66
|
|
|
$
|
5,845
|
|
|
$
|
5,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
15
|
|
|
$
|
1,691
|
|
|
$
|
1,691
|
|
Land
|
|
|
5
|
|
|
|
754
|
|
|
|
724
|
|
Total real estate loans
|
|
|
20
|
|
|
|
2,445
|
|
|
|
2,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
13
|
|
|
|
1,711
|
|
|
|
1,711
|
|
Consumer
|
|
|
11
|
|
|
|
219
|
|
|
|
219
|
|
Commercial
|
|
|
1
|
|
|
|
77
|
|
|
|
77
|
|
Total other portfolio loans
|
|
|
25
|
|
|
|
2,007
|
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
45
|
|
|
$
|
4,452
|
|
|
$
|
4,422
|
|
All of the Company’s portfolio loans
that were restructured as TDRs during the years ended December 31, 2017, 2016 and 2015, resulted in modifications to either rate,
term, amortization or balance. Such modifications are only granted to borrowers who have demonstrated the capacity to repay under
the modified terms.
There was one subsequent default on portfolio
loans that were restructured as TDRs during the year ended December 31, 2017. The subsequent default was a home equity loan with
a recorded investment of $8,000.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
(continued)
There were six subsequent defaults on portfolio
loans that were restructured as TDRs during the year ended December 31, 2016. The subsequent defaults included two one- to four-family
residential loans with a combined recorded investment of $0.4 million, one commercial real estate loan with a recorded investment
of $2.0 million, one land loan with a recorded investment of $5.5 million, and two home equity loans with a combined recorded investment
of $30,000.
There was one subsequent default on portfolio
loans that were restructured as TDRs during the year ended December 31, 2015. This subsequent default was a consumer loan with
a recorded investment of $4,000.
The following table presents information about
impaired portfolio loans as of December 31, 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
|
|
|
506
|
|
|
|
506
|
|
|
|
–
|
|
Land
|
|
|
5,510
|
|
|
|
5,510
|
|
|
|
–
|
|
Total real estate loans
|
|
|
6,016
|
|
|
|
6,016
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Consumer
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
29
|
|
|
|
29
|
|
|
|
–
|
|
Total other portfolio loans
|
|
|
29
|
|
|
|
29
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with no related allowance recorded
|
|
$
|
6,045
|
|
|
$
|
6,045
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
18,572
|
|
|
$
|
18,984
|
|
|
$
|
1,198
|
|
Multi-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
812
|
|
|
|
812
|
|
|
|
4
|
|
Land
|
|
|
627
|
|
|
|
677
|
|
|
|
89
|
|
Total real estate loans
|
|
|
20,011
|
|
|
|
20,473
|
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,086
|
|
|
|
4,243
|
|
|
|
441
|
|
Consumer
|
|
|
1,399
|
|
|
|
1,408
|
|
|
|
174
|
|
Commercial
|
|
|
947
|
|
|
|
947
|
|
|
|
498
|
|
Total other portfolio loans
|
|
|
6,432
|
|
|
|
6,598
|
|
|
|
1,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with an allowance recorded
|
|
$
|
26,443
|
|
|
$
|
27,071
|
|
|
$
|
2,404
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
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 CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents interest income
on impaired portfolio loans by class of portfolio loans for the years ended December 31, 2017, 2016 and 2015:
|
|
Average Balance
|
|
|
Interest Income
Recognized
|
|
|
Cash Basis Interest
Income Recognized
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
19,954
|
|
|
$
|
781
|
|
|
$
|
–
|
|
Multi-family
|
|
|
17
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
2,041
|
|
|
|
87
|
|
|
|
32
|
|
Land
|
|
|
6,224
|
|
|
|
35
|
|
|
|
–
|
|
Total real estate loans
|
|
|
28,236
|
|
|
|
903
|
|
|
|
32
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,159
|
|
|
|
191
|
|
|
|
–
|
|
Consumer
|
|
|
1,564
|
|
|
|
101
|
|
|
|
–
|
|
Commercial
|
|
|
939
|
|
|
|
21
|
|
|
|
–
|
|
Total other portfolio loans
|
|
|
6,662
|
|
|
|
313
|
|
|
|
–
|
|
Total
|
|
$
|
34,898
|
|
|
$
|
1,216
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
21,461
|
|
|
$
|
1,011
|
|
|
$
|
–
|
|
Multi-family
|
|
|
70
|
|
|
|
3
|
|
|
|
–
|
|
Commercial
|
|
|
2,670
|
|
|
|
92
|
|
|
|
–
|
|
Land
|
|
|
6,694
|
|
|
|
86
|
|
|
|
–
|
|
Total real estate loans
|
|
|
30,895
|
|
|
|
1,192
|
|
|
|
–
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,508
|
|
|
|
212
|
|
|
|
–
|
|
Consumer
|
|
|
1,810
|
|
|
|
118
|
|
|
|
–
|
|
Commercial
|
|
|
770
|
|
|
|
58
|
|
|
|
–
|
|
Total other portfolio loans
|
|
|
7,088
|
|
|
|
388
|
|
|
|
–
|
|
Total
|
|
$
|
37,983
|
|
|
$
|
1,580
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
19,100
|
|
|
$
|
903
|
|
|
$
|
–
|
|
Multi-family
|
|
|
146
|
|
|
|
6
|
|
|
|
–
|
|
Commercial
|
|
|
3,230
|
|
|
|
124
|
|
|
|
–
|
|
Land
|
|
|
7,010
|
|
|
|
268
|
|
|
|
–
|
|
Total real estate loans
|
|
|
29,486
|
|
|
|
1,301
|
|
|
|
–
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,263
|
|
|
|
198
|
|
|
|
–
|
|
Consumer
|
|
|
1,481
|
|
|
|
95
|
|
|
|
–
|
|
Commercial
|
|
|
724
|
|
|
|
41
|
|
|
|
–
|
|
Total other portfolio loans
|
|
|
6,468
|
|
|
|
334
|
|
|
|
–
|
|
Total
|
|
$
|
35,954
|
|
|
$
|
1,635
|
|
|
$
|
–
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 7. PORTFOLIO LOANS
(continued)
The Company had $0.5 million and $1.6 million
of one- to four-family residential and home equity loans in process of foreclosure as of December 31, 2017 and 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 December 31, 2017 and 2016. The activity on these loans during the years ended December 31, 2017, 2016 and 2015, was as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,856
|
|
|
$
|
1,919
|
|
|
$
|
169
|
|
New portfolio loans and advances on existing portfolio loans
|
|
|
–
|
|
|
|
–
|
|
|
|
1,776
|
|
Effect of changes in related parties
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Repayments
|
|
|
(61
|
)
|
|
|
(63
|
)
|
|
|
(26
|
)
|
Ending balance
|
|
$
|
1,795
|
|
|
$
|
1,856
|
|
|
$
|
1,919
|
|
NOTE 8. OTHER LOANS
The Company’s other loans are comprised
of mortgage loans held-for-sale, SBA/USDA loans held-for-sale, and warehouse loans held-for-investment. The Company originates
mortgage loans held-for-sale with the intent to sell the loans and the servicing rights to investors. The Company originates SBA/USDA
loans held-for-sale with the intent to sell the guaranteed portion of the loans to investors, while maintaining the servicing rights.
