UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~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~~

2020


☐
¨	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 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 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~~20,779,353 shares outstanding as of November 1, ~~2017~~2020

Table of Contents

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

Form 10-Q

INDEX



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

Item 1.		Financial Statements (Unaudited)	1

		Consolidated Balance Sheets -– September 30, ~~2017~~2020 and December 31, ~~2016~~2019	1

		Consolidated Statements of Income -– Three and Nine Months ended September 30, ~~2017~~2020 and ~~2016~~2019	2

		Consolidated Statements of Comprehensive Income - Three and Nine Months ended September 30, ~~2017~~2020 and ~~2016~~2019	3

		Consolidated Statements of Shareholders’ Equity - Three and Nine Months ended September 30, ~~2017~~2020 and ~~2016~~2019	4

		Consolidated Statements of Cash Flows -– Nine Months ended September 30, ~~2017~~2020 and ~~2016~~2019	5 6

		Notes to Unaudited Consolidated Financial Statements	7

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	35 42

Item 3.		Quantitative and Qualitative Disclosures about Market Risk	56 67

Item 4.		Controls and Procedures	56 67

PART II.		OTHER INFORMATION	57 68

Item 1.		Legal Proceedings	57 68

Item 1A.		Risk Factors	57 68

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	57 68

Item 3.		Defaults Upon Senior Securities	57 70

Item 4.		Mine Safety Disclosures	57 70

Item 5.		Other Information	57 70

Item 6.	~~Exhibits~~	57Exhibits	70

~~EXHIBIT INDEX~~SIGNATURES			58

~~SIGNATURES~~		59 71

Table of Contents

PART I - FINANCIAL INFORMATION


~~ITEM 1.~~	~~FINANCIAL STATEMENTS (UNAUDITED)~~

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets


	September 30,		December 31,
	2020		2019
(in thousands, except share data)	(unaudited)
ASSETS
Cash and due from banks	$	22,715	$	45,249
Interest-bearing deposits in banks		91,243		421,079
Cash and cash equivalents		113,958		466,328
Investment securities available for sale		260,884		282,461
Investment securities held to maturity, net of allowance for credit losses of $15 at September 30, 2020		185,822		116,972
Other investments		26,315		27,556
Loans held for sale		859		370
Loans held for investment		2,188,035		1,873,524
Less: Allowance for credit losses		(31,894)		(18,535)
Loans held for investment, net		2,156,141		1,854,989
Premises and equipment, net		22,558		22,536
Bank owned life insurance		67,489		66,421
Goodwill		19,925		19,925
Other intangibles, net		2,685		3,027
Other real estate owned		563		278
Other assets		66,778		49,516
Total assets	$	2,923,977	$	2,910,379

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	843,656	$	824,646
Interest-bearing checking		387,858		373,727
Savings		568		1,219
Money market		945,834		1,173,218
Time		196,343		44,389
Brokered deposits		94,463		81,847
Total deposits		2,468,722		2,499,046
Federal funds purchased		—		—
Federal Home Loan Bank borrowings		—		—
Long-term debt		73,814		49,873
Other liabilities		41,132		34,965
Total liabilities		2,583,668		2,583,884
SHAREHOLDERS’ EQUITY
Preferred Stock, 0 par value - 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019		—		—
Common stock, 0 par value - 100,000,000 shares authorized; 21,202,783 and 21,751,026 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		220,643		230,265
Retained earnings		104,188		91,669
Accumulated other comprehensive income		15,478		4,561
Total shareholders’ equity		340,309		326,495
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,923,977	$	2,910,379

See Accompanying Notes to Consolidated Financial Statements

Table of Contents

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

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

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2020		2019		2020		2019
INTEREST INCOME
Loans, including fees	$	21,049	$	23,541	$	63,971	$	69,847
Investment securities		2,910		2,176		8,683		7,146
Interest and dividends on other interest-earning assets		274		803		1,399		2,322
Total interest income		24,233		26,520		74,053		79,315
INTEREST EXPENSE
Interest on deposits		1,151		5,223		6,632		15,502
Interest on Federal Home Loan Bank advances		16		390		54		660
Interest on federal funds purchased and securities sold under agreements to repurchase		3		99		41		385
Interest on long-term debt		1,345		824		2,997		2,471
Total interest expense		2,515		6,536		9,724		19,018
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES		21,718		19,984		64,329		60,297
Provision for credit losses		28		413		16,965		1,925
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		21,690		19,571		47,364		58,372
NONINTEREST INCOME
Service charges		1,217		925		3,530		2,589
Gain on sales of securities		—		253		—		907
Gain (loss) on sales of other assets		(145)		140		(140)		127
Derivatives income (loss)		10		(293)		246		(637)
Bank owned life insurance		363		422		1,092		1,171
SBA lending activities		893		1,150		2,089		3,332
Other noninterest income		166		172		452		557
Total noninterest income		2,504		2,769		7,269		8,046
NONINTEREST EXPENSE
Salaries and employee benefits		8,850		8,295		25,792		26,037
Occupancy		739		722		2,416		2,050
Equipment and software		826		842		2,368		2,334
Professional services		562		764		2,059		2,331
Communications and data processing		757		796		2,324		2,133
Marketing and business development		141		243		373		702
Travel, meals and entertainment		39		152		213		504
FDIC premiums		213		(193)		388		217
Other noninterest expense		1,586		1,056		3,561		3,418
Total noninterest expense		13,713	$	12,677		39,494		39,726
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES		10,481		9,663		15,139		26,692
Provision for income taxes		1,863		2,094		2,548		5,674
NET INCOME FROM CONTINUING OPERATIONS		8,618		7,569		12,591		21,018
DISCONTINUED OPERATIONS
Income from discontinued operations	$	—	$	—	$	—	$	28,690
Provision for income taxes		—		(617)		—		6,993
Net income from discontinued operations		—		617		—		21,697
NET INCOME	$	8,618	$	8,186	$	12,591	$	42,715

Net income per common share ‑ basic
Net income per common share - continuing operations	$	0.40	$	0.33	$	0.58	$	0.88
Net income per common share - discontinued operations		—		0.03		—		0.91
Net income per common share ‑ basic		0.40		0.36		0.58		1.79
Net income per common share ‑ diluted
Net income per common share - continuing operations	$	0.40	$	0.33	$	0.58	$	0.88
Net income per common share - discontinued operations		—		0.03		—		0.91
Net income per common share ‑ diluted		0.40		0.36		0.58		1.78

See Accompanying Notes to Consolidated Financial Statements

~~(Unaudited)~~

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)	2020		2019		2020		2019
Net income	$	8,618	$	8,186	$	12,591	$	42,715
Other comprehensive income
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period, net of tax of $11, $453, $1,419 and $4,096, respectively		35		1,360		4,352		12,279
Reclassification adjustment for losses (gains) included in net income net of tax of ($0), ($63), ($0) and ($227), respectively		—		(190)		—		(680)
Unrealized gains on available-for-sale securities, net of tax		35		1,170		4,352		11,599
Cash flow hedges:
Net unrealized derivative gains on cash flow hedges, net of tax of ($146), $582, $2,144 and $1,734, respectively		(447)		1,744		6,565		5,201
Changes from cash flow hedges		(447)		1,744		6,565		5,201
Other comprehensive income, net of tax		(412)		2,914		10,917		16,800
Comprehensive income	$	8,206	$	11,100	$	23,508	$	59,515

See Accompanying Notes to Consolidated Financial Statements

~~(Unaudited)~~

Table of Contents

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

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Shareholders’ Equity

(Unaudited)


For the Nine months ended September 30, 2020
						Accumulated
						Other
	Common Stock			Retained		Comprehensive
(in thousands, except share data)	Shares	Amount		Earnings		Income (Loss)		Total
Balance - December 31, 2019	21,751,026	$	230,265	$	91,669	$	4,561	$	326,495
Comprehensive income:
Net income	—		—		12,591		—		12,591
Change in unrealized gains (losses) on investment securities available-for-sale, net	—		—		—		4,352		4,352
Change in unrealized gains (losses) on cash flow hedges	—		—		—		6,565		6,565
Total comprehensive income									23,508
Change in accounting principle - allowance for credit losses	—		—		(72)		—		(72)
Net issuance of restricted stock	185,901		—		—		—		—
Issuance of common stock for option exercises	60,940		660		—		—		660
Issuance of common stock for long-term incentive plan	25,265		444		—		—		444
Restricted stock activity	—		945		—		—		945
Stock-based compensation	—		53		—		—		53
Performance share compensation	—		307		—		—		307
Stock repurchases	(820,349)		(12,031)		—		—		(12,031)
Balance - September 30, 2020	21,202,783	$	220,643	$	104,188	$	15,478	$	340,309

For the Three months ended September 30, 2020
						Accumulated
						Other
	Common Stock			Retained		Comprehensive
	Shares	Amount		Earnings		Income (Loss)		Total
Balance - June 30, 2020	21,477,631	$	224,520	$	95,570	$	15,890	$	335,980
Comprehensive income:
Net income	—		—		8,618		—		8,618
Change in unrealized gains (losses) on investment securities available-for-sale, net	—		—		—		35		35
Change in unrealized gains (losses) on cash flow hedges	—		—		—		(447)		(447)
Total comprehensive income									8,206
Change in accounting principle - leases	—		—		—		—		—
Net issuance of restricted stock	126,643		—		—		—		—
Issuance of common stock for option exercises	—		—		—		—		—
Issuance of common stock for long-term incentive plan	—		—		—		—		—
Restricted stock activity	—		448		—		—		448
Stock-based compensation	—		18		—		—		18
Performance share compensation	—		277		—		—		277
Stock repurchases	(401,491)		(4,620)		—		—		(4,620)
Balance - September 30, 2020	21,202,783	$	220,643	$	104,188	$	15,478	$	340,309

~~(Unaudited)~~

Table of Contents


For the Nine months ended September 30, 2019
						Accumulated
						Other
	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	30,263		—		—		—		—
Issuance of common stock for option exercises	79,980		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

For the Three months ended September 30, 2019
						Accumulated
						Other
	Common Stock			Retained		Comprehensive
	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	25,359		—		—		—		—
Issuance of common stock for option exercises	39,000		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

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

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Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended
	September 30,
(in thousands)	2020		2019
OPERATING ACTIVITIES
Net income from continuing operations	$	12,591	$	21,018
Net income from discontinued operations, net of tax		—		21,697
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses		16,965		1,925
Depreciation, amortization, and accretion		3,726		2,497
Amortization of operating lease right-of-use assets		1,621		1,703
Amortization of restricted stock and performance share compensation		1,282		811
Stock option compensation		53		151
(Gain) loss on sales of available-for-sale securities		—		(907)
Loss on disposition of premises and equipment, net		7		27
Net write downs and gains on sales of other real estate owned		213		(154)
Small Business Investment Company (SBIC) impairment		—		26
Net increase in cash value of bank owned life insurance		(1,068)		(1,100)
(Gain) on bank owned life insurance		—		(46)
Net (gains) on sale of branches		—		(34,475)
Origination of servicing assets		(492)		(975)
Proceeds from sales of SBA loans		28,968		54,333
Net (gains) on sale of SBA loans		(1,476)		(2,875)
Changes in operating assets and liabilities -
Net change in loans held for sale		(489)		4,973
Net change in operating lease right-of-use assets		(62)		—
Net (increase) decrease in other assets		(11,888)		6,089
Net increase (decrease) in accrued expenses and other liabilities		4,602		(3,991)
Net cash provided by operating activities		54,553		70,727
INVESTING ACTIVITIES
Activity in securities available-for-sale:
Prepayments		24,767		33,199
Maturities and calls		1,690		3,450
Sales		—		116,963
Purchases		—		(22,678)
Activity in securities held to maturity:
Purchases		(69,141)		(42,866)
Net change in loans held for investment		(344,743)		(160,851)
Net change in assets held for sale - discontinued operations		—		(11,789)
(Purchases) proceeds of Federal Home Loan Bank stock, net		61		(3,288)
(Purchases) proceeds of Federal Reserve Bank stock, net		(82)		(92)
Proceeds from bank owned life insurance benefits		—		248
Proceeds from sales of other real estate owned		533		847
Net cash received (paid) for branch divestiture		—		(166,755)
(Purchases) of premises and equipment, net		(3,313)		(1,380)
Net cash (used in) investing activities		(390,228)		(254,992)
FINANCING ACTIVITIES
Net change in deposits		(30,324)		(98,242)
Net change in liabilities to be assumed - discontinued operations		—		6,560
Net change in fed funds purchased		—		57,000
Proceeds from Federal Home Loan Bank advances		345,000		566,000
Repayments of Federal Home Loan Bank advances		(345,000)		(490,000)
Proceeds from exercise of stock options		660		1,045
Issuance of subordinated debt		75,000		—
Repayment of subordinated debt		(50,000)		—
Repurchase of common stock		(12,031)		(56,746)
Net cash (used in) financing activities		(16,695)		(14,383)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(352,370)		(198,648)
CASH AND CASH EQUIVALENTS – beginning of period		466,328		268,392
CASH AND CASH EQUIVALENTS – end of period	$	113,958	$	69,744
SUPPLEMENTAL SCHEDULE OF CASH FLOWS
Interest paid	$	9,990	$	20,454
Income taxes paid		2,334		885

See Accompanying Notes to Consolidated Financial Statements

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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 )

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)

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. Certain prior period amounts have been reclassified to conform to the current year 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. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods. ~~Certain~~

Adoption of New Accounting Standard

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. Additionally, Accounting Standards Codification (“ASC”) 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a decrease to retained earnings of $72,000, net of tax, as of January 1, 2020 for the cumulative effect of adopting ASC 326. The transition adjustment includes a $1.3 million increase related to the allowance for credit losses on unfunded commitments mostly offset by an $854,000 decrease related to the allowance for credit losses on loans as well as a $20,000 increase related to held-to-maturity securities.

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The Company finalized the adoption as of January 1, 2020 as detailed in the following table.


		January 1, 2020
				As Reported		Impact of
		Pre-ASC 326		Under		ASC 326
(in thousands)		Adoption		ASC 326		Adoption ⁽¹⁾
Assets:
Allowance for credit losses on debt securities held-to-maturity
U.S. states and political divisions - tax-exempt	$	-	$	13	$	13
U.S. states and political divisions - taxable		-		7		7
Total allowance for credit losses on debt securities held-to-maturity		-		20		20
Allowance for credit losses on loans
Loans
Commercial and industrial		9,015		8,578		(437)
Commercial real estate		7,504		6,868		(636)
Construction and land		1,685		1,819		134
Residential mortgages		81		108		27
Home equity		63		121		58
Consumer		42		101		59
Other		145		78		(67)
Mortgage warehouse		-		8		8
Total allowance for credit losses on loans		18,535		17,681		(854)

Liabilities:
Allowance for credit losses on unfunded commitments		892		2,167		1,275
Total allowance for credit losses	$	19,427	$	19,868	$	441

⁽¹⁾ The adoption of CECL resulted in a reduction of retained earnings totaling $72,000, net of tax.

Allowance for Credit Losses on Held-to-Maturity Securities

Management measures expected credit losses on held-to-maturity securities by individual security. Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers credit ratings and historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The held-to-maturity portfolio consists entirely of municipal securities. Securities are generally rated A or higher. Securities are analyzed individually to establish a CECL mark.

Allowance for Credit Losses on Available-for-Sale Securities

For available-for-sale securities in an unrealized loss position, management first assesses whether it intends to sell, or more likely than not will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, Atlantic Capital evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair

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value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (“OCI”).

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is not included in the estimate of credit losses.

Allowance for Credit Losses on Loans

The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed and recoveries are credited to the allowance when received. The Company may also account for expected recoveries should information of an anticipated recovery become available. In the case of actual or expected recoveries, amounts may not exceed the aggregate of amounts previously charged off.

Management utilizes relevant available information, from internal and external sources, relating to past events, current conditions, historical loss experience, and reasonable and supportable forecasts. The lookback period in the analysis includes historical data from June 2015 to present. Adjustments to historical loss information are made when management determines historical data are not likely reflective of the current portfolio such as limited data sets or lack of default or loss history. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data. Accrued interest receivable was excluded from the estimate of credit losses for loans.

Collective Assessment

The allowance for credit losses on loans is measured on a collective cohort basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by call report code and then risk grade grouping. Risk grade is grouped within each call code by pass, special mention, substandard, and doubtful. Other loan types are separated into their own cohorts due to specific risk characteristics for that pool of loans. Examples include CD-secured fintech loans, Small Business Administration (“SBA”) purchased loans, Payment Protection Program (“PPP”) loans and TriNet loans.

The Company has elected the discounted cash flows (“DCF”) methodology with probability of default (“PD”) and loss given default (“LGD”) for all call code cohorts and TriNet. CD-secured fintech loans, PPP loans and SBA purchased loans are measured with zero risk due to cash collateral and full guaranty, respectively.

The PD calculation looks at the historical loan portfolio at particular points in time (each month during the lookback period) to determine the probability that loans in a certain cohort will default over the next 12 month period. A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or experienced a charge-off during the period. In cohorts where the Company’s historical data are insufficient due to less than 20 loans on average in the pool or zero defaults, management uses index PDs in place of the Company’s historical PDs. Additionally, management reviews all other cohorts to determine if index PDs should be used outside of these criteria.

The LGD calculation looks at actual losses (net charge-offs) experienced over the entire lookback period for each cohort of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate. All defaults (non-accrual, charge-off, or greater than 90 days past due) occurring during the lookback period are included in the denominator, whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default event (i.e. nonaccrual or charge-off). Due to very limited charge-off history, management uses index LGDs in place of the Company’s historical LGDs.

The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the allowance for credit losses on loans. The calculation includes a 12-month PD forecast based on the Company’s regression model comparing peer nonperforming loan ratios to the national unemployment rate and the most recently published Wall Street

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Journal survey of economists’ forecast. After the forecast period, PD rates revert on a straight-line basis to long-term average rates over a 12-month period.

The Company recognizes that all significant factors that affect the collectability of the loan portfolio must be considered to determine the estimated credit losses as of the evaluation date. Furthermore, the DCF methodology, in and of itself and even when selectively adjusted by comparison to market and peer data, does not provide a sufficient basis to determine the estimated credit losses. The Company adjusts the modeled historical losses by a Qualitative and Environmental factor to incorporate all significant risks to form a sufficient basis to estimate the credit losses.

Individual Assessment

Loans classified as Nonaccrual, Troubled Debt Restructuring (“TDR”), or Reasonably Expected TDR will be reviewed quarterly for potential individual assessment. Any loan classified as a Nonaccrual or TDR that is not determined to need individual assessment will be evaluated collectively within its respective cohort. All Reasonably Expected TDR loans will be evaluated individually to account for expected modifications in loan terms.

Where the primary and/or expected source of repayment of a specific loan is believed to be the future liquidation of available collateral, impairment will generally be measured based upon expected future collateral proceeds, net of disposition expenses including sales commissions as well as other costs potentially necessary to sell the asset(s) (i.e. past due taxes, liens, etc.) Estimates of future collateral proceeds will be based upon available appraisals, reference to recent valuations of comparable properties, use of consultants or other professionals with relevant market and/or property-specific knowledge, and any other sources of information believed appropriate by management under the specific circumstances. When appraisals are ordered to support the impairment analysis of an impaired loan, the appraisal is reviewed by Atlantic Capital’s internal appraisal reviewer or a qualified third party reviewer.

Where the primary and/or expected source of repayment of a specific loan is believed to be the receipt of principal and interest payments from the borrower and/or the refinancing of the loan by another creditor, impairment will generally be measured based upon the present value of expected proceeds discounted at the contractual interest rate. Expected refinancing proceeds may be estimated from review of term sheets actually received by the borrower from other creditors and/or from the Company’s knowledge of terms generally available from other banks, asset-based lenders, factoring companies and institutional lenders (Government Sponsored Entities, insurance companies, etc.)

Determining the Contractual Term

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Prepayment assumptions will be determined by analysis of historical behavior by loan cohort.

Troubled Debt Restructurings

A loan for which the terms have been ~~reclassified~~modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to ~~conform~~be a TDR. Any loan that is being considered for modification and expected to result in a TDR is identified as a Reasonably Expected TDR. Reasonably Expected TDRs are assessed in the ~~current year presentation.~~CECL calculation utilizing their expected modified terms. The allowance for credit losses on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows when a rate modification has occurred.

Allowance for Credit Losses on Unfunded Commitments

Atlantic Capital estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by Atlantic Capital.

