ACFC Atlantic Coast Financial Corp. (delisted)

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

NOTE 1 – DESCRIPTION OF PLAN

On January 1, 2016, Atlantic Coast Bank (the Employer, the Company, the Bank or the Plan Sponsor) became a Participating Employer in The Wealthy and Wise 401(k) Plan, which is referred to as the Atlantic Coast Bank Employees’ Savings & Profit Sharing Plan and Trust (the Plan). Prior to January 1, 2016, the Company offered a similar 401(k) plan (the Old Plan). All of the assets held by the Old Plan on January 1, 2016, were transferred to the Plan during 2016.

The following description of the Plan is provided for general information purposes only. Participants should refer to the Plan document for a more complete description of the Plan’s provisions. A copy of the Plan document is available from the Plan’s administrator.

General : The Plan is a safe harbor defined contribution 401(k) plan for the benefit of substantially all employees of the Bank. The Bank serves as Plan administrator and controls and manages the operation and administration of the Plan. ERISA Wise, LLC serves as the Plan’s trustee (the Trustee). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).

Eligibility : Employees are eligible to enroll in the Plan after 3 consecutive months of employment. A participant’s entry into the Plan is effective in the calendar month coinciding with or next following the date the employee satisfies the eligibility requirements.

Contributions : Participants can elect to contribute up to 75% of their pretax annual compensation, as defined in the Plan, with a total amount not to exceed the applicable dollar limit established by the Internal Revenue Service each year. Participants who had attained age 50 before the end of the Plan year were eligible to make catch-up contributions. Participants could also contribute amounts representing distributions from other eligible qualified defined benefit or defined contribution plans. The Company provided matching contributions, equal to 100 percent of the first 3 percent of the compensation contributed, plus 50 percent of the next 2 percent of the compensation contributed for the year ended December 31, 2016. Matching contributions are subject to change as determined by the Company’s Board of Directors. On behalf of each eligible participant a discretionary contribution may also be made by the Company. There were no discretionary contributions for 2016.

Participant Accounts : Each participant’s account is credited with the participant’s contribution and any allocations of (a) the Employer’s matching contribution (b) the Plan’s earnings and (c) forfeitures (if applicable). Additionally, each participant’s account may be charged with an allocation of administrative expenses. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

Vesting : Under the Plan, participants are immediately vested in their own contributions plus actual earnings thereon, as well as the Employer’s matching and discretionary contributions (if applicable) plus actual earnings thereon. On January 1, 2016, the unvested portion of the Employer’s matching and discretionary contributions plus actual earnings thereon, under the Old Plan, became fully vested.

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ATLANTIC COAST BANK EMPLOYEES’ SAVINGS &

PROFIT SHARING PLAN AND TRUST

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

NOTE 1 – DESCRIPTION OF PLAN (continued)

Forfeitures : Under the Plan, there are no forfeitures, based on the vesting rules discussed above.

Investment Options : Each participant may direct their contributions into any of the investment options available under the Plan and may choose to allocate and reallocate amounts credited to their accounts among all or any combination of the investment funds. Participants may change the amount they contribute once per quarter. Participants may change the allocation of their contributions to the various investment funds daily.

Notes Receivable from Participants : Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loan transactions are treated as a transfer to (from) the investment account from (to) the Participant Loan account. Loan terms range from 1 to 5 years or up to 15 years for the purchase of a primary residence. Interest rates ranged from 4.25% to 7.00% as of December 31, 2016. The loans are secured by the balance in the participant’s account and bear interest at rates that are comparable to those currently available from commercial institutions for similar loans. The interest rate remains unchanged for the duration of the loan. Principal and interest is paid ratably through bi-weekly payroll deductions.

Payment of Benefits : Participants may withdraw, in the form of lump-sum or installments, all or some of the vested account balance upon termination of employment, attainment of age 59½, death or disability. In the event of death or permanent disability, participants become fully vested.