The Company originates warehouse loans held-for-investment and permits third-party originators to sell the loans and servicing
rights to investors in order to repay the warehouse balance outstanding.
The Company internally originated approximately
$37.8 million, $72.3 million and $35.3 million of mortgage loans held-for-sale during the years ended December 31, 2017, 2016 and
2015, respectively. The gain recorded on sale of mortgage loans held-for-sale during the years ended December 31, 2017, 2016 and
2015 was $1.5 million, $1.0 million and $0.8 million, respectively.
During the years ended December 31, 2017, 2016
and 2015, the Company internally originated approximately $10.4 million, $13.6 million and $3.9 million, respectively, of SBA/USDA
loans held-for-sale. The gain recorded on sales of SBA/USDA loans held-for-sale was $0.7 million, $1.0 million and $0.7 million
during the years ended December 31, 2017, 2016 and 2015, respectively.
During the years ended December 31, 2017, 2016
and 2015, the Company originated approximately $1.1 billion, $1.8 billion and $1.1 billion, respectively, of warehouse loans held-for-investment
through third parties. Loans which were ultimately sold under the warehouse loans held-for-investment lending program, which are
done at par, earned interest on outstanding balances of $1.7 million, $2.7 million and $1.9 million for the years ended December
31, 2017, 2016 and 2015, respectively. The weighted average number of days outstanding of warehouse loans held-for-investment was
approximately 10 days, 12 days and 17 days for the years ended December 31, 2017, 2016 and 2015, respectively.
As of December 31, 2017 and 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.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 9. LAND, PREMISES, AND EQUIPMENT, NET
Land, premises, and equipment, net at December 31, 2017 and 2016
are summarized as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Dollars in Thousands)
|
|
Land
|
|
$
|
7,016
|
|
|
$
|
7,016
|
|
Buildings and leasehold improvements
|
|
|
12,057
|
|
|
|
12,003
|
|
Furniture, fixtures, and equipment
|
|
|
9,299
|
|
|
|
9,057
|
|
Land, premises, and equipment
|
|
|
28,372
|
|
|
|
28,076
|
|
Accumulated depreciation and amortization
|
|
|
(14,200
|
)
|
|
|
(13,131
|
)
|
Land, premises, and equipment, net
|
|
$
|
14,172
|
|
|
$
|
14,945
|
|
Depreciation expense was $1.1 million, $1.1 million and $0.9 million
for the years ended December 31, 2017, 2016 and 2015, respectively.
NOTE 10. DEPOSITS
The Company had $455.9 million and $390.7 million
in non-maturity deposits at December 31, 2017 and 2016, respectively. Time deposits were $219.9 million and $237.7 million at December
31, 2017 and 2016, respectively. Scheduled maturities of time deposits at December 31, 2017 were as follows:
|
|
(Dollars in Thousands)
|
|
2018
|
|
$
|
119,696
|
|
2019
|
|
|
48,810
|
|
2020
|
|
|
15,031
|
|
2021
|
|
|
9,807
|
|
2022
|
|
|
26,583
|
|
Thereafter
|
|
|
–
|
|
Total time deposits
|
|
$
|
219,927
|
|
Time deposits in amounts equal to or greater
than $250,000 were approximately $76.0 million and $30.1 million at December 31, 2017 and 2016, respectively. Deposit amounts
in excess of $250,000 are generally not insured by the Federal Deposit Insurance Corporation (FDIC).
As of December 31, 2017, the Company did not
have any deposit relationships in excess of 5% of total deposits. Brokered deposits, which are reported on the consolidated balance
sheets in either money market accounts or time deposits, were $74.9 million, or 11.1% of total deposits, at December 31, 2017.
As of December 31, 2016, the Company had deposit relationships in excess of 5% of total deposits with one customer, which totaled
$40.0 million, or 6.4% of total deposits. Additionally, brokered deposits were $84.0 million, or 13.4% of total deposits, at December
31, 2016. Brokered deposits typically consist of smaller individual balances that have liquidity characteristics and yields consistent
with time deposits in amounts equal to or greater than $250,000. Management does not view these concentrations as a liquidity risk.
Deposits from directors, executive officers
and their associates were approximately $0.3 million and $0.2 million at December 31, 2017 and 2016, respectively.