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The allowance for credit losses on unfunded commitments is adjusted through a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate utilizes the same factors and assumptions as the allowance for credit losses on loans and is applied at the same collective cohort level.

NOTE 2 – ACCOUNTING STANDARDS UPDATES AND RECENTLY ADOPTED STANDARDS

Recently Adopted Accounting Pronouncements

In ~~August 2017,~~March 2020, the Financial Accounting Standards Board (“FASB”) issued ~~Accounting Standards Update~~ASU No. 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuance of London Interbank Offered Rate (“~~ASU”~~LIBOR”) ~~2017-12~~. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The Company is in the process of evaluating the impact that the discontinuance of LIBOR will have on its existing contracts and consolidated financial statements.

In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments - “~~Derivatives and Hedging:~~Credit Losses (Topic 326); Targeted ~~Improvements to Accounting for Hedging Activities~~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 ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The ~~purpose~~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 did not elect the fair value option, and therefore, ASU 2019-05 did not 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 ~~updated guidance is to better align a company’s financial reporting~~update modify the disclosure requirements for ~~hedging activities with the economic objectives of those activities. ASU 2017-12~~fair value measurements by removing, modifying, or adding certain disclosures. The update is effective for ~~public business entities for~~interim and annual periods in fiscal years beginning after December ~~15, 2018,~~31, 2019, with early adoption ~~including~~permitted for the removed disclosures and delayed adoption ~~in an interim period, permitted. Atlantic Capital plans to adopt ASU 2017-12~~until fiscal year 2020 permitted for new disclosures. The removed and modified disclosures will be adopted on ~~January 1, 2018.~~a retrospective basis and the new disclosures will be adopted on a prospective basis. The guidance requires a modified retrospective transition method resulting in the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. Atlantic Capital doesadoption did not ~~expect adoption to~~ have a material ~~impact~~effect on ~~its~~the Company’s consolidated financial statements.

~~In May 2017, the FASB issued ASU 2017-09 - “Compensation - Stock Compensation (Topic 718): Scope and Modification Accounting~~.” The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in accordance with Topic 718. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2017. This ASU is not expected to have a material impact on Atlantic Capital’s consolidated financial statements.

~~In March 2017, the FASB issued ASU 2017-08 “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt 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, “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 must be applied prospectively and iswas effective for the Company on January 1, 2020. ~~Early adoption is permitted. Atlantic Capital does not expect the~~The new guidance todid not have a material impact on its financial condition or results of ~~operation.~~

~~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.~~

operations.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.” ASU 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 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. ASU 2016-13 iswas 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 is in the process~~adopted and this totaled $72,000, net of ~~evaluating the impact~~tax. For more information, refer to Note 1 of the ~~adoption~~Consolidated Financial Statements.

Table of ~~ASU 2016-13 on the Company’s consolidated financial statements and disclosures.~~Contents

Recently Issued Accounting Pronouncements Not Yet Adopted

In ~~March 2016,~~December 2019, the FASB issued ASU ~~2016-09,~~ No. 2019-12, “~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment~~Simplifying the Accounting. for Income Taxes.” ~~The amendments in~~ This ASU ~~2016-09 simplify several aspects of~~simplifies the accounting for ~~employee share-based payments including~~ income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax ~~consequences, classification~~allocation, the methodology for calculating income taxes in an interim period and the recognition of ~~awards as either equity or~~deferred tax liabilities ~~and classification on the statement of cash flows. Some areas of the simplification apply only to nonpublic entities.~~for outside basis differences. The new guidance ~~will require all~~also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Finally, it clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax ~~effects~~are not required to recognize an allocation of ~~awards to be recognized as~~consolidated 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~~their separate financial statements, but they could elect 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.do so. 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 standard2019-12 is effective for ~~public companies for fiscal years,~~interim 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~~reporting periods beginning after December 15, ~~2017. Because the guidance does not apply to revenue associated with financial instruments, including loans~~2020, and ~~securities,~~early adoption is permitted. The Company is evaluating this ASU ~~will not have a material impact on net interest income and securities gains. Atlantic Capital completed an initial evaluation of the~~to determine any potential impact to ~~other revenue streams such as service charges and trust income, and believes~~ the ~~most significant changes will be related to disclosures.~~

Company’s Consolidated Financial Statements.

NOTE 3 – ACQUISITIONS AND DIVESTITURES

Discontinued Operations

On ~~October 31, 2015, Atlantic Capital~~April 5, 2019, the Bank completed the ~~acquisition~~sale to FirstBank of ~~First Security Group, Inc. (“First Security”~~its Tennessee and northwest Georgia banking operations, including 14 branches and the mortgage business (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, and $579,000 and $2.5 million~~2019 are included in discontinued operations.

The following table presents results of the discontinued operations for the three and nine months ended September 30, ~~2016, respectively, and~~2019:

Components of Net Income from Discontinued Operations


	For the Three Months Ended		For the Nine Months Ended
(in thousands)	September 30, 2019		September 30, 2019
Net interest income	$	—	$	3,086
Service charges		—		527
Mortgage income		—		288
Gain on sale of branches		—		34,475
Other income		—		(1)
Total noninterest income		—		35,289
Salaries and employee benefits		—		2,757
Occupancy		—		410
Equipment and software		—		131
Amortization of intangibles		—		247
Communications and data processing		—		586
Divestiture expense		—		5,095
Other noninterest expense		—		459
Total noninterest expense		—		9,685
Net income before provision for income taxes		—		28,690
(Benefit) provision for income taxes		(617)		6,993
Net income from discontinued operations	$	617	$	21,697

There were ~~included in noninterest expense in the consolidated income statement. Acquisition related costs primarily include severance costs, professional services, data processing fees~~0 assets or liabilities related to ~~systems conversion~~discontinued operations on the Consolidated Balance Sheets as of September 30, 2020 and ~~other noninterest expenses.~~December 31, 2019.

~~Divestiture~~

Table of ~~Branches~~Contents

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 expenses associated with the divestitures included in noninterest expense in the second quarter of 2016.

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.

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~~in derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements ~~as of~~at September 30, ~~2017~~2020 and December 31, ~~2016.~~2019. 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, 2020	Assets		Balance Sheet		Balance		Instruments		Received		Net Amount
Derivatives	$	25,359	$	—	$	25,359	$	—	$	—	$	25,359
Total	$	25,359	$	—	$	25,359	$	—	$	—	$	25,359


							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	$	13,323	$	—	$	13,323	$	(13,323)	$	—	$	—
Total	$	13,323	$	—	$	13,323	$	(13,323)	$	—	$	—


							Gross Amounts not Offset in the
	Gross						Balance Sheet
	Amounts of		Gross Amounts		Net				Cash
	Recognized		Offset on the		Asset		Financial		Collateral
December 31, 2019	Assets		Balance Sheet		Balance		Instruments		Received		Net Amount
Derivatives	$	8,856	$	—	$	8,856	$	—	$	—	$	8,856
Total	$	8,856	$	—	$	8,856	$	—	$	—	$	8,856


							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	$	5,647	$	—	$	5,647	$	(5,647)	$	—	$	—
Total	$	5,647	$	—	$	5,647	$	(5,647)	$	—	$	—

Table of Contents

(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 ) $ —

NOTE 5 – SECURITIES

The following table presents the amortized cost, fair value, and allowance for credit losses on securities available-for-sale and held-to-maturity at September 30, 2020 and December 31, 2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and ~~fair value~~gross unrecognized gains and losses:


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value

	(in thousands)
September 30, 2020
Available-For-Sale
U.S. states and political divisions	$	80,037	$	2,536	$	(7)	$	82,566
Trust preferred securities		4,828		—		(238)		4,590
Corporate debt securities		19,533		265		(154)		19,644
Residential mortgage-backed securities		113,372		4,293		(15)		122,377
Commercial mortgage-backed securities		34,159		2,275		—		31,707
Total available-for-sale		251,929		9,369		(414)		260,884

			Gross		Gross				Allowance		Net
	Amortized		Unrecognized		Unrecognized				for Credit		Carrying
	Cost		Gains		Losses		Fair Value		Losses		Value
Held-to-Maturity
U.S. states and political divisions		185,837		10,875		—		196,712		(15)		185,822
Total held-to-maturity		185,837		10,875		—		196,712		(15)		185,822

Total securities	$	437,766	$	20,244	$	(414)	$	457,596

			Gross		Gross
December 31, 2019	Amortized		Unrealized		Unrealized
Available-For-Sale	Cost		Gains		Losses		Fair Value
U.S. states and political divisions	$	81,865	$	863	$	(243)	$	82,485
Trust preferred securities		4,808		—		(120)		4,688
Corporate debt securities		19,557		363		—		19,920
Residential mortgage-backed securities		138,552		1,885		(424)		140,013
Commercial mortgage-backed securities		34,495		912		(52)		35,355
Total available-for-sale		279,277		4,023		(839)		282,461

Held-to-Maturity
U.S. states and political divisions		116,972		104		(1,785)		115,291
Total held-to-maturity		116,972		104		(1,785)		115,291
Total securities	$	396,249	$	4,127	$	(2,624)	$	397,752

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The following table presents the activity in the allowance for credit losses on securities ~~available-for-sale~~held-to-maturity by major security type for the three and nine months ended September 30, 2020.


	For the Three Months Ended September 30,
	2020
	U.S. States and		U.S. States and
	Political Subdivisions		Political Subdivisions
	Tax-exempt		Taxable		Total

	(in thousands)
Allowance for credit losses on securities held-to-maturity:
Beginning balance	$	9	$	4	$	13
Provision for credit losses		2		—		2
Securities charged-off		—		—		—
Recoveries		—		—		—
Total ending allowance balance	$	11	$	4	$	15


	For the Nine Months Ended September 30,
	2020
	U.S. States and		U.S. States and
	Political Subdivisions		Political Subdivisions
	Tax-exempt		Taxable		Total

	(in thousands)
Allowance for credit losses on securities held-to-maturity:
Beginning balance	$	—	$	—	$	—
Impact of adopting ASU 2016-13		13		7		20
Provision for credit losses		(2)		(3)		(5)
Securities charged-off		—		—		—
Recoveries		—		—		—
Total ending allowance balance	$	11	$	4	$	15

Management measures expected credit losses on held-to-maturity debt securities on an individual basis. Accrued interest receivable on held-to-maturity debt securities totaled $1.5 million at September 30, ~~2017~~2020 and $796,000 at December 31, ~~2016~~.2019, is recorded in Other Assets on the Consolidated Balance Sheets and is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on available-for-sale debt securities totaled $1.0 million at September 30, 2020, is recorded in Other Assets on the Consolidated Balance Sheets and is not included in the estimate of credit losses.

Atlantic Capital monitors the credit quality of debt securities held-to-maturity quarterly through the use of credit rating, material event notices, and changes in market value. The following table summarizes the amortized cost of debt securities held-to-maturity at September 30, 2020, aggregated by credit quality indicator.


	Held-to-Maturity
	U.S. States and		U.S. States and
	Political Subdivisions		Political Subdivisions
	Tax-exempt		Taxable		Total

September 30, 2020	(in thousands)
Aaa	$	48,509	$	20,755	$	69,264
Aa1		32,317		7,748		40,065
Aa2		32,161		20,862		53,023
Aa3		17,228		4,045		21,273
A1		2,212		—		2,212
Total	$	132,427	$	53,410	$	185,837

Table of Contents

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

As of September 30, 2020, there were 0 debt securities held-to-maturity that were classified as either nonaccrual or past due over 89 days and still accruing.

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~~.2020. 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

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


	Available-For-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

	(in thousands)
Within 1 year	$	1,001	$	1,006	$	—	$	—
Over 1 year through 5 years		9,556		9,854		—		—
5 years to 10 years		36,762		37,340		316		321
Over 10 years		57,079		58,600		185,521		196,391
		104,398		106,800		185,837		196,712
Residential mortgage-backed securities		113,372		117,650		—		—
Commercial mortgage-backed securities		34,159		36,434		—		—
Total	$	251,929	$	260,884	$	185,837	$	196,712

The following table summarizes available-for-sale and held-to-maturity securities in an unrealized loss position as of September 30, ~~2017~~2020 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 )

2019.


	Less than 12 months				12 months or greater				Totals
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2020	Value		Losses		Value		Losses		Value		Losses

	(in thousands)
Available-for-Sale
U.S. states and political divisions	$	—	$	—	$	1,984	$	(7)	$	1,984	$	(7)
Trust preferred securities		—		—		4,590		(238)		4,590		(238)
Corporate debt securities		—		—		9,846		(154)		9,846		(154)
Residential mortgage-backed securities		—		—		1,674		(15)		1,674		(15)
Total available-for-sale		—		—		18,094		(414)		18,094		(414)
Held-to-Maturity
U.S. states and political divisions		—		—		—		—		—		—
Total held-to-maturity		—		—		—		—		—		—
Total securities	$	—	$	—	$	18,094	$	(414)	$	18,094	$	(414)

December 31, 2019
Available-for-Sale
U.S. states and political divisions	$	20,019	$	(190)	$	4,090	$	(53)	$	24,109	$	(243)
Trust preferred securities		—		—		4,687		(120)		4,687		(120)
Residential mortgage-backed securities		8,271		(26)		30,292		(398)		38,563		(424)
Commercial mortgage-backed securities		2,480		(52)		—		—		2,480		(52)
Total available-for-sale		30,770		(268)		39,069		(571)		69,839		(839)
Held-to-Maturity
U.S. states and political divisions		96,854		(1,785)		—		—		96,854		(1,785)
Total held-to-maturity		96,854		(1,785)		—		—		96,854		(1,785)
Total securities	$	127,624	$	(2,053)	$	39,069	$	(571)	$	166,693	$	(2,624)

At September 30, ~~2017,~~2020, there were ~~245~~6 available-for-sale securities that were in an unrealized loss position. There were 0 held-to-maturity securities that were in an unrealized loss position at September 30, 2020. At December 31, 2019, there were 77 available-for-sale securities and 35 held-to-maturity securities that were in an unrealized loss position. Atlantic

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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, ~~2017~~2020 and December 31, ~~2016~~2019 were attributable to changes in market interest rates.

~~Management evaluates~~ NaN credit impairment was recorded for those 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 analyzingin 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. No impairment charges were recognized duringunrealized loss position for the three orand nine months ~~ended September 30, 2017~~of 2020 or ~~2016.~~

2019.

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~~2020 and ~~2016.~~

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

2019.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(in thousands)
Proceeds from sales	$	—	$	62,025	$	—	$	116,963
Gross realized gains		—	$	553	$	—	$	1,675
Gross realized losses		—		(300)		—		(768)
Net gains on sales of securities	$	—	$	253	$	—	$	907

Investment securities with a carrying value of ~~$100.0~~$27.6 million and ~~$104.9~~$32.3 million were pledged to secure public funds and other borrowings at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

As of September 30, 2020 and December 31, 2019, Atlantic Capital had investments with a carrying value of $5.1 million and $4.7 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 first nine months of 2020, the Company did not record any impairment on these SBICs. For the same period in 2019, the Company recorded impairment in the amount of $26,000 on these SBICs. The impairment 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.

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NOTE 6 – LOANS AND ALLOWANCE FOR ~~LOAN~~CREDIT LOSSES

The composition of the loan portfolio as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, is summarized below.

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


		September 30, 2020		December 31, 2019

		(in thousands)
Loans held for sale
Loans held for sale			859		370
Total loans held for sale		$	859	$	370

Loans held for investment
Commercial loans:
Commercial and industrial		$	944,401	$	705,115
Commercial real estate			880,785		916,328
Construction and land			139,836		127,540
Mortgage warehouse participations			—		13,941
Total commercial loans			1,965,022		1,762,924
Residential:
Residential mortgages			29,460		31,315
Home equity			24,528		25,002
Total residential loans			53,988		56,317
Consumer	��		154,916		37,765
Other			22,777		19,552
Total loans			2,196,703		1,876,558
Less net deferred fees and other unearned income			(8,668)		(3,034)
Less allowance for credit losses on loans			(31,894)		(18,535)
Loans held for investment, net		$	2,156,141	$	1,854,989

At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, loans with a carrying value of ~~$473.5~~$465.1 million and ~~$474.8~~$729.6 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 of Purchased Credit Impaired (“PCI”) loans accounted for under ASC 310-30 was $12.1 million and $14.6 million, respectively. At December 31, 2016, the carrying value and outstanding balance of PCI loans accounted for under ASC 310-30 was $15.3 million and $18.7 million, respectively.

The ~~following table presents changes in the value of the accretable yield for acquired loans accounted for under ASC 310-30.~~

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 are ~~also~~ accreted to interest income over the life of the loans. At September 30, ~~2017,~~2020, the remaining accretable fair value discount on loans acquired through a business combination and not accounted for under ASC 310-30 was ~~$3.1 million~~$284,000 compared to ~~$3.9 million~~$279,000 at December 31, ~~2016.~~

2019.

The allowance for ~~loan~~credit losses ~~represents management’s estimate of probable incurred losses in~~on loans is a valuation account that is deducted from the ~~loan portfolio as of~~loans’ amortized cost basis to present the ~~end of~~net amount expected to be collected on the ~~period.~~loans. It is comprised of specific ~~reserves~~allowance for ~~impaired~~individually assessed loans and a general allowance for loans that are collectively assessed in pools ~~of loans~~ with similar ~~characteristics not individually evaluated.~~risk characteristics. The allowance is regularly evaluated ~~for loan losses~~ to maintain ana level adequate ~~level~~ to absorb ~~probable current~~expected losses inherent ~~losses~~ in the loan portfolio. ~~Factors contributing~~Refer to Note 1, “Accounting Policies and Basis of Presentation” to the ~~determination of the allowance include the credit worthiness of the borrower, changes~~Consolidated Financial Statements for additional information. Accrued interest receivable totaled $10.2 million at September 30, 2020, was reported 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 basedOther Assets on the Consolidated Balance Sheets and was excluded from the estimate of credit losses ~~expected to be realized from those~~for loans.

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The following table presents the balance and activity in the allowance for credit losses on loans by portfolio segment for the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~

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

~~The general component of the allowance for loan losses~~2019.


	For the Three Months Ended September 30,
	2020								2019
	Commercial		Residential		Consumer		Total		Commercial		Residential		Consumer		Total

	(in thousands)
Allowance for credit losses on loans
Beginning balance, prior to adoption of ASC 326	$	30,834	$	517	$	254	$	31,605	$	17,817	$	164	$	205	$	18,186
Provision for loan losses		(83)		149		570		636		434		(24)		3		413
Loans charged-off		(404)		—		—		(404)		(541)		—		(2)		(543)
Recoveries		56		—		1		57		18		—		6		24
Total ending allowance balance	$	30,403	$	666	$	825	$	31,894	$	17,728	$	140	$	212	$	18,080


	For the Nine Months Ended September 30,
	2020								2019
	Commercial		Residential		Consumer		Total		Commercial		Residential		Consumer		Total

	(in thousands)
Allowance for credit losses on loans
Beginning balance, prior to adoption of ASC 326	$	18,203	$	145	$	187	$	18,535	$	17,322	$	292	$	237	$	17,851
Impact of adopting ASC 326		(947)		8		85		(854)		—		—		—		—
Provision for loan losses		15,051		673		543		16,267		2,096		(151)		(20)		1,925
Loans charged-off		(1,979)		(161)		—		(2,140)		(1,725)		(9)		(39)		(1,773)
Recoveries		75		1		10		86		35		8		34		77
Total ending allowance balance	$	30,403	$	666	$	825	$	31,894	$	17,728	$	140	$	212	$	18,080

A charge-off is based 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 LGDs 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~~A collateral based loan ~~charge-offs are~~charge-off is measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated net realizable value of the ~~loan.~~loan collateral. 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~~

Nonaccrual loans include both homogeneous loans that are collectively evaluated for impairment 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.

loans. 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~~

Troubled Debt Restructurings

TDRs are 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 do not accrue interest and are included as nonperforming assets (“NPAs”) within nonaccrual loans (“NPLs”). TDRs which are accruing interest based on the restructured terms 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 or December 31, 2016, 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 (accretable yield), is being recognized on all acquired loans being accounted for under ASC 310-30.

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 and December 31, 2016.

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

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

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, Troubled Debt Restructurings by 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.

performing.

As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company had a recorded investment in TDRs of ~~$7.1~~$14.4 million and ~~$6.6~~$13.2 million, respectively. The Company allocated $689,000 in allowance for those loans at September 30, 2020 and had 0 commitments to lend additional funds on loans modified as TDRs as of September 30, 2020. The Company had commitments to lend additional funds of ~~$34,000 and $387,000~~$4,000 on loans modified as TDRs as of ~~September 30, 2017 and~~ December 31, ~~2016, respectively. During the three months ended September 30, 2017, a large Commercial and Industrial borrower was sold. As a part~~2019.

