FORM 10-Q

(Mark One)


☒
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~

2019


☐
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NO. ~~001-37615~~001‑37615

ATLANTIC CAPITAL BANCSHARES, INC.

(Exact Name of Registrant as Specified in its Charter)


Georgia	20‑5728270
~~Georgia~~	~~20-5728270~~
(State of Incorporation)	(I.R.S. Employer Identification No.)

~~3280 Peachtree~~ 945 East Paces Ferry Road NE, Suite 1600, Atlanta, Georgia	~~30305~~ 30326
(Address of principal executive offices)	(Zip Code)


	(404) 995‑6050
	~~(404) 995-6050~~
	(Registrant’s telephone number, including area code)
	Not Applicable
	(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	ACBI	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨

☐

Indicate by check mark whether the Registrant has submitted electronically ~~and posted on its Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit ~~and post~~ such files). Yes ý☒ No ¨

☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule ~~12b-2~~12b‑2 of the Exchange Act.



Large accelerated filer	¨ ☐		Accelerated filer	ý ☒
Non-accelerated filer	¨ ☐	~~(Do not check if a smaller reporting company)~~
			Smaller reporting company	¨ ☐
			Emerging growth company	ý ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule ~~12b-2~~12b‑2 of the Exchange Act). Yes ¨☐ No ý

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, no par value: ~~25,728,186~~21,888,362 shares outstanding as of ~~November 1, 2017~~October 31, 2019

Table of Contents

Atlantic Capital Bancshares, Inc. ~~and Subsidiary~~

Form ~~10-Q~~

10‑Q

INDEX


		Page No.
	~~Page~~ ~~No.~~
PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements (Unaudited)	1

	Consolidated Balance Sheets -– September 30, ~~2017~~2019 and December 31, ~~2016~~2018	1

	Consolidated Statements of Income - Three and Nine Months ended September 30, ~~2017~~2019 and ~~2016~~2018	2

	Consolidated Statements of Comprehensive Income - Three and Nine Months ended September 30, ~~2017~~2019 and ~~2016~~2018	3

	Consolidated Statements of Shareholders’ Equity - Three and Nine Months ended September 30, ~~2017~~2019 and ~~2016~~2018	4

	Consolidated Statements of Cash Flows - Nine Months ended September 30, ~~2017~~2019 and ~~2016~~2018	5 6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35 37

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	56 60

Item 4.	Controls and Procedures	56 60

PART II.	OTHER INFORMATION	57 61

Item 1.	Legal Proceedings	57 61

Item 1A.	Risk Factors	57 61

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57 61

Item 3.	Defaults Upon Senior Securities	57 62

Item 4.	Mine Safety Disclosures	57 62

Item 5.	Other Information	57 62

Item 6.	Exhibits	~~Exhibits~~	57 62

~~EXHIBIT INDEX~~SIGNATURES		58

~~SIGNATURES~~	59 63

Table of Contents

PART I - FINANCIAL INFORMATION

~~ITEM 1.~~

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets


	September 30,		December 31,
	2019		2018
(in thousands, except share data)	(unaudited)
ASSETS
Cash and due from banks	$	42,577	$	42,895
Interest-bearing deposits in banks		27,167		216,040
Other short-term investments		—		9,457
Cash and cash equivalents		69,744		268,392
Investment securities available for sale		286,785		402,486
Investment securities held to maturity (fair value $42,740 and $0, respectively)		42,863		—
Other investments		31,360		29,236
Loans held for sale		916		5,889
Loans held for sale - discontinued operations(1)		—		373,030
Loans held for investment		1,835,673		1,728,073
Less: Allowance for loan losses		(18,080)		(17,851)
Loans held for investment, net		1,817,593		1,710,222
Premises held for sale - discontinued operations(1)		—		7,722
Premises and equipment, net		19,688		9,779
Bank owned life insurance		66,047		65,149
Goodwill - discontinued operations(1)		—		4,555
Goodwill - continuing operations(1)		19,925		17,135
Other intangibles, net		3,112		4,388
Other real estate owned		278		874
Other assets		51,887		56,583
Total assets	$	2,410,198	$	2,955,440

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	599,657	$	602,252
Interest-bearing checking		240,427		252,490
Savings		1,081		725
Money market		921,133		987,183
Time		30,782		10,623
Brokered deposits		61,192		99,241
Deposits to be assumed - discontinued operations(1)		—		585,429
Total deposits		1,854,272		2,537,943
Federal funds purchased		57,000		—
Securities sold under agreements to repurchase - discontinued operations(1)		—		6,220
Federal Home Loan Bank borrowings		76,000		—
Long-term debt		49,831		49,704
Other liabilities		44,384		37,920
Total liabilities		2,081,487		2,631,787
SHAREHOLDERS’ EQUITY
Preferred Stock, no par value - 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2019 and December 31, 2018		—		—
Common stock, no par value - 100,000,000 shares authorized; 22,193,761 and 25,290,419 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		237,687		291,771
Retained earnings		84,529		42,187
Accumulated other comprehensive income (loss)		6,495		(10,305)
Total shareholders’ equity		328,711		323,653
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,410,198	$	2,955,440

(1)

Assets and liabilities related to the Tennessee and northwest Georgia banking operations were classified as held for sale as of December 31, 2018.

See Accompanying Notes to Consolidated Financial Statements

September 30,
2017 December 31,
2016
(in thousands, except share data) (unaudited)
ASSETS
Cash and due from banks $ 35,504
$ 36,790
Interest-bearing deposits in banks 40,558
118,039
Other short-term investments 5,189
10,896
Cash and cash equivalents 81,251
165,725
Securities available-for-sale 447,005
347,705
Other investments 35,818
23,806
Loans held for sale 3,274
35,219
Loans held for investment 1,905,432
1,981,330
Less: allowance for loan losses (18,870 ) (20,595 )
Loans held for investment, net 1,886,562
1,960,735
Branch premises held for sale —

2,995
Premises and equipment, net 11,747
11,958
Bank owned life insurance 63,284
62,160
Goodwill and intangible assets, net 27,945
29,567
Other real estate owned 1,494
1,872
Other assets 80,032
85,801
Total assets $ 2,638,412
$ 2,727,543

Table of Contents

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand $ 599,292
$ 643,471
Interest-bearing checking 270,740
264,062
Savings 30,131
27,932
Money market 865,238
912,493
Time 144,250
157,810
Brokered deposits 193,994
200,223
Total deposits 2,103,645
2,205,991
Deposits to be assumed in branch sale —

31,589
Federal Home Loan Bank borrowings 125,000
110,000
Long-term debt 49,493
49,366
Other liabilities 35,520
26,939
Total liabilities 2,313,658
2,423,885
SHAREHOLDERS’ EQUITY
Preferred Stock, no par value – 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017 and December 31, 2016 —
—
Common stock, no par value – 100,000,000 shares authorized; 25,716,418 and 25,093,135 shares issued and outstanding as of September 30, 2017, and December 31, 2016, respectively 298,469
292,747
Retained earnings 28,147
16,536
Accumulated other comprehensive (loss) income (1,862 ) (5,625 )
Total shareholders’ equity 324,754
303,658
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 2,638,412
$ 2,727,543

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Income(1)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2019		2018		2019		2018
INTEREST INCOME
Loans, including fees	$	23,541	$	20,117	$	69,847	$	57,358
Investment securities		2,176		2,789		7,146		8,068
Interest and dividends on other interest-earning assets		803		1,111		2,322		2,706
Total interest income		26,520		24,017		79,315		68,132
INTEREST EXPENSE
Interest on deposits		5,223		3,182		15,502		8,321
Interest on Federal Home Loan Bank advances		390		637		660		1,912
Interest on federal funds purchased and securities sold under agreements to repurchase		99		77		385		244
Interest on long-term debt		824		824		2,471		2,476
Total interest expense		6,536		4,720		19,018		12,953
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		19,984		19,297		60,297		55,179
Provision for loan losses		413		845		1,925		1,444
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		19,571		18,452		58,372		53,735
NONINTEREST INCOME
Service charges		925		804		2,589		2,339
Gain (loss) on sales of securities available-for-sale		253		—		907		(2)
Gain (loss) on sales of other assets		140		58		127		(154)
Trust income		—		—		—		1,025
Derivatives income (loss)		(293)		20		(637)		154
Bank owned life insurance		422		379		1,171		1,126
SBA lending activities		1,150		882		3,332		3,181
Gain on sale of trust business		—		—		—		1,681
Other noninterest income		172		112		557		533
Total noninterest income		2,769		2,255		8,046		9,883
NONINTEREST EXPENSE
Salaries and employee benefits		8,295		7,332		26,037		24,193
Occupancy		722		732		2,050		2,317
Equipment and software		842		747		2,334		2,034
Professional services		764		796		2,331		2,564
Postage, printing and supplies		32		55		109		136
Communications and data processing		796		566		2,133		1,904
Marketing and business development		243		211		702		486
FDIC premiums		(193)		154		217		405
Other noninterest expense		1,176		1,279		3,813		3,744
Total noninterest expense		12,677	$	11,872		39,726		37,783
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES		9,663		8,835		26,692		25,835
Provision for income taxes		2,094		1,837		5,674		5,268
NET INCOME FROM CONTINUING OPERATIONS		7,569		6,998		21,018		20,567
DISCONTINUED OPERATIONS
Income (loss) from discontinued operations	$	—	$	(646)	$	28,690	$	(1,153)
Provision (benefit) for income taxes		(617)		(161)		6,993		(288)
Net income (loss) from discontinued operations		617		(485)		21,697		(865)
NET INCOME	$	8,186	$	6,513	$	42,715	$	19,702

Net income (loss) per common share ‑ basic
Net income per common share - continuing operations	$	0.33	$	0.27	$	0.88	$	0.79
Net income (loss) per common share - discontinued operations		0.03		(0.02)		0.91		(0.03)
Net income per Common Share ‑ basic		0.36		0.25		1.79		0.76
Net income (loss) per common share ‑ diluted
Net income per common share - continuing operations	$	0.33	$	0.27	$	0.88	$	0.79
Net income (loss) per common share - discontinued operations		0.03		(0.02)		0.91		(0.03)
Net income per common share ‑ diluted		0.36		0.25		1.78		0.75

~~(Unaudited)~~

⁽¹⁾

Information for prior periods has been adjusted retrospectively to reflect the impact of discontinued operations.

See Accompanying Notes to Consolidated Financial Statements

Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share data) 2017 2016 2017 2016
INTEREST INCOME
Loans, including fees $ 21,491
$ 20,511
$ 62,846
$ 60,418
Investment securities – available-for-sale 2,298
1,293
6,671
4,221
Interest and dividends on other interest-earning assets 562
491
1,617
1,271
Total interest income 24,351
22,295
71,134
65,910
INTEREST EXPENSE
Interest on deposits 2,693
1,956
7,221
5,470
Interest on Federal Home Loan Bank advances 459
133
1,213
324
Interest on federal funds purchased and securities sold under agreements to repurchase 84
37
196
191
Interest on long-term debt 824
815
2,471
2,457
Other —
—
—
38
Total interest expense 4,060
2,941
11,101
8,480
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 20,291
19,354
60,033
57,430
Provision for loan losses 322
463
2,936
1,608
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 19,969
18,891
57,097
55,822
NONINTEREST INCOME
Service charges 1,247
1,270
3,870
4,160
(Loss) gain on sales of securities available-for-sale (80 ) —
(80 ) 44
Gain on sales of other assets 44
71
788
150
Mortgage income 320
632
965
1,418
Trust income 437
361
1,332
1,061
Derivatives income (3 ) 69
62
232
Bank owned life insurance 384
424
1,146
1,215
SBA lending activities 888
959
3,286
3,043
TriNet lending activities 20
—
60
1,144
Gains on sale of branches —
—
302
3,885
Other noninterest income 220
216
890
950
Total noninterest income 3,477
4,002
12,621
17,302
NONINTEREST EXPENSE
Salaries and employee benefits 10,409
10,059
32,077
31,034
Occupancy 1,129
1,235
3,433
3,609
Equipment and software 776
862
2,577
2,272
Professional services 1,595
442
3,472
1,950
Postage, printing and supplies 63
61
226
389
Communications and data processing 982
617
3,038
2,227
Marketing and business development 272
269
721
853
FDIC premiums 308
415
754
1,306
Merger and conversion costs —
579
304
2,538
Amortization of intangibles 391
520
1,286
1,950
Foreclosed property/problem asset expense 7
39
117
198
Other noninterest expense 1,572
2,198
4,866
6,179
Total noninterest expense 17,504
17,296
52,871
54,505
INCOME BEFORE PROVISION FOR INCOME TAXES 5,942
5,597
16,847
18,619
Provision for income taxes 1,890
1,889
5,236
6,833
NET INCOME $ 4,052
$ 3,708
$ 11,611
$ 11,786
NET INCOME PER SHARE:
Net income per share – basic $ 0.16
$ 0.15
$ 0.45
$ 0.48
Net income per share – diluted $ 0.16
$ 0.15
$ 0.45
$ 0.47

Table of Contents

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands)	2019		2018		2019		2018
Net income	$	8,186	$	6,513	$	42,715	$	19,702
Other comprehensive income
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during the period, net of tax of $453, ($1,041), $4,096 and ($3,775), respectively		1,360		(3,119)		12,279		(11,322)
Reclassification adjustment for losses (gains) included in net income net of tax of ($63), ($0), ($227), and $1, respectively		(190)		—		(680)		1
Unrealized gains (losses) on available-for-sale securities, net of tax		1,170		(3,119)		11,599		(11,321)
Cash flow hedges:
Net unrealized derivative gains (losses) on cash flow hedges, net of tax of $582, ($145), $1,734 and ($799), respectively		1,744		(434)		5,201		(2,396)
Changes from cash flow hedges		1,744		(434)		5,201		(2,396)
Other comprehensive income (loss), net of tax		2,914		(3,553)		16,800		(13,717)
Comprehensive income	$	11,100	$	2,960	$	59,515	$	5,985

See Accompanying Notes to Consolidated Financial Statements

~~(Unaudited)~~

Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2017 2016 2017 2016
Net income $ 4,052
$ 3,708
$ 11,611
$ 11,786
Other comprehensive income
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during the period, net of tax of $272, ($329), $2,450, and $2,354, respectively 434
(524 ) 3,916
3,771
Reclassification adjustment for losses (gains) included in net income net of tax of $31, $0, $31, and ($17), respectively 49
—
49
(27 )
Unrealized gains on available-for-sale securities, net of tax 483
(524 ) 3,965
3,744
Cash flow hedges:
Net unrealized derivative gains (losses) on cash flow hedges, net of tax of ($46), ($169), ($125), and $301, respectively (75 ) (269 ) (202 ) 473
Changes from cash flow hedges (75 ) (269 ) (202 ) 473
Other comprehensive income, net of tax 408
(793 ) 3,763
4,217
Comprehensive income $ 4,460
$ 2,915
$ 15,374
$ 16,003

Table of Contents

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Shareholders’ Equity

(Unaudited)


						Accumulated
						Other
For the Nine months ended September 30, 2019	Common Stock			Retained		Comprehensive
(in thousands, except share data)	Shares	Amount		Earnings		Income (Loss)		Total
Balance - December 31, 2018	25,290,419	$	291,771	$	42,187	$	(10,305)	$	323,653
Comprehensive income:
Net income	—		—		42,715		—		42,715
Change in unrealized gains (losses) on investment securities available-for-sale, net	—		—		—		11,599		11,599
Change in unrealized gains (losses) on cash flow hedges	—		—		—		5,201		5,201
Total comprehensive income									59,515
Change in accounting principle - leases	—		—		(373)		—		(373)
Net issuance of restricted stock	49,702		—		—		—		—
Issuance of common stock for option exercises	60,541		1,044		—		—		1,044
Issuance of common stock for long-term incentive plan	35,678		655		—		—		655
Restricted stock activity	—		552		—		—		552
Stock-based compensation	—		151		—		—		151
Performance share compensation	—		260		—		—		260
Stock repurchases	(3,242,579)		(56,746)		—		—		(56,746)
Balance - September 30, 2019	22,193,761	$	237,687	$	84,529	$	6,495	$	328,711

						Accumulated
						Other
	Common Stock			Retained		Comprehensive
For the Three months ended September 30, 2019	Shares	Amount		Earnings		Income (Loss)		Total
Balance - June 30, 2019	23,293,465	$	256,791	$	76,343	$	3,581	$	336,715
Comprehensive income:
Net income	—		—		8,186		—		8,186
Change in unrealized gains (losses) on investment securities available-for-sale, net	—		—		—		1,170		1,170
Change in unrealized gains (losses) on cash flow hedges	—		—		—		1,744		1,744
Total comprehensive income									11,100
Net issuance of restricted stock	26,587		—		—		—		—
Issuance of common stock for option exercises	37,772		573		—		—		573
Restricted stock activity	—		327		—		—		327
Stock-based compensation	—		18		—		—		18
Performance share compensation	—		106		—		—		106
Stock repurchases	(1,164,063)		(20,128)		—		—		(20,128)
Balance - September 30, 2019	22,193,761	$	237,687	$	84,529	$	6,495	$	328,711

See Accompanying Notes to Consolidated Financial Statements

~~(Unaudited)~~

Common Stock Accumulated Other Comprehensive Income (Loss)
(in thousands, except share data) Shares Amount Retained Earnings Total
Balance - December 31, 2015 24,425,546
$ 286,367
$ 3,141
$ (1,516 ) $ 287,992
Comprehensive income:

Net Income —
—
11,786
—
11,786
Change in unrealized gains on investment securities available-for-sale, net —
—
—
3,744
3,744
Change in unrealized gains on cash flow hedges —
—
—
473
473
Total comprehensive income

16,003
Issuance of restricted stock 91,486
—
—
—
—
Issuance of common stock for option exercises 366,918
2,568
—
—
2,568
Issuance of common stock for long-term incentive plan 66,149

884
—
—
884
Restricted stock activity —
378
—
—
378
Stock-based compensation —
638
—
—
638
Balance - September 30, 2016 24,950,099
$ 290,835
$ 14,927
$ 2,701
$ 308,463

Balance - December 31, 2016 25,093,135
$ 292,747
$ 16,536
$ (5,625 ) $ 303,658
Comprehensive income:
Net Income —
—
11,611
—
11,611
Change in unrealized gains on investment securities available-for-sale, net —
—
—
3,965
3,965
Change in unrealized gains (losses) on cash flow hedges —
—
—
(202 ) (202 )
Total comprehensive income 15,374
Issuance of restricted stock 101,791
—
—
—
—
Issuance of common stock for option exercises 459,693

3,172
—
—
3,172
Issuance of common stock for long-term incentive plan 61,799
1,209
—
—
1,209
Restricted stock activity —
869
—
—
869
Stock-based compensation —
472
—
—
472
Balance - September 30, 2017 25,716,418
$ 298,469
$ 28,147
$ (1,862 ) $ 324,754

Table of Contents

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Shareholders’ Equity (Continued)

(Unaudited)


						Accumulated
						Other
For the Nine months ended September 30, 2018	Common Stock			Retained		Comprehensive
(in thousands, except share data)	Shares	Amount		Earnings		Income (Loss)		Total
Balance - December 31, 2017	25,712,909	$	299,474	$	12,810	$	(3,859)	$	308,425
Comprehensive income:
Net income	—		—		19,702		—		19,702
Reclassification of tax effects from AOCI	—		—		844		(844)		—
Change in unrealized gains on investment securities available-for-sale, net	—		—		—		(11,321)		(11,321)
Change in unrealized gains (losses) on cash flow hedges	—		—		—		(2,396)		(2,396)
Total comprehensive income									5,985
Change in accounting principle - revenue recognition	—		—		1		—		1
Net issuance of restricted stock	66,686		—		—		—		—
Issuance of common stock for option exercises	285,230		4,003		—		—		4,003
Issuance of common stock for long-term incentive plan	38,841		687		—		—		687
Restricted stock activity	—		832		—		—		832
Stock-based compensation	—		168		—		—		168
Performance share compensation	—		136		—		—		136
Balance - September 30, 2018	26,103,666	$	305,300	$	33,357	$	(18,420)	$	320,237

						Accumulated
						Other
	Common Stock			Retained		Comprehensive
For the Three months ended September 30, 2018	Shares	Amount		Earnings		Income (Loss)		Total
Balance - June 30, 2018	26,102,217	$	304,793	$	26,844	$	(14,867)	$	316,770
Comprehensive income:
Net income	—		—		6,513		—		6,513
Change in unrealized gains (losses) on investment securities available-for-sale, net	—		—		—		(3,119)		(3,119)
Change in unrealized gains (losses) on cash flow hedges	—		—		—		(434)		(434)
Total comprehensive income									2,960
Net issuance of restricted stock	1,673		—		—		—		—
Issuance of common stock for option exercises	(224)		17		—		—		17
Restricted stock activity	—		352		—		—		352
Stock-based compensation	—		70		—		—		70
Performance share compensation	—		68		—		—		68
Balance - September 30, 2018	26,103,666	$	305,300	$	33,357	$	(18,420)	$	320,237

See Accompanying Notes to Consolidated Financial Statements

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Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended
	September 30,
(in thousands)	2019		2018
OPERATING ACTIVITIES
Net income from continuing operations	$	21,018	$	20,567
Net income (loss) from discontinued operations, net of tax		21,697		(865)
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		1,925		1,444
Depreciation, amortization, and accretion		2,497		3,508
Amortization of operating lease right-of-use assets		1,703		—
Amortization of restricted stock and performance share compensation		811		968
Stock option compensation		151		168
(Gain) loss on sales of available-for-sale securities		(907)		2
Loss on disposition of premises and equipment, net		27		214
Net write downs and (gains)/losses on sales of other real estate owned		(154)		222
Small Business Investment Company (SBIC) impairment		26		228
Net increase in cash value of bank owned life insurance		(1,100)		(1,102)
(Gain) on bank owned life insurance		(46)		—
Net (gains) on sale of branches		(34,475)		—
Net (gain) on sale of trust business		—		(1,681)
Origination of servicing assets		(975)		(739)
Proceeds from sales of SBA loans		54,333		46,924
Net (gains) on sale of SBA loans		(2,875)		(2,578)
Changes in operating assets and liabilities -
Net change in loans held for sale		4,973		(399)
Net decrease in other assets		6,089		(377)
Net decrease in accrued expenses and other liabilities		(3,991)		3,893
Net cash provided by operating activities		70,727		70,397
INVESTING ACTIVITIES
Activity in securities available-for-sale:
Prepayments		33,199		37,854
Maturities and calls		3,450		215
Sales		116,963		24
Purchases		(22,678)		(71,942)
Activity in securities held to maturity:
Purchases		(42,866)		—
Net change in loans held for investment		(160,851)		(188,577)
Net change in assets held for sale - discontinued operations		(11,789)		40,188
(Purchases) proceeds of Federal Home Loan Bank stock, net		(3,288)		(1,762)
(Purchases) proceeds of Federal Reserve Bank stock, net		(92)		(50)
Proceeds from bank owned life insurance benefits		248		—
Proceeds from sales of other real estate		847		402
Net cash received (paid) for branch divestiture		(166,755)		—
(Purchases) of premises and equipment, net		(1,380)		(7,242)
Net cash (used in) investing activities		(254,992)		(190,890)
FINANCING ACTIVITIES
Net change in deposits		(98,242)		(89,970)
Net change in liabilities to be assumed - discontinued operations		6,560		28,033
Net change in fed funds purchased		57,000		—
Proceeds from Federal Home Loan Bank advances		566,000		1,203,100
Repayments of Federal Home Loan Bank advances		(490,000)		(1,165,100)
Proceeds from exercise of stock options		1,045		4,003
Repurchase of common stock		(56,746)		—
Net cash (used in) financing activities		(14,383)		(19,934)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(198,648)		(140,427)
CASH AND CASH EQUIVALENTS – beginning of period		268,392		330,014
CASH AND CASH EQUIVALENTS – end of period	$	69,744	$	189,587
SUPPLEMENTAL SCHEDULE OF CASH FLOWS
Interest paid	$	20,454	$	14,817
Income taxes paid		885		155

See Accompanying Notes to Consolidated Financial Statements

Nine Months Ended
September 30,
(in thousands) 2017 2016
OPERATING ACTIVITIES
Net income $ 11,611
$ 11,786
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 2,936
1,608
Depreciation, amortization, and accretion 4,088
4,550
Amortization of restricted stock compensation 869
378
Stock option compensation 472
638
Loss (gain) on sales of available-for-sale securities 80
(44 )
Loss on disposition of premises and equipment, net 347
—
Net gains on sales of other real estate owned (267 ) (114 )
Gain on sale of tax credit (426 ) —
Net increase in cash value of bank owned life insurance (1,124 ) (1,167 )
Gain on bank owned life insurance —
(27 )
Net gains on sale of branches (302 ) (3,885 )
Origination of servicing assets (749 ) (1,295 )
Proceeds from sales of SBA loans 34,448
41,890
Net gains on sale of SBA loans (2,367 ) (2,743 )
Proceeds from sales of TriNet loans —
97,039
Net gains on sale of TriNet loans —
(1,144 )
Changes in operating assets and liabilities -
Net change in loans held for sale 7,587
(47,019 )
Net increase in other assets (4,115 ) (8,929 )
Net increase (decrease) in accrued expenses and other liabilities 9,454
(2,237 )
Net cash provided by operating activities 62,542
89,285
INVESTING ACTIVITIES
Activity in securities available-for-sale:
Prepayments 35,271
32,438
Maturities and calls 5,190
26,932
Sales 1,813
65,103
Purchases (139,465 ) (117,950 )
Net decrease (increase) in loans held for investment 38,720
(294,337 )
Purchases of Federal Home Loan Bank stock, net (721 ) (8,569 )
Purchases of Federal Reserve Bank stock, net (91 ) (3,055 )
Proceeds from bank owned life insurance benefits —
36
Proceeds from sales of other real estate 1,081
1,814
Net cash received (paid) for branch divestiture 5,379
(140,295 )
Purchases of premises and equipment, net (1,353 ) (467 )
Net cash used in investing activities (54,176 ) (438,350 )

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Nine Months Ended
September 30,
(in thousands) 2017 2016
FINANCING ACTIVITIES
Net change in deposits (111,371 ) 116,885
Proceeds from Federal Home Loan Bank advances 1,404,000
915,000
Repayments of Federal Home Loan Bank advances (1,389,000 ) (745,000 )
Proceeds from exercise of stock options 3,531
2,767
Net cash (used in) provided by financing activities (92,840 ) 289,652
NET CHANGE IN CASH AND CASH EQUIVALENTS (84,474 ) (59,413 )
CASH AND CASH EQUIVALENTS – beginning of period 165,725
202,885
CASH AND CASH EQUIVALENTS – end of period $ 81,251
$ 143,472

Nine Months Ended
September 30,
2017 2016
SUPPLEMENTAL SCHEDULE OF CASH FLOWS
Interest paid $ 12,270
$ 9,386
Income taxes paid $ 840
$ 3,462

ATLANTIC CAPITAL BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~(Unaudited)~~

(Unaudited)

NOTE 1 – ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Basis of Presentation

The accounting and financial reporting policies of Atlantic Capital Bancshares, Inc. (“Atlantic Capital” or the “Company”) and its subsidiary, Atlantic Capital Bank, N.A. (the “Bank”), conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated.

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Atlantic Capital’s ~~filing~~Annual Report on Form ~~10-K.~~10‑K. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods. Certain prior period amounts have been reclassified to conform to the current year presentation.

NOTE 2 – ACCOUNTING STANDARDS UPDATES AND RECENTLY ADOPTED STANDARDS

Recently Adopted Accounting Pronouncements

In ~~August 2017,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2017-12 - “~~2016‑02, ~~Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities~~“Leases.”~~.” The purpose of this updated~~ Under the new guidance, is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. Atlantic Capital plans to adopt ASU 2017-12 on January 1, 2018. The guidance requires a modified retrospective transition method resulting in the cumulative effect of the changeleases classified as operating leases under previous GAAP must be recorded on the ~~opening~~ balance ~~of each affected component of equity~~sheet. A lessee should recognize in the statement of financial position ~~as of~~a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the ~~date of adoption. Atlantic Capital does not expect adoption to have a material impact on its consolidated financial statements.~~

underlying asset for the lease term. In ~~May 2017,~~July 2018, the FASB issued ASU ~~2017-09 - “~~No. 2018‑10, ~~Compensation - Stock Compensation~~“Codification Improvements to Topic 842, Leases and ASU No. 2018‑11, Leases (Topic ~~718)~~842): ~~Scope and Modification Accounting~~Targeted Improvements.” ASU No. 2018‑10 provides improvements related to ASU No. 2016‑02 to increase stakeholders’ awareness of the amendments and to expedite the improvements. The amendments affect narrow aspects of the guidance issued in ASU No. 2016‑02. ASU No. 2018‑11 allows entities adopting ASU No. 2016‑02 to choose an additional (and optional) transition method, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments in these updates became effective for the Company on January 1, 2019. The impact of adoption was recording a lease liability of approximately $18.9 million in other liabilities on the Consolidated Balance Sheets, a ROU asset of approximately $14.5 million in premises and equipment, and a cumulative effect adjustment to retained earnings, net of tax, of approximately $373,000.

Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2019, the FASB issued ASU No. 2019‑05, “Financial Instruments - Credit Losses (Topic 326); Targeted Transition Relief.” This ASU allows entities to irrevocably elect, upon adoption of ASU 2016‑13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of Accounting Standards Codification (“ASC”) 326‑20 if the instruments are eligible for the fair value option under ASC 825‑10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019‑05 has the same effective date as ASU 2016‑13 (i.e., the first quarter of 2020). The Company does not expect to elect the fair value option, and therefore, ASU 2019‑05 is not expected to impact the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this ~~ASU provide guidance about which changes to~~update modify the ~~terms~~

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disclosure requirements for fair value measurements by removing, modifying, or ~~conditions of a share-based payment award require an entity to apply modification accounting in accordance with Topic 718.~~adding certain disclosures. The ~~amendments will be~~update is effective for interim and annual ~~reporting~~ periods in fiscal years beginning after December ~~15, 2017. This ASU is~~31, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for new disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The adoption will not ~~expected to~~ have a material ~~impact~~effect on ~~Atlantic Capital’s~~the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU ~~2017-08 “~~2017‑08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic ~~310-20)~~310‑20): Premium Amortization on Purchased Callable Debt ~~Securities~~Securities.” .”This guidance shortens the premium amortization period for certain callable debt securities by requiring amortization to the earliest call date. The standard is effective for public companies for annual and interim periods beginning after December 15, 2020. The adoption of this update is not expected to have a material impact on Atlantic Capital’s consolidated financial statements.

In January 2017, the FASB issued ASU ~~2017-04, “~~2017‑04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,”,” which intends to simplify goodwill impairment testing by eliminating the second step of the analysis under which the implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. The update instead requires entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit’s fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit. ASU ~~2017-04~~2017‑04 must be applied prospectively and is effective for the Company on January 1, 2020. Early adoption is permitted. Atlantic Capital does not expect the new guidance to have a material impact on its financial condition or results of ~~operation.~~operations.

~~In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~,”to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following eight specific cash flow issues: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; 3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; 6) distributions received from equity method investees; 7) beneficial interests in securitization transactions; and 8) separately identifiable cash flows and application of the predominance principle. The amendments are effective for public companies for fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. As this guidance only affects

~~the classification within the statement of cash flows, this ASU is not expected to have a material impact on the Company’s consolidated financial statements.~~

In June 2016, the FASB issued ASU ~~2016-13 “~~2016‑13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.”” ASU ~~2016-13~~2016‑13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU ~~2016-13~~2016‑13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. ASU ~~2016-13~~2016‑13 is effective for public companies for annual periods beginning after December ~~13,~~15, 2019, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. ~~Atlantic Capital~~The Company is implementing a software package supported by a third-party vendor. The Company’s CECL working group is meeting regularly with a CECL Management Group and the Company’s Board of Directors to discuss implementation progress and methodology selections. Progress has been made on life-of-loan loss calculations and on economic forecasting methods that will be utilized in the ~~process~~modeling process. The Company continues to refine its new methodology leading up to the adoption of ~~evaluating~~the ASU and will continue to evaluate the impact of the adoption ~~of ASU 2016-13~~ on the Company’s consolidated financial statements and disclosures.

~~In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~.” The amendments in ASU 2016-09 simplify several aspects of accounting for employee share-based payments including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some areas of the simplification apply only to nonpublic entities. The new guidance will require all income tax effects of awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled and additional paid in capital pools will be eliminated. The guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Companies will be required to account for forfeitures of share-based payments by recognizing forfeitures of awards as they occur or estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as currently required, through an accounting policy election. The guidance will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s income tax withholding obligation. The guidance requires an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. ASU 2016-09 became effective for the Company on January 1, 2017 and did not have a material effect on its financial position or results of operations.

~~In February 2016, the FASB issued ASU 2016-2,~~ ~~Leases~~. Under the new guidance, leases classified as operating leases under previous GAAP must be recorded on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Atlantic Capital is evaluating the significance and other effects of adoption on the consolidated financial statements and related disclosures.

