The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements (the Financial Statements) and these notes to the Financial Statements (these Notes) include Atlantic Coast
Financial Corporation (the Company) and its wholly owned subsidiary, Atlantic Coast Bank (the Bank). All significant inter-company
balances and transactions have been eliminated in consolidation. The principal activity of the Company is the ownership of the
Bank’s common stock, and as such, the terms “Company” and “Bank” are used interchangeably throughout
the Financial Statements and these Notes in this Quarterly Report on Form 10-Q (this Report) and, unless context indicates otherwise,
refer to the activities of the Company and the Bank.
The accompanying condensed consolidated
balance sheet as of December 31, 2017, which was derived from the Company’s audited consolidated financial statements, and
the unaudited condensed consolidated financial statements as of March 31, 2018, and for the three months ended March 31, 2018 and
2017, have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP)
for interim financial information and with the instructions for Form 10-Q and Article 9 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP for a complete financial statement presentation.
In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary (i) for a
fair presentation and (ii) to make such statements not misleading, have been included.
Operating results for the three months
ended March 31, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31,
2018. The audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017 (the 2017 10-K), should be read in conjunction with these Financial Statements.
Certain items in the prior period financial
statements have been reclassified to conform to the current period presentation. The reclassifications had no effect on net income,
the balance of retained deficit or stockholders’ equity as previously reported.
The preparation of the Financial Statements
in conformity with U.S. GAAP requires management to make estimates and assumptions based on experience and available information
that affect the amounts reported in the Financial Statements and these Notes, and actual results could differ materially from these
estimates. Estimates associated with the allowance for portfolio loan losses (the allowance), measuring for impairment of troubled
debt restructurings (TDR), the fair values of securities, other financial instruments and other real estate owned (OREO) and the
realization of deferred tax assets are particularly susceptible to material change in the near term.
Accumulated other comprehensive income
consists solely of the effects of unrealized gains and losses on securities available-for-sale, net of income taxes, which include
a disproportionate tax effect of $0.7 million at both
March 31, 2018 and December 31, 2017. This disproportionate tax effect is a result of the reversal of the deferred tax valuation
allowance in 2015.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 2. IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS
Recently Issued Standards Adopted
In January 2016, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-01,
Recognition and Measurement of Financial Assets and
Financial Liabilities
(ASU 2016-01). The amendments in ASU 2016-01: (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 adopted 2016-01 for the first quarter of 2018, with no material impact to the financial statements; however,
the calculation used to determine the disclosed fair value of the Company’s portfolio loans now requires the use of an exit
price rather than an entrance price. This refined calculation did not have a material impact on our fair value disclosures.
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 adopted ASU 2014-09 for the first quarter of 2018, with no material impact to the financial statements
because the standard does not apply to financial instruments, which account for the majority of the Company’s revenues.
Revenue-generating transactions the standard does apply to are service charges and fees, which are included in noninterest income.
These revenues represent service fees for monthly activity and maintenance on customer accounts, and can be transaction-based,
item-based or time-based. Revenue is recognized when the performance obligation is completed, which is generally monthly for maintenance
services or when a transaction is processed. Payment for such performance obligations are generally received at the time the performance
obligations are satisfied.
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 CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
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.
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.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 3. TRANSACTIONS WITH RELATED PARTIES
(continued)
Transactions between Atlantic Coast
Bank and Customers Bank (continued)
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. There was no outstanding balance in warehouse loans held-for-investment related to the Customers Participation
Agreements as of March 31, 2018, while the outstanding balance was $42.7 million as of December 31, 2017. During the three months
ended March 31, 2018 and 2017, the Bank earned $68,000 and $39,000, respectively, of interest income related to the Customers Participation
Agreements.
NOTE 4. FAIR VALUE
Asset and liability fair value measurements
(in this Note and
Note 5. Fair Value of Financial Instruments
of these Notes) have been categorized based upon the fair
value hierarchy described below:
|
·
|
Level 1 – Valuation is based upon
quoted market prices for identical instruments in active markets.
|
|
·
|
Level 2 – Valuation is based upon
observable inputs other than quoted market prices included within Level 1, including quoted market prices for similar instruments
in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market.
|
|
·
|
Level 3 – Valuation is generated
from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect
estimates or assumptions that market participants would use in pricing the assets or liabilities. Valuation techniques include
use of option pricing models, discounted cash flow models, and similar techniques.
|
Assets measured at fair value on a recurring
basis as of March 31, 2018 and December 31, 2017, are summarized below:
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
5,457
|
|
|
$
|
−
|
|
|
$
|
5,457
|
|
|
$
|
−
|
|
Mortgage-backed securities – residential
|
|
|
22,216
|
|
|
|
−
|
|
|
|
22,216
|
|
|
|
−
|
|
Collateralized mortgage obligations – U.S. government
|
|
|
2,121
|
|
|
|
−
|
|
|
|
2,121
|
|
|
|
−
|
|
Corporate debt
|
|
|
6,388
|
|
|
|
−
|
|
|
|
6,388
|
|
|
|
−
|
|
Total
|
|
$
|
36,182
|
|
|
$
|
−
|
|
|
$
|
36,182
|
|
|
$
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
−
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 4. FAIR VALUE
(continued)
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 March 31, 2018 and December 31, 2017, and there were no transfers into or out of Level 3 investments
during the three months ended March 31, 2018 and the year ended December 31, 2017. 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 March 31, 2018 and December 31, 2017.
