Table of Contents


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Graphic

newacblogosa06.jpg

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

OR

¨

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. 001-37615001-37615

ATLANTIC CAPITAL BANCSHARES, INC.

(Exact Name of Registrant as Specified in its Charter)

Georgia

20-5728270

Georgia20-5728270

(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: 25,728,18620,779,353 shares outstanding as of November 1, 20172020


Atlantic Capital Bancshares, Inc. and Subsidiary

Form 10-Q

INDEX

Page

No.

PART I.

Page
No.

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

Consolidated Balance Sheets - September 30, 20172020 and December 31, 20162019

Consolidated Statements of Income - Three and Nine Months ended September 30, 20172020 and 20162019

Consolidated Statements of Comprehensive Income - Three and Nine Months ended September 30, 20172020 and 20162019

Consolidated Statements of Shareholders’ Equity - Three and Nine Months ended September 30, 20172020 and 20162019

Consolidated Statements of Cash Flows - Nine Months ended September 30, 20172020 and 20162019

6

Notes to Unaudited Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

42

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

67

Item 4.

Controls and Procedures

67

PART II.

OTHER INFORMATION

68

Item 1.

Legal Proceedings

68

Item 1A.

Risk Factors

68

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

68

Item 3.

Defaults Upon Senior Securities

70

Item 4.

Mine Safety Disclosures

70

Item 5.

Other Information

70

Item 6.

70

71


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

1

  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)

2

 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-sale2,298
 1,293
 6,671
 4,221
Interest and dividends on other interest-earning assets562
 491
 1,617
 1,271
Total interest income24,351
 22,295
 71,134
 65,910
INTEREST EXPENSE       
Interest on deposits2,693
 1,956
 7,221
 5,470
Interest on Federal Home Loan Bank advances459
 133
 1,213
 324
Interest on federal funds purchased and securities sold under agreements to repurchase84
 37
 196
 191
Interest on long-term debt824
 815
 2,471
 2,457
Other
 
 
 38
Total interest expense4,060
 2,941
 11,101
 8,480
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES20,291
 19,354
 60,033
 57,430
Provision for loan losses322
 463
 2,936
 1,608
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES19,969
 18,891
 57,097
 55,822
NONINTEREST INCOME       
Service charges1,247
 1,270
 3,870
 4,160
(Loss) gain on sales of securities available-for-sale(80) 
 (80) 44
Gain on sales of other assets44
 71
 788
 150
Mortgage income320
 632
 965
 1,418
Trust income437
 361
 1,332
 1,061
Derivatives income(3) 69
 62
 232
Bank owned life insurance384
 424
 1,146
 1,215
SBA lending activities888
 959
 3,286
 3,043
TriNet lending activities20
 
 60
 1,144
Gains on sale of branches
 
 302
 3,885
Other noninterest income220
 216
 890
 950
Total noninterest income3,477
 4,002
 12,621
 17,302
NONINTEREST EXPENSE       
Salaries and employee benefits10,409
 10,059
 32,077
 31,034
Occupancy1,129
 1,235
 3,433
 3,609
Equipment and software776
 862
 2,577
 2,272
Professional services1,595
 442
 3,472
 1,950
Postage, printing and supplies63
 61
 226
 389
Communications and data processing982
 617
 3,038
 2,227
Marketing and business development272
 269
 721
 853
FDIC premiums308
 415
 754
 1,306
Merger and conversion costs
 579
 304
 2,538
Amortization of intangibles391
 520
 1,286
 1,950
Foreclosed property/problem asset expense7
 39
 117
 198
Other noninterest expense1,572
 2,198
 4,866
 6,179
Total noninterest expense17,504
 17,296
 52,871
 54,505
INCOME BEFORE PROVISION FOR INCOME TAXES5,942
 5,597
 16,847
 18,619
Provision for income taxes1,890
 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

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)

3


 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, respectively434
 (524) 3,916
 3,771
Reclassification adjustment for losses (gains) included in net income net of tax of $31, $0, $31, and ($17), respectively49
 
