UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 ~~March 31,~~June 30, 2019



¨	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

~~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 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: ~~24,104,311~~22,879,188 shares outstanding as of ~~April 30,~~July 31, 2019

Atlantic Capital Bancshares, Inc.

Form 10-Q

INDEX



		Page No.
PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements (Unaudited)	1

	Consolidated Balance Sheets - ~~March 31,~~June 30, 2019 and December 31, 2018	1

	Consolidated Statements of Income - Three and Six Months ended ~~March 31,~~June 30, 2019 and 2018	2

	Consolidated Statements of Comprehensive Income ~~(Loss)~~ - Three and Six Months ended ~~March 31,~~June 30, 2019 and 2018	4

	Consolidated Statements of Shareholders’ Equity - Three and Six Months ended ~~March 31,~~June 30, 2019 and 2018	5

	Consolidated Statements of Cash Flows - ~~Three~~Six Months ended ~~March 31,~~June 30, 2019 and 2018	67

	Notes to Unaudited Consolidated Financial Statements	79

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3741

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5764

Item 4.	Controls and Procedures	5764

PART II.	OTHER INFORMATION	5865

Item 1.	Legal Proceedings	5865

Item 1A.	Risk Factors	5865

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5865

Item 3.	Defaults Upon Senior Securities	5865

Item 4.	Mine Safety Disclosures	5866

Item 5.	Other Information	5966

Item 6.	Exhibits	5966

SIGNATURES		6067

PART I - FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
(in thousands, except share data)	(unaudited)			December 31, 2018			(unaudited)			December 31, 2018
ASSETS
Cash and due from banks	$	36,992		$	42,895		$	24,206		$	42,895
Interest-bearing deposits in banks	76,720			216,040			52,932			216,040
Other short-term investments	29,457			9,457			—			9,457
Cash and cash equivalents	143,169			268,392			77,138			268,392
Securities available-for-sale	402,640			402,486			348,723			402,486
Other investments	28,844			29,236			31,912			29,236
Loans held for sale	1,530			5,889			—			5,889
Loans held for sale - discontinued operations⁽¹⁾	384,779			373,030			—			373,030
Loans held for investment	1,734,557			1,728,073			1,789,740			1,728,073
Less: Allowance for loan losses	(18,107		)	(17,851		)	(18,186		)	(17,851		)
Loans held for investment, net	1,716,450			1,710,222			1,771,554			1,710,222
Premises held for sale - discontinued operations⁽¹⁾	11,317			7,722			—			7,722
Premises and equipment, net	19,730			9,779			20,037			9,779
Bank owned life insurance	65,486			65,149			65,874			65,149
Goodwill - discontinued operations⁽¹⁾	4,555			4,555			—			4,555
Goodwill and intangible assets, net	21,376			21,523
Goodwill - continuing operations⁽¹⁾							19,925			17,135
Other intangibles, net							3,095			4,388
Other real estate owned	971			874			971			874
Other assets	55,040			56,583			50,451			56,583
Total assets	$	2,855,887		$	2,955,440		$	2,389,680		$	2,955,440


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	561,829		$	602,252			$	569,693	$	602,252
Interest-bearing checking	233,838			252,490				309,709		252,490
Savings	896			725				1,090		725
Money market	962,741			987,183				802,973		987,183
Time	22,069			10,623				33,902		10,623
Brokered deposits	65,811			99,241				134,164		99,241
Deposits to be assumed - discontinued operations⁽¹⁾	593,264			585,429				—		585,429
Total deposits	2,440,448			2,537,943				1,851,531		2,537,943
Federal funds purchased								35,000		—
Securities sold under agreements to repurchase - discontinued operations⁽¹⁾	9,821			6,220				—		6,220
Federal Home Loan Bank borrowings								82,000		—
Long-term debt	49,746			49,704				49,789		49,704
Lease liabilities - discontinued operations⁽¹⁾	4,068			—
Other liabilities	31,177			37,920				34,645		37,920
Total liabilities	2,535,260			2,631,787				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 March 31, 2019 and December 31, 2018	—			—
Common stock, no par value – 100,000,000 shares authorized; 24,466,964 and 25,290,419 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively	276,346			291,771
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	47,191			42,187				76,343		42,187
Accumulated other comprehensive (loss) income	(2,910		)	(10,305		)		3,581		(10,305		)
Total shareholders’ equity	320,627			323,653				336,715		323,653
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,855,887		$	2,955,440			$	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 March 31, 2019 and December 31, 2018.
⁽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.							⁽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.

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Income⁽¹⁾

(Unaudited)


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(in thousands, except per share data)	2019			2018			2019			2018			2019			2018
INTEREST INCOME
Loans, including fees	$	22,752		$	17,972		$	23,554		$	19,269		$	46,306		$	37,241
Investment securities available-for-sale	2,631			2,592			2,339			2,687			4,970			5,279
Interest and dividends on other interest-earning assets	814			715			705			880			1,519			1,595
Total interest income	26,197			21,279			26,598			22,836			52,795			44,115
INTEREST EXPENSE
Interest on deposits	4,831			2,424			5,448			2,715			10,279			5,139
Interest on Federal Home Loan Bank advances	—			509			270			766			270			1,275
Interest on federal funds purchased and securities sold under agreements to repurchase	118			79			168			88			286			167
Interest on long-term debt	824			829			823			823			1,647			1,652
Total interest expense	5,773			3,841			6,709			4,392			12,482			8,233
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES	20,424			17,438			19,889			18,444			40,313			35,882
Provision for loan losses	814			772			698			(173		)	1,512			599
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	19,610			16,666			19,191			18,617			38,801			35,283
NONINTEREST INCOME
Service charges	794			707			870			828			1,664			1,535
Gain (loss) on sales of other assets	(3		)	(46		)
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	—			518			—			507			—			1,025
Derivatives income	(111		)	114
Derivatives income (loss)							(233		)	20			(344		)	134
Bank owned life insurance	360			369			389			378			749			747
SBA lending activities	1,086			1,302			1,096			997			2,182			2,299
Gain on sale of trust business							—			1,681			—			1,681
Other noninterest income	210			198			175			223			385			421
Total noninterest income	2,336			3,162			2,941			4,466			5,277			7,628
NONINTEREST EXPENSE
Salaries and employee benefits	9,213			8,950			8,529			7,911			17,742			16,861
Occupancy	639			885			689			700			1,328			1,585
Equipment and software	739			586			753			701			1,492			1,287
Professional services	775			825			792			943			1,567			1,768
Postage, printing and supplies	48			37			29			44			77			81
Communications and data processing	675			681			662			657			1,337			1,338
Marketing and business development	226			140			233			135			459			275
FDIC premiums	235			108			175			143			410			251
Other noninterest expense	1,245			1,076			1,392			1,389			2,637			2,465
Total noninterest expense	13,795			13,288			13,254			12,623			27,049			25,911
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES	8,151			6,540			8,878			10,460			17,029			17,000
Provision for income taxes	1,711			1,349			1,869			2,082			3,580			3,431
NET INCOME FROM CONTINUING OPERATIONS	6,440			5,191			7,009			8,378			13,449			13,569
DISCONTINUED OPERATIONS
Loss from discontinued operations	$	(1,417	)	$	(204	)
Income tax benefit	(354		)	(51		)
Net loss from discontinued operations	(1,063		)	(153		)
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	$	5,377		$	5,038		$	29,152		$	8,151		$	34,529		$	13,189

