UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
NEWACBLOGOSA14.JPG
_______________________________________________
FORM 10-Q
_______________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from              to             
COMMISSION FILE NO. 001 -37615
_________________________________________________
ATLANTIC CAPITAL BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
_________________________________________________
Georgia
20-5728270
(State of Incorporation)
(I.R.S. Employer Identification No.)
 
 
945 East Paces Ferry Road NE, Suite 1600, Atlanta, Georgia
30326
(Address of principal executive offices)
(Zip Code)
 
(404) 995-6050
 
 
(Registrant’s telephone number, including area code)
 
 
Not Applicable
 
 
(Former name, former address, and former fiscal year, if changed since last report)
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, no par value
ACBI
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes   ý     No   ¨


Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
 
Accelerated filer
ý
Non-accelerated filer
¨
 
Smaller reporting company
¨
 
 
 
Emerging growth company
ý
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, no par value: 22,879,188 shares outstanding as of July 31, 2019



Atlantic Capital Bancshares, Inc.
Form 10-Q
INDEX
 
 
 
Page
No.
PART I.
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 



PART I - FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS (UNAUDITED)
Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets
 
 
June 30,
2019
 
December 31,
2018
(in thousands, except share data)
 
(unaudited)
 
ASSETS
 
 
 
 
Cash and due from banks
 
$
24,206

 
$
42,895

Interest-bearing deposits in banks
 
52,932

 
216,040

Other short-term investments
 

 
9,457

Cash and cash equivalents
 
77,138

 
268,392

Securities available-for-sale
 
348,723

 
402,486

Other investments
 
31,912

 
29,236

Loans held for sale
 

 
5,889

Loans held for sale - discontinued operations (1)
 

 
373,030

Loans held for investment
 
1,789,740

 
1,728,073

Less: Allowance for loan losses
 
(18,186
)
 
(17,851
)
Loans held for investment, net
 
1,771,554

 
1,710,222

Premises held for sale - discontinued operations (1)
 


7,722

Premises and equipment, net
 
20,037

 
9,779

Bank owned life insurance
 
65,874

 
65,149

Goodwill - discontinued operations (1)
 

 
4,555

Goodwill - continuing operations (1)
 
19,925

 
17,135

Other intangibles, net
 
3,095

 
4,388

Other real estate owned
 
971

 
874

Other assets
 
50,451

 
56,583

Total assets
 
$
2,389,680

 
$
2,955,440

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing demand
 
$
569,693

 
$
602,252

Interest-bearing checking
 
309,709

 
252,490

Savings
 
1,090

 
725

Money market
 
802,973

 
987,183

Time
 
33,902

 
10,623

Brokered deposits
 
134,164

 
99,241

Deposits to be assumed - discontinued operations (1)
 

 
585,429

Total deposits
 
1,851,531

 
2,537,943

Federal funds purchased
 
35,000

 

Securities sold under agreements to repurchase - discontinued operations (1)
 

 
6,220

Federal Home Loan Bank borrowings
 
82,000

 

Long-term debt
 
49,789

 
49,704

Other liabilities
 
34,645

 
37,920

Total liabilities
 
2,052,965

 
2,631,787

SHAREHOLDERS’ EQUITY
 
 
 
 
Preferred Stock, no par value – 10,000,000 shares authorized; no shares issued and outstanding as of June 30, 2019 and December 31, 2018
 

 

Common stock, no par value – 100,000,000 shares authorized; 23,293,465 and 25,290,419 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
 
256,791

 
291,771

Retained earnings
 
76,343

 
42,187

Accumulated other comprehensive (loss) income
 
3,581

 
(10,305
)
Total shareholders’ equity
 
336,715

 
323,653

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
2,389,680

 
$
2,955,440

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

See Accompanying Notes to Consolidated Financial Statements
1


Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Statements of Income (1)  
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in thousands, except per share data)
2019
 
2018
 
2019
 
2018
INTEREST INCOME
 
 
 
 
 
 
 
Loans, including fees
$
23,554

 
$
19,269

 
$
46,306

 
$
37,241

Investment securities available-for-sale
2,339

 
2,687

 
4,970

 
5,279

Interest and dividends on other interest-earning assets
705

 
880

 
1,519

 
1,595

Total interest income
26,598

 
22,836

 
52,795

 
44,115

INTEREST EXPENSE
 
 
 
 
 
 
 
Interest on deposits
5,448

 
2,715

 
10,279

 
5,139

Interest on Federal Home Loan Bank advances
270

 
766

 
270

 
1,275

Interest on federal funds purchased and securities sold under agreements to repurchase
168

 
88

 
286

 
167

Interest on long-term debt
823

 
823

 
1,647

 
1,652

Total interest expense
6,709

 
4,392

 
12,482

 
8,233

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
19,889

 
18,444

 
40,313

 
35,882

Provision for loan losses
698

 
(173
)
 
1,512

 
599

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
19,191

 
18,617

 
38,801

 
35,283

NONINTEREST INCOME
 
 
 
 
 
 
 
Service charges
870

 
828

 
1,664

 
1,535

Gain (loss) on sales of securities available-for-sale
654

 
(2
)
 
654

 
(2
)
Loss on sales of other assets
(10
)
 
(166
)
 
(13
)
 
(212
)
Trust income

 
507

 

 
1,025

Derivatives income (loss)
(233
)
 
20

 
(344
)
 
134

Bank owned life insurance
389

 
378

 
749

 
747

SBA lending activities
1,096

 
997

 
2,182

 
2,299

Gain on sale of trust business

 
1,681

 

 
1,681

Other noninterest income
175

 
223

 
385

 
421

Total noninterest income
2,941

 
4,466

 
5,277

 
7,628

NONINTEREST EXPENSE
 
 
 
 
 
 
 
Salaries and employee benefits
8,529

 
7,911

 
17,742

 
16,861

Occupancy
689

 
700

 
1,328

 
1,585

Equipment and software
753

 
701

 
1,492

 
1,287

Professional services
792

 
943

 
1,567

 
1,768

Postage, printing and supplies
29

 
44

 
77

 
81

Communications and data processing
662

 
657

 
1,337

 
1,338

Marketing and business development
233

 
135

 
459

 
275

FDIC premiums
175

 
143

 
410

 
251

Other noninterest expense
1,392

 
1,389

 
2,637

 
2,465

Total noninterest expense
13,254

 
12,623

 
27,049

 
25,911

INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES
8,878

 
10,460

 
17,029

 
17,000

Provision for income taxes
1,869

 
2,082

 
3,580

 
3,431

NET INCOME FROM CONTINUING OPERATIONS
7,009

 
8,378

 
13,449

 
13,569

DISCONTINUED OPERATIONS
 
 
 
 
 
 
 
Income (loss) from discontinued operations
$
30,107

 
$
(303
)
 
$
28,690

 
$
(507
)
Provision (benefit) for income taxes
7,964

 
(76
)
 
7,610

 
(127
)
Net income (loss) from discontinued operations
22,143

 
(227
)
 
21,080

 
(380
)
NET INCOME
$
29,152

 
$
8,151

 
$
34,529

 
$
13,189

 
 
 
 
 
 
 
 
(1) Discontinued operations have been reported retrospectively for all periods presented.

See Accompanying Notes to Consolidated Financial Statements
2


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in thousands, except per share data)
2019
 
2018
 
2019
 
2018
Net income (loss) per common share ‑ basic
 
 
 
 
 
 
 
Net income per common share - continuing operations
$
0.29

 
$
0.32

 
$
0.55

 
$
0.52

Net income (loss) per common share - discontinued operations
0.93

 
(0.01
)
 
0.87

 
(0.01
)
Net income per Common Share ‑ basic
1.22

 
0.31

 
1.42

 
0.51

Net income (loss) per common share ‑ diluted
 
 
 
 
 
 
 
Net income per common share - continuing operations
$
0.29

 
$
0.32

 
$
0.55

 
$
0.52

Net income (loss) per common share - discontinued operations
0.92

 
(0.01
)
 
0.86

 
(0.01
)
Net income per common share ‑ diluted
1.21

 
0.31

 
1.41

 
0.51

 
 
 
 
 
 
 
 
(1) Discontinued operations have been reported retrospectively for all periods presented.

See Accompanying Notes to Consolidated Financial Statements
3


Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Net income
$
29,152

 
$
8,151

 
$
34,529

 
$
13,189

Other comprehensive income
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities:
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period, net of tax of $1,524, ($597), $3,642 and ($2,734), respectively
4,566

 
(1,789
)
 
10,920

 
(8,203
)
Reclassification adjustment for losses (gains) included in net income net of tax of ($164), $1, ($164), and $1, respectively
(490
)
 
1

 
(490
)
 
1

Unrealized gains (losses) on available-for-sale securities, net of tax
4,076

 
(1,788
)
 
10,430

 
(8,202
)
Cash flow hedges:
 
 
 
 
 
 
 
Net unrealized derivative gains (losses) on cash flow hedges, net of tax of $805, ($184), $1,153 and ($654), respectively
2,415

 
(552
)
 
3,456

 
(1,962
)
Changes from cash flow hedges
2,415

 
(552
)
 
3,456

 
(1,962
)
Other comprehensive income (loss), net of tax
6,491

 
(2,340
)
 
13,886

 
(10,164
)
Comprehensive income
$
35,643

 
$
5,811

 
$
48,415

 
$
3,025







See Accompanying Notes to Consolidated Financial Statements
4


Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Statements of Shareholders’ Equity
(Unaudited)

For the six months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
(in thousands, except share data)
 
Shares
 
Amount
 
Retained Earnings
 
Total
Balance - December 31, 2018
 
25,290,419

 
$
291,771

 
$
42,187

 
$
(10,305
)
 
$
323,653

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income
 

 

 
34,529

 

 
34,529

Change in unrealized gains (losses) on investment securities available-for-sale, net
 

 

 

 
10,430

 
10,430

Change in unrealized gains (losses) on cash flow hedges
 

 

 

 
3,456

 
3,456

Total comprehensive income
 
 
 
 
 
 
 
 
 
48,415

Change in accounting principle - leases
 

 

 
(373
)
 

 
(373
)
Net issuance of restricted stock
 
23,115

 

 

 

 

Issuance of common stock for option exercises
 
22,769


471

 

 

 
471

Issuance of common stock for long-term incentive plan
 
35,678

 
655

 

 

 
655

Restricted stock activity
 

 
225

 

 

 
225

Stock-based compensation
 

 
133

 

 

 
133

Performance share compensation
 

 
154

 

 

 
154

Stock repurchases
 
(2,078,516
)
 
(36,618
)
 

 

 
(36,618
)
Balance - June 30, 2019
 
23,293,465

 
$
256,791

 
$
76,343

 
$
3,581

 
$
336,715

 
 
 
 
 
 
 
 
 
 
 
For the three months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
Shares
 
Amount
 
Retained Earnings
 
Total
Balance - March 31, 2019
 
24,466,964

 
$
276,346

 
$
47,191

 
$
(2,910
)
 
$
320,627

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income
 

 

 
29,152

 

 
29,152

Change in unrealized gains (losses) on investment securities available-for-sale, net
 

 

 

 
4,076

 
4,076

Change in unrealized gains (losses) on cash flow hedges
 

 

 

 
2,415

 
2,415

Total comprehensive income
 
 
 
 
 
 
 
 
 
35,643

Net issuance of restricted stock
 
(37,125
)
 

 

 

 

Issuance of common stock for option exercises
 
(15,153
)
 
26

 

 

 
26

Restricted stock activity
 

 
(149
)
 

 

 
(149
)
Stock-based compensation
 

 
52

 

 

 
52

Performance share compensation
 

 
59

 

 

 
59

Stock repurchases
 
(1,121,221
)
 
(19,543
)
 

 

 
(19,543
)
Balance - June 30, 2019
 
23,293,465

 
$
256,791

 
$
76,343

 
$
3,581

 
$
336,715














See Accompanying Notes to Consolidated Financial Statements
5


Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Statements of Shareholders’ Equity (Continued)
(Unaudited)

For the six months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
(in thousands, except share data)
 
Shares
 
Amount
 
Retained Earnings
 
Total
Balance - December 31, 2017
 
25,712,909

 
$
299,474

 
$
12,810

 
$
(3,859
)
 
$
308,425

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income
 

 