 49
 (27)
Unrealized gains on available-for-sale securities, net of tax483
 (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 tax408
 (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)

4


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

5

  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


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 losses2,936
 1,608
Depreciation, amortization, and accretion4,088
 4,550
Amortization of restricted stock compensation869
 378
Stock option compensation472
 638
Loss (gain) on sales of available-for-sale securities80
 (44)
Loss on disposition of premises and equipment, net347
 
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 loans34,448
 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 sale7,587
 (47,019)
Net increase in other assets(4,115) (8,929)
Net increase (decrease) in accrued expenses and other liabilities9,454
 (2,237)
Net cash provided by operating activities62,542
 89,285
 INVESTING ACTIVITIES   
Activity in securities available-for-sale:   
Prepayments35,271
 32,438
Maturities and calls5,190
 26,932
Sales1,813
 65,103
Purchases(139,465) (117,950)
Net decrease (increase) in loans held for investment38,720
 (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 estate1,081
 1,814
Net cash received (paid) for branch divestiture5,379
 (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 advances1,404,000
 915,000
Repayments of Federal Home Loan Bank advances(1,389,000) (745,000)
Proceeds from exercise of stock options3,531
 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 period165,725
 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 filingAnnual 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 reclassifiedmodified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to conformbe 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 UpdateASU 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 ActivitiesTransition 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 purposefair 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 reportingupdate modify the disclosure requirements for hedging activities with the economic objectives of those activities. ASU 2017-12fair value measurements by removing, modifying, or adding certain disclosures. The update is effective for public business entities forinterim and annual periods in fiscal years beginning after December 15, 2018,31, 2019, with early adoption includingpermitted for the removed disclosures and delayed adoption in an interim period, permitted. Atlantic Capital plans to adopt ASU 2017-12until 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 impacteffect on itsthe 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 theThe 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 processadopted and this totaled $72,000, net of evaluating the impacttax. For more information, refer to Note 1 of the adoptionConsolidated Financial Statements.

11

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 PaymentSimplifying the Accounting. for Income Taxes. The amendments in This ASU 2016-09 simplify several aspects ofsimplifies 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, classificationallocation, the methodology for calculating income taxes in an interim period and the recognition of awards as either equity ordeferred 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 allalso 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 effectsare not required to recognize an allocation of awards to be recognized asconsolidated 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 companiestheir 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 interimreporting periods beginning after December 15, 2017. Because the guidance does not apply to revenue associated with financial instruments, including loans2020, 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 theto 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 CapitalApril 5, 2019, the Bank completed the acquisitionsale 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-fiveFirstBank 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 million2019 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, and2019:

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 fees0 assets or liabilities related to systems conversiondiscontinued operations on the Consolidated Balance Sheets as of September 30, 2020 and other noninterest expenses.December 31, 2019.


12

Divestiture

Table of BranchesContents


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, andin derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements as ofat September 30, 20172020 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)

$

$

13

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 valuegross 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

14

Table of Contents

The following table presents the activity in the allowance for credit losses on securities available-for-saleheld-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, 20172020 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

15

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 years25,696
 25,507
5 years to 10 years53,041
 52,506
Over 10 years73,859
 70,755
 153,221
 149,393
Residential mortgage-backed securities296,978
 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, 20172020 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 2456 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

16

Table of Contents

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, 20172020 and December 31, 20162019 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, 2017of 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, 20172020 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, 20172020 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.


17


Table of Contents

NOTE 6 – LOANS AND ALLOWANCE FOR LOANCREDIT LOSSES

The composition of the loan portfolio as of September 30, 20172020 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 sale3,274
 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 estate944,854
 858,778
Construction and land132,080
 219,352
Mortgage warehouse participations41,551
 147,519
Total commercial loans1,680,911
 1,756,710
Residential:   
Residential mortgages101,976
 101,921
Home equity78,773
 77,358
Total residential loans180,749
 179,279
Consumer31,750
 27,338
Other16,106
 21,565
Total loans1,909,516
 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, 20172020 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 FHLBFederal 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 loancredit losses represents management’s estimate of probable incurred losses inon loans is a valuation account that is deducted from the loan portfolio as ofloans’ amortized cost basis to present the end ofnet amount expected to be collected on the period.loans.  It is comprised of specific reservesallowance for impairedindividually 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 currentexpected losses inherent losses in the loan portfolio.  Factors contributingRefer to Note 1, “Accounting Policies and Basis of Presentation” to the determination of the allowance include the credit worthiness of the borrower, changesConsolidated 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 thosefor loans.