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


	Three Months Ended						Three Months Ended					Six Months Ended
	March 31,						June 30,					June 30,
(in thousands, except per share data)	2019			2018			2019		2018			2019		2018
Net income (loss) per common share ‑ basic
Net income per common share - continuing operations	$	0.26		$	0.20		$	0.29	$	0.32		$	0.55	$	0.52
Net loss per common share - discontinued operations	(0.04		)	(0.01		)
Net income (loss) per common share - discontinued operations							0.93		(0.01		)	0.87		(0.01		)
Net income per Common Share ‑ basic	0.22			0.20			1.22		0.31			1.42		0.51
Net income (loss) per common share ‑ diluted
Net income per common share - continuing operations	$	0.26		$	0.20		$	0.29	$	0.32		$	0.55	$	0.52
Net loss per common share - discontinued operations	(0.04		)	(0.01		)
Net income (loss) per common share - discontinued operations							0.92		(0.01		)	0.86		(0.01		)
Net income per common share ‑ diluted	0.21			0.19			1.21		0.31			1.41		0.51

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

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income ~~(Loss)~~

(Unaudited)


	Three Months Ended					Three Months Ended						Six Months Ended
	March 31,					June 30,						June 30,
(in thousands)	2019		2018			2019			2018			2019			2018
Net income	$	5,377	$	5,038		$	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 $2,119 and ($2,137), respectively	6,353		(6,414		)
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	6,353		(6,414		)	4,076			(1,788		)	10,430			(8,202		)
Cash flow hedges:
Net unrealized derivative gains (losses) on cash flow hedges, net of tax of $347 and ($470), respectively	1,042		(1,410		)
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	1,042		(1,410		)	2,415			(552		)	3,456			(1,962		)
Other comprehensive income (loss), net of tax	7,395		(7,824		)	6,491			(2,340		)	13,886			(10,164		)
Comprehensive income (loss)	$	12,772	$	(2,786	)
Comprehensive income						$	35,643		$	5,811		$	48,415		$	3,025

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)						Common Stock								Accumulated Other Comprehensive Income (Loss)
(in thousands, except share data)	Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total			Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance - December 31, 2017	25,712,909		$	299,474		$	12,810		$	(3,859	)	$	308,425
Comprehensive income:
Net income	—		—			5,038			—			5,038
Reclassification of tax effects from AOCI	—		—			844			(844		)	—
Change in unrealized gains on investment securities available-for-sale, net	—		—			—			(6,414		)	(6,414		)
Change in unrealized gains (losses) on cash flow hedges	—		—			—			(1,410		)	(1,410		)
Total comprehensive income												(2,786		)
Change in accounting principle - revenue recognition	—		—			1			—			1
Net issuance of restricted stock	(2,023	)	—			—			—			—
Issuance of common stock for option exercises	22,481		325			—			—			325
Issuance of common stock for long-term incentive plan	38,841		687			—			—			687
Restricted stock activity	—		349			—			—			349
Stock-based compensation	—		58			—			—			58
Balance - March 31, 2018	25,772,208		$	300,893		$	18,693		$	(12,527	)	$	307,059



Balance - December 31, 2018	25,290,419		$	291,771		$	42,187		$	(10,305	)	$	323,653		25,290,419		$	291,771		$	42,187		$	(10,305	)	$	323,653
Comprehensive income:
Net income	—		—			5,377			—			5,377			—		—			34,529			—			34,529
Change in unrealized gains (losses) on investment securities available-for-sale, net	—		—			—			6,353			6,353			—		—			—			10,430			10,430
Change in unrealized gains (losses) on cash flow hedges	—		—			—			1,042			1,042			—		—			—			3,456			3,456
Total comprehensive income												12,772														48,415
Change in accounting principle - leases	—		—			(373		)	—			(373		)	—		—			(373		)	—			(373		)
Net issuance of restricted stock	60,240		—			—			—			—			23,115		—			—			—			—
Issuance of common stock for option exercises	37,922		445			—			—			445			22,769		471			—			—			471
Issuance of common stock for long-term incentive plan	35,678		655			—			—			655			35,678		655			—			—			655
Restricted stock activity	—		374			—			—			374			—		225			—			—			225
Stock-based compensation	—		81			—			—			81			—		133			—			—			133
Performance share compensation	—		95			—			—			95			—		154			—			—			154
Stock repurchases	(957,295	)	(17,075		)	—			—			(17,075		)	(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			Accumulated Other Comprehensive Income (Loss)			Total
Balance - March 31, 2019	24,466,964		$	276,346		$	47,191		$	(2,910	)	$	320,627		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

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		Accumulated Other Comprehensive Income (Loss)			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		Accumulated Other Comprehensive Income (Loss)			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

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended
March 31,
(in thousands) 2019 2018
OPERATING ACTIVITIES
Net income from continuing operations $ 6,440
$ 5,191
Net income (loss) from discontinued operations, net of tax (1,063 ) (153 )
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 814
772
Depreciation, amortization, and accretion 886
1,078
Amortization of operating lease right-of-use assets 665
—
Amortization of restricted stock and performance share compensation 469
349
Stock option compensation 81
58
Loss on disposition of premises and equipment, net 3
44
Net write downs and losses (gains) on sales of other real estate owned —
279
Net increase in cash value of bank owned life insurance (337 ) (347 )
Origination of servicing assets (298 ) (371 )
Proceeds from sales of SBA loans 17,134
19,337
Net gains on sale of SBA loans (888 ) (1,113 )
Changes in operating assets and liabilities -
Net change in loans held for sale 4,359
652
Net (increase) decrease in other assets 1,542
(246 )
Net decrease in accrued expenses and other liabilities (17,496 ) (4,234 )
Net cash provided by operating activities 12,311
21,296
INVESTING ACTIVITIES
Activity in securities available-for-sale:
Prepayments 8,193
11,622
Maturities and calls —
65
Purchases (311 ) (30,560 )
Net change in loans held for investment (23,385 ) (62,149 )
Net change in assets held for sale - discontinued operations (15,344 ) 18,260
(Purchases) proceeds of Federal Home Loan Bank stock, net (58 ) (6,097 )
Proceeds from sales of other real estate —
9
(Purchases) of premises and equipment, net (173 ) (3,834 )
Net cash (used in) investing activities (31,078 ) (72,684 )
FINANCING ACTIVITIES
Net change in deposits (105,330 ) (360,267 )
Net change in liabilities to be assumed - discontinued operations 15,504
13,757
Net change in short-term borrowings —
40,000
Proceeds from Federal Home Loan Bank advances —
430,000
Repayments of Federal Home Loan Bank advances —
(290,000 )
Proceeds from exercise of stock options 445
325
Repurchase of common stock (17,075 ) —
Net cash (used in) financing activities (106,456 ) (166,185 )
NET CHANGE IN CASH AND CASH EQUIVALENTS (125,223 ) (217,573 )
CASH AND CASH EQUIVALENTS – beginning of period 268,392
330,014
CASH AND CASH EQUIVALENTS – end of period $ 143,169
$ 112,441