 
13,189

 

 
13,189

Reclassification of tax effects from AOCI
 

 

 
844

 
(844
)
 

Change in unrealized gains on investment securities available-for-sale, net
 

 

 

 
(8,202
)
 
(8,202
)
Change in unrealized gains (losses) on cash flow hedges
 

 

 

 
(1,962
)
 
(1,962
)
Total comprehensive income
 
 
 
 
 
 
 
 
 
3,025

Change in accounting principle - revenue recognition
 

 

 
1

 

 
1

Net issuance of restricted stock
 
65,013

 

 

 

 

Issuance of common stock for option exercises
 
285,454

 
3,986

 

 

 
3,986

Issuance of common stock for long-term incentive plan
 
38,841

 
687

 

 

 
687

Restricted stock activity
 

 
480

 

 

 
480

Stock-based compensation
 

 
98

 

 

 
98

Performance share compensation
 

 
68

 

 

 
68

Balance - June 30, 2018
 
26,102,217

 
$
304,793

 
$
26,844

 
$
(14,867
)
 
$
316,770

 
 
 
 
 
 
 
 
 
 
 
For the three months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
Shares
 
Amount
 
Retained Earnings
 
Total
Balance - March 31, 2018
 
25,772,208

 
$
300,893

 
$
18,693

 
$
(12,527
)
 
$
307,059

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income
 

 

 
8,151

 

 
8,151

Change in unrealized gains (losses) on investment securities available-for-sale, net
 

 

 

 
(1,788
)
 
(1,788
)
Change in unrealized gains (losses) on cash flow hedges
 

 

 

 
(552
)
 
(552
)
Total comprehensive income
 
 
 
 
 
 
 
 
 
5,811

Net issuance of restricted stock
 
67,036

 

 

 

 

Issuance of common stock for option exercises
 
262,973

 
3,661

 

 

 
3,661

Restricted stock activity
 

 
131

 

 

 
131

Stock-based compensation
 

 
40

 

 

 
40

Performance share compensation
 

 
68

 

 

 
68

Balance - June 30, 2018
 
26,102,217

 
$
304,793

 
$
26,844

 
$
(14,867
)
 
$
316,770



See Accompanying Notes to Consolidated Financial Statements
6


Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
(in thousands)
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net income from continuing operations
$
13,449

 
$
13,569

Net income (loss) from discontinued operations, net of tax
21,080

 
(380
)
Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Provision for loan losses
1,512

 
599

Depreciation, amortization, and accretion
1,721

 
2,279

Amortization of operating lease right-of-use assets
1,216

 

Amortization of restricted stock and performance share compensation
379

 
548

Stock option compensation
133

 
98

Loss (gain) on sales of available-for-sale securities
(654
)
 
2

Loss on disposition of premises and equipment, net
13

 
214

Net write downs and losses on sales of other real estate owned

 
276

Small Business Investment Company (SBIC) impairment
26

 
228

Net increase in cash value of bank owned life insurance
(725
)
 
(724
)
Net gains on sale of branches
(34,475
)
 

Net gain on sale of trust business

 
(1,681
)
Origination of servicing assets
(625
)
 
(619
)
Proceeds from sales of SBA loans
35,711

 
32,048

Net gains on sale of SBA loans
(1,850
)
 
(1,819
)
Changes in operating assets and liabilities -
 
 
 
Net change in loans held for sale
5,889

 
(125
)
Net decrease in other assets
5,440

 
1,383

Net decrease in accrued expenses and other liabilities
(13,730
)
 
(2,528
)
Net cash provided by operating activities
34,510

 
43,368

 INVESTING ACTIVITIES
 
 
 
Activity in securities available-for-sale:
 
 
 
Prepayments
16,715

 
25,137

Maturities and calls
280

 
215

Sales
54,938

 
24

Purchases
(4,432
)
 
(42,596
)
Net change in loans held for investment
(96,802
)
 
(63,591
)
Net change in assets held for sale - discontinued operations
(11,789
)
 
33,136

(Purchases) proceeds of Federal Home Loan Bank stock, net
(3,543
)
 
(4,609
)
(Purchases) proceeds of Federal Reserve Bank stock, net
(33
)
 
(50
)
Proceeds from sales of other real estate

 
23

Net cash received (paid) for branch divestiture
(166,755
)
 

(Purchases) of premises and equipment, net
(773
)
 
(6,202
)
Net cash (used in) investing activities
(212,194
)
 
(58,513
)

See Accompanying Notes to Consolidated Financial Statements
7


 
Six Months Ended
 
June 30,
(in thousands)
2019
 
2018
FINANCING ACTIVITIES
 
 
 
Net change in deposits
(100,983
)
 
(408,179
)
Net change in liabilities to be assumed - discontinued operations
6,560

 
32,125

Net change in fed funds purchased
35,000

 
65,000

Proceeds from Federal Home Loan Bank advances
186,000

 
970,100

Repayments of Federal Home Loan Bank advances
(104,000
)
 
(865,100
)
Proceeds from exercise of stock options
471

 
3,986

Repurchase of common stock
(36,618
)
 

Net cash (used in) financing activities
(13,570
)
 
(202,068
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(191,254
)
 
(217,213
)
CASH AND CASH EQUIVALENTS – beginning of period
268,392

 
330,014

CASH AND CASH EQUIVALENTS – end of period
$
77,138

 
$
112,801

 
 
 
 
 
Six Months Ended
 
June 30,
SUPPLEMENTAL SCHEDULE OF CASH FLOWS
2019
 
2018
Interest paid
$
14,237

 
$
9,861

Income taxes paid
95

 
85

 

See Accompanying Notes to Consolidated Financial Statements
8


ATLANTIC CAPITAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of Presentation
The accounting and financial reporting policies of Atlantic Capital Bancshares, Inc. (“Atlantic Capital” or the “Company”) and its subsidiary, Atlantic Capital Bank, N.A. (the “Bank”), conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated.
In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Atlantic Capital’s filing on Form 10-K. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods. Certain prior period amounts have been reclassified to conform to the current year presentation.
NOTE 2 – ACCOUNTING STANDARDS UPDATES AND RECENTLY ADOPTED STANDARDS
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases.” Under the new guidance, leases classified as operating leases under previous GAAP must be recorded on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. In July 2018, the FASB issued ASU No. 2018-10,  “Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements .”  ASU No. 2018-10 provides improvements related to ASU No. 2016-02 to increase stakeholders’ awareness of the amendments and to expedite the improvements.  The amendments affect narrow aspects of the guidance issued in ASU No. 2016-02.  ASU No. 2018-11 allows entities adopting ASU No. 2016-02 to choose an additional (and optional) transition method, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  The amendments in these updates became effective for the Company on January 1, 2019. The impact of adoption was recording a lease liability of approximately $18.9 million in other liabilities on the Consolidated Balance Sheets, a ROU asset of approximately $14.5 million in premises and equipment, and a cumulative effect adjustment to retained earnings, net of tax, of approximately $373,000 .
Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2019, the FASB issued ASU No. 2019-05, “ Financial Instruments - Credit Losses (Topic 326); Targeted Transition Relief .” This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of Accounting Standards Codification (“ASC”) 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05 has the same effective date as ASU 2016-13 (i.e., the first quarter of 2020). The Company does not expect to elect the fair value option, and therefore, ASU 2019-05 is not expected to impact the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The update is effective for interim and annual periods in fiscal years beginning after December 31, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for new disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The adoption will not have a material effect on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This guidance shortens the premium amortization period for certain callable debt securities by requiring amortization to the earliest call date. The standard is effective for public companies for annual and interim periods beginning after December 15, 2020. The adoption of this update is not expected to have a material impact on Atlantic Capital’s consolidated financial statements.

9


In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which intends to simplify goodwill impairment testing by eliminating the second step of the analysis under which the implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. The update instead requires entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit’s fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit. ASU 2017-04 must be applied prospectively and is effective for the Company on January 1, 2020. Early adoption is permitted. Atlantic Capital does not expect the new guidance to have a material impact on its financial condition or results of operations.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. ASU 2016-13 is effective for public companies for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is implementing a software package supported by a third-party vendor. The Company’s CECL working group is meeting regularly with a CECL Management Group and the Company’s Board of Directors to discuss implementation progress and methodology selections. Progress has been made on life-of-loan loss calculations and on economic forecasting methods that will be utilized in the modeling process. The Company will perform parallel runs of its new methodology in 2019 prior to adoption of the ASU. Atlantic Capital is continuing to evaluate the impact of the adoption of ASU 2016-13 on the Company’s consolidated financial statements and disclosures.

10


NOTE 3 – ACQUISITIONS AND DIVESTITURES
Discontinued Operations
On April 5, 2019, the Bank completed the sale of all 14 of its bank branches located in Tennessee and northwest Georgia, including its mortgage banking business, to FirstBank (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 for the three and six months ended June 30, 2019 and 2018, are included in discontinued operations and prior period financial information has been retrospectively adjusted for the impact of discontinued operations.
The following table presents results of the discontinued operations for the three and six months ended June 30, 2019 and 2018:
Components of Net Income from Discontinued Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 For the three months ended June 30,
 
 For the six months ended June 30,
(in thousands)
 
2019
 
2018
 
2019
 
2018
Net interest income (loss)
 
$
(39
)
 
$
3,570

 
$
3,086

 
$
7,649

Service charges
 
46

 
480

 
527

 
965

Mortgage income
 

 
363

 
288

 
667

Gain on sale of branches
 
34,475

 

 
34,475

 

Other income
 
(22
)
 
22

 
(1
)
 
54

Total noninterest income
 
34,499

 
865

 
35,289

 
1,686

Salaries and employee benefits
 
330

 
3,010

 
2,757

 
6,137

Occupancy
 
71

 
511

 
410

 
981

Equipment and software
 
8

 
203

 
131

 
404

Amortization of intangibles
 

 
319

 
247

 
662

Communications and data processing
 
197

 
346

 
586

 
708

Divestiture expense
 
3,646

 

 
5,095

 

Other noninterest expense
 
101

 
349

 
459

 
950

Total noninterest expense
 
4,353

 
4,738

 
9,685

 
9,842

Net income (loss) before provision for income taxes
 
30,107

 
(303
)
 
28,690

 
(507
)
Provision (benefit) for income taxes
 
7,964

 
(76
)
 
7,610

 
(127
)
Net income (loss) from discontinued operations
 
$
22,143

 
$
(227
)
 
$
21,080

 
$
(380
)

11


Assets sold and liabilities assumed by FirstBank include substantially all assets and liabilities associated with the branches sold, and were classified as held for sale on the Consolidated Balance Sheets as of December 31, 2018.
The following table summarizes the major categories of assets and liabilities classified as held for sale and intangibles related to discontinued operations on the Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018:
Assets and Liabilities from Discontinued Operations
 
 
 
 
 
 
 
 
 
(in thousands)
 
June 30, 2019
 
December 31, 2018
Cash
 
$

 
$
4,234

Loans held for sale - discontinued operations
 

 
373,030

Premises held for sale - discontinued operations
 

 
7,722

Goodwill - discontinued operations
 

 
4,555

Core deposit intangible
 

 
1,405

Total assets
 
$

 
$
390,946

 
 
 
 
 
Deposits to be assumed - discontinued operations
 
$

 
$
585,429

Securities sold under agreements to repurchase - discontinued operations
 

 
6,220

Total liabilities
 
$

 
$
591,649

Net liabilities
 
$

 
$
(200,703
)

12


NOTE 4 – BALANCE SHEET OFFSETTING
Atlantic Capital enters into reverse repurchase agreements in order to invest short-term funds. Atlantic Capital enters into repurchase agreements for short-term financing needs.
The following table presents a summary of amounts outstanding under reverse repurchase agreements, repurchase agreements, and derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements as of June 30, 2019 and December 31, 2018 . While these agreements are typically over-collateralized, GAAP requires disclosures in this table to limit the amount of such collateral to the amount of the related recognized asset or liability for each counterparty.
(in thousands)
 
 
 
 
 
 
 
 Gross Amounts not Offset in the Balance Sheet
 
 
June 30, 2019
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset on the Balance Sheet
 
Net Asset Balance
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount
Derivatives
 