Expenses : Certain administrative expenses are paid by participants.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The policies and principles that significantly affect the determination of net assets and results of operations are summarized below.

Basis of Accounting : The financial statements of the Plan are prepared under the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (U.S. GAAP).

Use of Estimates : The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein. Actual results could differ from those estimates.

Accounting for Uncertainty in Income Taxes: Management evaluated the Plan’s tax positions and concluded that the Plan had maintained its tax exempt status and had taken no uncertain tax positions that require adjustment to the financial statements. Therefore, no provision or liability for income taxes has been included in the financial statements. The Plan is subject to routine audits by taxing jurisdictions.

Payment of Benefits : Benefits are recorded when paid.

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ATLANTIC COAST BANK EMPLOYEES’ SAVINGS &

PROFIT SHARING PLAN AND TRUST

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncement : There have been no recently issued accounting pronouncements during the year ended December 31, 2016 that are expected to have a material effect on the Plan’s financial statements.

Investment Valuation and Income Recognition : The Plan’s investments are reported at fair value, except for fully benefit-responsive investment contracts, which are reported at net asset value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Net asset value is the relevant measure for the portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because net asset value is the amount participants normally would receive if they were to initiate permitted transactions under the terms of the Plan. The Plan’s management determines the valuation policies utilizing information provided by the Trustee.

Employer contributions are accrued in the period in which they become obligations of the Employer, and the amount is determined in accordance with the provisions of the Plan. Purchases and sales of investments are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

Risks and Uncertainties : The Plan provides for various investment options in collective trust funds, certificate of deposits, and the unitized stock fund of the Employer’s parent company, Atlantic Coast Financial Corporation (ACFC). ACFC is traded on the NASDAQ global market (the Stock Fund). The underlying investment securities are exposed to various risks, such as interest rate, market, liquidity and credit risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statement of net assets available for benefits and participants’ individual account balances.

Concentration of Credit Risk : At December 31, 2016 19.1% of the Plan’s net assets available for benefits were invested in ACFC common stock.

Cash and Cash Equivalents: Money market funds are classified as cash and cash equivalents on the statement of net assets available for benefits and are reported at carrying amount.

Notes Receivable from Participants : Participant loans are classified as notes receivable from participants on the statement of net assets available for benefits and are reported at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are reclassified as distributions based upon the terms of the Plan document.

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ATLANTIC COAST BANK EMPLOYEES’ SAVINGS &

PROFIT SHARING PLAN AND TRUST

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

NOTE 3 – FAIR VALUE OF INVESTMENTS

Fair value is the price that would be received by the Plan for an asset or paid by the Plan to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date in the Plan’s principal or most advantageous market for the asset or liability. U.S. GAAP establishes a fair value hierarchy which requires the Plan to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy places the highest priority on unadjusted quoted market prices in active markets for identical assets or liabilities and gives the lowest priority to unobservable inputs. The three levels of inputs within the fair value hierarchy are defined as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Plan has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect the Plan’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

In some cases, a valuation technique used to measure fair value may include inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

The following descriptions of the valuation methods and significant assumptions used by the Plan to estimate the fair values of investments apply to investments held directly by the Plan.

Stock fund : Investments in the Stock Fund are stated at fair value based on market value of the stock as obtained from quoted market prices on a nationally recognized exchange (Level 1).

Collective trust funds : The fair values of participation units held in collective trust funds are based on the net asset values reported by the fund managers as of the financial statement dates and recent transaction prices. The investment objectives and underlying investments of the collective trust funds vary, with some holding diversified portfolios of domestic stocks, international stocks, short-term and/or medium-term corporate, U.S. Government and U.S. Government agency bonds and other debt instruments, mutual funds, repurchase agreements and various other collective investment funds in proportion to the fund’s investment objectives.

