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ITEM 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Atlantic Capital Bancshares, Inc. (the “Company” or “Atlantic Capital”) contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
The following risks, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
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•
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the cost savings from our exit of the Tennessee and northwest Georgia markets may not be fully realized or may take longer to realize than expected;
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•
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the funding impact from the loss of deposits following the sale of our Tennessee and northwest Georgia branches;
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•
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our strategic decision to focus on the greater Atlanta market may not positively impact our financial condition in the expected timeframe, or at all;
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•
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costs associated with our growth and hiring initiatives in the Atlanta market area;
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•
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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;
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•
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changes in asset quality and credit risk;
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•
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the cost and availability of capital;
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•
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customer acceptance of our products and services;
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•
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customer borrowing, repayment, investment and deposit practices;
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•
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the introduction, withdrawal, success and timing of business initiatives;
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•
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the impact, extent, and timing of technological changes;
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•
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severe catastrophic events in our geographic area;
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•
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a weakening of the economies in which we conduct operations may adversely affect our operating results;
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•
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the U.S. legal and regulatory framework could adversely affect the operating results of the Company;
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•
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the interest rate environment may compress margins and adversely affect net interest income;
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•
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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;
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•
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changes in trade, monetary and fiscal policies of various governmental bodies and central banks could affect the economic environment in which we operate;
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•
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our ability to determine accurate values of certain assets and liabilities;
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•
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adverse developments in securities, public debt, and capital markets, including changes in market liquidity and volatility;
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•
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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;
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•
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the impact of the transition from LIBOR and our ability to adequately manage such transition;
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•
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adequacy of our risk management program;
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•
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increased competitive pressure due to consolidation in the financial services industry;
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•
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risks related to security breaches, cybersecurity attacks, and other significant disruptions in our information technology systems;
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•
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the effect of changes in tax law, such as the effect of the Tax Cuts and Jobs Act that was enacted on December 22, 2017; and
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•
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other risks and factors identified in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 14, 2019 (the “Annual Report”) in Part I, Item 1A under the heading “Risk Factors.”
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CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of Atlantic Capital are in accordance with GAAP and conform to general practices within the banking industry. Atlantic Capital’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in Atlantic Capital’s consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include Atlantic Capital’s accounting for the allowance for loan losses, fair value measurements, and income tax related items. Significant accounting policies are discussed in the Notes to Consolidated Financial Statements within Atlantic Capital’s Annual Report on Form 10-K.
Non-GAAP Financial Measures.
This Form 10-Q contains non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. Atlantic Capital management uses non-GAAP financial measures, including: (i) taxable equivalent interest income; (ii) taxable equivalent net interest income; (iii) taxable equivalent net interest margin; (iv) taxable equivalent net interest income from continuing operations; (v) taxable equivalent net interest margin from continuing operations (vi) net interest income after provision for loan losses-taxable equivalent; (vii) income before income taxes-taxable equivalent; and (viii) income tax expense-taxable equivalent. Management uses these non-GAAP financial measures because it believes they provide a greater understanding of ongoing performance and operations, enhance comparability with prior periods, and provide users of our financial information with a meaningful measure for assessing our financial results and credit trends. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as an alternative to any measure of performance or financial condition as determined in accordance with GAAP. In addition, non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures presented by other companies. Investors should consider Atlantic Capital’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. A reconciliation of these non-GAAP financial measures to GAAP financial measures is included in Table 1.
EXECUTIVE OVERVIEW AND EARNINGS SUMMARY
On April 5, 2019, the Bank completed the previously disclosed sale of all 14 of its bank branches located in Tennessee and northwest Georgia, including its mortgage banking business, to FirstBank (the “Branch Sale”). In connection with the Branch Sale, FirstBank assumed deposits and customer repurchase agreements of approximately $598 million and purchased approximately $385 million in loans. FirstBank paid a deposit premium equal to 6.25% of the balance of assumed deposits, less a discount of 0.68% of purchased loans. The income and expenses related to these branches are included in discontinued operations and prior period financial information has been retrospectively adjusted for the impact of discontinued operations. Net income from discontinued operations in the second quarter of 2019 included a gain on sale of branches of $34.5 million and divestiture expenses of $3.6 million.
Atlantic Capital reported net income from continuing operations of $7.0 million for the second quarter of 2019 compared to net income from continuing operations of $8.4 million for the second quarter of 2018. Diluted income per common share from continuing operations was $0.29 for the second quarter of 2019, compared to $0.32 for the same period in 2018.
For the six months ended June 30, 2019, Atlantic Capital reported net income from continuing operations of $13.4 million. This compared to net income from continuing operations of $13.6 million for the six months ended June 30, 2018. Diluted income per common share from continuing operations was $0.55 for the six months ended June 30, 2019 compared to $0.52 for the same period in 2018.
The decrease in net income from continuing operations for the three months ended June 30, 2019, compared to the same period in 2018, was primarily attributable to a $1.5 million, or 34%, decrease in noninterest income from continuing operations due to a $1.7 million gain on the sale of Southeastern Trust Company in the second quarter of 2018.
For the six months ended June 30, 2019 compared to the first six months of 2018, the decrease in net income from continuing operations was primarily attributable to a $2.4 million, or 31%, decrease in noninterest income from continuing operations and a $1.1 million, or 4%, increase in noninterest expense from continuing operations.
Taxable equivalent net interest income from continuing operations was $20.0 million for the second quarter of 2019, compared to $18.5 million for the second quarter of 2018. Taxable equivalent net interest margin from continuing operations increased to 3.61% for the three months ended June 30, 2019 from 3.51% for the three months ended June 30, 2018. For the six months ended June 30, 2019, taxable equivalent net interest income was $40.5 million compared to $36.1 million for the same period of 2018. Taxable equivalent net interest margin increased to 3.73% for the six months ended June 30, 2019 from 3.45% for the six months ended June 30, 2018. The margin increase for the three and six months ended June 30, 2019 compared to the prior year was primarily due to increases in the Federal Funds rate.
Provision for loan losses for the quarter ended June 30, 2019 totaled $698,000, an increase of $871,000 from the quarter ended June 30, 2018. The increase was primarily related to an increase in net charge-offs as well as an increase in specific reserve impairments. For the six months ended June 30, 2019, Atlantic Capital’s provision for loan losses was $1.5 million compared to a provision of $599,000 for the first six months of 2018. The increase was primarily due to higher levels of net charge-offs for the six months ended June 30, 2019 compared to the first six months of 2018.
Noninterest income from continuing operations decreased $1.5 million, or 34%, to $2.9 million from the second quarter of 2018. The decrease was primarily due to the $1.7 million gain on the sale of Southeastern Trust Company in the second quarter of 2018. Also contributing to the decrease was a $507,000, or 100%, decrease in trust income due to the sale of the trust business in the second quarter of 2018. This was offset by a $656,000 increase in gain on sale of investment securities.
For the first six months of 2019, noninterest income from continuing operations decreased $2.4 million, or 31%, to $5.3 million. The decrease was primarily due to the $1.7 million gain on the sale of Southeastern Trust Company in the second quarter of 2018. Also contributing to the decrease was a $1.0 million, or 100%, decrease in trust income due to the sale of the trust business in the second quarter of 2018. This was partially offset by a $656,000 increase in gain on sale of investment securities.
For the second quarter of 2019, noninterest expense from continuing operations increased $631,000, or 5%, to $13.3 million compared to the second quarter of 2018. The most significant component of the increase was a $618,000, or 8%, increase in salaries and employee benefits primarily related to an increase in severance and medical insurance expense.
Noninterest expense from continuing operations totaled $27.0 million for the six months ended June 30, 2019, compared to $25.9 million for the same period in 2018. The most significant component of the increase was an $881,000, or 5%, increase in salaries and employee benefits primarily related to severance and medical insurance costs.