~~In January 2016, the FASB issued ASU 2016-1, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities~~.” The guidance in this update requires that equity investments (except those accounting for under the equity method of accounting) be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The guidance also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In addition, the guidance addresses various disclosure and presentation issues related to financial instruments. For public entities, this update is effective for fiscal years beginning after December 15, 2017 with early application permitted. The adoption of this update is not expected to have a material impact on Atlantic Capital’s consolidated financial statements.

~~In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers~~.” This update is a joint project with the International Accounting Standards Board initiated to clarify the principles for recognizing revenue and to develop a common revenue standard that is meant to remove inconsistencies and weaknesses in revenue requirements, provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, provide more useful information to users of financial statements and simplify the preparation of financial statements. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For public companies, this guidance is effective for annual and interim periods beginning after December 15, 2017. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, this ASU will not have a material impact on net interest income and securities gains. Atlantic Capital completed an initial evaluation of the impact to other revenue streams such as service charges and trust income, and believes the most significant changes will be related to disclosures.

NOTE 3 – ACQUISITIONS AND DIVESTITURES

Discontinued Operations

On ~~October 31, 2015, Atlantic Capital~~April 5, 2019, the Bank completed the ~~acquisition~~sale of ~~First Security Group, Inc. (“First Security”~~all 14 of its bank branches located in Tennessee and northwest Georgia, including its mortgage banking business, to FirstBank (the “Branch Sale”). ~~First Security operated twenty-five~~FirstBank assumed deposits and customer repurchase agreements of approximately $598 million and purchased approximately $385 million in loans. FirstBank paid a deposit premium equal to 6.25% of the balance of assumed deposits, less a discount of 0.68% of purchased loans.

The income and expenses related to these branches ~~in Georgia and Tennessee. In connection with the acquisition, Atlantic Capital acquired approximately $801.1 million of loans and assumed approximately $970.0 million of deposits.~~

~~Acquisition-related costs totaled $0 and $304,000~~ for the three and nine months ended September 30, ~~2017, respectively,~~2019 and ~~$579,000~~2018 are included in discontinued operations and ~~$2.5 million~~prior period financial information has been retrospectively adjusted for the impact of discontinued operations.

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The following table presents results of the discontinued operations for the three and nine months ended September 30, ~~2016, respectively,~~2019 and ~~were included in noninterest expense in the consolidated income statement. Acquisition related costs primarily~~2018:

Components of Net Income from Discontinued Operations


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2019		2018		2019		2018
Net interest income (loss)	$	—	$	3,266	$	3,086	$	10,915
Service charges		—		474		527		1,439
Mortgage income		—		315		288		982
Gain on sale of branches		—		—		34,475		—
Other income		—		22		(1)		76
Total noninterest income		—		811		35,289		2,497
Salaries and employee benefits		—		2,820		2,757		8,957
Occupancy		—		556		410		1,537
Equipment and software		—		217		131		621
Amortization of intangibles		—		296		247		958
Communications and data processing		—		381		586		1,089
Divestiture expense		—		—		5,095		—
Other noninterest expense		—		453		459		1,403
Total noninterest expense		—		4,723		9,685		14,565
Net income (loss) before provision for income taxes		—		(646)		28,690		(1,153)
Provision (benefit) for income taxes		(617)		(161)		6,993		(288)
Net income (loss) from discontinued operations	$	617	$	(485)	$	21,697	$	(865)

Assets sold and liabilities assumed by FirstBank include ~~severance costs, professional services, data processing fees related to systems conversion~~substantially all assets and ~~other noninterest expenses.~~

~~Divestiture of Branches~~

On December 17, 2015, Atlantic Capital Bank, N.A. (the “Bank”) entered into two separate definitive agreements to sell seven branches in the Tennessee market. The agreement with First Freedom Bank included the sale of three branches located in Algood, Cookeville and Gainesboro, Tennessee for a premium of 2.25% of deposits. The agreement with Athens Federal Community Bank, N.A. included the sale of four branches in Athens, Lenoir City, Madisonville and Sweetwater, Tennessee for a premium of 3.50% of deposits. Both transactions closed in the second quarter of 2016 and resulted in a combined gain of $3.9 million as well as a reduction of approximately $191.0 million in deposits, approximately $34.7 million in loans and approximately $8.6 million in other assets. The gain was somewhat reduced by an impairment of $2.0 million in core deposit intangibles, which was offset by a $344,000 reversal in time deposit premium. There were also $305,000 of expensesliabilities associated with the ~~divestitures included in noninterest expense in~~branches sold, and were classified as held for sale on the ~~second quarter~~Consolidated Balance Sheets as of ~~2016.~~December 31, 2018.

The following table summarizes the major categories of assets and liabilities classified as held for sale and intangibles related to discontinued operations on the Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018:

Assets and Liabilities from Discontinued Operations


(in thousands)	September 30, 2019		December 31, 2018
Cash	$	—	$	4,234
Loans held for sale - discontinued operations		—		373,030
Premises held for sale - discontinued operations		—		7,722
Goodwill - discontinued operations		—		4,555
Core deposit intangible		—		1,405
Total assets	$	—	$	390,946

Deposits to be assumed - discontinued operations	$	—	$	585,429
Securities sold under agreements to repurchase - discontinued operations		—		6,220
Total liabilities	$	—	$	591,649
Net liabilities	$	—	$	(200,703)

~~On December 9, 2016, Atlantic Capital entered into a definitive agreement to sell one branch in Cleveland, Tennessee, to SmartBank. The sale closed in the second quarter~~

Table of 2017, and resulted in a net gain of $302,000 as well as a reduction of approximately $21.9 million in deposits and approximately $27.3 million in loans and other assets. The gross gain of $533,000 was reduced by an impairment of $337,000 in core deposit intangibles, which was offset by a $106,000 reversal in time deposit premium. There were also $38,000 of expenses associated with the divestiture included in noninterest expense in the second quarter of 2017.Contents

NOTE 4 – BALANCE SHEET OFFSETTING

Atlantic Capital enters into reverse repurchase agreements in order to invest short-term funds. Atlantic Capital enters into repurchase agreements for short-term financing needs.

The following table presents a summary of amounts outstanding under reverse repurchase agreements, repurchase agreements, and derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements as of September 30, ~~2017~~2019 and December 31, ~~2016.~~2018. While these agreements are typically over-collateralized, ~~U.S.~~ GAAP requires disclosures in this table to limit the amount of such collateral to the amount of the related recognized asset or liability for each counterparty.


							Gross Amounts not Offset in the
	Gross						Balance Sheet
	Amounts of		Gross Amounts		Net				Cash
(in thousands)	Recognized		Offset on the		Asset		Financial		Collateral
September 30, 2019	Assets		Balance Sheet		Balance		Instruments		Received		Net Amount
Derivatives	$	13,062	$	—	$	13,062	$	—	$	—	$	13,062
Total	$	13,062	$	—	$	13,062	$	—	$	—	$	13,062


							Gross Amounts not Offset in the
	Gross						Balance Sheet
	Amounts of		Gross Amounts		Net				Cash
	Recognized		Offset on the		Liability		Financial		Collateral
	Liabilities		Balance Sheet		Balance		Instruments		Pledged		Net Amount
Derivatives		8,047		—		8,047		(8,047)		—		—
Total	$	8,047	$	—	$	8,047	$	(8,047)	$	—	$	—


							Gross Amounts not Offset in the
	Gross						Balance Sheet
	Amounts of		Gross Amounts		Net				Cash
	Recognized		Offset on the		Asset		Financial		Collateral
December 31, 2018	Assets		Balance Sheet		Balance		Instruments		Received		Net Amount
Reverse repurchase agreements	$	9,457	$	—	$	9,457	$	(9,457)	$	—	$	—
Derivatives		1,961		—		1,961		—		—		1,961
Total	$	11,418	$	—	$	11,418	$	(9,457)	$	—	$	1,961


							Gross Amounts not Offset in the
	Gross						Balance Sheet
	Amounts of		Gross Amounts		Net				Cash
	Recognized		Offset on the		Liability		Financial		Collateral
	Liabilities		Balance Sheet		Balance		Instruments		Pledged		Net Amount
Repurchase agreements - discontinued operations	$	6,220	$	—	$	6,220	$	(6,220)	$	—	$	—
Derivatives		4,027		—		4,027		(4,027)		—		—
Total	$	10,247	$	—	$	10,247	$	(10,247)	$	—	$	—

(in thousands) Gross Amounts not Offset in the Balance Sheet
September 30, 2017 Gross Amounts of Recognized Assets Gross Amounts Offset on the Balance Sheet Net Asset Balance Financial Instruments Cash Collateral Received Net Amount
Reverse repurchase agreements $ 5,189
$ —
$ 5,189
$ (5,189 ) $ —
$ —
Derivatives 3,993
—
3,993
—
—
3,993
Total $ 9,182
$ —
$ 9,182
$ (5,189 ) $ —
$ 3,993
Gross Amounts not Offset in the Balance Sheet
Gross Amounts of Recognized Liabilities Gross Amounts Offset on the Balance Sheet Net Liability Balance Financial Instruments Cash Collateral Pledged Net Amount
Repurchase agreements $ —
$ —
$ —
$ —
$ —
$ —
Derivatives 4,184
—
4,184
(2,868 ) (1,316 ) —
Total $ 4,184
$ —
$ 4,184
$ (2,868 ) $ (1,316 ) $ —

Gross Amounts not Offset in the Balance Sheet
December 31, 2016 Gross Amounts of Recognized Assets Gross Amounts Offset on the Balance Sheet Net Asset Balance Financial Instruments Cash Collateral Received Net Amount
Reverse repurchase agreements $ 10,896
$ —
$ 10,896
$ (10,896 ) $ —
$ —
Derivatives 4,310
—
4,310
—
—
4,310
Total $ 15,206
$ —
$ 15,206
$ (10,896 ) $ —
$ 4,310
Gross Amounts not Offset in the Balance Sheet
Gross Amounts of Recognized Liabilities Gross Amounts Offset on the Balance Sheet Net Liability Balance Financial Instruments Cash Collateral Pledged Net Amount
Repurchase agreements $ —
$ —
$ —
$ —
$ —
$ —
Derivatives 4,131
—
4,131
(1,818 ) (2,313 ) —
Total $ 4,131
$ —
$ 4,131
$ (1,818 ) $ (2,313 ) $ —

Table of Contents

NOTE 5 – SECURITIES

The following table presents the amortized cost, unrealized gains and losses, and fair value of securities available-for-sale and held-to-maturity at September 30, ~~2017~~2019 and December 31, ~~2016~~2018.


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(in thousands)
September 30, 2019
Available-For-Sale
U.S. states and political divisions	$	83,922	$	1,015	$	(193)	$	84,744
Trust preferred securities		4,801		—		(201)		4,600
Corporate debt securities		19,564		264		(2)		19,826
Residential mortgage-backed securities		174,826		3,243		(454)		177,615
Total available-for-sale		283,113		4,522		(850)		286,785

Held-to-Maturity
U.S. states and political divisions		42,863		46		(169)		42,740
Total held-to-maturity		42,863		46		(169)		42,740
Total securities	$	325,976	$	4,568	$	(1,019)	$	329,525


December 31, 2018
Debt securities—
U.S. Government agencies	$	27,259	$	24	$	(434)	$	26,849
U.S. states and political divisions		91,864		40		(7,070)		84,834
Trust preferred securities		4,781		—		(381)		4,400
Corporate debt securities		12,855		—		(492)		12,363
Residential mortgage-backed securities		277,524		2,726		(6,210)		274,040
Total securities	$	414,283	$	2,790	$	(14,587)	$	402,486

Available-For-Sale
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
(in thousands)
September 30, 2017
Debt securities—
U.S. Government agencies $ 34,961
$ 108
$ (286 ) $ 34,783
U.S. states and political divisions 96,813
339
(3,373 ) 93,779
Trust preferred securities 4,747
—
(72 ) 4,675
Corporate debt securities 16,700
115
(659 ) 16,156
Residential mortgage-backed securities 296,978
3,147
(2,513 ) 297,612
Total $ 450,199
$ 3,709
$ (6,903 ) $ 447,005

December 31, 2016
Debt securities—
U.S. Government agencies $ 21,485
$ 24
$ (357 ) $ 21,152
U.S. states and political divisions 96,908
141
(6,877 ) 90,172
Trust preferred securities 4,727
—
(202 ) 4,525
Corporate debt securities 19,928
72
(769 ) 19,231
Residential mortgage-backed securities 214,297
2,689
(4,361 ) 212,625
Total $ 357,345
$ 2,926
$ (12,566 ) $ 347,705

The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at September 30, ~~2017~~.2019. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available-For-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(in thousands)				(in thousands)
Within 1 year	$	—	$	—	$	—	$	—
Over 1 year through 5 years		10,594		10,701		—		—
5 years to 10 years		30,268		30,402		—		—
Over 10 years		67,425		68,067		42,863		42,740
		108,287		109,170		42,863		42,740
Residential mortgage-backed securities		174,826		177,615		—		—
Total	$	283,113	$	286,785	$	42,863	$	42,740

Available-For-Sale

Amortized
Cost

Fair
Value
(in thousands)
Within 1 year $ 625
$ 625
Over 1 year through 5 years 25,696
25,507
5 years to 10 years 53,041
52,506
Over 10 years 73,859
70,755
153,221
149,393
Residential mortgage-backed securities 296,978
297,612
Total $ 450,199
$ 447,005

Table of Contents

The following table summarizes available-for-sale and held-to-maturity securities in an unrealized loss position as of September 30, ~~2017~~ ~~and~~ ~~December 31, 2016~~.

Less than 12 months 12 months or greater Totals
Available-For-Sale
Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
(in thousands)
September 30, 2017
U.S. Government agencies $ 22,309
$ (221 ) 2,582
$ (65 ) $ 24,891
$ (286 )
U.S. states and political divisions 39,864
(1,038 ) 36,070
(2,335 ) 75,934
(3,373 )
Trust preferred securities —
—
4,675
(72 ) 4,675
(72 )
Corporate debt securities 3,501
(41 ) 5,895
(618 ) 9,396
(659 )
Residential mortgage-backed securities 77,392
(759 ) 89,130
(1,754 ) 166,522
(2,513 )
Totals $ 143,066
$ (2,059 ) $ 138,352
$ (4,844 ) $ 281,418
$ (6,903 )
December 31, 2016
U.S. Government agencies $ 12,250
$ (263 ) $ 2,881
$ (94 ) $ 15,131
$ (357 )
U.S. states and political divisions 87,511
(6,877 ) —
—
87,511
(6,877 )
Trust preferred securities —
—
4,525
(202 ) 4,525
(202 )
Corporate debt securities 7,886
(769 ) —
—
7,886
(769 )
Residential mortgage-backed securities 151,406
(3,231 ) 32,550
(1,130 ) 183,956
(4,361 )
Totals $ 259,053

$ (11,140 ) $ 39,956
$ (1,426 ) $ 299,009
$ (12,566 )

At September 30, 2017, there were 245 available-for-sale securities that were in an unrealized loss position. Atlantic Capital does not intend to sell and does not believe it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. Unrealized losses at September 30, 20172019 and December 31, ~~2016 were attributable to changes in interest rates.~~2018.


	Less than 12 months				12 months or greater				Totals
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2019	Value		Losses		Value		Losses		Value		Losses
	(in thousands)
Available-for-Sale
U.S. states and political divisions	$	20,616	$	(144)	$	4,097	$	(49)	$	24,713	$	(193)
Trust preferred securities		—		—		4,600		(201)		4,600		(201)
Corporate debt securities		—		—		1,003		(2)		1,003		(2)
Residential mortgage-backed securities		8,182		(21)		31,820		(433)		40,002		(454)
Total available-for-sale		28,798		(165)		41,520		(685)		70,318		(850)
Held-to-Maturity
U.S. states and political divisions		20,179		(169)		—		—		20,179		(169)
Total held-to-maturity		20,179		(169)		—		—		20,179		(169)
Total securities	$	48,977	$	(334)	$	41,520	$	(685)	$	90,497	$	(1,019)

December 31, 2018
U.S. Government agencies	$	1,487	$	(19)	$	21,849	$	(415)	$	23,336	$	(434)
U.S. states and political divisions		2,351		(54)		75,234		(7,016)		77,585		(7,070)
Trust preferred securities		—		—		4,400		(381)		4,400		(381)
Corporate debt securities		6,009		(60)		6,354		(432)		12,363		(492)
Residential mortgage-backed securities		30,938		(152)		196,745		(6,058)		227,683		(6,210)
Total securities	$	40,785	$	(285)	$	304,582	$	(14,302)	$	345,367	$	(14,587)

Management evaluates securities for other-than-temporary impairment on a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, among other factors. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and ~~industry analysts’ reports.~~internal and external analyst reviews.

At September 30, 2019, there were 77 available-for-sale securities and 7 held-to-maturity securities that were in an unrealized loss position. Atlantic Capital does not intend to sell and does not believe it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. Unrealized losses at September 30, 2019 and December 31, 2018 were attributable to changes in interest rates. No impairment charges on securities were recognized during the three or nine months ended September 30, ~~2017~~2019 or ~~2016.~~

2018.

Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. The following table summarizes securities sales activity for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands)
Proceeds from sales	$	62,025	$	—	$	116,963	$	24
Gross realized gains		553	$	—	$	1,675	$	—
Gross realized losses		(300)		—		(768)		(2)
Net gains (losses) on sales of securities	$	253	$	—	$	907	$	(2)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Proceeds from sales $ 1,813
$ —
$ 1,813
$ 65,103
Gross realized gains —
—
—
449
Gross realized losses (80 ) —
(80 ) (405 )
Net gains on sales of securities $ (80 ) $ —
$ (80 ) $ 44

Investment securities with a carrying value of ~~$100.0~~$32.3 million and ~~$104.9~~$65.3 million were pledged to secure public funds and other borrowings at September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.

Table of Contents

As of September 30, 2019 and December 31, 2018, Atlantic Capital had investments with a carrying value of $4.4 million and $4.4 million, respectively, in Small Business Investment Companies (“SBICs”) where Atlantic Capital is the limited partner. These investments are included in other assets on the Consolidated Balance Sheets. During the nine months ended September 30, 2019 and 2018, the Company recorded impairments in the amounts of $26,000 and $228,000, respectively, on these SBICs. The impairments resulted from deterioration in the credit quality of one of the SBICs and their inability to pay distributions until their financial position improves. There have been no upward adjustments, cumulatively or year-to-date, on these investments.

NOTE 6 – LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the loan portfolio as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, is summarized below.


	September 30, 2019		December 31, 2018
	(in thousands)
Loans held for sale
Loans held for sale - discontinued operations	$	—	$	373,030
Loans held for sale - continuing operations		916		5,889
Total loans held for sale	$	916	$	378,919

Loans held for investment
Commercial loans:
Commercial and industrial	$	697,412	$	645,374
Commercial real estate		865,525		794,828
Construction and land		145,177		156,232
Mortgage warehouse participations		23,256		27,967
Total commercial loans		1,731,370		1,624,401
Residential:
Residential mortgages		31,903		32,800
Home equity		25,638		22,822
Total residential loans		57,541		55,622
Consumer		27,168		25,851
Other		22,533		24,712
Total loans		1,838,612		1,730,586
Less net deferred fees and other unearned income		(2,939)		(2,513)
Less allowance for loan losses		(18,080)		(17,851)
Loans held for investment, net	$	1,817,593	$	1,710,222

September 30,
2017 December 31,
2016
(in thousands)
Loans held for sale
Branch loans held for sale $ —
$ 30,917
Other loans held for sale 3,274
4,302
Total loans held for sale $ 3,274
$ 35,219

Loans held for investment
Commercial loans:
Commercial and industrial $ 562,426
$ 531,061
Commercial real estate 944,854
858,778
Construction and land 132,080
219,352
Mortgage warehouse participations 41,551
147,519
Total commercial loans 1,680,911
1,756,710
Residential:
Residential mortgages 101,976
101,921
Home equity 78,773
77,358
Total residential loans 180,749
179,279
Consumer 31,750
27,338
Other 16,106
21,565
Total loans 1,909,516
1,984,892
Less net deferred fees and other unearned income (4,084 ) (3,562 )
Less allowance for loan losses (18,870 ) (20,595 )
Loans held for investment, net $ 1,886,562
$ 1,960,735

At September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, loans with a carrying value of ~~$473.5~~$689.0 million and ~~$474.8~~$752.7 million, respectively, were pledged as collateral to secure ~~FHLB~~Federal Home Loan Bank of Atlanta (“FHLB”) advances and the Federal Reserve discount window.

~~At September 30, 2017, the carrying value and outstanding balance~~

Table of ~~Purchased Credit Impaired (“PCI”) loans accounted for under ASC 310-30 was $12.1 million and $14.6 million, respectively.~~ Contents

At December 31, ~~2016, the carrying value and outstanding balance of~~2018, PCI loans ~~accounted~~were designated as held for ~~under ASC 310-30 was $15.3 million and $18.7 million, respectively.~~sale for the Branch Sale. The following table presents changes in the value of the accretable yield for acquired loans accounted for under ASC ~~310-30.~~310‑30 for the three and nine months ended September 30, 2019 and 2018.


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(in thousands)
Balance at beginning of period	$	—	$	2,456	$	—	$	2,316
Accretion		—		(299)		—		(898)
Reclassification of nonaccretable discount due to change in expected cash flows		—		180		—		473
Other changes, net		—		96		—		542
Balance at end of period	$	—	$	2,433	$	—	$	2,433

For the Three Months Ended For the Nine Months Ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
(in thousands)
Balance at beginning of period $ 3,130
$ 1,826
$ 3,467
$ 2,369
Additions due to acquisitions —
—
—
—
Accretion (427 ) (341 ) (1,206 ) (884 )
Reclassification of nonaccretable discount due to change in expected cash flows (202 ) 2,404
142
2,404
Other changes, net 281
295
379
295
Balance at end of period $ 2,782
$ 4,184
$ 2,782
$ 4,184

In addition to the accretable yield on PCI loans, the fair value adjustments on purchased loans outside the scope of ASC ~~310-30~~310‑30 are also accreted to interest income over the life of the loans. At September 30, ~~2017,~~2019, the remaining accretable fair value discount on loans acquired through a business combination and not accounted for under ASC ~~310-30~~310‑30 was ~~$3.1 million~~$324,000 compared to ~~$3.9~~$3.6 million at December 31, ~~2016.~~

2018.

The allowance for loan losses represents management’s estimate of probable incurred losses in the loan portfolio as of the end of the period. It is comprised of specific reserves for impaired loans and a general allowance for pools of loans with similar characteristics not individually evaluated. The allowance is regularly evaluated ~~for loan losses~~ to maintain an adequate level to absorb probable current inherent losses in the loan portfolio. Factors contributing to the determination of the allowance include the credit worthiness of the borrower, changes in the value of pledged collateral, and general economic conditions. Most loan commitments rated substandard or worse are specifically reviewed for loss potential. For loans deemed to be impaired, a specific allocation is assigned based on the losses expected to be realized from those loans.

The following table presents the balance and activity in the allowance for ~~credit~~loan losses by portfolio segment for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.


	For the Three Months Ended September 30,
	2019								2018
	Commercial		Residential		Consumer		Total		Commercial		Residential		Consumer		Total
	(in thousands)
Allowance for loan losses:
Beginning balance	$	17,817	$	164	$	205	$	18,186	$	18,491	$	811	$	281	$	19,583
Provision for loan losses		434		(24)		3		413		761		109		(25)		845
Loans charged-off		(541)		—		(2)		(543)		—		—		—		—
Recoveries		18		—		6		24		—		—		15		15
Total ending allowance balance	$	17,728	$	140	$	212	$	18,080	$	19,252	$	920	$	271	$	20,443

2017 2016
Three Months Ended September 30, Commercial Residential Consumer Total Commercial Residential Consumer Total
(in thousands)
Allowance for loan losses:
Beginning balance $ 20,692
$ 860
$ 318
$ 21,870
$ 16,469
$ 1,389
$ 519
$ 18,377
Provision for loan losses 273
55
(6 ) 322
409
64
(10 ) 463
Loans charged-off (3,308 ) (31 ) (7 ) (3,346 ) (287 ) (9 ) (65 ) (361 )
Recoveries 16
—
8
24
34
7
14
55
Total ending allowance balance $ 17,673
$ 884
$ 313
$ 18,870
$ 16,625
$ 1,451
$ 458
$ 18,534

2017 2016
Nine Months Ended September 30, Commercial Residential Consumer Total Commercial Residential Consumer Total
(in thousands)
Allowance for loan losses:
Beginning balance $ 18,717
$ 1,418
$ 460
$ 20,595
$ 16,537
$ 1,981
$ 387
$ 18,905
Provision for loan losses 3,152
(451 ) 235
2,936
1,934
(503 ) 177
1,608
Loans charged-off (4,221 ) (85 ) (396 ) (4,702 ) (1,897 ) (34 ) (249 ) (2,180 )
Recoveries 25
2
14
41
51
7
143
201
Total ending allowance balance $ 17,673
$ 884
$ 313
$ 18,870
$ 16,625
$ 1,451
$ 458
$ 18,534

Table of Contents

~~The general component~~


	For the Nine Months Ended September 30,
	2019								2018
	Commercial		Residential		Consumer		Total		Commercial		Residential		Consumer		Total
	(in thousands)
Allowance for loan losses:
Beginning balance	$	17,322	$	292	$	237	$	17,851	$	18,267	$	802	$	275	$	19,344
Provision for loan losses		2,096		(151)		(20)		1,925		1,115		348		(19)		1,444
Loans charged-off		(1,725)		(9)		(39)		(1,773)		(176)		(230)		(13)		(419)
Recoveries		35		8		34		77		46		—		28		74
Total ending allowance balance	$	17,728	$	140	$	212	$	18,080	$	19,252	$	920	$	271	$	20,443

Atlantic Capital determines the appropriate level of allowance on a quarterly basis. Refer to Note 1, “Accounting Policies and Basis of Presentation” and Note 6, “Loans and Allowance for Loan Losses” to the ~~allowance for loan losses is based~~Consolidated Financial Statements to the Annual Report on the incurred losses inherent in the portfolio. The loss factors are determined through the generation of probabilities of default (“PDs”) and losses given default (“LGDs”) for groups of similar loans with similar credit grades where Loss Rate = PD x LGD. The PDs and LGDsForm 10-K for the loan portfolio are calculated based on Atlantic Capital’s loss history as well as available market-based data. The loss factor for each pool of loans is adjusted based on qualitative and environmental factors to account for conditions in the current environment which management believes are likely to cause a difference between the calculated loss based on historical performance and the incurred loss in the existing portfolio. These factors include: changes in policies and procedures, changes in the economy, changes in nature or volume of the portfolio and in the terms of loans, changes in lending management, changes in past dues and credit migration, changes in the loan review system, changes in the value of collateral and concentration risk and changes in external factors, such as competition, legal and regulatory. On a quarterly basis, management evaluates these factors in order to determine an adjustment unique to Atlantic Capital and its market.

Charge-offs are recognized when the amount of the loss is quantifiable and timing is known. Collateral based loan charge-offs are measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated net realizable value of the loan. When assessing property value for the purpose of determining a charge-off, a third-party appraisal or an independently derived internal evaluation is generally employed.

A loan is considered to be impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. A specific allowance is established for individually evaluated impaired loans as needed. Reserves on impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the observable market price, or the fair value of the underlying collateral of the loan if the loan is collateral dependent.

Atlantic Capital’s policy is to place loans on nonaccrual status, when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in accordance with the loan terms or when the loan becomes 90 days past due and is not both well secured and in the process of collection. When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Principal and interest payments received on a nonaccrual loan are applied to reduce outstanding principal.

PCI loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Loans accounted for under ASC 310-30 were not classified as nonaccrual at September 30, 2017 oryear ended December 31, ~~2016, as the carrying value~~2018, for a description of the respective loan or pool of loans’ cash flows were considered estimable and collection was probable. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows (accretable yield), is being recognized on all acquired loans being accounted for under ASC 310-30.

methodology.

The balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method is presented in the following table as of September 30, ~~2017~~2019 and December 31, ~~2016.~~2018.


September 30, 2019	Commercial		Residential		Consumer		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	658	$	—	$	—	$	658
Collectively evaluated for impairment		17,070		140		212		17,422
Total ending allowance balance	$	17,728	$	140	$	212	$	18,080

Loans:
Loans individually evaluated for impairment	$	21,461	$	726	$	—	$	22,187
Loans collectively evaluated for impairment		1,709,909		56,815		49,701		1,816,425
Total ending loans balance	$	1,731,370	$	57,541	$	49,701	$	1,838,612


December 31, 2018	Commercial		Residential		Consumer		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	317	$	—	$	—	$	317
Collectively evaluated for impairment		17,005		292		237		17,534
Total ending allowance balance	$	17,322	$	292	$	237	$	17,851

Loans:
Loans individually evaluated for impairment	$	10,273	$	161	$	—	$	10,434
Loans collectively evaluated for impairment		1,614,128		55,461		50,563		1,720,152
Total ending loans balance	$	1,624,401	$	55,622	$	50,563	$	1,730,586

September 30, 2017 Commercial Residential Consumer Total
(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment $ 490
$ —
$ —
$ 490
Collectively evaluated for impairment 17,102
884
311
18,297
PCI 81
—
2
83
Total ending allowance balance $ 17,673
$ 884
$ 313
$ 18,870

Loans:
Loans individually evaluated for impairment $ 9,049
$ 719
$ —
$ 9,768
Loans collectively evaluated for impairment 1,662,299
177,511
47,848
1,887,658
PCI 9,563
2,519
8
12,090
Total ending loans balance $ 1,680,911
$ 180,749
$ 47,856
$ 1,909,516

December 31, 2016 Commercial Residential Consumer Total
(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment $ 2,626
$ 58
$ —
$ 2,684
Collectively evaluated for impairment 16,018
1,360
459
17,837
PCI 73
—
1
74
Total ending allowance balance $ 18,717
$ 1,418
$ 460
$ 20,595

Loans:
Loans individually evaluated for impairment $ 13,687
$ 398
$ —
$ 14,085
Loans collectively evaluated for impairment 1,732,324
174,338
48,892
1,955,554
PCI 10,699
4,543
11
15,253
Total ending loans balance $ 1,756,710
$ 179,279
$ 48,903
$ 1,984,892

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The following ~~tables present~~table presents information on Atlantic Capital’s impaired loans for the three and nine months ended September 30, ~~2017~~2019 and ~~2016:~~2018:


	For the Three Months Ended September 30,
	2019										2018
							Average Balance		Interest Income								Average Balance		Interest Income
	Unpaid						of Recorded		Recognized		Unpaid						of Recorded		Recognized
	Principal		Recorded		Related		Investment While		During		Principal		Recorded		Related		Investment While		During
	Balance		Investment		Allowance		Impaired		Impairment		Balance		Investment		Allowance		Impaired		Impairment
	(in thousands)
Impaired loans with no related allowance recorded:
Commercial and industrial	$	5,897	$	5,403	$	—	$	5,451	$	40	$	4,455	$	4,455	$	—	$	4,488	$	57
Commercial real estate		4,900		4,737		—		3,589		47		1,725		1,562		—		1,569		—
Construction and land		—		—		—		—		—		—		—		—		—		—
Residential mortgages		71		25		—		25		—		237		192		—		201		1
Home equity		700		700		—		700		—		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—
Total	$	11,568	$	10,865	$	—	$	9,765	$	87	$	6,417	$	6,209	$	—	$	6,258	$	58
Impaired loans with an allowance recorded:
Commercial and industrial	$	3,348	$	3,348	$	476	$	3,376	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate		7,974		7,974		183		7,989		63		4,616		4,616		257		4,616		—
Construction and land		—		—		—		—		—		—		—		—		—		—
Residential mortgages		—		—		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—
Total	$	11,322	$	11,322	$	659	$	11,365	$	63	$	4,616	$	4,616	$	257	$	4,616	$	—
Total impaired loans	$	22,890	$	22,187	$	659	$	21,130	$	150	$	11,033	$	10,825	$	257	$	10,874	$	58


	For the Nine Months Ended September 30,
	2019										2018
							Average Balance		Interest Income								Average Balance		Interest Income
	Unpaid						of Recorded		Recognized		Unpaid						of Recorded		Recognized
	Principal		Recorded		Related		Investment While		During		Principal		Recorded		Related		Investment While		During
	Balance		Investment		Allowance		Impaired		Impairment		Balance		Investment		Allowance		Impaired		Impairment
	(in thousands)
Impaired loans with no related allowance recorded:
Commercial and industrial	$	5,897	$	5,403	$	—	$	5,541	$	122	$	4,455	$	4,455	$	—	$	4,584	$	173
Commercial real estate		4,900		4,737		—		4,127		149		1,725		1,562		—		1,577		—
Construction and land		—		—		—		—		—		—		—		—		—		—
Residential mortgages		71		25		—		25		—		237		192		—		203		2
Home equity		700		700		—		700		—		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—
Total	$	11,568	$	10,865	$	—	$	10,393	$	271	$	6,417	$	6,209	$	—	$	6,364	$	175
Impaired loans with an allowance recorded:
Commercial and industrial	$	3,348	$	3,348	$	476	$	3,811	$	52	$	—	$	—	$	—	$	—	$	—
Commercial real estate		7,974		7,974		183		7,989		359		4,616		4,616		257		4,616		—
Construction and land		—		—		—		—		—		—		—		—		—		—
Residential mortgages		—		—		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—
Total	$	11,322	$	11,322	$	659	$	11,800	$	411	$	4,616	$	4,616	$	257	$	4,616	$	—
Total impaired loans	$	22,890	$	22,187	$	659	$	22,193	$	682	$	11,033	$	10,825	$	257	$	10,980	$	175

For the Three Months Ended September 30,
2017 2016

Unpaid
Principal
Balance

Recorded
Investment

Related
Allowance
Average Balance of Recorded Investment While Impaired Interest Income Recognized During Impairment
Unpaid
Principal
Balance

Recorded
Investment

Related
Allowance
Average Balance of Recorded Investment While Impaired Interest Income Recognized During Impairment
(in thousands)
Impaired loans with no related allowance recorded:
Commercial and industrial $ 2,424
$ 2,361
$ —
$ 2,287
$ 14
$ 3,118
$ 3,057
$ —
$ 3,028
$ 40
Commercial real estate 1,946
1,783
—
1,889
—
—
—
—
—
—
Construction and land —
—
—
—
—
—
—
—
—
—
Residential mortgages 236
190
—
191
—
—
—
—
—
—
Home equity 529
529
—
531
—
—
—
—
—
—
Mortgage warehouse —
—
—
—
—
—
—
—
—
—
Consumer —
—
—
—
—
—
—
—
—
—
Total $ 5,135
$ 4,863
$ —
$ 4,898
$ 14
$ 3,118
$ 3,057
$ —
$ 3,028
$ 40
Impaired loans with an allowance recorded:
Commercial and industrial $ 4,333
$ 4,333
$ 356
$ 4,375
$ 49
$ 4,461
$ 4,461
$ 481
$ 4,461
$ —
Commercial real estate 572
572
134
576
6
1,132
1,132
205
1,132
—
Construction and land —
—
—
—
—
—
—
—
—
—
Residential mortgages —
—
—
—
—
406
406
65
406
—
Home equity —
—
—
—
—
—
—
—
—
—
Mortgage warehouse —
—
—
—
—
—
—
—
—
—
Consumer —
—
—
—
—
—
—
—
—
—
Total $ 4,905
$ 4,905
$ 490
$ 4,951
$ 55
$ 5,999
$ 5,999
$ 751
$ 5,999
$ —
Total impaired loans $ 10,040
$ 9,768
$ 490
$ 9,849
$ 69
$ 9,117
$ 9,056
$ 751
$ 9,027
$ 40

For the Nine Months Ended September 30,
2017 2016

Unpaid
Principal
Balance

Recorded
Investment

Related
Allowance
Average Balance of Recorded Investment While Impaired Interest Income Recognized During Impairment
Unpaid
Principal
Balance

Recorded
Investment

Related
Allowance
Average Balance of Recorded Investment While Impaired Interest Income Recognized During Impairment
(in thousands)
Impaired loans with no related allowance recorded:
Commercial and industrial $ 2,424
$ 2,361
$ —
$ 2,717
$ 42
$ 3,118
$ 3,057
$ —
$ 2,960
$ 112
Commercial real estate 1,946
1,783
—
1,925
1
—
—
—
—
—
Construction and land —
—
—
—
—
—
—
—
—
—
Residential mortgages 236
190
—
221
—
—
—
—
—
—
Home equity 529
529
—
264
—
—
—
—
—
—
Mortgage warehouse —
—
—
—
—
—
—
—
—
—
Consumer —
—
—
—
—
—
—
—
—
—
Total $ 5,135
$ 4,863
$ —
$ 5,127
$ 43
$ 3,118
$ 3,057
$ —
$ 2,960
$ 112
Impaired loans with an allowance recorded:
Commercial and industrial $ 4,333
$ 4,333
$ 356
$ 4,454
$ 149
$ 4,461
$ 4,461
$ 481
$ 4,461
$ —
Commercial real estate 572
572
134
581
19
1,132
1,132
205
1,132
—
Construction and land —
—
—
—
—
—
—
—
—
—
Residential mortgages —
—
—
—
—
406
406
65
406
—
Home equity —
—
—
—
—
—
—
—
—
—
Mortgage warehouse —
—
—
—
—
—
—
—
—
—
Consumer —
—
—
—
—
—
—
—
—
—
Total $ 4,905
$ 4,905
$ 490
$ 5,035
$ 168
$ 5,999
$ 5,999
$ 751
$ 5,999
$ —
Total impaired loans $ 10,040
$ 9,768
$ 490
$ 10,162
$ 211
$ 9,117
$ 9,056
$ 751
$ 8,959
$ 112

Atlantic Capital evaluates loans in accordance with ASC ~~310-40,~~ 310‑40, Troubled Debt Restructurings by ~~Creditors.~~Creditors. TDRs are loans in which Atlantic Capital has modified the terms or granted an economic concession to a borrower who is experiencing financial difficulties. These modifications may include interest rate reductions, term extensions and other concessions intended to minimize losses.