Interest expense on customer deposit accounts
for the years ending December 31, 2017, 2016 and 2015 is summarized as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in Thousands)
|
|
Interest-bearing demand
|
|
$
|
497
|
|
|
$
|
454
|
|
|
$
|
105
|
|
Savings and money market
|
|
|
2,007
|
|
|
|
938
|
|
|
|
693
|
|
Time
|
|
|
2,666
|
|
|
|
2,215
|
|
|
|
1,628
|
|
Total interest expense on deposits
|
|
$
|
5,170
|
|
|
$
|
3,607
|
|
|
$
|
2,426
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company had no outstanding balance on repurchase
agreements as of December 31, 2017 and 2016. Information concerning repurchase agreements as of and for the years ended December
31, 2017, 2016 and 2015, is summarized as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Average daily balance outstanding during the period
|
|
$
|
–
|
|
|
$
|
82
|
|
|
$
|
31,370
|
|
Maximum month-end balance during the period
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
66,300
|
|
Weighted average coupon interest rate during the period
|
|
|
−
|
%
|
|
|
0.80
|
%
|
|
|
4.89
|
%
|
Weighted average coupon interest rate at end of period
|
|
|
−
|
%
|
|
|
−
|
%
|
|
|
0.80
|
%
|
Weighted average maturity (months)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
The Company had no investment securities posted
as collateral under the repurchase agreement as of December 31, 2017 and 2016.
NOTE 12. FEDERAL HOME LOAN BANK ADVANCES
As of December 31, 2017 and 2016, advances from the FHLB were as
follows:
|
|
December 31, 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 January 18, 2018, fixed rate at 1.42%
|
|
|
50,000
|
|
|
|
–
|
|
Maturity on June 19, 2018, fixed rate at 1.31%
|
|
|
10,425
|
|
|
|
10,425
|
|
Maturity on June 20, 2019, fixed rate at 1.27%
|
|
|
1,500
|
|
|
|
2,500
|
|
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 1.59% as of December 31, 2017 and at 0.80% as of December 31, 2016
|
|
|
101,600
|
|
|
|
65,000
|
|
Total
|
|
$
|
213,525
|
|
|
$
|
188,758
|
|
The FHLB advances had a weighted-average maturity
of 10 months and a weighted-average rate of 1.77% at December 31, 2017. The Company had $405.6 million in portfolio loans posted
as collateral for these advances as of December 31, 2017.
The Bank’s remaining borrowing capacity
with the FHLB was $63.3 million at December 31, 2017. The FHLB requires that the Bank collateralize the excess of the fair value
of the FHLB advances over the book value with cash and investment securities. In the event the Bank prepays advances prior to maturity,
it must do so at the fair value of such FHLB advances. As of December 31, 2017, fair value exceeded the book value of the individual
advances by $0.4 million, which was collateralized by portfolio loans (included in the $405.6 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 $34.1 million as of December 31, 2017.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 13. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the Financial Statements and these Notes. The principal commitments
as of December 31, 2017 and 2016 are as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
(Dollars in Thousands)
|
|
Undisbursed portion of loans closed
|
|
$
|
18,518
|
|
|
$
|
4,118
|
|
Unused lines of credit and commitments to fund loans
|
|
|
209,258
|
|
|
|
110,426
|
|
As of December 31, 2017, the undisbursed
portion of loans closed was primarily unfunded SBA loans with variable rates ranging from 4.95% to 7.00%, and the unused lines
of credit and commitments to fund loans were made up of both fixed rate and variable rate commitments. The fixed rate commitments
totaled $33.9 million and had interest rates that ranged from 2.45% to 18.00% and the variable rate commitments totaled $175.4
million and had interest rates that ranged from 2.81% to 9.25%. As of December 31, 2016, the undisbursed portion of loans closed
was primarily unfunded SBA loans with variable rates ranging from 4.25% to 6.25%, and the unused lines of credit and commitments
to fund loans were made up of both fixed rate and variable rate commitments. The fixed rate commitments totaled $23.5 million and
had interest rates that ranged from 2.45% to 18.00% and the variable rate commitments totaled $86.9 million and had interest rates
that ranged from 2.01% to 8.50%. As of December 31, 2017 and 2016, the Company had fully secured outstanding standby letters of
credit commitments totaling $122,000 and $623,000, respectively.
Since certain commitments to make loans, provide
lines of credit, and fund loans in process may expire without being used by the customer, the amount does not necessarily represent
future cash commitments. In addition, commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. The exposure to credit loss in the event of nonperformance by the other
party to these financial instruments is represented by the contractual amount of these instruments. The Company follows the same
credit policies to make such commitments as is followed for those loans recorded on the consolidated balance sheet.
The Company has employment agreements with
three of its officers, which were all effective as of December 31, 2017 and 2016. However, as of December 31, 2017 and 2016, the
Company had no balance accrued for any liabilities related to these agreements.
In addition to its borrowing capacity with
the FHLB, the Company maintained lines of credit with private financial institutions as of December 31, 2017 and 2016. These lines
of credit totaled $62.0 million and $47.0 million as of December 31, 2017 and 2016, respectively, for which no balance was outstanding
as of December 31, 2017 or 2016.