Three Months Ended
March 31,
SUPPLEMENTAL SCHEDULE OF CASH FLOWS 2019 2018
Interest paid $ 7,818
$ 3,715
Income taxes paid —
—



	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		)



	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

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 ~~become~~became effective for the Company ofon 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.

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 ~~has established~~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 ~~expertise needed~~Company’s Board of Directors to ~~implement the guidance,~~discuss implementation progress and ~~members of the working group have developed a project task plan and timeline.~~methodology selections. Progress has ~~also~~ been made ~~regarding~~on life-of-loan loss calculations and on economic forecasting methods that will be utilized in the modeling process. The Company ~~is implementing a software package supported by a third-party vendor and plans to~~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.

NOTE 3 – ACQUISITIONS AND DIVESTITURES

Discontinued Operations

On ~~November 14, 2018,~~April 5, 2019, the Bank ~~entered into an agreement to sell~~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”). ~~The sale closed on April 5, 2019. See Note 18 - Subsequent Events for more information.~~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 ~~March 31,~~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 ~~March 31,~~June 30, 2019 and 2018:


Components of Net Income from Discontinued Operations	Components of Net Income from Discontinued Operations							Components of Net Income from Discontinued Operations

		For the three months ended March 31,							For the three months ended June 30,						For the six months ended June 30,
(in thousands)		2019			2018				2019			2018			2019			2018
Net interest income		$	3,125		$	4,079
Provision for loan losses		—			—
Net interest income after provision for loan losses		3,125			4,079
Net interest income (loss)									$	(39	)	$	3,570		$	3,086		$	7,649
Service charges		481			485				46			480			527			965
Mortgage income		288			304				—			363			288			667
Gain on sale of branches									34,475			—			34,475			—
Other income		21			32				(22		)	22			(1		)	54
Total noninterest income		790			821				34,499			865			35,289			1,686
Salaries and employee benefits		2,427			3,127				330			3,010			2,757			6,137
Occupancy		339			470				71			511			410			981
Equipment and software		123			201				8			203			131			404
Amortization of intangibles		247			343				—			319			247			662
Communications and data processing		389			362				197			346			586			708
Divestiture expense		1,449			—				3,646			—			5,095			—
Other noninterest expense		358			601				101			349			459			950
Total noninterest expense		5,332			5,104				4,353			4,738			9,685			9,842
Net income (loss) before provision for income taxes		(1,417		)	(204		)		30,107			(303		)	28,690			(507		)
Provision (benefit) for income taxes		(354		)	(51		)		7,964			(76		)	7,610			(127		)
Net income (loss) from discontinued operations		$	(1,063	)	$	(153	)		$	22,143		$	(227	)	$	21,080		$	(380	)

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 ~~March 31, 2019 and~~ 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 ~~March 31,~~June 30, 2019 and December 31, 2018:


Assets and Liabilities from Discontinued Operations

(in thousands)	March 31, 2019			December 31, 2018			June 30, 2019		December 31, 2018
Cash	$	4,168		$	4,234		$	—	$	4,234
Loans held for sale - discontinued operations	384,779			373,030			—		373,030
Premises held for sale - discontinued operations	11,317			7,722			—		7,722
Goodwill - discontinued operations	4,555			4,555			—		4,555
Core deposit intangible	1,158			1,405			—		1,405
Total assets	$	405,977		$	390,946		$	—	$	390,946

Deposits to be assumed - discontinued operations	$	593,264		$	585,429		$	—	$	585,429
Securities sold under agreements to repurchase - discontinued operations	9,821			6,220			—		6,220
Lease liabilities - discontinued operations	4,068			—
Total liabilities	$	607,153		$	591,649		$	—	$	591,649
Net liabilities	$	(201,176	)	$	(200,703	)	$	—	$	(200,703	)

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 ~~March 31,~~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													Gross Amounts not Offset in the Balance Sheet
March 31, 2019	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	)	$	—	$	—
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	2,383		—		2,383		—			—		2,383		$	8,536	$	—	$	8,536	$	—		$	—	$	8,536
Total	$	11,840	$	—	$	11,840	$	(9,457	)	$	—	$	2,383	$	8,536	$	—	$	8,536	$	—		$	—	$	8,536

							Gross Amounts not Offset in the Balance Sheet													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		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	$	9,821	$	—	$	9,821	$	(9,821	)	$	—	$	—
Derivatives	3,142		—		3,142		(3,142		)	—		—		$	5,525	$	—	$	5,525	$	(5,525	)	$	—	$	—
Total	$	12,963	$	—	$	12,963	$	(12,963	)	$	—	$	—	$	5,525	$	—	$	5,525	$	(5,525	)	$	—	$	—

							Gross Amounts not Offset in the Balance Sheet													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		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	)	$	—	$	—	$	9,457	$	—	$	9,457	$	(9,457	)	$	—	$	—
Derivatives	1,961		—		1,961		—			—		1,961		1,961		—		1,961		—			—		1,961
Total	$	11,418	$	—	$	11,418	$	(9,457	)	$	—	$	1,961	$	11,418	$	—	$	11,418	$	(9,457	)	$	—	$	1,961

							Gross Amounts not Offset in the Balance Sheet													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		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	)	$	—	$	—	$	6,220	$	—	$	6,220	$	(6,220	)	$	—	$	—
Derivatives	4,027		—		4,027		(4,027		)	—		—		4,027		—		4,027		(4,027		)	—		—
Total	$	10,247	$	—	$	10,247	$	(10,247	)	$	—	$	—	$	10,247	$	—	$	10,247	$	(10,247	)	$	—	$	—

NOTE 5 – SECURITIES

The following table presents the amortized cost, unrealized gains and losses, and fair value of securities available-for-sale at ~~March 31,~~June 30, 2019 and December 31, 2018.