$
8,536

 
$

 
$
8,536

 
$

 
$

 
$
8,536

Total
 
$
8,536

 
$

 
$
8,536

 
$

 
$

 
$
8,536

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Gross Amounts not Offset in the Balance Sheet
 
 
 
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset on the Balance Sheet
 
Net Liability Balance
 
Financial Instruments
 
Cash Collateral Pledged
 
Net Amount
Derivatives
 
$
5,525

 
$

 
$
5,525

 
$
(5,525
)
 
$

 
$

Total
 
$
5,525

 
$

 
$
5,525

 
$
(5,525
)
 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Gross Amounts not Offset in the Balance Sheet
 
 
December 31, 2018
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset on the Balance Sheet
 
Net Asset Balance
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount
Reverse repurchase agreements
 
$
9,457

 
$

 
$
9,457

 
$
(9,457
)
 
$

 
$

Derivatives
 
1,961

 

 
1,961

 

 

 
1,961

Total
 
$
11,418

 
$

 
$
11,418

 
$
(9,457
)
 
$

 
$
1,961

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Gross Amounts not Offset in the Balance Sheet
 
 
 
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset on the Balance Sheet
 
Net Liability Balance
 
Financial Instruments
 
Cash Collateral Pledged
 
Net Amount
Repurchase agreements - discontinued operations
 
$
6,220

 
$

 
$
6,220

 
$
(6,220
)
 
$

 
$

Derivatives
 
4,027

 

 
4,027

 
(4,027
)
 

 

Total
 
$
10,247

 
$

 
$
10,247

 
$
(10,247
)
 
$

 
$



13


NOTE 5 – SECURITIES
The following table presents the amortized cost, unrealized gains and losses, and fair value of securities available-for-sale at June 30, 2019 and December 31, 2018 .
 Available-For-Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
(in thousands)
June 30, 2019
 
 
 
 
 
 
 
 
Debt securities—
 
 
 
 
 
 
 
 
U.S. Government agencies
 
$
21,518

 
$
363

 
$
(18
)
 
$
21,863

U.S. states and political divisions
 
79,078

 
600

 
(832
)
 
78,846

Trust preferred securities
 
4,794

 

 
(232
)
 
4,562

Corporate debt securities
 
9,572

 
87

 
(6
)
 
9,653

Residential mortgage-backed securities
 
231,650

 
3,073

 
(924
)
 
233,799

Total
 
$
346,612

 
$
4,123

 
$
(2,012
)
 
$
348,723

 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
Debt securities—
 
 
 
 
 
 
 
 
U.S. Government agencies
 
$
27,259

 
$
24

 
$
(434
)
 
$
26,849

U.S. states and political divisions
 
91,864

 
40

 
(7,070
)
 
84,834

Trust preferred securities
 
4,781

 

 
(381
)
 
4,400

Corporate debt securities
 
12,855

 

 
(492
)
 
12,363

Residential mortgage-backed securities
 
277,524

 
2,726

 
(6,210
)
 
274,040

Total
 
$
414,283

 
$
2,790

 
$
(14,587
)
 
$
402,486


The following table presents the amortized cost and fair value of debt securities by contractual maturity at June 30, 2019 . Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
Available-For-Sale
 
Amortized
Cost
 
Fair
Value
 
(in thousands)
Within 1 year
$

 
$

Over 1 year through 5 years
28,718

 
29,095

5 years to 10 years
23,097

 
22,955

Over 10 years
63,147

 
62,874

 
114,962

 
114,924

Residential mortgage-backed securities
231,650

 
233,799

Total
$
346,612

 
$
348,723



14


The following table summarizes available-for-sale securities in an unrealized loss position as of June 30, 2019 and  December 31, 2018 .
 
 
 
Less than 12 months
 
12 months or greater
 
Totals
Available-For-Sale
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
(in thousands)
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies
 
$
3,982

 
$
(18
)
 
$

 
$

 
$
3,982

 
$
(18
)
U.S. states and political divisions
 
1,150

 
(2
)
 
41,595

 
(830
)
 
42,745

 
(832
)
Trust preferred securities
 

 

 
4,563

 
(232
)
 
4,563

 
(232
)
Corporate debt securities
 

 

 
999

 
(6
)
 
999

 
(6
)
Residential mortgage-backed securities
 
9,189

 
(20
)
 
65,259

 
(904
)
 
74,448

 
(924
)
Totals
 
$
14,321

 
$
(40
)
 
$
112,416

 
$
(1,972
)
 
$
126,737

 
$
(2,012
)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies
 
$
1,487

 
$
(19
)
 
$
21,849

 
$
(415
)
 
$
23,336

 
$
(434
)
U.S. states and political divisions
 
2,351

 
(54
)
 
75,234

 
(7,016
)
 
77,585

 
(7,070
)
Trust preferred securities
 

 

 
4,400

 
(381
)
 
4,400

 
(381
)
Corporate debt securities
 
6,009

 
(60
)
 
6,354

 
(432
)
 
12,363

 
(492
)
Residential mortgage-backed securities
 
30,938

 
(152
)
 
196,745

 
(6,058
)
 
227,683

 
(6,210
)
Totals
 
$
40,785


$
(285
)
 
$
304,582

 
$
(14,302
)
 
$
345,367

 
$
(14,587
)
Management evaluates securities for other-than-temporary impairment on a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, among other factors. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and internal and external analyst reviews.
At June 30, 2019 , there were 127 available-for-sale securities that were in an unrealized loss position. Atlantic Capital does not intend to sell and does not believe it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. Unrealized losses at June 30, 2019 and December 31, 2018 were attributable to changes in interest rates. No impairment charges on securities available-for-sale were recognized during the six months ended June 30, 2019 or 2018 .
Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. The following table summarizes securities sales activity for the three and six months ended June 30, 2019 and 2018 .
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Proceeds from sales
 
$
54,938

 
$
24

 
$
54,938

 
$
24

Gross realized gains
 
1,122

 

 
1,122

 

Gross realized losses
 
(468
)
 
(2
)
 
(468
)
 
(2
)
Net gains (losses) on sales of securities
 
$
654

 
$
(2
)
 
$
654

 
$
(2
)
Investment securities with a carrying value of $25.2 million and $65.3 million were pledged to secure public funds and other borrowings at June 30, 2019 and December 31, 2018 , respectively.
As of June 30, 2019 and December 31, 2018, Atlantic Capital had investments with a carrying value of $4.4 million and $4.4 million , respectively, in Small Business Investment Companies (“SBICs”) where Atlantic Capital is the limited partner. These investments are included in other assets on the Consolidated Balance Sheets. During the second quarter of 2019 and 2018, the Company recorded impairments in the amounts of $26,000 and $228,000 , respectively, on these SBICs. The impairments resulted from deterioration in the credit quality of one of the SBICs and their inability to pay distributions until their financial position improves. There have been no upward adjustments, cumulatively or year-to-date, on these investments.

15


NOTE 6 – LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio as of June 30, 2019 and December 31, 2018 , is summarized below.
 
June 30,
2019
 
December 31,
2018
 
(in thousands)
Loans held for sale
 
 
 
Loans held for sale - discontinued operations
$

 
$
373,030

Loans held for sale

 
5,889

Total loans held for sale
$

 
$
378,919

 
 
 
 
Loans held for investment
 
 
 
Commercial loans:
 
 
 
Commercial and industrial
$
701,566

 
$
645,374

Commercial real estate
766,846

 
794,828

Construction and land
198,956

 
156,232

Mortgage warehouse participations
10,665

 
27,967

Total commercial loans
1,678,033

 
1,624,401

Residential:
 
 
 
Residential mortgages
31,338

 
32,800

Home equity
24,303

 
22,822

Total residential loans
55,641

 
55,622

Consumer
34,618

 
25,851

Other
24,126

 
24,712

Total loans
1,792,418

 
1,730,586

Less net deferred fees and other unearned income
(2,678
)
 
(2,513
)
Less allowance for loan losses
(18,186
)
 
(17,851
)
Loans held for investment, net
$
1,771,554

 
$
1,710,222

At June 30, 2019 and December 31, 2018 , loans with a carrying value of $803.5 million and $752.7 million , respectively, were pledged as collateral to secure Federal Home Loan Bank of Atlanta (“FHLB”) advances and the Federal Reserve discount window.
At December 31, 2018 , PCI loans were designated as held for sale for the Branch Sale. The following table presents changes in the value of the accretable yield for acquired loans accounted for under ASC 310-30 for the three and six months ended June 30, 2019 and 2018.
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
 
 
(in thousands)
Balance at beginning of period
 
$

 
$
2,409

 
$

 
$
2,316

Accretion
 

 
(301
)
 

 
(599
)
Reclassification of nonaccretable discount due to change in expected cash flows
 

 
197

 

 
293

Other changes, net
 

 
151

 

 
446

Balance at end of period
 
$

 
$
2,456

 
$

 
$
2,456


In addition to the accretable yield on PCI loans, the fair value adjustments on purchased loans outside the scope of ASC 310-30 are also accreted to interest income over the life of the loans. At June 30, 2019 , the remaining accretable fair value discount on loans acquired through a business combination and not accounted for under ASC 310-30 was $337,000 compared to $3.6 million at December 31, 2018 .

16


The allowance for loan losses represents management’s estimate of probable incurred losses in the loan portfolio as of the end of the period. It is comprised of specific reserves for impaired loans and a general allowance for pools of loans with similar characteristics not individually evaluated. The allowance is regularly evaluated to maintain an adequate level to absorb probable current inherent losses in the loan portfolio. Factors contributing to the determination of the allowance include the credit worthiness of the borrower, changes in the value of pledged collateral, and general economic conditions. Most loan commitments rated substandard or worse are specifically reviewed for loss potential. For loans deemed to be impaired, a specific allocation is assigned based on the losses expected to be realized from those loans.
The following table presents the balance and activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2019 and 2018 .
 
 
2019
 
2018
Three Months Ended June 30,
 
Commercial
 
Residential
 
Consumer
 
Total
 
Commercial
 
Residential
 
Consumer
 
Total
 
 
(in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
17,397

 
$
447

 
$
263

 
$
18,107

 
$
18,797

 
$
828

 
$
260

 
$
19,885

Provision for loan losses
 
1,055

 
(283
)
 
(74
)
 
698

 
(283
)
 
85

 
25

 
(173
)
Loans charged-off
 
(635
)
 

 

 
(635
)
 
(50
)
 
(102
)
 
(10
)
 
(162
)
Recoveries
 

 

 
16

 
16

 
27

 

 
6

 
33

Total ending allowance balance
 
$
17,817

 
$
164

 
$
205

 
$
18,186

 
$
18,491

 
$
811

 
$
281

 
$
19,583

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
2018
Six Months Ended June 30,
 
Commercial
 
Residential
 
Consumer
 
Total
 
Commercial
 
Residential
 
Consumer
 
Total
 
 
(in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
17,322

 
$
292

 
$
237

 
$
17,851

 
$
18,267

 
$
802

 
$
275

 
$
19,344

Provision for loan losses
 
1,662

 
(127
)
 
(23
)
 
1,512

 
354

 
239

 
6

 
599

Loans charged-off
 
(1,184
)
 
(9
)
 
(37
)
 
(1,230
)
 
(176
)
 
(230
)
 
(13
)
 
(419
)
Recoveries
 
17

 
8

 
28

 
53

 
46

 

 
13

 
59

Total ending allowance balance
 
$
17,817

 
$
164

 
$
205

 
$
18,186

 
$
18,491

 
$
811

 
$
281

 
$
19,583

The general component of the allowance for loan losses is based on the incurred losses inherent in the portfolio. The loss factors are determined through the generation of probabilities of default (“PDs”) and losses given default (“LGDs”) for groups of similar loans with similar credit grades where Loss Rate = PD x LGD. The PDs and LGDs for the loan portfolio are calculated based on Atlantic Capital’s loss history as well as available market-based data. The loss factor for each pool of loans is adjusted based on qualitative and environmental factors to account for conditions in the current environment which management believes are likely to cause a difference between the calculated loss based on historical performance and the incurred loss in the existing portfolio. These factors include: changes in policies and procedures, changes in the economy, changes in nature or volume of the portfolio and in the terms of loans, changes in lending management, changes in past dues and credit migration, changes in the loan review system, changes in the value of collateral and concentration risk and changes in external factors, such as competition, legal and regulatory. Quarterly, management evaluates these factors to determine an adjustment unique to Atlantic Capital and its market.
Charge-offs are recognized when the amount of the loss is quantifiable and timing is known. Collateral based loan charge-offs are measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated net realizable value of the loan. When assessing property value for the purpose of determining a charge-off, a third-party appraisal or an independently derived internal evaluation is generally employed.
A loan is considered to be impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Loans for which the terms have been modified or granted an economic concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. A specific allowance is established for individually evaluated impaired loans as needed. Reserves on impaired