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ATLANTIC COAST BANK EMPLOYEES’ SAVINGS &

PROFIT SHARING PLAN AND TRUST

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

NOTE 3 – FAIR VALUE OF INVESTMENTS (continued)

Collective trust funds - Stable value fund : The fair values of participation units in the stable value collective trust are based upon the net asset values of such fund, after adjustments to reflect all fund investments at fair value, including direct and indirect interests in fully benefit-responsive contracts, as reported in the audited financial statements of the fund. The fund invests in high-quality bonds with short- to intermediate-term maturities, with the objective of providing safety of principal, adequate liquidity and a competitive yield while maintaining low return volatility. The different bonds invest in investment-grade fixed income securities, including U.S. Treasury, U.S. government and agency, corporate, publicly traded mortgage-backed, agency-issued mortgage-backed, commercial mortgage-backed, asset-backed, and Yankee securities, as well as public corporate debt and cash equivalents. The stable value fund contract provides that the trust execute transactions at contract value. The stable value fund issuer guarantees the contract value, which represents contributions, plus interest, less participant-initiated withdrawals or transfers, and that all qualified participant withdrawals will be at contract value.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Investments measured at fair value on a recurring basis are summarized below at December 31, 2016:

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ATLANTIC COAST BANK EMPLOYEES’ SAVINGS &

PROFIT SHARING PLAN AND TRUST

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

The Plan’s investment selections are based on a long-term perspective and there are a variety of investments available to the Plan participants. Long-term performance, in large part, is primarily a function of asset class mix. Historically, while interest-generating investments, such as bonds, have the advantage of relative stability of principal value, they provide relatively little opportunity for real long-term capital growth due to their susceptibility to inflation. Equity investments, such as common stocks, have a relatively higher expected return but have the disadvantage of much greater year-by-year volatility of return. From an investment decision-making point of view, this year-by-year variability may be worth the risk but that is at the discretion of the Plan participant. In establishing the investment selections for the Plan, there was consideration for conservative through the aggressive investment profiles and market performance varies substantially.

As of December 31, 2016, the Plan’s diversification of investments was 15% in aggressive allocations, 17% in fixed income and conservative allocations, 30% in equities, and 38% in moderate allocations.

NOTE 4 – PARTY-IN-INTEREST TRANSACTIONS

A party-in-interest is defined under DOL regulations as any fiduciary of the Plan, any party rendering service to the Plan, the employer, and certain others. Certain professional fees for the administration of the Plan were paid by the Employer on behalf of the Plan. During 2016, fees of $38,185 were paid by participants to the Trustee, which represent party-in-interest transactions.

Party-in-interest assets held by the Plan at December 31, 2016, include ACFC common stock totaling $1,069,082, and notes receivable from participants totaling $129,876.

At December 31, 2016, the Plan held 157,218 shares of ACFC common stock. There were no dividends received during 2016 from the ACFC common stock.

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ATLANTIC COAST BANK EMPLOYEES’ SAVINGS &

PROFIT SHARING PLAN AND TRUST

NOTES TO FINANCIAL STATEMENTS

December 31, 2016

NOTE 5 – INCOME TAX STATUS

The Plan is currently maintained on a multiple employer plan (MEP), which submitted a request for a determination letter from the Internal Revenue Service (IRS). The Plan has not received a determination letter from the IRS; however, the Plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable provisions of the Internal Revenue Code (IRC). Additionally, the Plan administrator does not expect the IRS to decline the request for a determination letter and, therefore, the Plan administrator believes that the Plan was qualified and the related trust was tax-exempt as of the financial statement date.

U.S. GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Department of Labor. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2016, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions.

NOTE 6 – PLAN TERMINATION

Although it has not expressed any intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of the Plan’s termination, participants’ accounts would be distributed in accordance with the Plan document.

NOTE 7 – OTHER MATTERS

The Plan’s management believes that ACFC and the Bank will both continue as a going concern and, therefore, the Plan will continue as a going concern.