As of September 30, ~~2017~~2019, and December 31, ~~2016,~~2018, the Company had a recorded investment in TDRs of ~~$7.1~~$12.8 million and ~~$6.6~~$8.2 million, respectively. The Company had commitments to lend additional funds of ~~$34,000~~$3,000 and ~~$387,000~~$28,000 on loans modified as TDRs, as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. During the three months ended September 30, ~~2017,~~2019, the Company restructured via bankruptcy one commercial real estate SBA loan, resulting in its

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reclassification as a large Commercial and Industrial borrower was sold. As a part of the deficiency agreement, part of the credit relationship was restructured. The restructure included a charge off and the reclassification of the remaining balance to a TDR of $980,000. Additionally, duringTDR. For the nine months ended September 30, ~~2017, the modification of terms for one Home Equity loan~~2019, restructurings included ~~a short term extension of the maturity date. During~~

modifications such as payment deferrals and interest only forbearance.

Loans, by portfolio class, modified as TDRs during the three and nine months ended September 30, ~~2016,~~2019 are as follows.


		Pre-Modification			Post-Modification
		Outstanding			Outstanding
	Number of Loans	Recorded Investment		Recorded Investment
		(in thousands)
Three Months Ended September 30, 2019
Commercial real estate	1	$	1,512	$	1,512
Total	1	$	1,512	$	1,512

Nine Months Ended September 30, 2019
Commercial and industrial	6	$	1,235	$	1,235
Commercial real estate	3		2,438		2,438
Total	9	$	3,673	$	3,673

The Company did not forgive any principal on TDRs during the ~~modification of terms for one Commercial~~three and ~~Industrial loan included an extension of the maturity date~~nine month periods ended September 30, 2019 and ~~related amortization period date of two years. The modification of terms for two Commercial Real Estate loans established an interest only payment period of six months. There~~2018, and there were no subsequent defaults ~~on prior~~of previously identified TDRs.

Atlantic Capital individually rates loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, consumer credit risk scores (FICO scores), rating agency information, LTV ratios, collateral, collection experience, and other internal metrics. Atlantic Capital uses a dual rating system. The likelihood of default of a credit transaction is graded in the Obligor Rating. The risk of loss given default is graded in the Facility Rating. The Obligor Rating is determined through credit analysis. Facility Ratings are used to describe the value to the Company that the collateral represents. Facility Ratings are based on the collateral package or market expectations regarding the value orand liquidity of the collateral. Ratings are generally reviewed at least annually or more frequently if there is a material change in creditworthiness. Exceptions to this policy may include well collateralized term loans and loans to individuals with limited exposure or complexity.

Atlantic Capital uses the following definitions for risk ratings:

Pass: Loans that are analyzed individually as part of the above described process and that do not meet the criteria of special mention, substandard or doubtful.

Special Mention: Loans classified as special mention have a potential weakness that requires management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows. Total loans at December 31, 2018 includes loans held for sale - discontinued operations.


			Special		Substandard		Substandard		Doubtful
	Pass		Mention		Accruing		Nonaccruing		Nonaccruing		Total
	(in thousands)
September 30, 2019
Commercial and industrial	$	663,678	$	11,548	$	16,676	$	5,510	$	—	$	697,412
Commercial real estate		842,180		3,205		19,838		302		—		865,525
Construction and land		145,177		—		—		—		—		145,177
Residential mortgages		31,524		—		121		258		—		31,903
Home equity		24,938		—		—		700		—		25,638
Mortgage warehouse		23,256		—		—		—		—		23,256
Consumer/Other		48,618		600		483		—		—		49,701
Total loans	$	1,779,371	$	15,353	$	37,118	$	6,770	$	—	$	1,838,612


			Special		Substandard		Substandard		Doubtful
	Pass		Mention		Accruing		Nonaccruing		Nonaccruing		Total
	(in thousands)
December 31, 2018
Commercial and industrial	$	671,992	$	6,802	$	22,777	$	832	$	—	$	702,403
Commercial real estate		946,612		4,754		14,914		126		1,647		968,053
Construction and land		169,687		40		25		—		—		169,752
Residential mortgages		118,265		1,119		1,441		1,138		281		122,244
Home equity		54,707		92		294		499		—		55,592
Mortgage warehouse		22,192		5,775		—		—		—		27,967
Consumer/Other		57,268		66		97		174		—		57,605
Total loans	$	2,040,723	$	18,648	$	39,548	$	2,769	$	1,928	$	2,103,616

Pass Special Mention Substandard Accruing Substandard Nonaccruing Doubtful Nonaccruing Total
(in thousands)
September 30, 2017
Commercial and industrial $ 515,388
$ 13,362
$ 27,179
$ 996
$ 5
$ 556,930
Commercial real estate 925,588
9,730
4,037
133
1,631
941,119
Construction and land 127,005
4,721
—
22
—
131,748
Residential mortgages 97,685
1,365
714
248
328
100,340
Home equity 76,685
41
469
695
—
77,890
Mortgage warehouse 41,551
—
—
—
—
41,551
Consumer/Other 47,594
60
194
—
—
47,848
Total loans, excluding PCI loans $ 1,831,496
$ 29,279
$ 32,593
$ 2,094
$ 1,964
$ 1,897,426
Commercial and industrial $ —
$ 4,781
$ 715
$ —
$ —
$ 5,496
Commercial real estate 3,091
233
295
—
116
3,735
Construction and land 298
7
27
—
—
332
Residential mortgages 396
540
700
—
—
1,636
Home equity 105
475
303
—
—
883
Mortgage warehouse —
—
—
—
—
—
Consumer/Other 1
1
6
—
—
8
Total PCI loans $ 3,891
$ 6,037
$ 2,046
$ —
$ 116
$ 12,090

Pass Special Mention Substandard Accruing Substandard Nonaccruing Doubtful Total
(in thousands)
December 31, 2016
Commercial and industrial $ 494,617
$ 3,160
$ 26,399
$ 3
$ 471
$ 524,650
Commercial real estate 843,924
5,513
5,571
—
—
855,008
Construction and land 213,981
4,789
64
—
—
218,834
Residential mortgages 97,660
586
747
147
—
99,140
Home equity 75,031
168
397
—
—
75,596
Mortgage warehouse 147,519
—
—
—
—
147,519
Consumer/Other 48,680
190
22
—
—
48,892
Total loans, excluding PCI loans $ 1,921,412
$ 14,406
$ 33,200
$ 150
$ 471
$ 1,969,639
Commercial and industrial $ 4,650
$ 299
$ 614
$ —
$ 848
$ 6,411
Commercial real estate 477
240
2,716
—
337
3,770
Construction and land 229
8
281
—
—
518
Residential mortgages 59
1,232
1,016
—
474
2,781
Home equity 364
834
564
—
—
1,762
Mortgage warehouse —
—
—
—
—
—
Consumer/Other 1
—
10
—
—
11
Total PCI loans $ 5,780
$ 2,613
$ 5,201
$ —
$ 1,659
$ 15,253

Atlantic Capital monitors loans by past due status. The following table presents the aging of the recorded investment in past due loans as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 by class of loans. Total loans at December 31, 2018 includes loans held for sale - discontinued operations.


	As of September 30, 2019
			Accruing 30‑89		Accruing
	Accruing		Days		90+ Days
	Current		Past Due		Past Due		Nonaccruing		Total
	(in thousands)
Loans by Classification
Commercial and industrial	$	691,605	$	297	$	—	$	5,510	$	697,412
Commercial real estate		862,229		2,994		—		302		865,525
Construction and land		144,068		1,109		—		—		145,177
Residential mortgages		31,487		158		—		258		31,903
Home equity		24,938		—		—		700		25,638
Mortgage warehouse		23,256		—		—		—		23,256
Consumer		48,153		1,548		—		—		49,701
Total Loans	$	1,825,736	$	6,106	$	—	$	6,770	$	1,838,612

As of September 30, 2017
Accruing Current
Accruing 30-89
Days
Past Due

Accruing
90+ Days
Past Due
Nonaccruing PCI Loans Total
(in thousands)
Loans by Classification
Commercial and industrial $ 548,425
$ 7,379
$ 125
$ 1,001
$ 5,496
$ 562,426
Commercial real estate 936,836
2,519
—
1,764
3,735
944,854
Construction and land 131,328
398
—
22
332
132,080
Residential mortgages 98,308
1,258
198
576
1,636
101,976
Home equity 76,951
244
—
695
883
78,773
Mortgage warehouse 41,551
—
—
—
—
41,551
Consumer 47,676
—
172
—
8
47,856
Total Loans $ 1,881,075
$ 11,798
$ 495
$ 4,058
$ 12,090
$ 1,909,516

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	As of December 31, 2018
			Accruing 30‑89		Accruing
	Accruing		Days		90+ Days
	Current		Past Due		Past Due		Nonaccruing		Total
	(in thousands)
Loans by Classification
Commercial and industrial	$	692,308	$	8,785	$	478	$	832	$	702,403
Commercial real estate		963,579		2,701		—		1,773		968,053
Construction and land		169,752		—		—		—		169,752
Residential mortgages		119,932		893		—		1,419		122,244
Home equity		54,714		379		—		499		55,592
Mortgage warehouse		27,967		—		—		—		27,967
Consumer		57,371		59		1		174		57,605
Total Loans	$	2,085,623	$	12,817	$	479	$	4,697	$	2,103,616

As of December 31, 2016
Accruing Current
Accruing 30-89
Days
Past Due

Accruing
90+ Days
Past Due
Nonaccruing PCI Loans Total
(in thousands)
Loans by Classification
Commercial and industrial $ 520,908
$ 3,079
$ 189
$ 474
$ 6,411
$ 531,061
Commercial real estate 852,626
2,382
—
—
3,770
858,778
Construction and land 218,290
544
—
—
518
219,352
Residential mortgages 97,901
664
428
147
2,781
101,921
Home equity 74,420
884
292
—
1,762
77,358
Mortgage warehouse 147,519
—
—
—
—
147,519
Consumer 48,558
249
85
—
11
48,903
Total Loans $ 1,960,222
$ 7,802
$ 994
$ 621
$ 15,253
$ 1,984,892

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill and other intangible assets as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018 is summarized below:


	September 30,		December 31,
	2019		2018
	(in thousands)
Core deposit intangible	$	9,544	$	9,544
Less: accumulated amortization		(6,100)		(5,853)
Less: impairment to-date related to divested branches		(3,444)		(2,286)
Core deposit intangible, net - discontinued operations		—		1,405
Servicing assets, net		3,112		2,983
Total intangibles subject to amortization, net		3,112		4,388
Goodwill - discontinued operations		—		4,555
Goodwill - continuing operations		19,925		17,135
Total goodwill and other intangible assets, net	$	23,037	$	26,078

September 30, December 31,
2017 2016
(in thousands)
Core deposit intangible $ 9,544

$ 9,544
Less: accumulated amortization (4,257 )
(2,971 )
Less: impairment related to divested branches (2,286 ) (1,949 )
Core deposit intangible, net 3,001

4,624
Servicing assets, net 3,185

3,184
Total other intangibles, net 6,186

7,808
Goodwill 21,759

21,759
Total goodwill and other intangible assets, net $ 27,945

$ 29,567

~~During~~

Based on a relative fair value analysis performed through the ~~nine months ended September 30, 2017 and 2016, Atlantic Capital recorded measurement period adjustments that decreased goodwill by $0 and $1.6 million, respectively. The adjustments reduced~~date of the ~~TriNet servicing asset, increased the book value of securities available-for-sale, and increased the deferred tax asset.~~

~~There were no~~Branch Sale, goodwill impairment ~~charges recorded~~ in the ~~three and nine months ended September 30, 2017 and 2016.~~amount of $1.8 million related to the Branch Sale was recorded during the second quarter of 2019. Goodwill impairment in the amount of $69,000 related to the sale of the trust business was recorded during the second quarter of 2018. The following table presents activity for goodwill and other intangible assets:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	Goodwill		Core Deposit Intangible		Total		Goodwill		Core Deposit Intangible		Total
	(in thousands)
2019
Balance, beginning of period	$	19,925	$	—	$	19,925	$	21,690	$	1,405	$	23,095
Amortization		—		—		—		—		(247)		(247)
Impairment, due to Branch Sale		—		—		—		(1,765)		(1,158)		(2,923)
Balance, end of period	$	19,925	$	—	$	19,925	$	19,925	$	—	$	19,925

2018
Balance, beginning of period	$	21,690	$	1,972	$	23,662	$	21,759	$	2,634	$	24,393
Amortization		—		(296)		(296)		—		(958)		(958)
Impairment, due to trust business sale		—		—		—		(69)		—		(69)
Balance, end of period	$	21,690	$	1,676	$	23,366	$	21,690	$	1,676	$	23,366

For the Three Months Ended September 30, For the Nine Months Ended September 30,
Goodwill Core Deposit Intangible Total Goodwill Core Deposit Intangible Total
(in thousands)
2017
Balance, beginning of period $ 21,759
$ 3,392
$ 25,151
$ 21,759
$ 4,624
$ 26,383
Amortization —
(391 ) (391 ) —
(1,286 ) (1,286 )
Impairment, due to branch divestiture —
—
—
—
(337 ) (337 )
Balance, end of period $ 21,759
$ 3,001
$ 24,760
$ 21,759
$ 3,001
$ 24,760

2016
Balance, beginning of period $ 22,446
$ 5,639
$ 28,085
$ 23,352
$ 9,018
$ 32,370
Amortization —
(520 ) (520 ) —
(1,950 ) (1,950 )
Impairment, due to branch divestiture —
—
—
—
(1,949 ) (1,949 )
Measurement period adjustments (687 ) —
(687 ) (1,593 ) —
(1,593 )
Balance, end of period $ 21,759
$ 5,119
$ 26,878
$ 21,759
$ 5,119
$ 26,878

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Atlantic Capital recognized amortization expense on its core deposit intangible of $0 and $247,000 for the three and nine months ended September 30, 2019, respectively, and $296,000 and $958,000 for the three and nine months ended September 30, 2018, respectively, which was included in noninterest expense. The Company recorded impairment due to the Branch Sale totaling $1.2 million for the three and nine months ended September 30, 2019. There were no events or circumstances that led management to believe that any impairment existed at September 30, 2019 in Atlantic Capital’s other intangible assets.

NOTE 8 – SERVICING ASSETS

SBA Servicing Assets

SBA servicing assets are initially recorded at fair value. Subsequently, Atlantic Capital accounts for SBA servicing assets using the amortization method and they are included in other ~~assets.~~intangibles, net on the Consolidated Balance Sheets. As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the balance of SBA loans sold and serviced by Atlantic Capital totaled ~~$126.0~~$184.6 million and ~~$107.0~~$161.5 million, respectively.

Changes in the balance of servicing assets for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 are presented in the following table.


	Three Months Ended September 30,				Nine Months Ended September 30,
SBA Loan Servicing Assets	2019		2018		2019		2018
	(in thousands)				(in thousands)
Beginning carrying value, net	$	2,726	$	2,827	$	2,539	$	2,635
Additions		350		120		975		739
Amortization		(296)		(239)		(734)		(666)
Impairment		—		—		—		—
Ending carrying value	$	2,780	$	2,708	$	2,780	$	2,708

Three months ended September 30, Nine months ended September 30,
SBA Loan Servicing Assets 2017 2016 2017 2016
(in thousands)
Beginning carrying value, net $ 2,564
$ 2,117
$ 2,359
$ 1,687
Additions 157
328
750
889
Amortization (221 ) (125 ) (609 ) (256 )
Impairment —
—
—
—
Ending carrying value $ 2,500
$ 2,320
$ 2,500
$ 2,320

At September 30, ~~2017~~2019 and ~~2016,~~December 31, 2018, the sensitivity of the fair value of the SBA loan servicing assets to immediate changes in key economic assumptions are presented in the table below.


Sensitivity of the SBA Servicing Assets	September 30, 2019			December 31, 2018
	(dollars in thousands)
Fair value of retained servicing assets	$	3,029		$	2,630
Weighted average life		3.90 years			4.83 years
Prepayment speed:		14.71	%		11.92	%
Decline in fair value due to a 10% adverse change	$	(160)		$	(131)
Decline in fair value due to a 20% adverse change	$	(271)		$	(223)
Weighted average discount rate		14.01	%		14.42	%
Decline in fair value due to a 100 bps adverse change	$	(107)		$	(101)
Decline in fair value due to a 200 bps adverse change	$	(169)		$	(165)

Sensitivity of the SBA Servicing Assets September 30, 2017 December 31, 2016
(dollars in thousands)
Fair value of retained servicing assets $ 2,771
$ 2,474

Weighted average life 6.62 years
6.52 years

Prepayment speed: 7.66
% 7.67
%
Decline in fair value due to a 10% adverse change $ (108 ) $ (89 )
Decline in fair value due to a 20% adverse change $ (183 ) $ (151 )
Weighted average discount rate 12.56
% 12.27
%
Decline in fair value due to a 100 bps adverse change $ (117 ) $ (97 )
Decline in fair value due to a 200 bps adverse change $ (200 ) $ (168 )

The above sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on valuation assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.

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TriNet Servicing Assets

Changes in the balance of TriNet servicing assets for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 are presented in the following table.


	Three Months Ended September 30,				Nine Months Ended September 30,
TriNet Servicing Assets	2019		2018		2019		2018
	(in thousands)				(in thousands)
Beginning carrying value, net	$	369	$	523	$	444	$	605
Additions		—		—		—		—
Amortization		(37)		(40)		(112)		(122)
Impairment		—		—		—		—
Ending carrying value	$	332	$	483	$	332	$	483

Three months ended September 30, Nine months ended September 30,
TriNet Servicing Assets 2017 2016 2017 2016
(in thousands)
Beginning carrying value, net $ 731
$ 1,471
$ 825
$ 1,175
Additions —
—
—
406
Amortization (46 ) (47 ) (140 ) (157 )
Impairment —
(551 ) —
(551 )
Ending carrying value $ 685
$ 873
$ 685
$ 873

At September 30, ~~2017,~~2019 and December 31, 2018, the sensitivity of the fair value of the TriNet servicing assets to immediate changes in key economic assumptions are presented in the table below.


Sensitivity of the TriNet Servicing Assets	September 30, 2019			December 31, 2018
	(dollars in thousands)
Fair value of retained servicing assets	$	453		$	515
Weighted average life		5.77 years			6.48 years
Prepayment speed:		5.00	%		5.00	%
Decline in fair value due to a 10% adverse change	$	(6)		$	(7)
Decline in fair value due to a 20% adverse change	$	(11)		$	(14)
Weighted average discount rate		8.00	%		8.00	%
Decline in fair value due to a 100 bps adverse change	$	(10)		$	(13)
Decline in fair value due to a 200 bps adverse change	$	(20)		$	(25)

Sensitivity of the TriNet Servicing Assets September 30, 2017 December 31, 2016
(dollars in thousands)
Fair value of retained servicing assets $ 761
$ 840

Weighted average life 8.25 years
8.47 years

Prepayment speed: 5.00
% 5.00
%
Decline in fair value due to a 10% adverse change $ (11 ) $ (12 )
Decline in fair value due to a 20% adverse change $ (22 ) $ (24 )
Weighted average discount rate 8.00
% 8.00
%
Decline in fair value due to a 100 bps adverse change $ (21 ) $ (25 )
Decline in fair value due to a 200 bps adverse change $ (41 ) $ (49 )

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NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

~~Other~~

Accumulated other comprehensive income (loss) for Atlantic Capital consists of changes in net unrealized gains and losses on investment securities available-for-sale and derivatives. The following tables present a summary of the changes in accumulated other comprehensive income (loss) balances for the applicable periods.


	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019						September 30, 2019
			Income						Income
			Tax						Tax
	Pre-Tax		(Expense)		After-Tax		Pre-Tax		(Expense)		After-Tax
	Amount		Benefit		Amount		Amount		Benefit		Amount
	(in thousands)
Accumulated other comprehensive income (loss) beginning of period	$	4,774	$	(1,193)	$	3,581	$	(13,743)	$	3,438	$	(10,305)
Unrealized net gains (losses) on investment securities available-for-sale		1,813		(453)		1,360		16,375		(4,096)		12,279
Reclassification adjustment for net realized (gains) losses on investment securities available-for-sale		(253)		63		(190)		(907)		227		(680)
Unrealized net gains (losses) on derivatives		2,326		(582)		1,744		6,935		(1,734)		5,201
Accumulated other comprehensive income (loss) end of period	$	8,660	$	(2,165)	$	6,495	$	8,660	$	(2,165)	$	6,495


	For the Three Months Ended						For the Nine Months Ended
	September 30, 2018						September 30, 2018
			Income						Income
			Tax						Tax
	Pre-Tax		(Expense)		After-Tax		Pre-Tax		(Expense)		After-Tax
	Amount		Benefit		Amount		Amount		Benefit		Amount
	(in thousands)
Accumulated other comprehensive income (loss) beginning of period	$	(19,825)	$	4,958	$	(14,867)	$	(6,274)	$	2,415	$	(3,859)
Reclassification of tax effects from AOCI		—		—		—		—		(844)		(844)
Unrealized net gains (losses) on investment securities available-for-sale		(4,160)		1,041		(3,119)		(15,097)		3,775		(11,322)
Reclassification adjustment for net realized losses on investment securities available-for-sale		—		—		—		2		(1)		1
Unrealized net gains (losses) on derivatives		(579)		145		(434)		(3,195)		799		(2,396)
Accumulated other comprehensive income (loss) end of period	$	(24,564)	$	6,144	$	(18,420)	$	(24,564)	$	6,144	$	(18,420)

For the Three Months Ended For the Nine Months Ended
September 30, 2017 September 30, 2017
Pre-Tax Amount Income Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Income Tax (Expense) Benefit After-Tax Amount
(in thousands)
Accumulated other comprehensive income (loss) beginning of period $ (3,690 ) $ 1,420
$ (2,270 ) $ (9,144 ) $ 3,519
$ (5,625 )
Unrealized net gains (losses) on investment securities available-for-sale 706
(272 ) 434
6,366
(2,450 ) 3,916
Reclassification adjustment for net realized losses on investment securities available-for-sale 80
(31 ) 49
80
(31 ) 49
Unrealized net gains (losses) on derivatives (121 ) 46
(75 ) (327 ) 125
(202 )
Accumulated other comprehensive income (loss) end of period $ (3,025 ) $ 1,163
$ (1,862 ) $ (3,025 ) $ 1,163
$ (1,862 )

For the Three Months Ended For the Nine Months Ended
September 30, 2016 September 30, 2016
Pre-Tax Amount Income Tax (Expense) Benefit After-Tax Amount Pre-Tax Amount Income Tax (Expense) Benefit After-Tax Amount
(in thousands)
Accumulated other comprehensive income (loss) beginning of period $ 5,691
$ (2,197 ) $ 3,494
$ (2,455 ) $ 939
$ (1,516 )
Unrealized net gains (losses) on investment securities available-for-sale (853 ) 329
(524 ) 6,125
(2,354 ) 3,771
Reclassification adjustment for net realized gains on investment securities available-for-sale —
—
—
(44 ) 17
(27 )
Unrealized net gains (losses) on derivatives (438 ) 169
(269 ) 774
(301 ) 473
Accumulated other comprehensive income (loss) end of period $ 4,400
$ (1,699 ) $ 2,701
$ 4,400
$ (1,699 ) $ 2,701

NOTE 10 – EARNINGS PER COMMON SHARE

Basic earnings per share amounts are computed by dividing net income by the weighted average number of shares of common stock outstanding.

Diluted earnings per share amounts are computed by dividing net income by the weighted average number of shares of common stock outstanding and the dilutive effects of the shares awarded under the stock option plan, based on the treasury stock method using an average fair market value of the stock during the respective periods.

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The following table represents the earnings per share calculations for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.


		Three Months Ended			Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
(in thousands, except share and per share amounts)
Net income from continuing operations	$	7,569	$	6,998	$	21,018	$	20,567
Net income (loss) from discontinued operations		617		(485)		21,697		(865)
Net income available to common shareholders	$	8,186	$	6,513	$	42,715	$	19,702

Weighted average shares outstanding
Basic (1)		22,681,904		26,103,397		23,800,525		25,956,336
Effect of dilutive securities:
Stock options and performance share awards		155,627		151,375		157,390		178,319
Diluted		22,837,531		26,254,772		23,957,915		26,134,655

Net income (loss) per common share - basic
Net income per common share - continuing operations	$	0.33	$	0.27	$	0.88	$	0.79
Net income (loss) per common share - discontinued operations		0.03		(0.02)		0.91		(0.03)
Net income per common share - basic		0.36	$	0.25	$	1.79	$	0.76
Net income (loss) per common share - diluted
Net income per common share - continuing operations	$	0.33	$	0.27	$	0.88	$	0.79
Net income (loss) per common share - discontinued operations		0.03		(0.02)		0.91		(0.03)
Net income per common share - diluted		0.36	$	0.25	$	1.78	$	0.75

⁽¹⁾

Unvested restricted shares are participating securities and included in basic share calculations.

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(in thousands, except share and per share amounts)
Net income available to common shareholders $ 4,052
$ 3,708
$ 11,611
$ 11,786
Weighted average shares outstanding
Basic ⁽¹⁾
25,699,179
24,891,822
25,548,646
24,674,953
Effect of dilutive securities:
Stock options and warrants 191,600
368,458
251,205
431,297
Diluted 25,890,779
25,260,280
25,799,851
25,106,250
Income per common share:
Basic $ 0.16
$ 0.15
$ 0.45
$ 0.48
Diluted $ 0.16
$ 0.15
$ 0.45
$ 0.47
⁽¹⁾Unvested restricted shares are participating securities and included in basic share calculations.

Stock options ~~and warrants~~ outstanding of ~~550~~150 at September 30, ~~2017~~2019 and ~~162,428~~244 at September 30, ~~2016~~2018 have not been included in diluted earnings per share because to do so would have been anti-dilutive for the periods presented. These awards were considered anti-dilutive because the exercise price of the award was higher than the market value of the shares.

The Amended and Restated Articles of Incorporation of Atlantic Capital ~~which were approved by the Board of Directors on March 24, 2015 and by Atlantic Capital’s shareholders on May 21, 2015,~~ authorize Atlantic Capital to issue 110,000,000 shares of capital stock, of which 10,000,000 shares are designated as preferred stock, no par value per share, and 100,000,000 shares are designated as common stock, no par value per share.

At September 30, ~~2017, 25,716,418~~2019, 22,193,761 shares of common stock were issued and outstanding. At December 31, ~~2016, 25,093,135~~2018, 25,290,419 shares of common stock were issued and outstanding.

The primary source of funds available to Atlantic Capital is payments of dividends from the Bank. The Bank ~~has not~~ paid ~~any~~ dividends totaling $10.0 million and $36.5 million to Atlantic Capital ~~in 2017~~during the three and nine months ended September 30, 2019. No dividends were paid by the Bank during the three or ~~2016.~~nine months ended September 30, 2018. During the fourth quarter of 2018, the Bank paid a dividend totaling $30.0 million. Banking laws and other regulations limit the amount of dividends a bank subsidiary may pay without prior regulatory approval. Additionally, Atlantic Capital’s ability to pay dividends to its shareholders will depend on the ability of the Bank to pay dividends to Atlantic Capital. The Bank is subject to regulatory restrictions on the payment of cash dividends, which generally may be paid only from current earnings.

On November 14, 2018, the Board of Directors authorized a stock repurchase program pursuant to which the Company may purchase up to $85 million of its issued and outstanding common stock. The timing and amounts of any repurchases depend on certain factors, including but not limited to market conditions and prices, available funds and alternative uses of capital. The stock repurchase program may be carried out through open-market purchases, block trades, negotiated private transactions and pursuant to a trading plan that was adopted in accordance with Rule 10b‑18 and Rule 10b5‑1 under the Securities Exchange Act of 1934. Atlantic Capital repurchased 1,164,063 and 3,242,579 shares during the three and nine months ended September 30, 2019 for a total of $20.1 million and $56.7 million, respectively. Since the announcement of the $85.0 million buyback program in November of 2018, Atlantic Capital has repurchased 4.1 million shares totaling $70.9 million.

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NOTE 11 – DERIVATIVES AND HEDGING

Risk Management

Atlantic Capital’s objectives in using interest rate derivatives are to add stability to net interest revenue and to manage its exposure to interest rate movements. To accomplish ~~this objective,~~these objectives, Atlantic Capital primarily uses interest rate swaps as part of its interest rate risk management strategy.