Assets measured at fair value on a nonrecurring
basis as of March 31, 2018 and December 31, 2017, are summarized below:
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
1,699
|
|
|
$
|
−
|
|
|
$
|
−
|
|
|
$
|
1,699
|
|
Impaired loans – collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
6,189
|
|
|
|
−
|
|
|
|
−
|
|
|
|
6,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 4. FAIR VALUE
(continued)
Quantitative information about Level 3
fair value measurements as of March 31, 2018 and December 31, 2017, is as follows:
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable Inputs
|
|
Range
(Weighted
Average)
(1)
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
1,699
|
|
|
Broker price opinions, appraisal of collateral
(2), (3)
|
|
Appraisal adjustments
(4)
Liquidation expenses
|
|
0.0% to 46.5% (11.8%)
10.0% (10.0%)
|
Impaired loans – collateral dependent (reported on the consolidated balance sheets in portfolio loans, net)
|
|
|
6,189
|
|
|
Appraisal of collateral
(2)
|
|
Appraisal adjustments
(4)
Liquidation expenses
|
|
0.0 to 63.5%
(29.4%)
10.0% (10.0%)
|
|
|
|
|
|
|
|
|
|
|
|
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%)
|
|
(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. There were no write-downs on OREO for the three
months ended March 31, 2018. Write-downs on OREO for the three months ended March 31, 2017 were $80,000. 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 March 31, 2018 and December 31, 2017.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair value
of financial instruments, not previously presented, as of March 31, 2018 and December 31, 2017, were as follows:
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in Thousands)
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
4,434
|
|
|
$
|
4,434
|
|
|
$
|
4,434
|
|
|
$
|
−
|
|
|
$
|
−
|
|
Short-term interest-earning deposits
|
|
|
44,082
|
|
|
|
44,082
|
|
|
|
44,082
|
|
|
|
−
|
|
|
|
−
|
|
Portfolio loans, net
|
|
|
757,361
|
|
|
|
723,280
|
|
|
|
−
|
|
|
|
717,091
|
|
|
|
6,189
|
|
Loans held-for-sale
|
|
|
6,062
|
|
|
|
6,395
|
|
|
|
−
|
|
|
|
6,395
|
|
|
|
−
|
|
Warehouse loans held-for-investment
|
|
|
29,071
|
|
|
|
29,071
|
|
|
|
−
|
|
|
|
29,071
|
|
|
|
−
|
|
Federal Home Loan Bank stock, at cost
|
|
|
9,062
|
|
|
|
9,062
|
|
|
|
−
|
|
|
|
−
|
|
|
|
9,062
|
|
Bank owned life insurance
|
|
|
18,120
|
|
|
|
18,120
|
|
|
|
−
|
|
|
|
18,120
|
|
|
|
−
|
|
Accrued interest receivable
|
|
|
2,131
|
|
|
|
2,131
|
|
|
|
−
|
|
|
|
2,131
|
|
|
|
−
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
640,695
|
|
|
|
641,072
|
|
|
|
−
|
|
|
|
641,072
|
|
|
|
−
|
|
Federal Home Loan Bank advances
|
|
|
192,375
|
|
|
|
192,367
|
|
|
|
−
|
|
|
|
192,367
|
|
|
|
−
|
|
Accrued interest payable (reported on consolidated balance sheets in accrued expenses and other liabilities)
|
|
|
169
|
|
|
|
169
|
|
|
|
−
|
|
|
|
169
|
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
−
|
|
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 and for variable rate loans with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows
using discount rates, which reflect factors such as liquidity, credit, and nonperformance risk of the loans, applied to the estimated
life. For fixed rate deposits and for variable rate 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. Carrying amount is the
estimated fair value for warehouse loans held-for-investment, due to the rapid repayment of the loans (generally less than 30 days).
Fair value of bank owned life insurance is based on the insurance contract cash surrender value or quoted market prices of the
underlying securities or similar securities. Fair value of the Federal Home Loan Bank (FHLB) advances and securities sold under
agreements to repurchase (repurchase agreements) is based on current rates for similar financing. It was not practicable to determine
the fair value of the FHLB stock due to restrictions placed on its transferability. The estimated fair value of other financial
instruments and off-balance-sheet commitments approximate cost and are not considered significant to this presentation.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
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 March 31, 2018 and December 31,
2017.
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 March
31, 2018 and December 31, 2017:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
5,494
|
|
|
$
|
4
|
|
|
$
|
(41
|
)
|
|
$
|
5,457
|
|
|
$
|
5,457
|
|
Mortgage-backed securities – residential
|
|
|
23,240
|
|
|
|
−
|
|
|
|
(1,024
|
)
|
|
|
22,216
|
|
|
|
22,216
|
|
Collateralized mortgage obligations – U.S. government
|
|
|
2,228
|
|
|
|
−
|
|
|
|
(107
|
)
|
|
|
2,121
|
|
|
|
2,121
|
|
Corporate debt
|
|
|
6,535
|
|
|
|
22
|
|
|
|
(169
|
)
|
|
|
6,388
|
|
|
|
6,388
|
|
Total investment securities
|
|
$
|
37,497
|
|
|
$
|
26
|
|
|
$
|
(1,341
|
)
|
|
$
|
36,182
|
|
|
$
|
36,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 6. INVESTMENT SECURITIES
(continued)
The amortized cost and fair value of investment
securities, segregated by contractual maturity as of March 31, 2018, are shown below:
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
−
|
|
|
$
|
−
|
|
Due in more than one to five years
|
|
|
1,452
|
|
|
|
959
|
|
Due in more than five to ten years
|
|
|
9,771
|
|
|
|
10,083
|
|
Due after ten years
|
|
|
806
|
|
|
|
803
|
|
Mortgage-backed securities – residential
|
|
|
23,240
|
|
|
|
22,216
|
|
Collateralized mortgage obligations – U.S. government
|
|
|
2,228
|
|
|
|
2,121
|
|
|
|
$
|
37,497
|
|
|
$
|
36,182
|
|
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 March 31, 2018 and December 31, 2017, 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)
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
4,083
|
|
|
$
|
(41
|
)
|
|
$
|
−
|
|
|
$
|
−
|
|
|
$
|
4,083
|
|
|
$
|
(41
|
)
|
Mortgage-backed securities – residential
|
|
|
−
|
|
|
|
−
|
|
|
|
22,190
|
|
|
|
(1,024
|
)
|
|
|
22,190
|
|
|
|
(1,024
|
)
|
Collateralized mortgage obligations – U.S. Government
|
|
|
−
|
|
|
|
−
|
|
|
|
2,122
|
|
|
|
(107
|
)
|
|
|
2,122
|
|
|
|
(107
|
)
|
Corporate debt
|
|
|
−
|
|
|
|
−
|
|
|
|
4,831
|
|
|
|
(169
|
)
|
|
|
4,831
|
|
|
|
(169
|
)
|
|
|
$
|
4,083
|
|
|
$
|
(41
|
)
|
|
$
|
29,143
|
|
|
$
|
(1,300
|
)
|
|
$
|
33,226
|
|
|
$
|
(1,341
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 6. INVESTMENT SECURITIES
(continued)
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
March 31, 2018, the Company’s security portfolio consisted of 23 investment securities (all classified as available-for-sale),
17 of which were in an unrealized loss position. The unrealized losses were primarily related to debt securities whose underlying
collateral is residential mortgages and all of these debt securities were issued by government sponsored organizations, as discussed
below.