Table 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,~~Contents

Loans, by portfolio class, modified as TDRs during ~~the nine months ended September 30, 2017, the modification of terms for one Home Equity loan included a short term extension of the maturity date. During~~

the three and nine months ended September 30, ~~2016,~~2020 and 2019 are as follows:



		Outstanding Balance		Increase in Allowance
	Number of Loans	at September 30, 2020		at September 30, 2020

		(in thousands)
Three Months Ended September 30, 2020
Commercial and industrial	—	$	—	$	—
Total	—	$	—	$	—

Nine Months Ended September 30, 2020
Commercial and industrial	1	$	65	$	3
Commercial real estate	1		1,920		188
Total	2	$	1,985	$	191

Three Months Ended September 30, 2019
Commercial real estate	1	$	1,512	$	—
Total	1	$	1,512	$	—

Nine Months Ended September 30, 2019
Commercial and industrial	6	$	1,235	$	32
Commercial real estate	3		2,438		—
Total	9	$	3,673	$	32

The Company did not forgive any principal on TDRs during the three and nine months ended September 30, 2020 and 2019.

The following table presents by class, all loans modified as TDRs that defaulted during the three and nine months ended September 30, 2020 and within twelve months of their modification of terms for one Commercial and Industrial loan included an extension of the maturity date 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.date. There were no subsequent defaults for TDRs for the three or nine months ended September 30, 2019. A TDR is considered to be in default once it becomes 90 days or more contractually past due under the modified terms.


	Three Months Ended
	September 30, 2020
Troubled debt restructurings that subsequently defaulted during the period within twelve months of their modification date:	Number of Loans		Outstanding Balance

(in thousands)
Commercial	-	$	-
Total	-	$	-


	Nine Months Ended
	September 30, 2020
	Number of Loans		Outstanding Balance

(in thousands)
Commercial	2	$	310
Total	2	$	310

Section 4013 “Temporary Relief From Troubled Debt Restructurings,” of the Coronavirus Aid, Relief, and Economic Security Act, passed by Congress and signed into law on ~~prior TDRs.~~March 27, 2020, allows financial institutions the option to

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temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. On April 7, 2020, the Federal Financial Institutions Examination Council provided additional guidance in its Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised). This guidance received concurrence from the FASB and clarified that loan modifications made under the following criteria are generally not considered TDRs if:

●

the modification is in response to the National Emergency;

●

the borrower was current on payments at the time the modification program is implemented; and

●

the modification is short-term (e.g., six months).

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~~(Fair Isaac Corporation (FICO) scores), rating agency information, ~~LTV~~loan-to-value 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 and 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 or 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~~loans with commitments less than $1 million, 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 and December 31, 2016,~~2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows.


	Term Loans Amortized Cost Basis by Origination Year
													Revolving Loans
													Amortized
	2020		2019		2018		2017		2016		Prior		Cost Basis		Total

	(in thousands)
September 30, 2020
Commercial - commercial and industrial:
Risk rating
Pass	$	345,849	$	149,459	$	98,060	$	48,319	$	37,375	$	17,129	$	154,115	$	850,306
Special mention		485		8,771		27,186		272		—		331		25,734		62,779
Substandard		—		3,881		9,141		2,890		1,570		6,089		7,745		31,316
Doubtful		—		—		—		—		—		—		—		—
Total commercial - commercial and industrial	$	346,334	$	162,111	$	134,387	$	51,481	$	38,945	$	23,549	$	187,594	$	944,401
Commercial - commercial real estate:
Risk rating
Pass	$	55,813	$	164,849	$	135,310	$	97,639	$	137,676	$	220,153	$	9,255	$	820,695
Special mention		—		8,463		3,718		—		10,533		4,537		—		27,251
Substandard		—		11,506		2,126		3,261		—		15,896		50		32,839
Doubtful		—		—		—		—		—		—		—		—
Total commercial - commercial real estate loans	$	55,813	$	184,818	$	141,154	$	100,900	$	148,209	$	240,586	$	9,305	$	880,785
Commercial - construction and land:
Risk rating
Pass	$	43,899	$	57,168	$	19,925	$	—	$	663	$	890	$	—	$	122,545
Special mention		—		8,997		6,030		—		2,264		—		—		17,291
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total commercial - construction and land loans	$	43,899	$	66,165	$	25,955	$	—	$	2,927	$	890	$	—	$	139,836
Residential - mortgages:
Risk rating
Pass	$	3,540	$	2,882	$	14,805	$	1,632	$	3,569	$	399	$	—	$	26,827
Special mention		697		—		859		760		—		—		—		2,316
Substandard		—		—		179		—		26		112		—		317
Doubtful		—		—		—		—		—		—		—		—
Total residential - mortgage loans	$	4,237	$	2,882	$	15,843	$	2,392	$	3,595	$	511	$	—	$	29,460
Residential - home equity:
Risk rating
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	24,279	$	24,279
Special mention		—		—		—		—		��		—		249		249
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total residential - home equity loans	$	—	$	—	$	—	$	—	$	—	$	—	$	24,528	$	24,528
Consumer:
Risk rating
Pass	$	138,552	$	8,145	$	49	$	56	$	64	$	4,681	$	3,369	$	154,916
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total consumer loans	$	138,552	$	8,145	$	49	$	56	$	64	$	4,681	$	3,369	$	154,916
Consumer - other:
Risk rating
Pass	$	—	$	—	$	4,720	$	1,965	$	231	$	784	$	11,973	$	19,673
Special mention		—		2,648		—		—		—		—		—		2,648
Substandard		—		—		—		456		—		—		—		456
Doubtful		—		—		—		—		—		—		—		—
Total consumer - other loans	$	—	$	2,648	$	4,720	$	2,421	$	231	$	784	$	11,973	$	22,777

Total:
Pass	$	587,653	$	382,503	$	272,869	$	149,611	$	179,578	$	244,036	$	202,991	$	2,019,241
Special Mention		1,182		28,879		37,793		1,032		12,797		4,868		25,983		112,534
Substandard		—		15,387		11,446		6,607		1,596		22,097		7,795		64,928
Doubtful		—		—		—		—		—		—		—		—
Total	$	588,835	$	426,769	$	322,108	$	157,250	$	193,971	$	271,001	$	236,769	$	2,196,703

Table of Contents

As of December 31, 2019, the risk category of loans by class of loans is as follows.


			Special		Substandard		Substandard		Doubtful
	Pass		Mention		Accruing		Nonaccruing		Nonaccruing		Total

	(in thousands)
December 31, 2019
Commercial and industrial	$	648,895	$	40,179	$	10,051	$	5,990	$	-	$	705,115
Commercial real estate		891,078		5,483		19,504		263		-		916,328
Construction and land		127,540		-		-		-		-		127,540
Residential mortgages		30,941		-		119		151		104		31,315
Home equity		24,302		-		-		700		-		25,002
Mortgage warehouse		13,941		-		-		-		-		13,941
Consumer/Other		56,336		500		481		-		-		57,317
Total Loans	$	1,793,033	$	46,162	$	30,155	$	7,104	$	104	$	1,876,558

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of September 30, 2020:


		Nonaccrual		Nonaccrual				Loans Past
		With No		With				Due Over
		Allowance for		Allowance for		Total		89 Days
		Credit Losses		Credit Losses		Nonaccrual		Still Accruing
Commercial loans:
Commercial and industrial	$	3,725	$	1,334	$	5,059	$	—
Total commercial loans		3,725		1,334		5,059		—
Residential mortgages		26		—		26		336
Total loans	$	3,751	$	1,334	$	5,085	$	336

The gross additional interest income that would have been earned during the three and nine months ended September 30, 2020 had performing TDRs performed in accordance with the original terms is immaterial. Atlantic Capital recognized interest income on nonaccrual loans of $41,000 and $123,000 during the three and nine months ended September 30, 2020. During the three and nine months ended September 30, 2019, Atlantic Capital recognized interest income on nonaccrual loans totaling $2,000 and $170,000, respectively.

The following table presents the amortized cost basis of collateral dependent impaired loans by class of loans as of September 30, 2020:



		Real				Business		SBA
		Property		Equipment		Assets		Guaranty-75%		Total

Commercial and industrial	$	2,021	$	487	$	147	$	1,426	$	4,081
Residential mortgages		26		—		—		—		26
Total loans	$	2,047	$	487	$	147	$	1,426	$	4,107

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

Table of Contents

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~~2020 and December 31, ~~2016~~2019 by class of loans.

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

~~NOTE 7 – GOODWILL AND INTANGIBLE ASSETS~~


	As of September 30, 2020
	30 - 59		60 - 89		Greater Than
	Days		Days		89 Days				Total Past Due		Loans Not
	Past Due		Past Due		Past Due		Nonaccruing		and Nonaccruing		Past Due		Total

	(in thousands)
Loans by Classification
Commercial and industrial	$	1,158	$	—	$	—	$	5,059	$	6,217	$	938,184	$	944,401
Commercial real estate		359		—		—		—		359		880,426		880,785
Construction and land		—		—		—		—		—		139,836		139,836
Residential mortgages		1,171		766		336		26		2,299		27,161		29,460
Home equity		—		—		—		—		—		24,528		24,528
Consumer		6,113		2,690		—		—		8,803		168,890		177,693
Total Loans	$	8,801	$	3,456	$	336	$	5,085	$	17,678	$	2,179,025	$	2,196,703


	As of December 31, 2019
	30 - 59		60 - 89		Greater Than
	Days		Days		89 Days				Total Past Due		Loans Not
	Past Due		Past Due		Past Due		Nonaccruing		and Nonaccruing		Past Due			Total

	(in thousands)
Loans by Classification
Commercial and industrial	$	4,069	$	30	$	0	$	5,990	$	10,089	$	695,026	$	705,115
Commercial real estate		1,194		0		85		262		1,541		914,787		916,328
Construction and land		—		0		0		—		0		127,540		127,540
Residential mortgages		707		0		0		256		963		30,352		31,315
Home equity		—		0		0		700		700		24,302		25,002
Mortgage warehouse		—		0		0		—		0		13,941		13,941
Consumer		136		0		0		—		136		57,181		57,317
Total Loans	$	6,106	$	30	$	85	$	7,208	$	13,429	$	1,863,129	$	1,876,558

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

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 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 the TriNet servicing asset, increased the book value of securities available-for-sale, and increased the deferred tax asset.

~~There were no goodwill impairment charges recorded in~~following table presents loans purchased and/or sold during the three and nine months ended September 30, ~~2017~~2020 by portfolio class:


	Three Months Ended September 30, 2020
	Commercial and		Commercial		Residential
	Industrial		Real Estate		Mortgages		Total

	(in thousands)

Repurchases of SBA participations	$	1,015	$	-	$	-	$	1,015
SBA Sales		10,258		772		-		11,030
Total Loans	$	11,273	$	772	$	—	$	12,045

	Nine Months Ended September 30, 2020
	Commercial and		Commercial		Residential
	Industrial		Real Estate		Mortgages		Total

	(in thousands)

Repurchases of SBA participations	$	1,323	$	1,466	$	-	$	2,789
SBA Sales		26,427		2,264		277		28,968
Total Loans	$	27,750	$	3,730	$	277	$	31,757

Table of Contents

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

Atlantic Capital tests goodwill for impairment annually in the fourth quarter. In assessing the possibility that the Company's fair value has been reduced below its carrying amount due to the occurrence of events or circumstances between annual impairment testing dates, Atlantic Capital considers all available evidence, including (i) downward revisions to internal forecasts or decreases in market multiples (and the magnitude thereof), if any, and ~~2016.~~ (ii) declines in market capitalization below book value (and the magnitude and duration of those declines), if any. Atlantic Capital considered the declining market conditions generated by the COVID-19 pandemic during the first nine months of 2020 and performed an interim impairment test as of May 31, 2020 and as of September 30, 2020, which incorporated a combination of income and market valuation approaches and indicated that no impairment existed surrounding goodwill. Atlantic Capital continued to assess events and circumstances through the date of the filing of this Quarterly Report on Form 10-Q that could potentially indicate goodwill impairment including analyzing the impacts from the COVID-19 pandemic.

The Company conducted its annual impairment testing as of October 1, 2019, utilizing a qualitative assessment. Based on these assessments, management concluded that the 2019 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill). Therefore, a step one quantitative analysis was not required.

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)
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


	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)
2020
Balance, beginning of period	$	19,925	$	—	$	19,925	$	19,925	$	—	$	19,925
Amortization		—		—		—		—		—		—
Balance, end of period	$	19,925	$	—	$	19,925	$	19,925	$	—	$	19,925

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

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~~2020 and December 31, ~~2016,~~2019, the balance of SBA loans sold and serviced by Atlantic Capital totaled ~~$126.0~~$186.4 million and ~~$107.0~~$185.5 million, respectively.

Table of Contents

Changes in the balance of servicing assets for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 are presented in the following table.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
SBA Loan Servicing Assets	2020		2019		2020		2019

	(in thousands)				(in thousands)
Beginning carrying value, net	$	2,503	$	2,726	$	2,731	$	2,539
Additions		190		350		492		975
Amortization		(202)		(296)		(732)		(734)
Ending carrying value	$	2,491	$	2,780	$	2,491	$	2,780

At September 30, ~~2017~~2020 and ~~2016,~~December 31, 2019, 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, 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 )


Sensitivity of the SBA Servicing Assets	September 30, 2020			December 31, 2019

	(dollars in thousands)
Fair value of retained servicing assets	$	2,942		$	2,842
Weighted average life		3.22 years			3.77 years
Prepayment speed:		18.09	%		14.87	%
Decline in fair value due to a 10% adverse change	$	(87)		$	(150)
Decline in fair value due to a 20% adverse change	$	(215)		$	(254)
Weighted average discount rate		10.88	%		13.66	%
Decline in fair value due to a 100 bps adverse change	$	(16)		$	(98)
Decline in fair value due to a 200 bps adverse change	$	(83)		$	(156)

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.

TriNet Servicing Assets

TriNet servicing rights are initially recorded at fair value. Subsequently, Atlantic Capital accounts for TriNet servicing rights using the amortization method and they are included in other intangibles, net.

Changes in the balance of TriNet servicing assets for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 are presented in the following table.


	Three Months Ended September 30,				Nine Months Ended September 30,
TriNet Servicing Assets	2020		2019		2020		2019

	(in thousands)				(in thousands)
Beginning carrying value, net	$	228	$	369	$	296	$	444
Amortization		(33)		(37)		(101)		(112)
Ending carrying value	$	195	$	332	$	195	$	332

Table of Contents

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,~~2020 and December 31, 2019, 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, 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 )


Sensitivity of the TriNet Servicing Assets	September 30, 2020			December 31, 2019

	(dollars in thousands)
Fair value of retained servicing assets	$	350		$	414
Weighted average life		4.86 years			5.58 years
Prepayment speed:		5.00	%		5.00	%
Decline in fair value due to a 10% adverse change	$	(4)		$	(5)
Decline in fair value due to a 20% adverse change	$	(7)		$	(10)
Weighted average discount rate		8.00	%		8.00	%
Decline in fair value due to a 100 bps adverse change	$	(7)		$	(9)
Decline in fair value due to a 200 bps adverse change	$	(13)		$	(18)

Table of Contents

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, 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


	For the Three Months Ended						For the Nine Months Ended
	September 30, 2020						September 30, 2020
			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	$	21,108	$	(5,218)	$	15,890	$	6,081	$	(1,520)	$	4,561
Unrealized net gains (losses) on investment securities available-for-sale		46		(11)		35		5,771		(1,419)		4,352
Unrealized net gains (losses) on derivatives		(593)		146		(447)		8,709		(2,144)		6,565
Accumulated other comprehensive income (loss) end of period	$	20,561	$	(5,083)	$	15,478	$	20,561	$	(5,083)	$	15,478


	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 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

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~~2020 and ~~2016.~~

2019.


		Three Months Ended			Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
(in thousands, except share and per share amounts)
Net income from continuing operations	$	8,618	$	7,569	$	12,591	$	21,018
Net income from discontinued operations		—		617		—		21,697
Net income available to common shareholders	$	8,618	$	8,186	$	12,591	$	42,715

Weighted average shares outstanding
Basic ⁽¹⁾		21,500,735		22,681,904		21,553,953		23,800,525
Effect of dilutive securities:
Stock options and performance share awards		43,070		155,627		86,104		157,390
Diluted		21,543,805		22,837,531		21,640,057		23,957,915

Net income per common share - basic
Net income per common share - continuing operations	$	0.40	$	0.33	$	0.58	$	0.88
Net income per common share - discontinued operations		—		0.03		—		0.91
Net income per common share - basic	$	0.40	$	0.36	$	0.58	$	1.79
Net income per common share - diluted
Net income per common share - continuing operations	$	0.40	$	0.33	$	0.58	$	0.88
Net income per common share - discontinued operations		—		0.03		—		0.91
Net income per common share - diluted	$	0.40	$	0.36	$	0.58	$	1.78

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.

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

Stock options ~~and warrants~~ outstanding of ~~550~~109,446 at September 30, ~~2017~~2020 and ~~162,428~~150 at September 30, ~~2016~~2019 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, no0 par value per share, and 100,000,000 shares are designated as common stock, no0 par value per share.

At Atlantic Capital had 21,202,783 shares of common stock issued and outstanding at September 30, ~~2017, 25,716,418~~2020. At December 31, 2019, 21,751,026 shares of common stock were issued and ~~outstanding. At~~outstanding. Atlantic Capital had 0 shares of preferred stock outstanding at September 30, 2020 or December 31, ~~2016, 25,093,135 shares of common stock were issued and outstanding.~~

2019.

The primary source of funds available to Atlantic Capital is payments of dividends from the Bank. ~~The~~NaN dividends were paid by the Bank ~~has not paid any dividends~~ to Atlantic Capital ~~in 2017 or 2016.~~during the three months ended September 30, 2020. For the nine months ended September 30, 2020, the Bank paid dividends totaling $12.5 million. For the three and nine months ended September 30, 2019, the Bank paid dividends totaling $10.0 million and $36.5 million, respectively to Atlantic Capital. 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.

During the first quarter of 2020, the Company completed the $85.0 million stock repurchase program authorized by the Board of Directors on November 14, 2018. On March 4, 2020, the Board of Directors authorized a new stock repurchase program pursuant to which the Company may purchase up to $25 million of its issued and outstanding common stock. 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 that will be adopted in accordance with Rule 10b-18 or Rule 10b5-1 under the Securities Exchange Act of 1934. Any repurchased shares will

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constitute authorized but unissued shares. During the first nine months of 2020, the Company repurchased 820,349 shares totaling $12.0 million, of which 516,083 shares totaling $5.2 million were purchased under the new stock buyback program with the remaining shares purchased under the previous program. The Company initially paused repurchases in March 2020 as part of its holding company liquidity planning in response to the COVID-19 pandemic and resumed repurchases in August 2020.

NOTE 11 – DERIVATIVES AND HEDGING

Risk Management

Atlantic Capital’s objectives in using interest rate derivatives are to ~~add stability to~~stabilize 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,~~2020, 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~~2020 and December 31, ~~2016,~~2019, Atlantic Capital had interest rate swaps designated as cash flow hedges with an aggregate notional ~~amount~~amounts of ~~$75.0~~$125.0 million and ~~$50.0~~$175.0 million, respectively.

NaN hedge ineffectiveness gains or losses were recognized on active cash flow hedges for the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019. 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~~$1.7 million 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~~2020 and December 31, ~~2016,~~2019, Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of ~~$139.1~~$70.4 million and ~~$140.7~~$89.5 million, respectively.

Atlantic Capital acquired a loan level hedging program, which 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, 2020 and

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December 31, 2019, Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of $141.2 million and $149.1 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~~

In accordance with the interest rate agreements with derivatives dealers, Atlantic Capital may be required to post margin to these counterparties. At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, Atlantic Capital had minimum collateral posting thresholds with certain of its derivative counterparties and posted collateral of ~~$9.5~~$13.2 million and ~~$16.3~~$13.6 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~~2020 and December 31, ~~2016,~~2019, Atlantic Capital had credit risk participation agreements with a notional amount of ~~$15.6~~$6.3 million and ~~$4.5~~$7.7 million, respectively.