17


loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the observable market price, or the fair value of the underlying collateral of the loan if the loan is collateral dependent.
Atlantic Capital’s policy is to place loans on nonaccrual status, when, in the opinion of management, the principal and interest on a loan are not likely to be repaid in accordance with the loan terms or when the loan becomes 90 days past due and is not both well secured and in the process of collection. When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Principal and interest payments received on a nonaccrual loan are applied to reduce outstanding principal.
The balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method is presented in the following table as of June 30, 2019 and December 31, 2018 .
June 30, 2019
 
Commercial
 
Residential
 
Consumer
 
Total
 
 
(in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
Ending allowance balance attributable to loans
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
514

 
$

 
$

 
$
514

Collectively evaluated for impairment
 
17,303

 
164

 
205

 
17,672

Total ending allowance balance
 
$
17,817

 
$
164

 
$
205

 
$
18,186

 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
 
$
17,439

 
$
851

 
$

 
$
18,290

Loans collectively evaluated for impairment
 
1,660,594

 
54,790

 
58,744

 
1,774,128

Total ending loans balance
 
$
1,678,033

 
$
55,641

 
$
58,744

 
$
1,792,418

 
 
 
 
 
 
 
 
 
December 31, 2018
 
Commercial
 
Residential
 
Consumer
 
Total
 
 
(in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
Ending allowance balance attributable to loans
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
317

 
$

 
$

 
$
317

Collectively evaluated for impairment
 
17,005

 
292

 
237

 
17,534

Total ending allowance balance
 
$
17,322

 
$
292

 
$
237

 
$
17,851

 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
 
$
10,273

 
$
161

 
$

 
$
10,434

Loans collectively evaluated for impairment
 
1,614,128

 
55,461

 
50,563

 
1,720,152

Total ending loans balance
 
$
1,624,401

 
$
55,622

 
$
50,563

 
$
1,730,586




18


The following table presents information on Atlantic Capital’s impaired loans for the three and six months ended June 30, 2019 and 2018 :
 
For the Three Months Ended June 30,
 
2019
 
2018
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Related
Allowance
 
Average Balance of Recorded Investment While Impaired
 
Interest Income Recognized During Impairment
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Related
Allowance
 
Average Balance of Recorded Investment While Impaired
 
Interest Income Recognized During Impairment
 
(in thousands)
Impaired loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
4,313

 
$
4,313

 
$

 
$
4,359

 
$
41

 
$
4,522

 
$
4,522

 
$

 
$
4,569

 
$
57

Commercial real estate
2,603

 
2,441

 

 
2,497

 
51

 
1,740

 
1,577

 

 
1,584

 

Construction and land

 

 

 

 

 

 

 

 

 

Residential mortgages
197

 
151

 

 
154

 

 
255

 
210

 

 
210

 
1

Home equity
700

 
700

 

 
700

 

 

 

 

 

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

Total
$
7,813

 
$
7,605

 
$

 
$
7,710

 
$
92

 
$
6,517

 
$
6,309

 
$

 
$
6,363

 
$
58

Impaired loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
2,682

 
$
2,682

 
$
336

 
$
2,690

 
$

 
$

 
$

 
$

 
$

 
$

Commercial real estate
8,003

 
8,003

 
178

 
8,003

 
61

 

 

 

 

 

Construction and land

 

 

 

 

 

 

 

 

 

Residential mortgages

 

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

 

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

Total
$
10,685

 
$
10,685

 
$
514

 
$
10,693

 
$
61

 
$

 
$

 
$

 
$

 
$

Total impaired loans
$
18,498

 
$
18,290

 
$
514

 
$
18,403

 
$
153

 
$
6,517

 
$
6,309

 
$

 
$
6,363

 
$
58


19


 
For the Six Months Ended June 30,
 
2019
 
2018
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Related
Allowance
 
Average Balance of Recorded Investment While Impaired
 
Interest Income Recognized During Impairment
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Related
Allowance
 
Average Balance of Recorded Investment While Impaired
 
Interest Income Recognized During Impairment
 
(in thousands)
Impaired loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
4,313

 
$
4,313

 
$

 
$
4,402

 
$
82

 
$
4,522

 
$
4,522

 
$

 
$
4,617

 
$
116

Commercial real estate
2,603

 
2,441

 

 
2,516

 
51

 
1,740

 
1,577

 

 
1,584

 

Construction and land

 

 

 

 

 

 

 

 

 

Residential mortgages
197

 
151

 

 
156

 

 
255

 
210

 

 
212

 
2

Home equity
700

 
700

 

 
700

 

 

 

 

 

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

Total
$
7,813

 
$
7,605

 
$

 
$
7,774

 
$
133

 
$
6,517

 
$
6,309

 
$

 
$
6,413

 
$
118

Impaired loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
2,682

 
$
2,682

 
$
336

 
$
2,690

 
$

 
$

 
$

 
$

 
$

 
$

Commercial real estate
8,003

 
8,003

 
178

 
8,003

 
122

 

 

 

 

 

Construction and land

 

 

 

 

 

 

 

 

 

Residential mortgages

 

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

 

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

Total
$
10,685

 
$
10,685

 
$
514

 
$
10,693

 
$
122

 
$

 
$

 
$

 
$

 
$

Total impaired loans
$
18,498

 
$
18,290

 
$
514

 
$
18,467

 
$
255

 
$
6,517

 
$
6,309

 
$

 
$
6,413

 
$
118


Atlantic Capital evaluates loans in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors . TDRs are loans in which Atlantic Capital has modified the terms or granted an economic concession to a borrower who is experiencing financial difficulties. These modifications may include interest rate reductions, term extensions and other concessions intended to minimize losses.
As of June 30, 2019 and December 31, 2018 , the Company had a recorded investment in TDRs of $9.2 million and $8.2 million , respectively. The Company had commitments to lend additional funds of $0 and $28,000 on loans modified as TDRs, as of June 30, 2019 and December 31, 2018 , respectively. During the three months ended June 30, 2019 , the Company extended the amortization period for one commercial and industrial SBA loan, resulting in its reclassification as a TDR. Additionally, during the three months ended June 30, 2019 , the Company restructured two commercial and industrial SBA loans to lower the payment amounts, resulting in their reclassification as TDRs. During the six months ended June 30, 2019 , the Company granted payment deferrals on four SBA loans, three classified as commercial and industrial and one classified as commercial real estate, resulting in their reclassification as TDRs. During the same period,

20


the Company granted an interest only forbearance on one commercial real estate loan to allow time for the pledged collateral to sell. This concession resulted in the reclassification of this loan as a TDR.
The Company did not modify any loans as TDRs during the three and six months ended June 30, 2018. Loans, by portfolio class, modified as TDRs during the three and six months ended June 30, 2019 are as follows.
 
Number of Loans
 
Pre-Modification Outstanding Recorded Investment
 
Post-Modification Outstanding Recorded Investment
 
 
 
(in thousands)
Three months ended June 30, 2019
 
 
 
 
 
Commercial and industrial
3
 
$
382

 
$
382

Total
3
 
$
382

 
$
382

 
 
 
 
 
 
Six months ended June 30, 2019
 
 
 
 
 
Commercial and industrial
6
 
$
1,235

 
$
1,235

Commercial real estate
2
 
926

 
926

Total
8
 
$
2,161

 
$
2,161

The Company did not forgive any principal on TDRs during the three and six month periods ended June 30, 2019 and 2018, and there were no subsequent defaults of previously identified TDRs.
Atlantic Capital individually rates loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, consumer credit risk scores (FICO scores), rating agency information, LTV ratios, collateral, collection experience, and other internal metrics. Atlantic Capital uses a dual rating system. The likelihood of default of a credit transaction is graded in the Obligor Rating. The risk of loss given default is graded in the Facility Rating. The Obligor Rating is determined through credit analysis. Facility Ratings are used to describe the value to the Company that the collateral represents. Facility Ratings are based on the collateral package or market expectations regarding the value and liquidity of the collateral. Ratings are generally reviewed at least annually or more frequently if there is a material change in creditworthiness. Exceptions to this policy may include well collateralized term loans and loans to individuals with limited exposure or complexity.
Atlantic Capital uses the following definitions for risk ratings:
Pass: Loans that are analyzed individually as part of the above described process and that do not meet the criteria of special mention, substandard or doubtful.
Special Mention: Loans classified as special mention have a potential weakness that requires management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

21


As of June 30, 2019 and December 31, 2018 , and based on the most recent analysis performed, the risk category of loans by class of loans is as follows. Total loans at December 31, 2018 includes loans held for sale - discontinued operations.
 
Pass
 
Special Mention
 
Substandard Accruing
 
Substandard Nonaccruing
 
Doubtful Nonaccruing
 
Total
 
(in thousands)
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
673,022

 
$
5,283

 
$
20,193

 
$
3,068

 
$

 
$
701,566

Commercial real estate
746,832

 
3,663

 
14,509

 
390

 
1,452

 
766,846

Construction and land
198,956

 

 

 

 

 
198,956

Residential mortgages
30,949

 

 

 
238

 
151

 
31,338

Home equity
23,355

 

 
248

 
700

 

 
24,303

Mortgage warehouse
10,665

 

 

 

 

 
10,665

Consumer/Other
58,728

 

 
16

 

 

 
58,744

Total loans
$
1,742,507

 
$
8,946

 
$
34,966

 
$
4,396

 
$
1,603

 
$
1,792,418



 
Pass
 
Special Mention
 
Substandard Accruing
 
Substandard Nonaccruing
 
Doubtful Nonaccruing
 
Total
 
(in thousands)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
671,992

 
$
6,802

 
$
22,777

 
$
832

 
$

 
$
702,403

Commercial real estate
946,612

 
4,754

 
14,914

 
126

 
1,647

 
968,053

Construction and land
169,687

 
40

 
25

 

 

 
169,752

Residential mortgages
118,265

 
1,119

 
1,441

 
1,138

 
281

 
122,244

Home equity
54,707

 
92

 
294

 
499

 

 
55,592

Mortgage warehouse
22,192

 
5,775

 

 

 

 
27,967

Consumer/Other
57,268

 
66

 
97

 
174

 

 
57,605

Total loans
$
2,040,723

 
$
18,648

 
$
39,548

 
$
2,769

 
$
1,928

 
$
2,103,616




22


Atlantic Capital monitors loans by past due status. The following table presents the aging of the recorded investment in past due loans as of June 30, 2019 and December 31, 2018 by class of loans. Total loans at December 31, 2018 includes loans held for sale - discontinued operations.
 