Cash Flow Hedges

At September 30, ~~2017,~~2019, Atlantic Capital’s interest rate swaps designated as cash flow hedges involve the payment of floating-rate amounts to a counterparty in exchange for receiving fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. At September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, Atlantic Capital had interest rate swaps designated as cash flow hedges with an aggregate notional ~~amount~~amounts of ~~$75.0~~$175.0 million and ~~$50.0~~$100.0 million, respectively.

No hedge ineffectiveness gains or losses were recognized on active cash flow hedges for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Atlantic Capital expects that approximately ~~$237,000~~$230,000 will be reclassified as an increase to loan interest income over the next twelve months related to these cash flow hedges.

Customer Swaps

Atlantic Capital also enters into derivative contracts, which consist of interest rate swaps, to facilitate the needs of ~~clients~~customers desiring to manage interest rate risk. These swaps are not designated as accounting hedges under ASC 815, Derivatives and Hedging. ~~In order to~~To economically hedge the interest rate risk associated with offering this product, Atlantic Capital simultaneously enters into derivative contracts with third parties to offset the customer contracts, such that Atlantic Capital minimizes its net risk exposure resulting from such transactions. The derivative contracts are structured such that the notional amounts reduce over time to generally match the expected amortization of the underlying loans. These derivatives are not speculative and arise from a service provided to clients.

Atlantic Capital’s derivative instruments are recorded at fair value in other assets and accrued interest receivable and other liabilities and accrued interest payable in the Consolidated Balance Sheets. The changes in the fair value of the derivative instruments are recognized in ~~other noninterest~~derivatives income in the Consolidated Statements of Income. At September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of ~~$139.1~~$92.5 million and ~~$140.7~~$109.5 million, respectively.

Atlantic Capital acquired a loan level hedging program, which First Security Group, Inc. (“First Security”) utilized to accommodate clients preferring a fixed rate loan. The loan documents include an addendum with a zero premium collar. The zero premium collar is a cap and a floor at the same interest rate, resulting in a fixed rate to the borrower. To hedge this embedded option, First Security entered into a dealer facing trade exactly mirroring the terms in the loan addendum.

At September 30, 2019 and December 31, 2018, Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of $150.4 million and $166.8 million, respectively.

Counterparty Credit Risk

As a result of its derivative contracts, Atlantic Capital is exposed to credit risk. Specifically approved counterparties and exposure limits are defined. ~~On a quarterly basis,~~Quarterly, the customer derivative contracts and related counterparties are evaluated for credit risk and an adjustment is made to the contract’s fair value. This adjustment is recognized in the Consolidated Statements of Income.

Most derivative contracts with clients are secured by collateral. Additionally, in accordance with the interest rate agreements with derivatives dealers, Atlantic Capital may be required to post margin to these counterparties. At

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September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, Atlantic Capital had minimum collateral posting thresholds with certain of its derivative counterparties and posted collateral of ~~$9.5~~$14.3. million and ~~$16.3~~$5.1 million, respectively, against its obligations under these agreements. Cash collateral related to derivative contracts is recorded in other assets in the Consolidated Balance Sheets.

Atlantic Capital has master netting agreements with the derivatives dealers with which it does business, but reflects gross assets and liabilities on the Consolidated Balance Sheets.

In conjunction with the FASB’s fair value measurement guidance, management made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting arrangements on a net basis.

To accommodate clients, Atlantic Capital occasionally enters into credit risk participation agreements with counterparty banks to accept a portion of the credit risk related to interest rate swaps. This allows clients to execute an interest rate swap with one bank while allowing for distribution of the credit risk among participating members. Credit risk participation agreements arise when Atlantic Capital contracts with other financial institutions, as a guarantor, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third party default on the underlying swap. At September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, Atlantic Capital had credit risk participation agreements with a notional amount of ~~$15.6~~$8.1 million and ~~$4.5~~$9.5 million, respectively.

The following table reflects the estimated fair value positions of derivative contracts and credit risk participation agreements as of September 30, ~~2017~~2019 and December 31, ~~2016:~~2018:

Derivatives designated as hedging instruments under ASC 815


		September 30, 2019				December 31, 2018
(in thousands)	Balance Sheet	Notional				Notional
Interest Rate Products	Location	Amount		Fair Value		Amount		Fair Value
Cash flow hedge of LIBOR based loans	Other assets	$	125,000	$	5,725	$	—	$	—


Cash flow hedge of LIBOR based loans	Other liabilities	$	50,000	$	35	$	100,000	$	2,029

Derivatives not designated as hedging instruments under ASC 815


		September 30, 2019				December 31, 2018
(in thousands)	Balance Sheet	Notional				Notional
Interest Rate Products	Location	Amount		Fair Value		Amount		Fair Value
Customer swap positions	Other assets	$	46,258	$	1,349	$	54,760	$	756
Zero premium collar	Other assets		75,205		5,988		83,385		1,205
		$	121,463	$	7,337	$	138,145	$	1,961

Dealer offsets to customer swap positions	Other liabilities	$	46,258	$	1,448	$	54,760	$	770
Dealer offset to zero premium collar	Other liabilities		75,205		6,558		83,385		1,226
Credit risk participation	Other liabilities		8,126		7		9,532		2
		$	129,589	$	8,013	$	147,677	$	1,998

Derivatives designated as hedging instruments under ASC 815

(in thousands) September 30, 2017 December 31, 2016
Interest Rate Products Balance Sheet Location Notional Amount Fair Value Notional Amount Fair Value
Cash flow hedge of LIBOR based loans Other assets $ —
$ —
$ 50,000
$ 186

Cash flow hedge of LIBOR based loans Other liabilities $ 75,000
$ 56
$ —
$ —

Derivatives not designated as hedging instruments under ASC 815

(in thousands) September 30, 2017 December 31, 2016
Interest Rate Products Balance Sheet Location Notional Amount Fair Value Notional Amount Fair Value
Customer swap positions Other assets $ 69,543
$ 1,168
$ 70,352
$ 1,364
Zero premium collar Other assets 95,688
2,825
98,697
2,760
$ 165,231
$ 3,993
$ 169,049
$ 4,124

Dealer offsets to customer swap positions Other liabilities $ 69,543
$ 1,214
$ 70,352
$ 1,371
Credit risk participation Other liabilities 15,556
6
4,460
—
Dealer offset to zero premium collar Other liabilities 95,688
2,908
98,697
2,760
$ 180,787
$ 4,128
$ 173,509
$ 4,131

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The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018.

Derivatives not designated as hedging instruments under ASC 815


	Location of Gain or	Amount of Gain or (Loss)				Amount of Gain or (Loss)
	(Loss) Recognized in	Recognized in Income on Derivative				Recognized in Income on Derivative
(in thousands)	Income on Derivative	Three Months Ended September 30,				Nine Months Ended September 30,
		2019		2018		2019		2018
Interest rate products	Other income / (expense)	$	(292)	$	10	$	(633)	$	132
Other contracts	Other income / (expense)		(1)		—		(4)		4
Total		$	(293)	$	10	$	(637)	$	136

Fee income	Other income / (expense)	$	—	$	10	$	—	$	18

The following table reflects the impact to the Consolidated Statements of Income related to derivative contracts for the three and nine months ended September 30, ~~2017~~2019 and ~~2016:~~2018:

Derivatives in Cash Flow Hedging Relationships


	Three Months Ended September 30,									Nine Months Ended September 30,
	Amount of Gain or									Amount of Gain or
	(Loss) Recognized in				Gain or (Loss) Reclassified					(Loss) Recognized in				Gain or (Loss) Reclassified
	OCI on Derivatives				from Accumulated OCI in					OCI on Derivatives				from Accumulated OCI in
	(Effective Portion)				Income (Effective Portion)					(Effective Portion)				Income (Effective Portion)
(in thousands)	2019		2018		Location	2019		2018		2019		2018		Location	2019		2018
Interest rate swaps	$	2,212	$	(598)	Interest income	$	(113)	$	(18)	$	5,303	$	(3,093)	Interest income	$	(242)	$	103

Derivatives in Cash Flow Hedging Relationships

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) Gain or (Loss) Reclassified from Accumulated OCI in Income (Effective Portion) Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) Gain or (Loss) Reclassified from Accumulated OCI in Income (Effective Portion)
2017 2016 Location 2017 2016 2017 2016 Location 2017 2016
Interest rate swaps $ (75 ) $ (269 ) Interest income $ 84
$ 177
$ (202 ) $ 473
Interest income $ 331
$ 546

NOTE 12 – OTHER BORROWINGS AND LONG TERM DEBT

There were no Federal Home Loan Bank borrowings outstanding as of December 31, 2018. Federal Home Loan Bank borrowings as of September 30, ~~2017 and December 31, 2016~~2019 are as follows:


	September 30, 2019
	Balance		Interest Rate
	(in thousands)
FHLB short-term borrowings:
Fixed rate advance maturing October 7, 2019	$	45,000	2.08	%
Fixed rate advance maturing October 8, 2019		31,000	2.08
Total	$	76,000

September 30, 2017 December 31, 2016
Balance Interest Rate Balance Interest Rate
(in thousands) (in thousands)
FHLB short-term borrowings: FHLB short-term borrowings:
Fixed rate advance maturing October 3, 2017 40,000
1.16 % Fixed rate advance maturing January 17, 2017 40,000
0.64 %
Fixed rate advance maturing October 11, 2017 40,000
1.15 % Fixed rate advance maturing January 24, 2017 40,000
0.61 %
Fixed rate advance maturing October 13, 2017 45,000
1.16 % Fixed rate advance maturing January 30, 2017 30,000
0.62 %
Total $ 125,000

Total $ 110,000

Interest expense for FHLB borrowings for the three and nine months ended September 30, 2019 was $390,000 and $660,000, respectively. Interest expense for FHLB borrowings for the three and nine months ended September 30, 2018 was $637,000 and $1.9 million, respectively.

At September 30, 2019, the Company had available line of credit commitments with the FHLB totaling $716.5 million, with $76.0 million in outstanding FHLB advances. However, based on actual collateral pledged, $163.7 million was available. At September 30, 2019, the Company had an available line of credit based on the collateral available of $367.4 million with the Federal Reserve Bank of Atlanta. Interest expense on federal funds purchased for the three and nine months ended September 30, 2019 totaled $99,000 and $385,000, respectively, and $77,000 and $244,000 for the three and nine months ended September 30, 2018, respectively.

On September 28, 2015, Atlantic Capital issued subordinated notes (the “Notes”) totaling $50.0 million in aggregate principal amount. The Notes are due September 30, 2025 and bear a fixed rate of interest of 6.25% per year until

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September 29, 2020. From September 30, 2020 to the maturity date, the interest rate will be a floating rate equal to the three-month LIBOR plus 468 basis points. The Notes were priced at 100% of their par value. The Notes qualify as Tier 2 regulatory capital.

Subordinated debt is summarized as ~~follows.~~follows:


	September 30, 2019		December 31, 2018
	(in thousands)
Floating rate 10 year capital securities, with interest paid semi-annually at an annual fixed rate of 6.25% until September 30, 2020	$	50,000	$	50,000
Principal amount of subordinated debt	$	50,000	$	50,000
Less debt issuance costs		169		296
Subordinated debt, net	$	49,831	$	49,704

September 30, 2017 December 31, 2016
(in thousands
Floating rate 10 year capital securities, with interest paid semi-annually at an annual fixed rate of 6.25% until September 30, 2020 $ 50,000
$ 50,000
Principal amount of subordinated debt $ 50,000
$ 50,000
Less debt issuance costs 507
634
Subordinated debt, net $ 49,493
$ 49,366

All subordinated debt outstanding at September 30, ~~2017~~2019 matures after more than five years.

NOTE 13 – SHARE-BASED COMPENSATION

Atlantic Capital sponsors a stock incentive plan for the benefit of directors and employees. Under the Company’s 2015 Stock Incentive Plan (as amended and restated effective May 16, 2018), there were approximately 4,525,000 shares reserved for issuance to directors and employees. The Compensation Committee has the authority to grant the following: an incentive or nonqualified option; a restricted stock award (including a restricted stock award or a restricted unit award); a performance award (including a performance share award or a performance unit award); a phantom stock award; a dividend equivalent award; or any other award granted under the plan.

As of September 30, ~~2017,~~2019, approximately ~~3,825,000~~3,345,000 additional awards were available to be granted under the plan. Stock options are granted at a price which is no less than the fair market value of a share of Atlantic Capital common stock on the grant date. Stock options generally vest over three years and expire after ten years.

As of September 30, 2017, no warrants were outstanding for the purchase of common stock. As of December 31, 2016, warrants for 363,000 shares were outstanding for the purchase of common stock at a price of $10.00 per warrant. The warrants were issued as of May 14, 2007, the date of issuance of common stock sold in the initial private placement, and were exercisable for a period of ten years following the issuance.

The Company estimates the fair value of its options ~~and warrants~~ awards using the Black-Scholes option pricing model. The risk-free rate for periods within the contractual life of the option ~~and warrant~~ is based on the U.S. Treasury yield curve in effect at the time of grant. The table below summarizes the assumptions used to calculate the fair value of options granted/modified during ~~2017:~~the nine months ended September 30, 2019 and 2018:


	For the nine months ended September 30,
	2019		2018
Risk‑free interest rate	2.27	%	1.66	%
Expected term in years	1.73-1.82		0.25
Expected stock price volatility	26.8	%	24.2	%
Dividend yield	—	%	—	%



	~~2017~~
~~Risk‑free interest rate~~	~~1.00-1.99%~~
~~Expected term in years~~	~~.25-8~~
~~Expected stock price volatility~~	~~23.2-25.3%~~
~~Dividend yield~~	—	%

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The following table represents stock option ~~and warrant~~ activity for the nine months ended September 30, ~~2017:~~2019:


					Weighted Average
			Weighted		Remaining	Aggregate
			Average		Contractual Term	Intrinsic Value
	Shares		Exercise Price		(in years)	(in thousands)
Outstanding, December 31, 2018		442,454	$	12.02
Granted/modified(1)		12,500		10.00
Exercised		(79,980)		13.05
Forfeited(1)		(38,500)		13.17
Expired		(7,144)		17.79
Outstanding, September 30, 2019		329,330	$	11.44	2.61	$	2,018
Exercisable, September 30, 2019		309,330	$	11.21	2.38	$	1,971

⁽¹⁾

During the nine months ended September 30, 2019, the Company modified options for 12,500 shares. The modifications are included as shares granted/modified and as shares forfeited in this table.

Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value
Outstanding, December 31, 2016 1,485,704
$ 11.69

Granted 30,400
12.39

Exercised (718,912 ) 10.53

Forfeited (32,846 ) 12.28

Expired (635 ) 126.22

Outstanding, September 30, 2017 763,711
$ 12.64
5.77 $ 4,348

Exercisable, September 30, 2017 518,336
$ 11.73
4.77 $ 3,466

Atlantic Capital recognized compensation expense relating to stock options of ~~$191,000~~$18,000 and ~~$472,000~~$151,000 for the three and nine months ended September 30, ~~2017,~~2019, respectively, and ~~$192,000~~$70,000 and ~~$638,000~~$167,000 for the three and nine months ended September 30, ~~2016,~~2018, respectively. Using the Black-Scholes pricing model, the amount of compensation expense was determined based on the fair value of the options at the time of grant, multiplied by the number of options granted that were expected to vest, which was then amortized over the vesting period.

In April 2018, the Company granted performance share awards to members of executive management under Atlantic Capital’s Long Term Incentive Plan (“LTIP”). The Company also granted restricted stock awards to certain employees and directors in 2019 under the 2015 Stock Incentive Plan.

The following table represents restricted stock and performance share award activity for the nine months ended September 30, ~~2017:~~2019:


		Weighted Average Grant-
	Shares	Date Fair Value
Outstanding, December 31, 2018	272,695	$	18.09
Granted/modified(1)	158,593		19.19
Vested	(68,198)		16.54
Forfeited(1)	(67,663)		18.34
Outstanding, September 30, 2019	295,427	$	18.97

Shares Weighted Average Grant-Date Fair Value
Outstanding, December 31, 2016 259,165
$ 13.70
Granted 110,293
17.85
Vested (64,637 ) 12.73
Forfeited (36,674 ) 14.88
Outstanding, September 30, 2017 268,147
$ 15.47

⁽¹⁾

During the nine months ended September 30, 2019, the Company modified 4,719 restricted stock awards. The modifications are included as shares granted/modified and as shares forfeited in this table.

Compensation expense for restricted stock is based on the fair value of restricted stock awards at the time of grant, which is equal to the value of Atlantic Capital’s common stock on the date of grant. Compensation expense for performance share awards is based on the fair value of Atlantic Capital’s stock at the grant date adjusted for market conditions, as well as the subsequent achievement of performance conditions over the vesting period. The value of restricted stock and performance share grants that are expected to vest is amortized into expense over the vesting period. For the three ~~and nine~~ months ended September 30, ~~2017,~~2019 and 2018, compensation expense of ~~$396,000~~$454,000 and ~~$869,000,~~$444,000, respectively, was recognized related to restricted stock and performance share awards. For the ~~three and~~ nine months ended September 30, ~~2016,~~2019 and 2018, compensation expense of ~~$71,000~~$1.2 million and ~~$527,000,~~$1.3 million respectively, was recognized related to restricted stock and performance share awards.

As of September 30, ~~2017,~~2019, there was ~~$3.0~~$2.6 million of unrecognized compensation cost related to restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted-average period of ~~3.11~~2.27 years.

During the ~~three~~nine months ended September 30, ~~2017,~~2019, the Company modified options for ~~30,400~~12,500 shares and ~~10,628~~4,719 restricted stock awards to ~~four~~two individuals. The modifications allowed for the immediate vesting of the awards upon ~~termination~~retirement, as

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defined in the 2015 Stock Incentive Plan. The total incremental cost resulting from the modifications was ~~$14,000~~$31,000 for the ~~three and~~ nine months ended September 30, ~~2017.~~

2019.

NOTE 14 – FAIR VALUE MEASUREMENTS

Atlantic Capital follows the guidance pursuant to ASC ~~820-10,~~820‑10, Fair Value Measurements and Disclosures. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This issuance applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. Atlantic Capital measures its investment securities and interest rate derivative assets and liabilities at fair value on a recurring basis. Fair value is used on a nonrecurring basis either when assets are evaluated for impairment or for disclosure purposes. Atlantic Capital measures its servicing assets, goodwill, intangible assets, SBIC investments, loans held for sale, impaired loans and other real estate owned at fair value on a nonrecurring basis if necessary.

The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement and defines fair value as the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, this guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Atlantic Capital applied the following fair value hierarchy:

Level 1 – Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts.

Level 2 – Assets or liabilities valued based on observable market data for similar instruments.

Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market, instruments valued based on the best available data, some of which is internally-developed, and risk premiums that a market participant would require.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement. There were no transfers between Level 1 and Level 2 or Level 2 and Level 3 during the three or nine months ended September 30, ~~2017. There was one transfer between Level 2~~2019 and ~~Level 3 and no transfers between Level 1 and Level 2 during the nine months ended September 30, 2016.~~

2018.

Atlantic Capital records investment securities available-for-sale at fair value on a recurring basis. Investment securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. For these securities, Atlantic Capital obtains fair value measurements from an independent pricing service. In estimating the fair values for investment securities, Atlantic Capital believes that independent third-party market prices are the best evidence of an exit price. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the Treasury Department yield curve, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things.

Derivative instruments are primarily transacted as over-the-counter trades and priced with observable market assumptions. Ongoing measurements include observable market assumptions with appropriate valuation adjustments for liquidity and for credit risk of counterparties and Atlantic Capital’s own credit. For these instruments, Atlantic Capital obtains fair value measurements from an independent pricing service. The fair value measurements consider factors such as the likelihood of default by Atlantic Capital and its counterparties, total exposure and remaining maturities in determining the appropriate fair value adjustments to record. Generally, the expected loss of each client counterparty is estimated using Atlantic Capital’s internal risk rating system. For financial institution counterparties that are rated by national rating agencies, those

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ratings are used in determining the credit risk. This approach used to estimate exposures to counterparties is also used by Atlantic Capital to estimate its own credit risk on derivative liability positions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the assets that were measured at fair value on a recurring basis by level within the fair value hierarchy as reported in the Consolidated Balance Sheets at September 30, ~~2017~~2019 and December 31, ~~2016.~~2018.


	Fair Value Measurements at September 30, 2019 Using:
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Securities available-for-sale—
U.S. states and political subdivisions	$	—	$	84,744	$	—	$	84,744
Trust preferred securities		—		4,600		—		4,600
Corporate debt securities		—		19,826		—		19,826
Mortgage-backed securities		—		177,615		—		177,615
Total securities available-for-sale	$	—	$	286,785	$	—	$	286,785
Interest rate derivative assets	$	—	$	13,062	$	—	$	13,062
Interest rate derivative liabilities	$	—	$	8,048	$	—	$	8,048


	Fair Value Measurements at December 31, 2018 Using:
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Totals
	(in thousands)
Securities available-for-sale—
U.S. government agencies	$	—	$	26,849	$	—	$	26,849
U.S. states and political subdivisions		—		84,834		—		84,834
Trust preferred securities		—		4,400		—		4,400
Corporate debt securities		—		12,363		—		12,363
Mortgage-backed securities		—		274,040		—		274,040
Total securities available-for-sale	$	—	$	402,486	$	—	$	402,486
Interest rate derivative assets	$	—	$	1,961	$	—	$	1,961
Interest rate derivative liabilities	$	—	$	4,027	$	—	$	4,027

Fair Value Measurements at
September 30, 2017 Using:

Quoted Prices in
Active Markets for
Identical Securities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
(in thousands)
Securities available-for-sale—
U.S. government agencies $ —
$ 34,783
$ —
$ 34,783
U.S. states and political subdivisions —
93,779
—
93,779
Trust preferred securities —
4,675
—
4,675
Corporate debt securities —
16,156
—
16,156
Mortgage-backed securities —
297,612
—
297,612
Total securities available-for-sale $ —
$ 447,005
$ —
$ 447,005
Interest rate derivative assets $ —
$ 3,993
$ —
$ 3,993
Interest rate derivative liabilities $ —
$ 4,184
$ —
$ 4,184

Fair Value Measurements at
December 31, 2016 Using:

Quoted Prices in
Active Markets for
Identical Securities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
(in thousands)
Securities available-for-sale—
U.S. government agencies $ —
$ 21,152
$ —
$ 21,152
U.S. states and political subdivisions —
90,172
—
90,172
Trust preferred securities —
4,525
—
4,525
Corporate debt securities —
19,231
—
19,231
Mortgage-backed securities —
212,625
—
212,625
Total securities available-for-sale $ —
$ 347,705
$ —
$ 347,705
Interest rate derivative assets $ —
$ 4,310
$ —
$ 4,310
Interest rate derivative liabilities $ —
$ 4,131
$ —
$ 4,131

For the nine months ended September 30, ~~2017~~2019 and ~~2016~~,2018, there was not a change in the methods and significant assumptions used to estimate fair value.

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Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The following table presents the assets that were measured at fair value on a nonrecurring basis by level within the fair value hierarchy as reported in the Consolidated Balance Sheets at September 30, ~~2017~~2019 and December 31, ~~2016~~.2018.

Level 1

Level 2

Level 3

Fair Value

September 30, 2019

Measurement

Total

(in thousands)

Impaired Loans

—

4,724

Level 1

Level 2

Level 3

Fair Value

December 31, 2018

Measurement

Total

(in thousands)

Impaired Loans

—

1,836

September 30, 2017
Level 1
Fair Value
Measurement

Level 2
Fair Value
Measurement

Level 3
Fair Value
Measurement
Total
(in thousands)
Impaired Loans $ —
$ —
$ 2,970
$ 2,970

December 31, 2016
Level 1
Fair Value
Measurement

Level 2
Fair Value
Measurement

Level 3
Fair Value
Measurement
Total
(in thousands)
Impaired Loans $ —
$ —
$ 7,248
$ 7,248

Level 3 loans consist of impaired loans which have been partially charged-off or have specific valuation allowances. The fair value of Level 3 assets is estimated based on the underlying collateral value. For loans which the cash proceeds from the sale of the underlying collateral is the expected source of repayment, the fair value of these loans was derived from internal estimates of the underlying collateral incorporating market data, including third party appraisals or evaluations, when available. Appraised values may be discounted based on management’s assessment of the level of inactivity in the real estate market and other markets for the underlying collateral, changes in market conditions from the time of the valuation, and other information that in management’s judgment may affect the value. Impaired loans are evaluated on at least a quarterly basis and adjusted accordingly.

Assets and Liabilities Not Measured at Fair Value

For financial instruments that have quoted market prices, those quotes are used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, are assumed to have a fair value that approximates the reported book value, after taking into consideration any applicable credit risk. If no market quotes are available, financial instruments are valued by discounting the expected cash flows using an estimated current market interest rate for the financial instrument. For loans held for investment, fair value is measured using the exit price notion. For off-balance sheet derivative instruments, fair value is estimated as the amount that Atlantic Capital would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts.

The short maturity of Atlantic Capital’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and due from banks, interest-bearing deposits in other banks, other short-term investments, and FHLB stock. The fair value of securities ~~available-for-sale~~ equals ~~the balance sheet value.~~quoted market prices, if available. If a quoted market price is not available, fair value is estimated used quoted market prices for similar securities or dealer quotes. Due to the short-term settlement of accrued interest receivable and payable, the carrying amount closely approximates fair value.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect the premium or discount on any particular financial instrument that could result from the sale of Atlantic Capital’s entire holdings. Because no ready market exists for a significant portion of Atlantic Capital’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature, ~~and~~ involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Off-balance sheet financial instruments (commitments to extend credit and standby letters of credit) are generally short-term and at variable rates. Therefore, both the carrying amount and the estimated fair value associated with these instruments are immaterial.

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The following table presents the estimated fair values of Atlantic Capital’s financial instruments at September 30, ~~2017~~2019 and December 31, ~~2016.~~2018.


	Fair Value Measurements at
	September 30, 2019 Using:
			Quoted Prices
			in Active		Significant
			markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Securities		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Financial assets:
Cash and due from banks	$	42,577	$	42,577	$	—	$	—
Interest-bearing deposits in banks		27,167		27,167		—		—
Total securities available-for-sale		286,785		—		286,785		—
Total securities held to maturity		42,863		—		42,740		—
FHLB stock		5,910		—		—		5,910
Federal Reserve Bank stock		9,998		—		—		9,998
Loans held for investment, net		1,817,593		—		—		1,840,169
Loans held for sale		916		—		916		—
Derivative assets		13,062		—		13,062		—
Financial liabilities:
Deposits	$	1,854,272	$	—	$	1,803,960	$	—
Federal funds purchased		57,000		57,000		—		—
Subordinated debt		49,831		—		50,146		—
FHLB advances		76,000		—		76,025		—
Derivative financial instruments		8,048		—		8,048		—


	Fair Value Measurements at
	December 31, 2018 Using:
			Quoted Prices
			in Active		Significant
			markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Securities		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Financial assets:
Cash and due from banks	$	42,895	$	42,895	$	—	$	—
Interest-bearing deposits in other banks		216,040		216,040		—		—
Other short-term investments		9,457		9,457		—		—
Total securities available-for-sale		402,486		—		402,486		—
FHLB stock		2,622		—		—		2,622
Federal Reserve Bank stock		9,906		—		—		9,906
Loans held for investment, net		1,710,222		—		—		1,740,438
Loans held for sale		5,889		—		5,889		—
Loans held for sale - discontinued operations		373,030		—		373,030		—
Derivative assets		1,961		—		1,961		—
Financial liabilities:
Deposits	$	1,952,514	$	—	$	1,830,673	$	—
Deposits to be assumed - discontinued operations		585,429		—		585,429		—
Securities sold under agreements to repurchase - discontinued operations		6,220		6,220		—		—
Subordinated debt		49,704		—		48,960		—
Derivative financial instruments		4,027		—		4,027		—

Fair Value Measurements at
September 30, 2017 Using:

Carrying
Value
Quoted Prices in Active markets for Identical Securities (Level 1)
Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
(in thousands)
Financial assets
Cash and due from banks $ 35,504
$ 35,504
$ —
$ —
Interest bearing deposits in banks 40,558
40,558
—
—
Other short-term investments 5,189
5,189
—
—
Total securities available-for-sale 447,005
—
447,005
—
FHLB stock 7,788
—
—
7,788
Federal Reserve Bank stock 9,781
—
—
9,781
Loans held for investment, net 1,886,562
—
—
1,927,726
Loans held for sale 3,274
—
3,274
—
Derivative assets 3,993
—
3,993
—
Financial liabilities
Deposits $ 2,103,645
$ —
$ 2,019,911
$ —
Subordinated debt 49,493
—
49,871
—
FHLB advances 125,000
—
125,007
—
Derivative financial instruments 4,184
—
4,184
—

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Fair Value Measurements at
December 31, 2016 Using:

Carrying
Value
Quoted Prices in Active markets for Identical Securities (Level 1)
Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
(in thousands)
Financial assets
Cash and due from banks $ 36,790
$ 36,790
$ —
$ —
Interest-bearing deposits in other banks 118,039
118,039
—
—
Other short-term investments 10,896
10,896
—
—
Total securities available-for-sale 347,705
—
347,705
—
FHLB stock 7,067
—
—
7,067
Federal Reserve Bank stock 9,690
—
—
9,690
Loans held for investment, net 1,960,735
—
—
1,939,895
Loans held for sale 35,219
—
35,219
—
Derivative assets 4,310
—
4,310
—
Financial liabilities
Deposits $ 2,205,991
$ —
$ 2,144,196
$ —
Deposits to be assumed in branch sale 31,589
—
31,589
—
Subordinated debt 49,366
—
48,971
—
FHLB advances 110,000
—
109,946
—
Derivative financial instruments 4,131
—
4,131
—

NOTE 15 – COMMITMENTS AND CONTINGENCIES

Atlantic Capital is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit, most of which are standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract amounts of these instruments reflect the extent of involvement Atlantic Capital has in particular classes of financial instruments.

Standby letters of credit are written conditional commitments issued by Atlantic Capital to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. Most letters of credit expire in less than one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Atlantic Capital’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. Atlantic Capital uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Atlantic Capital’s maximum exposure to credit risk for unfunded loan commitments and standby letters of credit at September 30, ~~2017~~2019 and December 31, ~~2016~~2018 was as follows:


	September 30, 2019		December 31, 2018
	(in thousands)
Financial Instruments whose contract amount represents credit risk:
Commitments to extend credit	$	679,732	$	715,591
Standby letters of credit		7,563		15,650
	$	687,295	$	731,241

Minimum lease payments	$	16,669	$	22,014

September 30,
2017 December 31,
2016
(in thousands)
Financial Instruments whose contract amount represents credit risk:
Commitments to extend credit $ 686,685
$ 617,432
Standby letters of credit 13,677
16,625
$ 700,362
$ 634,057

The Company also had commitments related to investments in SBICs totaling $2.9 million and $3.2 million at September 30, 2019 and December 31, 2018, respectively.

From time to time, Atlantic Capital, in the normal course of business, is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Although it is not possible to predict the outcome of these lawsuits, or the range of any possible loss, management, after consultation with legal counsel, does not anticipate that the ultimate aggregate liability, if any, arising from these lawsuits will have a material adverse effect on Atlantic Capital’s financial position or results of operations.

NOTE 16 – ~~SUBSEQUENT EVENTS~~REVENUE RECOGNITION

On January 1, 2018, the Company adopted ASU No. 2014‑09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. As stated in Note 2, Accounting Standards Updates and Recently Adopted Standards, the implementation of the new standard did not result in any significant changes to the Company’s methodology of recognizing revenue; as such, the Company recorded an immaterial cumulative effect adjustment to first quarter 2018 opening retained earnings. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with financial guarantees and derivatives are not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as service charges on deposit accounts and trust and asset management income. However, the recognition of these revenue streams did not change

~~On October 25, 2017,~~

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significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams within the scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges represent general service fees for monthly account maintenance and activity, or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed, such as a wire transfer or ATM withdrawal. Payment for such performance obligations are generally received at the time the performance obligations are satisfied. The following table presents service charges by type of service provided for the three and nine months ended September 30, 2019 and 2018:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018

Deposit account analysis fees and charges	$	672	$	566	$	1,894	$	1,601
ATM fees		—		56		39		162
NSF fees		18		20		40		86
Wire fees		124		110		336		303
Foreign exchange fees		110		50		275		176
Other		1		2		5		11
Total service charges - continuing operations		925		804		2,589		2,339
Service charges - discontinued operations		—		474		527		1,439
Total service charges	$	925	$	1,278	$	3,116	$	3,778

Trust and Asset Management

Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. During the second quarter of 2018, Atlantic Capital ~~entered into~~sold its trust business, Southeastern Trust Company. The following table presents trust income by type of service provided for the three and nine months ended September 30, 2018:


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2019		2018		2019		2018

Personal trust and agency accounts	$	—	$	—	$	—	$	616
Employee benefit and retirement-related trust and agency accounts		—		—		—		120
Investment management and investment advisory agency accounts		—		—		—		217
Custody and safekeeping accounts		—		—		—		26
Other		—		—		—		46
	$	—	$	—	$	—	$	1,025

Other

Other noninterest income consists of other recurring revenue streams such as check printing income, safety deposit box rental fees, and other miscellaneous revenue streams. Check printing income is recognized ratably over the contract period

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as the Company satisfies its performance obligation to sell a ~~Separation Agreement with D. Michael Kramer in connection~~specific number of check packages. Safe deposit box rental fees are charged to the customer annually and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the ~~resignation from his position as President and Chief Operating Officer~~duration of the ~~Company.~~

performance obligation.

