Loans and Allowance for Loan Losses | LOANS AND ALLOWANCE FOR LOAN LOSSES The composition of the loan portfolio as of June 30, 2019 and December 31, 2018 , is summarized below. June 30, December 31, (in thousands) Loans held for sale Loans held for sale - discontinued operations $ — $ 373,030 Loans held for sale — 5,889 Total loans held for sale $ — $ 378,919 Loans held for investment Commercial loans: Commercial and industrial $ 701,566 $ 645,374 Commercial real estate 766,846 794,828 Construction and land 198,956 156,232 Mortgage warehouse participations 10,665 27,967 Total commercial loans 1,678,033 1,624,401 Residential: Residential mortgages 31,338 32,800 Home equity 24,303 22,822 Total residential loans 55,641 55,622 Consumer 34,618 25,851 Other 24,126 24,712 Total loans 1,792,418 1,730,586 Less net deferred fees and other unearned income (2,678 ) (2,513 ) Less allowance for loan losses (18,186 ) (17,851 ) Loans held for investment, net $ 1,771,554 $ 1,710,222 At June 30, 2019 and December 31, 2018 , loans with a carrying value of $803.5 million and $752.7 million , respectively, were pledged as collateral to secure Federal Home Loan Bank of Atlanta (“FHLB”) advances and the Federal Reserve discount window. At December 31, 2018 , PCI loans were designated as held for sale for the Branch Sale. The following table presents changes in the value of the accretable yield for acquired loans accounted for under ASC 310-30 for the three and six months ended June 30, 2019 and 2018. For the Three Months Ended For the Six Months Ended June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018 (in thousands) Balance at beginning of period $ — $ 2,409 $ — $ 2,316 Accretion — (301 ) — (599 ) Reclassification of nonaccretable discount due to change in expected cash flows — 197 — 293 Other changes, net — 151 — 446 Balance at end of period $ — $ 2,456 $ — $ 2,456 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 June 30, 2019 , the remaining accretable fair value discount on loans acquired through a business combination and not accounted for under ASC 310-30 was $337,000 compared to $3.6 million at December 31, 2018 . The allowance for loan losses represents management’s estimate of probable incurred losses in the loan portfolio as of the end of the period. It is comprised of specific reserves for impaired loans and a general allowance for pools of loans with similar characteristics not individually evaluated. The allowance is regularly evaluated to maintain an adequate level to absorb probable current inherent losses in the loan portfolio. Factors contributing to the determination of the allowance include the credit worthiness of the borrower, changes in the value of pledged collateral, and general economic conditions. Most loan commitments rated substandard or worse are specifically reviewed for loss potential. For loans deemed to be impaired, a specific allocation is assigned based on the losses expected to be realized from those loans. The following table presents the balance and activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2019 and 2018 . 2019 2018 Three Months Ended June 30, Commercial Residential Consumer Total Commercial Residential Consumer Total (in thousands) Allowance for loan losses: Beginning balance $ 17,397 $ 447 $ 263 $ 18,107 $ 18,797 $ 828 $ 260 $ 19,885 Provision for loan losses 1,055 (283 ) (74 ) 698 (283 ) 85 25 (173 ) Loans charged-off (635 ) — — (635 ) (50 ) (102 ) (10 ) (162 ) Recoveries — — 16 16 27 — 6 33 Total ending allowance balance $ 17,817 $ 164 $ 205 $ 18,186 $ 18,491 $ 811 $ 281 $ 19,583 2019 2018 Six Months Ended June 30, Commercial Residential Consumer Total Commercial Residential Consumer Total (in thousands) Allowance for loan losses: Beginning balance $ 17,322 $ 292 $ 237 $ 17,851 $ 18,267 $ 802 $ 275 $ 19,344 Provision for loan losses 1,662 (127 ) (23 ) 1,512 354 239 6 599 Loans charged-off (1,184 ) (9 ) (37 ) (1,230 ) (176 ) (230 ) (13 ) (419 ) Recoveries 17 8 28 53 46 — 13 59 Total ending allowance balance $ 17,817 $ 164 $ 205 $ 18,186 $ 18,491 $ 811 $ 281 $ 19,583 The general component of the allowance for loan losses 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. Quarterly, management evaluates these factors to determine an adjustment unique to Atlantic Capital and its market. Charge-offs are recognized when the amount of the loss is quantifiable and timing is known. Collateral based loan charge-offs are measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated net realizable value of the loan. When assessing property value for the purpose of determining a charge-off, a third-party appraisal or an independently derived internal evaluation is generally employed. A loan is considered to be impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Loans for which the terms have been modified or granted an economic concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. A specific allowance is established for individually evaluated impaired loans as needed. Reserves on impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the observable market price, or the fair value of the underlying collateral of the loan if the loan is collateral dependent. Atlantic Capital’s policy is to place loans on nonaccrual status, when, in the opinion of management, the principal and interest on a loan are 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. 