The following table reflects the estimated fair value positions of derivative contracts and credit risk participation agreements as of September 30, ~~2017~~2020 and December 31, ~~2016:~~2019:

Derivatives designated as hedging instruments under ASC 815


		September 30, 2020				December 31, 2019
(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	$	12,155	$	125,000	$	3,578


Cash flow hedge of LIBOR based loans	Other liabilities	$	0	$	0	$	50,000	$	8

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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

Derivatives not designated as hedging instruments under ASC 815


		September 30, 2020				December 31, 2019
(in thousands)	Balance Sheet	Notional				Notional
Interest Rate Products	Location	Amount		Fair Value		Amount		Fair Value
Customer swap positions	Other assets	$	35,210	$	2,308	$	44,763	$	1,025
Zero premium collar	Other assets		70,613		10,896		74,562		4,253
		$	105,823	$	13,204	$	119,325	$	5,278

Dealer offsets to customer swap positions	Other liabilities	$	35,210	$	2,342	$	44,763	$	1,090
Dealer offset to zero premium collar	Other liabilities		70,613		10,974		74,562		4,545
Credit risk participation	Other liabilities		6,251		8		7,657		4
		$	112,074	$	13,324	$	126,982	$	5,639

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, 2020 and 2019.

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,
		2020		2019		2020		2019
Interest rate products	Other income	$	7	$	(292)	$	249	$	(633)
Other contracts	Other income		3		(1)		(3)		(4)
Total		$	10	$	(293)	$	246	$	(637)

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~~2020 and ~~2016:~~

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

2019:

Derivatives in Cash Flow Hedging Relationships

Three Months Ended September 30,

Nine Months Ended September 30,

Amount of Gain or

(Loss) Recognized in

Gain or (Loss) Reclassified from

(Loss) Recognized in

Gain or (Loss) Reclassified from

OCI on Derivatives

Accumulated OCI in Income

OCI on Derivatives

Accumulated OCI in Income

(Effective Portion)

(in thousands)

2020

2019

Location

2020

2019

2020

2019

Location

2020

2019

Interest rate swaps

(611)

2,212

Interest income

(619)

(113)

8,657

5,303

Interest income

(1,271)

(242)

NOTE 12 – OTHER BORROWINGS AND LONG TERM DEBT

There were 0 Federal Home Loan Bank borrowings outstanding as of September 30, ~~2017~~2020 and December 31, ~~2016 are as follows:~~2019. Interest expense for FHLB borrowings totaled $16,000 and $54,000 for the three and nine months ended September 30, 2020, respectively. Interest expense for FHLB borrowings for the three and nine months ended September 30, 2019 was $390,000 and $660,000, respectively.

At September 30, 2020, the Company had available line of credit commitments with the FHLB totaling $867.1 million, with 0 outstanding FHLB advances. However, based on actual collateral pledged, $87.4. million was available. At September 30, 2020, the Company had an available line of credit based on the collateral available of $248.6 million with the Federal Reserve Bank of Atlanta (“FRB”). Interest expense on federal funds purchased for the three and nine months ended September 30, 2020 totaled $3,000 and $41,000, respectively, and $99,000 and $385,000, for the three and nine months ended September 30, 2019, respectively.

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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

On ~~September 28, 2015,~~August 20, 2020, Atlantic Capital issued 5.50% fixed-to-floating rate subordinated notes (the “Notes”) totaling ~~$50.0~~$75 million in aggregate principal ~~amount.~~amount and callable at par plus accrued but unpaid interest on September 1, 2025. The Notes are due September ~~30, 2025~~1, 2030 and bear a fixed rate of interest of ~~6.25%~~5.50% per year until September ~~29, 2020.~~1, 2025. From September ~~30, 2020~~1, 2025 to the maturity date, the interest rate will be a floating rate equal to the three-month ~~LIBOR~~SOFR plus ~~468~~536.3 basis points. The Notes were priced at 100% of their par ~~value. The Notes~~value and qualify as Tier 2 regulatory capital.

On September 30, 2020, Atlantic Capital redeemed its 6.25% fixed-to-floating rate subordinated notes due 2025, previously issued on September 28, 2015 and totaling $50 million.

Subordinated debt is summarized as ~~follows.~~

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

follows:


	September 30, 2020		December 31, 2019

	(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
Floating rate 10 year capital securities, with interest paid semi-annually at an annual fixed rate of 5.50% until September 1, 2025		75,000		—
Principal amount of subordinated debt	$	75,000	$	50,000
Less debt issuance costs		1,186		127
Subordinated debt, net	$	73,814	$	49,873

All subordinated debt outstanding at September 30, ~~2017~~2020 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, employees, and ~~employees.~~independent contractors of Atlantic Capital and its affiliates. The Compensation Committee has the authority to grant the following: an incentive or nonqualified option; a stock appreciation right (“SAR”), which includes a related SAR or a freestanding SAR; a restricted ~~stock~~ award (including a restricted stock award or a restricted stock unit award); a performance award (including a performance share award or a performance unit award); a phantom stock award; an other stock-based award; a cash bonus award; a dividend equivalent award; or any other award granted under the ~~plan.~~

~~As of~~plan.

At September 30, ~~2017,~~2020, approximately ~~3,825,000~~ 2,981,000 additional awards ~~were available to~~could be granted under the plan. Through September 30, 2020, incentive stock options, nonqualified stock options, restricted stock awards, performance share awards, and other stock-based awards have been 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.

The Company accounts for stock options in accordance with FASB ASC 718, Stock Compensation, which requires the Company to recognize the costs of its employee stock option awards in its Consolidated Statements of Operations. According to ASC 718, the total cost of the Company’s share-based awards is equal to their grant date fair value and is recognized as expense on a straight-line basis over the vesting period of the awards. Total stock-based compensation expense recognized by the Company for the three and nine months ended September 30, ~~2017, no warrants were outstanding~~2020 for stock option grants was $18,000 and $53,000, respectively, and $18,000 and $151,000 for the ~~purchase~~three and nine months ended September 30, 2019, respectively. Unrecognized stock-based compensation expense related to stock option grants at September 30, 2020 and 2019 was $6,000 and $77,000, respectively. At September 30, 2020 and 2019, the weighted average period over which this unrecognized expense is expected to be recognized was 0.1 years and 1.1 years, respectively. The weighted average remaining contractual life of ~~common stock. As~~options outstanding at September 30, 2020 was 1.8 years.

Table 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.Contents

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. NaN stock options were granted/modified during the nine months ended September 30, 2020.


	For the Nine Months Ended
	~~2017~~ September 30, 2019
Risk‑free interest rate	~~1.00-1.99%~~ 2.27	%
Expected term in years	~~.25-8~~ 1.73-1.82
Expected stock price volatility	~~23.2-25.3%~~ 26.8	%
Dividend yield	—	%

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

2020:


					Weighted Average
			Weighted		Remaining	Aggregate
			Average		Contractual Term	Intrinsic Value
	Shares		Exercise Price		(in years)	(in thousands)
Outstanding, December 31, 2019		318,980	$	11.47
Granted/modified⁽¹⁾		—		—
Exercised		(60,940)		10.82
Forfeited⁽¹⁾		—		—
Expired		(94)		102.12
Outstanding, September 30, 2020		257,946	$	11.59	1.81	$	195
Exercisable, September 30, 2020		247,946	$	11.45	1.68	$	195

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 and $472,000 for the three and nine months ended September 30, 2017, respectively, and $192,000 and $638,000 for the three and nine months ended September 30, 2016, respectively. Using the Black-Scholes pricing model, the amount of compensation expense was determined based on

(1)	During the nine months ended September 30, 2020, the Company did not modify any options.

The total 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.~~

~~The following table represents restricted stock activity~~option shares vested for the nine months ended September 30, ~~2017:~~

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

2020 and 2019 was $0 and $137,000, respectively.

In 2019 and 2020, the Company granted performance share awards under Atlantic Capital’s 2015 Stock Incentive Plan to members of executive management to evidence awards granted under the Long Term Incentive Plan. The Company also granted restricted stock awards to certain employees in 2019 and 2020 under the 2015 Stock Incentive Plan. 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 are 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 ~~grants~~awards and performance share awards that are expected to vest is amortized into expense over the vesting period. ~~For~~Restricted stock awards may cliff vest over 1-3 years or vest on a pro-rata basis, generally over 3 years. The market value at the date of award is amortized by charges to compensation expense over the vesting period.

Compensation expense related to restricted stock and performance shares for the three and nine months ended September 30, ~~2017, compensation expense of $396,000~~2020 was $620,000 and ~~$869,000,~~$1.6 million, respectively, ~~was recognized related to restricted stock awards. For~~and $454,000 and $1.2 million for the three and nine months ended September 30, ~~2016,~~2019, respectively. Unrecognized compensation expense ~~of $71,000 and $527,000, respectively, was recognized related to~~associated with restricted stock ~~awards.~~

Aswas $3.8 million as of September 30, ~~2017, there was $3.0~~2020 and $2.6 million as of September 30, 2019. At September 30, 2020 and September 30, 2019, the weighted average period over which this unrecognized ~~compensation cost related to restricted stock awards granted under the plan. That cost~~expense is ~~expected~~ to be recognized ~~over a weighted-average period of 3.11 years.~~

was 2.30 years and 2.27 years, respectively. During the three and nine months ended September 30, ~~2017,~~2020, there were 136,155 and 278,705 restricted stock and performance share awards granted at a weighted average grant price of $11.05 and $14.67 per share, respectively. During the three and nine months ended September 30, 2019, there were 28,500 and 158,593 restricted stock and performance share awards granted at a weighted average grant price of $17.57 and $19.19 per share, respectively.

The Company did not modify any options during the nine months ended September 30, 2020. During the nine months ended September 30, 2019, the Company modified options for ~~30,400~~12,500 shares and ~~10,628~~4,719 restricted stock awards to ~~four~~ two

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individuals. The modifications allowed for the immediate vesting of the awards upon termination of service. The total incremental cost resulting from the modifications was ~~$14,000~~$31,000 for the ~~three and~~ nine months ended September 30, ~~2017.~~2019.

The following table represents restricted stock and performance share award activity for the nine months ended September 30, 2020:


		Weighted Average Grant-
	Shares	Date Fair Value
Outstanding, December 31, 2019	292,877	$	19.00
Granted/modified⁽¹⁾	278,705		14.67
Vested	(109,390)		17.56
Forfeited	(11,834)		17.31
Outstanding, September 30, 2020	450,358	$	16.72

(1)	During the nine months ended September 30, 2020, the Company did not modify any restricted stock awards.

NOTE 14 – FAIR VALUE MEASUREMENTS

Atlantic Capital follows the guidance pursuant to ASC 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 available-for-sale 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, 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 no0 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~~2020 and ~~Level 3 and no transfers between Level 1 and Level 2 during the nine months ended September 30, 2016.~~

2019.

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

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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.~~counterparties. For these instruments, Atlantic Capital obtains fair value measurements from an independent pricing service. The fair value measurements consider factors such as the ~~likelihood~~prevailing level of ~~default by Atlantic Capital and its counterparties,~~interest rates, 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 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~~2020 and December 31, ~~2016.~~2019.


	Fair Value Measurements at September 30, 2020 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	$	—	$	82,566	$	—	$	82,566
Trust preferred securities		—		4,590		—		4,590
Corporate debt securities		—		19,644		—		19,644
Mortgage-backed securities		—		154,084		—		154,084
Total securities available-for-sale	$	—	$	260,884	$	—	$	260,884
Interest rate derivative assets	$	—	$	25,359	$	—	$	25,359
Interest rate derivative liabilities	$	—	$	13,324	$	—	$	13,324


	Fair Value Measurements at December 31, 2019 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. states and political subdivisions	$	0	$	82,485	$	0	$	82,485
Trust preferred securities		0		4,688		0		4,688
Corporate debt securities		0		19,920		0		19,920
Mortgage-backed securities		0		175,368		—		175,368
Total securities available-for-sale	$	0	$	282,461	$	0	$	282,461
Interest rate derivative assets	$	0	$	8,856	$	0	$	8,856
Interest rate derivative liabilities	$	0	$	5,647	$	0	$	5,647

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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~~2020 and ~~2016~~,twelve months ended December 31, 2019, there was ~~not a~~no change in the methods and significant assumptions used to estimate fair value.

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~~2020 and December 31, ~~2016~~.

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

2019.

Level 1

Level 2

Level 3

Fair Value

September 30, 2020

Measurement

Total

(in thousands)

Impaired Loans

—

4,107

Level 1

Level 2

Level 3

Fair Value

December 31, 2019

Measurement

Total

(in thousands)

Impaired Loans

4,288

Level 3 loans consist of impaired loans which have been partially charged-off or have specific valuation ~~allowances.~~allowances based on collateral value. 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, Federal Reserve Bank stock, 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.

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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.

The following table presents the estimated fair values of Atlantic Capital’s financial instruments at September 30, ~~2017~~2020 and December 31, ~~2016.~~2019.


	Fair Value Measurements at
	September 30, 2020 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	$	22,715	$	22,715	$	—	$	—
Interest-bearing deposits in banks		91,243		91,243		—		—
Total securities available-for-sale		260,884		—		260,884		—
Total securities held-to-maturity		185,822		—		196,712		—
FHLB stock		2,619		—		—		2,619
Federal Reserve Bank stock		10,080		—		—		10,080
Loans held for investment, net		2,188,035		—		—		2,228,766
Loans held for sale		859		—		859		—
Derivative assets		25,359		—		25,359		—
Financial liabilities:
Deposits	$	2,468,722	$	—	$	2,442,818	$	—
Subordinated debt		73,814		—		78,089		—
Derivative financial instruments		13,324		—		13,324		—


	Fair Value Measurements at
	December 31, 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	$	45,249	$	45,249	$	0	$	0
Interest-bearing deposits in banks		421,079		421,079		0		0
Total securities available-for-sale		282,461		0		282,461		0
Total securities held-to-maturity		116,972		0		115,291		0
FHLB stock		2,680		0		0		2,680
Federal Reserve Bank stock		9,998		0		0		9,998
Loans held for investment, net		1,873,524		0		0		1,890,258
Loans held for sale		370		0		370		0
Derivative assets		8,856		0		8,856		0
Financial liabilities:
Deposits	$	2,499,046	$	0	$	2,421,957	$	0
Subordinated debt		49,873		0		50,081		0
Derivative financial instruments		5,647		0		5,647		0

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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
—

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~~2020 and December 31, ~~2016~~2019 was as follows:

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


	September 30, 2020		December 31, 2019

	(in thousands)
Financial Instruments whose contract amount represents credit risk:
Commitments to extend credit	$	764,247	$	735,905
Standby letters of credit		18,690		8,053
	$	782,937	$	743,958

Minimum lease payments	$	18,464	$	20,055

The Company also had commitments related to investments in SBICs totaling $2.0 million and $2.4 million at September 30, 2020 and December 31, 2019, respectively. In addition, Atlantic Capital had private equity commitments totaling $2.0 million and 0 at September 30, 2020 and December 31, 2019, 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

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, 2020 and 2019:

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	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019

					(in thousands)
Deposit account analysis fees and charges	$	1,080	$	672	$	3,012	$	1,894
ATM fees		10		—		46		39
NSF fees		5		18		30		40
Wire fees		18		124		166		336
Foreign exchange fees		104		110		272		275
Other		—		1		4		5
Total service charges - continuing operations		1,217		925		3,530		2,589
Service charges - discontinued operations		—		—		—		527
Total service charges	$	1,217	$	925	$	3,530	$	3,116

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 Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals. 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, 2020 and December 31, 2019, 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 a period of time in exchange for consideration. On ~~October 25, 2017, Atlantic Capital entered into a Separation Agreement with D. Michael Kramer~~January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in ~~connection with~~which the ~~resignation~~Company is the lessee.

Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on the Consolidated Balance Sheets. The Company does not currently have any significant finance leases in which it is the lessee.

Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from ~~his position as President~~the lease. ROU assets and ~~Chief Operating Officer~~operating lease liabilities are recognized at lease commencement based on the present value of the ~~Company.~~

~~The Separation Agreement provides for benefits to and imposes obligations upon Mr. Kramer. Specifically, Mr. Kramer is entitled to receive the following~~remaining lease payments ~~and benefits under the Separation Agreement:~~

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

using a ~~cash payment of $407,265, which~~discount rate that represents ~~one (1) times his base salary;~~

~~a cash payment of $183,269, which represents one (1) times his target bonus opportunity, under~~ the Company’s ~~Executive Officer Short Term Incentive Plan (the “STI Plan”)~~incremental borrowing rate at the lease commencement date. ROU assets are further adjusted for ~~2017;~~lease incentives. Operating lease expense, which is comprised of 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 terms extending through 2024. As of September 30, 2020, operating lease ROU assets and liabilities were $10.4 million and $15.3 million, respectively, compared to $11.9 million and $16.9 million, respectively, as of December 31, 2019. 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,

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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~~single lease component.

Rent expense, which was included in occupancy expense in the Consolidated Statements of ~~$150,000, which represents~~Income, for both the ~~pro-rata portion of his STI Plan bonus opportunity deemed earned for 2017;~~

~~a cash payment of $612,883, which represents accrued awards deemed earned under~~three and nine months ended September 30, 2020 and 2019 was $520,000 and $1.7 million, respectively.

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019

	(in thousands)
Operating lease cost	$	510	$	509	$	1,696	$	1,635
Short-term lease cost		10		11		25		37
Sublease income		(91)		(70)		(273)		(186)
Net lease cost	$	429	$	450	$	1,448	$	1,486

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019

	(in thousands)
Operating cash paid for amounts included in the measurement of lease liabilities	$	530	$	551	$	1,655	$	1,594
Right-of-use assets obtained in exchange for new finance lease liabilities		62		—		62		15,207


	As of September 30,
	2020			2019
Weighted-average remaining lease term - operating leases		8.5 years			9.0 years

Weighted-average discount rate - operating leases		3.04	%		3.30	%

The table below summarizes the maturity of remaining lease liabilities:

��
	September 30, 2020
	(in thousands)
Twelve Months Ended:
September 30, 2021	$	2,052
September 30, 2022		2,403
September 30, 2023		2,136
September 30, 2024		1,966
September 30, 2025		1,905
Thereafter		8,002
Total future minimum lease payments		18,464
Less: Interest		(3,122)
Present value of net future minimum lease payments	$	15,342

~~acceleration~~

Table of ~~14,000 shares of unvested restricted stock and 120,680 unvested options and extension of the post-termination exercise period for options; and~~Contents

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


~~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 of Atlantic Capital Bancshares, Inc. ~~(the “Company”~~(“we,” “us,” 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,” “strive,” “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:

●

the impact of the COVID-19 pandemic or any other pandemic on the national and local economy and the responses of governmental and monetary authorities on our operations, including declines in credit quality, strains on capital and liquidity, fluctuations in our payment processing business, and declines in deposits;

●

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

●

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 Small Business Administration ("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 related to litigation, regulatory enforcement and reputation as a result of our participation in the Payment Protection Program (“PPP”) and the risk that the SBA may not fund some or all PPP loan guaranties;

●

risks associated with our ability to manage the planned growth of our payment processing business, including changing 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;

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

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;~~

~~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;~~

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

●

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;

●

severe catastrophic events or social and civil unrest in our geographic area;

●

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

●

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

●

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

●

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;

●

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

●

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

●

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

●

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

●

adequacy of our risk management program;

●

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

●

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

●

other risks and factors identified in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 16, 2020 (the “Annual Report”) in Part I, Item 1A under the heading “Risk Factors” as amended by factors identified in our Quarterly Reports on Form 10-Q as filed with the SEC on May 8, 2020 and August 7, 2020, respectively.

Response to COVID-19

As the COVID-19 pandemic affected all areas of economic and social life, Atlantic Capital responded with measures to protect the health of its community, customers and employees. We implemented work-from-home initiatives for employees when possible and ceased non-essential business related travel.

In addition, we have taken the following steps to assist customers during these challenging times, consistent with sound banking practice:

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●

funding loans for business borrowers through the PPP with $232 million outstanding as of September 30, 2020;

●

evaluating business segments in our market areas to identify areas of need and focusing our assessment and management of portfolio risk;

●

communicating with customers to assess developing credit situations and needs assessment; and

●

offering payment deferrals to existing customers with a streamlined loan modification process when appropriate. At September 30, 2020, there were $7.5 million in loans outstanding with payment deferrals.

The COVID-19 pandemic has negatively impacted the global economy, and in response to this crisis, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law on March 27, 2020. The CARES Act provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other relief. Some of the ~~economies~~provisions applicable to us include, but are not limited to:

●

Accounting for Loan Modifications - The CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a Troubled Debt Restructuring (“TDR”) and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes.