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Table 1 - Quarterly Selected Financial Data
(1)
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(dollars in thousands, except share and per share data; taxable equivalent)
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2019
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2018
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For the six months ended June 30,
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Second Quarter
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First Quarter
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Fourth Quarter
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Third Quarter
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Second Quarter
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2019
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2018
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INCOME SUMMARY
(1)
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Interest income
(2)
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$
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26,686
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|
|
$
|
26,297
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|
|
$
|
26,725
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|
|
$
|
24,114
|
|
|
$
|
22,934
|
|
|
$
|
52,983
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|
|
$
|
44,316
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|
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Interest expense
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|
6,709
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|
|
5,773
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|
|
5,560
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|
|
4,720
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|
|
4,392
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|
|
12,482
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|
|
8,233
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|
|
Net interest income
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|
19,977
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|
|
20,524
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|
|
21,165
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|
|
19,394
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|
|
18,542
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|
|
40,501
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|
|
36,083
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|
|
Provision for loan losses
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|
698
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|
|
814
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|
|
502
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|
|
845
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|
|
(173
|
)
|
|
1,512
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|
|
599
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|
|
Net interest income after provision for loan losses
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|
19,279
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|
|
19,710
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|
|
20,663
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|
|
18,549
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|
|
18,715
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|
|
38,989
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|
|
35,484
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|
|
Noninterest income
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|
2,941
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|
|
2,336
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|
|
164
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|
|
2,255
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|
|
4,466
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|
|
5,277
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|
|
7,628
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Noninterest expense
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|
13,254
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|
|
13,795
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|
|
12,208
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|
|
11,872
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|
|
12,623
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|
|
27,049
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|
|
25,911
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Income from continuing operations before income taxes
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|
8,966
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|
|
8,251
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|
|
8,619
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|
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8,932
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|
|
10,558
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|
|
17,217
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|
|
17,201
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|
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Income tax expense
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|
1,957
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|
|
1,811
|
|
|
1,136
|
|
|
1,934
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|
|
2,180
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|
|
3,768
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|
|
3,632
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|
|
Net income from continuing operations
|
|
7,009
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|
|
6,440
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|
|
7,483
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|
|
6,998
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|
|
8,378
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|
|
13,449
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|
|
13,569
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Income (loss) from discontinued operations, net of tax
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|
22,143
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|
|
(1,063
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)
|
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1,347
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|
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(485
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)
|
|
(227
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)
|
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21,080
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|
|
(380
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)
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Net income
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$
|
29,152
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|
|
$
|
5,377
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|
|
$
|
8,830
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|
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$
|
6,513
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|
|
$
|
8,151
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|
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$
|
34,529
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|
|
$
|
13,189
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PER SHARE DATA
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Basic earnings (loss) per share - continuing operations
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$
|
0.29
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|
|
$
|
0.26
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|
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$
|
0.29
|
|
|
$
|
0.27
|
|
|
$
|
0.32
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|
|
$
|
0.55
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|
|
$
|
0.52
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|
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Basic earnings (loss) per share - discontinued operations
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|
0.93
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|
|
(0.04
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)
|
|
0.05
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|
|
(0.02
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)
|
|
(0.01
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)
|
|
0.87
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|
|
(0.01
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)
|
|
Basic earnings (loss) per share
|
|
1.22
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|
|
0.22
|
|
|
0.34
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|
|
0.25
|
|
|
0.31
|
|
|
1.42
|
|
|
0.51
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|
|
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|
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|
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|
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|
|
|
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Diluted earnings (loss) per share - continuing operations
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|
$
|
0.29
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|
|
$
|
0.26
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|
|
$
|
0.29
|
|
|
$
|
0.27
|
|
|
$
|
0.32
|
|
|
$
|
0.55
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|
|
$
|
0.52
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|
|
Diluted earnings (loss) per share - discontinued operations
|
|
0.92
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|
|
(0.04
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)
|
|
0.05
|
|
|
(0.02
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)
|
|
(0.01
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)
|
|
0.86
|
|
|
(0.01
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)
|
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Diluted earnings (loss) per share
|
|
1.21
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|
|
0.21
|
|
|
0.34
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|
|
0.25
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|
|
0.31
|
|
|
1.41
|
|
|
0.51
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PERFORMANCE MEASURES
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Return on average equity
|
|
34.38
|
|
%
|
6.80
|
|
%
|
10.90
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|
%
|
8.07
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|
%
|
10.46
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|
%
|
21.07
|
|
%
|
8.59
|
|
%
|
Return on average assets
|
|
4.79
|
|
|
0.77
|
|
|
1.21
|
|
|
0.92
|
|
|
1.20
|
|
|
2.64
|
|
|
0.98
|
|
|
Taxable equivalent net interest margin - continuing operations
|
|
3.61
|
|
|
3.74
|
|
|
3.66
|
|
|
3.48
|
|
|
3.51
|
|
|
3.73
|
|
|
3.45
|
|
|
Efficiency ratio - continuing operations
|
|
58.06
|
|
|
60.61
|
|
|
57.50
|
|
|
55.09
|
|
|
55.10
|
|
|
59.33
|
|
|
59.55
|
|
|
Equity to assets
|
|
14.09
|
|
|
11.23
|
|
|
10.95
|
|
|
11.11
|
|
|
11.77
|
|
|
14.09
|
|
|
11.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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ASSET QUALITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Allowance for loan losses to loans held for investment
(3)
|
|
1.02
|
|
%
|
1.04
|
|
%
|
1.03
|
|
%
|
1.00
|
|
%
|
1.01
|
|
%
|
1.02
|
|
%
|
1.01
|
|
%
|
Net charge-offs
|
|
$
|
619
|
|
|
$
|
558
|
|
|
$
|
(3
|
)
|
|
$
|
(15
|
)
|
|
$
|
129
|
|
|
$
|
1,177
|
|
|
$
|
360
|
|
|
Net charge-offs to average loans
(4)
|
|
0.14
|
|
%
|
0.11
|
|
%
|
—
|
|
%
|
—
|
|
%
|
0.03
|
|
%
|
0.12
|
|
%
|
0.04
|
|
%
|
NPAs to total assets
|
|
0.31
|
|
|
0.40
|
|
|
0.20
|
|
|
0.13
|
|
|
0.14
|
|
|
0.31
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
On April 5, 2019, Atlantic Capital completed the sale to FirstBank of its Tennessee and northwest Georgia banking operations, including 14 branches and the mortgage business. The mortgage business and branches sold to FirstBank are reported as discontinued operations. Discontinued operations have been reported retrospectively for periods presented prior to December 31, 2018.
(2)
Interest income on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 21%, reflecting the statutory federal income tax rate.
(3)
The ratios for the first and second quarters of 2019 and fourth quarter 2018 are calculated on a continuing operations basis. Prior period ratios have not been retrospectively adjusted for the impact of discontinued operations.
(4)
Annualized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 1 - Quarterly Selected Financial Data
(1)
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except share and per share data; taxable equivalent)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
For the six months ended June 30,
|
|
|
|
Second Quarter
|
|
First Quarter
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
2019
|
|
2018
|
|
AVERAGE BALANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
1,800,001
|
|
|
$
|
2,089,465
|
|
|
$
|
2,076,853
|
|
|
$
|
1,963,817
|
|
|
$
|
1,927,063
|
|
|
$
|
1,943,933
|
|
|
$
|
1,932,975
|
|
|
Investment securities
|
|
360,047
|
|
|
400,101
|
|
|
450,465
|
|
|
461,348
|
|
|
454,634
|
|
|
379,964
|
|
|
454,277
|
|
|
Total assets
|
|
2,440,502
|
|
|
2,829,072
|
|
|
2,891,327
|
|
|
2,805,740
|
|
|
2,718,071
|
|
|
2,633,713
|
|
|
2,711,483
|
|
|
Deposits
|
|
1,947,426
|
|
|
2,387,104
|
|
|
2,380,861
|
|
|
2,254,072
|
|
|
2,135,825
|
|
|
2,166,052
|
|
|
2,144,805
|
|
|
Shareholders’ equity
|
|
340,119
|
|
|
320,812
|
|
|
321,348
|
|
|
320,090
|
|
|
312,543
|
|
|
330,519
|
|
|
309,698
|
|
|
Number of common shares - basic
|
|
23,888,381
|
|
|
24,855,171
|
|
|
25,919,445
|
|
|
26,103,397
|
|
|
26,010,914
|
|
|
24,369,106
|
|
|
25,881,587
|
|
|
Number of common shares - diluted
|
|
24,040,806
|
|
|
25,019,384
|
|
|
26,043,799
|
|
|
26,254,772
|
|
|
26,200,026
|
|
|
24,527,392
|
|
|
26,073,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT PERIOD END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
1,789,740
|
|
|
$
|
2,120,866
|
|
|
$
|
2,106,992
|
|
|
$
|
2,040,320
|
|
|
$
|
1,935,923
|
|
|
$
|
1,789,740
|
|
|
$
|
1,935,923
|
|
|
Investment securities
|
|
348,723
|
|
|
402,640
|
|
|
402,486
|
|
|
465,756
|
|
|
453,968
|
|
|
348,723
|
|
|
453,968
|
|
|
Total assets
|
|
2,389,680
|
|
|
2,855,887
|
|
|
2,955,440
|
|
|
2,882,721
|
|
|
2,690,674
|
|
|
2,389,680
|
|
|
2,690,674
|
|
|
Deposits
|
|
1,851,531
|
|
|
2,440,448
|
|
|
2,544,163
|
|
|
2,379,824
|
|
|
2,066,587
|
|
|
1,851,531
|
|
|
2,066,587
|
|
|
Shareholders’ equity
|
|
336,715
|
|
|
320,627
|
|
|
323,653
|
|
|
320,237
|
|
|
316,770
|
|
|
336,715
|
|
|
316,770
|
|
|
Number of common shares outstanding
|
|
23,293,465
|
|
|
24,466,964
|
|
|
25,290,419
|
|
|
26,103,666
|
|
|
26,102,217
|
|
|
23,293,465
|
|
|
26,102,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
On April 5, 2019, Atlantic Capital completed the sale to FirstBank of its Tennessee and northwest Georgia banking operations, including 14 branches and the mortgage business. The banking business and branches subsequently sold to FirstBank are reported as discontinued operations. Discontinued operations have been reported retrospectively for periods presented prior to December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Performance Measures Reconciliation
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
For the six months ended June 30,
|
|
|
Second Quarter
|
|
First Quarter
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
2019
|
|
2018
|
Taxable equivalent interest income reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income - GAAP
|
|
$
|
26,598
|
|
|
$
|
26,197
|
|
|
$
|
26,628
|
|
|
$
|
24,017
|
|
|
$
|
22,836
|
|
|
$
|
52,795
|
|
|
$
|
44,115
|
|
Taxable equivalent adjustment
|
|
88
|
|
|
100
|
|
|
97
|
|
|
97
|
|
|
98
|
|
|
188
|
|
|
201
|
|
Interest income - taxable equivalent
|
|
$
|
26,686
|
|
|
$
|
26,297
|
|
|
$
|
26,725
|
|
|
$
|
24,114
|
|
|
$
|
22,934
|
|
|
$
|
52,983
|
|
|
$
|
44,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent net interest income reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income - GAAP
|
|
$
|
19,889
|
|
|
$
|
20,424
|
|
|
$
|
21,068
|
|
|
$
|
19,297
|
|
|
$
|
18,444
|
|
|
$
|
40,313
|
|
|
$
|
35,882
|
|
Taxable equivalent adjustment
|
|
88
|
|
|
100
|
|
|
97
|
|
|
97
|
|
|
98
|
|
|
188
|
|
|
201
|
|
Net interest income - taxable equivalent
|
|
$
|
19,977
|
|
|
$
|
20,524
|
|
|
$
|
21,165
|
|
|
$
|
19,394
|
|
|
$
|
18,542
|
|
|
$
|
40,501
|
|
|
$
|
36,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent net interest income after provision for loan losses reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses - GAAP
|
|
$
|
19,191
|
|
|
$
|
19,610
|
|
|
$
|
20,566
|
|
|
$
|
18,452
|
|
|
$
|
18,617
|
|
|
$
|
38,801
|
|
|
$
|
35,283
|
|
Taxable equivalent adjustment
|
|
88
|
|
|
100
|
|
|
97
|
|
|
97
|
|
|
98
|
|
|
188
|
|
|
201
|
|
Net interest income after provision for loan losses - taxable equivalent
|
|
$
|
19,279
|
|
|
$
|
19,710
|
|
|
$
|
20,663
|
|
|
$
|
18,549
|
|
|
$
|
18,715
|
|
|
$
|
38,989
|
|
|
$
|
35,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent income before income taxes reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes - GAAP
|
|
$
|
8,878
|
|
|
$
|
8,151
|
|
|
$
|
8,522
|
|
|
$
|
8,835
|
|
|
$
|
10,460
|
|
|
$
|
17,029
|
|
|
$
|
17,000
|
|
Taxable equivalent adjustment
|
|
88
|
|
|
100
|
|
|
97
|
|
|
97
|
|
|
98
|
|
|
188
|
|
|
201
|
|
Income before income taxes - taxable equivalent
|
|
$
|
8,966
|
|
|
$
|
8,251
|
|
|
$
|
8,619
|
|
|
$
|
8,932
|
|
|
$
|
10,558
|
|
|
$
|
17,217
|
|
|
$
|
17,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent income tax expense reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense - GAAP
|
|
$
|
1,869
|
|
|
$
|
1,711
|
|
|
$
|
1,039
|
|
|
$
|
1,837
|
|
|
$
|
2,082
|
|
|
$
|
3,580
|
|
|
$
|
3,431
|
|
Taxable equivalent adjustment
|
|
88
|
|
|
100
|
|
|
97
|
|
|
97
|
|
|
98
|
|
|
188
|
|
|
201
|
|
Income tax expense - taxable equivalent
|
|
$
|
1,957
|
|
|
$
|
1,811
|
|
|
$
|
1,136
|
|
|
$
|
1,934
|
|
|
$
|
2,180
|
|
|
$
|
3,768
|
|
|
$
|
3,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent net interest margin reconciliation - continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin - GAAP - continuing operations
|
|
3.60
|
%
|
|
3.72
|
%
|
|
3.64
|
%
|
|
3.46
|
%
|
|
3.49
|
%
|
|
3.71
|
%
|
|
3.43
|
%
|
Impact of taxable equivalent adjustment
|
|
0.01
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
Net interest margin - taxable equivalent - continuing operations
|
|
3.61
|
%
|
|
3.74
|
%
|
|
3.66
|
%
|
|
3.48
|
%
|
|
3.51
|
%
|
|
3.73
|
%
|
|
3.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent net interest margin reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin - GAAP
|
|
3.54
|
%
|
|
3.66
|
%
|
|
3.60
|
%
|
|
3.45
|
%
|
|
3.52
|
%
|
|
3.61
|
%
|
|
3.51
|
%
|
Impact of taxable equivalent adjustment
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
0.01
|
|
|
0.01
|
|
Net interest margin - taxable equivalent
|
|
3.56
|
%
|
|
3.68
|
%
|
|
3.62
|
%
|
|
3.47
|
%
|
|
3.54
|
%
|
|
3.62
|
%
|
|
3.52
|
%
|
RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
Taxable equivalent net interest income from continuing operations for the second quarter of 2019 totaled $20.0 million, a $1.4 million, or 8%, increase compared to the second quarter of 2018. This increase was primarily driven by a $3.8 million, or 16%, increase in taxable equivalent interest income from continuing operations. The change in taxable equivalent interest income from continuing operations primarily resulted from a $4.3 million, or 22%, increase in interest income on loans, resulting from increases in the Federal Funds rate and an increase in average loan balances. Net accretion income on the acquired loans discount totaled $175,000 for the three months ended June 30, 2019, compared to $331,000 for the same period in 2018.