As of June 30, 2019
 
Accruing Current
 
Accruing 30-89
Days
Past Due
 
Accruing
90+ Days
Past Due
 
Nonaccruing
 
Total
 
(in thousands)
Loans by Classification
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
694,552

 
$
3,841

 
$
105

 
$
3,068

 
$
701,566

Commercial real estate
760,588

 
4,416

 

 
1,842

 
766,846

Construction and land
198,956

 

 

 

 
198,956

Residential mortgages
30,949

 

 

 
389

 
31,338

Home equity
23,355

 

 
248

 
700

 
24,303

Mortgage warehouse
10,665

 

 

 

 
10,665

Consumer
58,744

 

 

 

 
58,744

Total Loans
$
1,777,809

 
$
8,257

 
$
353

 
$
5,999

 
$
1,792,418


 
As of December 31, 2018
 
Accruing Current
 
Accruing 30-89
Days
Past Due
 
Accruing
90+ Days
Past Due
 
Nonaccruing
 
Total
 
(in thousands)
Loans by Classification
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
692,308

 
$
8,785

 
$
478

 
$
832

 
$
702,403

Commercial real estate
963,579

 
2,701

 

 
1,773

 
968,053

Construction and land
169,752

 

 

 

 
169,752

Residential mortgages
119,932

 
893

 

 
1,419

 
122,244

Home equity
54,714

 
379

 

 
499

 
55,592

Mortgage warehouse
27,967

 

 

 

 
27,967

Consumer
57,371

 
59

 
1

 
174

 
57,605

Total Loans
$
2,085,623

 
$
12,817

 
$
479

 
$
4,697

 
$
2,103,616



23


NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
The carrying amount of goodwill and other intangible assets as of June 30, 2019 and December 31, 2018 is summarized below:
 
June 30,
 
December 31,
 
2019
 
2018
 
(in thousands)
Core deposit intangible
$
9,544

 
$
9,544

Less: accumulated amortization
(6,100
)
 
(5,853
)
Less: impairment to date related to divested branches
(3,444
)
 
(2,286
)
Core deposit intangible, net - discontinued operations

 
1,405

Servicing assets, net
3,095

 
2,983

Total intangibles subject to amortization, net
3,095

 
4,388

Goodwill - discontinued operations

 
4,555

Goodwill - continuing operations
19,925

 
17,135

Total goodwill and other intangible assets, net
$
23,020

 
$
26,078


Based on a relative fair value analysis performed through the date of the Branch Sale, goodwill impairment in the amount of $1.8 million related to the Branch Sale was recorded during the second quarter of 2019. Goodwill impairment in the amount of $69,000 related to the sale of the trust business was recorded during the second quarter of 2018. The following table presents activity for goodwill and other intangible assets:
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
Goodwill
 
Core Deposit Intangible
 
Total
 
Goodwill
 
Core Deposit Intangible
 
Total
 
 
(in thousands)
2019
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
21,690

 
$
1,158

 
$
22,848

 
$
21,690

 
$
1,405

 
$
23,095

Amortization
 

 

 

 

 
(247
)
 
(247
)
Impairment, due to Branch Sale
 
(1,765
)
 
(1,158
)
 
(2,923
)
 
(1,765
)
 
(1,158
)
 
(2,923
)
Balance, end of period
 
$
19,925

 
$

 
$
19,925

 
$
19,925

 
$

 
$
19,925

 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
21,759

 
$
2,291

 
$
24,050

 
$
21,759

 
$
2,634

 
$
24,393

Amortization
 

 
(319
)
 
(319
)
 

 
(662
)
 
(662
)
Impairment, due to trust business sale
 
(69
)
 

 
(69
)
 
(69
)
 

 
(69
)
Balance, end of period
 
$
21,690

 
$
1,972

 
$
23,662

 
$
21,690

 
$
1,972

 
$
23,662


Atlantic Capital recognized amortization expense on its core deposit intangible of $0 and $247,000 for the three and six months ended June 30, 2019 , respectively, and $319,000 and $662,000 for the three and six months ended June 30, 2018, respectively, which was included in noninterest expense. The Company recorded impairment due to the Branch Sale totaling $1.2 million for the three and six months ended June 30, 2019. There were no events or circumstances that led management to believe that any impairment existed at June 30, 2019 in Atlantic Capital’s other intangible assets.


24


NOTE 8 – SERVICING ASSETS
SBA Servicing Assets
SBA servicing assets are initially recorded at fair value. Subsequently, Atlantic Capital accounts for SBA servicing assets using the amortization method and they are included in other intangibles, net on the Consolidated Balance Sheets. As of June 30, 2019 and December 31, 2018 , the balance of SBA loans sold and serviced by Atlantic Capital totaled $175.9 million and $161.5 million , respectively.
Changes in the balance of servicing assets for the three and six months ended June 30, 2019 and 2018 are presented in the following table .
 
 
 Three months ended June 30,
 
Six months ended June 30,
SBA Loan Servicing Assets
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Beginning carrying value, net
 
$
2,677

 
$
2,872

 
$
2,539

 
$
2,635

Additions
 
327

 
248

 
625

 
619

Amortization
 
(278
)
 
(293
)
 
(438
)
 
(427
)
Impairment
 

 

 

 

             Ending carrying value
 
$
2,726

 
$
2,827

 
$
2,726

 
$
2,827

At June 30, 2019 and December 31, 2018 , the sensitivity of the fair value of the SBA loan servicing assets to immediate changes in key economic assumptions are presented in the table below .
Sensitivity of the SBA Servicing Assets
 
June 30, 2019
 
December 31, 2018
 
 
 
(dollars in thousands)
 
Fair value of retained servicing assets
 
$
2,906

 
$
2,630

 
Weighted average life
 
4.28 years

 
4.83 years

 
Prepayment speed:
 
13.40

%
11.92

%
Decline in fair value due to a 10% adverse change
 
$
(148
)
 
$
(131
)
 
Decline in fair value due to a 20% adverse change
 
$
(250
)
 
$
(223
)
 
Weighted average discount rate
 
12.56

%
14.42

%
Decline in fair value due to a 100 bps adverse change
 
$
(105
)
 
$
(101
)
 
Decline in fair value due to a 200 bps adverse change
 
$
(169
)
 
$
(165
)
 
The above sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on valuation assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.


25


TriNet Servicing Assets
Changes in the balance of TriNet servicing assets for the three and six months ended June 30, 2019 and 2018 are presented in the following table.
 
 
 Three months ended June 30,
 
Six months ended June 30,
TriNet Servicing Assets
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Beginning carrying value, net
 
$
406

 
$
563

 
$
444

 
$
605

Additions
 

 

 

 

Amortization
 
(37
)
 
(40
)
 
(75
)
 
(82
)
Impairment
 

 

 

 

             Ending carrying value
 
$
369

 
$
523

 
$
369

 
$
523

At June 30, 2019 and December 31, 2018 , the sensitivity of the fair value of the TriNet servicing assets to immediate changes in key economic assumptions are presented in the table below .
Sensitivity of the TriNet Servicing Assets
 
June 30, 2019
 
December 31, 2018
 
 
 
(dollars in thousands)
 
Fair value of retained servicing assets
 
$
475

 
$
515

 
Weighted average life
 
6.02 years

 
6.48 years

 
Prepayment speed:
 
5.00

%
5.00

%
Decline in fair value due to a 10% adverse change
 
$
(6
)
 
$
(7
)
 
Decline in fair value due to a 20% adverse change
 
$
(12
)
 
$
(14
)
 
Weighted average discount rate
 
8.00

%
8.00

%
Decline in fair value due to a 100 bps adverse change
 
$
(11
)
 
$
(13
)
 
Decline in fair value due to a 200 bps adverse change
 
$
(21
)
 
$
(25
)
 
The above sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on valuation assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.



26


NOTE 9 – OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) for Atlantic Capital consists of changes in net unrealized gains and losses on investment securities available-for-sale and derivatives.  The following tables present a summary of the changes in accumulated other comprehensive income (loss) balances for the applicable periods.
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30, 2019
 
June 30, 2019
 
Pre-Tax Amount
 
Income Tax (Expense) Benefit
 
After-Tax Amount
 
Pre-Tax Amount
 
Income Tax (Expense) Benefit
 
After-Tax Amount
 
(in thousands)
Accumulated other comprehensive income (loss) beginning of period
$
(3,882
)
 
$
972

 
$
(2,910
)
 
$
(13,743
)
 
$
3,438

 
$
(10,305
)
Unrealized net gains (losses) on investment securities available-for-sale
6,090

 
(1,524
)
 
4,566

 
14,562

 
(3,642
)
 
10,920

Reclassification adjustment for net realized losses on investment securities available-for-sale
(654
)
 
164

 
(490
)
 
(654
)
 
164

 
(490
)
Unrealized net gains (losses) on derivatives
3,220

 
(805
)
 
2,415

 
4,609

 
(1,153
)
 
3,456

Accumulated other comprehensive income (loss) end of period
$
4,774

 
$
(1,193
)
 
$
3,581

 
$
4,774

 
$
(1,193
)
 
$
3,581

 
For the Three Months Ended
 
For the Six Months Ended
 
June 30, 2018
 
June 30, 2018
 
Pre-Tax Amount
 
Income Tax (Expense) Benefit
 
After-Tax Amount
 
Pre-Tax Amount
 
Income Tax (Expense) Benefit
 
After-Tax Amount
 
(in thousands)
Accumulated other comprehensive income (loss) beginning of period
$
(16,705
)
 
$
4,178

 
$
(12,527
)
 
$
(6,274
)
 
$
2,415

 
$
(3,859
)
Reclassification of tax effects from AOCI

 

 

 

 
(844
)
 
(844
)
Unrealized net gains (losses) on investment securities available-for-sale
(2,386
)
 
597

 
(1,789
)
 
(10,937
)
 
2,734

 
(8,203
)
Reclassification adjustment for net realized losses on investment securities available-for-sale
2

 
(1
)
 
1

 
2

 
(1
)
 
1

Unrealized net gains (losses) on derivatives
(736
)
 
184

 
(552
)
 
(2,616
)
 
654

 
(1,962
)
Accumulated other comprehensive income (loss) end of period
$
(19,825
)
 
$
4,958

 
$
(14,867
)
 
$
(19,825
)
 
$
4,958

 
$
(14,867
)





27


NOTE 10 – EARNINGS PER COMMON SHARE
Basic earnings per share amounts are computed by dividing net income by the weighted average number of shares of common stock outstanding.
Diluted earnings per share amounts are computed by dividing net income by the weighted average number of shares of common stock outstanding and the dilutive effects of the shares awarded under the stock option plan, based on the treasury stock method using an average fair market value of the stock during the respective periods.
The following table represents the earnings per share calculations for the three and six months ended June 30, 2019 and 2018 .
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
(in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
Net income from continuing operations
 
$
7,009

 
$
8,378

 
$
13,449

 
$
13,569

Net income (loss) from discontinued operations
 
22,143

 
(227
)
 
21,080

 
(380
)
Net income available to common shareholders
 
$
29,152

 
$
8,151

 
$
34,529

 
$
13,189

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
Basic (1)
 
23,888,381

 
26,010,914

 
24,369,106

 
25,881,587

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options, warrants and performance share awards
 
152,425

 
189,112

 
158,286

 
192,015

Diluted
 
24,040,806

 
26,200,026

 
24,527,392

 
26,073,602

 
 
 
 
 
 
 
 
 
Net income (loss) per common share - basic
 
 
 
 
 
 
 
 
Net income per common share - continuing operations
 
$
0.29

 
$
0.32

 
$
0.55

 
$
0.52

Net income (loss) per common share - discontinued operations
 
0.93

 
(0.01
)
 
0.87

 
(0.01
)
Net income per common share - basic
 
1.22

 
0.31

 
1.42

 
0.51

Net income (loss) per common share - diluted
 
 
 
 
 
 
 
 
Net income per common share - continuing operations
 
$
0.29

 
$
0.32

 
$
0.55

 
$
0.52

Net income (loss) per common share - discontinued operations
 
0.92

 
(0.01
)
 
0.86

 
(0.01
)
Net income per common share - diluted
 
1.21

 
0.31

 
1.41

 
0.51

(1) Unvested restricted shares are participating securities and included in basic share calculations.
 