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 June 30, 2019 and December 31, 2018 . June 30, 2019 Commercial Residential Consumer Total (in thousands) Allowance for loan losses: Ending allowance balance attributable to loans Individually evaluated for impairment $ 514 $ — $ — $ 514 Collectively evaluated for impairment 17,303 164 205 17,672 Total ending allowance balance $ 17,817 $ 164 $ 205 $ 18,186 Loans: Loans individually evaluated for impairment $ 17,439 $ 851 $ — $ 18,290 Loans collectively evaluated for impairment 1,660,594 54,790 58,744 1,774,128 Total ending loans balance $ 1,678,033 $ 55,641 $ 58,744 $ 1,792,418 December 31, 2018 Commercial Residential Consumer Total (in thousands) Allowance for loan losses: Ending allowance balance attributable to loans Individually evaluated for impairment $ 317 $ — $ — $ 317 Collectively evaluated for impairment 17,005 292 237 17,534 Total ending allowance balance $ 17,322 $ 292 $ 237 $ 17,851 Loans: Loans individually evaluated for impairment $ 10,273 $ 161 $ — $ 10,434 Loans collectively evaluated for impairment 1,614,128 55,461 50,563 1,720,152 Total ending loans balance $ 1,624,401 $ 55,622 $ 50,563 $ 1,730,586 The following table presents information on Atlantic Capital’s impaired loans for the three and six months ended June 30, 2019 and 2018 : For the Three Months Ended June 30, 2019 2018 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 $ 4,313 $ 4,313 $ — $ 4,359 $ 41 $ 4,522 $ 4,522 $ — $ 4,569 $ 57 Commercial real estate 2,603 2,441 — 2,497 51 1,740 1,577 — 1,584 — Construction and land — — — — — — — — — — Residential mortgages 197 151 — 154 — 255 210 — 210 1 Home equity 700 700 — 700 — — — — — — Mortgage warehouse — — — — — — — — — — Consumer — — — — — — — — — — Total $ 7,813 $ 7,605 $ — $ 7,710 $ 92 $ 6,517 $ 6,309 $ — $ 6,363 $ 58 Impaired loans with an allowance recorded: Commercial and industrial $ 2,682 $ 2,682 $ 336 $ 2,690 $ — $ — $ — $ — $ — $ — Commercial real estate 8,003 8,003 178 8,003 61 — — — — — Construction and land — — — — — — — — — — Residential mortgages — — — — — — — — — — Home equity — — — — — — — — — — Mortgage warehouse — — — — — — — — — — Consumer — — — — — — — — — — Total $ 10,685 $ 10,685 $ 514 $ 10,693 $ 61 $ — $ — $ — $ — $ — Total impaired loans $ 18,498 $ 18,290 $ 514 $ 18,403 $ 153 $ 6,517 $ 6,309 $ — $ 6,363 $ 58 For the Six Months Ended June 30, 2019 2018 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 $ 4,313 $ 4,313 $ — $ 4,402 $ 82 $ 4,522 $ 4,522 $ — $ 4,617 $ 116 Commercial real estate 2,603 2,441 — 2,516 51 1,740 1,577 — 1,584 — Construction and land — — — — — — — — — — Residential mortgages 197 151 — 156 — 255 210 — 212 2 Home equity 700 700 — 700 — — — — — — Mortgage warehouse — — — — — — — — — — Consumer — — — — — — — — — — Total $ 7,813 $ 7,605 $ — $ 7,774 $ 133 $ 6,517 $ 6,309 $ — $ 6,413 $ 118 Impaired loans with an allowance recorded: Commercial and industrial $ 2,682 $ 2,682 $ 336 $ 2,690 $ — $ — $ — $ — $ — $ — Commercial real estate 8,003 8,003 178 8,003 122 — — — — — Construction and land — — — — — — — — — — Residential mortgages — — — — — — — — — — Home equity — — — — — — — — — — Mortgage warehouse — — — — — — — — — — Consumer — — — — — — — — — — Total $ 10,685 $ 10,685 $ 514 $ 10,693 $ 122 $ — $ — $ — $ — $ — Total impaired loans $ 18,498 $ 18,290 $ 514 $ 18,467 $ 255 $ 6,517 $ 6,309 $ — $ 6,413 $ 118 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. As of June 30, 2019 and December 31, 2018 , the Company had a recorded investment in TDRs of $9.2 million and $8.2 million , respectively. The Company had commitments to lend additional funds of $0 and $28,000 on loans modified as TDRs, as of June 30, 2019 and December 31, 2018 , respectively. During the three months ended June 30, 2019 , the Company extended the amortization period for one commercial and industrial SBA loan, resulting in its reclassification as a TDR. Additionally, during the three months ended June 30, 2019 , the Company restructured two commercial and industrial SBA loans to lower the payment amounts, resulting in their reclassification as TDRs. During the six months ended June 30, 2019 , the Company granted payment deferrals on four SBA loans, three classified as commercial and industrial and one classified as commercial real estate, resulting in their reclassification as TDRs. During the same period, the Company granted an interest only forbearance on one commercial real estate loan to allow time for the pledged collateral to sell. This concession resulted in the reclassification of this loan as a TDR. The Company did not modify any loans as TDRs during the three and six months ended June 30, 2018. Loans, by portfolio class, modified as TDRs during the three and six months ended June 30, 2019 are as follows. Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (in thousands) Three months ended June 30, 2019 Commercial and industrial 3 $ 382 $ 382 Total 3 $ 382 $ 382 Six months ended June 30, 2019 Commercial and industrial 6 $ 1,235 $ 1,235 Commercial real estate 2 926 926 Total 8 $ 2,161 $ 2,161 The Company did not forgive any principal on TDRs during the three and six month periods ended June 30, 2019 and 2018, and there were no subsequent defaults of previously identified TDRs. Atlantic Capital individually rates loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, consumer credit risk scores (FICO scores), rating agency information, LTV ratios, collateral, collection experience, and other internal metrics. Atlantic Capital uses a dual rating system. The likelihood of default of a credit transaction is graded in the Obligor Rating. The risk of loss given default is graded in the Facility Rating. The Obligor Rating is determined through credit analysis. Facility Ratings are used to describe the value to the Company that the collateral represents. Facility Ratings are based on the collateral package or market expectations regarding the value and liquidity of the collateral. Ratings are generally reviewed at least annually or more frequently if there is a material change in creditworthiness. Exceptions to this policy may include well collateralized term loans and loans to individuals with limited exposure or complexity. Atlantic Capital uses the following definitions for risk ratings: Pass: Loans that are analyzed individually as part of the above described process and that do not meet the criteria of special mention, substandard or doubtful. Special Mention: Loans classified as special mention have a potential weakness that requires management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. As of June 30, 2019 and December 31, 2018 , and based on the most recent analysis performed, the risk category of loans by class of loans is as follows. Total loans at December 31, 2018 includes loans held for sale - discontinued operations. Pass Special Mention Substandard Accruing Substandard Nonaccruing Doubtful Nonaccruing Total (in thousands) June 30, 2019 Commercial and industrial $ 673,022 $ 5,283 $ 20,193 $ 3,068 $ — $ 701,566 Commercial real estate 746,832 3,663 14,509 390 1,452 766,846 Construction and land 198,956 — — — — 198,956 Residential mortgages 30,949 — — 238 151 31,338 Home equity 23,355 — 248 700 — 24,303 Mortgage warehouse 10,665 — — — — 10,665 Consumer/Other 58,728 — 16 — — 58,744 Total loans $ 1,742,507 $ 8,946 $ 34,966 $ 4,396 $ 1,603 $ 1,792,418 Pass Special Mention Substandard Accruing Substandard Nonaccruing Doubtful Nonaccruing Total (in thousands) December 31, 2018 Commercial and industrial $ 671,992 $ 6,802 $ 22,777 $ 832 $ — $ 702,403 Commercial real estate 946,612 4,754 14,914 126 1,647 968,053 Construction and land 169,687 40 25 — — 169,752 Residential mortgages 118,265 1,119 1,441 1,138 281 122,244 Home equity 54,707 92 294 499 — 55,592 Mortgage warehouse 22,192 5,775 — — — 27,967 Consumer/Other 57,268 66 97 174 — 57,605 Total loans $ 2,040,723 $ 18,648 $ 39,548 $ 2,769 $ 1,928 $ 2,103,616 Atlantic Capital monitors loans by past due status. The following table presents the aging of the recorded investment in past due loans as of June 30, 2019 and December 31, 2018 by class of loans. Total loans at December 31, 2018 includes loans held for sale - discontinued operations. As of June 30, 2019 Accruing Current Accruing 30-89 Days Past Due Accruing 90+ Days Past Due Nonaccruing Total (in thousands) Loans by Classification Commercial and industrial $ 694,552 $ 3,841 $ 105 $ 3,068 $ 701,566 Commercial real estate 760,588 4,416 — 1,842 766,846 Construction and land 198,956 — — — 198,956 Residential mortgages 30,949 — — 389 31,338 Home equity 23,355 — 248 700 24,303 Mortgage warehouse 10,665 — — — 10,665 Consumer 58,744 — — — 58,744 Total Loans $ 1,777,809 $ 8,257 $ 353 $ 5,999 $ 1,792,418 As of December 31, 2018 Accruing Current Accruing 30-89 Days Past Due Accruing 90+ Days Past Due Nonaccruing Total (in thousands) Loans by Classification Commercial and industrial $ 692,308 $ 8,785 $ 478 $ 832 $ 702,403 Commercial real estate 963,579 2,701 — 1,773 968,053 Construction and land 169,752 — — — 169,752 Residential mortgages 119,932 893 — 1,419 122,244 Home equity 54,714 379 — 499 55,592 Mortgage warehouse 27,967 — — — 27,967 Consumer 57,371 59 1 174 57,605 Total Loans $ 2,085,623 $ 12,817 $ 479 $ 4,697 $ 2,103,616 |