As of March 31, 2018, $24.3 million, or
approximately 67% 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.
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 March 31, 2018.
The Company did not hold any non-agency
collateralized mortgage-backed securities or collateralized mortgage obligations as of March 31, 2018 and December 31, 2017, and
did not record OTTI related to such securities during the three months ended March 31, 2018 and 2017.
Proceeds from Investment Securities
Proceeds from sales, payments, maturities,
and calls of securities available-for-sale were $1.1 million and $21.3 million for the three months ended March 31, 2018 and 2017,
respectively.
No gross gains or losses were realized
during the three months ended March 31, 2018 and 2017.
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 March 31, 2018 and December 31, 2017.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
Following is a comparative composition
of net portfolio loans as of March 31, 2018 and December 31, 2017:
|
|
March 31,
2018
|
|
|
% of
Total Loans
|
|
|
December 31,
2017
|
|
|
% of
Total Loans
|
|
|
|
(Dollars in Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
283,194
|
|
|
|
37.3
|
%
|
|
$
|
286,671
|
|
|
|
37.8
|
%
|
Multi-family
|
|
|
65,043
|
|
|
|
8.5
|
%
|
|
|
65,419
|
|
|
|
8.6
|
%
|
Commercial
|
|
|
226,426
|
|
|
|
29.8
|
%
|
|
|
220,282
|
|
|
|
29.0
|
%
|
Land
|
|
|
16,591
|
|
|
|
2.2
|
%
|
|
|
13,760
|
|
|
|
1.8
|
%
|
Total real estate loans
|
|
|
591,254
|
|
|
|
77.8
|
%
|
|
|
586,132
|
|
|
|
77.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
8,297
|
|
|
|
1.1
|
%
|
|
|
8,579
|
|
|
|
1.1
|
%
|
Commercial
|
|
|
16,941
|
|
|
|
2.2
|
%
|
|
|
17,309
|
|
|
|
2.3
|
%
|
Acquisition and development
|
|
|
−
|
|
|
|
−
|
%
|
|
|
−
|
|
|
|
−
|
%
|
Total real estate construction loans
|
|
|
25,238
|
|
|
|
3.3
|
%
|
|
|
25,888
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
33,647
|
|
|
|
4.4
|
%
|
|
|
34,477
|
|
|
|
4.5
|
%
|
Consumer
|
|
|
33,222
|
|
|
|
4.4
|
%
|
|
|
34,743
|
|
|
|
4.6
|
%
|
Commercial
|
|
|
76,440
|
|
|
|
10.1
|
%
|
|
|
78,451
|
|
|
|
10.3
|
%
|
Total other portfolio loans
|
|
|
143,309
|
|
|
|
18.9
|
%
|
|
|
147,671
|
|
|
|
19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
|
759,801
|
|
|
|
100.0
|
%
|
|
|
759,691
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for portfolio loan losses
|
|
|
(8,600
|
)
|
|
|
|
|
|
|
(8,600
|
)
|
|
|
|
|
Net deferred portfolio loan costs
|
|
|
5,452
|
|
|
|
|
|
|
|
5,592
|
|
|
|
|
|
Premiums and discounts on purchased loans, net
|
|
|
708
|
|
|
|
|
|
|
|
823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans, net
|
|
$
|
757,361
|
|
|
|
|
|
|
$
|
757,506
|
|
|
|
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents the contractual
aging of the recorded investment in past due loans by class of portfolio loans as of March 31, 2018 and December 31, 2017:
|
|
Current
|
|
|
30 – 59 Days
Past Due
|
|
|
60 – 89 Days
Past Due
|
|
|
> 90 Days
Past Due
|
|
|
Total
Past Due
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
280,741
|
|
|
$
|
796
|
|
|
$
|
874
|
|
|
$
|
783
|
|
|
$
|
2,453
|
|
|
$
|
283,194
|
|
Multi-family
|
|
|
65,043
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
65,043
|
|
Commercial
|
|
|
226,222
|
|
|
|
−
|
|
|
|
−
|
|
|
|
204
|
|
|
|
204
|
|
|
|
226,426
|
|
Land
|
|
|
11,081
|
|
|
|
−
|
|
|
|
−
|
|
|
|
5,510
|
|
|
|
5,510
|
|
|
|
16,591
|
|
Total real estate loans
|
|
|
583,087
|
|
|
|
796
|
|
|
|
874
|
|
|
|
6,497
|
|
|
|
8,167
|
|
|
|
591,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
8,297
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
8,297
|
|
Commercial
|
|
|
16,941
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
16,941
|
|
Acquisition and development
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
Total real estate construction loans
|
|
|
25,238
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
25,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
32,692
|
|
|
|
159
|
|
|
|
542
|
|
|
|
254
|
|
|
|
955
|
|
|
|
33,647
|
|
Consumer
|
|
|
32,837
|
|
|
|
190
|
|
|
|
105
|
|
|
|
90
|
|
|
|
385
|
|
|
|
33,222
|
|
Commercial
|
|
|
75,804
|
|
|
|
31
|
|
|
|
−
|
|
|
|
605
|
|
|
|
636
|
|
|
|
76,440
|
|
Total other portfolio loans
|
|
|
141,333
|
|
|
|
380
|
|
|
|
647
|
|
|
|
949
|
|
|
|
1,976
|
|
|
|
143,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
749,658
|
|
|
$
|
1,176
|
|
|
$
|
1,521
|
|
|
$
|
7,446
|
|
|
$
|
10,143
|
|
|
$
|
759,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
Nonperforming portfolio loans, including
nonaccrual portfolio loans, as of March 31, 2018 and December 31, 2017 were $8.2 million and $7.8 million, respectively. There
were no portfolio loans over 90 days past-due and still accruing interest as of March 31, 2018 and December 31, 2017. 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 March 31, 2018 and December 31, 2017:
|
|
Performing
|
|
|
Nonperforming
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
281,700
|
|
|
$
|
1,494
|
|
|
$
|
283,194
|
|
Multi-family
|
|
|
65,043
|
|
|
|
–
|
|
|
|
65,043
|
|
Commercial
|
|
|
226,222
|
|
|
|
204
|
|
|
|
226,426
|
|
Land
|
|
|
11,081
|
|
|
|
5,510
|
|
|
|
16,591
|
|
Total real estate loans
|
|
|
584,046
|
|
|
|
7,208
|
|
|
|
591,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
8,297
|
|
|
|
–
|
|
|
|
8,297
|
|
Commercial
|
|
|
16,941
|
|
|
|
–
|
|
|
|
16,941
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
25,238
|
|
|
|
–
|
|
|
|
25,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
33,393
|
|
|
|
254
|
|
|
|
33,647
|
|
Consumer
|
|
|
33,132
|
|
|
|
90
|
|
|
|
33,222
|
|
Commercial
|
|
|
75,798
|
|
|
|
642
|
|
|
|
76,440
|
|
Total other portfolio loans
|
|
|
142,323
|
|
|
|
986
|
|
|
|
143,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans
|
|
$
|
751,607
|
|
|
$
|
8,194
|
|
|
$
|
759,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The Company utilizes an internal asset
classification system for multi-family, commercial and land portfolio loans as a means of reporting problem and potential problem
loans. Under the risk rating system, the Company classifies problem and potential problem loans as “Special Mention”,
“Substandard” or “Doubtful”, which correspond to risk ratings five, six and seven, respectively. Portfolio
loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories,
but possess weaknesses that deserve management’s close attention are deemed to be Special Mention, or risk rated five. Substandard
portfolio loans, or risk rated six, include those characterized by the distinct possibility the Company may sustain some loss if
the deficiencies are not corrected. Portfolio loans classified as Doubtful, or risk rated seven, have all the weaknesses inherent
in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full,
on the basis of currently existing facts, conditions and values, highly questionable and improbable. Generally, the Company reviews
all revolving credit relationships, regardless of amount, and any other loan relationship in excess of $500,000 on an annual basis.
However, risk ratings are updated any time the facts and circumstances warrant.
The Company evaluates residential and consumer
portfolio loans based on whether the loans are performing or nonperforming, as well as other factors. Residential loans are charged
down by the expected loss amount at the time they become nonperforming, which is generally 90 days past due. Consumer loans, including
automobile, manufactured housing, unsecured, and other secured loans are charged-off, net of expected recovery, when the loan becomes
significantly past due over a range of up to 180 days, depending on the type of loan.
The following table presents the risk category
of multi-family, commercial and land portfolio loans evaluated by internal asset classification as of March 31, 2018 and December
31, 2017:
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
$
|
65,043
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
65,043
|
|
Commercial
|
|
|
222,513
|
|
|
|
1,169
|
|
|
|
2,744
|
|
|
|
–
|
|
|
|
226,426
|
|
Land
|
|
|
11,081
|
|
|
|
–
|
|
|
|
5,510
|
|
|
|
–
|
|
|
|
16,591
|
|
Total real estate loans
|
|
|
298,637
|
|
|
|
1,169
|
|
|
|
8,254
|
|
|
|
–
|
|
|
|
308,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
16,941
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
16,941
|
|
Total real estate construction loans
|
|
|
16,941
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
16,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
75,420
|
|
|
|
–
|
|
|
|
1,020
|
|
|
|
–
|
|
|
|
76,440
|
|
Total other portfolio loans
|
|
|
75,420
|
|
|
|
–
|
|
|
|
1,020
|
|
|
|
–
|
|
|
|
76,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk graded portfolio loans
|
|
$
|
390,998
|
|
|
$
|
1,169
|
|
|
$
|
9,274
|
|
|
$
|
–
|
|
|
$
|
401,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
When establishing the allowance, management
categorizes loans into risk categories generally based on the nature of the collateral and basis of repayment. These risk categories
and the relevant risk characteristics are as follows:
Real Estate Loans
|
·
|
One- to four-family residential loans
have historically had less credit risk than other loan types as they tend to be smaller balance loans without concentrations to
a single borrower or group of borrowers. Repayment depends on the individual borrower’s capacity. If the real estate market
deteriorates and the value of residential real estate declines, there is a potential risk of loss if actions such as foreclosure
or short sale become necessary to collect the loan and private mortgage insurance was not purchased. In addition, depending on
the state in which the collateral is located, the risk of loss may increase, due to the time required to complete the foreclosure
process on a property.
|
|
·
|
Multi-family residential real estate loans
generally involve a greater degree of credit risk than residential real estate loans. Multi-family residential real estate loans
involve a greater degree of credit risk as compared to residential real estate loans due to the reliance on the successful operation
of the project. These loans are also more sensitive to adverse economic conditions.
|
|
·
|
Commercial real estate loans generally
have greater credit risk as compared to one- to four-family residential real estate loans, as they usually involve larger loan
balances secured by non-homogeneous or specific use properties. Repayment of these loans typically relies on the continued successful
operation of a business or the generation of lease income by the property and is therefore more sensitive to adverse conditions
in the economy and real estate market.
|
|
·
|
Land loans generally involve a greater
degree of credit risk as compared to residential real estate loans due to the lack of cash flow and reliance on the borrower’s
financial capacity. These loans are also more sensitive to adverse economic conditions.
|
Real Estate Construction Loans
|
·
|
Real estate construction loans, including
one- to four-family, commercial and acquisition and development loans, generally have greater credit risk than traditional one-
to four-family residential and commercial real estate loans. The repayment of these loans can be dependent on the sale of the property
to third parties or the successful completion of the improvements by the builder for the end user. In the event a loan is made
on property that is not yet approved for the planned development, there is risk that approvals will not be granted or will be delayed.