18

Table of Contents

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, 20172020 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 losses2019.

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. CollateralA collateral based loan charge-offs arecharge-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 estate1,946
 1,783
 
 1,889
 
 
 
 
 
 
Construction and land
 
 
 
 
 
 
 
 
 
Residential mortgages236
 190
 
 191
 
 
 
 
 
 
Home equity529
 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 estate572
 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 estate1,946
 1,783
 
 1,925
 1
 
 
 
 
 
Construction and land
 
 
 
 
 
 
 
 
 
Residential mortgages236
 190
 
 221
 
 
 
 
 
 
Home equity529
 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 estate572
 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, 20172020 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 part2019.

19

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

20

Table of Contents

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, LTVloan-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 collateralizedloans 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.


21

Table of Contents

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


22

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

23

 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 estate925,588
 9,730
 4,037
 133
 1,631
 941,119
Construction and land127,005
 4,721
 
 22
 
 131,748
Residential mortgages97,685
 1,365
 714
 248
 328
 100,340
Home equity76,685
 41
 469
 695
 
 77,890
Mortgage warehouse41,551
 
 
 
 
 41,551
Consumer/Other47,594
 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 estate3,091
 233
 295
 
 116
 3,735
Construction and land298
 7
 27
 
 
 332
Residential mortgages396
 540
 700
 
 
 1,636
Home equity105
 475
 303
 
 
 883
Mortgage warehouse
 
 
 
 
 
Consumer/Other1
 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 estate843,924
 5,513
 5,571
 
 
 855,008
Construction and land213,981
 4,789
 64
 
 
 218,834
Residential mortgages97,660
 586
 747
 147
 
 99,140
Home equity75,031
 168
 397
 
 
 75,596
Mortgage warehouse147,519
 
 
 
 
 147,519
Consumer/Other48,680
 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 estate477
 240
 2,716
 
 337
 3,770
Construction and land229
 8
 281
 
 
 518
Residential mortgages59
 1,232
 1,016
 
 474
 2,781
Home equity364
 834
 564
 
 
 1,762
Mortgage warehouse
 
 
 
 
 
Consumer/Other1
 
 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, 20172020 and December 31, 20162019 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 estate936,836
 2,519
 
 1,764
 3,735
 944,854
Construction and land131,328
 398
 
 22
 332
 132,080
Residential mortgages98,308
 1,258
 198
 576
 1,636
 101,976
Home equity76,951
 244
 
 695
 883
 78,773
Mortgage warehouse41,551
 
 
 
 
 41,551
Consumer47,676
 
 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 estate852,626
 2,382
 
 
 3,770
 858,778
Construction and land218,290
 544
 
 
 518
 219,352
Residential mortgages97,901
 664
 428
 147
 2,781
 101,921
Home equity74,420
 884
 292
 
 1,762
 77,358
Mortgage warehouse147,519
 
 
 
 
 147,519
Consumer48,558
 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, net3,001

4,624
Servicing assets, net3,185

3,184
Total other intangibles, net6,186

7,808
Goodwill21,759

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 infollowing table presents loans purchased and/or sold during the three and nine months ended September 30, 20172020 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

24

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, 20172020 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.