The Company has operating leases in place for
six business locations. Lease payments in total over the next 5 years are approximately $1.8 million.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 14. INCOME TAXES
Income tax expense for the years ending December 31, 2017, 2016
and 2015 was as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
(Dollars in Thousands)
|
|
Current – federal
|
|
$
|
1,751
|
|
|
$
|
961
|
|
|
$
|
–
|
|
Current – state
|
|
|
344
|
|
|
|
139
|
|
|
|
–
|
|
Deferred – federal
|
|
|
630
|
|
|
|
2,409
|
|
|
|
(684
|
)
|
Deferred – state, net of federal tax effect
|
|
|
77
|
|
|
|
226
|
|
|
|
(31
|
)
|
Provisional tax adjustment related to deferred tax
assets devaluation from Tax Cuts and Jobs Act
|
|
|
1,641
|
|
|
|
–
|
|
|
|
–
|
|
Increase (decrease) in valuation allowance – federal
|
|
|
109
|
|
|
|
(93
|
)
|
|
|
(7,905
|
)
|
Increase (decrease) in valuation allowance – state
|
|
|
7
|
|
|
|
(10
|
)
|
|
|
(887
|
)
|
Income tax expense (benefit)
|
|
$
|
4,559
|
|
|
$
|
3,632
|
|
|
$
|
(9,507
|
)
|
The effective tax rate differs from the statutory federal income
tax rate for the years ending December 31, 2017, 2016 and 2015 as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
(Dollars in Thousands)
|
|
Income taxes at current statutory rate of 34%
|
|
$
|
2,627
|
|
|
$
|
3,417
|
|
|
$
|
(608
|
)
|
Increase (decrease) from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal tax effect
|
|
|
278
|
|
|
|
318
|
|
|
|
(22
|
)
|
Tax-exempt income
|
|
|
(35
|
)
|
|
|
(32
|
)
|
|
|
(31
|
)
|
Increase in cash surrender value of bank owned life insurance
|
|
|
(160
|
)
|
|
|
(158
|
)
|
|
|
(163
|
)
|
Nondeductible merger expenses
|
|
|
115
|
|
|
|
–
|
|
|
|
–
|
|
Stock option expense
|
|
|
–
|
|
|
|
171
|
|
|
|
6
|
|
Change related to Internal Revenue Code § 382 net operating loss carryover limitations
|
|
|
–
|
|
|
|
4
|
|
|
|
80
|
|
Provisional tax adjustment related to deferred tax assets devaluation from Tax Cuts and Jobs Act
|
|
|
1,641
|
|
|
|
–
|
|
|
|
–
|
|
Change in federal valuation allowance
|
|
|
109
|
|
|
|
(93
|
)
|
|
|
(7,905
|
)
|
Change in state valuation allowance
|
|
|
7
|
|
|
|
(10
|
)
|
|
|
(887
|
)
|
Other, net
|
|
|
(23
|
)
|
|
|
15
|
|
|
|
23
|
|
Income tax expense (benefit)
|
|
$
|
4,559
|
|
|
$
|
3,632
|
|
|
$
|
(9,507
|
)
|
Effective tax rate
|
|
|
59.0
|
%
|
|
|
36.1
|
%
|
|
|
n/a
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 14. INCOME TAXES
(continued)
Deferred tax assets and liabilities as of December 31, 2017 and
2016 were as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Dollars in Thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses
|
|
$
|
2,183
|
|
|
$
|
3,027
|
|
Other real estate owned
|
|
|
15
|
|
|
|
894
|
|
Net operating loss carryover – limited by Internal Revenue Code § 382
|
|
|
1,257
|
|
|
|
2,010
|
|
Net unrealized loss on securities available-for-sale
|
|
|
233
|
|
|
|
518
|
|
Deferred loan fees
|
|
|
159
|
|
|
|
210
|
|
Alternative minimum tax credit
|
|
|
527
|
|
|
|
527
|
|
Other
|
|
|
785
|
|
|
|
936
|
|
Total deferred tax assets
|
|
|
5,159
|
|
|
|
8,122
|
|
Valuation allowance – federal
|
|
|
(90
|
)
|
|
|
(24
|
)
|
Valuation allowance – state
|
|
|
(12
|
)
|
|
|
(3
|
)
|
Total deferred tax assets, net of valuation allowance
|
|
|
5,057
|
|
|
|
8,095
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(332
|
)
|
|
|
(514
|
)
|
Deferred loan costs
|
|
|
(223
|
)
|
|
|
(271
|
)
|
Prepaid expenses
|
|
|
(151
|
)
|
|
|
(272
|
)
|
Other
|
|
|
(243
|
)
|
|
|
(286
|
)
|
Total deferred tax liability
|
|
|
(949
|
)
|
|
|
(1,343
|
)
|
Net deferred tax asset
|
|
$
|
4,108
|
|
|
$
|
6,752
|
|
The Tax Cuts and Jobs Act (Tax Reform) was enacted on December 22, 2017. The Tax Reform reduced the corporate
income tax rate to 21% effective January 1, 2018 and changed certain other provisions. Accounting guidance required the Company
to remeasure its deferred tax assets and deferred tax liabilities using the new enacted tax rate. The Company has recorded additional
expense of $1.6 million to reflect changes that resulted from the enactment of the Tax Reform. Notwithstanding the foregoing, we
are still analyzing certain aspects of the new law and refining our calculations, which could affect the measurement of these assets
and liabilities or give rise to new deferred tax amounts.
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 both December 31, 2017 and 2016, the Company evaluated the expected realization of its federal and
state deferred tax assets. Based on these evaluations, 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 $102,000 and $27,000 as of December 31, 2017 and 2016, respectively.
During the years ended December 31, 2017 and
2016, the Company used $0.3 million and $4.1 million of federal net operating loss carryover, while no federal net operating loss
carryover was used during the year ended December 31, 2015. During the years ended December 31, 2017, 2016 and 2015, the Company
used $0.3 million, $2.6 million and $0.1 million, respectively, of state net operating loss carryover.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 14. INCOME TAXES
(continued)
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 third 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 federal 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 pre-change net operating loss carryforward remains. For state purposes,
post-change, non-limited net operating loss carryforward remains. During the year ended December 31, 2017, $0.6 million of state
net operating losses were generated.
As of December 31, 2017, the Company has a
federal net operating loss carryover of $5.0 million which will expire between 2027 and 2033. There is no valuation allowance on
this carryover. As of December 31, 2017, the Company has a state net operating loss carryover of $5.6 million which will expire
between 2018 and 2033. There is no valuation allowance on this carryover.
NOTE 15. EARNINGS PER COMMON SHARE
Basic earnings per common share is computed
by dividing net income by the weighted average number of common shares and common stock equivalents outstanding for the period.