 
 
 
Stock options outstanding of 150 at June 30, 2019 and 244 at June 30, 2018 have not been included in diluted earnings per share because to do so would have been anti-dilutive for the periods presented. These awards were considered anti-dilutive because the exercise price of the award was higher than the market value of the shares.
The Amended and Restated Articles of Incorporation of Atlantic Capital authorize Atlantic Capital to issue 110,000,000 shares of capital stock, of which 10,000,000 shares are designated as preferred stock, no par value per share, and 100,000,000 shares are designated as common stock, no par value per share. At June 30, 2019 , 23,293,465 shares of common stock were issued and outstanding. At December 31, 2018 , 25,290,419 shares of common stock were issued and outstanding.
The primary source of funds available to Atlantic Capital is payments of dividends from the Bank. The Bank paid dividends totaling $26.5 million to Atlantic Capital during the three and six months ended June 30, 2019 . No dividends were paid by the Bank during the three or six months ended June 30, 2018. During the fourth quarter of 2018, the Bank paid a dividend totaling $30.0 million . Banking laws and other regulations limit the amount of dividends a bank subsidiary may pay without prior regulatory approval. Additionally, Atlantic Capital’s ability to pay dividends to its shareholders will depend on the ability of the Bank to pay dividends to Atlantic Capital. The Bank is subject to regulatory restrictions on the payment of cash dividends, which generally may be paid only from current earnings.
On November 14, 2018, the Board of Directors authorized a stock repurchase program pursuant to which the Company may purchase up to $85 million of its issued and outstanding common stock. The timing and amounts of any repurchases depend on certain factors, including but not limited to market conditions and prices, available funds and alternative uses of capital. The stock repurchase program may be carried out through open-market purchases, block trades, negotiated private transactions and pursuant to a trading plan that was adopted in accordance with Rule 10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934. Atlantic Capital repurchased 1,121,221 and 2,078,516 shares during the three and six months ended June 30, 2019 for a total of

28


$19.5 million and $36.6 million , respectively. Since the announcement of the $85.0 million buyback program in November of 2018, Atlantic Capital has repurchased 2.9 million shares totaling $50.8 million .
NOTE 11 – DERIVATIVES AND HEDGING
Risk Management
Atlantic Capital’s objectives in using interest rate derivatives are to add stability to net interest revenue and to manage its exposure to interest rate movements. To accomplish these objectives, Atlantic Capital primarily uses interest rate swaps as part of its interest rate risk management strategy.
Cash Flow Hedges
At June 30, 2019 , Atlantic Capital’s interest rate swaps designated as cash flow hedges involve the payment of floating-rate amounts to a counterparty in exchange for receiving fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. At June 30, 2019 and December 31, 2018 , Atlantic Capital had interest rate swaps designated as cash flow hedges with aggregate notional amounts of $175.0 million and $100.0 million , respectively.
No hedge ineffectiveness gains or losses were recognized on active cash flow hedges for the three and six months ended June 30, 2019 and 2018 . The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Atlantic Capital expects that approximately $24,000 will be reclassified as an increase to loan interest income over the next twelve months related to these cash flow hedges.
Customer Swaps
Atlantic Capital also enters into derivative contracts, which consist of interest rate swaps, to facilitate the needs of customers desiring to manage interest rate risk. These swaps are not designated as accounting hedges under ASC 815, Derivatives and Hedging . To economically hedge the interest rate risk associated with offering this product, Atlantic Capital simultaneously enters into derivative contracts with third parties to offset the customer contracts, such that Atlantic Capital minimizes its net risk exposure resulting from such transactions. The derivative contracts are structured such that the notional amounts reduce over time to generally match the expected amortization of the underlying loans. These derivatives are not speculative and arise from a service provided to clients.
Atlantic Capital’s derivative instruments are recorded at fair value in other assets and accrued interest receivable and other liabilities and accrued interest payable in the Consolidated Balance Sheets. The changes in the fair value of the derivative instruments are recognized in derivatives income in the Consolidated Statements of Income. At June 30, 2019 and December 31, 2018 , Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of $93.8 million and $109.5 million , respectively.
Atlantic Capital acquired a loan level hedging program, which First Security Group, Inc. (“First Security”) utilized to accommodate clients preferring a fixed rate loan. The loan documents include an addendum with a zero premium collar. The zero premium collar is a cap and a floor at the same interest rate, resulting in a fixed rate to the borrower. To hedge this embedded option, First Security entered into a dealer facing trade exactly mirroring the terms in the loan addendum. At June 30, 2019 and December 31, 2018 , Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of $152.7 million and $166.8 million , respectively.
Counterparty Credit Risk
As a result of its derivative contracts, Atlantic Capital is exposed to credit risk. Specifically approved counterparties and exposure limits are defined. Quarterly, the customer derivative contracts and related counterparties are evaluated for credit risk and an adjustment is made to the contract’s fair value. This adjustment is recognized in the Consolidated Statements of Income.
Most derivative contracts with clients are secured by collateral. Additionally, in accordance with the interest rate agreements with derivatives dealers, Atlantic Capital may be required to post margin to these counterparties. At June 30, 2019 and December 31, 2018 , Atlantic Capital had minimum collateral posting thresholds with certain of its derivative counterparties and posted collateral of $5.9 million and $5.1 million , respectively, against its obligations under these agreements. Cash collateral related to derivative contracts is recorded in other assets in the Consolidated Balance Sheets.
Atlantic Capital has master netting agreements with the derivatives dealers with which it does business, but reflects gross assets and liabilities on the Consolidated Balance Sheets.
In conjunction with the FASB’s fair value measurement guidance, management made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting arrangements on a net basis.
To accommodate clients, Atlantic Capital occasionally enters into credit risk participation agreements with counterparty banks to accept a portion of the credit risk related to interest rate swaps. This allows clients to execute an interest rate swap with one bank while allowing for distribution of the credit risk among participating members. Credit risk participation agreements arise when

29


Atlantic Capital contracts with other financial institutions, as a guarantor, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third party default on the underlying swap. At June 30, 2019 and December 31, 2018 , Atlantic Capital had credit risk participation agreements with a notional amount of $8.6 million and $9.5 million , respectively.
The following table reflects the estimated fair value positions of derivative contracts and credit risk participation agreements as of June 30, 2019 and December 31, 2018 :
Derivatives designated as hedging instruments under ASC 815
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
 
 
 
June 30, 2019
 
December 31, 2018
Interest Rate Products
 
Balance Sheet Location
 
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
Cash flow hedge of LIBOR based loans
 
 Other assets
 
$
125,000

 
$
3,495

 
$

 
$

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

 
$
102

 
$
100,000

 
$
2,029

 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments under ASC 815
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
 
 
 
June 30, 2019
 
December 31, 2018
Interest Rate Products
 
Balance Sheet Location
 
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
Customer swap positions
 
 Other assets
 
$
46,917

 
$
1,040

 
$
54,760

 
$
756

Zero premium collar
 
 Other assets
 
76,348

 
4,001

 
83,385

 
1,205

 
 
 
 
$
123,265

 
$
5,041

 
$
138,145

 
$
1,961

 
 
 
 
 
 
 
 
 
 
 
Dealer offsets to customer swap positions
 
 Other liabilities
 
$
46,917

 
$
1,119

 
$
54,760

 
$
770

Dealer offset to zero premium collar
 
 Other liabilities
 
76,348

 
4,298

 
83,385

 
1,226

Credit risk participation
 
 Other liabilities
 
8,594

 
6

 
9,532

 
2

 
 
 
 
$
131,859

 
$
5,423

 
$
147,677

 
$
1,998

The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018 .
Derivatives not designated as hedging instruments under ASC 815
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
 
Location of Gain or (Loss) Recognized in Income on Derivative
 
Amount of Gain or (Loss) Recognized in Income on Derivative
 
Amount of Gain or (Loss) Recognized in Income on Derivative
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2019
 
2018
 
2019
 
2018
Interest rate products
 
Other income / (expense)
 
$
(231
)
 
$
14

 
$
(341
)
 
$
122

Other contracts
 
Other income / (expense)
 
(2
)
 
1

 
(3
)
 
4

Total
 
 
 
$
(233
)
 
$
15

 
$
(344
)
 
$
126

 
 
 
 
 
 
 
 
 
 
 
Fee income
 
Other income / (expense)
 
$

 
$
5

 
$

 
$
8

The following table reflects the impact to the Consolidated Statements of Income related to derivative contracts for the three and six months ended June 30, 2019 and 2018 :
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
 
 Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
 
 Gain or (Loss) Reclassified from Accumulated OCI in Income (Effective Portion)
 
 Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
 
 Gain or (Loss) Reclassified from Accumulated OCI in Income (Effective Portion)
 
 
2019
 
2018
 
Location
 
2019
 
2018
 
2019
 
2018
 
Location
 
2019
 
2018
Interest rate swaps
 
$
1,823

 
$
(717
)
 
Interest income
 
$
(8
)
 
$
19

 
$
3,091

 
$
(2,495
)
 
Interest income
 
$
(129
)
 
$
121


30


NOTE 12 – OTHER BORROWINGS AND LONG TERM DEBT
There were no Federal Home Loan Bank borrowings outstanding as of December 31, 2018 . Federal Home Loan Bank borrowings as of June 30, 2019 are as follows:
 
June 30, 2019
 
Balance
 
Interest Rate
 
(in thousands)
FHLB short-term borrowings:
 
 
 
Fixed rate advance maturing July 8, 2019
$
45,000

 
2.36
%
Fixed rate advance maturing July 9, 2019
37,000

 
2.35
%
Total
$
82,000

 
 
Interest expense for FHLB borrowings for the three and six months ended June 30, 2019 was $270,000 . Interest expense for FHLB borrowings for the three and six months ended June 30, 2018 was $766,000 and $1.3 million , respectively.
At June 30, 2019 , the Company had available line of credit commitments with the FHLB totaling $856.7 million , with $82.0 million in outstanding FHLB advances. However, based on actual collateral pledged, $202.1 million was available. At June 30, 2019 , the Company had an available line of credit based on the collateral available of $432.8 million with the Federal Reserve Bank of Atlanta. Interest expense on federal funds purchased for the three and six months ended June 30, 2019 totaled $168,000 and $286,000 , respectively, and $88,000 and $168,000 for the three and six months ended June 30, 2018, respectively.
On September 28, 2015, Atlantic Capital issued subordinated notes (the “Notes”) totaling $50.0 million in aggregate principal amount. The Notes are due September 30, 2025 and bear a fixed rate of interest of 6.25% per year until September 29, 2020. From September 30, 2020 to the maturity date, the interest rate will be a floating rate equal to the three-month LIBOR plus 468 basis points. The Notes were priced at 100% of their par value. The Notes qualify as Tier 2 regulatory capital.
Subordinated debt is summarized as follows:
 
 
June 30, 2019
 
December 31, 2018
 
 
(in thousands)
Floating rate 10 year capital securities, with interest paid semi-annually at an annual fixed rate of 6.25% until September 30, 2020
 
$
50,000

 
$
50,000

Principal amount of subordinated debt
 
$
50,000

 
$
50,000

Less debt issuance costs
 
 
211

 
 
296

Subordinated debt, net
 
$
49,789

 
$
49,704

All subordinated debt outstanding at June 30, 2019 matures after more than five years.
NOTE 13 – SHARE-BASED COMPENSATION
Atlantic Capital sponsors a stock incentive plan for the benefit of directors and employees. Under the Company’s 2015 Stock Incentive Plan (as amended and restated effective May 16, 2018), there were approximately 4,525,000 shares reserved for issuance to directors and employees. The Compensation Committee has the authority to grant the following: an incentive or nonqualified option; a restricted stock award (including a restricted stock award or a restricted unit award); a performance award (including a performance share award or a performance unit award); a phantom stock award; a dividend equivalent award; or any other award granted under the plan.
As of June 30, 2019 , approximately 3,379,000 additional awards were available to be granted under the plan. Stock options are granted at a price which is no less than the fair market value of a share of Atlantic Capital common stock on the grant date. Stock options generally vest over three years and expire after ten years.