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Changes in the balance of servicing assets for the three and nine months ended September 30, 20172020 and 20162019 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, 20172020 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, 20172020 and 20162019 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


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   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)

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


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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
 $(5,625)
Unrealized net gains (losses) on investment securities available-for-sale706
 (272) 434
 6,366
 (2,450) 3,916
Reclassification adjustment for net realized losses on investment securities available-for-sale80
 (31) 49
 80
 (31) 49
Unrealized net gains (losses) on derivatives(121) 46
 (75) (327) 125
 (202)
Accumulated other comprehensive income (loss) end of period$(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, 20172020 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 550109,446 at September 30, 20172020 and 162,428150 at September 30, 20162019 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, 25,716,4182020. At December 31, 2019, 21,751,026 shares of common stock were issued and outstanding. Atoutstanding. 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. TheNaN 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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Table of Contents

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 tostabilize 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, 20172020 and December 31, 2016,2019, Atlantic Capital had interest rate swaps designated as cash flow hedges with an aggregate notional amountamounts of $75.0$125.0 million and $50.0$175.0 million, respectively.

No

NaN hedge ineffectiveness gains or losses were recognized on active cash flow hedges for the three and nine months ended September 30, 20172020 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 clientscustomers desiring to manage interest rate risk. These swaps are not designated as accounting hedges under ASC 815, Derivatives and Hedging. In order toTo 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 noninterestderivatives income in the Consolidated Statements of Income. At September 30, 20172020 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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Table of Contents

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, 20172020 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, 20172020 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, 20172020 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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Table of Contents

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, 20172020 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

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)

(Effective Portion)

(Effective Portion)

(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, 20172020 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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Table of Contents

 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, 201740,000
 1.16% Fixed rate advance maturing January 17, 201740,000
 0.64%
Fixed rate advance maturing October 11, 201740,000
 1.15% Fixed rate advance maturing January 24, 201740,000
 0.61%
Fixed rate advance maturing October 13, 201745,000
 1.16% Fixed rate advance maturing January 30, 201730,000
 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, 20251, 2030 and bear a fixed rate of interest of 6.25%5.50% per year until September 29, 2020.1, 2025. From September 30, 20201, 2025 to the maturity date, the interest rate will be a floating rate equal to the three-month LIBORSOFR plus 468536.3 basis points. The Notes were priced at 100% of their par value. The Notesvalue 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, 20172020 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 ofplan.

At September 30, 2017,2020, approximately 3,825,000 2,981,000 additional awards were available tocould 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.

As

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 outstanding2020 for stock option grants was $18,000 and $53,000, respectively, and $18,000 and $151,000 for the purchasethree 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. Asoptions outstanding at September 30, 2020 was 1.8 years.

33

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, 20161,485,704
 $11.69
    
Granted30,400
 12.39
    
Exercised(718,912) 10.53
    
Forfeited(32,846) 12.28
    
Expired(635) 126.22
    
Outstanding, September 30, 2017763,711
 $12.64
 5.77 $4,348
        
Exercisable, September 30, 2017518,336
 $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 activityoption shares vested for the nine months ended September 30, 2017:
 Shares Weighted Average Grant-Date Fair Value
Outstanding, December 31, 2016259,165
 $13.70
Granted110,293
 17.85
Vested(64,637) 12.73
Forfeited(36,674) 14.88
Outstanding, September 30, 2017268,147
 $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 grantsawards and performance share awards that are expected to vest is amortized into expense over the vesting period. ForRestricted 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 $396,0002020 was $620,000 and $869,000,$1.6 million, respectively, was recognized related to restricted stock awards. Forand $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 toassociated with restricted stock awards.

Aswas $3.8 million as of September 30, 2017, there was $3.02020 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 costexpense 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 30,40012,500 shares and 10,6284,719 restricted stock awards to four two

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Table of Contents

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 22020 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

35

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 likelihoodprevailing 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, 20172020 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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Table of Contents

 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, 20172020 and 2016,twelve months ended December 31, 2019, there was not ano 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, 20172020 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

Fair Value

Fair Value

September 30, 2020

Measurement

Measurement

Measurement

Total

(in thousands)

Impaired Loans

$

$

$

4,107

$

4,107

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

Fair Value

Fair Value

December 31, 2019

Measurement

Measurement

Measurement

Total

(in thousands)

Impaired Loans

$

0

$

0

$

4,288

$

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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Table of Contents

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, 20172020 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 banks40,558
 40,558
 