Construction loans also run the risk that improvements will not be completed on time or in accordance with specifications and projected
costs. Construction loans include Small Business Administration (SBA) and U.S. Department of Agriculture (USDA) construction loans,
which generally have less credit risk than traditional construction loans due to a portion of the balance being guaranteed upon
completion of the construction.
|
Other Portfolio Loans
|
·
|
Home equity loans and home equity lines
of credit are similar to one- to four-family residential loans and generally carry less risk than other loan types as they tend
to be smaller balance loans without concentrations to a single borrower or group of borrowers. However, similar to one- to four-family
residential loans, there is a potential risk of loss if the real estate market deteriorates and the value of residential real estate
declines. Such loans may be of increased risk if the lien position on the collateral is secondary.
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
Other Portfolio Loans (continued)
|
·
|
Consumer loans often are secured by depreciating
collateral, including automobiles and mobile homes, or are unsecured and may carry more risk than real estate secured loans. Consumer
loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness, or personal bankruptcy.
|
|
·
|
Commercial loans are secured by business
assets or may be unsecured, and repayment is directly dependent on the continued successful operation of the borrower’s business
and ability to convert the assets to operating revenue. These possess greater risk than most other types of loans should the repayment
capacity of the borrower not be adequate.
|
Activity in the allowance for the three
months ended March 31, 2018 and 2017 was as follows:
|
|
Beginning Balance
|
|
|
Charge-Offs
|
|
|
Recoveries
|
|
|
Provisions
|
|
|
Ending Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
2,684
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
30
|
|
|
$
|
2,714
|
|
Multi-family
|
|
|
170
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
169
|
|
Commercial
|
|
|
2,989
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(108
|
)
|
|
|
2,881
|
|
Land
|
|
|
159
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39
|
|
|
|
198
|
|
Total real estate loans
|
|
|
6,002
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(40
|
)
|
|
|
5,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
53
|
|
Commercial
|
|
|
178
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
197
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
233
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
604
|
|
|
|
(35
|
)
|
|
|
9
|
|
|
|
35
|
|
|
|
613
|
|
Consumer
|
|
|
345
|
|
|
|
(99
|
)
|
|
|
42
|
|
|
|
50
|
|
|
|
338
|
|
Commercial
|
|
|
1,342
|
|
|
|
(91
|
)
|
|
|
6
|
|
|
|
115
|
|
|
|
1,372
|
|
Total other portfolio loans
|
|
|
2,291
|
|
|
|
(225
|
)
|
|
|
57
|
|
|
|
200
|
|
|
|
2,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
74
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,600
|
|
|
$
|
(225
|
)
|
|
$
|
57
|
|
|
$
|
168
|
|
|
$
|
8,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
3,090
|
|
|
$
|
(35
|
)
|
|
$
|
56
|
|
|
$
|
(200
|
)
|
|
$
|
2,911
|
|
Multi-family
|
|
|
268
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
|
|
295
|
|
Commercial
|
|
|
2,209
|
|
|
|
-
|
|
|
|
-
|
|
|
|
342
|
|
|
|
2,551
|
|
Land
|
|
|
207
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
197
|
|
Total real estate loans
|
|
|
5,774
|
|
|
|
(35
|
)
|
|
|
56
|
|
|
|
159
|
|
|
|
5,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
159
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
160
|
|
Commercial
|
|
|
120
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
93
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
279
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
560
|
|
|
|
-
|
|
|
|
5
|
|
|
|
9
|
|
|
|
574
|
|
Consumer
|
|
|
457
|
|
|
|
(77
|
)
|
|
|
61
|
|
|
|
(55
|
)
|
|
|
386
|
|
Commercial
|
|
|
880
|
|
|
|
-
|
|
|
|
-
|
|
|
|
179
|
|
|
|
1,059
|
|
Total other portfolio loans
|
|
|
1,897
|
|
|
|
(77
|
)
|
|
|
66
|
|
|
|
133
|
|
|
|
2,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
212
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(166
|
)
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,162
|
|
|
$
|
(112
|
)
|
|
$
|
122
|
|
|
$
|
100
|
|
|
$
|
8,272
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents ending balances
for the allowance and portfolio loans based on the impairment method as of March 31, 2018:
|
|
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
|
|
$
|
–
|
|
|
$
|
2,714
|
|
|
$
|
2,714
|
|
Multi-family
|
|
|
–
|
|
|
|
169
|
|
|
|
169
|
|
Commercial
|
|
|
4
|
|
|
|
2,877
|
|
|
|
2,881
|
|
Land
|
|
|
–
|
|
|
|
198
|
|
|
|
198
|
|
Total real estate loans
|
|
|
4
|
|
|
|
5,958
|
|
|
|
5,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
53
|
|
|
|
53
|
|
Commercial
|
|
|
–
|
|
|
|
197
|
|
|
|
197
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
250
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
613
|
|
|
|
613
|
|
Consumer
|
|
|
–
|
|
|
|
338
|
|
|
|
338
|
|
Commercial
|
|
|
522
|
|
|
|
850
|
|
|
|
1,372
|
|
Total other portfolio loans
|
|
|
522
|
|
|
|
1,801
|
|
|
|
2,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
–
|
|
|
|
65
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance for portfolio loan losses balance
|
|
$
|
526
|
|
|
$
|
8,074
|
|
|
$
|
8,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
–
|
|
|
$
|
283,194
|
|
|
$
|
283,194
|
|
Multi-family
|
|
|
–
|
|
|
|
65,043
|
|
|
|
65,043
|
|
Commercial
|
|
|
1,290
|
|
|
|
225,136
|
|
|
|
226,426
|
|
Land
|
|
|
5,510
|
|
|
|
11,081
|
|
|
|
16,591
|
|
Total real estate loans
|
|
|
6,800
|
|
|
|
584,454
|
|
|
|
591,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
8,297
|
|
|
|
8,297
|
|
Commercial
|
|
|
–
|
|
|
|
16,941
|
|
|
|
16,941
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
25,238
|
|
|
|
25,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
–
|
|
|
|
33,647
|
|
|
|
33,647
|
|
Consumer
|
|
|
–
|
|
|
|
33,222
|
|
|
|
33,222
|
|
Commercial
|
|
|
970
|
|
|
|
75,470
|
|
|
|
76,440
|
|
Total other portfolio loans
|
|
|
970
|
|
|
|
142,339
|
|
|
|
143,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending portfolio loans balance
|
|
$
|
7,770
|
|
|
$
|
752,031
|
|
|
$
|
759,801
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents ending balances
for the allowance and portfolio loans based on the impairment method as of December 31, 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 CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
Portfolio loans for which concessions have
been granted as a result of the borrower’s financial difficulties are considered a TDR. These concessions, which in general
are applied to all categories of portfolio loans, may include a reduction in the interest rate on the loan, payment extensions,
forgiveness of principal, or a combination of these or other actions intended to maximize collection. The resulting TDR impairment
is included in specific reserves.