The basic weighted average common shares and common stock equivalents are computed using the treasury stock method. The basic weighted
average common shares and common stock equivalents outstanding for the period is adjusted for average unallocated employee stock
ownership plan shares, average director’s deferred compensation shares and average unearned restricted stock awards. Diluted
earnings per common share is computed by dividing net income by the weighted average number of common shares and common stock equivalents
outstanding for the period increased for the dilutive effect of unvested stock options and stock awards. The dilutive effect of
the unvested stock options and stock awards is calculated under the treasury stock method utilizing the average market value of
the Company’s stock for the period.
The following table summarizes the basic and
diluted earnings per common share computation for the years ended December 31, 2017, 2016 and 2015:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in Thousands, Except Share Information)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,168
|
|
|
$
|
6,418
|
|
|
$
|
7,718
|
|
Weighted average common shares outstanding
|
|
|
15,548,168
|
|
|
|
15,508,933
|
|
|
|
15,508,969
|
|
Less: average unallocated employee stock ownership plan shares
|
|
|
(67,067
|
)
|
|
|
(71,844
|
)
|
|
|
(76,647
|
)
|
Less: average director’s deferred compensation shares
|
|
|
(16,792
|
)
|
|
|
(19,743
|
)
|
|
|
(33,899
|
)
|
Less: average unvested restricted stock awards
|
|
|
(39,143
|
)
|
|
|
–
|
|
|
|
(136
|
)
|
Weighted average common shares outstanding, as adjusted
|
|
|
15,425,166
|
|
|
|
15,417,346
|
|
|
|
15,398,287
|
|
Basic earnings per common share
|
|
$
|
0.21
|
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,168
|
|
|
$
|
6,418
|
|
|
$
|
7,718
|
|
Weighted average common shares outstanding, as adjusted (from above)
|
|
|
15,425,166
|
|
|
|
15,417,346
|
|
|
|
15,398,287
|
|
Add: dilutive effects of assumed exercise of stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Add: dilutive effects of full vesting of stock awards
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Weighted average dilutive shares outstanding
|
|
|
15,425,166
|
|
|
|
15,417,346
|
|
|
|
15,398,287
|
|
Diluted earnings per common share
|
|
$
|
0.21
|
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 15. EARNINGS PER COMMON SHARE
(continued)
During the years ended December 31, 2017, 2016
and 2015, all of the Company’s stock options and stock awards were antidilutive and, therefore, were excluded from the calculation
of diluted earnings per common share.
NOTE 16. EMPLOYEE BENEFITS
Defined Contribution Plan
Company employees meeting certain age and length
of service requirements may participate in a 401(k) plan sponsored by the Company. Plan participants may contribute between 1%
and 75% of gross income, subject to an Internal Revenue Service maximum amount, with a Company match equal to 100% of the first
3% of the compensation contributed, plus 50% of the next 2% of the compensation contributed. For the years ended December 31, 2017,
2016 and 2015, the total plan expense was $375,000, $382,000 and $160,000, respectively.
Supplemental Executive Retirement Plans
and Director Retirement Plan
Under the terms of the executive and senior
officer supplemental executive retirement plans (SERP) and the Director Retirement Plan, each participant will receive a periodic
benefit payment beginning on a date defined by each plan. Under the executive SERP, benefit payments begin the first month after
the retirement date. Under the Director Retirement Plan, benefit payments began on the first month following 100% vesting. Under
the senior officer SERP, benefit payments begin on January 1
st
of the year following the retirement date. Benefit payments
are due over a period of ten (10) to twenty (20) years after retirement and are based on the amount of each participant’s
appreciation benefit plus accrued interest on unpaid balances.
Vesting in the appreciation benefit for the
executive SERPs and Director Retirement Plan was contingent upon the occurrence of certain events. For the executive SERPs, such
events included the successful completion of the second step conversion, two consecutive quarters of positive income before the
expense of participant vesting by the Company, the participant's death or disability, a change-of control of the Company, or involuntary
termination of employment. For the Director Retirement Plan, such events included the successful completion of the second step
conversion. The vested appreciation benefit would have been payable over 15 years for executive SERPs and is payable over 10 years
for the Director Retirement Plan. The vested but unpaid appreciation benefits of the executive SERPs and Director Retirement Plan
are credited for interest at a rate of 3-month LIBOR plus 275 basis points.
Under the terms of the senior officer SERP,
the appreciation benefit was established upon completion of the second step conversion and becomes payable to the participant over
20 years following separation from service due to retirement from the Company, which may be no earlier than age 55. In the event
of a death of a participant with 5 or more years of service, a lump sum payment is due to the participant's beneficiary. The participant
forfeits their appreciation benefit if the employee leaves the Company prior to retirement. The unpaid appreciation benefit for
each participant is credited for interest at a rate of 3-month LIBOR plus 275 basis points.
The executive SERPs and Director Retirement
Plan were partially funded through the creation of a rabbi trust (the Trust). The Trust purchased 34,009 shares of Company stock
at $10.00 per share during the second step conversion and has recorded the purchase as common stock held by benefits plans in stockholders’
equity. Benefits paid by the Trust may be paid in cash or stock and the assets of the Trust are considered general assets of the
Company. Changes in the value of Company stock are recorded as adjustments to the benefits accrued for each participant.