Due to the $167 million in cash paid to the buyer at the closing of the Branch Sale, Atlantic Capital restructured the balance sheet following the transaction with a combination of excess cash, proceeds from sold securities, FHLB borrowings, and brokered deposits.
Interest expense from continuing operations for the three months ended June 30, 2019 totaled $6.7 million, a $2.3 million, or 53%, increase from the same period of 2018. The rate paid on interest bearing liabilities increased 50 basis points from the second quarter of 2018 to the second quarter of 2019, driven by an increase in interest rates on deposits and other borrowings resulting from increases in the Federal Funds rate.
Taxable equivalent net interest income from continuing operation for the six months ended June 30, 2019 totaled $40.5 million, a $4.4 million, or 12%, increase compared to the same period in 2018. This increase was primarily driven by an $8.7 million, or 20%, increase in taxable equivalent interest income from continuing operations. The change in taxable equivalent interest income from continuing operations primarily resulted from a $9.1 million, or 24%, increase in interest income on loans, resulting from increases in the Fed Funds rate and an increase in average loan balances.
Interest expense from continuing operations for the six months ended June 30, 2019 totaled $12.5 million, a $4.2 million, or 52%, increase from the same period of 2018, primarily due to a $5.1 million, or 100%, increase in interest paid on deposits. The rate paid on interest bearing liabilities increased 59 basis points from the first six months of 2018 to the same period of 2019, driven by an increase in interest rates on deposits and other borrowings.
Taxable equivalent net interest margin from continuing operations increased to 3.61% for the three months ended June 30, 2019 compared to 3.51% for the three months ended June 30, 2018. Taxable equivalent net interest margin from continuing operations for the six months ended June 30, 2019 increased to 3.73% compared to 3.45% for the six months ended June 30, 2018. The primary reason for the increase in taxable equivalent net interest margin from continuing operations for the three and six month periods was higher interest rates on loans resulting from Federal Funds rate increases.
The following table presents information regarding average balances for assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the income or expense by the average balances for assets or liabilities, respectively, for the periods presented. Loan fees are included in interest income on loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 2 - Average Balance Sheets and Net Interest Analysis
|
|
|
|
|
|
|
(dollars in thousands; taxable equivalent)
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
2019
|
|
2018
|
|
|
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
|
|
$
|
70,628
|
|
|
$
|
450
|
|
|
2.56
|
%
|
|
$
|
97,501
|
|
|
$
|
562
|
|
|
2.31
|
%
|
Other short-term investments
|
|
3,993
|
|
|
32
|
|
|
3.21
|
|
|
9,262
|
|
|
64
|
|
|
2.77
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable investment securities
|
|
280,639
|
|
|
1,848
|
|
|
2.64
|
|
|
378,291
|
|
|
2,212
|
|
|
2.35
|
|
Non-taxable investment securities
(1)
|
|
79,408
|
|
|
579
|
|
|
2.92
|
|
|
76,343
|
|
|
573
|
|
|
3.01
|
|
Total investment securities
|
|
360,047
|
|
|
2,427
|
|
|
2.70
|
|
|
454,634
|
|
|
2,785
|
|
|
2.46
|
|
Loans - continuing operations
|
|
1,769,803
|
|
|
23,554
|
|
|
5.34
|
|
|
1,540,351
|
|
|
19,269
|
|
|
5.02
|
|
FHLB and FRB stock
|
|
14,435
|
|
|
223
|
|
|
6.20
|
|
|
19,357
|
|
|
254
|
|
|
5.26
|
|
Total interest-earning assets - continuing operations
|
|
2,218,906
|
|
|
26,686
|
|
|
4.82
|
|
|
2,121,105
|
|
|
22,934
|
|
|
4.34
|
|
Loans held for sale - discontinued operations
|
|
30,198
|
|
|
47
|
|
|
0.62
|
|
|
386,712
|
|
|
4,510
|
|
|
4.68
|
|
Total interest-earning assets
|
|
2,249,104
|
|
|
26,733
|
|
|
4.77
|
|
|
2,507,817
|
|
|
27,444
|
|
|
4.39
|
|
Non-earning assets
|
|
191,398
|
|
|
|
|
|
|
210,254
|
|
|
|
|
|
Total assets
|
|
$
|
2,440,502
|
|
|
|
|
|
|
$
|
2,718,071
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW, money market, and savings
|
|
1,175,237
|
|
|
4,733
|
|
|
1.62
|
|
|
932,991
|
|
|
2,222
|
|
|
0.96
|
|
Time deposits
|
|
32,358
|
|
|
50
|
|
|
0.62
|
|
|
9,855
|
|
|
25
|
|
|
1.02
|
|
Brokered deposits
|
|
106,524
|
|
|
665
|
|
|
2.50
|
|
|
100,425
|
|
|
468
|
|
|
1.87
|
|
Total interest-bearing deposits
|
|
1,314,119
|
|
|
5,448
|
|
|
1.66
|
|
|
1,043,271
|
|
|
2,715
|
|
|
1.04
|
|
Total borrowings
|
|
70,770
|
|
|
438
|
|
|
2.48
|
|
|
180,699
|
|
|
853
|
|
|
1.89
|
|
Total long-term debt
|
|
49,761
|
|
|
823
|
|
|
6.63
|
|
|
49,592
|
|
|
823
|
|
|
6.66
|
|
Total interest-bearing liabilities - continuing operations
|
|
1,434,650
|
|
|
6,709
|
|
|
1.88
|
|
|
1,273,562
|
|
|
4,391
|
|
|
1.38
|
|
Interest-bearing liabilities - discontinued operations
|
|
36,255
|
|
|
86
|
|
|
0.95
|
|
|
464,598
|
|
|
941
|
|
|
0.81
|
|
Total interest-bearing liabilities
|
|
1,470,905
|
|
|
6,795
|
|
|
1.85
|
|
|
1,738,160
|
|
|
5,332
|
|
|
1.23
|
|
Demand deposits
|
|
587,957
|
|
|
|
|
|
|
489,722
|
|
|
|
|
|
Demand deposits - discontinued operations
|
|
9,851
|
|
|
|
|
|
|
143,391
|
|
|
|
|
|
Other liabilities
|
|
31,670
|
|
|
|
|
|
|
34,255
|
|
|
|
|
|
Shareholders' equity
|
|
340,119
|
|
|
|
|
|
|
312,543
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
2,440,502
|
|
|
|
|
|
|
$
|
2,718,071
|
|
|
|
|
|
Net interest spread - continuing operations
|
|
|
|
|
|
2.94
|
%
|
|
|
|
|
|
2.96
|
%
|
Net interest income and net interest margin - continuing operations
(2)
|
|
|
|
$
|
19,977
|
|
|
3.61
|
%
|
|
|
|
$
|
18,543
|
|
|
3.51
|
%
|
Net interest income and net interest margin
(2)
|
|
|
|
$
|
19,938
|
|
|
3.56
|
%
|
|
|
|
$
|
22,112
|
|
|
3.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable equivalent net interest margin
|
|
|
|
|
|
3.54
|
%
|
|
|
|
|
|
3.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
2019
|
|
2018
|
|
|
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
|
|
$
|
81,339
|
|
|
$
|
913
|
|
|
2.26
|
%
|
|
$
|
87,907
|
|
|
$
|
959
|
|
|
2.20
|
%
|
Other short-term investments
|
|
7,815
|
|
|
118
|
|
|
3.04
|
|
|
9,801
|
|
|
127
|
|
|
2.61
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable investment securities
|
|
300,255
|
|
|
3,962
|
|
|
2.66
|
|
|
377,038
|
|
|
4,328
|
|
|
2.31
|
|
Non-taxable investment securities
(1)
|
|
79,709
|
|
|
1,196
|
|
|
3.03
|
|
|
77,239
|
|
|
1,152
|
|
|
3.01
|
|
Total investment securities
|
|
379,964
|
|
|
5,158
|
|
|
2.74
|
|
|
454,277
|
|
|
5,480
|
|
|
2.43
|
|
Loans - continuing operations
|
|
1,708,549
|
|
|
46,306
|
|
|
5.47
|
|
|
1,538,504
|
|
|
37,241
|
|
|
4.88
|
|
FHLB and FRB stock
|
|
13,487
|
|
|
488
|
|
|
7.30
|
|
|
18,630
|
|
|
509
|
|
|
5.51
|
|
Total interest-earning assets - continuing operations
|
|
2,191,154
|
|
|
52,983
|
|
|
4.88
|
|
|
2,109,119
|
|
|
44,316
|
|
|
4.24
|
|
Loans held for sale - discontinued operations
|
|
235,384
|
|
|
4,588
|
|
|
3.93
|
|
|
394,471
|
|
|
9,213
|
|
|
4.71
|
|
Total interest-earning assets
|
|
2,426,538
|
|
|
57,571
|
|
|
4.78
|
|
|
2,503,590
|
|
|
53,529
|
|
|
4.31
|
|
Non-earning assets
|
|
207,175
|
|
|
|
|
|
|
207,893
|
|
|
|
|
|
Total assets
|
|
$
|
2,633,713
|
|
|
|
|
|
|
$
|
2,711,483
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW, money market, and savings
|
|
1,125,253
|
|
|
8,988
|
|
|
1.61
|
|
|
933,699
|
|
|
4,139
|
|
|
0.89
|
|
Time deposits
|
|
11,049
|
|
|
88
|
|
|
1.61
|
|
|
9,828
|
|
|
53
|
|
|
1.09
|
|
Brokered deposits
|
|
93,903
|
|
|
1,203
|
|
|
2.58
|
|
|
109,058
|
|
|
947
|
|
|
1.75
|
|
Total interest-bearing deposits
|
|
1,230,205
|
|
|
10,279
|
|
|
1.68
|
|
|
1,052,585
|
|
|
5,139
|
|
|
0.98
|
|
Total borrowings
|
|
43,798
|
|
|
556
|
|
|
2.56
|
|
|
166,402
|
|
|
1,442
|
|
|
1.75
|
|
Total long-term debt
|
|
49,740
|
|
|
1,647
|
|
|
6.68
|
|
|
49,571
|
|
|
1,652
|
|
|
6.72
|
|
Total interest-bearing liabilities - continuing operations
|
|
1,323,743
|
|
|
12,482
|
|
|
1.90
|
|
|
1,268,558
|
|
|
8,233
|
|
|
1.31
|
|
Interest-bearing liabilities - discontinued operations
|
|
290,515
|
|
|
1,502
|
|
|
1.04
|
|
|
461,331
|
|
|
1,564
|
|
|
0.68
|
|
Total interest-bearing liabilities
|
|
1,614,258
|
|
|
13,984
|
|
|
1.75
|
|
|
1,729,889
|
|
|
9,797
|
|
|
1.14
|
|
Demand deposits
|
|
571,669
|
|
|
|
|
|
|
496,239
|
|
|
|
|
|
Demand deposits - discontinued operations
|
|
79,156
|
|
|
|
|
|
|
139,667
|
|
|
|
|
|
Other liabilities
|
|
38,111
|
|
|
|
|
|
|
35,990
|
|
|
|
|
|
Shareholders' equity
|
|
330,519
|
|
|
|
|
|
|
309,698
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
2,633,713
|
|
|
|
|
|
|
$
|
2,711,483
|
|
|
|
|
|
Net interest spread - continuing operations
|
|
|
|
|
|
2.98
|
%
|
|
|
|
|
|
2.94
|
%
|
Net interest income and net interest margin - continuing operations
(2)
|
|
|
|
$
|
40,501
|
|
|
3.73
|
%
|
|
|
|
$
|
36,083
|
|
|
3.45
|
%
|
Net interest income and net interest margin
(2)
|
|
|
|
$
|
43,587
|
|
|
3.62
|
%
|
|
|
|
$
|
43,732
|
|
|
3.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable equivalent net interest margin
|
|
|
|
|
|
3.61
|
%
|
|
|
|
|
|
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.