●

Paycheck Protection Program - The CARES Act established the PPP, an expansion of the SBA’s 7(a) loan program and the Economic Injury Disaster Loan Program, administered directly by the SBA. The PPP is a loan program designed to provide a direct incentive for small businesses to keep their workers on the payroll. The PPP closed to new applicants on August 8, 2020. SBA will generally forgive loans if all employees are kept on the payroll and the loan proceeds are used for certain payroll, rent, mortgage interest, or utilities expenses during the applicable covered period of eight or twenty-four weeks (as amended by the Paycheck Protection Program Flexibility Act).

●

Subsidy Payments- The CARES Act subsidy provided loan payments for six months on existing SBA 7(a) loans disbursed prior to September 27, 2020.

Many of the stimulus programs under the CARES Act are set to expire at the end of 2020 if they have not already. Also in ~~which we conduct operations may adversely affect our operating results;~~response to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions that apply to us include, but are not limited to:

●

Accounting for Loan Modifications – A loan modification that does not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with FASB staff that short-term modifications made in good faith in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment.

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●

Past Due Reporting - With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the loan agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral.

●

Nonaccrual Status - During short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.

On August 3, 2020, the ~~potential impact~~agencies issued guidance in anticipation of ~~any legal, regulatory and policy changes affecting~~the end of accommodations to borrowers to encourage financial institutions ~~and the economies in which we conduct operations as a result~~to consider prudent accommodation options that are based on an understanding of the ~~new presidential administration;~~

credit risk of the ~~U.S. legal~~borrower; are consistent with applicable laws and ~~regulatory framework, including those associated~~regulations; and, that can ease cash flow pressures on affected borrowers, improve their capacity to service debt, and facilitate a financial institution’s ability to collect on its loans. We will continue to communicate with customers to address continuing credit situations and in a manner in line with the ~~Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), could adversely affect the operating results of the company;~~

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

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

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

~~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.”

published guidance.

CRITICAL ACCOUNTING POLICIES

~~The~~

Our accounting and reporting policies ~~of Atlantic Capital~~ are in accordance with GAAP and conform to general practices within the banking industry. ~~Atlantic Capital’s~~Our 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~~our consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include ~~Atlantic Capital’s~~our accounting for the allowance for ~~loan~~credit losses on loans, fair value measurements, and income tax related items. ~~Significant~~On January 1, 2020, we adopted ASC 326, which changes the accounting for the allowance for credit losses. For a discussion of this new accounting policy, refer to Note 1 of the September 30, 2020 Consolidated Financial Statements. Other significant accounting policies are discussed in the Notes to Consolidated Financial Statements within ~~Atlantic Capital’s~~our Annual ~~Report on Form 10-K.~~

Report.

Non-GAAP Financial Measures.

This Form 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~~Our management uses non-GAAP financial measures, including: (i) taxable equivalent interest income; (ii) taxable equivalent net interest income; (iii) loan yield excluding PPP loans; (iv) taxable equivalent net interest margin; ~~(iv)~~(v) taxable equivalent net interest ~~income after provision for loan losses-taxable equivalent; (v)~~margin excluding PPP loans; (vi) taxable equivalent income before income ~~taxes-taxable equivalent; and (vi)~~taxes; (vii) taxable equivalent income tax ~~expense-taxable equivalent.~~ expense; (viii) tangible assets; (ix) tangible common equity; (x) tangible book value per common share, and (xi) allowance for credit losses to loans held for investment excluding PPP loans.

Management ~~uses these~~believes that non-GAAP financial measures ~~because it believes they~~ provide a greater understanding of ongoing performance and operations, and enhance comparability with prior ~~periods,~~periods. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as determined in accordance with GAAP, and ~~provide users of~~investors should consider our performance and financial condition as reported under GAAP and all other relevant information ~~with a meaningful measure for~~when assessing our performance or financial ~~results and credit trends.~~condition. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as ~~an alternative to any measure~~a substitute for analysis of ~~performance~~the results or financial condition as ~~determined in accordance with~~reported under GAAP. ~~In addition, non-GAAP~~Non-GAAP financial measures may not be comparable to ~~similarly titled non-GAAP~~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.

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EXECUTIVE OVERVIEW AND EARNINGS SUMMARY

~~Atlantic Capital~~

We reported net income from continuing operations of ~~$4.1~~$8.6 million for the third quarter of ~~2017~~2020 compared to net income from continuing operations of ~~$3.7~~$7.6 million for the third quarter of ~~2016.~~2019. Diluted income per common share from continuing operations was ~~$.16~~$0.40 for the third quarter of ~~2017~~2020, compared to ~~diluted income per common share of $.15~~$0.33 for the ~~third quarter of 2016.~~

same period in 2019.

For the nine months ended September 30, ~~2017, Atlantic Capital~~2020, we reported net income from continuing operations of ~~$11.6 million~~$12.6 million. This compared to net income from continuing operations of ~~$11.8~~$21.0 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~~2019. Diluted income per common share from continuing operations was $0.58 for the nine months ended September 30, 2020 compared to ~~$.47~~$0.88 for the same period in ~~2016.~~

2019.

The increase in net income from continuing operations for the three months ended September 30, ~~2017,~~2020, compared to the same period in ~~2016,~~2019, was primarily ~~the result of~~attributable to a ~~$1.1~~$4.0 million ~~or 6%, increase~~decrease in ~~net~~ interest ~~income after provision for loan losses,~~expense offset by a ~~decrease of $525,000~~$1.0 million, or 8% increase in noninterest ~~income.~~

expense.

For the nine months ended September 30, ~~2017~~2020 compared to the first nine months of ~~2016,~~2019, the decrease in net income from continuing operations was primarily attributable to an increase in provision for credit losses of $15.0 million, and a ~~$4.7 million,~~$777,000, or ~~27%~~10%, decrease in noninterest income ~~and a $1.3~~from continuing operations, partially offset by an increase of $4.7 million, or ~~83%~~8%, ~~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 intaxable equivalent net interest ~~income before provision for loan losses and a $1.6 million, or 3%, reduction in noninterest expense.~~

income.

Taxable equivalent net interest income was ~~$20.5~~$22.1 million for the third quarter of ~~2017,~~2020, compared to ~~$19.5~~$20.1 million for the third quarter of ~~2016.~~2019. Taxable equivalent net interest margin ~~increased~~decreased to ~~3.26%~~3.14% for the three months ended September 30, ~~2017~~2020 from ~~3.12%~~3.52% for the three months ended September 30, ~~2016.~~ 2019. Driving the decrease in interest expense was the decline in the cost of interest-bearing deposits for the three months ended September 30, 2020 compared to the same period in 2019, particularly in Negotiable Order of Withdrawal (“NOW”), money market and savings accounts. The increase in net income was partially offset by a decrease in loan yields of 136 basis points for the three months ended September 30, 2020 compared to the same period in 2019. However, the decrease in loan yields was mitigated by an increase in average loan balances totaling $390 million, or 22%, during the same period.

For the nine months ended September 30, ~~2017,~~2020, taxable equivalent net interest income from continuing operations was ~~$60.7~~$65.3 million compared to ~~$57.7~~$60.6 million for the same period of ~~2016.~~2019. Taxable equivalent net interest margin ~~increased~~from continuing operations decreased to ~~3.24%~~3.25% for the nine months ended September 30, ~~2017~~2020 from ~~3.11%~~3.66% for the nine months ended September 30, ~~2016.~~2019. The margin ~~increase~~decrease for the three and nine months ended September 30, ~~2017~~2020 compared to the prior year was primarily the result of a decrease in loan yields due to ~~increased investment in non-taxable investment securities~~the declining interest rate environment and ~~increases in~~ the ~~Fed Funds rate.~~

addition of the lower yielding PPP loans.

Provision for ~~loan~~credit losses for the quarter ended September 30, ~~2017~~2020 totaled ~~$322,000,~~$28,000, a decrease of ~~$141,000~~$385,000 from the quarter ended September 30, ~~2016. The lower provision for the three months ended September 30, 2017 was primarily related to a decline in loan growth.~~2019. For the nine months ended September 30, ~~2017, Atlantic Capital’s~~2020, our provision for loan losses was ~~$2.9~~$17.0 million compared to a provision of ~~$1.6~~$1.9 million for the first nine months of ~~2016.~~2019. The ~~increase was primarily related~~adoption of ASC 326 added a forecasting element to ~~an additional $1.0 million specific reserve that was recorded~~the calculation of expected credit losses in the ~~second quarter~~first nine months of ~~2017 as~~2020, which contributed to the increase in provision for the nine month period in 2020. The COVID-19 pandemic was also factored into adverse economic forecasts used under the current expected credit loss (“CECL”) model, which likely had a ~~result~~greater impact on the CECL model given its use of forecasting elements, whereas the ~~downgrade of a large loan relationship~~incurred loss model used prior to ~~nonperforming.~~

2020 primarily considered historical data.

Noninterest income decreased ~~$525,000,~~$265,000, or ~~13%~~10%, to ~~$3.5~~$2.5 million from the third quarter of ~~2016.~~2019. The decrease was primarily due to an increase of $285,000 in loss on sales of other assets, a ~~$312,000,~~decrease of $253,000 in gains on sale of securities, and a decrease of $257,000, or ~~49%~~22%, in SBA lending activities. Partially offsetting this decrease was an increase in ~~mortgage~~ income ~~which was attributable~~from service charges of $292,000, or 32%, resulting from continued growth in the payments processing business and an increase of $303,000 in derivatives income due to ~~higher interest rates and lower demand.~~ changes in the derivatives credit valuation adjustment.

For the first nine months of ~~2017,~~2020, noninterest income from continuing operations decreased ~~$4.7 million,~~$777,000, or ~~27%~~10%, to ~~$12.6~~$7.3 million. The decrease was primarily due to a ~~$3.9 million gain on the sale~~decrease of ~~seven branches in the second quarter of 2016 as well as a $1.1~~$1.2 million, or ~~95%~~37%, in SBA lending activities, a decrease of $907,000 in gains on ~~the~~ sale of ~~TriNet loans~~securities and ~~a $453,000,~~an increase in loss on sales of other assets of $267,000. Partially offsetting this

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decrease was an increase in income from service charges of $941,000, or ~~32%~~36%, ~~decrease~~and an increase of $883,000 in ~~mortgage~~derivatives income.

For the third quarter of ~~2017,~~2020, noninterest expense increased ~~$208,000,~~$1.0 million, or 1%8%, to $13.7 million compared to the third quarter of ~~2016.~~2019. The most significant ~~component~~components of the increase ~~was~~were increases of $555,000, or 7%, in salaries and employee benefits, $530,000, or 50%, in other noninterest expense, and $406,000 in FDIC premiums. Partially offsetting the increase were decreases in professional services ~~due to expenses related to the public offering~~ of ~~common stock by a selling stockholder completed during the third quarter of 2017.~~ $202,000 or, 26%, $113,000, or 74%, in travel, meals and entertainment expense and $102,000, or 42%, in marketing and business development expense.

Noninterest expense from continuing operations totaled ~~$52.9~~$39.5 million for the nine months ended September 30, ~~2017,~~2020, compared to ~~$54.5~~$39.7 million for the same period in ~~2016.~~2019. The most significant ~~component~~components of the decrease were a $329,000, or 47%, decrease in marketing and business development expense, a $291,000 or 58%, decrease in travel, meals and entertainment, a decrease of $272,000, or 12%, in professional services, and a decrease of $245,000, or 1%, in salaries and employee benefits. Partially offsetting the decrease were increases in occupancy of $366,000, or 18%, $191,000, or 9%, in communications and data processing, and $171,000, or 79%, in FDIC premiums resulting from small bank assessment credits issued in the third quarter of 2019.

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Table 1 - Quarterly Selected Financial Data⁽¹⁾

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


	2020									2019						For the Nine months ended
	Third			Second			First			Fourth			Third			September 30,
	Quarter			Quarter			Quarter			Quarter			Quarter			2020			2019
INCOME SUMMARY⁽¹⁾
Interest income - taxable equivalent⁽²⁾	$	24,578		$	24,151		$	26,246		$	26,699		$	26,624		$	74,976		$	79,607
Interest expense		2,515			2,166			5,043			5,965			6,536			9,724			19,018
Net interest income - taxable equivalent		22,063			21,985			21,203			20,734			20,088			65,252			60,589
Provision for credit losses		28			8,863			8,074			787			413			16,965			1,925
Net interest income after provision for credit losses		22,035			13,122			13,129			19,947			19,675			48,287			58,664
Noninterest income		2,504			2,343			2,422			2,679			2,769			7,269			8,046
Noninterest expense		13,713			12,904			12,877			13,382			12,677			39,494			39,726
Income from continuing operations before income taxes		10,826			2,561			2,674			9,244			9,767			16,062			26,984
Income tax expense		2,208			712			550			2,104			2,198			3,471			5,966
Net income from continuing operations ⁽²⁾⁽³⁾		8,618			1,849			2,124			7,140			7,569			12,591			21,018
Income from discontinued operations, net of tax		—			—			—			—			617			—			21,697
Net income	$	8,618		$	1,849		$	2,124		$	7,140		$	8,186		$	12,591		$	42,715

PER SHARE DATA
Diluted earnings per share - continuing operations	$	0.40		$	0.09		$	0.10		$	0.32		$	0.33		$	0.58		$	0.88
Diluted earnings per share - discontinued operations		—			—			—			—			0.03			—			0.91
Diluted earnings per share		0.40			0.09			0.10			0.32			0.36			0.58			1.78
Book value per share		16.05			15.64			15.47			15.01			14.81			16.05			14.81
Tangible book value per common share ⁽³⁾		15.11			14.72			14.54			14.09			13.91			15.11			13.91

PERFORMANCE MEASURES
Return on average equity		10.05	%		2.20	%		2.56	%		8.65	%		9.77	%		4.98	%		17.25	%
Return on average assets		1.15			0.25			0.32			1.08			1.32			0.59			2.22
Taxable equivalent net interest margin - continuing operations		3.14			3.23			3.41			3.38			3.52			3.25			3.66
Taxable equivalent net interest margin excluding PPP loans		3.18			3.35			3.41			3.38			3.52			3.31			3.66
Efficiency ratio - continuing operations		56.61			53.82			55.03			57.57			55.72			55.16			58.13
Average loans to average deposits		88.65			88.46			83.84			86.54			92.41			87.07			93.96

CAPITAL
Average equity to average assets		11.45	%		11.53	%		12.41	%		12.47	%		13.54	%		11.78	%		12.87	%
Tangible common equity to tangible assets		11.03			11.01			11.57			10.61			12.92			11.03			12.92
Leverage ratio		9.9			9.9			10.7			11.0			11.8			9.9			11.8
Total risk based capital ratio		16.9			14.8			14.9			15.0			15.5			16.9			15.5

SHARES OUTSTANDING
Number of common shares outstanding - basic		21,202,783			21,477,631			21,479,986			21,751,026			22,193,761			21,202,783			22,193,761
Number of common shares outstanding - diluted		21,298,098			21,569,050			21,675,934			21,974,959			22,405,141			21,298,098			22,405,141
Average number of common shares - basic		21,500,735			21,472,462			21,689,038			21,876,487			22,681,904			21,553,953			23,800,525
Average number of common shares - diluted		21,543,805			21,535,040			21,842,175			22,053,907			22,837,531			21,640,057			23,957,915

ASSET QUALITY
Allowance for credit losses on loans to loans held for investment⁽⁴⁾		1.59	%		1.61	%		1.43	%		1.04	%		1.03	%		1.59	%		1.03	%
Net charge-offs to average loans⁽⁵⁾		0.06			0.29			0.04			0.07			0.11			0.13			0.12
Non-performing assets to total assets		0.20			0.24			0.27			0.26			0.29			0.20			0.29

AVERAGE BALANCES																					��
Total loans - continuing operations	$	2,191,669		$	2,131,847		$	1,890,184		$	1,857,736		$	1,801,629		$	2,071,673		$	1,739,917
Investment securities		453,382			462,850			417,971			389,667			340,872			444,766			366,790
Total assets		2,977,444			2,932,716			2,686,266			2,626,388			2,453,438			2,865,884			2,572,961
Deposits - continuing operations		2,472,218			2,409,958			2,254,505			2,146,626			1,949,657			2,379,235			1,851,674
Shareholders’ equity		341,017			338,027			333,480			327,543			332,291			337,521			331,116

AT PERIOD END		��
Loans and loans held for sale	$	2,188,894		$	2,185,847		$	1,932,909		$	1,873,524		$	1,836,589		$	2,188,894		$	1,836,589
Investment securities		446,706			457,749			466,405			399,433			329,648			446,706			329,648
Total assets		2,923,977			2,890,622			2,719,658			2,910,379			2,410,198			2,923,977			2,410,198
Deposits		2,468,722			2,407,631			2,225,119			2,499,046			1,854,272			2,468,722			1,854,272
Shareholders’ equity		340,309			335,980			332,300			326,495			328,711			340,309			328,711

⁽¹⁾ On April 5, 2019, we 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.

⁽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⁾ Excludes effect of acquisition related intangibles.

⁽⁴⁾ The ratio for the ~~nine month period was~~third quarter of 2019 is calculated on a ~~$2.2 million, or 88%, reduction~~continuing operations basis.

⁽⁵⁾ Annualized.

Table of Contents

Non-GAAP Performance Measures Reconciliation

(dollars in ~~merger and conversion costs due to the substantial completion~~thousands)


	2020									2019						For the Nine months
	Third			Second			First			Fourth			Third			ended September 30,
	Quarter			Quarter			Quarter			Quarter			Quarter			2020			2019
Taxable equivalent interest income reconciliation
Interest income - GAAP	$	24,233		$	23,797		$	26,023		$	26,532		$	26,520		$	74,053		$	79,315
Taxable equivalent adjustment		345			354			223			167			104			923			292
Interest income - taxable equivalent	$	24,578		$	24,151		$	26,246		$	26,699		$	26,624		$	74,976		$	79,607

Taxable equivalent net interest income reconciliation - continuing operations
Net interest income - GAAP	$	21,718		$	21,631		$	20,980		$	20,567		$	19,984		$	64,329		$	60,297
Taxable equivalent adjustment		345			354			223			167			104			923			292
Net interest income - taxable equivalent - continuing operations	$	22,063		$	21,985		$	21,203		$	20,734		$	20,088		$	65,252		$	60,589

Loan yield excluding PPP loans reconciliation
Loan yield - GAAP		3.82	%		3.87	%		4.77	%		4.95	%		5.18	%		4.12	%		5.37	%
Impact of PPP loans		0.13			0.22			—			—			—			0.14			—
Loan yield excluding PPP loans		3.95	%		4.09	%		4.77	%		4.95	%		5.18	%		4.26	%		5.37	%

Taxable equivalent net interest margin reconciliation - continuing operations
Net interest margin - GAAP - continuing operations		3.09	%		3.17	%		3.38	%		3.35	%		3.51	%		3.21	%		3.64	%
Impact of taxable equivalent adjustment		0.05			0.06			0.03			0.03			0.01			0.04			0.02
Net interest margin - taxable equivalent - continuing operations		3.14	%		3.23	%		3.41	%		3.38	%		3.52	%		3.25	%		3.66	%

Taxable equivalent net interest margin reconciliation
Net interest margin - GAAP		3.09	%		3.17	%		3.38	%		3.35	%		3.51	%		3.21	%		3.57	%
Impact of taxable equivalent adjustment		0.05			0.06			0.03			0.03			0.01			0.04			0.02
Net interest margin - taxable equivalent		3.14	%		3.23	%		3.41	%		3.38	%		3.52	%		3.25	%		3.59	%

Taxable equivalent net interest margin excluding PPP loans reconciliation
Net interest margin - GAAP		3.09	%		3.17	%		3.38	%		3.35	%		3.51	%		3.21	%		3.57	%
Impact of PPP loans		0.09			0.18			—			—			—			0.10			—
Net interest margin - taxable equivalent excluding PPP loans		3.18	%		3.35	%		3.38	%		3.35	%		3.51	%		3.31	%		3.57	%

Taxable equivalent income before income taxes reconciliation
Income before income taxes - GAAP	$	10,481		$	2,207		$	2,451		$	9,077		$	9,663		$	15,139		$	26,692
Taxable equivalent adjustment		345			354			223			167			104			923			292
Income before income taxes	$	10,826		$	2,561		$	2,674		$	9,244		$	9,767		$	16,062		$	26,984