31


The Company estimates the fair value of its options awards using the Black-Scholes option pricing model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The table below summarizes the assumptions used to calculate the fair value of options granted/modified during the six months ended June 30, 2019 and 2018:
 
 
For the six months ended June 30,
 
 
2019
 
2018
Risk‑free interest rate
 
2.27
%
 
1.66
%
Expected term in years
 
1.73-1.82

 
0.25

Expected stock price volatility
 
26.8
%
 
24.2
%
Dividend yield
 
%
 
%
The following table represents stock option activity for the six months ended June 30, 2019 :
 
Shares
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2018
442,454

 
$
12.02

 
 
 
 
Granted/modified (1)
12,500

 
10.00

 
 
 
 
Exercised
(41,920
)
 
11.48

 
 
 
 
Forfeited (1)
(38,500
)
 
13.17

 
 
 
 
Expired
(7,594
)
 
12.43

 
 
 
 
Outstanding, June 30, 2019
366,940

 
$
11.87

 
2.59
 
$
1,934

 
 
 
 
 
 
 
 
Exercisable, June 30, 2019
346,940

 
$
11.69

 
2.37
 
$
1,891

 
 
 
 
 
 
 
 
(1) During the six months ended June 30, 2019, the Company modified options for 12,500 shares. The modifications are included as shares granted/modified and as shares forfeited in this table.
Atlantic Capital recognized compensation expense relating to stock options of $52,000 and $133,000 for the three and six months ended June 30, 2019 , respectively, and $40,000 and $98,000 for the three and six months ended June 30, 2018 , respectively. Using the Black-Scholes pricing model, the amount of compensation expense was determined based on the fair value of the options at the time of grant, multiplied by the number of options granted that were expected to vest, which was then amortized over the vesting period. In April 2018, the Company granted performance share awards to members of executive management under Atlantic Capital’s Long Term Incentive Plan (“LTIP”). The Company also granted restricted stock awards to certain employees and directors in 2019 under the 2015 Stock Incentive Plan.
The following table represents restricted stock and performance share award activity for the six months ended June 30, 2019 :
 
Shares
 
Weighted Average Grant-Date Fair Value
Outstanding, December 31, 2018
272,695

 
$
18.09

Granted/modified (1)
130,093

 
19.54

Exercised
(64,011
)
 
16.54

Forfeited (1)
(65,750
)
 
18.38

Outstanding, June 30, 2019
273,027

 
$
19.07

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

32


Compensation expense for restricted stock is based on the fair value of restricted stock awards at the time of grant, which is equal to the value of Atlantic Capital’s common stock on the date of grant. Compensation expense for performance share awards is based on the fair value of Atlantic Capital’s stock at the grant date adjusted for market conditions, as well as the subsequent achievement of performance conditions over the vesting period. The value of restricted stock and performance share grants that are expected to vest is amortized into expense over the vesting period. For the three months ended June 30, 2019 and 2018, compensation expense of $216,000 and $413,000 , respectively, was recognized related to restricted stock and performance share awards. For the six months ended June 30, 2019 and 2018, compensation expense of $707,000 and $814,000 , respectively, was recognized related to restricted stock and performance share awards.
As of June 30, 2019 , there was $ 2.4 million of unrecognized compensation cost related to restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted-average period of 2.17 years.
During the six months ended June 30, 2019, the Company modified options for 12,500 shares and 4,719 restricted stock awards to two individuals. The modifications allowed for the immediate vesting of the awards upon termination of service. The total incremental cost resulting from the modifications was $31,000 for the six months ended June 30, 2019.
NOTE 14 – FAIR VALUE MEASUREMENTS
Atlantic Capital follows the guidance pursuant to ASC 820-10, Fair Value Measurements and Disclosures . This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This issuance applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. Atlantic Capital measures its investment securities and interest rate derivative assets and liabilities at fair value on a recurring basis. Fair value is used on a nonrecurring basis either when assets are evaluated for impairment or for disclosure purposes. Atlantic Capital measures its servicing assets, goodwill, intangible assets, SBIC investments, loans held for sale, impaired loans and other real estate owned at fair value on a nonrecurring basis if necessary.
The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement and defines fair value as the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, this guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Atlantic Capital applied the following fair value hierarchy:
Level 1 – Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts.
Level 2 – Assets or liabilities valued based on observable market data for similar instruments.
Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market, instruments valued based on the best available data, some of which is internally-developed, and risk premiums that a market participant would require.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement. There were no transfers between Level 1 and Level 2 or Level 2 and Level 3 during the three or six months ended June 30, 2019 and 2018.
Atlantic Capital records investment securities available-for-sale at fair value on a recurring basis. Investment securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. For these securities, Atlantic Capital obtains fair value measurements from an independent pricing service. In estimating the fair values for investment securities, Atlantic Capital believes that independent third-party market prices are the best evidence of an exit price. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the Treasury Department yield curve, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things.
Derivative instruments are primarily transacted as over-the-counter trades and priced with observable market assumptions. Ongoing measurements include observable market assumptions with appropriate valuation adjustments for liquidity and for credit risk of counterparties and Atlantic Capital’s own credit. For these instruments, Atlantic Capital obtains fair value measurements from an independent pricing service. The fair value measurements consider factors such as the likelihood of default by Atlantic Capital and its counterparties, total exposure and remaining maturities in determining the appropriate fair value adjustments to record.

33


Generally, the expected loss of each client counterparty is estimated using Atlantic Capital’s internal risk rating system. For financial institution counterparties that are rated by national rating agencies, those ratings are used in determining the credit risk. This approach used to estimate exposures to counterparties is also used by Atlantic Capital to estimate its own credit risk on derivative liability positions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

 
Fair Value Measurements at June 30, 2019 Using:
 
Quoted Prices in
Active Markets for
Identical Securities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
(in thousands)
Securities available-for-sale—
 
 
 
 
 
 
 
U.S. government agencies
$

 
$
21,863

 
$

 
$
21,863

U.S. states and political subdivisions

 
78,846

 

 
78,846

Trust preferred securities

 
4,562

 

 
4,562

Corporate debt securities

 
9,653

 

 
9,653

Mortgage-backed securities

 
233,799

 

 
233,799

Total securities available-for-sale
$

 
$
348,723

 
$

 
$
348,723

Interest rate derivative assets
$

 
$
8,536

 
$

 
$
8,536

Interest rate derivative liabilities
$

 
$
5,525

 
$

 
$
5,525


 
Fair Value Measurements at December 31, 2018 Using:
 
Quoted Prices in
Active Markets for
Identical Securities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
(in thousands)
Securities available-for-sale—
 
 
 
 
 
 
 
U.S. government agencies
$

 
$
26,849

 
$

 
$
26,849

U.S. states and political subdivisions

 
84,834

 

 
84,834

Trust preferred securities

 
4,400

 

 
4,400

Corporate debt securities

 
12,363

 

 
12,363

Mortgage-backed securities

 
274,040

 

 
274,040

Total securities available-for-sale
$

 
$
402,486

 
$

 
$
402,486

Interest rate derivative assets
$

 
$
1,961

 
$

 
$
1,961

Interest rate derivative liabilities
$

 
$
4,027

 
$

 
$
4,027

 

For the six months ended June 30, 2019 and 2018 , there was not a change in the methods and significant assumptions used to estimate fair value.


34


Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The following table presents the assets that were measured at fair value on a nonrecurring basis by level within the fair value hierarchy as reported in the Consolidated Balance Sheets at June 30, 2019 and December 31, 2018 .
June 30, 2019
 
Level 1
Fair Value
Measurement
 
Level 2
Fair Value
Measurement
 
Level 3
Fair Value
Measurement
 
Total
 
 
(in thousands)
Impaired Loans
 
$

 
$

 
$
1,842

 
$
1,842

SBIC Investments
 

 

 
4,433

 
4,433

Totals
 
$

 
$

 
$
6,275

 
$
6,275

December 31, 2018
 
Level 1
Fair Value
Measurement
 
Level 2
Fair Value
Measurement
 
Level 3
Fair Value
Measurement
 
Total
 
 
(in thousands)
Impaired Loans
 
$

 
$

 
$
1,836

 
$
1,836

Level 3 loans consist of impaired loans which have been partially charged-off or have specific valuation allowances. The fair value of Level 3 assets is estimated based on the underlying collateral value. For loans which the cash proceeds from the sale of the underlying collateral is the expected source of repayment, the fair value of these loans was derived from internal estimates of the underlying collateral incorporating market data, including third party appraisals or evaluations, when available. Appraised values may be discounted based on management’s assessment of the level of inactivity in the real estate market and other markets for the underlying collateral, changes in market conditions from the time of the valuation, and other information that in management’s judgment may affect the value. Impaired loans are evaluated on at least a quarterly basis and adjusted accordingly.
Assets and Liabilities Not Measured at Fair Value
For financial instruments that have quoted market prices, those quotes are used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, are assumed to have a fair value that approximates the reported book value, after taking into consideration any applicable credit risk. If no market quotes are available, financial instruments are valued by discounting the expected cash flows using an estimated current market interest rate for the financial instrument. For loans held for investment, fair value is measured using the exit price notion. For off-balance sheet derivative instruments, fair value is estimated as the amount that Atlantic Capital would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts.
The short maturity of Atlantic Capital’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and due from banks, interest-bearing deposits in other banks, other short-term investments, and FHLB stock. The fair value of securities available-for-sale equals the balance sheet value. Due to the short-term settlement of accrued interest receivable and payable, the carrying amount closely approximates fair value.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect the premium or discount on any particular financial instrument that could result from the sale of Atlantic Capital’s entire holdings. Because no ready market exists for a significant portion of Atlantic Capital’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Off-balance sheet financial instruments (commitments to extend credit and standby letters of credit) are generally short-term and at variable rates. Therefore, both the carrying amount and the estimated fair value associated with these instruments are immaterial.

35


The following table presents the estimated fair values of Atlantic Capital’s financial instruments at June 30, 2019 and December 31, 2018 .
 
Fair Value Measurements at June 30, 2019 Using:
 
Carrying
Value
 
Quoted Prices in Active markets for Identical Securities (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
(in thousands)
Financial assets
 
 
 
 
 
 
 
Cash and due from banks
$
24,206

 
$
24,206

 
$

 
$

Interest bearing deposits in banks
52,932

 
52,932

 

 

Total securities available-for-sale
348,723

 

 
348,723

 

FHLB stock
6,165

 

 

 
6,165

Federal Reserve Bank stock
9,939

 

 

 
9,939

Loans held for investment, net
1,771,554

 

 

 
1,810,480

Derivative assets
8,536

 

 
8,536

 

Financial liabilities
 
 
 
 
 
 
 
Deposits
$
1,851,531

 
$

 
$
1,796,404

 
$

Federal funds purchased
35,000

 
35,000

 

 

Subordinated debt
49,789

 

 
50,083

 

FHLB advances
82,000

 

 
82,196

 

Derivative financial instruments
5,525

 

 
5,525

 

 
Fair Value Measurements at December 31, 2018 Using:
 
Carrying
Value
 
Quoted Prices in Active markets for Identical Securities (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
(in thousands)
Financial assets
 
 
 
 
 
 
 
Cash and due from banks
$
42,895

 
$
42,895

 
$

 
$

Interest-bearing deposits in other banks
216,040

 
216,040

 

 

Other short-term investments
9,457

 
9,457

 

 

Total securities available-for-sale
402,486

 

 
402,486

 

FHLB stock
2,622

 

 

 
2,622

Federal Reserve Bank stock
9,906

 

 

 
9,906

Loans held for investment, net
1,710,222

 

 

 
1,740,438

Loans held for sale
5,889

 

 
5,889

 

Loans held for sale - discontinued operations
373,030

 

 
373,030

 

Derivative assets
1,961

 

 
1,961

 

Financial liabilities
 
 
 
 
 
 
 
Deposits
$
1,952,514

 
$

 
$
1,830,673

 
$

Deposits to be assumed - discontinued operations
585,429

 

 
585,429

 

Securities sold under agreements to repurchase - discontinued operations
6,220

 
6,220

 

 

Subordinated debt
49,704

 

 
48,960

 

Derivative financial instruments
4,027

 

 
4,027

 


36


NOTE 15 – COMMITMENTS AND CONTINGENCIES
Atlantic Capital is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit, most of which are standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract amounts of these instruments reflect the extent of involvement Atlantic Capital has in particular classes of financial instruments.
Standby letters of credit are written conditional commitments issued by Atlantic Capital to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. Most letters of credit expire in less than one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Atlantic Capital’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. Atlantic Capital uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Atlantic Capital’s maximum exposure to credit risk for unfunded loan commitments and standby letters of credit at June 30, 2019 and December 31, 2018 was as follows:
 
June 30,
2019
 
December 31,
2018
 
(in thousands)
Financial Instruments whose contract amount represents credit risk:
 
Commitments to extend credit
$
628,801

 
$
715,591

Standby letters of credit
8,758

 
15,650

 
$
637,559

 
$
731,241

 
 
 
 
Minimum lease payments
$
17,220

 
$
22,014

The Company also had commitments related to investments in SBICs totaling $2.9 million and $3.2 million at June 30, 2019 and December 31, 2018, respectively.
From time to time, Atlantic Capital, in the normal course of business, is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Although it is not possible to predict the outcome of these lawsuits, or the range of any possible loss, management, after consultation with legal counsel, does not anticipate that the ultimate aggregate liability, if any, arising from these lawsuits will have a material adverse effect on Atlantic Capital’s financial position or results of operations.
NOTE 16 – REVENUE RECOGNITION
On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. As stated in Note 2, Accounting Standards Updates and Recently Adopted Standards , the implementation of the new standard did not result in any significant changes to the Company’s methodology of recognizing revenue; as such, the Company recorded an immaterial cumulative effect adjustment to first quarter 2018 opening retained earnings. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605.
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with financial guarantees and derivatives are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as service charges on deposit accounts and trust and asset management income. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams within the scope of Topic 606 are discussed below.