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The ~~Separation Agreement provides~~Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2019 and December 31, 2018, the Company did not have any significant contract balances.

NOTE 17 – LEASES

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for ~~benefits to~~a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016‑02 “Leases” (Topic 842) and ~~imposes obligations upon Mr. Kramer. Specifically, Mr. Kramer~~all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is ~~entitled to receive~~ the ~~following payments~~lessee.

Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and ~~benefits under~~operating lease liabilities, included in premises and equipment and other liabilities, respectively, on the ~~Separation Agreement:~~

~~all accrued but unpaid base salary through December 22, 2017;~~

~~a cash payment of $407,265,~~Consolidated Balance Sheets. The Company does not currently have any significant finance leases in which ~~represents one (1) times his base salary;~~

~~a cash payment of $183,269, which represents one (1) times his target bonus opportunity, under~~it is the lessee.

Operating lease ROU assets represent the Company’s ~~Executive Officer Short Term Incentive Plan (the “STI Plan”) for 2017;~~

right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a ~~cash payment of $150,000, which~~discount rate that represents the ~~pro-rata portion~~Company’s incremental borrowing rate at the lease commencement date. ROU assets are further adjusted for lease incentives. Operating lease expense, which is comprised of ~~his STI Plan bonus opportunity deemed earned~~amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the Consolidated Statements of Income.

The Company’s leases relate primarily to office space and bank branches with remaining lease terms of generally 1 to 12 years. Certain lease arrangements contain extension options which typically range from 5 to 10 years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. Portions of certain properties are subleased for ~~2017;~~

terms extending through 2024. As of September 30, 2019, operating lease ROU assets and liabilities were $9.9 million and $13.9 million, respectively. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) on the Consolidated Balance Sheets. Additionally, the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a ~~cash payment of $612,883, which represents accrued awards deemed earned under~~single lease component.

The table below summarizes the Company’s ~~Long Term Incentive Plan;~~net lease cost:


	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
	(in thousands)
Operating lease cost	$	509	$	1,635
Short-term lease cost		11		37
Sublease income		(70)		(186)
Net lease cost	$	450	$	1,486

~~acceleration~~

Table of ~~14,000 shares~~Contents

The tables below summarize other information related to the Company’s operating leases:


	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
	(in thousands)
Operating cash paid for amounts included in the measurement of lease liabilities	$	551	$	1,594
Right-of-use assets obtained in exchange for new finance lease liabilities		—		15,207


	September 30, 2019
Weighted-average remaining lease term - operating leases	9.00

Weighted-average discount rate - operating leases	3.3	%

The table below summarizes the maturity of ~~unvested restricted stock~~remaining lease liabilities:


	September 30, 2019
	(in thousands)
Twelve Months Ended:
September 30, 2020	$	2,143
September 30, 2021		1,898
September 30, 2022		1,948
September 30, 2023		1,670
September 30, 2024		1,492
Thereafter		7,518
Total future minimum lease payments		16,669
Less: Interest		(2,766)
Present value of net future minimum lease payments	$	13,903

On April 5, 2019, Atlantic Capital completed the sale to FirstBank of its Tennessee and ~~120,680 unvested options~~northwest Georgia banking operations, including 14 branches. Eight of these properties were owned by Atlantic Capital and ~~extension~~nine were leased. The Company’s ROU asset and lease liability were reduced during the second quarter of ~~the post-termination exercise period for options;~~2019 by $3.6 million and $4.1 million, respectively, as a result of this divestiture.

~~reimbursement~~

Table of ~~COBRA premiums for 12 months following termination, so long as he is not entitled to obtain insurance from a subsequent employer.~~Contents


~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form ~~10-Q~~10‑Q of Atlantic Capital Bancshares, Inc. (the “Company” or “Atlantic Capital”) contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

The following risks, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

our strategic decision to focus on the greater Atlanta market may not positively impact our financial condition in the expected timeframe, or at all;

~~the expected growth opportunities and cost savings from the acquisition~~

costs associated with our growth and hiring initiatives in the Atlanta market area;

risks associated with increased geographic concentration, borrower concentration and concentration in commercial real estate and commercial and industrial loans resulting from our exit of the Tennessee and northwest Georgia markets and our strategic realignment;

our strategic decision to increase our focus on SBA and franchise lending may expose us to additional risks associated with these types of lending, including industry concentration risks, our ability to sell the guaranteed portion of SBA loans, the impact of negative economic conditions on small businesses’ ability to repay the non-guaranteed portions of SBA loans, and changes to applicable federal regulations;

risks associated with our ability to manage the planned growth of our payment processing business, including evolving regulations, security risks, and unforeseen increases in transaction volume resulting from changes in our customers’ businesses and changes in the competitive landscape for payment processing;

changes in asset quality and credit risk;

the cost and availability of capital;

customer acceptance of our products and services;

customer borrowing, repayment, investment and deposit practices;

the introduction, withdrawal, success and timing of business initiatives;

the impact, extent, and timing of technological changes;

Table of ~~First Security Group, Inc. (“First Security”) may not be fully realized or may take longer to realize than expected;~~Contents

~~loss of income from our TriNet division following our exit of this business;~~

severe catastrophic events in our geographic area;

~~changes in asset quality and credit risk;~~

a weakening of the economies in which we conduct operations may adversely affect our operating results;

~~the cost and availability of capital;~~

the U.S. legal and regulatory framework could adversely affect the operating results of the Company;

~~customer acceptance of our products and services;~~

the interest rate environment may compress margins and adversely affect net interest income;

~~customer borrowing, repayment, investment and deposit practices;~~

our ability to anticipate or respond to interest rate changes correctly and manage interest rate risk presented through unanticipated changes in our interest rate risk position and/or short- and long-term interest rates;

~~the introduction, withdrawal, success and timing of business initiatives;~~

changes in trade, monetary and fiscal policies of various governmental bodies and central banks could affect the economic environment in which we operate;

~~the impact, extent, and timing of technological changes;~~

our ability to determine accurate values of certain assets and liabilities;

~~severe catastrophic events in our geographic area;~~

adverse developments in securities, public debt, and capital markets, including changes in market liquidity and volatility;

~~a weakening of the economies in which we conduct operations may adversely affect our operating results;~~

unanticipated changes in our liquidity position, including but not limited to our ability to enter the financial markets to manage and respond to any changes to our liquidity position;

~~the potential impact of any legal, regulatory and policy changes affecting financial institutions and the economies in which we conduct operations as a result of the new presidential administration;~~

the impact of the transition from LIBOR and our ability to adequately manage such transition;

the U.S. legal and regulatory framework, including those associated with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), could adversely affect the operating results of the company;

adequacy of our risk management program;

~~the interest rate environment may compress margins and adversely affect net interest income;~~

increased competitive pressure due to consolidation in the financial services industry;

~~changes in trade, monetary, and fiscal policies of various governmental bodies and central banks could affect the economic environment in which we operate;~~

risks related to security breaches, cybersecurity attacks, and other significant disruptions in our information technology systems; and

~~our ability to determine accurate values of certain assets and liabilities;~~

other risks and factors identified in our Annual Report on Form 10‑K as filed with the Securities and Exchange Commission on March 14, 2019 (the “Annual Report”) in Part I, Item 1A under the heading “Risk Factors.”

~~adverse developments in securities, public debt, and capital markets, including changes in market liquidity and volatility;~~

our ability to anticipate interest rate changes correctly and manage interest rate risk presented through unanticipated changes in our interest rate risk position and/or short- and long-term interest rates;

~~unanticipated changes in our liquidity position, including but not limited to our ability to enter the financial markets to manage and respond to any changes to our liquidity position;~~

~~adequacy of our risk management program;~~

~~cyber-security incidents, including data security breaches or computer viruses;~~

~~increased costs associated with operating as a public company;~~

~~increased competitive pressure due to consolidation in the financial services industry; or~~

other risks and factors identified in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 14, 2017 (the “Annual Report”) in Part I, Item 1A under the heading “Risk Factors.”

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of Atlantic Capital are in accordance with GAAP and conform to general practices within the banking industry. Atlantic Capital’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in Atlantic Capital’s consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include Atlantic Capital’s accounting for the allowance for loan losses, fair value measurements, and income tax related items. Significant accounting policies are discussed in the Notes to Consolidated Financial Statements within Atlantic Capital’s Annual Report on Form ~~10-K.~~

10‑K.

Non-GAAP Financial Measures.

This Form ~~10-Q~~10‑Q contains non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. Atlantic Capital management uses non-GAAP financial measures, including: (i) taxable equivalent interest income; (ii) taxable equivalent net interest income; (iii) taxable equivalent net interest margin; (iv) taxable equivalent net interest income from continuing operations; (v) taxable equivalent net interest margin from continuing operations (vi) net interest income after provision for loan losses-taxable equivalent; ~~(v)~~(vii) income before income taxes-taxable equivalent; and ~~(vi)~~(viii) income tax expense-taxable

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equivalent. Management uses these non-GAAP financial measures because it believes they provide a greater understanding of ongoing performance and operations, enhance comparability with prior periods, and provide users of our financial information with a meaningful measure for assessing our financial results and credit trends. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as an alternative to any measure of performance or financial condition as determined in accordance with GAAP. In addition, non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures presented by other companies. Investors should consider Atlantic Capital’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. A reconciliation of these non-GAAP financial measures to GAAP financial measures is included in Table 1.

EXECUTIVE OVERVIEW AND EARNINGS SUMMARY

On April 5, 2019, the Bank completed the previously disclosed sale of all 14 of its bank branches located in Tennessee and northwest Georgia, including its mortgage banking business, to FirstBank (the “Branch Sale”). In connection with the Branch Sale, FirstBank assumed deposits and customer repurchase agreements of approximately $598 million and purchased approximately $385 million in loans. FirstBank paid a deposit premium equal to 6.25% of the balance of assumed deposits, less a discount of 0.68% of purchased loans. The income and expenses related to these branches are included in discontinued operations and prior period financial information has been retrospectively adjusted for the impact of discontinued operations. Net income from discontinued operations for the nine months ended September 30, 2019 included a gain on sale of branches of $34.5 million and divestiture expenses of $5.1 million.

Atlantic Capital reported net income from continuing operations of ~~$4.1~~$7.6 million for the third quarter of ~~2017~~2019 compared to net income from continuing operations of ~~$3.7~~$7.0 million for the third quarter of ~~2016.~~2018. Diluted income per common share from continuing operations was ~~$.16~~$0.33 for the third quarter of ~~2017~~2019, compared to ~~diluted income per common share of $.15~~$0.27 for the ~~third quarter of 2016.~~

same period in 2018.

For the nine months ended September 30, ~~2017,~~2019, Atlantic Capital reported net income from continuing operations of ~~$11.6 million~~$21.0 million. This compared to net income from continuing operations of ~~$11.8~~$20.6 million ~~for the first nine months ended September 30, 2016. Diluted income per common share was $.45~~ for the nine months ended September 30, ~~2017~~2018. Diluted income per common share from continuing operations was $0.88 for the nine months ended September 30, 2019 compared to ~~$.47~~$0.79 for the same period in ~~2016.~~

2018.

The increase in net income from continuing operations for the three months ended September 30, ~~2017,~~2019, compared to the same period in ~~2016,~~2018, was primarily ~~the result of~~attributable to a ~~$1.1 million,~~$694,000, or 6%4%, increase in taxable equivalent net interest income ~~after~~from continuing operations and a $432,000 or 51% decrease in the provision for loan losses from continuing operations, partially offset by an $805,000, or 7%, increase in noninterest expense from continuing operations.

The increase in net income from continuing operations for the nine months ended September 30, 2019, compared to the same period in 2018, was primarily attributable to a $5.1 million, or 9%, increase in taxable equivalent net interest income from continuing operations, partially offset by a $1.8 million, or 19%, decrease ~~of $525,000~~ in noninterest ~~income.~~

income from continuing operations and a $1.9 million, or 5%, increase in noninterest expense from continuing operations.

Taxable equivalent net interest income from continuing operations was $20.1 million for the third quarter of 2019, compared to $19.4 million for the third quarter of 2018. Taxable equivalent net interest margin from continuing operations increased to 3.52% for the three months ended September 30, 2019 from 3.48% for the three months ended September 30, 2018. For the nine months ended September 30, 2017 compared to the first nine months of 2016, the decrease in net income was primarily attributable to a $4.7 million, or 27%, decrease in noninterest income and a $1.3 million, or 83%, increase in loan loss provision. The decrease in noninterest income compared to 2016 was primarily due to the $3.9 million gain on sale of branches in the second quarter of 2016 and a $1.1 million, or 95%, decrease in TriNet lending activities. This was offset by a $2.6 million, or 5%, increase in net interest income before provision for loan losses and a $1.6 million, or 3%, reduction in noninterest expense.

Taxable equivalent net interest income was $20.5 million for the third quarter of 2017, compared to $19.5 million for the third quarter of 2016. Taxable equivalent net interest margin increased to 3.26% for the three months ended September 30, 2017 from 3.12% for the three months ended September 30, 2016. For the nine months ended September 30, 2017,2019, taxable equivalent net interest income from continuing operations was ~~$60.7~~$60.6 million compared to ~~$57.7~~$55.5 million for the same period of ~~2016.~~2018. Taxable equivalent net interest margin from continuing operations increased to ~~3.24%~~3.66% for the nine months ended September 30, ~~2017~~2019 from ~~3.11%~~3.46% for the nine months ended September 30, ~~2016.~~2018. The margin increase for the three and nine months ended September 30, ~~2017~~2019 compared to the prior year was primarily due to ~~increased investment in non-taxable investment securities and~~ increases in the ~~Fed~~Federal Funds rate.

Provision for loan losses for the quarter ended September 30, ~~2017~~2019 totaled ~~$322,000,~~$413,000, a decrease of ~~$141,000~~$432,000 from the quarter ended September 30, ~~2016.~~2018. The ~~lower provision for the three months ended September 30, 2017~~decrease was primarily related to a ~~decline~~decrease in modeled loss rates and a change in loan ~~growth.~~mix when compared to the prior period. For the nine months ended September 30, ~~2017,~~2019, Atlantic Capital’s provision for loan losses was ~~$2.9~~$1.9 million compared to a provision of ~~$1.6 million~~$1.4 for the first nine months of ~~2016.~~2018. The increase was

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primarily ~~related~~due to ~~an additional $1.0 million specific reserve that was recorded in~~higher levels of net charge-offs for the ~~second quarter~~nine months ended September 30, 2019 compared to the first nine months of ~~2017 as a result of the downgrade of a large loan relationship to nonperforming.~~

2018.

Noninterest income ~~decreased $525,000,~~from continuing operations increased $514,000, or ~~13%~~23%, to ~~$3.5~~$2.8 million from the third quarter of ~~2016.~~2018. The ~~decrease~~increase was primarily due to ~~a $312,000,~~the $253,000 gain on sale of available-for-sale securities and an increase of $268,000, or ~~49%~~30%, in income from SBA lending activities during the third quarter of 2019. Also contributing to the increase was an increase in gain on sales of other assets of $82,000, or 141%, in the third quarter of 2019. This was offset by a decrease in ~~mortgage~~derivatives income ~~which was attributable to higher interest rates and lower demand.~~ of $313,000 in the third quarter of 2019.

For the first nine months of ~~2017,~~2019, noninterest income from continuing operations decreased ~~$4.7~~$1.8 million, or ~~27%~~19%, to ~~$12.6~~$8.0 million. The decrease was primarily due to ~~a $3.9~~the $1.7 million gain on the sale of ~~seven branches~~Southeastern Trust Company in the second quarter of ~~2016 as well as~~2018. Also contributing to the decrease was a ~~$1.1~~$1.0 million, or ~~95%~~100%, decrease in ~~gains on~~trust income due to the sale of ~~TriNet loans and~~the trust business in the second quarter of 2018. Additionally, derivatives loss for the first nine months of 2019 totaled $637,000 compared to a ~~$453,000, or 32%, decrease~~derivatives gain of $154,000 for the same period in ~~mortgage income.~~

2018. This was partially offset by a $909,000 increase in the gain on sale of investment securities.

For the third quarter of ~~2017,~~2019, noninterest expense from continuing operations increased ~~$208,000,~~$805,000 or 1%7%, to $12.7 million compared to the third quarter of ~~2016.~~2018. The most significant component of the increase was ~~professional services due to expenses~~a $963,000 or 13%, increase in salaries and employee benefits primarily related to ~~the public offering of common stock by a selling stockholder completed during the third quarter of 2017.~~ new hires made in 2019.

Noninterest expense from continuing operations totaled ~~$52.9~~$39.7 million for the nine months ended September 30, ~~2017,~~2019, compared to ~~$54.5~~$37.8 million for the same period in ~~2016.~~2018. The most significant component of the ~~decrease for the nine month period~~increase was a ~~$2.2~~$1.8 million, or ~~88%~~8%, ~~reduction~~increase in ~~merger~~salaries and ~~conversion~~employee benefits primarily related to severance, medical insurance costs ~~due to the substantial completion of the integration of FSGBank, N.A. (“FSGBank”) into Atlantic Capital Bank N.A. (the “Bank”)~~as well as new hires made in ~~2016.~~2019.

Table 1 - Quarterly Selected Financial Data
(in thousands, except share and per share data; taxable equivalent)

2017 2016 For the nine months ended September 30,
Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter 2017 2016
INCOME SUMMARY
Interest income $ 24,566
$ 24,545
$ 22,716
$ 22,530
$ 22,428
$ 71,827
$ 66,171

Interest expense 4,060
3,833
3,208
3,029
2,941
11,101
8,480

Net interest income 20,506
20,712
19,508
19,501
19,487
60,726
57,691

Provision for loan losses 322
1,980
634
2,208
463
2,936
1,608

Net interest income after provision for loan losses 20,184
18,732
18,874
17,293
19,024
57,790
56,083

Noninterest income 3,477
5,287
3,857
4,430
4,002
12,621
17,302

Noninterest expense 17,504
17,623
17,744
18,775
17,296
52,871
54,505

Income before income taxes 6,157
6,396
4,987
2,948
5,730
17,540
18,880

Income tax expense 2,105
2,067
1,757
1,339
2,022
5,929
7,094

Net income $ 4,052
$ 4,329
$ 3,230
$ 1,609
$ 3,708
$ 11,611
$ 11,786

PER SHARE DATA
Basic earnings per share $ 0.16
$ 0.17
$ 0.13
$ 0.06
$ 0.15
$ 0.45
$ 0.48

Diluted earnings per share 0.16
0.17
0.13
0.06
0.15
0.45
0.47

PERFORMANCE MEASURES
Return on average equity 4.96
% 5.48
% 4.19
% 2.09
% 4.84
% 4.91
% 5.25
%
Return on average assets 0.60
0.63
0.48
0.24
0.55
0.57
0.58

Taxable equivalent net interest margin 3.26
3.26
3.20
3.11
3.12
3.24
3.11

Efficiency ratio 73.65
68.37
76.78
79.19
74.05
72.77
75.92

Equity to assets 12.31
11.82
11.10
11.13
11.17
12.31
11.17

ASSET QUALITY
Allowance for loan losses to loans 0.99
% 1.11
% 1.05
% 1.04
% 0.92
% 0.99
% 0.92
%
Net charge-offs $ 3,322
$ 49
$ 1,290
$ 147
$ 306
$ 4,661
$ 1,979

Net charge-offs to average loans⁽¹⁾
0.68
% 0.01
% 0.26
% 0.03
% 0.06
% 0.32
% 0.13
%
NPAs to total assets 0.23
0.52
0.21
0.13
0.09
0.23
0.09

AVERAGE BALANCES
Total loans $ 1,934,505
$ 1,962,374
$ 1,949,385
$ 2,036,995
$ 2,003,180
$ 1,948,700
$ 1,965,092

Investment securities 455,868
455,090
419,335
349,762
335,880
443,565
372,208

Total assets 2,701,387
2,762,389
2,694,715
2,722,444
2,717,996
2,719,519
2,704,670

Deposits 2,121,263
2,158,675
2,111,992
2,094,885
2,163,569
2,130,677
2,164,477

Shareholders’ equity 323,832
316,825
308,261
308,588
306,642
316,361
299,048

Number of common shares - basic 25,699,179
25,621,910
25,320,690
25,027,304
24,891,822
25,548,646
24,674,953

Number of common shares - diluted 25,890,779
25,831,281
25,672,286
25,407,728
25,260,280
25,799,851
25,106,250

⁽¹⁾ Annualized.

Table of Contents

Table 1 - Quarterly Selected Financial Data(1)

(dollars in thousands, except share and per share data; taxable equivalent)


	2019									2018						For the Nine months ended
	Third			Second			First			Fourth			Third			September 30,
	Quarter			Quarter			Quarter			Quarter			Quarter			2019			2018
INCOME SUMMARY(1)
Interest income(2)	$	26,624		$	26,686		$	26,297		$	26,725		$	24,114		$	79,607		$	68,430
Interest expense		6,536			6,709			5,773			5,560			4,720			19,018			12,953
Net interest income		20,088			19,977			20,524			21,165			19,394			60,589			55,477
Provision for loan losses		413			698			814			502			845			1,925			1,444
Net interest income after provision for loan losses		19,675			19,279			19,710			20,663			18,549			58,664			54,033
Noninterest income		2,769			2,941			2,336			164			2,255			8,046			9,883
Noninterest expense		12,677			13,254			13,795			12,208			11,872			39,726			37,783
Income from continuing operations before income taxes		9,767			8,966			8,251			8,619			8,932			26,984			26,133
Income tax expense		2,198			1,957			1,811			1,136			1,934			5,966			5,566
Net income from continuing operations		7,569			7,009			6,440			7,483			6,998			21,018			20,567
Income (loss) from discontinued operations, net of tax		617			22,143			(1,063)			1,347			(485)			21,697			(865)
Net income	$	8,186		$	29,152		$	5,377		$	8,830		$	6,513		$	42,715		$	19,702

PER SHARE DATA
Basic earnings per share - continuing operations	$	0.33		$	0.29		$	0.26		$	0.29		$	0.27		$	0.88		$	0.79
Basic earnings (loss) per share - discontinued operations		0.03			0.93			(0.04)			0.05			(0.02)			0.91			(0.03)
Basic earnings per share		0.36			1.22			0.22			0.34			0.25			1.79			0.76

Diluted earnings per share - continuing operations	$	0.33		$	0.29		$	0.26		$	0.29		$	0.27		$	0.88		$	0.79
Diluted earnings (loss) per share - discontinued operations		0.03			0.92			(0.04)			0.05			(0.02)			0.91			(0.03)
Diluted earnings per share		0.36			1.21			0.21			0.34			0.25			1.78			0.75

PERFORMANCE MEASURES											`
Return on average equity		9.77	%		34.38	%		6.80	%		10.90	%		8.07	%		17.25	%		8.41	%
Return on average assets		1.32			4.79			0.77			1.21			0.92			2.22			0.96
Taxable equivalent net interest margin - continuing operations		3.52			3.61			3.74			3.66			3.48			3.66			3.46
Efficiency ratio - continuing operations		55.72			58.06			60.61			57.50			55.09			58.13			58.07
Equity to assets		13.64			14.09			11.23			10.95			11.11			13.64			11.11

ASSET QUALITY
Allowance for loan losses to loans held for investment(3)		0.98	%		1.02	%		1.04	%		1.03	%		1.00	%		0.98	%		1.00	%
Net charge-offs	$	519		$	619		$	558		$	(3)		$	(15)		$	1,696		$	345
Net charge-offs to average loans(4)		0.11	%		0.14	%		0.11	%		—	%		—	%		0.12	%		0.02	%
NPAs to total assets		0.29			0.31			0.40			0.20			0.13			0.29			0.13

AVERAGE BALANCES
Total loans	$	1,801,629		$	1,800,001		$	2,089,465		$	2,076,853		$	1,963,817		$	1,758,141		$	1,943,369
Investment securities		340,872			360,047			400,101			450,465			461,348			366,790			456,660
Total assets		2,453,438			2,440,502			2,829,072			2,891,327			2,805,740			2,572,961			2,743,247
Deposits		1,949,657			1,947,426			2,387,104			2,380,861			2,254,072			2,095,964			2,181,628
Shareholders’ equity		332,291			340,119			320,812			321,348			320,090			331,116			313,200
Number of common shares - basic		22,681,904			23,888,381			24,855,171			25,919,445			26,103,397			23,800,525			25,956,336
Number of common shares - diluted		22,837,531			24,040,806			25,019,384			26,043,799			26,254,772			23,957,915			26,134,655

AT PERIOD END
Total loans	$	1,836,589		$	1,789,740		$	2,120,866		$	2,106,992		$	2,040,320		$	1,836,589		$	2,040,320
Investment securities		329,648			348,723			402,640			402,486			465,756			329,648			465,756
Total assets		2,410,198			2,389,680			2,855,887			2,955,440			2,882,721			2,410,198			2,882,721
Deposits		1,854,272			1,851,531			2,440,448			2,537,943			2,379,824			1,854,272			2,379,824
Shareholders’ equity		328,711			336,715			320,627			323,653			320,237			328,711			320,237
Number of common shares outstanding		22,193,761			23,293,465			24,466,964			25,290,419			26,103,666			22,193,761			26,103,666

(1) On April 5, 2019, Atlantic Capital completed the sale to FirstBank of its Tennessee and northwest Georgia banking operations, including 14 branches and the mortgage business. The mortgage business and branches sold to FirstBank are reported as discontinued operations. Discontinued operations have been reported retrospectively for periods presented prior to December 31, 2018.

(2) Interest income on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 21%, reflecting the statutory federal income tax rate.

(3) The ratios for the first and second quarters of 2019 and third and fourth quarters of 2018 are calculated on a continuing operations basis. Prior period ratios have not been retrospectively adjusted for the impact of discontinued operations.

(4) Annualized.

Table 1 - Quarterly Selected Financial Data (continued)
(in thousands, except share and per share data)

2017 2016 For the nine months ended September 30,
Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter 2017 2016
AT PERIOD END
Total loans $ 1,908,706
$ 1,963,835
$ 1,930,965
$ 2,016,549
$ 2,054,702
$ 1,908,706
$ 2,054,702
Investment securities 447,005
450,273
456,942
347,705
348,484
447,005
348,484
Total assets 2,638,412
2,702,575
2,802,078
2,727,543
2,761,244
2,638,412
2,761,244
Deposits 2,103,645
2,113,954
2,203,039
2,237,580
2,188,856
2,103,645
2,188,856
Shareholders’ equity 324,754
319,435
310,967
303,658
308,463
324,754
308,463
Number of common shares outstanding 25,716,418
25,654,521
25,535,013
25,093,135
24,950,099
25,716,418
24,950,099

Non-GAAP Performance Measures Reconciliation
(in thousands)
2017 2016 For the nine months ended September 30,
Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter 2017 2016
Taxable equivalent interest income reconciliation
Interest income - GAAP $ 24,351
$ 24,322
$ 22,461
$ 22,307
$ 22,295
$ 71,134
$ 65,910
Taxable equivalent adjustment 215
223
255
223
133
693
261
Interest income - taxable equivalent $ 24,566
$ 24,545
$ 22,716
$ 22,530
$ 22,428
$ 71,827
$ 66,171

Taxable equivalent net interest income reconciliation
Net interest income - GAAP $ 20,291
$ 20,489
$ 19,253
$ 19,278
$ 19,354
$ 60,033
$ 57,430
Taxable equivalent adjustment 215
223
255
223
133
693
261
Net interest income - taxable equivalent $ 20,506
$ 20,712
$ 19,508
$ 19,501
$ 19,487
$ 60,726
$ 57,691

Taxable equivalent net interest income after provision for loan losses reconciliation
Net interest income after provision for loan losses - GAAP $ 19,969
$ 18,509
$ 18,619
$ 17,070
$ 18,891
$ 57,097
$ 55,822
Taxable equivalent adjustment 215
223
255
223
133
693
261
Net interest income after provision for loan losses - taxable equivalent $ 20,184
$ 18,732
$ 18,874
$ 17,293
$ 19,024
$ 57,790
$ 56,083

Taxable equivalent income before income taxes reconciliation
Income (loss) before income taxes - GAAP $ 5,942
$ 6,173
$ 4,732
$ 2,725
$ 5,597
$ 16,847
$ 18,619
Taxable equivalent adjustment 215
223
255
223
133
693
261
Income before income taxes - taxable equivalent $ 6,157
$ 6,396
$ 4,987
$ 2,948
$ 5,730
$ 17,540
$ 18,880

Taxable equivalent income tax expense reconciliation
Income tax expense - GAAP $ 1,890
$ 1,844
$ 1,502
$ 1,116
$ 1,889
$ 5,236
$ 6,833
Taxable equivalent adjustment 215
223
255
223
133
693
261
Income tax expense - taxable equivalent $ 2,105
$ 2,067
$ 1,757
$ 1,339
$ 2,022
$ 5,929
$ 7,094

Taxable equivalent net interest margin reconciliation
Net interest margin - GAAP 3.23 % 3.23 % 3.16 % 3.07 % 3.10 % 3.21 % 3.10 %
Impact of taxable equivalent adjustment 0.03
0.03
0.04
0.04
0.02
0.03
0.01
Net interest margin - taxable equivalent 3.26 % 3.26 % 3.20 % 3.11 % 3.12 % 3.24 % 3.11 %

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Non-GAAP Performance Measures Reconciliation

(dollars in thousands)


	2019									2018						For the Nine months
	Third			Second			First			Fourth			Third			ended September 30,
	Quarter			Quarter			Quarter			Quarter			Quarter			2019			2018
Taxable equivalent interest income reconciliation
Interest income - GAAP	$	26,520		$	26,598		$	26,197		$	26,628		$	24,017		$	79,315		$	68,132
Taxable equivalent adjustment		104			88			100			97			97			292			298
Interest income - taxable equivalent	$	26,624		$	26,686		$	26,297		$	26,725		$	24,114		$	79,607		$	68,430

Taxable equivalent net interest income reconciliation
Net interest income - GAAP	$	19,984		$	19,889		$	20,424		$	21,068		$	19,297		$	60,297		$	55,179
Taxable equivalent adjustment		104			88			100			97			97			292			298
Net interest income - taxable equivalent	$	20,088		$	19,977		$	20,524		$	21,165		$	19,394		$	60,589		$	55,477

Taxable equivalent net interest income after provision for loan losses reconciliation
Net interest income after provision for loan losses - GAAP	$	19,571		$	19,191		$	19,610		$	20,566		$	18,452		$	58,372		$	53,735
Taxable equivalent adjustment		104			88			100			97			97			292			298
Net interest income after provision for loan losses - taxable equivalent	$	19,675		$	19,279		$	19,710		$	20,663		$	18,549		$	58,664		$	54,033

Taxable equivalent income before income taxes reconciliation
Income before income taxes - GAAP	$	9,663		$	8,878		$	8,151		$	8,522		$	8,835		$	26,692		$	25,835
Taxable equivalent adjustment		104			88			100			97			97			292			298
Income before income taxes - taxable equivalent	$	9,767		$	8,966		$	8,251		$	8,619		$	8,932		$	26,984		$	26,133

Taxable equivalent income tax expense reconciliation
Income tax expense - GAAP	$	2,094		$	1,869		$	1,711		$	1,039		$	1,837		$	5,674		$	5,268
Taxable equivalent adjustment		104			88			100			97			97			292			298
Income tax expense - taxable equivalent	$	2,198		$	1,957		$	1,811		$	1,136		$	1,934		$	5,966		$	5,566

Taxable equivalent net interest margin reconciliation - continuing operations
Net interest margin - GAAP - continuing operations		3.51	%		3.60	%		3.72	%		3.64	%		3.46	%		3.64	%		3.44	%
Impact of taxable equivalent adjustment		0.01	%		0.01	%		0.02	%		0.02	%		0.02	%		0.02	%		0.02	%
Net interest margin - taxable equivalent - continuing operations		3.52	%		3.61	%		3.74	%		3.66	%		3.48	%		3.66	%		3.46	%

Taxable equivalent net interest margin reconciliation
Net interest margin - GAAP		3.51	%		3.54	%		3.66	%		3.60	%		3.45	%		3.57	%		3.49	%
Impact of taxable equivalent adjustment		0.01			0.02			0.02			0.02			0.02			0.02			0.01
Net interest margin - taxable equivalent		3.52	%		3.56	%		3.68	%		3.62	%		3.47	%		3.59	%		3.50	%

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

Taxable equivalent net interest income from continuing operations for the third quarter of ~~2017~~2019 totaled ~~$20.5~~$20.1 million, a ~~$1.0 million,~~$694,000, or 5%4%, increase compared to the third quarter of ~~2016.~~2018. This increase was primarily driven by a ~~$2.1~~$2.5 million, or 10%, increase in taxable equivalent interest ~~income.~~income from continuing operations. This was offset by an increase in interest expense from continuing operations for the third quarter of 2019 of $1.8 million, or 38%, when compared to the third quarter of 2018. The change in taxable equivalent interest income from continuing operations was primarily due to a $3.4 million, or 17%, increase in interest income on loans, resulting from an increase in average loan balances. The change in interest expense from continuing operations was primarily due to an increase in interest expense on deposits of $2.0

Table of Contents

million, or 64%, resulting from an increase in deposit costs and an increase in average interest-bearing deposit balances. Net accretion income on the acquired loans discount totaled $35,000 for the three months ended September 30, 2019, compared to $336,000 for the same period in 2018.