 
Other short-term investments5,189
 5,189
 
 
Total securities available-for-sale447,005
 
 447,005
 
FHLB stock7,788
 
 
 7,788
Federal Reserve Bank stock9,781
 
 
 9,781
Loans held for investment, net1,886,562
 
 
 1,927,726
Loans held for sale3,274
 
 3,274
 
Derivative assets3,993
 
 3,993
 
Financial liabilities       
Deposits$2,103,645
 $
 $2,019,911
 $
Subordinated debt49,493
 
 49,871
 
FHLB advances125,000
 
 125,007
 
Derivative financial instruments4,184
 
 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 banks118,039
 118,039
 
 
Other short-term investments10,896
 10,896
 
 
Total securities available-for-sale347,705
 
 347,705
 
FHLB stock7,067
 
 
 7,067
Federal Reserve Bank stock9,690
 
 
 9,690
Loans held for investment, net1,960,735
 
 
 1,939,895
Loans held for sale35,219
 
 35,219
 
Derivative assets4,310
 
 4,310
 
Financial liabilities       
Deposits$2,205,991
 $
 $2,144,196
 $
Deposits to be assumed in branch sale31,589
 
 31,589
 
Subordinated debt49,366
 
 48,971
 
FHLB advances110,000
 
 109,946
 
Derivative financial instruments4,131
 
 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, 20172020 and December 31, 20162019 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 credit13,677
 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 EVENTSREVENUE 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 KramerJanuary 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 withwhich the resignationCompany 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 Presidentthe lease. ROU assets and Chief Operating Officeroperating 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 followingremaining 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, whichdiscount 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 paymentsingle lease component.

Rent expense, which was included in occupancy expense in the Consolidated Statements of $150,000, which representsIncome, 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 underthree 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

41

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

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

42

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 economiesprovisions 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 impactagencies issued guidance in anticipation of any legal, regulatory and policy changes affectingthe end of accommodations to borrowers to encourage financial institutions and the economies in which we conduct operations as a resultto consider prudent accommodation options that are based on an understanding of the new presidential administration;

credit risk of the U.S. legalborrower; are consistent with applicable laws and regulatory framework, including those associatedregulations; 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’sOur 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’sour consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include Atlantic Capital’sour accounting for the allowance for loancredit losses on loans, fair value measurements, and income tax related items. SignificantOn 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’sour 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 CapitalOur 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 thesebelieves 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 ofinvestors should consider our performance and financial condition as reported under GAAP and all other relevant information with a meaningful measure forwhen 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 measurea substitute for analysis of performancethe results or financial condition as determined in accordance withreported under GAAP. In addition, non-GAAPNon-GAAP financial measures may not be comparable to similarly titled non-GAAPnon- 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 20172020 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 20172020, 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 Capital2020, 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, 20172019. 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 ofattributable to a $1.1$4.0 million or 6%, increasedecrease 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, 20172020 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 $1.3from 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 increaseddecreased to 3.26%3.14% for the three months ended September 30, 20172020 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 increasedfrom continuing operations decreased to 3.24%3.25% for the nine months ended September 30, 20172020 from 3.11%3.66% for the nine months ended September 30, 2016.2019. The margin increasedecrease for the three and nine months ended September 30, 20172020 compared to the prior year was primarily the result of a decrease in loan yields due to increased investment in non-taxable investment securitiesthe declining interest rate environment and increases in the Fed Funds rate.

addition of the lower yielding PPP loans.

Provision for loancredit losses for the quarter ended September 30, 20172020 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’s2020, 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 relatedadoption of ASC 326 added a forecasting element to an additional $1.0 million specific reserve that was recordedthe calculation of expected credit losses in the second quarterfirst nine months of 2017 as2020, 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 resultgreater impact on the CECL model given its use of forecasting elements, whereas the downgrade of a large loan relationshipincurred 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 attributablefrom 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 saledecrease 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 loanssecurities and a $453,000,an increase in loss on sales of other assets of $267,000. Partially offsetting this

46

Table of Contents

decrease was an increase in income from service charges of $941,000, or 32%36%, decreaseand an increase of $883,000 in mortgagederivatives 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 componentcomponents of the increase waswere 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 componentcomponents 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.