Available-For-Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)									(in thousands)
March 31, 2019
June 30, 2019
Debt securities—
U.S. Government agencies	$	27,042	$	129	$	(202	)	$	26,969	$	21,518	$	363	$	(18	)	$	21,863
U.S. states and political divisions	92,096		280		(3,086		)	89,290		79,078		600		(832		)	78,846
Trust preferred securities	4,788		—		(213		)	4,575		4,794		—		(232		)	4,562
Corporate debt securities	12,832		20		(304		)	12,548		9,572		87		(6		)	9,653
Residential mortgage-backed securities	269,207		3,448		(3,397		)	269,258		231,650		3,073		(924		)	233,799
Total	$	405,965	$	3,877	$	(7,202	)	$	402,640	$	346,612	$	4,123	$	(2,012	)	$	348,723

December 31, 2018
Debt securities—
U.S. Government agencies	$	27,259	$	24	$	(434	)	$	26,849	$	27,259	$	24	$	(434	)	$	26,849
U.S. states and political divisions	91,864		40		(7,070		)	84,834		91,864		40		(7,070		)	84,834
Trust preferred securities	4,781		—		(381		)	4,400		4,781		—		(381		)	4,400
Corporate debt securities	12,855		—		(492		)	12,363		12,855		—		(492		)	12,363
Residential mortgage-backed securities	277,524		2,726		(6,210		)	274,040		277,524		2,726		(6,210		)	274,040
Total	$	414,283	$	2,790	$	(14,587	)	$	402,486	$	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 ~~March 31,~~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				Available-For-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in thousands)				(in thousands)
Within 1 year	$	125	$	125	$	—	$	—
Over 1 year through 5 years	33,237		32,966		28,718		29,095
5 years to 10 years	33,806		33,421		23,097		22,955
Over 10 years	69,590		66,870		63,147		62,874
	136,758		133,382		114,962		114,924
Residential mortgage-backed securities	269,207		269,258		231,650		233,799
Total	$	405,965	$	402,640	$	346,612	$	348,723

The following table summarizes available-for-sale securities in an unrealized loss position as of ~~March 31,~~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)
March 31, 2019
U.S. Government agencies $ 2,121
$ (20 ) $ 7,040
$ (182 ) $ 9,161
$ (202 )
U.S. states and political divisions 681
(6 ) 73,896
(3,080 ) 74,577
(3,086 )
Trust preferred securities —
—
4,575
(213 ) 4,575
(213 )
Corporate debt securities 2,412
(3 ) 5,963
(301 ) 8,375
(304 )
Residential mortgage-backed securities 16,787
(33 ) 168,425
(3,364 ) 185,212
(3,397 )
Totals $ 22,001
$ (62 ) $ 259,899
$ (7,140 ) $ 281,900
$ (7,202 )
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 )

At March 31, 2019, there were 238 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 March 31, 2019 and December 31, 2018 were attributable to changes in interest rates.



	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 ~~three~~six months ended ~~March 31,~~June 30, 2019 or 2018.

Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. NoThe following table summarizes securities ~~were sold during~~sales activity for the three and six months ended ~~March 31,~~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 ~~$73.9~~$25.2 million and $65.3 million were pledged to secure public funds and other borrowings at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively.

As of ~~March 31,~~June 30, 2019 and December 31, 2018, Atlantic Capital had investments with a carrying value of ~~$4.6~~$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 ~~impairment~~impairments in the ~~amount~~amounts of $26,000 and $228,000, respectively, on these SBICs. The ~~impairment~~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.

NOTE 6 – LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the loan portfolio as of ~~March 31,~~June 30, 2019 and December 31, 2018, is summarized below.


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
	(in thousands)						(in thousands)
Loans held for sale
Loans held for sale - discontinued operations	$	384,779		$	373,030		$	—		$	373,030
Loans held for sale	1,530			5,889			—			5,889
Total loans held for sale	$	386,309		$	378,919		$	—		$	378,919

Loans held for investment
Commercial loans:
Commercial and industrial	$	679,489		$	645,374		$	701,566		$	645,374
Commercial real estate	742,961			794,828			766,846			794,828
Construction and land	173,885			156,232			198,956			156,232
Mortgage warehouse participations	22,267			27,967			10,665			27,967
Total commercial loans	1,618,602			1,624,401			1,678,033			1,624,401
Residential:
Residential mortgages	32,915			32,800			31,338			32,800
Home equity	23,171			22,822			24,303			22,822
Total residential loans	56,086			55,622			55,641			55,622
Consumer	35,203			25,851			34,618			25,851
Other	26,663			24,712			24,126			24,712
Total loans	1,736,554			1,730,586			1,792,418			1,730,586
Less net deferred fees and other unearned income	(1,997		)	(2,513		)	(2,678		)	(2,513		)
Less allowance for loan losses	(18,107		)	(17,851		)	(18,186		)	(17,851		)
Loans held for investment, net	$	1,716,450		$	1,710,222		$	1,771,554		$	1,710,222

At ~~March 31,~~June 30, 2019 and December 31, 2018, loans with a carrying value of ~~$822.2~~$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 ~~March 31,~~June 30, 2019 and 2018.


	For the Three Months Ended					For the Three Months Ended					For the Six Months Ended
	March 31, 2019		March 31, 2018			June 30, 2019		June 30, 2018			June 30, 2019		June 30, 2018
	(in thousands)					(in thousands)
Balance at beginning of period	$	—	$	2,316		$	—	$	2,409		$	—	$	2,316
Accretion	—		(298		)	—		(301		)	—		(599		)
Reclassification of nonaccretable discount due to change in expected cash flows	—		96			—		197			—		293
Other changes, net	—		295			—		151			—		446
Balance at end of period	$	—	$	2,409		$	—	$	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 ~~March 31,~~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 ~~$3.3 million~~$337,000 compared to $3.6 million at December 31, 2018.

The allowance for loan losses represents management’s estimate of probable incurred losses in the loan portfolio as of the end of the period. It is comprised of specific reserves for impaired loans and a general allowance for pools of loans with similar characteristics not individually evaluated. The allowance is regularly evaluated to maintain an adequate level to absorb probable current inherent losses in the loan portfolio. Factors contributing to the determination of the allowance include the credit worthiness of the borrower, changes in the value of pledged collateral, and general economic conditions. Most loan commitments rated substandard or worse are specifically reviewed for loss potential. For loans deemed to be impaired, a specific allocation is assigned based on the losses expected to be realized from those loans.

The following table presents the balance and activity in the allowance for credit losses by portfolio segment for the three and six months ended ~~March 31,~~June 30, 2019 and 2018.