Taxable equivalent income tax expense reconciliation	��
Income tax expense - GAAP	$	1,863		$	358		$	327		$	1,937		$	2,094		$	2,548		$	5,674
Taxable equivalent adjustment		345			354			223			167			104			923			292
Income tax expense	$	2,208		$	712		$	550		$	2,104		$	2,198		$	3,471		$	5,966

Tangible book value per common share reconciliation
Total shareholders' equity	$	340,309		$	335,980		$	332,300		$	326,495		$	328,711		$	340,309		$	328,711
Intangible assets		(19,925)			(19,925)			(19,925)			(19,925)			(19,925)			(19,925)			(19,925)
Total tangible common equity	$	320,384		$	316,055		$	312,375		$	306,570		$	308,786		$	320,384		$	308,786
Common shares outstanding		21,202,783			21,477,631			21,479,986			21,751,026			22,193,761			21,202,783			22,193,761
Book value per common share - GAAP	$	16.05		$	15.64		$	15.47		$	15.01		$	14.81		$	16.05		$	14.81
Tangible book value		15.11			14.72			14.54			14.09			13.91			15.11			13.91

Tangible common equity to tangible assets reconciliation
Total shareholders' equity	$	340,309		$	335,980		$	332,300		$	326,495		$	328,711		$	340,309		$	328,711
Intangible assets		(19,925)			(19,925)			(19,925)			(19,925)			(19,925)			(19,925)			(19,925)
Total tangible common equity	$	320,384		$	316,055		$	312,375		$	306,570		$	308,786		$	320,384		$	308,786

Total assets	$	2,923,977		$	2,890,622		$	2,719,658		$	2,910,379		$	2,410,198		$	2,923,977		$	2,410,198
Intangible assets		(19,925)			(19,925)			(19,925)			(19,925)			(19,925)			(19,925)			(19,925)
Total tangible assets	$	2,904,052		$	2,870,697		$	2,699,733		$	2,890,454		$	2,390,273		$	2,904,052		$	2,390,273
Tangible common equity to tangible assets		11.03	%		11.01	%		11.57	%		10.61	%		12.92	%		11.03	%		12.92	%

Allowance for loan losses to loans held for investment reconciliation
Total loans held for investment	$	2,188,035		$	2,184,694		$	1,932,909		$	1,873,524		$	1,835,673		$	2,188,035		$	1,835,673
PPP loans		(231,834)			(234,049)			—			—			—			(231,834)			—
Total loans held for investment excluding PPP loans	$	1,956,201		$	1,950,645		$	1,932,909		$	1,873,524		$	1,835,673		$	1,956,201		$	1,835,673

Allowance for credit losses to loans held for investment		1.59	%		1.61	%		1.43	%		1.04	%		1.03	%		1.59	%		1.03	%
Allowance for credit losses to loans held for investment excluding PPP loans		1.78	%		1.80	%		1.43	%		1.04	%		1.03	%		1.78	%		1.03	%

Table of ~~the integration of FSGBank, N.A. (“FSGBank”) into Atlantic Capital Bank N.A. (the “Bank”) in 2016.~~Contents

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 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 %

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

Third Quarter 2020 compared to Third Quarter 2019

Taxable equivalent net interest income for the third quarter of ~~2017~~2020 totaled ~~$20.5~~$22.1 million, a ~~$1.0~~$2.0 million, or 5%10%, increase compared to the third quarter of ~~2016.~~2019. This increase was primarily driven by a ~~$2.1~~decline in interest expense of $4.0 million, or ~~10%~~62%, ~~increase~~compared to the same period in ~~taxable equivalent interest income. The change~~2019, partially offset by a decrease in ~~taxable equivalent net~~loan interest income ~~primarily resulted~~of $2.5 million, or 11%, compared to the same period in 2019. The yield on loans decreased by 136 basis points to 3.82% from the ~~following:~~

a $1.1 million, or 76%, increase to $2.5 million in taxable equivalent interest income on investment securities, resulting from a $120.0 million, or 36%, increase in average balance, due primarily to the increased investment in non-taxable investment securities; and

~~a $980,000, or 5%, increase in interest income~~third quarter of 2019. The yield on loans ~~resulting from increases in the Fed Funds rate.~~

~~Interest expense~~excluding PPP loans for the three months ended September 30, ~~2017 totaled $4.1 million,~~2020 was 3.95%.

The change in interest expense was primarily due to a ~~$1.1~~decrease in expense on NOW, money market and savings deposits of $3.6 million, or ~~38%~~78%, and a decrease in total borrowings interest expense of $470,000, or 96%. These decreases were offset by an increase ~~from~~of $521,000, or 63%, in interest expense on long-term debt, due to the ~~same period~~issuance of ~~2016.~~$75 million in subordinated debt in August 2020. The existing $50 million of subordinated debt was not redeemed until September 30, 2020. The rate paid on interest bearing liabilities ~~increased 30~~decreased 122 basis points from the third quarter of ~~2016~~2019 to the third quarter of ~~2017,~~2020, driven by ~~an increase~~a decrease in interest rates on deposits and other ~~borrowings. Average interest-bearing deposits were lower mainly~~borrowings resulting from decreases in the federal funds rate during 2019 and 2020.

Taxable equivalent net interest margin decreased to 3.14% for the three months ended September 30, 2020 compared to 3.52% for the three months ended September 30, 2019 due to additional interest expense resulting from the ~~branch sale~~$75 million subordinated debt issuance in August 2020 along with a decrease in loan yields, partially offset by a decrease in the ~~second quarter~~cost of ~~2017 and a reduction in brokered~~interest bearing deposits. ~~In addition, premium amortization~~Taxable equivalent net interest margin excluding PPP loans for the three months ended September 30, 2020 was 3.18%.

Nine Months of ~~acquired time deposits reduced interest expense during the third quarter of 2017 in the amount of $75,000,~~2020 compared to ~~$170,000 in the third quarter~~Nine Months of ~~2016.~~

2019

Taxable equivalent net interest income from continuing operations for the nine months ended September 30, ~~2017~~2020 totaled ~~$60.7~~$65.3 million, a ~~$3.0~~$4.7 million, or 5%8%, increase compared to the same period in ~~2016.~~2019. This increase was primarily driven by a ~~$5.7~~decrease of $9.3 million, or 9%49%, ~~increase~~in interest expense from continuing operations compared to the same period in 2019, partially offset by a decrease of $4.6 million, or 6%, in taxable equivalent interest ~~income.~~income from continuing operations. The change in taxable equivalent interest income ~~increase~~from continuing operations primarily resulted from ~~the following:~~

a ~~$2.9~~$5.9 million, or ~~64%~~8%, 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~~decrease in interest income on loans, resulting from ~~increases~~decreases in the ~~Fed Funds rate.~~

~~Interest expense~~federal funds rate, partially offset by an increase in average loan balances. The yield on loans from continuing operations decreased by 125 basis points to 4.12% for the nine months ended September 30, ~~2017~~2020 compared to the same period in 2019. However, the increase in average loan balances helped to mitigate the declines in yield. The yield on loans from continuing operations excluding PPP loans for the nine months ended September 30, 2020 was 4.26%.

Interest expense from continuing operations for the nine months ended September 30, 2020 totaled ~~$11.1~~$9.3 million, a ~~$2.6~~$9.3 million, or ~~31%~~49%, ~~increase~~decrease from the same period of ~~2016,~~2019, primarily due to ~~a $1.8~~an $8.9 million, or ~~32%~~57%, ~~increase~~decrease in interest paid on deposits. The rate paid on interest bearing liabilities ~~increased 23~~from continuing operations decreased 109 basis points from the first nine months of ~~2016~~2019 to the same period of ~~2017,~~2020, driven by ~~an increase~~a decrease 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 ~~increased to 3.26%~~ from ~~3.12% for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Taxable equivalent net interest margin~~continuing operations for the nine months ended September 30, ~~2017 increased~~2020 decreased to ~~3.24%~~3.25% compared to ~~3.11%~~3.66% for the nine months ended September 30, ~~2016.~~2019. The primary ~~reasons~~reason for the ~~increase~~decrease 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 higher~~period was lower interest rates on loans resulting from ~~Fed Funds~~federal funds rate ~~increases.~~

decreases during 2019 and 2020.

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

Table of Contents

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,
	2020						2019
			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	$	136,459	$	65	0.19	%	$	103,954	$	564	2.15	%
Investment securities:
Taxable investment securities		237,655		1,467	2.46			257,005		1,657	2.56
Non-taxable investment securities⁽¹⁾		215,727		1,788	3.30			83,867		623	2.95
Total investment securities		453,382		3,255	2.86			340,872		2,280	2.65
Loans		2,191,669		21,049	3.82			1,801,629		23,541	5.18
FHLB and FRB stock		14,484		209	5.74			15,524		239	6.11
Total interest-earning assets		2,795,994		24,578	3.50			2,261,979		26,624	4.67
Non-earning assets		181,450						191,459
Total assets	$	2,977,444					$	2,453,438
Liabilities
Interest bearing deposits:
NOW, money market, and savings		1,383,382		1,006	0.29			1,191,293		4,642	1.55
Time deposits		166,019		86	0.21			32,409		51	0.62
Brokered deposits		68,102		59	0.34			88,146		530	2.39
Total interest-bearing deposits		1,617,503		1,151	0.28			1,311,848		5,223	1.58
Total borrowings		40,793		19	0.19			85,478		489	2.27
Total long-term debt		82,708		1,345	6.47			49,803		824	6.56
Total interest-bearing liabilities		1,741,004		2,515	0.57			1,447,129		6,536	1.79
Demand deposits		854,715						637,809
Other liabilities		40,708						36,209
Shareholders' equity		341,017						332,291
Total liabilities and shareholders' equity	$	2,977,444					$	2,453,438
Net interest spread					2.92	%					2.88	%
Net interest income and net interest margin⁽²⁾			$	22,063	3.14	%			$	20,088	3.52	%

Non-taxable equivalent net interest margin					3.09	%					3.51	%

(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
(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.

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

(dollars in thousands; taxable equivalent)


	Nine months ended September 30,
	2020						2019
			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	$	147,795	$	756	0.68	%	$	88,960	$	1,476	2.22	%
Other short-term investments		36		—	—			5,181		118	3.05
Investment securities:
Taxable investment securities		246,388		4,729	2.56			284,978		5,619	2.64
Non-taxable investment securities⁽¹⁾		198,378		4,877	3.28			81,812		1,819	2.97
Total investment securities		444,766		9,606	2.88			366,790		7,438	2.71
Loans - continuing operations		2,071,673		63,971	4.12			1,739,917		69,847	5.37
FHLB and FRB stock		14,667		643	5.86			14,173		727	6.86
Total interest-earning assets - continuing operations		2,678,937		74,976	3.74			2,215,021		79,606	4.81
Loans held for sale - discontinued operations		—		—	—			156,060		4,588	3.93
Total interest-earning assets		2,678,937		74,976	3.74			2,371,081		84,194	4.75
Non-earning assets		186,947						201,880
Total assets	$	2,865,884					$	2,572,961
Liabilities
Interest bearing deposits:
NOW, money market, and savings		1,397,280		5,889	0.56			1,147,508		13,630	1.59
Time deposits		106,271		196	0.25			18,246		139	1.02
Brokered deposits		81,125		547	0.90			91,963		1,733	2.52
Total interest-bearing deposits		1,584,676		6,632	0.56			1,257,717		15,502	1.65
Total borrowings		50,055		95	0.25			57,844		1,045	2.42
Total long-term debt		60,922		2,997	6.57			49,761		2,471	6.64
Total interest-bearing liabilities - continuing operations		1,695,653		9,724	0.77			1,365,322		19,018	1.86
Interest-bearing liabilities - discontinued operations		—		—	—			192,613		1,502	1.04
Total interest-bearing liabilities		1,695,653		9,724	0.77			1,557,935		20,520	1.76
Demand deposits		794,559						593,957
Demand deposits - discontinued operations		—						52,481
Other liabilities		38,151						37,472
Shareholders' equity		337,521						331,116
Total liabilities and shareholders' equity	$	2,865,884					$	2,572,961
Net interest spread - continuing operations					2.97	%					2.95	%
Net interest income and net interest margin - continuing operations⁽²⁾			$	65,252	3.25	%			$	60,588	3.66	%
Net interest income and net interest margin⁽²⁾			$	65,252	3.25	%			$	63,674	3.59	%

Non-taxable equivalent net interest margin					3.21	%					3.57	%

(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.

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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, 2020						Nine months ended September 30, 2020
	Compared to 2019						Compared to 2019
	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	$	15	$	(514)	$	(499)	$	301	$	(1,021)	$	(720)
Other short-term investments		—		—		—		—		(118)		(118)
Investment securities:								��
Taxable investment securities		(119)		(71)		(190)		(741)		(149)		(890)
Non-taxable investment securities⁽¹⁾		1,093		72		1,165		2,866		192		3,058
Total investment securities		974		1		975		2,125		43		2,168
Loans - continuing operations		3,746		(6,238)		(2,492)		10,244		(16,120)		(5,876)
FHLB and FRB stock		(15)		(15)		(30)		22		(106)		(84)
Total interest-earning assets - continuing operations		4,720		(6,766)		(2,046)		12,692		(17,322)		(4,630)
Loans held for sale - discontinued operations		—		—		—		—		(4,588)		(4,588)
Total interest-earning assets		4,720		(6,766)		(2,046)		12,692		(21,910)		(9,218)

Interest bearing liabilities
Interest bearing deposits:
NOW, money market, and savings		140		(3,776)		(3,636)		1,053		(8,794)		(7,741)
Time deposits		69		(34)		35		162		(105)		57
Brokered deposits		(17)		(454)		(471)		(73)		(1,113)		(1,186)
Total interest-bearing deposits		192		(4,264)		(4,072)		1,142		(10,012)		(8,870)
Total borrowings		(21)		(449)		(470)		(15)		(935)		(950)
Total long-term debt		535		(14)		521		549		(23)		526
Total interest-bearing liabilities - continuing operations		706		(4,727)		(4,021)		1,676		(10,970)		(9,294)
Interest-bearing liabilities - discontinued operations		—		—		—		—		(1,502)		(1,502)
Total interest-bearing liabilities		706		(4,727)		(4,021)		1,676		(12,472)		(10,796)
Change in net interest income - continuing operations	$	4,014	$	(2,039)	$	1,975	$	11,016	$	(6,352)	$	4,664
Change in net interest income	$	4,014	$	(2,039)	$	1,975	$	11,016	$	(9,438)	$	1,578

(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.

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

Provision for ~~Loan~~Credit Losses

Management considers a number of factors in determining the required level of the allowance for ~~loan~~credit losses and the provision required to achieve what is believed to be appropriate reserve level, including historical loss experience, loan

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growth, credit risk rating trends, nonperforming loan levels, delinquencies, loan portfolio concentrations, ~~and~~ economic forecasts and market trends. The provision for ~~loan~~credit losses represents management’s determination of the amount necessary to be charged against the current period’s earnings to maintain the allowance for ~~loan~~credit losses at a level that itis considered adequate in relation to the estimated lifetime losses ~~inherent~~expected in the loan portfolio.

For the three months ended September 30, ~~2017,~~2020, the provision for ~~loan~~credit losses from continuing operations was ~~$322,000,~~$28,000, a decrease of ~~$141,000, or 30%,~~$385,000 compared to the three months ended September 30, ~~2016.~~2019. For the nine months ended September 30, ~~2017,~~2020, the provision for ~~loan~~credit losses from continuing operations was ~~$2.9~~$17.0 million, an increase of ~~$1.3~~$15.0 million ~~or 83%,~~ compared to the nine months ended September 30, ~~2016.~~

2019. The ~~lower~~ provision for credit losses in the ~~three~~first nine months ~~ended September 30, 2017 was primarily related to~~of 2020 included a ~~reduction in loan growth. The higher~~$16.3 million provision for ~~the nine months ended September 30, 2017 was~~loan losses and a $704,000 provision for unfunded commitments. The provision increased primarily ~~related~~as a response to the ~~downgrade~~expected impact from the economic slowdown from COVID-19. Due to the adoption of ~~a $7.7 million loan relationship to nonperforming~~ASC 326 on January 1, 2020, management now incorporates reasonable and supportable forecasts into its calculation of expected credit losses. An example of this forecasting element includes changes in unemployment rates used by management in the ~~second quarter of 2017 and an additional $1.0 million specific reserve related~~CECL forecasts, which could result in changes to ~~this downgrade. A $3.3 million charge-off was recorded in~~ the ~~third quarter of 2017~~allowance for ~~this relationship.~~ credit losses.

At September 30, ~~2017,~~2020, nonperforming loans totaled ~~$4.6~~$5.4 million compared to ~~$790,000~~$7.3 million at ~~September 30, 2016.~~December 31, 2019. Net loan charge-offs were ~~.68%~~0.06% and ~~.32%~~0.13%, respectively, of average loans (annualized) for the three and nine months ended September 30, ~~2017~~2020 compared to ~~.06%~~0.11% and ~~.13%~~0.12%, respectively, for the three and nine months ended September 30, ~~2016.~~2019. The allowance for ~~loan~~credit losses to total loans at September 30, ~~2017~~2020 was ~~0.99%~~1.59%, compared to ~~.92%~~1.04% at ~~September 30, 2016.~~

December 31, 2019.

Noninterest Income

Noninterest income from continuing operations for the three and nine months ended September 30, ~~2017~~2020 was ~~$3.5~~$2.5 million and ~~$12.6~~$7.3 million ~~respectively,~~compared to $2.8 million and $8.0 million for the comparable period of the prior year; representing a decrease of ~~$525,000,~~$265,000, or ~~13%~~10%, ~~compared to~~for the ~~third quarter of 2016,~~three month period and a decrease of ~~$4.7 million,~~$777,000, or ~~27%~~10%, ~~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 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 ) %

Table 4 - Noninterest Income

(dollars in thousands)


	Three Months Ended								Nine Months Ended
	September 30,				Change				September 30,				Change
	2020		2019			$	%		2020		2019		$		%
Service charges	$	1,217	$	925	$	292	32	%	$	3,530	$	2,589	$	941		36	%
Gain (loss) on sales of securities		—		253		(253)	—			—		907		(907)		(100)
Gain (loss) on sales of other assets		(145)		140		(285)	(204)			(140)		127		(267)		(210)
Derivatives income (loss)		10		(293)		303	(103)			246		(637)		883		(139)
Bank owned life insurance		363		422		(59)	(14)			1,092		1,171		(79)		(7)
SBA lending activities		893		1,150		(257)	(22)			2,089		3,332		(1,243)		(37)
Other noninterest income		166		172		(6)	(4)			452		557		(105)		(19)
Total noninterest income - continuing operations		2,504		2,769		(265)	(10)			7,269		8,046		(777)		(10)
Noninterest income - discontinued operations		—		—		—	—			—		35,289		(35,289)		(100)
Noninterest income	$	2,504	$	2,769	$	(265)	(10)	%	$	7,269	$	43,335	$	(36,066)		(83)	%

Service charges for the three ~~and~~months ended September 30, 2020 totaled $1.2 million, an increase of $292,000, or 32%, from the same period in 2019. For the nine months ended September 30, ~~2017 decreased $23,000,~~2020, service charges from continuing operations totaled $3.5 million, an increase of $941,000, or 2%36%, ~~and $290,000, or 7%, respectively,~~ from the same periods in 2016. The decrease was primarily due to the reduction of retail customer activity from the sale of seven legacy FSGBank branches in the second quarter of 2016 and one branch in the second quarter of 2017.

~~Gain on sales of other assets for~~ the first nine months of ~~2017~~2019. The increase for the third quarter and first nine months of 2020 compared to the same periods in 2019 was primarily due to continued growth in our payments processing business, resulting in higher fee income.

Derivatives income (loss) for the third quarter of 2020 was a gain of $10,000 compared to a loss of $293,000 for the same period in 2019. The increase in income was primarily due to changes in the derivatives credit valuation adjustment. For the nine months ended September 30, 2020, derivatives income increased ~~$638,000, or 425%~~$883,000 from the same period in ~~2016~~2019 primarily due to ~~a $240,000 gain on sale~~the change in the credit valuation adjustment.