The Company recorded expense of $14,000, $13,000
and $7,000 for SERP and Director Retirement Plans in 2017, 2016 and 2015, respectively, including increases for vesting, increases
in the market value of Company stock held in the Trust, and interest on unpaid appreciation benefits, net of the reversal of benefits
accrued for SERP participants who severed their employment prior to retirement.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 16. EMPLOYEE BENEFITS
(continued)
Below is the amount of accrued liability and
unvested appreciation benefit under the SERP and Director Retirement Plan as of December 31, 2017 and 2016:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(Dollars in Thousands)
|
|
Accrued liability:
|
|
|
|
|
|
|
|
|
Executive and senior officer SERP
|
|
$
|
221
|
|
|
$
|
209
|
|
Director retirement plan
|
|
$
|
56
|
|
|
$
|
70
|
|
Unvested appreciation benefit:
|
|
|
|
|
|
|
|
|
Executive and senior officer SERP
|
|
$
|
127
|
|
|
$
|
136
|
|
Director retirement plan
|
|
$
|
–
|
|
|
$
|
–
|
|
In October 2015, the Company’s Board
of Directors approved the payment and disbursement of vested appreciation benefits to participants under the Director Retirement
Plan, which would have normally been paid out and disbursed between April 2012 and October 2015. Such payments and disbursements
were temporarily suspended due to the Consent Order (the Order), dated August 10, 2012 and terminated March 26, 2015, between the
Bank and the Office of Comptroller Currency (the OCC), among other things. These catch up payments were made in November 2015,
totaling $53,000 in cash, and some of the catch up distributions were made in December 2015, totaling 4,688 shares. The remaining
catch up distributions were made early in 2016, totaling 3,771 shares.
The Company’s Board of Directors also
approved resumption of regularly scheduled payments and disbursements under the Director Retirement Plan. Regular payments and
disbursements totaled $16,000 in cash and 205 shares during the year ended December 31, 2017, $16,000 in cash and 175 shares during
the year ended December 31, 2016, and $1,000 in cash and 43 shares during the year ended December 31, 2015.
Under the Director Retirement Plan, all cash
payments during 2017, 2016, and 2015 were previously accrued for and all share distributions during 2017, 2016, and 2015 were of
previously issued and outstanding Company stock.
Deferred Director Fee Plan
A deferred director fee compensation plan covers
all non-employee directors. Under the plan, directors may defer director fees. These fees are expensed as earned and the plan accumulates
the fees plus earnings. At December 31, 2017 and 2016, the liability for the plan was $99,000 and $118,000, respectively.
NOTE 17. EMPLOYEE STOCK OWNERSHIP PLAN
The Company established the ESOP through the
purchase of 465,520 shares of common stock from Atlantic Coast Federal Corporation’s first step conversion in 2004, with
proceeds from a ten-year note in the amount of $4.7 million between the ESOP and Atlantic Coast Federal Corporation. Upon completion
of the Company’s second step conversion in 2011, all unallocated shares in the plan were exchanged for Atlantic Coast Financial
Corporation shares at a rate of 0.1960 shares of Atlantic Coast Financial Corporation for each share of Atlantic Coast Federal
Corporation. As part of the conversion, the Company loaned $0.7 million to the trust for the ESOP enabling it to purchase 68,434
shares of common stock in the stock offering for allocation under such plan. The Company’s loan to the ESOP was combined
with the remaining debt from the original note, described below, and modified to be payable over 20 years. Further, the ESOP was
modified such that unearned shares held by the ESOP will be allocated over the same term as the debt.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 17. EMPLOYEE STOCK OWNERSHIP PLAN
(continued)
The Company's Board of Directors determines
the amount of contribution to the ESOP annually, but is required to make contributions sufficient to service the ESOP's debt. Shares
are released for allocation to employees as the ESOP debt is repaid. Eligible employees receive an allocation of released shares
at the end of the calendar year on a relative compensation basis. An employee becomes eligible on January 1
st
or
July 1
st
immediately following the date they complete one year of service. In the event the Company pays dividends to
stockholders, the dividends paid on allocated ESOP shares will be paid to employee accounts, while the dividends paid on unallocated
shares held by the ESOP will be applied to the ESOP note payable.
Contributions to the ESOP were $97,000, $97,000
and $94,000 for the years ended December 31, 2017, 2016 and 2015, respectively, and did not include dividends on unearned shares
during any of the years.
Compensation expense for shares committed to
be released under the ESOP was $39,000, $30,000 and $23,000 for the years ended December 31, 2017, 2016 and 2015, respectively.
Shares held by the ESOP as of December 31,
2017 and 2016 were as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Allocated to eligible employees
|
|
|
4,790
|
|
|
|
4,790
|
|
Unearned
|
|
|
62,277
|
|
|
|
67,067
|
|
Total ESOP shares
|
|
|
67,067
|
|
|
|
71,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in Thousands)
|
|
Fair value of unearned shares
|
|
$
|
587
|
|
|
$
|
456
|
|
NOTE 18. STOCK-BASED COMPENSATION
Plans Adopted in 2016
2016 Omnibus Incentive Plan
At the 2016 Annual Meeting of Stockholders,
the Company’s stockholders approved the 2016 Omnibus Incentive Plan (2016 Incentive Plan). In 2016, the Company also adopted,
two incentive compensation plans under the 2016 Incentive Plan. These plans provided for the grants of awards to the Company’s
three executive officers, based on the Company’s earnings per share, return on average assets, and the amount of non-performing
assets as a percentage of total assets. Under the first plan, the Annual Incentive Plan, awards are made 70% in cash and 30% in
restricted stock to vest over a three-year period. Under the second plan, the Long Term Incentive Plan, awards are made in restricted
stock, which will cliff vest after five years.
The compensation cost that has been charged
against income for 2016 Incentive Plan restricted stock awards was $131,000 during the year ended December 31, 2017. There was
no compensation cost that has been charged against income for 2016 Incentive Plan restricted stock awards for the years ended December
31, 2016 and 2015.
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 Incentive Plan on February 15, 2017.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 18. STOCK-BASED COMPENSATION
(continued)
A summary of the status of the shares as of
and for the year ended December 31, 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 December 31, 2017
|
|
|
44,648
|
|
|
|
7.78
|
|
There was approximately $216,000 of unrecognized
compensation expense related to non-vested shares awarded under the 2016 Incentive Plan at December 31, 2017. The expense is expected
to be recognized over a weighted-average period of 3.6 years.