	2019												2018												2019												2018
Three Months Ended March 31,	Commercial			Residential			Consumer			Total			Commercial			Residential			Consumer			Total
Three Months Ended June 30,																									Commercial			Residential			Consumer			Total			Commercial			Residential			Consumer			Total
	(in thousands)																								(in thousands)
Allowance for loan losses:
Beginning balance	$	17,322		$	292		$	237		$	17,851		$	18,267		$	802		$	275		$	19,344		$	17,397		$	447		$	263		$	18,107		$	18,797		$	828		$	260		$	19,885
Provision for loan losses	607			156			51			814			637			154			(19		)	772			1,055			(283		)	(74		)	698			(283		)	85			25			(173		)
Loans charged-off	(549		)	(9		)	(37		)	(595		)	(126		)	(128		)	(3		)	(257		)	(635		)	—			—			(635		)	(50		)	(102		)	(10		)	(162		)
Recoveries	17			8			12			37			19			—			7			26			—			—			16			16			27			—			6			33
Total ending allowance balance	$	17,397		$	447		$	263		$	18,107		$	18,797		$	828		$	260		$	19,885		$	17,817		$	164		$	205		$	18,186		$	18,491		$	811		$	281		$	19,583

																									2019												2018
Six Months Ended June 30,																									Commercial			Residential			Consumer			Total			Commercial			Residential			Consumer			Total
																									(in thousands)
Allowance for loan losses:
Beginning balance																									$	17,322		$	292		$	237		$	17,851		$	18,267		$	802		$	275		$	19,344
Provision for loan losses																									1,662			(127		)	(23		)	1,512			354			239			6			599
Loans charged-off																									(1,184		)	(9		)	(37		)	(1,230		)	(176		)	(230		)	(13		)	(419		)
Recoveries																									17			8			28			53			46			—			13			59
Total ending allowance balance																									$	17,817		$	164		$	205		$	18,186		$	18,491		$	811		$	281		$	19,583

The general component of the allowance for loan losses is based on the incurred losses inherent in the portfolio. The loss factors are determined through the generation of probabilities of default (“PDs”) and losses given default (“LGDs”) for groups of similar loans with similar credit grades where Loss Rate = PD x LGD. The PDs and LGDs for the loan portfolio are calculated based on Atlantic Capital’s loss history as well as available market-based data. The loss factor for each pool of loans is adjusted based on qualitative and environmental factors to account for conditions in the current environment which management believes are likely to cause a difference between the calculated loss based on historical performance and the incurred loss in the existing portfolio. These factors include: changes in policies and procedures, changes in the economy, changes in nature or volume of the portfolio and in the terms of loans, changes in lending management, changes in past dues and credit migration, changes in the loan review system, changes in the value of collateral and concentration risk and changes in external factors, such as competition, legal and regulatory. Quarterly, management evaluates these factors to determine an adjustment unique to Atlantic Capital and its market.

Charge-offs are recognized when the amount of the loss is quantifiable and timing is known. Collateral based loan charge-offs are measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated net realizable value of the loan. When assessing property value for the purpose of determining a charge-off, a third-party appraisal or an independently derived internal evaluation is generally employed.

A loan is considered to be impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Loans for which the terms have been modified or granted an economic concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. A specific allowance is established for individually evaluated impaired loans as needed. Reserves on impaired

loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the observable market price, or the fair value of the underlying collateral of the loan if the loan is collateral dependent.

Atlantic Capital’s policy is to place loans on nonaccrual status, when, in the opinion of management, the principal and interest on a loan are not likely to be repaid in accordance with the loan terms or when the loan becomes 90 days past due and is not both well secured and in the process of collection. When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Principal and interest payments received on a nonaccrual loan are applied to reduce outstanding principal.

The balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method is presented in the following table as of ~~March 31,~~June 30, 2019 and December 31, 2018.


March 31, 2019	Commercial		Residential		Consumer		Total
June 30, 2019									Commercial		Residential		Consumer		Total
	(in thousands)								(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	392	$	267	$	—	$	659	$	514	$	—	$	—	$	514
Collectively evaluated for impairment	17,005		180		263		17,448		17,303		164		205		17,672
Total ending allowance balance	$	17,397	$	447	$	263	$	18,107	$	17,817	$	164	$	205	$	18,186

Loans:
Loans individually evaluated for impairment	$	14,917	$	519	$	—	$	15,436	$	17,439	$	851	$	—	$	18,290
Loans collectively evaluated for impairment	1,603,685		55,567		61,866		1,721,118		1,660,594		54,790		58,744		1,774,128
Total ending loans balance	$	1,618,602	$	56,086	$	61,866	$	1,736,554	$	1,678,033	$	55,641	$	58,744	$	1,792,418

December 31, 2018	Commercial		Residential		Consumer		Total		Commercial		Residential		Consumer		Total
	(in thousands)								(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	317	$	—	$	—	$	317	$	317	$	—	$	—	$	317
Collectively evaluated for impairment	17,005		292		237		17,534		17,005		292		237		17,534
Total ending allowance balance	$	17,322	$	292	$	237	$	17,851	$	17,322	$	292	$	237	$	17,851

Loans:
Loans individually evaluated for impairment	$	10,273	$	161	$	—	$	10,434	$	10,273	$	161	$	—	$	10,434
Loans collectively evaluated for impairment	1,614,128		55,461		50,563		1,720,152		1,614,128		55,461		50,563		1,720,152
Total ending loans balance	$	1,624,401	$	55,622	$	50,563	$	1,730,586	$	1,624,401	$	55,622	$	50,563	$	1,730,586

The following table presents information on Atlantic Capital’s impaired loans for the three and six months ended ~~March 31,~~June 30, 2019 and 2018:


	For the Three Months Ended March 31,																				For the Three Months Ended June 30,
	2019										2018										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		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)																				(in thousands)
Impaired loans with no related allowance recorded:
Commercial and industrial	$	7,176	$	7,176	$	—	$	7,218	$	41	$	1,035	$	972	$	—	$	973	$	13	$	4,313	$	4,313	$	—	$	4,359	$	41	$	4,522	$	4,522	$	—	$	4,569	$	57
Commercial real estate	1,790		1,627		—		1,646		—		1,755		1,592		—		1,592		—		2,603		2,441		—		2,497		51		1,740		1,577		—		1,584		—
Construction and land	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Residential mortgages	202		156		—		159		—		228		183		—		184		—		197		151		—		154		—		255		210		—		210		1
Home equity	—		—		—		—		—		—		—		—		—		—		700		700		—		700		—		—		—		—		—		—
Mortgage warehouse	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	9,168	$	8,959	$	—	$	9,023	$	41	$	3,018	$	2,747	$	—	$	2,749	$	13	$	7,813	$	7,605	$	—	$	7,710	$	92	$	6,517	$	6,309	$	—	$	6,363	$	58
Impaired loans with an allowance recorded:
Commercial and industrial	$	1,321	$	1,321	$	191	$	1,321	$	—	$	3,643	$	3,643	$	168	$	3,691	$	46	$	2,682	$	2,682	$	336	$	2,690	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate	4,793		4,793		201		4,793		60		524		524		108		544		6		8,003		8,003		178		8,003		61		—		—		—		—		—
Construction and land	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Residential mortgages	363		363		267		363		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Mortgage warehouse	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	6,477	$	6,477	$	659	$	6,477	$	60	$	4,167	$	4,167	$	276	$	4,235	$	52	$	10,685	$	10,685	$	514	$	10,693	$	61	$	—	$	—	$	—	$	—	$	—
Total impaired loans	$	15,645	$	15,436	$	659	$	15,500	$	101	$	7,185	$	6,914	$	276	$	6,984	$	65	$	18,498	$	18,290	$	514	$	18,403	$	153	$	6,517	$	6,309	$	—	$	6,363	$	58