Table 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 for the three and nine months ended September 30, 2017 decreased $312,000, or 49%, and $453,000, or 32%, respectively, from the same periods in 2016 due to higher interest rates and lower demand. Trust income for the three and nine months ended September 30, 2017 increased $76,000, or 21%, and $271,000, or 26%, respectively, from the same periods in 2016 due to an increase in managed assets.Contents

Income from SBA lending activities for the third quarter of ~~2017~~2020 decreased ~~$71,000,~~$257,000, or 7%22%, from the same period in ~~2016,~~2019, due to lower SBA origination volume and a ~~lower level of~~decrease in loan ~~sales.~~premiums. During the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, guaranteed portions of ~~14 and 16~~ SBA loans ~~with principal balances of $11.8~~totaling $10.0 million and ~~$18.5~~$17.0 million, respectively, were sold in the secondary market. Income from SBA lending activities for the first nine months of ~~2017 increased $243,000,~~2020 decreased $1.2 million, or 8%37%, from the same period in ~~2016,~~2019, due to ~~a higher level of loan sales earlier in 2017.~~lower premiums paid. During the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, guaranteed portions of ~~35 and 36~~ SBA loans ~~with principal balances of $48.7~~totaling $26.5 million and ~~$48.5~~$49.7 million, respectively, were sold in the secondary market. ~~During~~

Gain (loss) on sales of securities for the first nine months of 2020 decreased $907,000 compared to the same period in 2019 as a result of the balance sheet realignment due to the April 5, 2019 Branch Sale to FirstBank.

Gain (loss) on sales of other assets for the three months ended September 30, 2020 was a loss of $145,000 compared to a gain of $140,000 for the same period in 2019. For the first nine months of 2020, gain (loss) on sales of other assets was a loss of $140,000 compared to a gain of $127,000 for the first nine months of 2019. The loss recorded for the three and nine ~~months ended September 30, 2016,~~month periods of 2020 were primarily the ~~TriNet lending division contributed $0 and $1.1 million, respectively, in noninterest income from~~result of 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 $3.9OREO properties.

Noninterest income from discontinued operations decreased $35.3 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 related2020, respectively, compared to the ~~sales were recorded~~same periods in ~~noninterest expense.~~

~~On December 9, 2016, Atlantic Capital entered into~~2019 due to a ~~definitive agreement to sell one branch~~$34.5 million gain in ~~Cleveland, Tennessee, to SmartBank. The sale closed in~~connection with the ~~second~~Branch Sale.

Noninterest Expense

Noninterest expense for the third quarter of ~~2017, and resulted in a net gain~~2020 was $13.7 million, an increase of ~~$302,000 as well as a reduction~~$1.0 million, or 8%, from the third quarter 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 with2019. For the ~~divestiture included in~~nine months ended September 30, 2020, noninterest expense from continuing operations totaled $39.5 million, a decrease of $232,000, or 1%, from the same period in ~~the second quarter of 2017.~~

~~Noninterest Expense~~

2019. 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 ) %

Table 5 - 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 periodExpense

(dollars in ~~2016. The decrease from the prior periods mostly reflects lower merger and conversion costs related to the acquisition of First Security.~~

thousands)


	Three Months Ended September 30,				Change					Nine Months Ended September 30,				Change
	2020		2019		$		%			2020		2019		$		%
Salaries and employee benefits	$	8,850	$	8,295	$	555		7	%	$	25,792	$	26,037	$	(245)		(1)	%
Occupancy		739		722		17		2			2,416		2,050		366		18
Equipment and software		826		842		(16)		(2)			2,368		2,334		34		1
Professional services		562		764		(202)		(26)			2,059		2,331		(272)		(12)
Communications and data processing		757		796		(39)		(5)			2,324		2,133		191		9
Marketing and business development		141		243		(102)		(42)			373		702		(329)		(47)
Travel, meals and entertainment		39		152		(113)		(74)			213		504		(291)		(58)
FDIC premiums		213		(193)		406		(210)			388		217		171		79
Other noninterest expense		1,586		1,056		530		50			3,561		3,418		143		4
Total noninterest expense - continuing operations		13,713		12,677		1,036		8			39,494		39,726		(232)		(1)
Noninterest expense - discontinued operations		—		—		—		—			—		9,685		(9,685)		(100)
Noninterest expense	$	13,713	$	12,677	$	1,036		8	%	$	39,494	$	49,411	$	(9,917)		(20)	%

Salaries and employee benefits expense for the three months ended September 30, ~~2017~~2020 totaled ~~$10.4~~$8.9 million, an increase of ~~$350,000,~~$555,000, or 3%7%, from the same period in ~~2016.~~2019. The increase for the three months ended September 30, 2020 was primarily attributable to higher incentive accruals and a decrease in loan production salary cost deferrals. For the first nine months of ~~2017,~~2020, salaries and employee benefits totaled ~~$32.1~~$25.8 million, ~~an increase~~a decrease of ~~$1.0 million,~~$245,000, or 3%1%, from the first nine months of ~~2016. The increase was primarily attributable to~~2019 as a ~~higher headcount.~~result of decreases in SBA commissions. Full time equivalent headcount totaled ~~343~~201 at September 30, ~~2017,~~2020 compared to ~~328~~197 at September 30, ~~2016,~~2019, a net increase of 4 positions.

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Occupancy costs from continuing operations were $2.4 million for the nine months ended September 30, 2020, an increase of ~~15 positions, mainly~~$366,000, or 18%, from the same period in 2019. The increase for the three and nine months ended September 30, 2020 was due to ~~increased staffing needs of the Bank~~an increase in leasehold improvement depreciation associated with our corporate location and ~~the opening of the Charlotte office.~~

~~Occupancy costs were $1.1 million~~operations center.

Communications and data processing expense totaled $757,000 for the ~~third quarter of 2017,~~three months ended September 30, 2020, a decrease of ~~$106,000,~~$39,000, or 9%5%, compared to the ~~third quarter of 2016.~~same period in 2019. 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 due to the divestiture of seven branches in the second quarter of 2016~~2020, communications 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 $2.6data processing expense totaled $2.3 million, an increase of ~~$305,000,~~$191,000, or ~~13%~~9%, from the ~~first nine months of 2016. The decrease~~same period in ~~the third quarter of 2017 was due to lower ATM managed services costs and depreciation.~~2019. The increase for the nine months ended September 30, ~~2017~~2020 was primarily due to ~~higher maintenance contracts and an increase in ATM managed services costs due to higher payments made~~increased volumes in the ~~first~~payments processing business.

Marketing and ~~second quarters of 2017.~~

~~Professional services costs were $1.6 million~~business development expense totaled $141,000 for the ~~third quarter~~three months ended September 30, 2020, a decrease of ~~2017, an increase of $1.2 million,~~$102,000, or ~~261%~~42%, compared to the ~~third quarter of 2016.~~same period in 2019. For the nine months ended September 30, ~~2017, professional services costs~~2020, marketing and business development expense totaled $373,000, a decrease of $329,000, or 47%, from the same period in 2019. The decrease reflected our efforts to reduce expenses in the uncertain environment surrounding COVID-19.

For the three months ended September 30, 2020, travel, meals and entertainment expense decreased $113,000, or 74%, compared to the same period in 2019. For the nine months ended September 30, 2020, travel, meals and entertainment expense totaled $213,000, a decrease of $291,000, or 58%, from the same period in 2019. The decline for both periods was due to limitations from COVID-19 on non-essential business travel and an overall decrease in customer-related meals and entertainment expense.

FDIC premiums from continuing operations were ~~$3.5 million,~~$213,000 for the third quarter of 2020, an increase of ~~$1.5 million,~~$406,000 compared to the third quarter of 2019. For the nine months ended September 30, 2020, FDIC premiums were $388,000, an increase of $171,000, or ~~78%~~79%, from the first nine months of ~~2016.~~2019. 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~~increases for the three and nine months ended September 30, ~~2017, respectively, and $520,000 and $2.0 million for~~2020 were due to small bank assessment credits issued in the third quarter of 2019 that were fully utilized in the third quarter of 2020.

For the three ~~and~~months ended September 30, 2020, other noninterest expense increased $530,000, or 50%, from $1.1 million to $1.6 million primarily as a result of losses on customer accounts totaling $470,000 during the third quarter of 2020, of which $290,000 was recovered in October 2020. For the nine months ended September 30, ~~2016, respectively. The decrease~~2020, other noninterest expense totaled $3.6 million, an increase of $143,000, or 4%, from the same period in ~~2017 was mainly due to the write-off of core deposit intangibles related to the seven branches divested during the second quarter of 2016~~2019.

Income Taxes

We monitor and ~~one branch divested during the second quarter of 2017.~~

~~Income Taxes~~

~~Atlantic Capital monitors and evaluates~~evaluate 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~~Periodically, we evaluate our income tax positions based on current tax law and positions taken by various tax auditors within the jurisdictions where ~~Atlantic Capital is~~we are required to file income tax returns.

The income tax ~~provision~~expense for the three and nine months ended September 30, ~~2017~~2020 was $1.9 million and ~~$5.2~~$2.5 million, ~~respectively, as compared with $1.9~~respectively. Comparatively, for the three and nine months ended September 30, 2019, income tax expense from continuing operations was $2.1 million and ~~$6.8~~$5.7 million, ~~for the same periods in 2016.~~respectively. The effective tax rate (as a percentage of pre-tax earnings) was ~~31.8%~~17.8% and ~~31.1%, respectively,~~16.8% for the three and nine months ended September 30, ~~2017~~2020, respectively, compared to ~~33.8%~~21.7% and ~~36.7%~~21.3%, respectively, for the same periods in ~~2016.~~2019. The decrease in income tax expense in the current year was the result of lower pretax earnings in 2020, combined with a lower estimated effective tax rate. The lower estimated effective tax rate for ~~the three and nine months ended September 30, 2017~~2020 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~~an increase in non-taxable securities income onfrom municipal ~~securities purchased throughout the latter half of 2016 and beginning of 2017.~~

bonds as well as a decrease in forecasted pretax earnings.

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

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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~~2020 and ~~2016,~~2019, 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~~2020 and ~~2016, Atlantic Capital had~~2019, we recorded a deferred tax asset valuation allowance totaling ~~$9.2~~$6.8 million ~~and $9.0 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, 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~~our remaining net operating loss carryforwards within the statutory carryforward periods.

FINANCIAL CONDITION

Total assets at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 were ~~$2.64~~$2.92 billion and ~~$2.73~~$2.91 billion, respectively. Average total assets for the third quarter of ~~2017~~2020 were ~~$2.70~~$2.98 billion, compared to ~~$2.72~~$2.45 billion in the third quarter of ~~2016.~~

2019. The increase in average total assets was primarily due to increases in loan growth, which included $234 million in SBA PPP loans funded during the second quarter of 2020. In addition, consumer loans increased $117.2 million due to growth in a partnership with a fintech firm that offers CD-secured consumer loans to its customers.

Loans

At September 30, ~~2017,~~2020, total loans ~~decreased $108.0~~held for investment increased $314.5 million, or 5%17%, to ~~$1.91~~$2.19 billion compared to ~~$2.02~~$1.87 billion at December 31, ~~2016,~~2019. The increase was primarily due to ~~the sale~~an increase in commercial and industrial loans of ~~$30.9~~$239.3 million, ~~in loans in connection with the Cleveland branch sale, as well as a decrease of $106.0 million in mortgage warehouse participations,~~or 34%, resulting from the funding of $234 million of PPP loans during the second quarter of 2020 and growth in a ~~decrease in commitments and the market effect of increases in the Fed Funds rate.~~partnership with a fintech firm that offers CD-secured loans to its customers. Table 6 provides additional information regarding ~~Atlantic Capital’s~~our loan portfolio.

Table 6 - Loans

(dollars in thousands)


			% of				% of
			Total				Total
	September 30, 2020		Loans		December 31, 2019		Loans
Loans held for sale
Loans held for sale	$	859			$	370
Total loans held for sale	$	859			$	370

Loans held for investment
Commercial loans:
Commercial and industrial	$	944,401	43	%	$	705,115	38	%
Commercial real estate:
Owner occupied		364,170	17			357,912	19
Non-owner occupied		516,615	24			558,416	30
Construction and land		139,836	6			127,540	7
Mortgage warehouse participations		—	—			13,941	1
Total commercial loans		1,965,022	90			1,762,924	94

Residential:
Residential mortgages		29,460	1			31,315	2
Home equity		24,528	1			25,002	1
Total residential loans		53,988	2			56,317	3

Consumer		154,916	7			37,765	2
Other		22,777	1			19,552	1
Total loans		2,196,703				1,876,558
Less net deferred fees and other unearned income		(8,668)				(3,034)
Total loans held for investment		2,188,035				1,873,524

Total loans	$	2,188,894			$	1,873,894

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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.~~

credit losses on loans.

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.

Purchased Credit Impaired (“PCI”) loans accounted for under ASC 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 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 recognized on all PCI loans.

At September 30, ~~2017, Atlantic Capital’s~~2020, our nonperforming assets totaled $6.0 million, or ~~0.23%~~0.20% of total assets, compared to ~~$3.5~~$7.6 million, or ~~0.13%~~0.26% of total assets, at December 31, ~~2016.~~2019. The ~~increase~~decrease was primarily due to a decline in nonperforming loans resulting from an increase in net charge-offs during the ~~Bank placing two loan relationships totaling $2.4 million on nonaccrual status.~~

second quarter of 2020.

Nonaccrual loans totaled ~~$4.1~~$5.1 million and ~~$621,000~~$7.2 million as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. ~~The increase was primarily due to the Bank placing two loan relationships totaling $2.4 million on nonaccrual status.~~ Loans past due 90 days and still accruing totaled ~~$495,000~~$336,000 at September 30, ~~2017~~2020 compared to ~~$994,000~~$85,000 at December 31, ~~2016.~~2019. Table 7 provides details on nonperforming assets and other risk elements.

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

Table 7 - Nonperforming ~~loans exclude those loans which are PCI loans~~

Assets

(dollars in thousands)


	September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019

Nonaccrual loans	$	5,085		$	5,930		$	6,250		$	7,208		$	6,770
Loans past due 90 days and still accruing		336			335			265			85			—
Total nonperforming loans(NPLs)		5,421			6,265			6,515			7,293			6,770
Other real estate owned		563			779			779			278			278
Total nonperforming assets (NPAs)	$	5,984		$	7,044		$	7,294		$	7,571		$	7,048
NPLs as a percentage of total loans		0.25	%		0.29	%		0.34	%		0.39	%		0.37	%
NPAs as a percentage of total assets		0.20	%		0.24	%		0.27	%		0.26	%		0.29	%

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.~~rate reductions, term extensions and other concessions intended to minimize losses. 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 below summarizes TDRs.

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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

Table 8 - Troubled Debt Restructurings

(dollars in thousands)


	September 30, 2020		December 31, 2019
Accruing TDRs	$	13,350	$	11,953
Nonaccruing TDRs		1,030		1,217
Total TDRs	$	14,380	$	13,170

Certain borrowers may be unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof. In the absence of other intervening factors, such short-term modifications made in good faith are not categorized as TDRs, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral).

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~~$172.6 million and ~~$47.6~~$76.3 million ~~respectively,~~ as of September 30, ~~2017~~2020 and December 31, ~~2016.~~2019, respectively. As a percentage of total loans, potential problem loans were 8.0% and 4.1% as of September 30, 2020 and December 31, 2019, respectively. The increase was primarily related to downgrades resulting from COVID-19. As a number of potential problem loans are real estate secured, management closely tracks the ~~current~~ values of real estate ~~collateral~~collateral when assessing the collectability of these loans.

Allowance for ~~Loan~~Credit Losses

on Loans and Unfunded Commitments

On January 1, 2020, we adopted ASC 326, which resulted in a day one reduction of $854,000 to the allowance for credit losses on loans offset by an increase of $1.3 million to the allowance for credit losses on unfunded commitments. The allowance for credit losses on loans totaled $18.5 million as of December 31, 2019, was reduced by $854,000 due to ASC 326 adoption, was increased by $16.3 million related to the first nine months of 2020 provision, and ended the third quarter of 2020 at $31.9 million. The allowance for credit losses on unfunded commitments totaled $892,000 at December 31, 2019, was increased by $1.3 million due to ASC 326 adoption, was increased by $704,000 million related to the first nine months of 2020 provision, and ended the quarter at $2.9 million. At September 30, ~~2017,~~2020, the combined allowance for ~~loan~~credit losses ~~totaled $18.9~~on loans and unfunded commitments was $34.8 million, ~~or 0.99% of loans,~~ compared to ~~$20.6~~$19.4 million ~~or 1.04% of loans,~~ at December 31, ~~2016.~~ 2019.

The ~~decrease~~allowance for credit losses was 1.59% of total loans held for investment at September 30, 2020, compared to 1.04% at December 31, 2019. The allowance for credit losses to loans held for investment excluding PPP loans was 1.78% as of September 30, 2020. The increase from December 31, 2019 reflects the impact of COVID-19 on the economic forecast used in the estimation of expected credit losses as well as credit grade downgrades driven by COVID-19.

The base case economic forecast used for the September 30, 2020 calculation was published in early September. Management applied an economic and business conditions qualitative adjustment to the allowance by incorporating an alternative forecast scenario. The alternative forecast scenario was ~~primarily~~derived from economic conditions experienced during 2008 and 2009, which included a significant recession. Other qualitative adjustments applied by management during the first nine months of 2020 related to the ~~$3.3 million charge-off~~nature and volume of ~~a loan relationship~~loans, credit concentrations, and ~~the reversal of the specific reserve.~~

competition.

Net charge-offs for the ~~third quarter of 2017~~three and ~~2016 were $3.3 million and $306,000, respectively. For the~~ nine months ended September 30, ~~2017, net~~2020 were $347,000 and $2.1 million, respectively. Net charge-offs ~~totaled $4.7 million compared to $2.0 million~~ for the ~~same period~~three and nine months ended September 30, 2019 were $519,000 and $1.7 million, respectively. The year to date increase related primarily to charge-offs of two commercial and industrial loan relationships in ~~2016.~~the second

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quarter of 2020 totaling $1.5 million. Table 9 provides details concerning the allowance for ~~loan~~credit losses on loans during the past five quarters.

Table 9 - Allowance for Credit Losses on Loans (ACL)

(dollars in thousands)


	2020									2019
	Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Allowance for credit losses on loans
Balance at beginning of period	$	31,605		$	24,896		$	18,535		$	18,080		$	18,186
Adoption of ASU 2016-13		—			—			(854)			—			—
Provision for loan losses		636			8,222			7,409			787			413
Loans charged-off:
Commercial and industrial		(404)			(1,479)			(18)			(344)			(541)
Commercial real estate		—			—			(78)			—			—
Construction and land		—			—			—			—			—
Residential mortgages		—			(36)			—			—			—
Home equity		—			—			(125)			—			—
Consumer		—			—			—			—			(2)
Other		—			—			—			—			—
Total loans charged-off		(404)			(1,515)			(221)			(344)			(543)
Recoveries on loans previously charged-off:
Commercial and industrial		56			1			—			5			17
Commercial real estate		—			—			18			—			—
Construction and land		—			—			—			—			1
Residential mortgages		—			—			1			7			—
Home equity		—			—			—			—			—
Consumer		1			1			8			—			6
Other		—			—			—			—			—
Total recoveries		57			2			27			12			24
Net charge-offs		(347)			(1,513)			(194)			(332)			(519)
Balance at period end	$	31,894		$	31,605		$	24,896		$	18,535		$	18,080

Allowance for credit losses on unfunded commitments
Balance at beginning of period	$	3,480		$	2,838		$	892		$	836		$	785
Adoption of ASU 2016-13		—			—			1,275			—			—
Provision for unfunded commitments		(609)			642			671			56			51
Balance at period end	$	2,871		$	3,480		$	2,838		$	892		$	836

Total allowance for credit losses on loans and unfunded commitments	$	34,765		$	35,085		$	27,734		$	19,427		$	18,916

Provision for credit losses under CECL
Provision for loan losses	$	636		$	8,222		$	7,409		$	787		$	413
Provision for securities held-to-maturity credit losses		1			(1)			(6)			—			—
Provision for unfunded commitments⁽¹⁾		(609)			642			671			—			—
Total provision for credit losses	$	28		$	8,863		$	8,074		$	787		$	413

Allowance for loan losses on loans to loans held-for-investment ⁽²⁾		1.46	%		1.45	%		1.29	%		0.99	%		0.98	%
Allowance for credit losses to loans held-for-investment ⁽²⁾		1.59	%		1.61	%		1.43	%		1.04	%		1.03	%
Allowance for credit losses to loans held-for-investment excluding PPP loans ⁽²⁾		1.78	%		1.80	%		1.43	%		1.04	%		1.03	%
Net charge-offs to average loans⁽³⁾		0.06			0.29			0.04			0.07			0.11
Non-performing loans as a percentage of total loans		0.25	%		0.29	%		0.34	%		0.39	%		0.37	%
Non-performing assets as a percentage of total assets		0.20	%		0.24	%		0.27	%		0.26	%		0.29	%

(1)

Prior to the adoption of ASU 2016-13, the provision for unfunded commitments was included in other expense and totaled $56 and $51 for the fourth and third quarters of 2019, respectively.