For homogeneous loan categories, such as
one- to four-family residential loans and home equity loans, the amount of impairment resulting from the modification of the loan
terms is calculated in aggregate by category of portfolio loan. The resulting impairment is included in specific reserves. If an
individual homogeneous loan defaults under terms of the TDR and becomes nonperforming, the Bank follows its usual practice of charging
the loan down to its estimated fair value and the charge-off is considered as a factor in determining the amount of the general
component of the allowance. For larger non-homogeneous loans, each loan that is modified is evaluated individually for impairment
based on either discounted cash flow or, for collateral-dependent loans, the appraised value of the collateral less selling costs.
If the loan is not collateral-dependent, the amount of the impairment, if any, is recorded as a specific reserve in the allowance.
If the loan is collateral-dependent, the amount of the impairment is charged off. There was an allocated allowance for loans, including
TDRs, individually evaluated for impairment of approximately $0.5 million at both March 31, 2018 and December 31, 2017.
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 March
31, 2018 and December 31, 2017 were as follows:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Dollars in Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
18,058
|
|
|
$
|
17,679
|
|
Multi-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
1,086
|
|
|
|
1,109
|
|
Land
|
|
|
6,128
|
|
|
|
6,136
|
|
Total real estate loans
|
|
|
25,272
|
|
|
|
24,924
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
–
|
|
|
|
–
|
|
Commercial
|
|
|
–
|
|
|
|
–
|
|
Acquisition and development
|
|
|
–
|
|
|
|
–
|
|
Total real estate construction loans
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,096
|
|
|
|
4,043
|
|
Consumer
|
|
|
1,280
|
|
|
|
1,302
|
|
Commercial
|
|
|
327
|
|
|
|
620
|
|
Total other portfolio loans
|
|
|
5,703
|
|
|
|
5,965
|
|
|
|
|
|
|
|
|
|
|
Total TDRs classified as impaired loans
|
|
$
|
30,975
|
|
|
$
|
30,889
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The TDR balances included performing
TDRs of $16.1 million and $15.7 million as of March 31, 2018 and December 31, 2017, respectively. There were no commitments
to lend additional amounts on TDRs as of March 31, 2018 and December 31, 2017.
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 three months ended March 31, 2018 and 2017:
|
|
Number of Contracts
|
|
|
Pre-Modification
Outstanding Recorded
Investments
|
|
|
Post-Modification
Outstanding Recorded
Investments
|
|
|
|
(Dollars in Thousands)
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
3
|
|
|
$
|
462
|
|
|
$
|
462
|
|
Total real estate loans
|
|
|
3
|
|
|
|
462
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
1
|
|
|
|
90
|
|
|
|
90
|
|
Commercial
|
|
|
1
|
|
|
|
91
|
|
|
|
91
|
|
Total other portfolio loans
|
|
|
2
|
|
|
|
181
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
5
|
|
|
$
|
643
|
|
|
$
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
1
|
|
|
$
|
55
|
|
|
$
|
55
|
|
Land
|
|
|
1
|
|
|
|
693
|
|
|
|
693
|
|
Total real estate loans
|
|
|
2
|
|
|
|
748
|
|
|
|
748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
3
|
|
|
|
271
|
|
|
|
271
|
|
Consumer
|
|
|
3
|
|
|
|
55
|
|
|
|
55
|
|
Total other portfolio loans
|
|
|
6
|
|
|
|
326
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
8
|
|
|
$
|
1,074
|
|
|
$
|
1,074
|
|
All of the Company’s portfolio loans
that were restructured as TDRs during the three months ended March 31, 2018 and 2017, resulted in modifications to either rate,
term, amortization or balance. Such modifications are only granted to borrowers who have demonstrated the capacity to repay under
the modified terms.
During the three months ended March 31,
2018, there were no subsequent defaults on portfolio loans that were restructured as TDRs in the previous twelve months.