|
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 June 30, 2019 Compared to 2018
Increase (decrease) Due to Changes in:
|
|
Six Months Ended June 30, 2019 Compared to 2018
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
|
|
$
|
(171
|
)
|
|
$
|
59
|
|
|
$
|
(112
|
)
|
|
$
|
(74
|
)
|
|
$
|
28
|
|
|
$
|
(46
|
)
|
Other short-term investments
|
|
(42
|
)
|
|
10
|
|
|
(32
|
)
|
|
(30
|
)
|
|
21
|
|
|
(9
|
)
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable investment securities
|
|
(643
|
)
|
|
279
|
|
|
(364
|
)
|
|
(1,013
|
)
|
|
647
|
|
|
(366
|
)
|
Non-taxable investment securities
|
|
22
|
|
|
(16
|
)
|
|
6
|
|
|
37
|
|
|
7
|
|
|
44
|
|
Total investment securities
|
|
(621
|
)
|
|
263
|
|
|
(358
|
)
|
|
(976
|
)
|
|
654
|
|
|
(322
|
)
|
Loans - continuing operations
|
|
3,054
|
|
|
1,231
|
|
|
4,285
|
|
|
4,609
|
|
|
4,456
|
|
|
9,065
|
|
FHLB and FRB stock
|
|
(76
|
)
|
|
45
|
|
|
(31
|
)
|
|
(186
|
)
|
|
165
|
|
|
(21
|
)
|
Total interest-earning assets - continuing operations
|
|
2,144
|
|
|
1,608
|
|
|
3,752
|
|
|
3,343
|
|
|
5,324
|
|
|
8,667
|
|
Loans held for sale - discontinued operations
|
|
(555
|
)
|
|
(3,908
|
)
|
|
(4,463
|
)
|
|
(3,101
|
)
|
|
(1,524
|
)
|
|
(4,625
|
)
|
Total interest-earning assets
|
|
1,589
|
|
|
(2,300
|
)
|
|
(711
|
)
|
|
242
|
|
|
3,800
|
|
|
4,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW, money market, and savings
|
|
976
|
|
|
1,535
|
|
|
2,511
|
|
|
1,530
|
|
|
3,319
|
|
|
4,849
|
|
Time deposits
|
|
35
|
|
|
(10
|
)
|
|
25
|
|
|
10
|
|
|
24
|
|
|
34
|
|
Brokered deposits
|
|
38
|
|
|
159
|
|
|
197
|
|
|
(194
|
)
|
|
450
|
|
|
256
|
|
Total interest-bearing deposits
|
|
1,049
|
|
|
1,684
|
|
|
2,733
|
|
|
1,346
|
|
|
3,793
|
|
|
5,139
|
|
Total borrowings
|
|
(680
|
)
|
|
265
|
|
|
(415
|
)
|
|
(1,623
|
)
|
|
738
|
|
|
(885
|
)
|
Total long-term debt
|
|
3
|
|
|
(3
|
)
|
|
—
|
|
|
6
|
|
|
(11
|
)
|
|
(5
|
)
|
Total interest-bearing liabilities - continuing operations
|
|
372
|
|
|
1,946
|
|
|
2,318
|
|
|
(271
|
)
|
|
4,520
|
|
|
4,249
|
|
Interest-bearing liabilities - discontinued operations
|
|
(1,016
|
)
|
|
161
|
|
|
(855
|
)
|
|
(883
|
)
|
|
821
|
|
|
(62
|
)
|
Total interest-bearing liabilities
|
|
(644
|
)
|
|
2,107
|
|
|
1,463
|
|
|
(1,154
|
)
|
|
5,341
|
|
|
4,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income - continuing operations
|
|
$
|
1,772
|
|
|
$
|
(338
|
)
|
|
$
|
1,434
|
|
|
$
|
3,614
|
|
|
$
|
804
|
|
|
$
|
4,418
|
|
Change in net interest income
|
|
$
|
2,233
|
|
|
$
|
(4,407
|
)
|
|
$
|
(2,174
|
)
|
|
$
|
1,396
|
|
|
$
|
(1,541
|
)
|
|
$
|
(145
|
)
|
Provision for Loan Losses
Management considers a number of factors in determining the required level of the allowance for loan losses and the provision required to achieve what is believed to be appropriate reserve level, including historical loss experience, loan growth, credit risk rating trends, nonperforming loan levels, delinquencies, loan portfolio concentrations, and economic and market trends. The provision for loan losses represents management’s determination of the amount necessary to be charged against the current period’s earnings to maintain the allowance for loan losses at a level that it considered adequate in relation to the estimated losses inherent in the loan portfolio.
For the three months ended June 30, 2019, the provision for loan losses from continuing operations was $698,000, an increase of $871,000 compared to the three months ended June 30, 2018. For the six months ended June 30, 2019, the provision for loan losses from continuing operations was $1.5 million, an increase of $913,000 compared to the six months ended June 30, 2018.
The higher provision for the three and six months ended June 30, 2019, compared to the same periods in 2018, was primarily related to an increase in net charge-offs as well as an increase in specific reserve impairments. At June 30, 2019, nonperforming loans totaled $6.4 million compared to $2.4 million at June 30, 2018. Net loan charge-offs were 0.14% and 0.12%, respectively, of average loans (annualized) for the three and six months ended June 30, 2019 compared to 0.03% and 0.04%, respectively, for the three and six months ended June 30, 2018. The allowance for loan losses to total loans at June 30, 2019 was 1.02%, compared to 1.01% at June 30, 2018.
Noninterest Income
Noninterest income for the three and six months ended June 30, 2019 was $37.4 million and $40.6 million, respectively, an increase of $32.1 million compared to the second quarter of 2018, and an increase of $31.3 million from the six months ended June 30, 2018. Noninterest income from continuing operations for the three and six months ended June 30, 2019 was $2.9 million and $5.3 million, respectively, compared to $4.5 million and $7.6 million for the comparable periods of the prior year. The following table presents the components of noninterest income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 4 - Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Change
|
|
Six months ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
Service charges
|
|
$
|
870
|
|
|
$
|
828
|
|
|
$
|
42
|
|
|
5
|
|
%
|
$
|
1,664
|
|
|
$
|
1,535
|
|
|
$
|
129
|
|
|
8
|
|
%
|
Securities gains (losses), net
|
|
654
|
|
|
(2
|
)
|
|
656
|
|
|
(32,800
|
)
|
|
654
|
|
|
(2
|
)
|
|
656
|
|
|
(32,800
|
)
|
|
Gain (loss) on sales of other assets
|
|
(10
|
)
|
|
(166
|
)
|
|
156
|
|
|
(94
|
)
|
|
(13
|
)
|
|
(212
|
)
|
|
199
|
|
|
(94
|
)
|
|
Trust income
|
|
—
|
|
|
507
|
|
|
(507
|
)
|
|
(100
|
)
|
|
—
|
|
|
1,025
|
|
|
(1,025
|
)
|
|
(100
|
)
|
|
Derivatives income (loss)
|
|
(233
|
)
|
|
20
|
|
|
(253
|
)
|
|
(1,265
|
)
|
|
(344
|
)
|
|
134
|
|
|
(478
|
)
|
|
(357
|
)
|
|
Bank owned life insurance
|
|
389
|
|
|
378
|
|
|
11
|
|
|
3
|
|
|
749
|
|
|
747
|
|
|
2
|
|
|
—
|
|
|
SBA lending activities
|
|
1,096
|
|
|
997
|
|
|
99
|
|
|
10
|
|
|
2,182
|
|
|
2,299
|
|
|
(117
|
)
|
|
(5
|
)
|
|
Gain on sale of trust business
|
|
—
|
|
|
1,681
|
|
|
(1,681
|
)
|
|
(100
|
)
|
|
—
|
|
|
1,681
|
|
|
(1,681
|
)
|
|
(100
|
)
|
|
Other noninterest income
|
|
175
|
|
|
223
|
|
|
(48
|
)
|
|
(22
|
)
|
|
385
|
|
|
421
|
|
|
(36
|
)
|
|
(9
|
)
|
|
Total noninterest income - continuing operations
|
|
2,941
|
|
|
4,466
|
|
|
(1,525
|
)
|
|
(34
|
)
|
|
5,277
|
|
|
7,628
|
|
|
(2,351
|
)
|
|
(31
|
)
|
|
Noninterest income - discontinued operations
|
|
34,499
|
|
|
865
|
|
|
33,634
|
|
|
3,888
|
|
|
35,289
|
|
|
1,686
|
|
|
33,603
|
|
|
1,993
|
|
|
Noninterest income
|
|
$
|
37,440
|
|
|
$
|
5,331
|
|
|
$
|
32,109
|
|
|
602
|
|
%
|
$
|
40,566
|
|
|
$
|
9,314
|
|
|
$
|
31,252
|
|
|
336
|
|
%
|
Service charges from continuing operations for the three months ended June 30, 2019 totaled $870,000, an increase of $42,000, or 5%, from the same period in 2018. For the six months ended June 30, 2019, service charges from continuing operations totaled $1.7 million, an increase of $129,000, or 8%, from the first six months of 2018. The increase for the first six months of 2019 compared to the same period in 2018 was primarily due to higher analysis fees in the payments business and higher foreign exchange fees.