	For the Six Months Ended June 30,
	2019										2018
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Balance of Recorded Investment While Impaired		Interest Income Recognized During Impairment		Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Balance of Recorded Investment While Impaired		Interest Income Recognized During Impairment
	(in thousands)
Impaired loans with no related allowance recorded:
Commercial and industrial	$	4,313	$	4,313	$	—	$	4,402	$	82	$	4,522	$	4,522	$	—	$	4,617	$	116
Commercial real estate	2,603		2,441		—		2,516		51		1,740		1,577		—		1,584		—
Construction and land	—		—		—		—		—		—		—		—		—		—
Residential mortgages	197		151		—		156		—		255		210		—		212		2
Home equity	700		700		—		700		—		—		—		—		—		—
Mortgage warehouse	—		—		—		—		—		—		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—		—
Total	$	7,813	$	7,605	$	—	$	7,774	$	133	$	6,517	$	6,309	$	—	$	6,413	$	118
Impaired loans with an allowance recorded:
Commercial and industrial	$	2,682	$	2,682	$	336	$	2,690	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate	8,003		8,003		178		8,003		122		—		—		—		—		—
Construction and land	—		—		—		—		—		—		—		—		—		—
Residential mortgages	—		—		—		—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—		—		—		—
Mortgage warehouse	—		—		—		—		—		—		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—		—
Total	$	10,685	$	10,685	$	514	$	10,693	$	122	$	—	$	—	$	—	$	—	$	—
Total impaired loans	$	18,498	$	18,290	$	514	$	18,467	$	255	$	6,517	$	6,309	$	—	$	6,413	$	118

Atlantic Capital evaluates loans in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors. TDRs are loans in which Atlantic Capital has modified the terms or granted an economic concession to a borrower who is experiencing financial difficulties. These modifications may include interest rate reductions, term extensions and other concessions intended to minimize losses.

As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company had a recorded investment in TDRs of ~~$9.0~~$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 ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. During the three months ended ~~March 31,~~June 30, 2019, the Company extended the amortization period for one commercial and industrial SBA loan, resulting in its reclassification as a TDR. Additionally, during the three months ended June 30, 2019, the Company restructured two commercial and industrial SBA loans to lower the payment amounts, resulting in their reclassification as TDRs. During the six months ended June 30, 2019, the Company granted payment deferrals on four SBA loans, three classified as commercial and industrial and one classified as commercial real estate, resulting in their reclassification

as TDRs. During the same period,

the Company granted an interest only forbearance on one commercial real estate loan to allow time for the pledged collateral to sell. This concession resulted in the reclassification of this loan as a TDR.

The Company did not modify any loans as TDRs during the three and six months ended ~~March 31,~~June 30, 2018. Loans, by portfolio class, modified as TDRs during the three and six months ended ~~March 31,~~June 30, 2019 are as follows.


	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
		(in thousands)				��	(in thousands)
March 31, 2019
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	3	$	853	$	853	6	$	1,235	$	1,235
Commercial real estate	2	926		926		2	926		926
Total	5	$	1,779	$	1,779	8	$	2,161	$	2,161

The Company did not forgive any principal on TDRs during the three and six month periods ended ~~March 31,~~June 30, 2019 and 2018, and there were no subsequent defaults of previously identified TDRs.

Atlantic Capital individually rates loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, consumer credit risk scores (FICO scores), rating agency information, LTV ratios, collateral, collection experience, and other internal metrics. Atlantic Capital uses a dual rating system. The likelihood of default of a credit transaction is graded in the Obligor Rating. The risk of loss given default is graded in the Facility Rating. The Obligor Rating is determined through credit analysis. Facility Ratings are used to describe the value to the Company that the collateral represents. Facility Ratings are based on the collateral package or market expectations regarding the value and liquidity of the collateral. Ratings are generally reviewed at least annually or more frequently if there is a material change in creditworthiness. Exceptions to this policy may include well collateralized term loans and loans to individuals with limited exposure or complexity.

Atlantic Capital uses the following definitions for risk ratings:

Pass: Loans that are analyzed individually as part of the above described process and that do not meet the criteria of special mention, substandard or doubtful.

Special Mention: Loans classified as special mention have a potential weakness that requires management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

As of ~~March 31,~~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		Pass		Special Mention		Substandard Accruing		Substandard Nonaccruing		Doubtful Nonaccruing		Total
	(in thousands)												(in thousands)
March 31, 2019
June 30, 2019
Commercial and industrial	$	713,293	$	5,526	$	20,163	$	6,868	$	73	$	745,923	$	673,022	$	5,283	$	20,193	$	3,068	$	—	$	701,566
Commercial real estate	895,685		4,305		14,582		375		1,605		916,552		746,832		3,663		14,509		390		1,452		766,846
Construction and land	188,227		35		17		—		—		188,279		198,956		—		—		—		—		198,956
Residential mortgages	122,251		996		1,116		879		272		125,514		30,949		—		—		238		151		31,338
Home equity	52,433		92		1,162		90		—		53,777		23,355		—		248		700		—		24,303
Mortgage warehouse	22,267		—		—		—		—		22,267		10,665		—		—		—		—		10,665
Consumer/Other	68,766		65		16		174		—		69,021		58,728		—		16		—		—		58,744
Total loans	$	2,062,922	$	11,019	$	37,056	$	8,386	$	1,950	$	2,121,333	$	1,742,507	$	8,946	$	34,966	$	4,396	$	1,603	$	1,792,418



	Pass		Special Mention		Substandard Accruing		Substandard Nonaccruing		Doubtful Nonaccruing		Total
	(in thousands)
December 31, 2018
Commercial and industrial	$	671,992	$	6,802	$	22,777	$	832	$	—	$	702,403
Commercial real estate	946,612		4,754		14,914		126		1,647		968,053
Construction and land	169,687		40		25		—		—		169,752
Residential mortgages	118,265		1,119		1,441		1,138		281		122,244
Home equity	54,707		92		294		499		—		55,592
Mortgage warehouse	22,192		5,775		—		—		—		27,967
Consumer/Other	57,268		66		97		174		—		57,605
Total loans	$	2,040,723	$	18,648	$	39,548	$	2,769	$	1,928	$	2,103,616