47

Table of Contents

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 wasthird quarter of 2019 is calculated on a $2.2 million, or 88%, reductioncontinuing operations basis.

(5) Annualized.

48

Table of Contents

Non-GAAP Performance Measures Reconciliation

(dollars in merger and conversion costs due to the substantial completionthousands)

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

%

49

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 20172020 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 $2.1decline in interest expense of $4.0 million, or 10%62%, increasecompared to the same period in taxable equivalent interest income. The change2019, partially offset by a decrease in taxable equivalent netloan interest income primarily resultedof $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 incomethird quarter of 2019. The yield on loans resulting from increases in the Fed Funds rate.
Interest expenseexcluding 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 $1.1decrease 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 fromof $521,000, or 63%, in interest expense on long-term debt, due to the same periodissuance 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 30decreased 122 basis points from the third quarter of 20162019 to the third quarter of 2017,2020, driven by an increasea decrease in interest rates on deposits and other borrowings. Average interest-bearing deposits were lower mainlyborrowings 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 quartercost of 2017 and a reduction in brokeredinterest bearing deposits. In addition, premium amortizationTaxable 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 quarterNine Months of 2016.

2019

Taxable equivalent net interest income from continuing operations for the nine months ended September 30, 20172020 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 $5.7decrease of $9.3 million, or 9%49%, increasein 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 increasefrom 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%, increasedecrease in interest income on loans, resulting from increasesdecreases in the Fed Funds rate.
Interest expensefederal 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, 20172020 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%, increasedecrease from the same period of 2016,2019, primarily due to a $1.8an $8.9 million, or 32%57%, increasedecrease in interest paid on deposits. The rate paid on interest bearing liabilities increased 23from continuing operations decreased 109 basis points from the first nine months of 20162019 to the same period of 2017,2020, driven by an increasea 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 margincontinuing operations for the nine months ended September 30, 2017 increased2020 decreased to 3.24%3.25% compared to 3.11%3.66% for the nine months ended September 30, 2016.2019. The primary reasonsreason for the increasedecrease 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 higherperiod was lower interest rates on loans resulting from Fed Fundsfederal 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

50

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.

51


Table of Contents

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.


52


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 LoanCredit Losses

Management considers a number of factors in determining the required level of the allowance for loancredit 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 loancredit losses represents management’s determination of the amount necessary to be charged against the current period’s earnings to maintain the allowance for loancredit losses at a level that itis considered adequate in relation to the estimated lifetime losses inherentexpected in the loan portfolio.

For the three months ended September 30, 2017,2020, the provision for loancredit 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 loancredit 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 threefirst nine months ended September 30, 2017 was primarily related toof 2020 included a reduction in loan growth. The higher$16.3 million provision for the nine months ended September 30, 2017 wasloan losses and a $704,000 provision for unfunded commitments. The provision increased primarily relatedas a response to the downgradeexpected impact from the economic slowdown from COVID-19. Due to the adoption of a $7.7 million loan relationship to nonperformingASC 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 relatedCECL forecasts, which could result in changes to this downgrade. A $3.3 million charge-off was recorded in the third quarter of 2017allowance 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, 20172020 compared to .06%0.11% and .13%0.12%, respectively, for the three and nine months ended September 30, 2016.2019. The allowance for loancredit losses to total loans at September 30, 20172020 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, 20172020 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 tofor the third quarter of 2016,three month period and a decrease of $4.7 million,$777,000, or 27%10%, fromfor 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 andmonths 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 20172019. 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 20162019 primarily due to a $240,000 gain on salethe change in the credit valuation adjustment.

54

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 20172020 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 ofdecrease in loan sales.premiums. During the three months ended September 30, 20172020 and 2016,2019, guaranteed portions of 14 and 16 SBA loans with principal balances of $11.8totaling $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, 20172020 and 2016,2019, guaranteed portions of 35 and 36 SBA loans with principal balances of $48.7totaling $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 fromresult 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 recordedsame periods in noninterest expense.