Securities gains from continuing operations for the six months ended June 30, 2019 totaled $654,000, an increase of $656,000 from the first six months of 2018, as a result of the balance sheet realignment due to the Branch Sale.
Trust income for the three and six months ended June 30, 2019 decreased $507,000, or 100%, and $1.0 million, or 100%, respectively, compared to the same periods in 2018 due to the sale of the trust business in the second quarter of 2018.
Derivatives income (loss) for the second quarter of 2019 was a loss of $233,000, a decrease of $253,000 from the same period in 2018. The decrease was primarily due to a decrease in credit valuation adjustment income of $245,000. For the six months ended June 30, 2019, derivatives income decreased $478,000 from the same period in 2018 primarily due to a decrease in credit valuation adjustment income of $465,000.
Income from SBA lending activities for the second quarter of 2019 increased $99,000, or 10%, from the same period in 2018, due to an increase in loan balances sold. During the three months ended June 30, 2019 and 2018, guaranteed portions of 31 and 19 SBA loans totaling $16.9 million and $13.9 million, respectively, were sold in the secondary market. Income from SBA lending activities for the first six months of 2019 decreased $117,000, or 5%, from the same period in 2018, due to lower premiums paid. During the six months ended June 30, 2019 and 2018, guaranteed portions of 60 and 36 SBA loans with principal balances of $32.6 million and $29.3 million, respectively, were sold in the secondary market.
Noninterest income from discontinued operations increased $33.6 million for the three and six months ended June 30, 2019 compared to the same periods in 2018 due to a $34.5 million gain in connection with the Branch Sale.
Noninterest Expense
Noninterest expense for the second quarter of 2019 was $17.6 million, an increase of $246,000, or 1%, from the second quarter of 2018. For the six months ended June 30, 2019, noninterest expense totaled $36.7 million, an increase of $981,000, or 3%, from the same period in 2018. Noninterest expense from continuing operations for the three and six months ended June 30, 2019 was $13.3 million and $27.0 million, respectively, compared to $12.6 million and $25.9 million for the comparable periods of the prior year. The following table presents the components of noninterest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 5 - Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Change
|
|
Six months ended June 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
Salaries and employee benefits
|
|
$
|
8,529
|
|
|
$
|
7,911
|
|
|
$
|
618
|
|
|
8
|
|
%
|
$
|
17,742
|
|
|
$
|
16,861
|
|
|
$
|
881
|
|
|
5
|
|
%
|
Occupancy
|
|
689
|
|
|
700
|
|
|
(11
|
)
|
|
(2
|
)
|
|
1,328
|
|
|
1,585
|
|
|
(257
|
)
|
|
(16
|
)
|
|
Equipment and software
|
|
753
|
|
|
701
|
|
|
52
|
|
|
7
|
|
|
1,492
|
|
|
1,287
|
|
|
205
|
|
|
16
|
|
|
Professional services
|
|
792
|
|
|
943
|
|
|
(151
|
)
|
|
(16
|
)
|
|
1,567
|
|
|
1,768
|
|
|
(201
|
)
|
|
(11
|
)
|
|
Postage, printing and supplies
|
|
29
|
|
|
44
|
|
|
(15
|
)
|
|
(34
|
)
|
|
77
|
|
|
81
|
|
|
(4
|
)
|
|
(5
|
)
|
|
Communications and data processing
|
|
662
|
|
|
657
|
|
|
5
|
|
|
1
|
|
|
1,337
|
|
|
1,338
|
|
|
(1
|
)
|
|
—
|
|
|
Marketing and business development
|
|
233
|
|
|
135
|
|
|
98
|
|
|
73
|
|
|
459
|
|
|
275
|
|
|
184
|
|
|
67
|
|
|
FDIC premiums
|
|
175
|
|
|
143
|
|
|
32
|
|
|
22
|
|
|
410
|
|
|
251
|
|
|
159
|
|
|
63
|
|
|
Other noninterest expense
|
|
1,392
|
|
|
1,389
|
|
|
3
|
|
|
—
|
|
|
2,637
|
|
|
2,465
|
|
|
172
|
|
|
7
|
|
|
Total noninterest expense
|
|
13,254
|
|
|
12,623
|
|
|
631
|
|
|
5
|
|
|
27,049
|
|
|
25,911
|
|
|
1,138
|
|
|
4
|
|
|
Noninterest expense - discontinued operations
|
|
4,353
|
|
|
4,738
|
|
|
(385
|
)
|
|
(8
|
)
|
|
9,685
|
|
|
9,842
|
|
|
(157
|
)
|
|
(2
|
)
|
|
Noninterest expense
|
|
$
|
17,607
|
|
|
$
|
17,361
|
|
|
$
|
246
|
|
|
1
|
|
%
|
$
|
36,734
|
|
|
$
|
35,753
|
|
|
$
|
981
|
|
|
3
|
|
%
|
Salaries and employee benefits expense from continuing operations for the three months ended June 30, 2019 totaled $8.5 million, an increase of $618,000, or 8%, from the same period in 2018. For the first six months of 2019, salaries and employee benefits totaled $17.7 million, an increase of $881,000, or 5%, from the first six months of 2018. The increase for the three and six months ended June 30, 2019, was primarily attributable to severance expense unrelated to the Branch Sale, and an increase in medical insurance expense. Full time equivalent headcount totaled 199 at June 30, 2019, compared to 331 at June 30, 2018, a net decrease of 132 positions, primarily due to a reduction in retail and support staff related to the Branch Sale.
Occupancy costs from continuing operations were $689,000 for the second quarter of 2019, a decrease of $11,000, or 2%, compared to the second quarter of 2018. For the six months ended June 30, 2019, occupancy costs were $1.3 million, a decrease of $257,000, or 16%, from the first six months of 2018. The decrease for the six months ended June 30, 2019, was the result of higher rent expense in the second quarter of 2018 due to the overlap of leases and their expenses from the relocation of the Atlanta headquarters.
Equipment and software costs from continuing operations were $753,000 for the second quarter of 2019, an increase of $52,000, or 7%, compared to the second quarter of 2018. For the six months ended June 30, 2019, equipment and software costs from continuing operations were $1.5 million, an increase of $205,000, or 16%, from the first six months of 2018. The increase for both periods was the result of additional investments in technology.
Professional services costs from continuing operations were $792,000 for the second quarter of 2019, a decrease of $151,000, or 16%, compared to the second quarter of 2018. For the six months ended June 30, 2019, professional services costs from continuing operations were $1.6 million, a decrease of $201,000, or 11%, from the first six months of 2018. The decrease for both periods was primarily due to lower consultant fees.
FDIC premiums from continuing operations were $175,000 for the second quarter of 2019, an increase of $32,000, or 22%, compared to the second quarter of 2018. For the six months ended June 30, 2019, FDIC premiums were $410,000, an increase of $159,000, or 63%, from the first six months of 2018. The increase for the three and six months ended June 30, 2019 was due to an increase in the assessment base as well as the assessment rate.
Income Taxes
Atlantic Capital monitors and evaluates the potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities. On a periodic basis, Atlantic Capital evaluates its income tax positions based on current tax law and positions taken by various tax auditors within the jurisdictions where Atlantic Capital is required to file income tax returns.
The income tax expense from continuing operations for the three and six months ended June 30, 2019 was $1.9 million and $3.6 million, respectively, as compared with $2.1 million and $3.4 million for the same periods in 2018. The effective tax rate (as a percentage of pre-tax earnings) was 21.1% and 21.0%, respectively, for the three and six months ended June 30, 2019 compared to 19.9% and 20.2%, respectively, for the same period in 2018.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and their respective tax basis including operating losses and tax credit carryforwards. Net deferred tax assets (deferred tax assets net of deferred tax liabilities and valuation allowance) are reported in the Consolidated Balance Sheets as a component of other assets.
Accounting Standards Codification Topic 740,
Income Taxes
, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative evidence with more weight given to evidence that can be objectively verified. Each quarter, management considers both positive and negative evidence and analyzes changes in near-term market conditions as well as other factors which may impact future operating results.
Based on all evidence considered, as of June 30, 2019 and 2018, management concluded that it was more likely than not that the net deferred tax asset would be realized, except as outlined in the following discussion. At June 30, 2019 and 2018, Atlantic Capital recorded a deferred tax asset valuation allowance totaling $7.4 million and $8.5 million, respectively, on certain net operating loss carryforwards due to the fact that certain tax attributes are subject to an annual limitation as a result of the acquisition of First Security, which constituted a change of ownership as defined under Internal Revenue Code Section 382. Management expects to generate future taxable income and believes this will allow for full utilization of Atlantic Capital’s remaining net operating loss carryforwards within the statutory carryforward periods.
FINANCIAL CONDITION
Total assets at June 30, 2019 and December 31, 2018 were $2.39 billion and $2.96 billion, respectively. Average total assets for the second quarter of 2019 were $2.44 billion, compared to $2.72 billion in the second quarter of 2018.