37


Service Charges on Deposit Accounts
Service charges represent general service fees for monthly account maintenance and activity, or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed, such as a wire transfer or ATM withdrawal. Payment for such performance obligations are generally received at the time the performance obligations are satisfied. The following table presents service charges by type of service provided for the three and six months ended June 30, 2019 and 2018:
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Deposit account analysis fees and charges
 
$
676

 
$
550

 
$
1,222

 
$
1,036

ATM fees
 
(8
)
 
56

 
39

 
106

NSF fees
 
8

 
28

 
22

 
66

Wire fees
 
102

 
102

 
212

 
193

Foreign exchange fees
 
92

 
89

 
165

 
126

Other
 

 
3

 
4

 
8

Total service charges - continuing operations
 
870

 
828

 
1,664

 
1,535

Service charges - discontinued operations
 
46

 
480

 
527

 
965

Total service charges
 
$
916

 
$
1,308

 
$
2,191

 
$
2,500

Trust and Asset Management
Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. During the second quarter of 2018, Atlantic Capital sold its trust business, Southeastern Trust Company. The following table presents trust income by type of service provided for the three and six months ended June 30, 2018 :
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Personal trust and agency accounts
 
$

 
$
303

 
$

 
$
616

Employee benefit and retirement-related trust and agency accounts
 

 
60

 

 
120

Investment management and investment advisory agency accounts
 

 
110

 

 
217

Custody and safekeeping accounts
 

 
13

 

 
26

Other
 

 
21

 

 
46

 
 
$

 
$
507

 
$

 
$
1,025

Other
Other noninterest income consists of other recurring revenue streams such as check printing income, safety deposit box rental fees, and other miscellaneous revenue streams. Check printing income is recognized ratably over the contract period as the Company satisfies its performance obligation to sell a specific number of check packages. Safe deposit box rental fees are charged to the customer annually and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.

38


Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of June 30, 2019 and December 31, 2018 , the Company did not have any significant contract balances.
NOTE 17 – LEASES
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02  “Leases” (Topic 842)  and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.
Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on the Consolidated Balance Sheets. The Company does not currently have any significant finance leases in which it is the lessee.
Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. ROU assets are further adjusted for lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the Consolidated Statements of Income.
The Company’s leases relate primarily to office space and bank branches with remaining lease terms of generally  1  to  12 years . Certain lease arrangements contain extension options which typically range from  5  to  10 years  at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. Portions of certain properties are subleased for terms extending through 2024. As of June 30, 2019 , operating lease ROU assets and liabilities were  $10.4 million  and  $14.4 million , respectively. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) on the Consolidated Balance Sheets.  Additionally, the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component.
The table below summarizes the Company’s net lease cost:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2019
 
June 30, 2019
 
 
(in thousands)
Operating lease cost
 
$
461

 
$
1,126

Short-term lease cost
 
12

 
26

Sublease income
 
(42
)
 
(116
)
Net lease cost
 
$
431

 
$
1,036


39


The tables below summarize other information related to the Company’s operating leases:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2019
 
June 30, 2019
 
 
(in thousands)
Operating cash paid for amounts included in the measurement of lease liabilities
 
$
522

 
$
1,043

Right-of-use assets obtained in exchange for new finance lease liabilities
 
716

 
15,207

 
 
June 30, 2019
Weighted-average remaining lease term - operating leases
 
9.2 years

 
 
 
Weighted-average discount rate - operating leases
 
3.3
%

The table below summarizes the maturity of remaining lease liabilities:
 
 
June 30, 2019
Twelve Months Ended:
 
(in thousands)
June 30, 2020
 
$
2,227

June 30, 2021
 
1,886

June 30, 2022
 
1,935

June 30, 2023
 
1,780

June 30, 2024
 
1,523

Thereafter
 
7,869

Total future minimum lease payments
 
17,220

Less: Interest
 
(2,777
)
Present value of net future minimum lease payments
 
$
14,443

On April 5, 2019, Atlantic Capital completed the sale to FirstBank of its Tennessee and northwest Georgia banking operations, including 14 branches. Eight of these properties were owned by Atlantic Capital and six were leased. The Company’s ROU asset and lease liability were reduced during the second quarter of 2019 by $3.6 million and $4.1 million , respectively, as a result of this divestiture.

40


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Atlantic Capital Bancshares, Inc. (the “Company” 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:
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;
the funding impact from the loss of deposits following the sale of our Tennessee and northwest Georgia branches;
our strategic decision to focus on the greater Atlanta market may not positively impact our financial condition in the expected timeframe, or at all;
costs associated with our growth and hiring initiatives in the Atlanta market area;
risks associated with increased geographic concentration, borrower concentration and concentration in commercial real estate and commercial and industrial loans resulting from our exit of the Tennessee and northwest Georgia markets and our strategic realignment;
changes in asset quality and credit risk;
the cost and availability of capital;
customer acceptance of our products and services;
customer borrowing, repayment, investment and deposit practices;
the introduction, withdrawal, success and timing of business initiatives;
the impact, extent, and timing of technological changes;
severe catastrophic events in our geographic area;
a weakening of the economies in which we conduct operations may adversely affect our operating results;
the U.S. legal and regulatory framework could adversely affect the operating results of the Company;
the interest rate environment may compress margins and adversely affect net interest income;
our ability to anticipate or respond to interest rate changes correctly and manage interest rate risk presented through unanticipated changes in our interest rate risk position and/or short- and long-term interest rates;
changes in trade, monetary and fiscal policies of various governmental bodies and central banks could affect the economic environment in which we operate;
our ability to determine accurate values of certain assets and liabilities;
adverse developments in securities, public debt, and capital markets, including changes in market liquidity and volatility;
unanticipated changes in our liquidity position, including but not limited to our ability to enter the financial markets to manage and respond to any changes to our liquidity position;
the impact of the transition from LIBOR and our ability to adequately manage such transition;
adequacy of our risk management program;

41


increased competitive pressure due to consolidation in the financial services industry;
risks related to security breaches, cybersecurity attacks, and other significant disruptions in our information technology systems;
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
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.”
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.

42


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.

43


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
 
INCOME SUMMARY (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income (2)
 
$
26,686

 
$
26,297

 
$
26,725

 
$
24,114

 
$
22,934

 
$
52,983

 
$
44,316

 
Interest expense
 
6,709

 
5,773

 
5,560

 
4,720

 
4,392

 
12,482

 
8,233

 
Net interest income
 
19,977

 
20,524

 
21,165

 
19,394

 
18,542

 
40,501

 
36,083

 
Provision for loan losses
 
698

 
814

 
502

 
845

 
(173
)
 
1,512

 
599

 
Net interest income after provision for loan losses
 
19,279

 
19,710

 
20,663

 
18,549

 
18,715

 
38,989

 
35,484

 
Noninterest income
 
2,941

 
2,336

 
164

 
2,255

 
4,466

 
5,277

 
7,628

 
Noninterest expense
 
13,254

 
13,795

 
12,208

 
11,872

 
12,623

 
27,049

 
25,911

 
    Income from continuing operations before income taxes
 
8,966

 
8,251

 
8,619

 
8,932

 
10,558

 
17,217

 
17,201

 
Income tax expense
 
1,957

 
1,811

 
1,136

 
1,934

 
2,180

 
3,768

 
3,632

 
Net income from continuing operations
 
7,009

 
6,440

 
7,483

 
6,998

 
8,378

 
13,449

 
13,569

 
Income (loss) from discontinued operations, net of tax
 
22,143

 
(1,063
)
 
1,347

 
(485
)
 
(227
)
 
21,080

 
(380
)
 
Net income
 
$
29,152

 
$
5,377

 
$
8,830

 
$
6,513

 
$
8,151

 
$
34,529

 
$
13,189

 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
   
 
PER SHARE DATA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share - continuing operations
 
$
0.29

 
$
0.26

 
$
0.29

 
$
0.27

 
$
0.32

 
$
0.55

 
$
0.52

 
Basic earnings (loss) per share - discontinued operations
 
0.93

 
(0.04
)
 
0.05

 
(0.02
)
 
(0.01
)
 
0.87

 
(0.01
)
 
Basic earnings (loss) per share
 
1.22

 
0.22

 
0.34

 
0.25

 
0.31

 
1.42

 
0.51

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share - continuing operations
 
$
0.29

 
$
0.26

 
$
0.29

 
$
0.27

 
$
0.32

 
$
0.55

 
$
0.52

 
Diluted earnings (loss) per share - discontinued operations
 
0.92

 
(0.04
)
 
0.05

 
(0.02
)
 
(0.01
)
 
0.86

 
(0.01
)
 
Diluted earnings (loss) per share
 
1.21

 
0.21

 
0.34

 
0.25

 
0.31

 
1.41

 
0.51

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PERFORMANCE MEASURES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average equity
 
34.38

%
6.80

%
10.90

%
8.07

%
10.46

%
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASSET QUALITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.

44


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.

45


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
%

46


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.

47


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.

48


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.


49


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.

50


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.

51


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.

52


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.

53


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

 
 

54


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.


55


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.

56


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.

57


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.


58


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
%
 
 
 
 

59


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

60


other comprehensive income, which includes unrealized gains and losses on securities available-for-sale and unrealized gains and losses on derivatives qualifying as cash flow hedges, is excluded in the calculation of regulatory capital ratios.
Table 12 - Capital Ratios
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 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

61


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.

62


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.


63


ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in Part I, Item 2 of this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Risk Management.”

ITEM 4.
CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures as required under Rule 13a-15 promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of June 30, 2019 , the Company’s management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2019 .
No changes were made to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act) during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

64


PART II - OTHER INFORMATION
 
ITEM 1.
LEGAL PROCEEDINGS

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

ITEM 1A.
RISK FACTORS

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

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None.
(b) Not applicable.
(c) On November 14, 2018, the Company announced that the Board of Directors authorized a stock repurchase program pursuant to which the Company may purchase up to $85 million of its issued and outstanding common stock.  The repurchase program commenced immediately with respect to $40 million of stock. In June 2019, the Bank received regulatory approval to pay a dividend of $20 million to Atlantic Capital. We may need to seek regulatory approval for additional dividends by the Bank in order to repurchase all shares that we are currently authorized to repurchase. The timing and amounts of any repurchases will depend on certain factors, including but not limited to market conditions and prices, available funds and alternative uses of capital. The stock repurchase program may be carried out through open-market purchases, block trades, negotiated private transactions and pursuant to a trading plan adopted in accordance with Rule 10b-18 or Rule 10b5-1 under the Securities Exchange Act of 1934. The stock repurchase program may be suspended or discontinued at any time and will automatically expire on November 14, 2020. Any repurchased shares will constitute authorized but unissued shares.
During the three months ended June 30, 2019, the Company repurchased $19.5 million, or 1.1 million shares of common stock. The following table presents information with respect to repurchases of our common shares during the periods indicated:
Period
 
Total Number of Shares
Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
April 1 - 30, 2019
 
323,031

 
$
18.11

 
323,031

 
$
47,899,079

May 1 - 31, 2019
 
376,135

 
17.42

 
376,135

 
41,346,314

June 1 - 30, 2019
 
422,055

 
16.92

 
422,055

 
34,205,715

Total
 
1,121,221

 
$
17.43

 
1,121,221

 
$
34,205,715

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.

65



ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following materials from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018; (ii) the Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018; (iii) the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018; (iv) the Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2019 and 2018; (v) the Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018; and (vi) the Notes to the Unaudited Consolidated Financial Statements


 


66


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
 
ATLANTIC CAPITAL BANCSHARES, INC.
 
 
 
/s/ Douglas L. Williams
 
Douglas L. Williams
 
President and Chief Executive Officer
 
(Principal Executive Officer)
 
 
 
 
 
/s/ Patrick T. Oakes
 
Patrick T. Oakes
 
Executive Vice President and
 
Chief Financial Officer
 
(Principal Financial and Accounting Officer)
 
 
 
 
 
 
 
 
 
Date: August 8, 2019
 
 
 
 



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