On December 9, 2016, Atlantic Capital entered into2019 due to a definitive agreement to sell one branch$34.5 million gain in Cleveland, Tennessee, to SmartBank. The sale closed inconnection with the secondBranch Sale.

Noninterest Expense

Noninterest expense for the third quarter of 2017, and resulted in a net gain2020 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 innine 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, 20172020 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 increasea decrease of $1.0 million,$245,000, or 3%1%, from the first nine months of 2016. The increase was primarily attributable to2019 as a higher headcount.result of decreases in SBA commissions. Full time equivalent headcount totaled 343201 at September 30, 2017,2020 compared to 328197 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 Bankan increase in leasehold improvement depreciation associated with our corporate location and the opening of the Charlotte office.

Occupancy costs were $1.1 millionoperations 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 20162020, 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 decreasesame 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, 20172020 was primarily due to higher maintenance contracts and an increase in ATM managed services costs due to higher payments madeincreased volumes in the firstpayments processing business.

Marketing and second quarters of 2017.

Professional services costs were $1.6 millionbusiness development expense totaled $141,000 for the third quarterthree 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 costs2020, 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 millionincreases for the three and nine months ended September 30, 2017, respectively, and $520,000 and $2.0 million for2020 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 andmonths 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 decrease2020, 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 20162019.

Income Taxes

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

Income Taxes
Atlantic Capital monitors and evaluatesevaluate 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 itsPeriodically, we evaluate our income tax positions based on current tax law and positions taken by various tax auditors within the jurisdictions where Atlantic Capital iswe are required to file income tax returns.

The income tax provisionexpense for the three and nine months ended September 30, 20172020 was $1.9 million and $5.2$2.5 million, respectively, as compared with $1.9respectively. 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, 20172020, 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, 20172020 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 thean 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 sheetConsolidated Balance Sheets as a component of totalother 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, 20172020 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, 20172020 and 2016, Atlantic Capital had2019, 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’sour remaining net operating loss carryforwards within the statutory carryforward periods.


FINANCIAL CONDITION

Total assets at September 30, 20172020 and December 31, 20162019 were $2.64$2.92 billion and $2.73$2.91 billion, respectively. Average total assets for the third quarter of 20172020 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 $108.0held 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 salean 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’sour 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’s2020, 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 increasedecrease 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, 20172020 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, 20172020 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

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.

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, 20172020 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 collateralcollateral when assessing the collectability of these loans.

Allowance for LoanCredit 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 loancredit losses totaled $18.9on 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 decreaseallowance 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 primarilyderived 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-offnature and volume of a loan relationshiploans, credit concentrations, and the reversal of the specific reserve.

competition.

Net charge-offs for the third quarter of 2017three and 2016 were $3.3 million and $306,000, respectively. For the nine months ended September 30, 2017, net2020 were $347,000 and $2.1 million, respectively. Net charge-offs totaled $4.7 million compared to $2.0 million for the same periodthree 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 loancredit 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 losses314
 2,048
 565
 2,134
 463
 
Provision for PCI loan losses8
 (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 industrial1
 7
 
 
 2
 
Commercial real estate
 2
 
 (15) 20
 
Construction and land15
 
 
 
 12
 
Residential mortgages
 1
 
 
 5
 
Home equity
 1
 
 
 2
 
Consumer8
 5
 1
 2
 12
 
Other
 
 
 
 2
 
Total recoveries24
 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 loans0.68
%0.01
%0.26
%0.03
%0.06
%
Allowance for loan losses to total loans0.99
 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 $121.42019. Held-to-maturity securities, net totaled $185.8 million in available-for-sale securities during the first quarter of 2017, as a responseat 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 lossgain of $3.2$9.0 million compared to a net unrealized lossgain 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

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of securities fluctuate. After evaluating theManagement evaluated all available-for-sale securities within an unrealized losses, managementloss 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-saleour 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 investswe 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 allowswe 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, 20172020 and December 31, 20162019 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’sour 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, 2017This 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 itsWe 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 demand2019. 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, 20162019 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, 20172020 were $2.12$2.5 billion, a decreasean 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%, from2019. For the quarter ended September 30, 20162020 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 oroutstanding balances of federal funds purchased as ofat September 30, 2017 or2020 and December 31, 2016.