During the three months ended March 31,
2017, there were two subsequent defaults on portfolio loans that were restructured as TDRs in the previous twelve months. The subsequent
defaults included a one- to four-family residential loan with a recorded investment of $38,000, and a home equity loan with a recorded
investment of $8,000.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents information
about impaired portfolio loans as of March 31, 2018:
|
|
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
|
|
|
654
|
|
|
|
654
|
|
|
|
-
|
|
Land
|
|
|
5,510
|
|
|
|
5,510
|
|
|
|
-
|
|
Total real estate loans
|
|
|
6,164
|
|
|
|
6,164
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
34
|
|
|
|
34
|
|
|
|
-
|
|
Total other portfolio loans
|
|
|
34
|
|
|
|
34
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with no related allowance recorded
|
|
$
|
6,198
|
|
|
$
|
6,198
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
19,050
|
|
|
$
|
19,462
|
|
|
$
|
1,283
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
636
|
|
|
|
636
|
|
|
|
4
|
|
Land
|
|
|
618
|
|
|
|
668
|
|
|
|
86
|
|
Total real estate loans
|
|
|
20,304
|
|
|
|
20,766
|
|
|
|
1,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,182
|
|
|
|
4,339
|
|
|
|
462
|
|
Consumer
|
|
|
1,370
|
|
|
|
1,370
|
|
|
|
170
|
|
Commercial
|
|
|
936
|
|
|
|
954
|
|
|
|
522
|
|
Total other portfolio loans
|
|
|
6,488
|
|
|
|
6,663
|
|
|
|
1,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with an allowance recorded
|
|
$
|
26,792
|
|
|
$
|
27,429
|
|
|
$
|
2,527
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
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 CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The following table presents interest income
on impaired portfolio loans by class of portfolio loans for the three months ended March 31, 2018 and 2017:
|
|
Average Balance
|
|
|
Interest Income Recognized
|
|
|
Cash Basis Interest Income Recognized
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
18,811
|
|
|
$
|
197
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
1,304
|
|
|
|
19
|
|
|
|
-
|
|
Land
|
|
|
6,133
|
|
|
|
7
|
|
|
|
-
|
|
Total real estate loans
|
|
|
26,248
|
|
|
|
223
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,134
|
|
|
|
45
|
|
|
|
-
|
|
Consumer
|
|
|
1,385
|
|
|
|
22
|
|
|
|
-
|
|
Commercial
|
|
|
974
|
|
|
|
13
|
|
|
|
-
|
|
Total other portfolio loans
|
|
|
6,493
|
|
|
|
80
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,741
|
|
|
$
|
303
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
19,766
|
|
|
$
|
187
|
|
|
$
|
-
|
|
Multi-family
|
|
|
26
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
3,098
|
|
|
|
24
|
|
|
|
26
|
|
Land
|
|
|
6,288
|
|
|
|
8
|
|
|
|
-
|
|
Total real estate loans
|
|
|
29,178
|
|
|
|
219
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total real estate construction loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other portfolio loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,183
|
|
|
|
50
|
|
|
|
-
|
|
Consumer
|
|
|
1,596
|
|
|
|
23
|
|
|
|
-
|
|
Commercial
|
|
|
1,030
|
|
|
|
9
|
|
|
|
-
|
|
Total other portfolio loans
|
|
|
6,809
|
|
|
|
82
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,987
|
|
|
$
|
301
|
|
|
$
|
26
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 7. PORTFOLIO LOANS
(continued)
The Company had $0.4 million and $0.5 million
of one- to four-family residential and home equity loans in process of foreclosure as of March 31, 2018 and December 31, 2017,
respectively.
The Company has originated portfolio loans
with the Company’s directors and executive officers and their associates. These loans totaled $1.8 million as of both March
31, 2018 and December 31, 2017. The activity on these loans during the three months ended March 31, 2018 and the year ended December
31, 2017, was as follows:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,795
|
|
|
$
|
1,856
|
|
New portfolio loans and advances on existing loans
|
|
|
–
|
|
|
|
–
|
|
Effect of changes in related parties
|
|
|
–
|
|
|
|
–
|
|
Repayments
|
|
|
(16
|
)
|
|
|
(61
|
)
|
Ending balance
|
|
$
|
1,779
|
|
|
$
|
1,795
|
|
NOTE 8. OTHER LOANS
The Company’s other loans are comprised
of loans secured by one- to four-family residential homes originated internally and held-for-sale (mortgage loans held-for-sale),
small business loans originated internally and held-for-sale (SBA/USDA loans held-for-sale), and warehouse loans held-for-investment.
The Company originates mortgage loans held-for-sale with the intent to sell the loans and the servicing rights to investors. The
Company originates SBA/USDA loans held-for-sale with the intent to sell the guaranteed portion of the loans to investors, while
maintaining the servicing rights. The Company originates warehouse loans held-for-investment and permits third-party originators
to sell the loans and servicing rights to investors in order to repay the warehouse balance outstanding.
The Company internally originated approximately
$5.1 million and $9.0 million of mortgage loans held-for-sale during the three months ended March 31, 2018 and 2017, respectively.
The Company recorded a minimal gain on the sale of mortgage loans held-for-sale during the three months ended March 31, 2018, while
the gain recorded on sale of mortgage loans held-for-sale during the three months ended March 31, 2017 was $0.8 million.
During the three months ended March 31,
2018 and 2017, the Company internally originated approximately $1.5 million and $7.0 million, respectively, of SBA/USDA loans held-for-sale.
The loss recorded on sales of SBA/USDA loans held-for-sale was $0.1 million during the three months ended March 31, 2018, while
the gain recorded on sales of SBA/USDA loans held-for-sale was $0.7 million during the three months ended March 31, 2017.
During the three ended March 31, 2018 and
2017, the Company originated approximately $194.2 million and $257.6 million, 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 $0.3 million and $0.4 million for the three months ended March 31, 2018
and 2017, respectively. The weighted average number of days outstanding of warehouse loans held-for-investment was approximately
9 days for each of the three months ended March 31, 2018 and 2017, respectively.
As of March 31, 2018 and December 31, 2017,
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 CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 9. FEDERAL HOME LOAN BANK ADVANCES
As of March 31, 2018 and December 31, 2017,
advances from the FHLB were as follows:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Dollars in Thousands)
|
|
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%
|
|
|
1,250
|
|
|
|
1,500
|
|
Maturity on June 8, 2021, fixed rate at 2.59%
|
|
|
–
|
|
|
|
20,000
|
|
Maturity on June 8, 2021, fixed rate at 2.58%
|
|
|
–
|
|
|
|
15,000
|
|
Maturity on June 8, 2021, fixed rate at 2.58%
|
|
|
–
|
|
|
|
15,000
|
|
Daily rate credit, no maturity date, adjustable rate at 1.92% as of March 31, 2018 and at 1.59% as of December 31, 2017
|
|
|
180,700
|
|
|
|
101,600
|
|
Total
|
|
$
|
192,375
|
|
|
$
|
213,525
|
|
The FHLB advances had a weighted-average
maturity of less than 1 month and a weighted-average rate of 1.88% at March 31, 2018. The value of portfolio loans posted by the
Company as collateral for these advances was $393.0 million as of March 31, 2018.
The Bank’s remaining borrowing capacity
with the FHLB was $102.9 million at March 31, 2018. The FHLB requires that the Bank collateralize the excess of the fair value
of the FHLB advances over the book value with portfolio loans and investment securities. In the event the Bank prepays advances
prior to maturity, it must do so at the fair value of such FHLB advances. As of March 31, 2018, book value exceeded the fair value
of the individual advances by $8,000. 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 $32.8 million as of March 31, 2018.