During the second quarter of 2019, due to the $167 million in cash paid to the buyer at the closing of the Branch Sale, Atlantic Capital restructured the balance sheet following the transaction with a combination of excess cash, proceeds from sold securities, FHLB borrowings, and brokered deposits.

Interest expense from continuing operations for the three months ended September 30, 2019 totaled $6.5 million, a $2.0 million, or 64%, increase from the same period of 2018. The rate paid on interest bearing liabilities from continuing operations increased 32 basis points from the third quarter of 2018 to the third quarter of 2019, driven by an increase in interest rates on deposits and other borrowings resulting from increases in the Federal Funds rate during 2018.

Taxable equivalent net interest income ~~primarily resulted~~ from continuing operation for the ~~following:~~

nine months ended September 30, 2019 totaled $60.6 million, a ~~$1.1~~$5.1 million, or ~~76%~~9%, increase compared to ~~$2.5~~the same period in 2018. This increase was primarily driven by an $11.2 million, or 16%, increase in taxable equivalent interest income ~~on investment securities, resulting~~from continuing operations. The change in taxable equivalent interest income from continuing operations primarily resulted from a ~~$120.0~~$12.5 million, or ~~36%, increase in average balance, due primarily to the increased investment in non-taxable investment securities; and~~

~~a $980,000, or 5%~~22%, increase in interest income on loans, resulting from increases in the Fed Funds ~~rate.~~

rate during 2018 and an increase in average loan balances.

Interest expense from continuing operations for the ~~three~~nine months ended September 30, ~~2017~~2019 totaled ~~$4.1~~$19.0 million, a ~~$1.1~~$6.1 million, or ~~38%~~47%, increase from the same period of 2016. The rate paid on interest bearing liabilities increased 30 basis points from the third quarter of 2016 to the third quarter of 2017, driven by an increase in interest rates on deposits and other borrowings. Average interest-bearing deposits were lower mainly due to the branch sale in the second quarter of 2017 and a reduction in brokered deposits. In addition, premium amortization of acquired time deposits reduced interest expense during the third quarter of 2017 in the amount of $75,000, compared to $170,000 in the third quarter of 2016.

Taxable equivalent net interest income for the nine months ended September 30, 2017 totaled $60.7 million, a $3.0 million, or 5%, increase compared to the same period in 2016. This increase was primarily driven by a $5.7 million, or 9%, increase in taxable equivalent interest income. The interest income increase primarily resulted from the following:

a $2.9 million, or 64%, increase to $7.4 million in tax equivalent interest income on investment securities, resulting from a $71.4 million, or 19%, increase in average balance, due primarily to the increased investment in non-taxable investment securities; and

~~a $2.4 million, or 4%, increase in interest income on loans, resulting from increases in the Fed Funds rate.~~

~~Interest expense for the nine months ended September 30, 2017 totaled $11.1 million, a $2.6 million, or 31%, increase from the same period of 2016,~~2018, primarily due to a ~~$1.8~~$7.2 million, or ~~32%~~86%, increase in interest paid on deposits. The rate paid on interest bearing liabilities from continuing operations increased 2350 basis points from the first nine months of ~~2016~~2018 to the same period of ~~2017,~~2019, driven by an increase in interest rates on deposits and other borrowings. ~~In addition, premium amortization of acquired time deposits reduced interest expense during the first nine months of 2017 in the amount of $280,000, as compared to $712,000 in the same period of 2016.~~

Taxable equivalent net interest margin from continuing operations increased to ~~3.26% from 3.12%~~3.52% for the three months ended September 30, ~~2017~~2019 compared to 3.48% for the three months ended September 30, ~~2016.~~2018. Taxable equivalent net interest margin from continuing operations for the nine months ended September 30, ~~2017~~2019 increased to ~~3.24%~~3.66% compared to ~~3.11%~~3.46% for the nine months ended September 30, ~~2016.~~2018. The primary ~~reasons~~reason for the increase in taxable equivalent net interest margin from continuing operations for the three and nine month periods ~~were the higher level of investment in non-taxable investment securities and~~was higher interest rates on loans resulting from ~~Fed~~Federal Funds rate ~~increases.~~

increases during 2018.

The following table presents information regarding average balances for assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the income or expense by the average balances for assets or liabilities, respectively, for the periods presented. Loan fees are included in interest income on loans.

Table 2 - Average Balance Sheets and Net Interest Analysis
(dollars in thousands; taxable equivalent)
Three months ended September 30,
2017 2016
Average Balance Interest Income/Expense Tax Equivalent Yield/Rate Average Balance Interest Income/Expense Tax Equivalent Yield/Rate
Assets
Interest bearing deposits in other banks $ 69,839
$ 216
1.23 % $ 109,883
$ 158
0.57 %
Other short-term investments 13,830
67
1.92
18,741
60
1.27
Investment securities:
    Taxable investment securities 373,087
1,812
1.93
283,303
1,033
1.45
    Non-taxable investment securities⁽¹⁾
82,781
701
3.36
52,577
393
2.97
Total investment securities 455,868
2,513
2.19
335,880
1,426
1.69
Total loans 1,934,505
21,491
4.41
2,003,180
20,511
4.07
FHLB and FRB stock 18,494
279
5.99
17,192
273
6.32
     Total interest-earning assets 2,492,536
24,566
3.91
2,484,876
22,428
3.59
Non-earning assets 208,851
233,120

     Total assets $ 2,701,387
$ 2,717,996

Liabilities
Interest bearing deposits:
NOW, money market, and savings 1,192,664
1,886
0.63
1,236,828
1,338
0.43
Time deposits 143,862
292
0.81
175,135
241
0.55
Brokered deposits 156,708
515
1.30
196,598
377
0.76
Total interest-bearing deposits 1,493,234
2,693
0.72
1,608,561
1,956
0.48
Other borrowings 179,808
543
1.20
157,957
170
0.43
Long-term debt 49,465
824
6.61
49,296
815
6.58
     Total interest-bearing liabilities 1,722,507
4,060
0.94
1,815,814
2,941
0.64
Demand deposits 628,029
555,008

Other liabilities 27,019
40,532

Shareholders’ equity 323,832
306,642

     Total liabilities and shareholders’ equity $ 2,701,387
$ 2,717,996

Net interest spread 2.97 % 2.95 %
Net interest income and net interest margin⁽²⁾
$ 20,506
3.26 % $ 19,487
3.12 %

⁽¹⁾ Interest revenue on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 35%, reflecting the statutory federal income tax rate.
⁽²⁾ Taxable equivalent net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset.

Table of Contents

Table 2 - Average Balance Sheets and Net Interest Analysis

(dollars in thousands; taxable equivalent)


	Three months ended September 30,
	2019						2018
			Interest		Tax				Interest		Tax
	Average		Income/		Equivalent		Average		Income/		Equivalent
	Balance		Expense		Yield/Rate		Balance		Expense		Yield/Rate
Assets
Interest bearing deposits in other banks	$	103,954	$	564	2.15	%	$	128,248	$	647	2.00	%
Other short-term investments		—		—	0.00	%		21,985		157	2.83	%
Investment securities:
Taxable investment securities		257,005		1,657	2.56	%		385,834		2,315	2.38	%
Non-taxable investment securities(1)		83,867		623	2.95	%		75,514		571	3.00	%
Total investment securities		340,872		2,280	2.65	%		461,348		2,886	2.48	%
Loans - continuing operations		1,801,629		23,541	5.18	%		1,583,459		20,117	5.04	%
FHLB and FRB stock		15,524		239	6.11	%		17,624		307	6.91	%
Total interest-earning assets - continuing operations		2,261,979		26,624	4.67	%		2,212,664		24,114	4.32	%
Loans held for sale - discontinued operations		—		—	0.00	%		380,358		4,502	4.70	%
Total interest-earning assets		2,261,979		26,624	4.67	%		2,593,022		28,616	4.38	%
Non-earning assets		191,459						212,718
Total assets	$	2,453,438					$	2,805,740
Liabilities
Interest bearing deposits:
NOW, money market, and savings		1,191,293		4,642	1.55	%		1,012,953		2,791	1.09	%
Time deposits		32,409		51	0.62	%		10,406		30	1.14	%
Brokered deposits		88,146		530	2.39	%		67,937		361	2.11	%
Total interest-bearing deposits		1,311,848		5,223	1.58	%		1,091,296		3,182	1.16	%
Total borrowings		85,478		489	2.27	%		134,609		714	2.10	%
Total long-term debt		49,803		824	6.56	%		49,634		824	6.59	%
Total interest-bearing liabilities - continuing operations		1,447,129		6,536	1.79	%		1,275,539		4,720	1.47	%
Interest-bearing liabilities - discontinued operations		—		—	0.00	%		473,388		1,236	1.04	%
Total interest-bearing liabilities		1,447,129		6,536	1.79	%		1,748,927		5,956	1.35	%
Demand deposits		637,809						561,355
Demand deposits - discontinued operations		—						136,572
Other liabilities		36,209						38,796
Shareholders' equity		332,291						320,090
Total liabilities and shareholders' equity	$	2,453,438					$	2,805,740
Net interest spread - continuing operations					2.88	%					2.85	%
Net interest income and net interest margin - continuing operations(2)			$	20,088	3.52	%			$	19,394	3.48	%
Net interest income and net interest margin(2)			$	20,088	3.52	%			$	22,660	3.47	%

Non-taxable equivalent net interest margin					3.51	%					3.45	%

⁽¹⁾

Interest revenue on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 21%, reflecting the statutory federal income tax rate.

⁽²⁾

Taxable equivalent net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset.

Table 2 - Average Balance Sheets and Net Interest Analysis (continued)
(dollars in thousands; taxable equivalent)
Nine months ended September 30,
2017 2016
Average Balance Interest Income/Expense Tax Equivalent Yield/Rate Average Balance Interest Income/Expense Tax Equivalent Yield/Rate
Assets
Interest bearing deposits in other banks $ 76,079
$ 614
1.08 % $ 100,279
$ 481
0.64 %
Other short-term investments 16,198
231
1.91
24,120
244
1.35
Investment securities:
    Taxable investment securities 362,080
5,197
1.92
337,263
3,714
1.47
    Non-taxable investment securities⁽¹⁾
81,485
2,167
3.56
34,945
768
2.94
Total investment securities 443,565
7,364
2.22
372,208
4,482
1.61
Total loans 1,948,700
62,846
4.31
1,965,092
60,418
4.11
FHLB and FRB stock 19,147
772
5.39
13,825
546
5.28
     Total interest-earning assets 2,503,689
71,827
3.84
2,475,524
66,171
3.57
Non-earning assets 215,830
229,146

     Total assets $ 2,719,519
$ 2,704,670

Liabilities
Interest bearing deposits:
NOW, money market, and savings 1,171,369
4,842
0.55
1,182,520
3,646
0.41
Time deposits 152,190
833
0.73
221,937
654
0.39
Brokered deposits 182,195
1,546
1.13
210,803
1,170
0.74
Total interest-bearing deposits 1,505,754
7,221
0.64
1,615,260
5,470
0.45
Other borrowings 196,352
1,409
0.96
156,148
553
0.47
Long-term debt 49,423
2,471
6.68
49,254
2,457
6.66
     Total interest-bearing liabilities 1,751,529
11,101
0.85
1,820,662
8,480
0.62
Demand deposits 624,923
549,217

Other liabilities 26,706
35,743

Shareholders’ equity 316,361
299,048

     Total liabilities and shareholders’ equity $ 2,719,519
$ 2,704,670

Net interest spread 2.99 % 2.95 %
Net interest income and net interest margin⁽²⁾
$ 60,726
3.24 % $ 57,691
3.11 %

⁽¹⁾ Interest revenue on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 35%, reflecting the statutory federal income tax rate.
⁽²⁾ Taxable equivalent net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset.

Table of Contents

Table 2 - Average Balance Sheets and Net Interest Analysis (continued)

(dollars in thousands; taxable equivalent)


	Nine months ended September 30,
	2019						2018
			Interest		Tax				Interest		Tax
	Average		Income/		Equivalent		Average		Income/		Equivalent
	Balance		Expense		Yield/Rate		Balance		Expense		Yield/Rate
Assets
Interest bearing deposits in other banks	$	88,960	$	1,476	2.22	%	$	101,502	$	1,606	2.12	%
Other short-term investments		5,181		118	3.05	%		13,907		284	2.73	%
Investment securities:
Taxable investment securities		284,978		5,619	2.64	%		380,002		6,643	2.34	%
Non-taxable investment securities(1)		81,812		1,819	2.97	%		76,658		1,723	3.01	%
Total investment securities		366,790		7,438	2.71	%		456,660		8,366	2.45	%
Loans - continuing operations		1,739,917		69,847	5.37	%		1,553,609		57,359	4.94	%
FHLB and FRB stock		14,173		727	6.86	%		18,291		816	5.96	%
Total interest-earning assets - continuing operations		2,215,021		79,606	4.81	%		2,143,969		68,431	4.27	%
Loans held for sale - discontinued operations		156,060		4,588	3.93	%		389,760		13,714	4.70	%
Total interest-earning assets		2,371,081		84,194	4.75	%		2,533,729		82,145	4.33	%
Non-earning assets		201,880						209,518
Total assets	$	2,572,961					$	2,743,247
Liabilities
Interest bearing deposits:
NOW, money market, and savings		1,147,508		13,630	1.59	%		974,678		7,028	0.96	%
Time deposits		18,246		139	1.02	%		10,075		82	1.09	%
Brokered deposits		91,963		1,733	2.52	%		80,920		1,212	2.00	%
Total interest-bearing deposits		1,257,717		15,502	1.65	%		1,065,673		8,322	1.04	%
Total borrowings		57,844		1,045	2.42	%		155,701		2,155	1.85	%
Total long-term debt		49,761		2,471	6.64	%		49,592		2,476	6.68	%
Total interest-bearing liabilities - continuing operations		1,365,322		19,018	1.86	%		1,270,966		12,953	1.36	%
Interest-bearing liabilities - discontinued operations		192,613		1,502	1.04	%		465,339		2,800	0.80	%
Total interest-bearing liabilities		1,557,935		20,520	1.76	%		1,736,305		15,753	1.21	%
Demand deposits		593,957						518,186
Demand deposits - discontinued operations		52,481						138,621
Other liabilities		37,472						36,935
Shareholders' equity		331,116						313,200
Total liabilities and shareholders' equity	$	2,572,961					$	2,743,247
Net interest spread - continuing operations					2.95	%					2.91	%
Net interest income and net interest margin - continuing operations(2)			$	60,588	3.66	%			$	55,478	3.46	%
Net interest income and net interest margin(2)			$	63,674	3.59	%			$	66,392	3.50	%

Non-taxable equivalent net interest margin					3.57	%					3.49	%

⁽¹⁾

Interest revenue on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 21%, reflecting the statutory federal income tax rate.

⁽²⁾

Taxable equivalent net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset.

The following table shows the relative effect on taxable equivalent net interest income for changes in the average outstanding amounts (volume) of interest-earning assets and interest-bearing liabilities and the rates earned and paid on such assets and liabilities (rate). Variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category.

Table 3 - Changes in Taxable Equivalent Net Interest Income
(dollars in thousands)

Three Months Ended September 30, 2017 Compared to 2016
Increase (decrease) Due to Changes in:

Nine Months Ended September 30, 2017 Compared to 2016
Increase (decrease) Due to Changes in:
Volume Yield/Rate Total Change Volume Yield/Rate Total Change
Interest earning assets
Interest bearing deposits in other banks $ (124 ) $ 182
$ 58
$ (195 ) $ 328
$ 133
Other short-term investments (24 ) 31
7
(113 ) 100
(13 )
Investment securities:
Taxable investment securities 436
343
779
356
1,127
1,483
Non-taxable investment securities 256
52
308
1,238
161
1,399
Total investment securities 692
395
1,087
1,594
1,288
2,882
Total loans (763 ) 1,743
980
(529 ) 2,957
2,428
FHLB and FRB stock 20
(14 ) 6
215
11
226
Total interest-earning assets (199 ) 2,337
2,138
972
4,684
5,656
Interest bearing liabilities
Interest bearing deposits:
NOW, money market, and savings (70 ) 618
548
(46 ) 1,242
1,196
Time deposits (63 ) 114
51
(382 ) 561
179
Brokered deposits (131 ) 269
138
(243 ) 619
376
Total interest-bearing deposits (264 ) 1,001

737
(671 ) 2,422
1,751
Total borrowings 66
307
373
288
568
856
Total long-term debt 3
6
9
8
6
14
Total interest-bearing liabilities (195 ) 1,314
1,119
(375 ) 2,996
2,621
Change in net interest income $ (4 ) $ 1,023
$ 1,019
$ 1,347
$ 1,688
$ 3,035

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Table 3 - Changes in Taxable Equivalent Net Interest Income

(dollars in thousands)


	Three months ended September 30, 2019						Nine months ended September 30, 2019
	Compared to 2018						Compared to 2018
	Increase (decrease) Due to Changes in:						Increase (decrease) Due to Changes in:
					Total						Total
	Volume		Yield/Rate		Change		Volume		Yield/Rate		Change
Interest earning assets
Interest bearing deposits in other banks	$	(132)	$	49	$	(83)	$	(208)	$	78	$	(130)
Other short-term investments		—		(157)		(157)		(199)		33		(166)
Investment securities:
Taxable investment securities		(831)		173		(658)		(1,874)		850		(1,024)
Non-taxable investment securities(1)		62		(10)		52		115		(19)		96
Total investment securities		(769)		163		(606)		(1,759)		831		(928)
Loans - continuing operations		2,851		573		3,424		7,479		5,009		12,488
FHLB and FRB stock		(32)		(36)		(68)		(211)		122		(89)
Total interest-earning assets - continuing operations		1,918		592		2,510		5,102		6,073		11,175
Loans held for sale - discontinued operations		—		(4,502)		(4,502)		(6,871)		(2,255)		(9,126)
Total interest-earning assets		1,918		(3,910)		(1,992)		(1,769)		3,818		2,049

Interest bearing liabilities
Interest bearing deposits:
NOW, money market, and savings		695		1,156		1,851		2,053		4,549		6,602
Time deposits		35		(14)		21		62		(5)		57
Brokered deposits		122		47		169		208		313		521
Total interest-bearing deposits		852		1,189		2,041		2,323		4,857		7,180
Total borrowings		(281)		56		(225)		(1,768)		658		(1,110)
Total long-term debt		3		(3)		—		8		(13)		(5)
Total interest-bearing liabilities - continuing operations		574		1,242		1,816		563		5,502		6,065
Interest-bearing liabilities - discontinued operations		—		(1,236)		(1,236)		(2,127)		829		(1,298)
Total interest-bearing liabilities		574		6		580		(1,564)		6,331		4,767
Change in net interest income - continuing operations	$	1,344	$	(650)	$	694	$	4,539	$	571	$	5,110
Change in net interest income	$	1,344	$	(3,916)	$	(2,572)	$	(205)	$	(2,513)	$	(2,718)

⁽¹⁾

Interest revenue on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 21%, reflecting the statutory federal income tax rate.

Provision for Loan Losses

Management considers a number of factors in determining the required level of the allowance for loan losses and the provision required to achieve what is believed to be appropriate reserve level, including historical loss experience, loan growth, credit risk rating trends, nonperforming loan levels, delinquencies, loan portfolio concentrations, and economic and market trends. The provision for loan losses represents management’s determination of the amount necessary to be charged against the current period’s earnings to maintain the allowance for loan losses at a level that it considered adequate in relation to the estimated losses inherent in the loan portfolio.

For the three months ended September 30, ~~2017,~~2019, the provision for loan losses from continuing operations was ~~$322,000,~~$413,000, a decrease of ~~$141,000, or 30%,~~$432,000 compared to the three months ended September 30, ~~2016.~~2018. For the nine months ended September 30, ~~2017,~~2019, the provision for loan losses from continuing operations was ~~$2.9~~$1.9 million, an increase of ~~$1.3 million, or 83%,~~$481,000 compared to the nine months ended September 30, ~~2016.~~2018.

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The lower provision for the ~~three months ended September 30, 2017~~third quarter of 2019 compared to the third quarter of 2018 was ~~primarily related~~due to a ~~reduction~~change in loan ~~growth.~~mix and lower modeled loss rates. The higher provision for the nine months ended September 30, ~~2017~~2019, compared to the same period in 2018, was primarily related to ~~the downgrade of a $7.7 million loan relationship to nonperforming~~an increase in ~~the second quarter of 2017 and~~net charge-offs as well as an ~~additional $1.0 million~~increase in specific reserve ~~related to this downgrade. A $3.3 million charge-off was recorded in~~impairments during the ~~third quarter~~first two quarters of ~~2017 for this relationship.~~2019. At September 30, ~~2017,~~2019, nonperforming loans totaled ~~$4.6~~$6.8 million compared to ~~$790,000~~$2.7 million at September 30, ~~2016.~~2018. Net loan charge-offs were ~~.68%~~0.11% and ~~.32%~~0.12%, respectively, of average loans (annualized) for the three and nine months ended September 30, ~~2017~~2019 compared to ~~.06%~~0.00% and ~~.13%~~0.02%, respectively, for the three and nine months ended September 30, ~~2016.~~2018. The increase in net charge-offs was due to commercial and industrial SBA loans charged off in 2019. The allowance for loan losses to total loans at September 30, ~~2017~~2019 was ~~0.99%~~0.98%, compared to ~~.92%~~1.03% at ~~September 30, 2016.~~

December 31, 2018.

Noninterest Income

Noninterest income from continuing operations for the three and nine months ended September 30, ~~2017~~2019 was ~~$3.5~~$2.8 million and ~~$12.6~~$8.0 million, respectively, ~~a decrease of $525,000, or 13%,~~ compared to $2.3 million and $9.9 million for the ~~third quarter~~comparable periods of ~~2016,~~the prior year; representing an increase of $514,000 for the three month period and a decrease of ~~$4.7~~$1.9 million ~~or 27%, from~~for the nine ~~months ended September 30, 2016.~~month period. The following table presents the components of noninterest income.

Table 4 - Noninterest Income

(dollars in thousands)


	Three Months Ended								Nine Months Ended
	September 30,				Change				September 30,				Change
	2019		2018			$	%		2019		2018		$		%
Service charges	$	925	$	804	$	121	15	%	$	2,589	$	2,339	$	250		11	%
Securities gains (losses), net		253		—		253	—			907		(2)		909		45,450
Gain (loss) on sales of other assets		140		58		82	141			127		(154)		281		182
Trust income		—		—		—	—			—		1,025		(1,025)		(100)
Derivatives income (loss)		(293)		20		(313)	(1,565)			(637)		154		(791)		(514)
Bank owned life insurance		422		379		43	11			1,171		1,126		45		4
SBA lending activities		1,150		882		268	30			3,332		3,181		151		5
Gain on sale of trust business		—		—		—	—			—		1,681		(1,681)		(100)
Other noninterest income		172		112		60	54			557		533		24		5
Total noninterest income - continuing operations		2,769		2,255		514	23			8,046		9,883		(1,837)		(19)
Noninterest income - discontinued operations		—		811		(811)	(100)			35,289		2,497		32,792		1,313
Noninterest income	$	2,769	$	3,066	$	(297)	(10)	%	$	43,335	$	12,380	$	30,955		250	%

Table 4 - Noninterest Income
(dollars in thousands)
Three months ended September 30, Change Nine months ended September 30, Change
2017 2016 $ % 2017 2016 $ %
Service charges $ 1,247
$ 1,270
$ (23 ) (2 ) % $ 3,870
$ 4,160
$ (290 ) (7 ) %
Securities gains, net (80 ) —
(80 ) —
(80 ) 44
(124 ) (282 )
Gain on sales of other assets 44
71
(27 ) (38 ) 788
150
638
425

Mortgage income 320
632
(312 ) (49 ) 965
1,418
(453 ) (32 )
Trust income 437
361
76
21
1,332
1,061
271
26

Derivatives income (loss) (3 ) 69
(72 ) (104 ) 62
232
(170 ) (73 )
Bank owned life insurance 384
424
(40 ) (9 ) 1,146
1,215
(69 ) (6 )
SBA lending activities 888
959
(71 ) (7 ) 3,286
3,043
243
8

TriNet lending activities 20
—
20
—
60
1,144
(1,084 ) (95 )
Gains on sale of branches —
—
—
—
302
3,885
(3,583 ) (92 )
Other noninterest income 220
216
4
2
890
950
(60 ) (6 )
Total noninterest income $ 3,477
$ 4,002
$ (525 ) (13 ) % $ 12,621
$ 17,302
$ (4,681 ) (27 ) %

Service charges from continuing operations for the three months ended September 30, 2019 totaled $925,000, an increase of $121,000, or 15%, from the same period in 2018. For the nine months ended September 30, 2019, service charges from continuing operations totaled $2.6 million, an increase of $250,000, or 11%, from the first nine months of 2018. The increase for the three and nine months ended September 30, ~~2017 decreased $23,000, or 2%, and $290,000, or 7%, respectively, from~~2019 compared to the same periods in ~~2016. The decrease~~2018 was primarily due to ~~the reduction of retail customer activity from the sale of seven legacy FSGBank branches~~higher fees in the ~~second quarter of 2016~~payments business and ~~one branch in the second quarter of 2017.~~

~~Gain on sales of other assets for the first nine months of 2017 increased $638,000, or 425%~~higher foreign exchange fees.

Securities gains from ~~the same period in 2016 due to a $240,000 gain on sale of other real estate and a $426,000 gain on the sale of a tax credit investment during the second quarter of 2017. Mortgage income~~continuing operations for the three and nine months ended September 30, ~~2017 decreased $312,000, or 49%,~~2019 increased $253,000, and ~~$453,000, or 32%,~~$909,000, respectively from the ~~same~~comparable periods in ~~2016~~2018, as a result of the balance sheet realignment due to ~~higher~~the Branch Sale and interest ~~rates and lower demand.~~ rate risk initiatives.

Trust income for the ~~three and~~ nine months ended September 30, ~~2017 increased $76,000,~~2019 decreased $1.0 million, or ~~21%~~100%, ~~and $271,000, or 26%, respectively,~~compared to the same period in 2018 due to the sale of the trust business in the second quarter of 2018.

Derivatives income (loss) for the third quarter of 2019 was a loss of $293,000, compared to a gain of $20,000 for the same period in 2018. For the nine months ended September 30, 2019, derivatives income decreased $791,000 from the same period in 2018. The decrease in income for both periods ~~in 2016~~was due to ~~an increase~~changes in ~~managed assets.~~

the derivatives credit valuation adjustment.

Income from SBA lending activities for the third quarter of ~~2017 decreased $71,000,~~2019 increased $268,000, or 7%30%, from the same period in ~~2016,~~2018, due to ~~a lower level of~~an increase in loan ~~sales.~~balances sold. During the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, guaranteed portions of ~~14 and 16~~ SBA loans ~~with principal balances of $11.8~~totaling $17.0 million and ~~$18.5~~$11.4 million, respectively, were sold in the secondary market. Income

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from SBA lending activities for the first nine months of ~~2017~~2019 increased ~~$243,000,~~$151,000, or 8%5%, from the same period in ~~2016,~~2018, due to ~~a higher level of~~an increase in loan ~~sales earlier in 2017.~~balances sold. During the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, guaranteed portions of ~~35 and 36~~ SBA loans with principal balances of ~~$48.7~~$49.7 million and ~~$48.5~~$43.0 million, respectively, were sold in the secondary market. ~~During the three and nine months ended September 30, 2016, the TriNet lending division contributed $0 and $1.1 million, respectively, in noninterest~~

Noninterest income from ~~the sale of loans. During the third quarter of 2016, Atlantic Capital made the decision to close the TriNet Lending division.~~

On December 17, 2015, Atlantic Capital announced that it had entered into agreements for the sale of seven legacy FSGBank branches in Eastern Tennessee. The sale of four of the branches closed on April 1, 2016 and the sale of the remaining three branches closed on May 13, 2016. The branch sales resulted in a net gain of $3.9discontinued operations increased $32.8 million for the nine months ended September 30, 2016 and included the sale of approximately $191.0 million in deposits, $34.7 million in loans and $8.6 million in other assets. The net gain included the write-off of $2.0 million in core deposit intangibles. In addition, $305,000 in expenses related to the sales were recorded in noninterest expense.

On December 9, 2016, Atlantic Capital entered into a definitive agreement to sell one branch in Cleveland, Tennessee, to SmartBank. The sale closed in the second quarter of 2017, and resulted in a net gain of $302,000 as well as a reduction of approximately $21.9 million in deposits and approximately $27.3 million in loans and other assets. The gross gain of $533,000 was reduced by an impairment of $337,000 in core deposit intangibles, which was offset by a $106,000 reversal in time deposit premium. There were also $38,000 of expenses associated with the divestiture included in noninterest expense in the second quarter of 2017.

~~Noninterest Expense~~

~~The following table presents the components of noninterest expense.~~

Table 5 - Noninterest Expense
(dollars in thousands)
Three months ended September 30, Change Nine months ended September 30, Change
2017 2016 $ % 2017 2016 $ %
Salaries and employee benefits $ 10,409
$ 10,059
$ 350
3
% $ 32,077
$ 31,034
$ 1,043
3
%
Occupancy 1,129
1,235
(106 ) (9 ) 3,433
3,609
(176 ) (5 )
Equipment and software 776
862
(86 ) (10 ) 2,577
2,272
305
13

Professional services 1,595
442
1,153
261
3,472
1,950
1,522
78

Postage, printing and supplies 63
61
2
3
226
389
(163 ) (42 )
Communications and data processing 982
617
365
59
3,038
2,227
811
36

Marketing and business development 272
269
3
1
721
853
(132 ) (15 )
FDIC premiums 308
415
(107 ) (26 ) 754
1,306
(552 ) (42 )
Merger and conversion costs —
579
(579 ) (100 ) 304
2,538
(2,234 ) (88 )
Amortization of intangibles 391
520
(129 ) (25 ) 1,286
1,950
(664 ) (34 )
Foreclosed property/problem asset expense 7
39
(32 ) (82 ) 117
198
(81 ) (41 )
Other noninterest expense 1,572
2,198
(626 ) (28 ) 4,866
6,179
(1,313 ) (21 )
Total noninterest expense $ 17,504
$ 17,296
$ 208
1
% $ 52,871
$ 54,505
$ (1,634 ) (3 ) %

Noninterest expense for the third quarter of 2017 was $17.5 million, an increase of $208,000, or 1%, from the third quarter of 2016. For the nine months ended September 30, 2017, noninterest expense totaled $52.9 million, a decrease of $1.6 million, or 3%, from the same period in 2016. The decrease from the prior periods mostly reflects lower merger and conversion costs related to the acquisition of First Security.

Salaries and employee benefits expense for the three months ended September 30, 2017 totaled $10.4 million, an increase of $350,000, or 3%, from the same period in 2016. For the first nine months of 2017, salaries and employee benefits totaled $32.1 million, an increase of $1.0 million, or 3%, from the first nine months of 2016. The increase was primarily attributable to a higher headcount. Full time equivalent headcount totaled 343 at September 30, 2017, compared to 328 at September 30, 2016, an increase of 15 positions, mainly due to increased staffing needs of the Bank and the opening of the Charlotte office.

~~Occupancy costs were $1.1 million for the third quarter of 2017, a decrease of $106,000, or 9%,~~2019 compared to the ~~third quarter of 2016. For the nine months ended September 30, 2017, occupancy costs were $3.4 million, a decrease of $176,000, or 5%, from the first nine months of 2016. The decrease was~~same periods in 2018 due to a $34.5 million gain in connection with the ~~divestiture of seven branches in the second quarter of 2016 and one branch in the second quarter of 2017.~~

Equipment and software costs were $776,000 for the third quarter of 2017, a decrease of $86,000, or 10%, compared to the third quarter of 2016. For the nine months ended September 30, 2017, equipment and software costs were $2.6 million, an increase of $305,000, or 13%,Branch Sale.

Noninterest Expense

Noninterest expense from the first nine months of 2016. The decrease in the third quarter of 2017 was due to lower ATM managed services costs and depreciation. The increase for the nine months ended September 30, 2017 was due to higher maintenance contracts and an increase in ATM managed services costs due to higher payments made in the first and second quarters of 2017.

Professional services costs were $1.6 million for the third quarter of 2017, an increase of $1.2 million, or 261%, compared to the third quarter of 2016. For the nine months ended September 30, 2017, professional services costs were $3.5 million, an increase of $1.5 million, or 78%, from the first nine months of 2016. The increase was due to higher accounting and legal fees related to the public offering of Atlantic Capital stock to a selling stockholder during the third quarter of 2017.

Communications and data processing costs were $982,000 for the third quarter of 2017, an increase of $365,000, or 59%, compared to the third quarter of 2016. For the nine months ended September 30, 2017, communications and data processing costs were $3.0 million, an increase of $811,000, or 36%, from the first nine months of 2016. In 2016, core processing expenses were reduced by vendor credits.