Plans Adopted in 2005
The Company established stock-based compensation
plans following Atlantic Coast Federal Corporation’s first step conversion in 2004. In 2005, the Company’s stockholders
approved the establishment of both the Atlantic Coast Federal Corporation 2005 Recognition and Retention Plan (the Recognition
Plan) and the Atlantic Coast Federal Corporation 2005 Stock Option Plan (the Stock Option Plan). Upon completion of the Company’s
second step conversion in 2011, all unallocated or unvested shares in the plans were exchanged for Atlantic Coast Financial Corporation
shares at a rate of 0.1960 shares of Atlantic Coast Financial Corporation for each share of Atlantic Coast Federal Corporation.
There was no compensation cost that has been
charged against income for the Recognition Plan or the Stock Option Plan for the years ended December 31, 2017 and 2016. The compensation
cost that has been charged against income for the Recognition Plan was $2,000 during the year ended December 31, 2015. The compensation
cost that has been charged against income for the Stock Option Plan for the year ended December 31, 2015 was $12,000.
The Recognition Plan
The Recognition Plan became effective on July
1, 2005 and expired on June 30, 2015. The Recognition Plan permitted the Company’s Board of Directors to award up to 55,888
shares of its common stock to directors and key employees designated by the Board of Directors. Under the terms of the Recognition
Plan, awarded shares were restricted as to transferability and could not be sold, assigned, or transferred prior to vesting. Awarded
shares vested at a rate of 20% of the initially awarded amount per year, beginning on the first anniversary date of the award,
and were contingent upon continuous service by the recipient through the vesting date. An accelerated vesting occurred if there
was a change in control of the Company or death or disability of the participant. Any awarded shares which were forfeited were
returned to the Company and could have been re-awarded to another recipient.
There were no common stock share awards during
the years ended December 31, 2017, 2016 and 2015. There were no non-vested shares outstanding under the Recognition Plan at December
31, 2017 and 2016.
There was no unrecognized compensation expense
related to non-vested shares awarded under the Recognition Plan at December 31, 2017.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 18. STOCK-BASED COMPENSATION
(continued)
The Stock Option Plan
The Stock Option Plan became effective on July
28, 2005 and expired on July 27, 2015. The Stock Option Plan permitted the Company’s Board of Directors to grant options
to purchase up to 139,720 shares of its common stock to the Company’s directors and key employees. Under the terms of the
Stock Option Plan, granted stock options have a contractual term of 10 years from the date of grant, with an exercise price equal
to the market price of the Company’s common stock on the date of grant. Key employees were eligible to receive incentive
stock options or non-qualified stock options, while outside directors were eligible for non-statutory stock options only.
The Stock Option Plan also permitted the Company’s
Board of Directors to issue key employees, simultaneous with the issuance of stock options, an equal number of Limited Stock Appreciation
Rights (Limited SAR). The Limited SARs were exercisable only upon a change of control and, if exercised, reduced one-for-one the
recipient’s related stock option grants. Under the terms of the Stock Option Plan, granted stock options vested at a rate
of 20% of the initially granted amount per year, beginning on the first anniversary date of the grant, and were contingent upon
continuous service by the recipient through the vesting date. Accelerated vesting occurred if there was a change in control of
the Company or death or disability of the participant. There were 97,314 stock options remaining to be awarded as of July 27, 2015,
the date the plan was terminated.
There were no incentive stock option awards
during the years ended December 31, 2017, 2016 and 2015.
A summary of the option activity under the
Stock Option Plan as of December 31, 2017 and 2016, and changes for the year then ended is presented below:
|
|
Shares
|
|
|
Weighted-Average
Exercise Price Per Share
|
|
|
Weighted-Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
(in Years)
|
|
|
(in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
22,344
|
|
|
|
19.39
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,568
|
)
|
|
|
78.16
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
20,776
|
|
|
|
14.95
|
|
|
|
3.5
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest
|
|
|
20,776
|
|
|
|
14.95
|
|
|
|
3.5
|
|
|
|
–
|
|
Exercisable at year end
|
|
|
20,776
|
|
|
|
14.95
|
|
|
|
3.5
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2017
|
|
|
20,776
|
|
|
|
14.95
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
20,776
|
|
|
|
14.95
|
|
|
|
2.5
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest
|
|
|
20,776
|
|
|
|
14.95
|
|
|
|
2.5
|
|
|
|
–
|
|
Exercisable at year end
|
|
|
20,776
|
|
|
|
14.95
|
|
|
|
2.5
|
|
|
|
–
|
|
The fair value of each option award was estimated
on the date of grant using the Black Scholes option-pricing model based on certain assumptions. Due to the somewhat limited daily
trading volume of shares of our Company stock, the volatility of the SNL thrift index was used in lieu of the historical volatility
of our Company stock. The risk free rate for periods within the contractual term of the option was based on the U.S. Treasury yield
curve in effect at the date of the grant. The expected life of the options was estimated based on historical employee behavior
and represents the period of time that options were expected to remain outstanding.
There was no unrecognized compensation cost
related to non-vested stock options granted under the Stock Option Plan as of December 31, 2017.