Loans
At June 30, 2019, total loans held for investment increased $61.7 million, or 4%, to $1.79 billion compared to $1.73 billion at December 31, 2018. Table 6 provides additional information regarding Atlantic Capital’s loan portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6 - Loans
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
% of Total Loans
|
|
December 31, 2018
|
|
% of Total Loans
|
Loans held for sale
|
|
|
|
|
|
|
|
|
Loans held for sale - discontinued operations
|
|
$
|
—
|
|
|
|
|
$
|
373,030
|
|
|
|
Other loans held for sale
|
|
—
|
|
|
|
|
5,889
|
|
|
|
Total loans held for sale
|
|
$
|
—
|
|
|
|
|
$
|
378,919
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment
|
|
|
|
|
|
|
|
|
Commercial loans:
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
701,566
|
|
|
39
|
%
|
|
$
|
645,374
|
|
|
37
|
%
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
313,310
|
|
|
18
|
|
|
298,291
|
|
|
17
|
|
Non-owner occupied
|
|
453,536
|
|
|
25
|
|
|
496,537
|
|
|
30
|
|
Construction and land
|
|
198,956
|
|
|
11
|
|
|
156,232
|
|
|
9
|
|
Mortgage warehouse participations
|
|
10,665
|
|
|
1
|
|
|
27,967
|
|
|
2
|
|
Total commercial loans
|
|
1,678,033
|
|
|
94
|
|
|
1,624,401
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
31,338
|
|
|
2
|
|
|
32,800
|
|
|
2
|
|
Home equity
|
|
24,303
|
|
|
1
|
|
|
22,822
|
|
|
1
|
|
Total residential loans
|
|
55,641
|
|
|
3
|
|
|
55,622
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
34,618
|
|
|
2
|
|
|
25,851
|
|
|
1
|
|
Other
|
|
24,126
|
|
|
1
|
|
|
24,712
|
|
|
1
|
|
|
|
1,792,418
|
|
|
|
|
1,730,586
|
|
|
|
Less net deferred fees and other unearned income
|
|
(2,678
|
)
|
|
|
|
(2,513
|
)
|
|
|
Total loans held for investment
|
|
1,789,740
|
|
|
|
|
1,728,073
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
1,789,740
|
|
|
|
|
$
|
2,106,992
|
|
|
|
Nonperforming Assets
Nonperforming assets include nonaccrual loans, accruing loans past due 90 days or more, and other real estate owned. Loans are considered to be past due when payment is not received from the borrower by the contractually specified due date. Interest accruals on loans are discontinued when interest or principal has been in default 90 days or more, unless the loan is both secured by collateral that is sufficient to repay the debt in full and the loan is in the process of collection. When a loan is placed on nonaccrual status, interest accrued and not paid in the current accounting period is reversed against current period income. Interest accrued and not paid in prior periods, if significant, is reversed against the allowance for loan losses.
Income on such loans is subsequently recognized on a cash basis as long as the future collection of principal is deemed probable or after all principal payments are received. Commercial loans are placed back on accrual status after sustained performance of timely and current principal and interest payments and it is probable that all remaining amounts due, both principal and interest, are fully collectible according to the terms of the loan agreement. Residential loans and consumer loans are generally placed back on accrual status when they are no longer past due.
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 were not classified as nonaccrual for periods ended prior to December 31, 2018, as the carrying value of the respective loan or pool of loans cash flows were considered estimable and collection was probable. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, was recognized on all PCI loans. As of December 31, 2018, PCI loans were designated as held for sale in the upcoming Branch Sale.
At June 30, 2019, Atlantic Capital’s nonperforming assets totaled $7.3 million, or 0.31% of total assets, compared to $6.1 million, or 0.20% of total assets, at December 31, 2018. The increase was primarily due to one loan relationship totaling $1.8 million which was placed on nonaccrual status.
Nonaccrual loans totaled $6.0 million and $4.7 million as of June 30, 2019 and December 31, 2018, respectively. Loans past due 90 days and still accruing totaled $353,000 at June 30, 2019 compared to $479,000 at December 31, 2018. Table 7 provides details on nonperforming assets and other risk elements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 7 - Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
March 31, 2019
|
|
December 31, 2018
|
|
September 30, 2018
|
|
June 30, 2018
|
|
Nonaccrual loans
|
|
$
|
5,999
|
|
|
$
|
10,336
|
|
|
$
|
4,697
|
|
|
$
|
2,716
|
|
|
$
|
2,404
|
|
|
Loans past due 90 days and still accruing
|
|
353
|
|
|
—
|
|
|
479
|
|
|
—
|
|
|
2
|
|
|
Total nonperforming loans
(1)
(NPLs)
|
|
6,352
|
|
|
10,336
|
|
|
5,176
|
|
|
2,716
|
|
|
2,406
|
|
|
Other real estate owned
|
|
971
|
|
|
971
|
|
|
874
|
|
|
968
|
|
|
1,288
|
|
|
Total nonperforming assets (NPAs)
|
|
$
|
7,323
|
|
|
$
|
11,307
|
|
|
$
|
6,050
|
|
|
$
|
3,684
|
|
|
$
|
3,694
|
|
|
NPLs as a percentage of total loans
|
|
0.35
|
|
%
|
0.49
|
|
%
|
0.25
|
|
%
|
0.13
|
|
%
|
0.12
|
|
%
|
NPAs as a percentage of total assets
|
|
0.31
|
|
|
0.40
|
|
|
0.20
|
|
|
0.13
|
|
|
0.14
|
|
|
(1)
Nonperforming loans as of September 30, 2018 and June 30, 2018 exclude those loans which are PCI loans. As of December 31, 2018, PCI loans were designated as held for sale in the upcoming Branch Sale. As a result, nonperforming loans held for sale which were previously designated as PCI loans are included in total nonperforming loans as of March 31, 2019 and December 31, 2018.
T
roubled Debt Restructurings
Troubled Debt Restructurings (“TDRs”) are selectively made to provide relief to customers experiencing liquidity challenges or other circumstances that could affect their ability to meet their debt obligations. Typical modifications include short-term deferral of interest or modification of payment terms. Nonperforming TDRs are not accruing interest and are included as nonperforming assets within nonaccrual loans. TDRs which are accruing interest based on the restructured terms are considered performing. Table 8 summarizes TDRs.
|
|
|
|
|
|
|
|
|
|
Table 8 - Troubled Debt Restructurings
|
(dollars in thousands)
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Accruing TDRs
|
|
$
|
7,820
|
|
|
$
|
8,237
|
|
Nonaccruing TDRs
|
|
1,332
|
|
|
—
|
|
Total TDRs
|
|
$
|
9,152
|
|
|
$
|
8,237
|
|
The increase in TDRs was due to the Company extending the repayment period on four commercial and industrial loans and two commercial real estate loans, resulting in their reclassification as TDRs. Additionally, two commercial and industrial loans were restructured in order to lower the monthly payments. One commercial and industrial loan was refinanced and was removed from the TDR listing.
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 doubts as to the ability of such borrower to comply with the current loan repayment terms. Potential problem loans totaled $43.6 million and $57.7 million as of June 30, 2019 and December 31, 2018, respectively. Management closely tracks the financial performance of the borrower and the current values of collateral when assessing the collectability of these loans.
Allowance for Loan Losses
At June 30, 2019, the allowance for loan losses totaled $18.2 million, or 1.02% of loans, compared to $17.9 million, or 1.03% of loans, at December 31, 2018. The increase in the allowance was primarily related to an increase in outstanding loan balances as well as an increase in specific reserves.
Net charge-offs for the three months ended June 30, 2019 and 2018 were $619,000 and $129,000, respectively. Net charge-offs for the six months ended June 30, 2019 and 2018 were $1.2 million and $360,000, respectively. The increase related primarily to two charge-offs in 2019: a $330,000 net charge-off for a Tennessee commercial and industrial loan not included in the Branch Sale and a $522,000 net charge-off on a commercial and industrial SBA loan. Table 9 provides details concerning the allowance for loan losses during the past five quarters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 9 - Allowance for Loan Losses (ALL)
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Balance at beginning of period
|
$
|
18,107
|
|
|
$
|
17,851
|
|
|
$
|
20,443
|
|
|
$
|
19,583
|
|
|
$
|
19,885
|
|
|
Provision for loan losses
|
698
|
|
|
814
|
|
|
595
|
|
|
758
|
|
|
(173
|
)
|
|
Provision for loan losses (reversal of provision) - discontinued operations
|
—
|
|
|
—
|
|
|
(3,097
|
)
|
|
—
|
|
|
—
|
|
|
Provision for PCI loan losses
|
—
|
|
|
—
|
|
|
(93
|
)
|
|
87
|
|
|
—
|
|
|
Loans charged-off:
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
(588
|
)
|
|
(549
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial real estate
|
(47
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50
|
)
|
|
Construction and land
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential mortgages
|
—
|
|
|
(9
|
)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
Home equity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(102
|
)
|
|
Consumer
|
—
|
|
|
(37
|
)
|
|
(3
|
)
|
|
—
|
|
|
(10
|
)
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total loans charged-off
|
(635
|
)
|
|
(595
|
)
|
|
(8
|
)
|
|
—
|
|
|
(162
|
)
|
|
Recoveries on loans previously charged-off:
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
Construction and land
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential mortgages
|
—
|
|
|
7
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
Home equity
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Consumer
|
16
|
|
|
12
|
|
|
7
|
|
|
15
|
|
|
5
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total recoveries
|
16
|
|
|
37
|
|
|
11
|
|
|
15
|
|
|
33
|
|
|
Net charge-offs
|
(619
|
)
|
|
(558
|
)
|
|
3
|
|
|
15
|
|
|
(129
|
)
|
|
Allowance for loan losses at end of period
(1)
|
$
|
18,186
|
|
|
$
|
18,107
|
|
|
$
|
17,851
|
|
|
$
|
20,443
|
|
|
$
|
19,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans
|
$
|
1,800,001
|
|
|
$
|
2,089,465
|
|
|
$
|
2,076,853
|
|
|
$
|
1,963,817
|
|
|
$
|
1,927,063
|
|
|
Loans at end of period
|
1,789,740
|
|
|
1,734,557
|
|
|
1,728,073
|
|
|
2,038,434
|
|
|
1,934,311
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (annualized) to average loans
|
0.14
|
|
%
|
0.11
|
|
%
|
0.00
|
|
%
|
0.00
|
|
%
|
0.03
|
|
%
|
Allowance for loan losses to total loans
(1)
|
1.02
|
|
|
1.04
|
|
|
1.03
|
|
|
1.00
|
|
|
1.01
|
|
|
(1) The allowance for loan losses has not been adjusted retrospectively for discontinued operations in periods prior to the fourth quarter of 2018.
Investment Securities
Investment securities available-for-sale totaled $348.7 million at June 30, 2019, compared to $402.5 million at December 31, 2018. Available-for-sale securities are reported at their aggregate fair value, and unrealized gains and losses are included as a component of other comprehensive income, net of deferred taxes. As of June 30, 2019, investment securities available-for-sale had a net unrealized gain of $2.1 million, compared to a net unrealized loss of $11.8 million as of December 31, 2018. Changes in interest rates and credit spreads result in temporary unrealized losses as the market price of securities fluctuate. After evaluating the securities with unrealized losses, management concluded that no other than temporary impairment existed as of June 30, 2019.