Atlantic Capital monitors loans by past due status. The following table presents the aging of the recorded investment in past due loans as of ~~March 31,~~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 March 31, 2019										As of June 30, 2019
	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing		Total		Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing		Total
	(in thousands)										(in thousands)
Loans by Classification
Commercial and industrial	$	736,383	$	2,599	$	—	$	6,941	$	745,923	$	694,552	$	3,841	$	105	$	3,068	$	701,566
Commercial real estate	913,231		1,341		—		1,980		916,552		760,588		4,416		—		1,842		766,846
Construction and land	188,058		221		—		—		188,279		198,956		—		—		—		198,956
Residential mortgages	123,821		542		—		1,151		125,514		30,949		—		—		389		31,338
Home equity	53,687		—		—		90		53,777		23,355		—		248		700		24,303
Mortgage warehouse	22,267		—		—		—		22,267		10,665		—		—		—		10,665
Consumer	68,373		474		—		174		69,021		58,744		—		—		—		58,744
Total Loans	$	2,105,820	$	5,177	$	—	$	10,336	$	2,121,333	$	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

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill and other intangible assets as of ~~March 31,~~June 30, 2019 and December 31, 2018 is summarized below:


	March 31,			December 31,			June 30,			December 31,
	2019			2018			2019			2018
	(in thousands)						(in thousands)
Core deposit intangible	$	9,544		$	9,544		$	9,544		$	9,544
Less: accumulated amortization	(6,100		)	(5,853		)	(6,100		)	(5,853		)
Less: impairment to-date related to divested branches	(2,286		)	(2,286		)
Less: impairment to date related to divested branches							(3,444		)	(2,286		)
Core deposit intangible, net - discontinued operations	1,158			1,405			—			1,405
Servicing assets, net	3,083			2,983			3,095			2,983
Total intangibles subject to amortization, net	4,241			4,388			3,095			4,388
Goodwill - discontinued operations	4,555			4,555			—			4,555
Goodwill - continuing operations	17,135			17,135			19,925			17,135
Total goodwill and other intangible assets, net	$	25,931		$	26,078		$	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. ~~There were no goodwill impairment charges recorded in the three months ended March 31, 2019 or the three months ended March 31, 2018.~~ The following table presents activity for goodwill and other intangible assets:


	For the Three Months Ended March 31,								For the Three Months Ended June 30,									For the Six Months Ended June 30,
	Goodwill		Core Deposit Intangible			Total			Goodwill			Core Deposit Intangible			Total			Goodwill			Core Deposit Intangible			Total
	(in thousands)								(in thousands)
2019
Balance, beginning of period	$	21,690	$	1,405		$	23,095		$	21,690		$	1,158		$	22,848		$	21,690		$	1,405		$	23,095
Amortization	—		(247		)	(247		)	—			—			—			—			(247		)	(247		)
Impairment, due to Branch Sale									(1,765		)	(1,158		)	(2,923		)	(1,765		)	(1,158		)	(2,923		)
Balance, end of period	$	21,690	$	1,158		$	22,848		$	19,925		$	—		$	19,925		$	19,925		$	—		$	19,925

2018
Balance, beginning of period	$	21,759	$	2,634		$	24,393		$	21,759		$	2,291		$	24,050		$	21,759		$	2,634		$	24,393
Amortization	—		(343		)	(343		)	—			(319		)	(319		)	—			(662		)	(662		)
Impairment, due to trust business sale									(69		)	—			(69		)	(69		)	—			(69		)
Balance, end of period	$	21,759	$	2,291		$	24,050		$	21,690		$	1,972		$	23,662		$	21,690		$	1,972		$	23,662

~~The~~Atlantic Capital recognized amortization expense ~~for~~on its core deposit intangible of $0 and $247,000 for the three and six months ended ~~March 31,~~June 30, 2019, respectively, and ~~2018 was $247,000~~$319,000 and ~~$343,000,~~$662,000 for the three and six months ended June 30, 2018, respectively, which was ~~recognized~~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 ~~March 31,~~June 30, 2019 in Atlantic Capital’s other intangible assets.

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 ~~goodwill and intangible assets,~~other intangibles, net on the Consolidated Balance Sheets. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the balance of SBA loans sold and serviced by Atlantic Capital totaled ~~$173.2~~$175.9 million and $161.5 million, respectively.

Changes in the balance of servicing assets for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 are presented in the following table.


	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
SBA Loan Servicing Assets	2019			2018			2019			2018			2019			2018
	(in thousands)						(in thousands)
Beginning carrying value, net	$	2,539		$	2,635		$	2,677		$	2,872		$	2,539		$	2,635
Additions	298			371			327			248			625			619
Amortization	(160		)	(134		)	(278		)	(293		)	(438		)	(427		)
Impairment	—			—			—			—			—			—
Ending carrying value	$	2,677		$	2,872		$	2,726		$	2,827		$	2,726		$	2,827

At ~~March 31,~~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	March 31, 2019				December 31, 2018				June 30, 2019				December 31, 2018
	(dollars in thousands)								(dollars in thousands)
Fair value of retained servicing assets	$	2,824			$	2,630			$	2,906			$	2,630
Weighted average life	4.54 years				4.83 years				4.28 years				4.83 years
Prepayment speed:	12.87			%	11.92			%	13.40			%	11.92			%
Decline in fair value due to a 10% adverse change	$	(133	)		$	(131	)		$	(148	)		$	(131	)
Decline in fair value due to a 20% adverse change	$	(230	)		$	(223	)		$	(250	)		$	(223	)
Weighted average discount rate	14.32			%	14.42			%	12.56			%	14.42			%
Decline in fair value due to a 100 bps adverse change	$	(95	)		$	(101	)		$	(105	)		$	(101	)
Decline in fair value due to a 200 bps adverse change	$	(158	)		$	(165	)		$	(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.

TriNet Servicing Assets

Changes in the balance of TriNet servicing assets for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 are presented in the following table.