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 19. REGULATORY SUPERVISION
The Bank’s actual and required capital
levels and ratios as of December 31, 2017 and 2016 were as follows:
|
|
Actual
|
|
|
Required to be Well-
Capitalized Under Prompt
Corrective Action
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in Millions)
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
98.3
|
|
|
|
12.53
|
%
|
|
$
|
78.5
|
|
|
|
10.00
|
%
|
Common equity tier 1 capital (to risk weighted assets)
|
|
|
89.7
|
|
|
|
11.43
|
%
|
|
|
51.0
|
|
|
|
6.50
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
89.7
|
|
|
|
11.43
|
%
|
|
|
62.8
|
|
|
|
8.00
|
%
|
Tier 1 capital (to adjusted total assets)
|
|
|
89.7
|
|
|
|
9.67
|
%
|
|
|
46.4
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
92.8
|
|
|
|
14.83
|
%
|
|
$
|
62.6
|
|
|
|
10.00
|
%
|
Common equity tier 1 capital (to risk weighted assets)
|
|
|
85.0
|
|
|
|
13.58
|
%
|
|
|
40.7
|
|
|
|
6.50
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
85.0
|
|
|
|
13.58
|
%
|
|
|
50.1
|
|
|
|
8.00
|
%
|
Tier 1 capital (to adjusted total assets)
|
|
|
85.0
|
|
|
|
9.44
|
%
|
|
|
45.0
|
|
|
|
5.00
|
%
|
The Bank’s capital classification under
Prompt Corrective Action (PCA) defined levels as of December 31, 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 4.53% as of December 31, 2017.
NOTE 20. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed Balance Sheets – December 31, 2017 and 2016
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at subsidiary
|
|
$
|
954
|
|
|
$
|
1,068
|
|
Investment in subsidiary
|
|
|
90,087
|
|
|
|
85,841
|
|
Note receivable from employee stock ownership plan
|
|
|
1,660
|
|
|
|
1,757
|
|
Other assets
|
|
|
–
|
|
|
|
337
|
|
Total assets
|
|
$
|
92,701
|
|
|
$
|
89,003
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
2,041
|
|
|
$
|
1,985
|
|
Total stockholders’ equity
|
|
|
90,660
|
|
|
|
87,018
|
|
Total liabilities and stockholders’ equity
|
|
$
|
92,701
|
|
|
$
|
89,003
|
|
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 20. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(continued)
Condensed Statements Of Operations – Years ended December
31, 2017, 2016 and 2015
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
65
|
|
|
$
|
64
|
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
171
|
|
|
|
162
|
|
|
|
454
|
|
Equity in net income of subsidiary
|
|
|
3,947
|
|
|
|
8,801
|
|
|
|
5,034
|
|
Noninterest expense
|
|
|
(1,079
|
)
|
|
|
(568
|
)
|
|
|
(464
|
)
|
Total noninterest income and expense
|
|
|
3,039
|
|
|
|
8,395
|
|
|
|
5,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
3,104
|
|
|
|
8,459
|
|
|
|
5,086
|
|
Income tax expense (benefit)
|
|
|
(64
|
)
|
|
|
2,041
|
|
|
|
(2,632
|
)
|
Net income
|
|
$
|
3,168
|
|
|
$
|
6,418
|
|
|
$
|
7,718
|
|
Condensed Statements Of Cash Flows – Years ended December
31, 2017, 2016 and 2015
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
(Dollars in Thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,168
|
|
|
$
|
6,418
|
|
|
$
|
7,718
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock ownership plan compensation expense
|
|
|
39
|
|
|
|
30
|
|
|
|
23
|
|
Restricted stock awards
|
|
|
1
|
|
|
|
–
|
|
|
|
–
|
|
Share-based compensation expense
|
|
|
131
|
|
|
|
–
|
|
|
|
14
|
|
Net change in other assets
|
|
|
337
|
|
|
|
2,242
|
|
|
|
(2,578
|
)
|
Net change in accrued expenses and other liabilities
|
|
|
56
|
|
|
|
(351
|
)
|
|
|
(229
|
)
|
Equity in undistributed income of subsidiary
|
|
|
(3,947
|
)
|
|
|
(8,801
|
)
|
|
|
(5,034
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(215
|
)
|
|
|
(462
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment received on employee stock ownership plan loan
|
|
|
97
|
|
|
|
96
|
|
|
|
94
|
|
Net cash provided by investing activities
|
|
|
97
|
|
|
|
96
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares purchased for and distributions from Rabbi Trust
|
|
|
4
|
|
|
|
126
|
|
|
|
(30
|
)
|
Net cash used in financing activities
|
|
|
4
|
|
|
|
126
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(114
|
)
|
|
|
(240
|
)
|
|
|
(22
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
1,068
|
|
|
|
1,308
|
|
|
|
1,330
|
|
Cash and cash equivalents, end of year
|
|
$
|
954
|
|
|
$
|
1,068
|
|
|
$
|
1,308
|
|
NOTE 21. AGREEMENT AND PLAN OF MERGER WITH AMERIS BANCORP
On November 16, 2017, the Company entered into
an Agreement and Plan of Merger (the Merger Agreement) with Ameris Bancorp, a Georgia corporation (Ameris). Pursuant to the Merger
Agreement, the Company will merge into Ameris, with Ameris as the surviving entity (the Ameris Merger). The Merger Agreement provides
that, immediately following the Ameris Merger, the Bank will be merged into Ameris Bank, a Georgia bank wholly owned by Ameris,
with Ameris Bank as the surviving entity (the Bank Merger).
ATLANTIC COAST FINANCIAL CORPORATION AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Years Ended December 31, 2017, 2016 and 2015
NOTE 21. AGREEMENT AND PLAN OF MERGER WITH AMERIS BANCORP
(continued)
Under the terms and subject to the conditions
of the Merger Agreement, the Company’s stockholders will have the right to receive $1.39 in cash and 0.17 shares of Ameris
common stock for each share of the common stock of the Company they hold. The Merger Agreement provides that immediately prior
to the closing of the Ameris Merger, the Company’s outstanding restricted stock awards will fully vest and be converted into
the right to receive the same merger consideration per share as other outstanding shares of the Company’s common stock.
The Merger Agreement has been unanimously approved
by the boards of directors of the Company and Ameris. The closing of the Ameris Merger is subject to the required approval of the
Company’s stockholders, requisite regulatory approvals and other customary closing conditions. The Ameris Merger is expected
to close during the second quarter of 2018.