NOTE 10. INCOME TAXES
Income tax expense for the three months
ending March 31, 2018 and 2017 was as follows:
|
|
Three months ending March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in Thousands)
|
|
Income before income tax expense
|
|
$
|
1,846
|
|
|
$
|
2,283
|
|
Effective tax rate
|
|
|
23.29
|
%
|
|
|
35.30
|
%
|
Income tax expense
|
|
$
|
430
|
|
|
$
|
806
|
|
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 recorded additional expense of $1.6 million in the fourth quarter of 2017 to reflect
changes that resulted from the enactment of the Tax Reform. Notwithstanding the foregoing, the Company is still analyzing certain
aspects of the new law and refining its 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.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 10. INCOME TAXES
(continued)
As of March 31, 2018 and December 31, 2017,
the Company evaluated the expected realization of its federal and state deferred tax assets. Based on this evaluation it was concluded
that no valuation allowance was required for the federal and state deferred tax assets, with the exception of the remaining deferred
tax asset related to a capital loss carryover, which resulted in a valuation allowance of $102,000 as of both March 31, 2018 and
December 31, 2017.
During the three months ended March 31,
2018, the Company used $81,000 of federal net operating loss carryover and $69,000 of state net operating loss carryovers. During
the three months ended March 31, 2017, the Company used $81,000 of federal net operating loss carryover and $67,000 of state net
operating loss carryover.
Under the rules of Internal Revenue Code
section 382 (IRC § 382), a change in the ownership of the Company occurred during the first quarter of 2013. 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.
As of March 31, 2018, 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 March 31, 2018, 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 11. EARNINGS PER COMMON SHARE
Basic earnings per common share is computed
by dividing net income by the weighted average number of common shares and common stock equivalents outstanding for the period.
The basic weighted average common shares and common stock equivalents are computed using the treasury stock method. The basic weighted
average common shares and common stock equivalents outstanding for the period is adjusted for average unallocated employee stock
ownership plan shares, average director’s deferred compensation shares and average unearned restricted stock awards. Diluted
earnings per common share is computed by dividing net income by the weighted average number of common shares and common stock equivalents
outstanding for the period increased for the dilutive effect of unvested stock options and stock awards. The dilutive effect of
the unvested stock options and stock awards is calculated under the treasury stock method utilizing the average market value of
the Company’s stock for the period.
The following table summarizes the basic
and diluted earnings per common share computation for the three months ended March 31, 2018 and 2017:
|
|
Three months ending March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in Thousands, Except Per Share
Information)
|
|
Basic:
|
|
|
|
|
|
|
Net income
|
|
$
|
1,416
|
|
|
$
|
1,477
|
|
Weighted average common shares outstanding
|
|
|
15,553,271
|
|
|
|
15,531,239
|
|
Less: average unallocated employee stock ownership plan shares
|
|
|
(62,277
|
)
|
|
|
(67,067
|
)
|
Less: average director’s deferred compensation shares
|
|
|
(10,365
|
)
|
|
|
(22,530
|
)
|
Less: average unvested restricted stock awards
|
|
|
(42,847
|
)
|
|
|
(22,324
|
)
|
Weighted average common shares outstanding, as adjusted
|
|
|
15,437,782
|
|
|
|
15,419,318
|
|
Basic earnings per common share
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,416
|
|
|
$
|
1,477
|
|
Weighted average common shares outstanding, as adjusted (from above)
|
|
|
15,437,782
|
|
|
|
15,419,318
|
|
Add: dilutive effects of assumed exercise of stock options and stock awards
|
|
|
11,573
|
|
|
|
–
|
|
Weighted average dilutive shares outstanding
|
|
|
15,449,355
|
|
|
|
15,419,318
|
|
Diluted earnings per common share
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 11. EARNINGS PER COMMON SHARE
(continued)
During the three months ended March 31,
2017, all of the Company’s stock options and stock awards were antidilutive and, therefore, were excluded from the calculation
of diluted earnings per common share.
NOTE 12. STOCK-BASED COMPENSATION
2016 Omnibus Incentive Plan
The Company’s Board of Directors
awarded 44,648 shares of restricted stock, with a grant date fair value of $7.78, under the 2016 Omnibus Incentive Plan (the 2016
Incentive Plan) on February 15, 2017. A summary of the status of the shares as of and for the three months ended March 31, 2018
and 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 March 31, 2017
|
|
|
44,648
|
|
|
|
7.78
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of January 1, 2018
|
|
|
44,648
|
|
|
$
|
7.78
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
Vested
|
|
|
(3,602
|
)
|
|
|
7.78
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Non-vested as of March 31, 2018
|
|
|
41,046
|
|
|
|
7.78
|
|
There was approximately $203,000 of unrecognized
compensation expense related to non-vested shares awarded under the 2016 Incentive Plan at March 31, 2018. The expense is expected
to be recognized over a weighted-average period of 3.3 years.
NOTE 13. REGULATORY SUPERVISION
The Bank’s actual and required capital
levels and ratios as of March 31, 2018 and December 31, 2017 were as follows:
|
|
Actual
|
|
|
Required to be Well-
Capitalized Under Prompt
Corrective Action
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in Millions)
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
100.0
|
|
|
|
13.54
|
%
|
|
$
|
73.9
|
|
|
|
10.00
|
%
|
Common equity tier 1 capital (to risk weighted assets)
|
|
|
91.4
|
|
|
|
12.38
|
%
|
|
|
48.0
|
|
|
|
6.50
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
91.4
|
|
|
|
12.38
|
%
|
|
|
59.1
|
|
|
|
8.00
|
%
|
Tier 1 capital (to adjusted total assets)
|
|
|
91.4
|
|
|
|
9.91
|
%
|
|
|
46.1
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
%
|
The Bank’s capital classification
under Prompt Corrective Action (PCA) defined levels as of March 31, 2018 was well-capitalized.
ATLANTIC COAST FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)
March 31, 2018
(unaudited)
NOTE 13. REGULATORY SUPERVISION
(continued)
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 was 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 5.54% as of March 31, 2018.
NOTE 14. 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).
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, as well as receiving approval of the Company’s stockholders
and the requisite regulatory approvals. The Ameris Merger is expected to close during the second quarter of 2018.