Merger and conversion costs were $0 for the third quarter of 2017, a decrease of $579,000, or 100%, compared to the third quarter of 2016. For the nine months ended September 30, 2017, merger and conversion costs were $304,000, a decrease of $2.2 million, or 88%, from the first nine months of 2016. Merger expenses include professional fees, severance, rebranding and data conversion costs related to the acquisition of First Security.

~~Amortization of intangibles includes the amortization of core deposit intangible related to the acquisition of First Security and totaled $391,000 and $1.3 million~~continuing operations for the three and nine months ended September 30, ~~2017,~~2019 was $12.7 million and $39.7 million, respectively, compared to $11.9 million and ~~$520,000~~$37.8 million for the comparable periods of the prior year. The following table presents the components of noninterest expense.

Table 5 - Noninterest Expense

(dollars in thousands)


	Three Months Ended September 30,				Change					Nine Months Ended September 30,				Change
	2019		2018		$		%			2019		2018		$		%
Salaries and employee benefits	$	8,295	$	7,332	$	963		13	%	$	26,037	$	24,193	$	1,844		8	%
Occupancy		722		732		(10)		(1)			2,050		2,317		(267)		(12)
Equipment and software		842		747		95		13			2,334		2,034		300		15
Professional services		764		796		(32)		(4)			2,331		2,564		(233)		(9)
Postage, printing and supplies		32		55		(23)		(42)			109		136		(27)		(20)
Communications and data processing		796		566		230		41			2,133		1,904		229		12
Marketing and business development		243		211		32		15			702		486		216		44
FDIC premiums		(193)		154		(347)		(225)			217		405		(188)		(46)
Other noninterest expense		1,176		1,279		(103)		(8)			3,813		3,744		69		2
Total noninterest expense		12,677		11,872		805		7			39,726		37,783		1,943		5
Noninterest expense - discontinued operations		—		4,723		(4,723)		(100)			9,685		14,565		(4,880)		(34)
Noninterest expense	$	12,677	$	16,595	$	(3,918)		(24)	%	$	49,411	$	52,348	$	(2,937)		(6)	%

Salaries and ~~$2.0~~employee benefits expense from continuing operations for the three months ended September 30, 2019 totaled $8.3 million, an increase of $963,000 or 13%, from the same period in 2018. For the first nine months of 2019, salaries and employee benefits totaled $26.0 million, an increase of $1.8 million, or 8%, from the first nine months of 2018. The increase for the three and nine months ended September 30, ~~2016, respectively.~~2019, was primarily attributable to severance expense unrelated to the Branch Sale, an increase in medical insurance expense, and new hires made in 2019. Full time equivalent headcount totaled 197 at September 30, 2019, compared to 334 at September 30, 2018, a net decrease of 137 positions, primarily due to a reduction in retail and support staff related to the Branch Sale.

Occupancy costs from continuing operations were $722,000 for the third quarter of 2019, a decrease of $10,000, or 1%, compared to the third quarter of 2018. For the nine months ended September 30, 2019, occupancy costs were $2.1 million, a decrease of $267,000, or 12%, from the first nine months of 2018. The decrease for the nine months ended September 30, 2019, was the result of higher rent expense in ~~2017 was mainly~~the third quarter of 2018 due to the ~~write-off~~overlap of ~~core deposit intangibles related~~leases and their expenses from the relocation of the Atlanta headquarters.

Equipment and software costs from continuing operations were $842,000 for the third quarter of 2019, an increase of $95,000, or 13%, compared to the ~~seven branches divested during the second~~third quarter of ~~2016~~2018. For the nine months ended September 30, 2019, equipment and ~~one branch divested during~~software costs from continuing operations were $2.3 million, an increase of $300,000, or 15%, from the ~~second~~first nine months of 2018. The increase for both periods was the result of additional investments in technology.

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Professional services costs from continuing operations were $764,000 for the third quarter of ~~2017.~~

2019, a decrease of $32,000, or 4%, compared to the third quarter of 2018. For the nine months ended September 30, 2019, professional services costs from continuing operations were $2.3 million, a decrease of $233,000, or 9%, from the first nine months of 2018. The decrease for both periods was primarily due to lower consultant fees.

FDIC premiums expense from continuing operations was ($193,000) for the third quarter of 2019, a decrease of $347,000, compared to the third quarter of 2018. For the nine months ended September 30, 2019, FDIC premiums were $217,000, a decrease of $188,000, or 46%, from the first nine months of 2018. The decrease for the three and nine months ended September 30, 2019 was due to small bank assessment credits issued in the third quarter of 2019.

Income Taxes

Atlantic Capital monitors and evaluates the potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities. On a periodic basis, Atlantic Capital evaluates its income tax positions based on current tax law and positions taken by various tax auditors within the jurisdictions where Atlantic Capital is required to file income tax returns.

The income tax ~~provision~~expense from continuing operations for the three and nine months ended September 30, ~~2017~~2019 was ~~$1.9~~$2.1 million and ~~$5.2~~$5.7 million, respectively, as compared ~~with $1.9~~to $1.8 million and ~~$6.8~~$5.3 million for the same periods in ~~2016.~~2018. The effective tax rate (as a percentage of pre-tax earnings) was ~~31.8%~~21.7% and ~~31.1%~~21.3%, respectively, for the three and nine months ended September 30, ~~2017~~2019 compared to ~~33.8%~~20.8% and ~~36.7%~~20.4%, respectively, for the same ~~periods~~period in 2016. The decrease in the effective tax rate for the three and nine months ended September 30, 2017 was driven mainly by the decrease in non-deductible merger expenses in 2017 compared to 2016, excess benefit related to stock compensation in 2017 compared to 2016, and the increase in non-taxable income on municipal securities purchased throughout the latter half of 2016 and beginning of 2017.

2018.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and their respective tax basis including operating losses and tax credit carryforwards. Net deferred tax assets (deferred tax assets net of deferred tax liabilities and valuation allowance) are reported in the ~~consolidated balance sheet~~Consolidated Balance Sheets as a component of ~~total~~other assets.

Accounting Standards Codification Topic 740, Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative evidence with more weight given to evidence that can be objectively verified. Each quarter, management considers both positive and negative evidence and analyzes changes in near-term market conditions as well as other factors which may impact future operating results.

Based on all evidence considered, as of September 30, ~~2017~~2019 and ~~2016,~~2018, management concluded that it was more likely than not that the net deferred tax asset would be realized, except as outlined in the following discussion. At September 30, ~~2017~~2019 and ~~2016,~~2018, Atlantic Capital ~~had~~recorded a deferred tax asset valuation allowance totaling ~~$9.2~~$6.8 million and ~~$9.0~~$8.5 million, respectively, on certain net operating loss carryforwards due to the fact that certain tax attributes are subject to an annual limitation as a result of the acquisition of First Security in 2015, which constituted a change of ownership as defined under Internal Revenue Code Section 382. Management expects to generate ~~higher levels of~~ future taxable income and believes this will allow for full utilization of Atlantic Capital’s remaining net operating loss carryforwards within the statutory carryforward periods.

FINANCIAL CONDITION

Total assets at September 30, ~~2017~~2019 and December 31, ~~2016~~2018 were ~~$2.64~~$2.41 billion and ~~$2.73~~$2.96 billion, respectively. Average total assets for the third quarter of ~~2017~~2019 were ~~$2.70~~$2.45 billion, compared to ~~$2.72~~$2.81 billion in the third quarter of ~~2016.~~

~~Loans~~

~~At September 30, 2017,~~2018. The decrease in total ~~loans decreased $108.0 million, or 5%, to $1.91 billion compared to $2.02 billion at December 31, 2016,~~assets was primarily due to the sale of ~~$30.9 million in~~ loans and other assets in connection with the ~~Cleveland branch sale, as well as a decrease of $106.0 million in mortgage warehouse participations, resulting from a decrease in commitments and the market effect of increases~~Branch Sale in the ~~Fed Funds rate.~~second quarter of 2019.

Loans

At September 30, 2019, total loans held for investment increased $108,000, or 6%, to $1.84 billion compared to $1.73 billion at December 31, 2018. Commercial and industrial loans as of September 30, 2019 increased $52.0 million, or 8%,

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compared to December 31, 2018, and owner occupied commercial real estate loans increased $54.6 million, or 18%, for the same periods. Table 6 provides additional information regarding Atlantic Capital’s loan portfolio.

Table 6 - Loans

(dollars in thousands)


			% of				% of
			Total				Total
	September 30, 2019		Loans		December 31, 2018		Loans
Loans held for sale
Loans held for sale - discontinued operations	$	—			$	373,030
Other loans held for sale		916				5,889
Total loans held for sale	$	916			$	378,919

Loans held for investment
Commercial loans:
Commercial and industrial	$	697,412	38	%	$	645,374	37	%
Commercial real estate:
Owner occupied		352,842	19			298,291	17
Non-owner occupied		512,683	28			496,537	30
Construction and land		145,177	8			156,232	9
Mortgage warehouse participations		23,256	1			27,967	2
Total commercial loans		1,731,370	94			1,624,401	95

Residential:
Residential mortgages		31,903	2			32,800	2
Home equity		25,638	1			22,822	1
Total residential loans		57,541	3			55,622	3

Consumer		27,168	2			25,851	1
Other		22,533	1			24,712	1
Total loans		1,838,612				1,730,586
Less net deferred fees and other unearned income		(2,939)				(2,513)
Total loans held for investment		1,835,673				1,728,073

Total loans	$	1,836,589			$	2,106,992

Table 6 - Loans
(dollars in thousands)
September 30, 2017 % of Total Loans December 31, 2016 % of Total Loans

Loans held for sale
Branch loans held for sale $ —
$ 30,917

Other loans held for sale 3,274
4,302

Total loans held for sale $ 3,274
$ 35,219

Loans held for investment
Commercial loans:
Commercial and industrial $ 562,426
30 % $ 531,061
27 %
Commercial real estate:
Owner occupied 348,447
18
352,523
18
Non-owner occupied 596,407
31
506,255
26
Construction and land 132,080
7
219,352
11
Mortgage warehouse participations 41,551
2
147,519
7
Total commercial loans 1,680,911
88
1,756,710
89

Residential:
Residential mortgages 101,976
5
101,921
5
Home equity 78,773
4
77,358
4
Total residential loans 180,749
9
179,279
9

Consumer 31,750
2
27,338
1
Other 16,106
1
21,565
1
1,909,516
1,984,892

Less net deferred fees and other unearned income (4,084 ) (3,562 )
Total loans held for investment 1,905,432
1,981,330

Total loans $ 1,908,706
$ 2,016,549

Nonperforming Assets

Nonperforming assets include nonaccrual loans, accruing loans past due 90 days or more, and other real estate owned. Loans are considered to be past due when payment is not received from the borrower by the contractually specified due date. Interest accruals on loans are discontinued when interest or principal has been in default 90 days or more, unless the loan is both secured by collateral that is sufficient to repay the debt in full and the loan is in the process of collection. When a loan is placed on nonaccrual status, interest accrued and not paid in the current accounting period is reversed against current period income. Interest accrued and not paid in prior periods, if significant, is reversed against the allowance for loan losses.

Income on such loans is subsequently recognized on a cash basis as long as the future collection of principal is deemed probable or after all principal payments are received. Commercial loans are placed back on accrual status after sustained performance of timely and current principal and interest payments and it is probable that all remaining amounts due, both principal and interest, are fully collectible according to the terms of the loan agreement. Residential loans and consumer loans are generally placed back on accrual status when they are no longer past due.

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Purchased Credit Impaired (“PCI”) loans accounted for under ASC ~~310-30~~310‑30 are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans are considered as performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period covered loan loss provision or future period yield adjustments. PCI loans ~~totaling $1.1 million~~ were not classified as nonaccrual ~~at September 30, 2017~~for periods ended prior to December 31, 2018, as the carrying value of the respective loan or pool of loans cash flows were considered estimable and collection was probable. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, ~~is being~~was recognized on all PCI loans.

As of December 31, 2018, PCI loans were designated as held-for-sale and subsequently sold in the Branch Sale.

At September 30, ~~2017,~~2019, Atlantic Capital’s nonperforming assets totaled ~~$6.0~~$7.0 million, or ~~0.23%~~0.29% of total assets, compared to ~~$3.5~~$6.1 million, or ~~0.13%~~0.20% of total assets, at December 31, ~~2016.~~2018. The increase was primarily due to ~~the Bank placing~~ two loan relationships ~~totaling $2.4 million~~that were placed on nonaccrual ~~status.~~

status, offset by the sale of an other real estate property in the third quarter of 2019.

Nonaccrual loans totaled ~~$4.1~~$6.8 million and ~~$621,000~~$4.7 million as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. ~~The increase was primarily due to the Bank placing two loan relationships totaling $2.4 million on nonaccrual status. Loans~~There were no loans past due 90 days and still accruing ~~totaled $495,000~~ at September 30, ~~2017~~2019 compared to ~~$994,000~~$479,000 at December 31, ~~2016.~~2018. Table 7 provides details on nonperforming assets and other risk elements.

Table 7 - Nonperforming Assets

(dollars in thousands)


	September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018

Nonaccrual loans	$	6,770		$	5,999		$	10,336		$	4,697		$	2,716
Loans past due 90 days and still accruing		—			353			—			479			—
Total nonperforming loans(1) (NPLs)		6,770			6,352			10,336			5,176			2,716
Other real estate owned		278			971			971			874			968
Total nonperforming assets (NPAs)	$	7,048		$	7,323		$	11,307		$	6,050		$	3,684
NPLs as a percentage of total loans		0.37	%		0.35	%		0.49	%		0.25	%		0.13	%
NPAs as a percentage of total assets		0.29	%		0.31	%		0.40	%		0.20	%		0.13	%

Table 7 - Nonperforming assets
(dollars in thousands)

September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016
Nonaccrual loans $ 4,058
$ 11,909
$ 3,212
$ 621
$ 28

Loans past due 90 days and still accruing 495
391
771
994
762

Total nonperforming loans* (NPLs) 4,553
12,300
3,983
1,615
790

Other real estate owned 1,494
1,819
1,869
1,872
1,727

Total nonperforming assets (NPAs) $ 6,047
$ 14,119
$ 5,852
$ 3,487
$ 2,517

NPLs as a percentage of total loans 0.24
% 0.63
% 0.21
% 0.08
% 0.04
%
NPAs as a percentage of total assets 0.23
0.52
0.21
0.13
0.09

⁽¹⁾

Nonperforming loans as of September 30, 2018 exclude those loans which are PCI loans. As of December 31, 2018, PCI loans were designated as held for sale in the upcoming Branch Sale. As a result, nonperforming loans held for sale which were previously designated as PCI loans are included in total nonperforming loans as of March 31, 2019 and December 31, 2018. Those PCI loans were sold in connection with the closing of the Branch Sale in April 2019.

*Nonperforming loans exclude those loans which are PCI loans

Troubled Debt Restructurings

~~TDRs~~

Troubled Debt Restructurings (“TDRs”) are selectively made to provide relief to customers experiencing liquidity challenges or other circumstances that could affect their ability to meet their debt obligations. Typical modifications include short-term deferral of interest or modification of payment terms. Nonperforming TDRs are not accruing interest and are included as nonperforming assets within nonaccrual loans. TDRs which are accruing interest based on the restructured terms are considered performing. Table 8 summarizes TDRs.

Table 8 - Troubled Debt Restructurings

(dollars in thousands)


	September 30, 2019		December 31, 2018
Accruing TDRs	$	11,508	$	8,237
Nonaccruing TDRs		1,256		—

Table 8 - Troubled Debt Restructurings
(dollars in thousands)
September 30, 2017 December 31, 2016
Accruing TDRs $ 5,612
$ 6,602
Nonaccruing TDRs 1,508
—
Total TDRs $ 7,120
$ 6,602

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Total TDRs

12,764

8,237

During the three months ended September 30, 2019, the Company restructured via bankruptcy one commercial real estate SBA loan, resulting in its reclassification as a TDR. For the nine months ended September 30, 2019, restructurings included modifications such as payment deferrals and interest only forbearance.

Potential Problem Loans

Management identifies and maintains a list of potential problem loans. These are loans that are internally risk graded special mention or below but which are not included in nonaccrual status and are not past due 90 days or more. A loan is added to the potential problem list when management becomes aware of information about possible credit problems of the borrower which raises ~~serious~~ doubts as to the ability of such borrower to comply with the current loan repayment terms. Potential problem loans totaled ~~$61.9~~$52.5 million and ~~$47.6~~$58.2 million ~~respectively,~~ as of September 30, ~~2017~~2019 and December 31, ~~2016. As a number of potential problem loans are real estate secured, management~~2018, respectively. Management closely tracks the financial performance of the borrower and the current values of ~~real estate~~ collateral when assessing the collectability of these loans.

Allowance for Loan Losses

At September 30, ~~2017,~~2019, the allowance for loan losses totaled ~~$18.9~~$18.0 million, or ~~0.99%~~0.98% of loans, compared to ~~$20.6~~$17.9 million, or ~~1.04%~~1.03% of loans, at December 31, ~~2016.~~2018. The ~~decrease~~increase in the allowance was primarily related to ~~the $3.3 million charge-off of a~~an increase in outstanding loan ~~relationship and the reversal of the~~balances as well as an increase in specific ~~reserve.~~

reserves.

Net charge-offs for the ~~third quarter~~three months ended September 30, 2019 were $519,000 and a net recovery of ~~2017 and 2016 were $3.3 million and $306,000, respectively. For~~$15,000 for the three months ended September 30, 2018. Net charge-offs for the nine months ended September 30, ~~2017,~~2019 and 2018 were $1.7 million and $345,000, respectively. The increase related primarily to three charge-offs in 2019: a $330,000 net charge-off for a Tennessee commercial and industrial loan not included in the Branch Sale and two net charge-offs ~~totaled $4.7 million compared to $2.0 million for the same period in 2016.~~on commercial and industrial SBA loans totaling $1.0 million. Table 9 provides details concerning the allowance for loan losses during the past five quarters.

Table 9 - Allowance for Loan Losses (ALL)
(dollars in thousands)
2017 2016
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
Balance at beginning of period $ 21,870
$ 19,939
$ 20,595
$ 18,534
$ 18,377

Provision for loan losses 314
2,048
565
2,134
463

Provision for PCI loan losses 8
(68 ) 69
74
—

Loans charged-off:
Commercial and industrial (3,292 ) —
(781 ) —
(61 )
Commercial real estate (16 ) —
(132 ) 24
(226 )
Residential mortgages —
—
(46 ) —
—

Home equity (31 ) (8 ) —
—
(9 )
Consumer (7 ) (57 ) (332 ) (158 ) (60 )
Other —
—
—
—
(5 )
Total loans charged-off (3,346 ) (65 ) (1,291 ) (134 ) (361 )
Recoveries on loans previously charged-off:
Commercial and industrial 1
7
—
—
2

Commercial real estate —
2
—
(15 ) 20

Construction and land 15
—
—
—
12

Residential mortgages —
1
—
—
5

Home equity —
1
—
—
2

Consumer 8
5
1
2
12

Other —
—
—
—
2

Total recoveries 24
16
1
(13 ) 55

Net charge-offs $ (3,322 ) $ (49 ) $ (1,290 ) $ (147 ) $ (306 )
Balance at period end $ 18,870
$ 21,870
$ 19,939
$ 20,595
$ 18,534

Net charge-offs (annualized) to average loans 0.68
% 0.01
% 0.26
% 0.03
% 0.06
%
Allowance for loan losses to total loans 0.99
1.11
1.05
1.04
0.92

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Table 9 - Allowance for Loan Losses (ALL)

(dollars in thousands)


	2019									2018
	Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Balance at beginning of period	$	18,186		$	18,107		$	17,851		$	20,443		$	19,583
Provision for loan losses		413			698			814			595			758
Provision for loan losses (reversal of provision) - discontinued operations		—			—			—			(3,097)			—
Provision for PCI loan losses		—			—			—			(93)			87
Loans charged-off:
Commercial and industrial		(541)			(588)			(549)			—			—
Commercial real estate		—			(47)			—			—			—
Construction and land		—			—			—			—			—
Residential mortgages		—			—			(9)			(5)			—
Home equity		—			—			—			—			—
Consumer		(2)			—			(37)			(3)			—
Other		—			—			—			—			—
Total loans charged-off		(543)			(635)			(595)			(8)			—
Recoveries on loans previously charged-off:
Commercial and industrial		17			—			14			—			—
Commercial real estate		—			—			—			—			—
Construction and land		1			—			3			—			—
Residential mortgages		—			—			7			4			—
Home equity		—			—			1			—			—
Consumer		6			16			12			7			15
Other		—			—			—			—			—
Total recoveries		24			16			37			11			15
Net charge-offs		(519)			(619)			(558)			3			15
Allowance for loan losses at end of period (1)	$	18,080		$	18,186		$	18,107		$	17,851		$	20,443

Average loans	$	1,801,629		$	1,800,001		$	2,089,465		$	2,076,853		$	1,963,817
Loans at end of period		1,836,589			1,789,740			2,120,866			2,106,922			2,040,320
Ratios:
Net charge-offs (annualized) to average loans		0.11	%		0.14	%		0.11	%		—	%		—	%
Allowance for loan losses to total loans (1)		0.98			1.02			1.04			1.03			1.00

⁽¹⁾

The allowance for loan losses has not been adjusted retrospectively for discontinued operations in periods prior to the fourth quarter of 2018.

Investment Securities

~~Investment~~

Investment securities ~~available-for-sale~~ totaled ~~$447.0~~$329.6 million at September 30, ~~2017,~~2019, compared to ~~$347.7~~$402.5 million at December 31, ~~2016. Atlantic Capital purchased $121.4 million in available-for-sale~~2018. Held-to-maturity securities ~~during the first quarter of 2017, as a response to the decrease in mortgage warehouse participations.~~are carried at amortized cost. Available-for-sale securities are reported at their aggregate fair value, and unrealized gains and losses are included as a component of other comprehensive income, net of deferred taxes. As of September 30, ~~2017,~~2019, investment securities available-for-sale had a net unrealized ~~loss~~gain of ~~$3.2~~$3.7 million, compared to a net unrealized loss of ~~$9.6~~$11.8 million as of December 31, ~~2016. Market changes~~2018. Changes in interest rates and credit spreads result in temporary unrealized losses as the market price of securities fluctuate. After evaluating the securities with unrealized losses, management concluded that no ~~other than temporary~~other-than-temporary impairment existed as of September 30, ~~2017.~~

2019.

Changes in the amount of Atlantic Capital’s ~~available-for-sale~~ securities portfolio result primarily from balance sheet trends including loans, deposit balances, and short-term borrowings. When inflows arising from deposits and short-term borrowings exceed loan demand, Atlantic Capital invests excess funds in the securities portfolio or in short-term investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, Atlantic Capital allows interest-bearing balances with

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other banks to decline and uses proceeds from maturing or sold securities to fund loan demand. During the third quarter of 2019, the Company purchased $42.9 million in held-to-maturity municipal securities, in order to extend the duration of the securities portfolio, as well as to reduce the asset sensitivity of the balance sheet.

Details of investment securities at September 30, ~~2017~~2019 and December 31, ~~2016~~2018 are provided in Table 10.

Table 10 - Securities

(dollars in thousands)


	September 30, 2019				December 31, 2018
	Amortized				Amortized
Available-for-Sale Securities	Cost		Fair Value		Cost		Fair Value
U.S. Government agencies	$	—	$	—	$	27,259	$	26,849
U.S. states and political divisions		83,922		84,744		91,864		84,834
Trust preferred securities		4,801		4,600		4,781		4,400
Corporate debt securities		19,564		19,826		12,855		12,363
Residential mortgage-backed securities		174,826		177,615		277,524		274,040
Total available-for-sale		283,113		286,785		414,283		402,486
Held-to-Maturity Securities
U.S. states and political divisions		42,863		42,740		—		—
Total held-to-maturity		42,863		42,740		—		—
Total securities	$	325,976	$	329,525	$	414,283	$	402,486

Table 10 - Securities
(dollars in thousands)
September 30, 2017 December 31, 2016
Available for Sale Securities Amortized Cost Fair Value Amortized Cost Fair Value
U.S. Government agencies $ 34,961
$ 34,783
$ 21,485
$ 21,152

U.S. states and political divisions 96,813
93,779
96,908
90,172

Trust preferred securities 4,747
4,675
4,727
4,525

Corporate debt securities 16,700
16,156
19,928
19,231

Residential mortgage-backed securities 296,978
297,612
214,297
212,625

Total $ 450,199
$ 447,005
$ 357,345
$ 347,705

The effective duration of Atlantic Capital’s securities was 5.44 years and 5.26 years at September 30, ~~2017 was 4.76 years.~~

2019 and December 31, 2018, respectively.

Goodwill and Other Intangible Assets

Atlantic Capital’s core deposit intangible representing the value of the acquired deposit base, is an amortizing intangible asset that is required to be tested for impairment only when events or circumstances indicate that impairment may exist. There were no events or circumstances that led management to believe that any impairment existed at September 30, 2017 in Atlantic Capital’s other intangible assets.

Goodwill represents the premium paid for acquired companies above the fair value of the assets acquired and liabilities assumed, including separately identifiable intangible assets. Atlantic Capital evaluates its goodwill annually, or more frequently if necessary, to determine if any impairment exists. Factors that management considers in this assessment includes macroeconomic conditions, industry and market considerations, overall financial performance of the Company, and changes in the composition or carrying amount of net assets. Management concluded that the 2018 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill).

On April 5, 2019, the Bank completed the Branch Sale. In accordance with GAAP, Atlantic Capital allocated a proportionate share of its goodwill balance to the discontinued operations on a relative fair value basis and performed an impairment test for the goodwill remaining in the reporting unit to be retained. This impairment analysis of goodwill remaining in the retained reporting unit resulted in no impairment. The Company monitored events from the date of the assessment through September 30, 2019 and no events or circumstances led management to believe any impairment existed at the balance sheet date.

Atlantic Capital’s core deposit intangible representing the value of the acquired deposit base, was an amortizing intangible asset that was required to be tested for impairment only when events or circumstances indicated that impairment may exist. This core deposit intangible was fully amortized in the second quarter of 2019 as a result of the Branch Sale.

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LIQUIDITY AND CAPITAL RESOURCES

Deposits

At September 30, ~~2017,~~2019, total deposits from continuing operations were ~~$2.10~~$1.9 billion, a decrease of ~~$133.9~~$98.2 million, or 6%5%, from December 31, ~~2016. Noninterest-bearing demand~~2018. Money market deposits decreased ~~$44.2~~$66.1 million, or 7%, ~~and deposits to be assumed in branch sale decreased $31.6 million, or 100%,~~ from December 31, ~~2016~~2018 to September 30, ~~2017.~~

2019. The decrease was the result of seasonal volatility and a large increase in temporary deposits during the quarter ended December 31, 2018.

Total average deposits from continuing operations for the quarter ended September 30, ~~2017~~2019 were ~~$2.12~~$1.95 billion, ~~a decrease~~an increase of ~~$42.3~~$297.0 million, or 2%18%, from the same period in ~~2016. Average noninterest-bearing demand deposits increased $73.0 million, or 13%, and average brokered deposits decreased $39.9 million, or 20%, from~~2018. For the quarter ended September 30, ~~2016~~2019 compared to the same period in ~~2017.~~2018, average noninterest-bearing demand deposits from continuing operations increased $76.5 million, or 14%, and average money market deposits from continuing operations increased $197.5 million, or 28%. Table 11 provides additional information regarding deposits during the past five quarters.

Table 11 - Deposits

(dollars in thousands)


																Year To		Year Over
	September 30,			June 30,			March 31,			December 31,			September 30,			Date		Year
Period End Deposits	2019			2019			2019			2018			2018			Change		Change
DDA	$	599,657		$	569,693		$	561,829		$	602,252		$	518,155		$	(2,595)	$	81,502
NOW		240,427			309,709			233,838			252,490			407,214			(12,063)		(166,787)
Savings		1,081			1,090			896			725			698			356		383
Money market		921,133			802,973			962,741			987,183			759,583			(66,050)		161,550
Time		30,782			33,902			22,069			10,623			10,396			20,159		20,386
Brokered		61,192			134,164			65,811			99,241			79,119			(38,049)		(17,927)
Total deposits - continuing operations		1,854,272			1,851,531			1,847,184			1,952,514	��		1,775,165			(98,242)		79,107
Deposits to be assumed - discontinued operations		—			—			593,264			585,429			604,659			(585,429)		(604,659)
Total deposits	$	1,854,272		$	1,851,531		$	2,440,448		$	2,537,943		$	2,379,824		$	(683,671)	$	(525,552)

Payments clients	$	286,373		$	301,413		$	361,192		$	397,608		$	258,320		$	(111,235)	$	28,053


	2019									2018						Q3 2019 vs		Q3 2019 vs
	Third			Second			First			Fourth			Third			Q2 2019		Q3 2018
Average Deposits	Quarter			Quarter			Quarter			Quarter			Quarter			Change		Change
DDA	$	637,809		$	587,957		$	575,453		$	597,239		$	561,355		$	49,852	$	76,454
NOW		295,106			314,601			276,212			280,449			314,759			(19,495)		(19,653)
Savings		1,085			956			884			712			616			129		469
Money market		895,102			859,680			847,254			798,017			697,578			35,422		197,524
Time		32,409			32,358			12,847			10,117			10,406			51		22,003
Brokered		88,146			106,524			81,141			93,558			67,937			(18,378)		20,209
Total deposits - continuing operations		1,949,657			1,902,076			1,793,791			1,780,092			1,652,651			47,581		297,006
Deposits to be assumed - discontinued operations		—			45,350			593,313			600,769			601,421			(45,350)		(601,421)
Total deposits	$	1,949,657		$	1,947,426		$	2,387,104		$	2,380,861		$	2,254,072		$	2,231	$	(304,415)

Payments clients	$	289,526		$	285,949		$	295,059		$	263,800		$	227,029		$	3,577	$	62,497

Noninterest bearing deposits as a percentage of average deposits - continuing operations		32.7	%		30.9	%		32.1	%		33.6	%		34.0	%
Cost of deposits - continuing operations		1.06	%		1.15	%		1.09	%		0.93	%		0.76	%

Table 11 - Deposits
(dollars in thousands)

Period End Deposits

September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016 Linked Quarter Change Year Over Year Change

DDA $ 599,292
$ 612,744
$ 606,386
$ 643,471
$ 557,783
$ (13,452 ) $ 41,509
NOW 270,740
250,254
259,760
264,062
260,531
20,486
10,209
Savings 30,131
30,170
30,756
27,932
29,658
(39 ) 473
Money Market 865,238
882,824
916,390
912,493
974,072
(17,586 ) (108,834 )
Time 144,250
142,915
150,867
157,810
172,348
1,335
(28,098 )
Brokered 193,994
195,047
209,385
200,223
194,464
(1,053 ) (470 )
Deposits to be assumed in branch sale —
—
29,495
31,589
—
—
—
Total Deposits $ 2,103,645
$ 2,113,954
$ 2,203,039
$ 2,237,580
$ 2,188,856
$ (10,309 ) $ (85,211 )

Payments Clients $ 239,079
$ 250,104
$ 321,899
$ 347,833
$ 212,049
$ (11,025 ) $ 27,030

Average Deposits⁽¹⁾

2017 2016 Linked Quarter Change Year Over Year Change
Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter

DDA $ 628,029
$ 626,330
$ 620,325
$ 591,166
$ 555,008
$ 1,699
$ 73,021
NOW 291,810
293,160
290,862
253,187
282,701
(1,350 ) 9,109
Savings 30,236
30,468
30,306
29,741
30,692
(232 ) (456 )
Money Market 870,618
860,116
815,920
853,281
923,435
10,502
(52,817 )
Time 143,862
149,898
163,021
169,677
175,135
(6,036 ) (31,273 )
Brokered 156,708
198,703
191,558
197,833
196,598
(41,995 ) (39,890 )
Total Deposits $ 2,121,263
$ 2,158,675
$ 2,111,992
$ 2,094,885
$ 2,163,569
$ (37,412 ) $ (42,306 )

Payments Clients $ 209,851
$ 244,157
$ 273,630
$ 211,000
$ 184,895
$ (34,306 ) $ 24,956

Noninterest bearing deposits as a percentage of average deposits 29.6 % 29.0 % 29.4 % 28.2 % 25.7 %
Cost of deposits 0.50 % 0.46 % 0.39 % 0.37 % 0.36 %

⁽¹⁾ Includes average balances of deposits to be assumed in branch sale.

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Short-Term Borrowings

At September 30, 2019 and December 31, 2018, balances of federal funds purchased were $57.0 million and $0, respectively. There were no securities sold under repurchase agreements with commercial checking customers ~~or balances of federal funds purchased~~totaling $0 and $6.2 million as of September 30, ~~2017 or~~2019 and December 31, ~~2016.~~

2018, respectively. This balance was classified as discontinued operations in the Consolidated Balance Sheets as of December 31, 2018.

As a member of the Federal Home Loan Bank of Atlanta (“FHLB”), Atlantic Capital has the ability to acquire short and long-term advances through a blanket agreement secured by our unencumbered qualifying ~~1-4~~1‑4 family first mortgage loans and by pledging investment securities or individual, qualified loans, subject to approval of the FHLB. At September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, Atlantic Capital had FHLB advances of ~~$125.0~~$76.0 million and ~~$110.0 million,~~$0, respectively. ~~The balance of~~ FHLB borrowings increased due to an increase in short-term funding needs.