Changes in the amount of Atlantic Capital’s available-for-sale securities portfolio result primarily from balance sheet trends including loans, deposit balances, and short-term borrowings. When inflows arising from deposits and short-term borrowings exceed loan demand, Atlantic Capital invests excess funds in the securities portfolio or in short-term investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, Atlantic Capital allows interest-bearing balances with other banks to decline and uses proceeds from maturing or sold securities to fund loan demand. Details of investment securities at June 30, 2019 and December 31, 2018 are provided in Table 10.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 10 - Securities
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Available-For-Sale Securities
|
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
U.S. Government agencies
|
|
$
|
21,518
|
|
|
$
|
21,863
|
|
|
$
|
27,259
|
|
|
$
|
26,849
|
|
U.S. states and political divisions
|
|
79,078
|
|
|
78,846
|
|
|
91,864
|
|
|
84,834
|
|
Trust preferred securities
|
|
4,794
|
|
|
4,562
|
|
|
4,781
|
|
|
4,400
|
|
Corporate debt securities
|
|
9,572
|
|
|
9,653
|
|
|
12,855
|
|
|
12,363
|
|
Residential mortgage-backed securities
|
|
231,650
|
|
|
233,799
|
|
|
277,524
|
|
|
274,040
|
|
Total
|
|
$
|
346,612
|
|
|
$
|
348,723
|
|
|
$
|
414,283
|
|
|
$
|
402,486
|
|
The effective duration of Atlantic Capital’s securities at June 30, 2019 was 4.54 years.
Goodwill and Other Intangible Assets
Goodwill represents the premium paid for acquired companies above the fair value of the assets acquired and liabilities assumed, including separately identifiable intangible assets. Atlantic Capital evaluates its goodwill annually, or more frequently if necessary, to determine if any impairment exists. Factors that management considers in this assessment includes macroeconomic conditions, industry and market considerations, overall financial performance of the Company, and changes in the composition or carrying amount of net assets. Management concluded that the 2018 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill).
On April 5, 2019, the Bank completed the Branch Sale. In accordance with GAAP, Atlantic Capital allocated a proportionate share of its goodwill balance to the discontinued operations on a relative fair value basis and performed an impairment test for the goodwill remaining in the reporting unit to be retained. This impairment analysis of goodwill remaining in the retained reporting unit resulted in no impairment. The Company monitored events from the date of the assessment through June 30, 2019 and no events or circumstances led management to believe any impairment existed at the balance sheet date.
Atlantic Capital’s core deposit intangible representing the value of the acquired deposit base, was an amortizing intangible asset that was required to be tested for impairment only when events or circumstances indicated that impairment may exist. This core deposit intangible was fully amortized in the second quarter of 2019 as a result of the Branch Sale.
LIQUIDITY AND CAPITAL RESOURCES
Deposits
At June 30, 2019, total deposits from continuing operations were $1.85 billion, a decrease of $101.0 million, or 5%, from December 31, 2018. Noninterest-bearing demand deposits from continuing operations decreased $32.6 million, or 5%, and money market deposits decreased $184.2 million, or 19%, from December 31, 2018 to June 30, 2019. The decrease was the result of seasonal volatility and a large increase in temporary deposits during the quarter ended December 31, 2018.
Total average deposits from continuing operations for the quarter ended June 30, 2019 were $1.90 billion, an increase of $369.1 million, or 24%, from the same period in 2018. For the quarter ended June 30, 2019 compared to the same period in 2018, average noninterest-bearing demand deposits from continuing operations increased $98.2 million, or 20%, average interest-bearing demand deposits from continuing operations increased $27.3 million, or 10%, average money market deposits from continuing operations increased $214.6 million, or 33%, and average time deposits from continuing operations increased $22.5 million, or 228%. Table 11 provides additional information regarding deposits during the past five quarters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 11 - Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period End Deposits
|
|
June 30, 2019
|
|
March 31, 2019
|
|
December 31, 2018
|
|
September 30, 2018
|
|
June 30, 2018
|
|
Year To Date Change
|
|
Year Over Year Change
|
DDA
|
|
$
|
569,693
|
|
|
$
|
561,829
|
|
|
$
|
602,252
|
|
|
$
|
518,155
|
|
|
$
|
464,282
|
|
|
$
|
(32,559
|
)
|
|
$
|
105,411
|
|
NOW
|
|
309,709
|
|
|
233,838
|
|
|
252,490
|
|
|
407,214
|
|
|
241,461
|
|
|
57,219
|
|
|
68,248
|
|
Savings
|
|
1,090
|
|
|
896
|
|
|
725
|
|
|
698
|
|
|
951
|
|
|
365
|
|
|
139
|
|
Money market
|
|
802,973
|
|
|
962,741
|
|
|
987,183
|
|
|
759,583
|
|
|
647,247
|
|
|
(184,210
|
)
|
|
155,726
|
|
Time
|
|
33,902
|
|
|
22,069
|
|
|
10,623
|
|
|
10,396
|
|
|
10,359
|
|
|
23,279
|
|
|
23,543
|
|
Brokered
|
|
134,164
|
|
|
65,811
|
|
|
99,241
|
|
|
79,119
|
|
|
92,656
|
|
|
34,923
|
|
|
41,508
|
|
Total deposits - continuing operations
|
|
1,851,531
|
|
|
1,847,184
|
|
|
1,952,514
|
|
|
1,775,165
|
|
|
1,456,956
|
|
|
(100,983
|
)
|
|
394,575
|
|
Deposits to be assumed - discontinued operations
|
|
—
|
|
|
593,264
|
|
|
585,429
|
|
|
604,659
|
|
|
609,631
|
|
|
(585,429
|
)
|
|
(609,631
|
)
|
Total deposits
|
|
$
|
1,851,531
|
|
|
$
|
2,440,448
|
|
|
$
|
2,537,943
|
|
|
$
|
2,379,824
|
|
|
$
|
2,066,587
|
|
|
$
|
(686,412
|
)
|
|
$
|
(215,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments clients
|
|
$
|
301,413
|
|
|
$
|
361,192
|
|
|
$
|
397,608
|
|
|
$
|
258,320
|
|
|
$
|
251,748
|
|
|
$
|
(96,195
|
)
|
|
$
|
49,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Deposits
|
|
2019
|
|
2018
|
|
Q2 2019 vs Q1 2019 Change
|
|
Q2 2019 vs Q2 2018 Change
|
|
|
Second Quarter
|
|
First Quarter
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
|
DDA
|
|
$
|
587,957
|
|
|
$
|
575,453
|
|
|
$
|
597,239
|
|
|
$
|
561,355
|
|
|
$
|
489,722
|
|
|
$
|
12,504
|
|
|
$
|
98,235
|
|
NOW
|
|
314,601
|
|
|
276,212
|
|
|
280,449
|
|
|
314,759
|
|
|
287,283
|
|
|
38,389
|
|
|
27,318
|
|
Savings
|
|
956
|
|
|
884
|
|
|
712
|
|
|
616
|
|
|
674
|
|
|
72
|
|
|
282
|
|
Money market
|
|
859,680
|
|
|
847,254
|
|
|
798,017
|
|
|
697,578
|
|
|
645,034
|
|
|
12,426
|
|
|
214,646
|
|
Time
|
|
32,358
|
|
|
12,847
|
|
|
10,117
|
|
|
10,406
|
|
|
9,855
|
|
|
19,511
|
|
|
22,503
|
|
Brokered
|
|
106,524
|
|
|
81,141
|
|
|
93,558
|
|
|
67,937
|
|
|
100,425
|
|
|
25,383
|
|
|
6,099
|
|
Total deposits - continuing operations
|
|
1,902,076
|
|
|
1,793,791
|
|
|
1,780,092
|
|
|
1,652,651
|
|
|
1,532,993
|
|
|
108,285
|
|
|
369,083
|
|
Deposits to be assumed - discontinued operations
|
|
45,350
|
|
|
593,313
|
|
|
600,769
|
|
|
601,421
|
|
|
602,832
|
|
|
(547,963
|
)
|
|
(557,482
|
)
|
Total deposits
|
|
$
|
1,947,426
|
|
|
$
|
2,387,104
|
|
|
$
|
2,380,861
|
|
|
$
|
2,254,072
|
|
|
$
|
2,135,825
|
|
|
$
|
(439,678
|
)
|
|
$
|
(188,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments clients
|
|
$
|
285,949
|
|
|
$
|
295,059
|
|
|
$
|
263,800
|
|
|
$
|
227,029
|
|
|
$
|
219,016
|
|
|
$
|
(9,110
|
)
|
|
$
|
66,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits as a percentage of average deposits - continuing operations
|
|
30.9
|
%
|
|
32.1
|
%
|
|
33.6
|
%
|
|
34.0
|
%
|
|
31.9
|
%
|
|
|
|
|
Cost of deposits - continuing operations
|
|
1.15
|
%
|
|
1.09
|
%
|
|
0.93
|
%
|
|
0.76
|
%
|
|
0.71
|
%
|
|
|
|
|
Short-Term Borrowings
At June 30, 2019 and December 31, 2018, balances of federal funds purchased were $35.0 million and $0, respectively. There were securities sold under repurchase agreements with commercial checking customers totaling $0 and $6.2 million as of June 30, 2019 and December 31, 2018, respectively. This balance was classified as
discontinued operations in the Consolidated Balance Sheets as of December 31, 2018.
As a member of the Federal Home Loan Bank of Atlanta (“FHLB”), Atlantic Capital has the ability to acquire short and long-term advances through a blanket agreement secured by our unencumbered qualifying 1-4 family first mortgage loans and by pledging investment securities or individual, qualified loans, subject to approval of the FHLB. At June 30, 2019 and December 31, 2018, Atlantic Capital had FHLB advances of $82.0 million and $0, respectively. FHLB borrowings increased due to an increase in short-term funding needs.
Long-Term Debt
During the third quarter of 2015, Atlantic Capital issued $50.0 million in fixed-to-floating rate subordinated notes due in 2025, and callable on September 30, 2020, all of which were outstanding at June 30, 2019. The notes bear a fixed rate of 6.25% per year until September 29, 2020, and then bear a floating rate of three month LIBOR plus 468 basis points until maturity.
Liquidity Risk Management
Liquidity risk is the risk that an institution will be unable to generate or obtain sufficient funding, at a reasonable cost, to meet operational cash needs and to take advantage of revenue producing opportunities as they arise. Other forms of liquidity risk include market constraints on the ability to convert assets into cash at expected levels, an inability to access funding sources at sufficient levels at a reasonable cost, and changes in economic conditions or exposure to credit, market, operational, legal, and reputation risks that can affect an institution’s liquidity risk profile. Liquidity management involves maintaining Atlantic Capital’s ability to meet the daily cash flow requirements of Atlantic Capital’s customers, both depositors and borrowers.