(2)

The third quarter of 2019 ratios are calculated on a continuing operations basis.

(3)

Annualized.

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

Investment Securities

Investment securities available-for-sale totaled ~~$447.0~~$260.9 million at September 30, ~~2017,~~2020 compared to ~~$347.7~~$282.5 million at December 31, ~~2016. Atlantic Capital purchased $121.4~~2019. Held-to-maturity securities, net totaled $185.8 million ~~in available-for-sale securities during the first quarter of 2017, as a response~~at September 30, 2020 compared to ~~the decrease in mortgage warehouse participations.~~$117.0 at December 31, 2019. 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. Held-to-maturity securities are carried at amortized cost net of an allowance for credit losses. As of September 30, ~~2017,~~2020, investment securities available-for-sale had a net unrealized ~~loss~~gain of ~~$3.2~~$9.0 million compared to a net unrealized ~~loss~~gain of ~~$9.6~~$3.2 million as of December 31, ~~2016.~~2019. Market changes in interest rates and credit spreads will result in temporary unrealized gains or losses as the market price

Table of Contents

of securities fluctuate. ~~After evaluating the~~Management evaluated all available-for-sale securities ~~with~~in an unrealized ~~losses, management~~loss position at December 31, 2019 and September 30, 2020 and concluded ~~that~~ no ~~other than temporary~~ impairment existed ~~as of September 30, 2017.~~

at the balance sheet dates.

Changes in the amount of ~~Atlantic Capital’s available-for-sale~~our investment securities portfolio result primarily from balance sheet trends including loans, deposit balances, and short-term borrowings. When inflows arising from the management of deposits and short-term borrowings exceed loan demand, ~~Atlantic Capital invests~~we invest 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~~we allow interest-bearing balances with other banks to decline and uses proceeds from maturing ~~or sold~~ securities to fund loan demand. During the first nine months of 2020, we purchased $69.1 million in held-to-maturity municipal securities 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~~2020 and December 31, ~~2016~~2019 are provided in Table 10.

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

Table 10 - Securities

(dollars in thousands)


	September 30, 2020				December 31, 2019
	Carrying				Amortized
Available-for-Sale Securities	Value		Fair Value		Cost		Fair Value
U.S. states and political divisions	$	80,037	$	82,566	$	81,865	$	82,485
Trust preferred securities		4,828		4,590		4,808		4,688
Corporate debt securities		19,533		19,644		19,557		19,920
Residential mortgage-backed securities		113,372		122,377		138,552		140,013
Commercial mortgage-backed securities		34,159		31,707		34,495		35,355
Total available-for-sale		251,929		260,884		279,277		282,461
Held-to-Maturity Securities
U.S. states and political divisions		185,837		196,712		116,972		115,291
Less: allowance for credit losses on securities held-to-maturity		15		—		—		—
Total held-to-maturity		185,822		196,712		116,972		115,291
Total securities	$	437,751	$	457,596	$	396,249	$	397,752

The effective duration of ~~Atlantic Capital’s~~our securities was 6.94 years and 6.97 years at September 30, ~~2017 was 4.76 years.~~

2020 and December 31, 2019, respectively.

Goodwill and Other Intangible Assets

~~Atlantic Capital’s~~

Our 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~~This core deposit intangible was fully amortized in ~~Atlantic Capital’s other intangible assets.~~

the second quarter of 2019 as a result of the Branch Sale.

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~~We evaluate our goodwill annually as of October 1, or more frequently if necessary, to determine if any impairment exists. Management concluded that the 2019 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill). Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, our overall financial performance and changes in the composition or carrying amount of net assets. Due to the impact of recent events related to COVID-19, including challenges from declines in market conditions, we performed an interim impairment test as of May 31, 2020 and as of September 30, 2020 and concluded that our carrying value was not in excess of its fair value on either date. We considered the impact of COVID-19 on these factors as of September 30, 2020 and will continue to monitor triggering events related to the pandemic between annual impairment assessments.

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LIQUIDITY AND CAPITAL RESOURCES

Deposits

At September 30, ~~2017,~~2020, total deposits were ~~$2.10~~$2.5 billion, a decrease of ~~$133.9~~$30.3 million, or 6%1%, from December 31, ~~2016. Noninterest-bearing demand~~2019. Money market deposits decreased ~~$44.2~~$227.4 million, or ~~7%, and deposits to be assumed in branch sale decreased $31.6 million, or 100%~~19%, from December 31, ~~2016~~2019 to September 30, ~~2017.~~

2020 and noninterest-bearing demand deposits increased $19.0 million, or 2%, during the same period. Time deposits increased $152.0 million due to growth in the partnership with a fintech firm that offers CD-secured loans to its customers.

Total average deposits from continuing operations for the quarter ended September 30, ~~2017~~2020 were ~~$2.12~~$2.5 billion, ~~a decrease~~an increase of ~~$42.3~~$522.6 million, or 2%27%, 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~~2019. For the quarter ended September 30, ~~2016~~2020 compared to the same period in ~~2017.~~2019, average money market deposits from continuing operations increased $47.0 million, or 5%, while average noninterest-bearing demand deposits from continuing operations increased $216.9 million, or 34%. Average interest-bearing demand deposits (NOW) from continuing operations increased $145.6 million, or 49%, for the three months ended September 30, 2020 compared to the same period in 2019. The increase in average non-interest bearing and average interest-bearing demand deposits reflects continued growth in relationship driven core deposits. Average time deposits increased $133.6 million for the three months ended September 30, 2020 from the third quarter of 2019 due to the aforementioned growth in the partnership with a fintech firm that offers CD-secured loans to its customers. Table 11 provides additional information regarding deposits during the past five quarters.

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.

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	2020			2020			2020			2019			2019			Change		Change
Non-interest-bearing demand deposits	$	843,656		$	883,662		$	712,919		$	824,646		$	599,657		$	19,010	$	243,999
Interest-bearing demand deposits		387,858			449,737			368,463			373,727			240,427			14,131		147,431
Savings		568			583			567			1,219			1,081			(651)		(513)
Money market		945,834			879,863			982,109			1,173,218			921,133			(227,384)		24,701
Time		196,343			131,353			66,793			44,389			30,782			151,954		165,561
Brokered		94,463			62,433			94,268			81,847			61,192			12,616		33,271
Total deposits	$	2,468,722		$	2,407,631		$	2,225,119		$	2,499,046		$	1,854,272		$	(30,324)	$	614,450


	2020									2019						Q3 2020 vs		Q3 2020 vs
	Third			Second			First			Fourth			Third			Q2 2020		Q3 2019
Average Deposits	Quarter			Quarter			Quarter			Quarter			Quarter			Change		Change
Non-interest-bearing demand deposits	$	854,715		$	815,299		$	713,001		$	718,298		$	637,809		$	39,416	$	216,906
Interest-bearing demand deposits		440,734			462,051			382,178			320,637			295,106			(21,317)		145,628
Savings		586			574			650			1,098			1,085			12		(499)
Money market		942,062			952,444			1,010,713			1,006,449			895,102			(10,382)		46,960
Time		166,019			96,362			55,775			37,388			32,409			69,657		133,610
Brokered		68,102			83,228			92,188			62,757			88,146			(15,126)		(20,044)
Total deposits	$	2,472,218		$	2,409,958		$	2,254,505		$	2,146,627		$	1,949,657		$	62,260	$	522,561

Noninterest bearing deposits as a percentage of average deposits		34.6	%		33.8	%		31.6	%		33.5	%		32.7	%
Cost of interest-bearing deposits		0.28	%		0.33	%		1.09	%		1.36	%		1.58	%
Cost of deposits		0.19	%		0.22	%		0.75	%		0.90	%		1.06	%

Short-Term Borrowings

There were no ~~securities sold under repurchase agreements with commercial checking customers or~~outstanding balances of federal funds purchased ~~as of~~at September 30, ~~2017 or~~2020 and December 31, ~~2016.~~

2019.

As a member of the Federal Home Loan Bank of Atlanta (“FHLB”), ~~Atlantic Capital has~~we have the ability to acquire short and long-term advances through a blanket agreement secured by our unencumbered qualifying 1-4 family first mortgage loans and by pledging investment securities or individual, qualified loans, subject to approval of the FHLB. AtThere were no FHLB advances outstanding at September 30, ~~2017~~2020 and December 31, ~~2016, Atlantic Capital had FHLB advances~~2019.

Table of ~~$125.0 million and $110.0 million, respectively. The balance of FHLB borrowings increased due to an increase in short-term funding needs.~~Contents

Long-Term Debt

~~During the third quarter of 2015,~~

On August 20, 2020, Atlantic Capital issued ~~$50.0~~5.50% fixed-to-floating rate subordinated notes (the “Notes”) totaling $75 million in aggregate principal amount and callable at par plus accrued but unpaid interest on September 1, 2025. The Notes are due September 1, 2030 and bear a fixed rate of interest of 5.50% per year until September 1, 2025. From September 1, 2025 to the maturity date, the interest rate will be a floating rate equal to the three-month SOFR plus 536.3 basis points. The Notes were priced at 100% of their par value and qualify as Tier 2 regulatory capital.

On September 30, 2020, Atlantic Capital redeemed its $50 million 6.25% fixed-to-floating rate subordinated notes due 2025, previously issued on September 28, 2015. The approximately one month overlap of the issuance and redemption of the old and new subordinated debt resulted in ~~2025, all~~$521,000 in additional interest expense during the third quarter of ~~which was outstanding at September 30, 2017.~~

2020.

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~~our ability to meet the daily cash flow requirements of ~~Atlantic Capital’s~~our customers, both depositors and borrowers.

~~Atlantic Capital utilizes~~

We utilize 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;~~

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

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

~~Atlantic Capital aims~~

●

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

●

contingent liquidity utilizes cash flow stress testing across four crisis scenarios to determine the adequacy of our liquidity.

We aim 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~~We aim to avoid funding concentrations by diversifying external secured and unsecured funding with respect to maturities, counterparties and nature. At September 30, ~~2017,~~2020, management ~~believes~~believed that ~~Atlantic Capital~~we had sufficient ~~on-balance sheet~~ liquidity to meet ~~its~~our funding needs.

At September 30, ~~2017, Atlantic Capital~~2020, we had access to ~~$375.0~~$530.0 million in unsecured borrowings and ~~$695.2~~$650.7 million in secured borrowings through various ~~sources. Atlantic Capital~~sources, including FHLB advances and access to federal funds. We also ~~has~~have the ability to attract more ~~retail~~ deposits by ~~offering aggressively priced~~increasing rates.

We had $232 million in PPP loans outstanding as of September 30, 2020. The loans were funded from existing sources and will reduce available liquidity until the loans are forgiven or purchased by the SBA or third parties.

Shareholders’ Equity and Capital Adequacy

Shareholders’ equity at September 30, ~~2017~~2020 was ~~$324.8~~$340.3 million, an increase of ~~$21.1~~13.8 million, or 7%4%, from December 31, ~~2016. Accumulated~~2019. Net income of $12.6 million and an increase of $10.9 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 $12.0 million in repurchases of 820,349 shares of common stock during the ~~calculation~~first nine months of ~~regulatory capital ratios.~~

2020. 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~~our consolidated financial statements.

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Tables 12 and 13 provide additional information regarding regulatory capital requirements and Atlantic Capital’s ~~capital levels.~~

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

~~Atlantic Capital continues to exceed minimum capital standards~~ and the ~~Bank remains “well-capitalized” under~~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 ~~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~~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
	2020			2019			2020			2019			Minimum		Capitalized		2020
Risk based ratios:
Common equity tier 1 capital		12.5	%		12.0	%		14.3	%		13.8	%	4.5	%	6.5	%	7.0	%
Tier 1 Capital		12.5			12.0			14.3			13.8		6.0		8.0		8.5
Total capital		16.9			15.0			15.5			14.6		8.0		10.0		10.5
Leverage ratio		9.9			11.0			11.5			12.7		4.0		5.0		N/A

Common equity tier 1 capital	$	291,453		$	285,456		$	336,277		$	327,426
Tier 1 capital		291,453			285,456			336,277			327,426
Total capital		394,735			354,757			365,745			346,854

Risk weighted assets		2,340,295			2,372,001			2,352,137			2,371,384
Quarterly average total assets for leverage ratio		2,944,066			2,589,910			2,934,615			2,585,629

As of ~~higher minimum capital requirements, new capital conservation buffers and more conservative definitions of capital and balance sheet exposure.~~September 30, 2020, Atlantic Capital and the Bank ~~became subject to the requirements of Basel III effective January~~remained “well-capitalized” under regulatory guidelines. For more information see “Item 1. Business–Supervision and Regulation–Capital Adequacy” in our 2019 Annual Report on Form 10-K.

Table 13 - Tier 1 ~~2015, subject to a transition period 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 levelsCommon Equity

(dollars 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
%

thousands)


	September 30, 2020
Tier 1 capital	$	291,453
Less: restricted core capital		—
Tier 1 common equity	$	291,453

Risk-adjusted assets	$	2,340,295
Tier 1 common equity ratio		12.5	%

Off-Balance Sheet Arrangements

~~Atlantic Capital makes~~

We make 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~~we also ~~issues~~issue 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, Atlantic Capital~~2020, we had issued commitments to extend credit of approximately ~~$686.7~~$764.2 million and standby letters of credit of approximately ~~$13.7~~$19.0 million through various types of commercial lending arrangements.

Based on historical experience, many of the commitments and letters of credit will expire ~~unfunded.~~unfunded, although customers may draw down on loans or lines of credit to fund business operations as a result of the COVID-19 pandemic at higher levels than we have previously experienced. Through ~~its~~our various sources of liquidity, ~~Atlantic Capital believes it~~we believe we will be able to fund these obligations as they arise. ~~Atlantic Capital evaluates~~We evaluate each customer’s

credit worthiness on a case-by-case basis. The amount of

Table of Contents

collateral obtained, if deemed necessary upon extension of credit, is based on ~~Atlantic Capital’s~~our 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~~our contractual obligations at September 30, ~~2017~~2020 compared to December 31, ~~2016.~~

2019.

RISK MANAGEMENT

Effective risk management is critical to ~~Atlantic Capital’s~~our 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~~we do not have total assets in excess of $10 billion, the Audit Committee and the Audit and Risk Committee of the Bank’s board of directors ~~has an Audit and Risk Committee that, among other responsibilities, provides~~provide oversight of enterprise-wide risk management activities. ~~The Audit and Risk Committee reviews the Bank’s~~These committees review our activities in identifying, measuring, and mitigating existing and emerging risks (including credit, liquidity, interest-rate, compliance, market, operational, strategic, financial and reputational ~~risks).~~risks.) The ~~committee monitors~~committees monitor 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~~our compliance policies. With guidance from and oversight by the Audit Committee and the Bank’s Audit and Risk Committee, management continually refines and enhances its risk management policies and procedures to maintain effective risk management programs and ~~processes.~~

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. Atlantic Capital’s~~derivative instruments. Our 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~~We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain adequate allowances for ~~loan~~credit 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 interest income in future periods. ~~Atlantic Capital’s~~Our market risk arises primarily from interest rate risk inherent in ~~Atlantic Capital’s~~our lending and deposit-taking activities. The structure of ~~Atlantic Capital’s~~our 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~~We do not maintain a trading account nor ~~is Atlantic Capital~~are we 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~~

We assess 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~~Our loan portfolio consists mainly of floating rate loans. ~~Atlantic Capital’s~~Our core client deposits are likely to allow ~~Atlantic Capital~~us to lag ~~short term~~short-term interbank rate indices when pricing deposits. Transaction accounts comprise a significant amount of ~~Atlantic Capital’s~~our total deposits.

Table of Contents

Table 14 provides the impact on net interest income resulting from various interest rate shock scenarios as of September 30, ~~2017~~2020 and December 31, ~~2016.~~

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~~2019.

Table 14 - Net Interest Income Sensitivity Simulation Analysis


	Estimated change in net interest income
Change in interest rate (basis point)	September 30, 2020		December 31, 2019
‑200	(8.38)	%	(17.56)	%
‑100	(5.92)		(9.88)
+100	9.54		9.83
+200	19.56		19.24
+300	29.65		28.28

Increases in year-end deposits that led to temporarily high cash balances at December 31, 2019 contributed to the elevated asset sensitivity at December 31, 2019.

We also ~~utilizes~~utilize 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 ofon 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~~2020 and December 31, ~~2016.~~

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~~2019.

Table 15 - Market Value of Equity Modeling Analysis


	Estimated % change in MVE
Change in interest rate (basis point)	September 30, 2020		December 31, 2019
‑200	(2.22)	%	(6.13)	%
‑100	(2.88)		(3.73)
+100	3.26		2.58
+200	6.36		1.71
+300	6.64		0.68

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


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

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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~~

~~The Company maintains~~

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures as required under Rule 13a-15 promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed in ~~the Company’s~~our 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~~our management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, ~~2017, the Company’s~~2020, our 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~~our disclosure controls and procedures were effective as of September 30, ~~2017.~~

2020. No changes were made to ~~the Company’s~~our internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act) during the quarter ended September 30, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

Table of Contents

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~~our consolidated financial condition or results of ~~operations of Atlantic Capital.~~

operations.


~~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~~our Annual Report ~~on Form 10-K for the period ended December 31, 2016,~~ under Part I, Item 1A “Risk ~~Factors,”~~Factors”, as supplemented by the factors under Part II, Item 1A “Risk Factors” in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, as filed with the SEC on May 8, 2020 and August 7, 2020, respectively (the “Quarterly Reports”), because these risk factors may affect ~~the~~our operations and financial ~~results of the Company. Our evaluation of our risk factors has not changed materially since those discussed in the Annual Report.~~ results.

The risks described in the Annual Report and Quarterly Reports are not the only risks ~~facing the Company.~~we face. 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~~

~~None.~~


~~ITEM 3.~~	~~DEFAULTS UPON SENIOR SECURITIES~~

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

(a) None.


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

(b) Not applicable.


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

~~None.~~


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

(c) On November 14, 2018, we announced that the Board of Directors authorized an $85 million stock repurchase program. After completing the repurchases pursuant to this authorization during the first quarter of 2020, we announced on March 4, 2020 that the Board of Directors had authorized a new stock repurchase program pursuant to which it may purchase up to $25 million of our issued and outstanding common stock. The ~~exhibits listed~~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 ~~accompanying Exhibit Index are filed~~Securities Exchange Act of 1934. The stock repurchase program may be suspended or discontinued at any time and will automatically expire on March 4, 2022. Any repurchased shares will constitute authorized but unissued shares. We resumed repurchases in August 2020 as part of ~~this report.~~our holding company liquidity planning after having paused repurchases in March 2020 in response to the COVID-19 pandemic.

Table of Contents

~~EXHIBIT INDEX~~

During the three months ended September 30, 2020, we repurchased 401,491 shares under the new stock buyback program for $4.6 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, 2020	—	$	—	—	$	23,421,106	⁽¹⁾
August 1 - 31, 2020	109,232		11.30	109,232		22,191,056
September 1 - 30, 2020	292,259		11.65	292,259		18,801,828
Total	401,491	$	11.48	401,491	$	18,801,828

(1)	Represents the maximum dollar amount of shares available for repurchase in the $25 million share repurchase program announced March 4, 2020, expiring March 4, 2022.

Table of Contents

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


31.1
~~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) 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) 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) 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) 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 for the quarter ended September 30, ~~2017,~~2020, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of September 30, ~~2017~~2020 and December 31, ~~2016;~~2019; (ii) the Consolidated Statements of Income for the three and nine months ended September 30, ~~2017~~2020 and ~~2016;~~2019; (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2017~~2020 and ~~2016;~~2019; (iv) the Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, ~~2017~~2020 and ~~2016;~~2019; (v) the Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2020 and ~~2016;~~2019; and (vi) the Notes to the Unaudited Consolidated Financial Statements
104		The cover page from Atlantic Capital Bancshares, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in XBRL (eXtensible Business Reporting Language) (embedded within EX – 101).

* Management contract or compensatory plan or arrangement.

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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 6, 2020

	~~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



	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



	Common Stock					Accumulated Other Comprehensive Income (Loss)
(in thousands, except share data)	Shares	Amount		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			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



	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		)



(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



	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	)



	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



	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



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



	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



	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



	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



	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



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	)



	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



	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



	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 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 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