Long-Term Debt

During the third quarter of 2015, Atlantic Capital issued $50.0 million in fixed-to-floating rate subordinated notes due in 2025, and callable on September 30, 2020, all of which ~~was~~were outstanding at September 30, ~~2017.~~

2019. The notes bear a fixed rate of 6.25% per year until September 29, 2020, and then bear a floating rate of three month LIBOR plus 468 basis points until maturity.

Liquidity ~~risk management~~

Risk Management

Liquidity risk is the risk that an institution will be unable to generate or obtain sufficient funding, at a reasonable cost, to meet operational cash needs and to take advantage of revenue producing opportunities as they arise. Other forms of liquidity risk include market constraints on the ability to convert assets into cash at expected levels, an inability to access funding sources at sufficient levels at a reasonable cost, and changes in economic conditions or exposure to credit, market, operational, legal, and reputation risks that can affect an institution’s liquidity risk profile. Liquidity management involves maintaining Atlantic Capital’s ability to meet the daily cash flow requirements of Atlantic Capital’s customers, both depositors and borrowers.

Atlantic Capital utilizes various measures to monitor and control liquidity risk across three different types of liquidity:

tactical liquidity measures the risk of a negative cash flow position whereby cash outflows exceed cash inflows over a short-term horizon;

~~tactical liquidity measures the risk of a negative cash flow position whereby cash outflows exceed cash inflows over a short-term horizon;~~

structural liquidity measures the amount by which illiquid assets are supported by long-term funding; and

~~structural liquidity measures the amount by which illiquid assets are supported by long-term funding; and~~

contingent liquidity utilizes cash flow stress testing across four crisis scenarios to determine the adequacy of Atlantic Capital’s liquidity.

~~contingent liquidity utilizes cash flow stress testing across three crisis scenarios to determine the adequacy of Atlantic Capital’s liquidity.~~

Atlantic Capital aims to maintain a diverse mix of existing and potential liquidity sources to support the liquidity management function. At its core is a reliance on the customer deposit book, due to the low cost it offers. Other sources of liquidity include asset-based liquidity in the form of cash and unencumbered securities, as well as access to wholesale funding from external counterparties, primarily advances from the FHLB of Atlanta, ~~Federal Funds~~federal funds lines and other borrowing facilities. Atlantic Capital aims to avoid funding concentrations by diversifying external secured and unsecured funding with respect to maturities, counterparties and nature. At September 30, ~~2017,~~2019, management ~~believes~~believed that Atlantic Capital had sufficient on-balance sheet liquidity to meet its funding needs.

On April 5, 2019, the Bank completed the Branch Sale. FirstBank assumed deposits and customer repurchase agreements of approximately $598 million and purchased approximately $385 million in loans and $12 million in other assets. Since Atlantic Capital divested a larger amount of deposits than assets, it made a cash payment of approximately $167 million to FirstBank at the closing of the Branch Sale. The Company restructured the balance sheet following the Branch Sale with a combination of excess cash, proceeds from sold securities, FHLB borrowings, and brokered deposits.

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At September 30, ~~2017,~~2019, Atlantic Capital had access to ~~$375.0~~$438.0 million in unsecured borrowings and ~~$695.2~~$592.7 million in secured borrowings through various ~~sources.~~sources, including FHLB advances and access to Federal Funds. Atlantic Capital also has the ability to attract more ~~retail~~ deposits by ~~offering aggressively priced~~increasing rates.

Shareholders’ Equity and Capital Adequacy

Shareholders’ equity at September 30, ~~2017~~2019 was ~~$324.8~~$328.7 million, an increase of ~~$21.1~~$5.0 million, or 7%2%, from December 31, ~~2016. Accumulated~~2018. Net income of $42.7 million for the first nine months of 2019, and an increase of $16.8 million in accumulated other comprehensive income, ~~which includes unrealized gains and losses on securities available-for-sale and unrealized gains and losses on derivatives qualifying as cash flow hedges, is excluded~~were offset by $56.7 million in ~~the calculation of regulatory capital ratios.~~

share repurchases. Atlantic Capital and the Bank are required to meet minimum capital requirements imposed by regulatory authorities. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on Atlantic Capital’s consolidated financial statements. Tables 12 and 13 provide additional information regarding regulatory capital requirements and Atlantic Capital’s and the Bank’s capital levels. Accumulated other comprehensive income, which includes unrealized gains and losses on securities available-for-sale and unrealized gains and losses on derivatives qualifying as cash flow hedges, is excluded in the calculation of regulatory capital ratios.

Table 12 - Capital Ratios

(dollars in thousands)


													Regulatory Guidelines
																	Minimum capital
	Consolidated						Bank										plus capital
	September 30,			December 31,			September 30,			December 31,					Well		conservation buffer
	2019			2018			2019			2018			Minimum		capitalized		2020
Risk based ratios:
Common equity tier 1 capital		12.5	%		11.5	%		14.3	%		12.3	%	4.5	%	6.5	%	7.0	%
Tier 1 Capital		12.5			11.5			14.3			12.3		6.0		8.0		8.5
Total capital		15.5			14.2			15.1			13.0		8.0		10.0		10.5
Leverage ratio		11.8			10.0			13.6			10.6		4.0		5.0		N/A

Common equity tier 1 capital	$	285,122		$	285,250		$	327,309		$	304,907
Tier 1 capital		285,122			285,250			327,309			304,907
Total capital		353,869			353,458			346,225			323,411

Risk weighted assets		2,288,557			2,489,631			2,290,168			2,489,373
Quarterly average total assets for leverage ratio		2,416,344			2,842,618			2,412,730			2,864,357

Table 12 - Capital Ratios
(dollars in thousands)
Consolidated Bank Regulatory Guidelines
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 Minimum Well capitalized Minimum Capital plus capital conservation buffer 2019
Risk based ratios:
Common equity tier 1 capital 11.3
% 10.3
% 12.8
% 11.8
% 4.5
% 6.5
% 7.0
%
Tier 1 Capital 11.3
10.3
12.8
11.8
6.0
8.0
8.5

Total capital 14.3
13.3
13.7
12.7
8.0
10.0
10.5

Leverage ratio 9.9
9.1
11.2
10.4
4.0
5.0
N/A

Common equity tier 1 capital $ 261,389
$ 241,313
$ 296,437
$ 276,778

Tier 1 capital 261,389
241,313
296,437
276,778

Total capital 330,596
311,954
316,151
298,053

Risk weighted assets 2,313,663
2,343,622
2,313,329
2,344,387

Quarterly average total assets for leverage ratio 2,635,760
2,654,473
2,641,320
2,654,473

As of September 30, 2019, Atlantic Capital ~~continues~~continued to exceed minimum capital standards and the Bank ~~remains~~remained “well-capitalized” under regulatory guidelines.

In July 2013, bank regulatory agencies approved the Basel III capital guidelines, which are aimed at strengthening existing capital requirements for bank holding companies through a combination of higher minimum capital requirements, new capital conservation buffers and more conservative definitions of capital and balance sheet exposure. Atlantic Capital and the Bank became subject to the requirements of Basel III effective January 1, 2015, subject to a transition period providing for full compliance after January 1, 2019 for several aspects of the rule.

Under the revised rules, Atlantic Capital’s common equity tier 1 ratio was 11.3% at September 30, 2017, exceeding the fully phased-in minimum of 7.0%, which includes the 2.5% minimum capital conservation buffer.

Management continues to monitor Basel III developments and remains committed to managing Atlantic Capital’s capital levels in a prudent manner.

Table 13 - Tier 1 Common Equity
(dollars in thousands)

September 30, 2017
Tier 1 capital $ 261,389

Less: restricted core capital —

Tier 1 common equity $ 261,389

Risk-adjusted assets $ 2,313,663

Tier 1 common equity ratio 11.3
%

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Table 13 - Tier 1 Common Equity

(dollars in thousands)


	September 30, 2019
Tier 1 capital	$	285,122
Less: restricted core capital		—
Tier 1 common equity	$	285,122

Risk-adjusted assets	$	2,288,557
Tier 1 common equity ratio		12.5	%

Off-Balance Sheet Arrangements

Atlantic Capital makes contractual commitments to extend credit and issues standby letters of credit in the ordinary course of its business activities. These commitments are legally binding agreements to lend money to customers at predetermined interest rates for a specified period of time. In addition to commitments to extend credit, Atlantic Capital also issues standby letters of credit which are assurances to a third party that it will not suffer a loss if the customer fails to meet a contractual obligation to the third party. At September 30, ~~2017,~~2019, Atlantic Capital had issued commitments to extend credit of approximately ~~$686.7~~$679.7 million and standby letters of credit of approximately ~~$13.7~~$7.6 million through various types of commercial lending arrangements.

Based on historical experience, many of the commitments and letters of credit will expire unfunded. Through its various sources of liquidity, Atlantic Capital believes it will be able to fund these obligations as they arise. Atlantic Capital evaluates each customer’s

credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on Atlantic Capital’s credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

Contractual Obligations

There have been no significant changes in Atlantic Capital’s contractual obligations at September 30, ~~2017~~2019 compared to December 31, ~~2016.~~

2018.

RISK MANAGEMENT

Effective risk management is critical to Atlantic Capital’s success. The Dodd-Frank Act requires that bank holding companies with total assets in excess of $10 billion establish an enterprise-wide risk committee consisting of members of its board of directors. Although Atlantic Capital does not have total assets in excess of $10 billion, the Bank’s board of directors has an Audit and Risk Committee that, among other responsibilities, provides oversight of enterprise-wide risk management activities. The Audit and Risk Committee reviews the Bank’s activities in identifying, measuring, and mitigating existing and emerging risks (including credit, liquidity, interest-rate, compliance, operational, strategic, and reputational ~~risks).~~risks.) The committee monitors management’s execution of risk management practices in accordance with the board of directors’ risk appetite, ~~of the Bank,~~ reviews supervisory examination reports together with management’s response to such examinations and discusses legal matters that may have a material impact on the financial statements or Atlantic Capital’s compliance policies. With guidance from and oversight by the Audit and Risk Committee, management continually refines and enhances its risk management policies and procedures to maintain effective risk management programs and processes.

Credit Risk ~~Management~~

Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases, investment securities, and ~~investment securities.~~derivative instruments. Atlantic Capital’s independent ~~credit~~loan review function conducts risk reviews and analyses of loans to help assure compliance with credit policies and to monitor asset quality trends.The risk reviews include portfolio analysis by industry, collateral type and product. Atlantic Capital ~~has implemented policies and procedures designed~~strives to identify potential problem loans as early as

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possible, to record charge-offs or write-downs as appropriate and to maintain adequate allowances for loan losses that are inherent in the loan portfolio.

Market Risk ~~Management~~

Market risk reflects the risk of economic loss resulting from adverse changes in market ~~price~~prices and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential ~~net~~nets interest income in future periods. Atlantic Capital’s market risk arises primarily from interest rate risk inherent in Atlantic Capital’s lending and deposit-taking activities. The structure of Atlantic Capital’s loan and deposit portfolios is such that a significant decline in interest rates may adversely impact net market values and net interest income. Atlantic Capital does not maintain a trading account nor is Atlantic Capital subject to currency exchange risk or commodity price risk.

Interest Rate Risk ~~Management~~

Interest rate risk results principally from assets and liabilities maturing or repricing at different points in time, from assets and liabilities repricing at the same point in time but in different amounts and from short-term and long-term interest rates changing in different magnitudes. Market interest rates also have an impact on the interest rate and repricing characteristics of loans that are originated as well as the rate characteristics of interest-bearing liabilities.

Atlantic Capital assesses interest rate risk by forecasting net interest income under various interest rate scenarios and comparing those results to forecasted net interest income assuming stable rates. ~~Atlantic Capital’s rate shock simulation, as of September 30, 2017, indicates that, over a 12-month period, net interest income is estimated to increase by 13.74% with~~With rates rising, ~~200-basis points. The~~the estimated increase in net interest income is primarily due to the short-term repricing characteristics of the loan portfolio, combined with a favorable funding mix. Atlantic Capital’s loan ~~portfolio~~book consists mainly of floating rate loans. Atlantic Capital’s core client deposits are likely to allow Atlantic Capital to lag ~~short term~~short-term interbank rate indices when pricing deposits. Transaction accounts comprise a significant amount of Atlantic Capital’s total deposits.

Table 14 provides the impact on net interest income resulting from various interest rate shock scenarios as of September 30, ~~2017~~2019 and December 31, ~~2016.~~2018.

Table 14 - Net Interest Income Sensitivity Simulation Analysis


	Estimated change in net interest income
Change in interest rate (basis point)	September 30, 2019		December 31, 2018
‑200	(13.38)	%	(19.60)	%
‑100	(7.43)		(7.17)
+100	7.10		6.92
+200	13.78		13.52
+300	20.29		20.06

Table 14 - Net Interest Income Sensitivity Simulation Analysis

Estimated change in net interest income
Change in interest rate (basis point) September 30, 2017 December 31, 2016
-100 (9.44 ) % (8.59 ) %
+100 6.70
8.20

+200 13.74
16.39

+300 20.50
20.34

Atlantic Capital also utilizes the market value of equity (“MVE”) as a tool in measuring and managing interest rate risk. L~~ong-term~~Long-term interest rate risk exposure is measured using the MVE sensitivity analysis to study the impact of long-term cash flows on capital. ~~As of September 30, 2017, the MVE calculated with a 200-basis point shock up in rates decreased by (1.41)% from the base case MVE value.~~ Table 15 presents the MVE profile as of September 30, ~~2017~~2019 and December 31, ~~2016.~~2018.

Table 15 - Market Value of Equity Modeling Analysis


	Estimated % change in MVE
Change in interest rate (basis point)	September 30, 2019		December 31, 2018
‑200	(3.59)	%	(9.44)	%
‑100	(3.29)		(3.73)
+100	2.08		1.44
+200	1.90		1.68
+300	0.77		1.41

Table 15 - Market Value of Equity Modeling Analysis

Estimated % change in MVE
Change in interest rate (basis point) September 30, 2017 December 31, 2016
-100 (1.09 ) % 0.90
%
+100 (0.22 ) (2.39 )
+200 (1.41 ) (4.52 )
+300 (3.22 ) (5.94 )

Atlantic Capital may utilize interest rate swaps, floors, collars, or other derivative financial instruments in an attempt to manage Atlantic Capital’s overall sensitivity to changes in interest rates.

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~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is included in Part I, Item 2 of this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Risk Management.”


~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures as required under Rule ~~13a-15~~13a‑15 promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, ~~2017,~~2019, the Company’s management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on ~~the foregoing,~~their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, ~~2017.~~

2019. No changes were made to the Company’s internal control over financial reporting (as defined in Rule ~~13a-15(f)~~13a‑15(f) promulgated under the Exchange Act) during the quarter ended September 30, ~~2017~~2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of operations, Atlantic Capital and the Bank are, from time to time, defendants in various legal proceedings. Additionally, in the ordinary course of business, Atlantic Capital and the Bank are subject to regulatory examinations and investigations. Based on our current knowledge and advice of counsel, in the opinion of management there is no such pending or threatened legal or regulatory matter which would result in a material adverse change, either individually or in the aggregate, in the consolidated financial condition or results of operations of Atlantic Capital.


~~ITEM 1A.~~	~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the Company’s Annual Report on Form ~~10-K~~10‑K for the period ended December 31, ~~2016,~~2018, under Part I, Item 1A “Risk Factors,” because these risk factors may affect the operations and financial results of the Company. Our evaluation of our risk factors has not changed materially since those discussed in the Annual Report. The risks described in the Annual Report are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results.


~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None.

(b) Not applicable.

(c) On November 14, 2018, the Company announced that the Board of Directors authorized a stock repurchase program pursuant to which the Company may purchase up to $85 million of its issued and outstanding common stock. The repurchase program commenced immediately with respect to $40 million of stock. In September 2019, the Bank received regulatory approval to pay a dividend of $20 million to Atlantic Capital. We may need to seek regulatory approval for additional dividends by the Bank in order to repurchase all shares that we are currently authorized to repurchase. The timing and amounts of any repurchases will depend on certain factors, including but not limited to market conditions and prices, available funds and alternative uses of capital. The stock repurchase program may be carried out through open-market purchases, block trades, negotiated private transactions and pursuant to a trading plan adopted in accordance with Rule 10b‑18 or Rule 10b5‑1 under the Securities Exchange Act of 1934. The stock repurchase program may be suspended or discontinued at any time and will automatically expire on November 14, 2020. Any repurchased shares will constitute authorized but unissued shares.

During the three months ended September 30, 2019, the Company repurchased 1.2 million shares of common stock for $20.1 million. The following table presents information with respect to repurchases of our common shares during the periods indicated:


					Approximate
				Total Number of	Dollar Value of
				Shares Purchased	Shares that May
	Total Number of			as Part of Publicly	Yet be Purchased
	Shares	Average Price		Announced Plans	Under the Plans or
Period	Purchased	Paid per Share		or Programs	Programs
July 1 - 31, 2019	478,636	$	17.31	478,636	$	25,941,871
August 1 - 31, 2019	419,795		17.44	419,795		18,635,045
September 1 - 30, 2019	265,632		17.30	265,632		14,076,595
Total	1,164,063	$	17.35	1,164,063	$	14,076,595

~~None.~~

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~~ITEM 3.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

~~None.~~

None.


~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


~~ITEM 5.~~	ITEM 5. OTHER INFORMATION

~~None.~~

None.

ITEM 6. EXHIBITS


~~ITEM 6.~~ 31.1	~~EXHIBITS~~

~~The exhibits listed in the accompanying Exhibit Index are filed as part of this report.~~

~~EXHIBIT INDEX~~



~~3.1~~	Amended and Restated Articles of Incorporation of Atlantic Capital Bancshares, Inc., which is incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-4 (file no. 333-204855), initially filed with the Securities and Exchange Commission on June 10, 2015
~~3.2~~	Amended and Restated Bylaws of Atlantic Capital Bancshares, Inc., which is incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (file no. 001-37615), filed with the Securities and Exchange Commission on January 19, 2017
~~10.1~~	Separation Agreement, dated October 25, 2017, by and among Atlantic Capital Bancshares, Inc., Atlantic Capital Bank, N.A. and D. Michael Kramer, which is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (file no. 001-37615), filed with the Securities and Exchange Commission on October 26, 2017.*
~~10.2~~	Atlantic Capital Bancshares, Inc. 2017 Change in Control Plan.*
~~10.3~~	Atlantic Capital Bank Severance Plan.*
~~31.1~~	Certification of Chief Executive Officer pursuant to Rule ~~13a-14(a)~~13a‑14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Rule ~~13a-14(a)~~13a‑14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Rule ~~13a-14(b)~~13a‑14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Rule ~~13a-14(b)~~13a‑14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following materials from our Quarterly Report on Form ~~10-Q~~10‑Q for the quarter ended September 30, ~~2017,~~2019, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of September 30, ~~2017~~2019 and December 31, ~~2016;~~2018; (ii) the Consolidated Statements of Income for the three and nine months ended September 30, ~~2017~~2019 and ~~2016;~~2018; (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2017~~2019 and ~~2016;~~2018; (iv) the Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, ~~2017~~2019 and ~~2016;~~2018; (v) the Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2019 and ~~2016;~~2018; and (vi) the Notes to the Unaudited Consolidated Financial Statements

* Management contract or compensatory plan or arrangement.

~~SIGNATURES~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.



	ATLANTIC CAPITAL BANCSHARES, INC.

	/s/ Douglas L. Williams
	Douglas L. Williams
	President and Chief Executive Officer ~~(Principal~~
	(Principal Executive Officer)


	/s/ Patrick T. Oakes
	Patrick T. Oakes
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)


	Date: November 8, 2019

	~~Date: November 9, 2017~~



	September 30, 2017			December 31, 2016
(in thousands, except share data)	(unaudited)			December 31, 2016
ASSETS
Cash and due from banks	$	35,504		$	36,790
Interest-bearing deposits in banks	40,558			118,039
Other short-term investments	5,189			10,896
Cash and cash equivalents	81,251			165,725
Securities available-for-sale	447,005			347,705
Other investments	35,818			23,806
Loans held for sale	3,274			35,219
Loans held for investment	1,905,432			1,981,330
Less: allowance for loan losses	(18,870		)	(20,595		)
Loans held for investment, net	1,886,562			1,960,735
Branch premises held for sale	—			2,995
Premises and equipment, net	11,747			11,958
Bank owned life insurance	63,284			62,160
Goodwill and intangible assets, net	27,945			29,567
Other real estate owned	1,494			1,872
Other assets	80,032			85,801
Total assets	$	2,638,412		$	2,727,543



LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand	$	599,292		$	643,471
Interest-bearing checking	270,740			264,062
Savings	30,131			27,932
Money market	865,238			912,493
Time	144,250			157,810
Brokered deposits	193,994			200,223
Total deposits	2,103,645			2,205,991
Deposits to be assumed in branch sale	—			31,589
Federal Home Loan Bank borrowings	125,000			110,000
Long-term debt	49,493			49,366
Other liabilities	35,520			26,939
Total liabilities	2,313,658			2,423,885
SHAREHOLDERS’ EQUITY
Preferred Stock, no par value – 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017 and December 31, 2016	—			—
Common stock, no par value – 100,000,000 shares authorized; 25,716,418 and 25,093,135 shares issued and outstanding as of September 30, 2017, and December 31, 2016, respectively	298,469			292,747
Retained earnings	28,147			16,536
Accumulated other comprehensive (loss) income	(1,862		)	(5,625		)
Total shareholders’ equity	324,754			303,658
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,638,412		$	2,727,543



(in thousands)							Gross Amounts not Offset in the Balance Sheet
September 30, 2017	Gross Amounts of Recognized Assets		Gross Amounts Offset on the Balance Sheet		Net Asset Balance		Financial Instruments			Cash Collateral Received			Net Amount
Reverse repurchase agreements	$	5,189	$	—	$	5,189	$	(5,189	)	$	—		$	—
Derivatives	3,993		—		3,993		—			—			3,993
Total	$	9,182	$	—	$	9,182	$	(5,189	)	$	—		$	3,993
							Gross Amounts not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset on the Balance Sheet		Net Liability Balance		Financial Instruments			Cash Collateral Pledged			Net Amount
Repurchase agreements	$	—	$	—	$	—	$	—		$	—		$	—
Derivatives	4,184		—		4,184		(2,868		)	(1,316		)	—
Total	$	4,184	$	—	$	4,184	$	(2,868	)	$	(1,316	)	$	—

							Gross Amounts not Offset in the Balance Sheet
December 31, 2016	Gross Amounts of Recognized Assets		Gross Amounts Offset on the Balance Sheet		Net Asset Balance		Financial Instruments			Cash Collateral Received			Net Amount
Reverse repurchase agreements	$	10,896	$	—	$	10,896	$	(10,896	)	$	—		$	—
Derivatives	4,310		—		4,310		—			—			4,310
Total	$	15,206	$	—	$	15,206	$	(10,896	)	$	—		$	4,310
							Gross Amounts not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset on the Balance Sheet		Net Liability Balance		Financial Instruments			Cash Collateral Pledged			Net Amount
Repurchase agreements	$	—	$	—	$	—	$	—		$	—		$	—
Derivatives	4,131		—		4,131		(1,818		)	(2,313		)	—
Total	$	4,131	$	—	$	4,131	$	(1,818	)	$	(2,313	)	$	—



Available-For-Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
September 30, 2017
Debt securities—
U.S. Government agencies	$	34,961	$	108	$	(286	)	$	34,783
U.S. states and political divisions	96,813		339		(3,373		)	93,779
Trust preferred securities	4,747		—		(72		)	4,675
Corporate debt securities	16,700		115		(659		)	16,156
Residential mortgage-backed securities	296,978		3,147		(2,513		)	297,612
Total	$	450,199	$	3,709	$	(6,903	)	$	447,005

December 31, 2016
Debt securities—
U.S. Government agencies	$	21,485	$	24	$	(357	)	$	21,152
U.S. states and political divisions	96,908		141		(6,877		)	90,172
Trust preferred securities	4,727		—		(202		)	4,525
Corporate debt securities	19,928		72		(769		)	19,231
Residential mortgage-backed securities	214,297		2,689		(4,361		)	212,625
Total	$	357,345	$	2,926	$	(12,566	)	$	347,705



	Available-For-Sale
	Amortized Cost		Fair Value
	(in thousands)
Within 1 year	$	625	$	625
Over 1 year through 5 years	25,696		25,507
5 years to 10 years	53,041		52,506
Over 10 years	73,859		70,755
	153,221		149,393
Residential mortgage-backed securities	296,978		297,612
Total	$	450,199	$	447,005



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
	(in thousands)
Proceeds from sales	$	1,813		$	—	$	1,813		$	65,103
Gross realized gains	—			—		—			449
Gross realized losses	(80		)	—		(80		)	(405		)
Net gains on sales of securities	$	(80	)	$	—	$	(80	)	$	44



	Pass		Special Mention		Substandard Accruing		Substandard Nonaccruing		Doubtful Nonaccruing		Total
	(in thousands)
September 30, 2017
Commercial and industrial	$	515,388	$	13,362	$	27,179	$	996	$	5	$	556,930
Commercial real estate	925,588		9,730		4,037		133		1,631		941,119
Construction and land	127,005		4,721		—		22		—		131,748
Residential mortgages	97,685		1,365		714		248		328		100,340
Home equity	76,685		41		469		695		—		77,890
Mortgage warehouse	41,551		—		—		—		—		41,551
Consumer/Other	47,594		60		194		—		—		47,848
Total loans, excluding PCI loans	$	1,831,496	$	29,279	$	32,593	$	2,094	$	1,964	$	1,897,426
Commercial and industrial	$	—	$	4,781	$	715	$	—	$	—	$	5,496
Commercial real estate	3,091		233		295		—		116		3,735
Construction and land	298		7		27		—		—		332
Residential mortgages	396		540		700		—		—		1,636
Home equity	105		475		303		—		—		883
Mortgage warehouse	—		—		—		—		—		—
Consumer/Other	1		1		6		—		—		8
Total PCI loans	$	3,891	$	6,037	$	2,046	$	—	$	116	$	12,090



	As of September 30, 2017
	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing		PCI Loans		Total
	(in thousands)
Loans by Classification
Commercial and industrial	$	548,425	$	7,379	$	125	$	1,001	$	5,496	$	562,426
Commercial real estate	936,836		2,519		—		1,764		3,735		944,854
Construction and land	131,328		398		—		22		332		132,080
Residential mortgages	98,308		1,258		198		576		1,636		101,976
Home equity	76,951		244		—		695		883		78,773
Mortgage warehouse	41,551		—		—		—		—		41,551
Consumer	47,676		—		172		—		8		47,856
Total Loans	$	1,881,075	$	11,798	$	495	$	4,058	$	12,090	$	1,909,516



	As of December 31, 2016
	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing		PCI Loans		Total
	(in thousands)
Loans by Classification
Commercial and industrial	$	520,908	$	3,079	$	189	$	474	$	6,411	$	531,061
Commercial real estate	852,626		2,382		—		—		3,770		858,778
Construction and land	218,290		544		—		—		518		219,352
Residential mortgages	97,901		664		428		147		2,781		101,921
Home equity	74,420		884		292		—		1,762		77,358
Mortgage warehouse	147,519		—		—		—		—		147,519
Consumer	48,558		249		85		—		11		48,903
Total Loans	$	1,960,222	$	7,802	$	994	$	621	$	15,253	$	1,984,892



	For the Three Months Ended									For the Nine Months Ended
	September 30, 2016									September 30, 2016
	Pre-Tax Amount			Income Tax (Expense) Benefit			After-Tax Amount			Pre-Tax Amount			Income Tax (Expense) Benefit			After-Tax Amount
	(in thousands)
Accumulated other comprehensive income (loss) beginning of period	$	5,691		$	(2,197	)	$	3,494		$	(2,455	)	$	939		$	(1,516	)
Unrealized net gains (losses) on investment securities available-for-sale	(853		)	329			(524		)	6,125			(2,354		)	3,771
Reclassification adjustment for net realized gains on investment securities available-for-sale	—			—			—			(44		)	17			(27		)
Unrealized net gains (losses) on derivatives	(438		)	169			(269		)	774			(301		)	473
Accumulated other comprehensive income (loss) end of period	$	4,400		$	(1,699	)	$	2,701		$	4,400		$	(1,699	)	$	2,701



	September 30, 2017		December 31, 2016
	(in thousands
Floating rate 10 year capital securities, with interest paid semi-annually at an annual fixed rate of 6.25% until September 30, 2020	$	50,000	$	50,000
Principal amount of subordinated debt	$	50,000	$	50,000
Less debt issuance costs		507		634
Subordinated debt, net	$	49,493	$	49,366



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding, December 31, 2016	1,485,704		$	11.69
Granted	30,400		12.39
Exercised	(718,912	)	10.53
Forfeited	(32,846	)	12.28
Expired	(635	)	126.22
Outstanding, September 30, 2017	763,711		$	12.64	5.77	$	4,348

Exercisable, September 30, 2017	518,336		$	11.73	4.77	$	3,466



	Shares		Weighted Average Grant-Date Fair Value
Outstanding, December 31, 2016	259,165		$	13.70
Granted	110,293		17.85
Vested	(64,637	)	12.73
Forfeited	(36,674	)	14.88
Outstanding, September 30, 2017	268,147		$	15.47



	Fair Value Measurements at
	September 30, 2017 Using:
	Quoted Prices in Active Markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Securities available-for-sale—
U.S. government agencies	$	—	$	34,783	$	—	$	34,783
U.S. states and political subdivisions	—		93,779		—		93,779
Trust preferred securities	—		4,675		—		4,675
Corporate debt securities	—		16,156		—		16,156
Mortgage-backed securities	—		297,612		—		297,612
Total securities available-for-sale	$	—	$	447,005	$	—	$	447,005
Interest rate derivative assets	$	—	$	3,993	$	—	$	3,993
Interest rate derivative liabilities	$	—	$	4,184	$	—	$	4,184



	Fair Value Measurements at
	December 31, 2016 Using:
	Quoted Prices in Active Markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Securities available-for-sale—
U.S. government agencies	$	—	$	21,152	$	—	$	21,152
U.S. states and political subdivisions	—		90,172		—		90,172
Trust preferred securities	—		4,525		—		4,525
Corporate debt securities	—		19,231		—		19,231
Mortgage-backed securities	—		212,625		—		212,625
Total securities available-for-sale	$	—	$	347,705	$	—	$	347,705
Interest rate derivative assets	$	—	$	4,310	$	—	$	4,310
Interest rate derivative liabilities	$	—	$	4,131	$	—	$	4,131



September 30, 2017		Level 1 Fair Value Measurement		Level 2 Fair Value Measurement		Level 3 Fair Value Measurement		Total
	(in thousands)
Impaired Loans		$	—	$	—	$	2,970	$	2,970



	Fair Value Measurements at
	September 30, 2017 Using:
	Carrying Value		Quoted Prices in Active markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Financial assets
Cash and due from banks	$	35,504	$	35,504	$	—	$	—
Interest bearing deposits in banks	40,558		40,558		—		—
Other short-term investments	5,189		5,189		—		—
Total securities available-for-sale	447,005		—		447,005		—
FHLB stock	7,788		—		—		7,788
Federal Reserve Bank stock	9,781		—		—		9,781
Loans held for investment, net	1,886,562		—		—		1,927,726
Loans held for sale	3,274		—		3,274		—
Derivative assets	3,993		—		3,993		—
Financial liabilities
Deposits	$	2,103,645	$	—	$	2,019,911	$	—
Subordinated debt	49,493		—		49,871		—
FHLB advances	125,000		—		125,007		—
Derivative financial instruments	4,184		—		4,184		—



Table 3 - Changes in Taxable Equivalent Net Interest Income
(dollars in thousands)
	Three Months Ended September 30, 2017 Compared to 2016 Increase (decrease) Due to Changes in:								Nine Months Ended September 30, 2017 Compared to 2016 Increase (decrease) Due to Changes in:
	Volume			Yield/Rate			Total Change		Volume			Yield/Rate		Total Change
Interest earning assets
Interest bearing deposits in other banks	$	(124	)	$	182		$	58	$	(195	)	$	328	$	133
Other short-term investments	(24		)	31			7		(113		)	100		(13		)
Investment securities:
Taxable investment securities	436			343			779		356			1,127		1,483
Non-taxable investment securities	256			52			308		1,238			161		1,399
Total investment securities	692			395			1,087		1,594			1,288		2,882
Total loans	(763		)	1,743			980		(529		)	2,957		2,428
FHLB and FRB stock	20			(14		)	6		215			11		226
Total interest-earning assets	(199		)	2,337			2,138		972			4,684		5,656
Interest bearing liabilities
Interest bearing deposits:
NOW, money market, and savings	(70		)	618			548		(46		)	1,242		1,196
Time deposits	(63		)	114			51		(382		)	561		179
Brokered deposits	(131		)	269			138		(243		)	619		376
Total interest-bearing deposits	(264		)	1,001			737		(671		)	2,422		1,751
Total borrowings	66			307			373		288			568		856
Total long-term debt	3			6			9		8			6		14
Total interest-bearing liabilities	(195		)	1,314			1,119		(375		)	2,996		2,621
Change in net interest income	$	(4	)	$	1,023		$	1,019	$	1,347		$	1,688	$	3,035