Atlantic Capital utilizes various measures to monitor and control liquidity risk across three different types of liquidity:
|
|
•
|
tactical liquidity measures the risk of a negative cash flow position whereby cash outflows exceed cash inflows over a short-term horizon;
|
|
|
•
|
structural liquidity measures the amount by which illiquid assets are supported by long-term funding; and
|
|
|
•
|
contingent liquidity utilizes cash flow stress testing across four crisis scenarios to determine the adequacy of Atlantic Capital’s liquidity.
|
Atlantic Capital aims to maintain a diverse mix of existing and potential liquidity sources to support the liquidity management function. At its core is a reliance on the customer deposit book, due to the low cost it offers. Other sources of liquidity include asset-based liquidity in the form of cash and unencumbered securities, as well as access to wholesale funding from external counterparties, primarily advances from the FHLB of Atlanta, federal funds lines and other borrowing facilities. Atlantic Capital aims to avoid funding concentrations by diversifying external secured and unsecured funding with respect to maturities, counterparties and nature. At June 30, 2019, management believed that Atlantic Capital had sufficient on-balance sheet liquidity to meet its funding needs.
On April 5, 2019, the Bank completed the Branch Sale. FirstBank a
ssumed deposits and customer repurchase agreements of approximately $598 million and purchased approximately $385 million in loans and $12 million in other assets. Since Atlantic Capital divested a larger amount of deposits than assets, it made a cash payment of approximately $167 million to FirstBank at the closing of the Branch Sale. The Company restructured the balance sheet following the Branch Sale with a combination of excess cash, proceeds from sold securities, FHLB borrowings, and brokered deposits.
At June 30, 2019, Atlantic Capital had access to $475.0 million in unsecured borrowings and $699.2 million in secured borrowings through various sources, including FHLB advances and access to Federal Funds. Atlantic Capital also has the ability to attract more deposits by increasing rates.
Shareholders’ Equity and Capital Adequacy
Shareholders’ equity at June 30, 2019 was $336.7 million, an increase of $13.1 million, or 4%, from December 31, 2018. Net income of $34.5 million for the first six months of 2019, and an increase of $13.9 million in accumulated other comprehensive income, were offset by $36.6 million in share repurchases. Atlantic Capital and the Bank are required to meet minimum capital requirements imposed by regulatory authorities. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on Atlantic Capital’s consolidated financial statements. Tables 12 and 13 provide additional information regarding regulatory capital requirements and Atlantic Capital’s and the Bank’s capital levels. Accumulated
other comprehensive income, which includes unrealized gains and losses on securities available-for-sale and unrealized gains and losses on derivatives qualifying as cash flow hedges, is excluded in the calculation of regulatory capital ratios.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 12 - Capital Ratios
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Bank
|
|
Regulatory Guidelines
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Minimum
|
|
Well capitalized
|
|
Minimum Capital plus capital conservation buffer 2019
|
|
Risk based ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital
|
|
13.3
|
|
%
|
11.5
|
|
%
|
14.8
|
|
%
|
12.3
|
|
%
|
4.5
|
|
%
|
6.5
|
|
%
|
7.0
|
|
%
|
Tier 1 Capital
|
|
13.3
|
|
|
11.5
|
|
|
14.8
|
|
|
12.3
|
|
|
6.0
|
|
|
8.0
|
|
|
8.5
|
|
|
Total capital
|
|
16.5
|
|
|
14.2
|
|
|
15.7
|
|
|
13.0
|
|
|
8.0
|
|
|
10.0
|
|
|
10.5
|
|
|
Leverage ratio
|
|
12.3
|
|
|
10.0
|
|
|
13.6
|
|
|
10.6
|
|
|
4.0
|
|
|
5.0
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital
|
|
$
|
295,512
|
|
|
$
|
285,250
|
|
|
$
|
327,289
|
|
|
$
|
304,907
|
|
|
|
|
|
|
|
|
Tier 1 capital
|
|
295,512
|
|
|
285,250
|
|
|
327,289
|
|
|
304,907
|
|
|
|
|
|
|
|
|
Total capital
|
|
364,272
|
|
|
353,458
|
|
|
346,259
|
|
|
323,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets
|
|
2,213,010
|
|
|
2,489,631
|
|
|
2,210,137
|
|
|
2,489,373
|
|
|
|
|
|
|
|
|
Quarterly average total assets for leverage ratio
|
|
2,402,880
|
|
|
2,842,618
|
|
|
2,403,721
|
|
|
2,864,357
|
|
|
|
|
|
|
|
|
As of June 30, 2019, Atlantic Capital continued to exceed minimum capital standards and the Bank remained “well-capitalized” under regulatory guidelines.
In July 2013, bank regulatory agencies approved the Basel III capital guidelines, which are aimed at strengthening existing capital requirements for bank holding companies through a combination of higher minimum capital requirements, new capital conservation buffers and more conservative definitions of capital and balance sheet exposure. Atlantic Capital and the Bank became subject to the requirements of Basel III effective January 1, 2015, subject to a transition period providing for full compliance after January 1, 2019 for several aspects of the rule.
Management continues to monitor Basel III developments and remains committed to managing Atlantic Capital’s capital levels in a prudent manner.
|
|
|
|
|
|
|
Table 13 - Tier 1 Common Equity
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Tier 1 capital
|
|
$
|
295,512
|
|
|
Less: restricted core capital
|
|
—
|
|
|
Tier 1 common equity
|
|
$
|
295,512
|
|
|
|
|
|
|
Risk-adjusted assets
|
|
$
|
2,213,010
|
|
|
Tier 1 common equity ratio
|
|
13.3
|
|
%
|
Off-Balance Sheet Arrangements
Atlantic Capital makes contractual commitments to extend credit and issues standby letters of credit in the ordinary course of its business activities. These commitments are legally binding agreements to lend money to customers at predetermined interest rates for a specified period of time. In addition to commitments to extend credit, Atlantic Capital also issues standby letters of credit which are assurances to a third party that it will not suffer a loss if the customer fails to meet a contractual obligation to the third party. At June 30, 2019, Atlantic Capital had issued commitments to extend credit of approximately $628.8 million and standby letters of credit of approximately $8.8 million through various types of commercial lending arrangements.
Based on historical experience, many of the commitments and letters of credit will expire unfunded. Through its various sources of liquidity, Atlantic Capital believes it will be able to fund these obligations as they arise. Atlantic Capital evaluates each customer’s
credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on Atlantic Capital’s credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.
Contractual Obligations
There have been no significant changes in Atlantic Capital’s contractual obligations at June 30, 2019 compared to December 31, 2018.
RISK MANAGEMENT
Effective risk management is critical to Atlantic Capital’s success. The Dodd-Frank Act requires that bank holding companies with total assets in excess of $10 billion establish an enterprise-wide risk committee consisting of members of its board of directors. Although Atlantic Capital does not have total assets in excess of $10 billion, the Bank’s board of directors has an Audit and Risk Committee that, among other responsibilities, provides oversight of enterprise-wide risk management activities. The Audit and Risk Committee reviews the Bank’s activities in identifying, measuring, and mitigating existing and emerging risks (including credit, liquidity, interest-rate, compliance, operational, strategic, and reputational risks.) The committee monitors management’s execution of risk management practices in accordance with the board of directors’ risk appetite, reviews supervisory examination reports together with management’s response to such examinations and discusses legal matters that may have a material impact on the financial statements or Atlantic Capital’s compliance policies. With guidance from and oversight by the Audit and Risk Committee, management continually refines and enhances its risk management policies and procedures to maintain effective risk management programs and processes.
Credit Risk
Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and investment securities. Atlantic Capital’s independent loan review function conducts risk reviews and analyses of loans to help assure compliance with credit policies and to monitor asset quality trends.
The risk reviews include portfolio analysis by geographic location, industry, collateral type and product. Atlantic Capital strives to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain adequate allowances for loan losses that are inherent in the loan portfolio.
Market Risk
Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net interest income in future periods. Atlantic Capital’s market risk arises primarily from interest rate risk inherent in Atlantic Capital’s lending and deposit-taking activities. The structure of Atlantic Capital’s loan and deposit portfolios is such that a significant decline in interest rates may adversely impact net market values and net interest income. Atlantic Capital does not maintain a trading account nor is Atlantic Capital subject to currency exchange risk or commodity price risk.
Interest Rate Risk
Interest rate risk results principally from assets and liabilities maturing or repricing at different points in time, from assets and liabilities repricing at the same point in time but in different amounts and from short-term and long-term interest rates changing in different magnitudes. Market interest rates also have an impact on the interest rate and repricing characteristics of loans that are originated as well as the rate characteristics of interest-bearing liabilities.
Atlantic Capital assesses interest rate risk by forecasting net interest income under various interest rate scenarios and comparing those results to forecasted net interest income assuming stable rates. With rates rising, the estimated increase in net interest income is primarily due to the short-term repricing characteristics of the loan portfolio, combined with a favorable funding mix. Atlantic Capital’s loan book consists mainly of floating rate loans. Atlantic Capital’s core client deposits are likely to allow Atlantic Capital to lag short term interbank rate indices when pricing deposits. Transaction accounts comprise a significant amount of Atlantic Capital’s total deposits.
Table 14 provides the impact on net interest income resulting from various interest rate shock scenarios as of June 30, 2019 and December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
Table 14 - Net Interest Income Sensitivity Simulation Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated change in net interest income
|
Change in interest rate (basis point)
|
|
June 30, 2019
|
|
December 31, 2018
|
-200
|
|
(16.43
|
)
|
%
|
|
|
(19.60
|
)
|
%
|
|
-100
|
|
(8.46
|
)
|
|
|
|
(7.17
|
)
|
|
|
+100
|
|
9.63
|
|
|
|
|
6.92
|
|
|
|
+200
|
|
17.97
|
|
|
|
|
13.52
|
|
|
|
+300
|
|
26.06
|
|
|
|
|
20.06
|
|
|
|
Atlantic Capital also utilizes the market value of equity (“MVE”) as a tool in measuring and managing interest rate risk.
L
ong-term interest rate risk exposure is measured using the MVE sensitivity analysis to study the impact of long-term cash flows on capital. Table 15 presents the MVE profile as of June 30, 2019 and December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
Table 15 - Market Value of Equity Modeling Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated % change in MVE
|
Change in interest rate (basis point)
|
|
June 30, 2019
|
|
December 31, 2018
|
-200
|
|
(6.02
|
)
|
%
|
|
|
(9.44
|
)
|
%
|
|
-100
|
|
(3.62
|
)
|
|
|
|
(3.73
|
)
|
|
|
+100
|
|
1.92
|
|
|
|
|
1.44
|
|
|
|
+200
|
|
2.23
|
|
|
|
|
1.68
|
|
|
|
+300
|
|
1.58
|
|
|
|
|
1.41
|
|
|
|
Atlantic Capital may utilize interest rate swaps, floors, collars, or other derivative financial instruments in an attempt to manage Atlantic Capital’s overall sensitivity to changes in interest rates.