2019.

As a member of the Federal Home Loan Bank of Atlanta (“FHLB”), Atlantic Capital haswe 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, 20172020 and December 31, 2016, Atlantic Capital had FHLB advances2019.

62

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 $50.05.50% 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’sour ability to meet the daily cash flow requirements of Atlantic Capital’sour 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 Fundsfederal funds lines and other borrowing facilities. Atlantic Capital aimsWe 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 believesbelieved that Atlantic Capitalwe had sufficient on-balance sheet liquidity to meet itsour funding needs.

At September 30, 2017, Atlantic Capital2020, 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 Capitalsources, including FHLB advances and access to federal funds. We also hashave the ability to attract more retail deposits by offering aggressively pricedincreasing 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, 20172020 was $324.8$340.3 million, an increase of $21.113.8 million, or 7%4%, from December 31, 2016. Accumulated2019. 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 excludedwere offset by $12.0 million in repurchases of 820,349 shares of common stock during the calculationfirst 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’sour 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” underBank’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 combinationratios.

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 Januaryremained “well-capitalized” under regulatory guidelines. For more information see “Item 1. BusinessSupervision 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 Capitalwe also issuesissue 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 Capital2020, 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 itsour various sources of liquidity, Atlantic Capital believes itwe believe we will be able to fund these obligations as they arise. Atlantic Capital evaluatesWe evaluate each customer’s


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

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Table of Contents

collateral obtained, if deemed necessary upon extension of credit, is based on Atlantic Capital’sour 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’sour contractual obligations at September 30, 20172020 compared to December 31, 2016.

2019.

RISK MANAGEMENT

Effective risk management is critical to Atlantic Capital’sour 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 doeswe 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, providesprovide oversight of enterprise-wide risk management activities. The Audit and Risk Committee reviews the Bank’sThese 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 monitorscommittees 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’sour 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’sderivative instruments. Our independent creditloan 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 designedWe 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 loancredit 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 priceprices 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’sOur market risk arises primarily from interest rate risk inherent in Atlantic Capital’sour lending and deposit-taking activities. The structure of Atlantic Capital’sour 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 doesWe do not maintain a trading account nor is Atlantic Capitalare 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% withWith rates rising, 200-basis points. Thethe 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’sOur loan portfolio consists mainly of floating rate loans. Atlantic Capital’sOur core client deposits are likely to allow Atlantic Capitalus to lag short termshort-term interbank rate indices when pricing deposits. Transaction accounts comprise a significant amount of Atlantic Capital’sour total deposits.


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Table of Contents

Table 14 provides the impact on net interest income resulting from various interest rate shock scenarios as of September 30, 20172020 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 Capital2019.

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 utilizesutilize the market value of equity (“MVE”) as a tool in measuring and managing interest rate risk. Long-termLong-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, 20172020 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 Capital2019.

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’sour overall sensitivity to changes in interest rates.


66


ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Table of Contents

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’sour 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’sour 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’s2020, 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’sour disclosure controls and procedures were effective as of September 30, 2017.

2020. No changes were made to the Company’sour internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act) during the quarter ended September 30, 20172020 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.


67

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 theour 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’sour 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 theour 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 listedtiming 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 filedSecurities 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.


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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.

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ITEM 3.              DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.              MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.              OTHER INFORMATION

None.

ITEM 6.              EXHIBITS

31.1

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
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
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.*
Atlantic Capital Bancshares, Inc. 2017 Change in Control Plan.*
Atlantic Capital Bank Severance Plan.*
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

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

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

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, 20172020 and December 31, 2016;2019; (ii) the Consolidated Statements of Income for the three and nine months ended September 30, 20172020 and 2016;2019; (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 20172020 and 2016;2019; (iv) the Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 20172020 and 2016;2019; (v) the Consolidated Statements of Cash Flows for the nine months ended September 30, 20172020 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).


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* 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


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