	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
TriNet Servicing Assets	2019			2018			2019			2018			2019			2018
	(in thousands)						(in thousands)
Beginning carrying value, net	$	444		$	605		$	406		$	563		$	444		$	605
Additions	—			—			—			—			—			—
Amortization	(38		)	(42		)	(37		)	(40		)	(75		)	(82		)
Impairment	—			—			—			—			—			—
Ending carrying value	$	406		$	563		$	369		$	523		$	369		$	523

At ~~March 31,~~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	March 31, 2019				December 31, 2018				June 30, 2019				December 31, 2018
	(dollars in thousands)								(dollars in thousands)
Fair value of retained servicing assets	$	499			$	515			$	475			$	515
Weighted average life	6.26 years				6.48 years				6.02 years				6.48 years
Prepayment speed:	5.00			%	5.00			%	5.00			%	5.00			%
Decline in fair value due to a 10% adverse change	$	(7	)		$	(7	)		$	(6	)		$	(7	)
Decline in fair value due to a 20% adverse change	$	(13	)		$	(14	)		$	(12	)		$	(14	)
Weighted average discount rate	8.00			%	8.00			%	8.00			%	8.00			%
Decline in fair value due to a 100 bps adverse change	$	(12	)		$	(13	)		$	(11	)		$	(13	)
Decline in fair value due to a 200 bps adverse change	$	(23	)		$	(25	)		$	(21	)		$	(25	)

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 Three Months Ended									For the Six Months Ended
	March 31, 2019									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			Pre-Tax Amount			Income Tax (Expense) Benefit			After-Tax Amount
	(in thousands)									(in thousands)
Accumulated other comprehensive income (loss) beginning of period	$	(13,743	)	$	3,438		$	(10,305	)	$	(3,882	)	$	972		$	(2,910	)	$	(13,743	)	$	3,438		$	(10,305	)
Unrealized net gains (losses) on investment securities available-for-sale	8,472			(2,119		)	6,353			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	1,389			(347		)	1,042			3,220			(805		)	2,415			4,609			(1,153		)	3,456
Accumulated other comprehensive income (loss) end of period	$	(3,882	)	$	972		$	(2,910	)	$	4,774		$	(1,193	)	$	3,581		$	4,774		$	(1,193	)	$	3,581


	For the Three Months Ended									For the Three Months Ended									For the Six Months Ended
	March 31, 2018									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			Pre-Tax Amount			Income Tax (Expense) Benefit			After-Tax Amount
	(in thousands)									(in thousands)
Accumulated other comprehensive income (loss) beginning of period	$	(6,274	)	$	2,415		$	(3,859	)	$	(16,705	)	$	4,178		$	(12,527	)	$	(6,274	)	$	2,415		$	(3,859	)
Reclassification of tax effects from AOCI	—			(844		)	(844		)	—			—			—			—			(844		)	(844		)
Unrealized net gains (losses) on investment securities available-for-sale	(8,551		)	2,137			(6,414		)	(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	(1,880		)	470			(1,410		)	(736		)	184			(552		)	(2,616		)	654			(1,962		)
Accumulated other comprehensive income (loss) end of period	$	(16,705	)	$	4,178		$	(12,527	)	$	(19,825	)	$	4,958		$	(14,867	)	$	(19,825	)	$	4,958		$	(14,867	)

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 ~~March 31,~~June 30, 2019 and 2018.


		Three Months Ended							Three Months Ended					Six Months Ended
		March 31,							June 30,					June 30,
		2019			2018				2019		2018			2019		2018
(in thousands, except share and per share amounts)
Net income from continuing operations		$	6,440		$	5,191			$	7,009	$	8,378		$	13,449	$	13,569
Net income (loss) from discontinued operations		(1,063		)	(153		)		22,143		(227		)	21,080		(380		)
Net income available to common shareholders		$	5,377		$	5,038			$	29,152	$	8,151		$	34,529	$	13,189

Weighted average shares outstanding
Basic ⁽¹⁾		24,855,171			25,750,824				23,888,381		26,010,914			24,369,106		25,881,587
Effect of dilutive securities:
Stock options, warrants and performance share awards		164,213			194,949				152,425		189,112			158,286		192,015
Diluted		25,019,384			25,945,773				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		$	0.26		$	0.20			$	0.29	$	0.32		$	0.55	$	0.52
Net loss per common share - discontinued operations		(0.04		)	(0.01		)
Net income (loss) per common share - discontinued operations									0.93		(0.01		)	0.87		(0.01		)
Net income per common share - basic		0.22			0.20				1.22		0.31			1.42		0.51
Net income (loss) per common share - diluted
Net income per common share - continuing operations		$	0.26		$	0.20			$	0.29	$	0.32		$	0.55	$	0.52
Net loss per common share - discontinued operations		(0.04		)	(0.01		)
Net income (loss) per common share - discontinued operations									0.92		(0.01		)	0.86		(0.01		)
Net income per common share - diluted		0.21			0.19				1.21		0.31			1.41		0.51
⁽¹⁾Unvested restricted shares are participating securities and included in basic share calculations.	⁽¹⁾Unvested restricted shares are participating securities and included in basic share calculations.							⁽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 ~~March 31, 2019 and 432 at March 31,~~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 ~~March 31,~~June 30, 2019, ~~24,466,964~~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 ~~did not pay any~~paid dividends totaling $26.5 million to Atlantic Capital during the three and six months ended ~~March 31, 2019~~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 ~~957,295~~1,121,221 and 2,078,516 shares during the three and six months ended ~~March 31,~~June 30, 2019 for a total of ~~$17.1~~

$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 ~~March 31,~~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 ~~March 31,~~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.~~million, respectively.

No hedge ineffectiveness gains or losses were recognized on active cash flow hedges for the three and six months ended ~~March 31,~~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 ~~$300,000~~$24,000 will be reclassified as ~~a decrease~~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 ~~March 31,~~June 30, 2019 and December 31, 2018, Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of ~~$106.1~~$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 ~~March 31,~~June 30, 2019 and December 31, 2018, Atlantic Capital had minimum collateral posting thresholds with certain of its derivative counterparties and posted collateral of ~~$5.3~~$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

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 ~~March 31,~~June 30, 2019 and December 31, 2018, Atlantic Capital had credit risk participation agreements with a notional amount of ~~$9.1~~$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 ~~March 31,~~June 30, 2019 and December 31, 2018:


Derivatives designated as hedging instruments under ASC 815	Derivatives designated as hedging instruments under ASC 815										Derivatives designated as hedging instruments under ASC 815

(in thousands)			March 31, 2019				December 31, 2018						June 30, 2019				December 31, 2018
Interest Rate Products		Balance Sheet Location	Notional Amount		Fair Value		Notional Amount		Fair Value			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	$	100,000	$	611	$	100,000	$	2,029		Other liabilities	$	50,000	$	102	$	100,000	$	2,029

Derivatives not designated as hedging instruments under ASC 815	Derivatives not designated as hedging instruments under ASC 815										Derivatives not designated as hedging instruments under ASC 815

(in thousands)			March 31, 2019				December 31, 2018						June 30, 2019				December 31, 2018
Interest Rate Products		Balance Sheet Location	Notional Amount		Fair Value		Notional Amount		Fair Value			Balance Sheet Location	Notional Amount		Fair Value		Notional Amount		Fair Value
Customer swap positions		Other assets	$	53,066	$	606	$	54,760	$	756		Other assets	$	46,917	$	1,040	$	54,760	$	756
Zero premium collar		Other assets	82,695		1,777		83,385		1,205			Other assets	76,348		4,001		83,385		1,205
			$	135,761	$	2,383	$	138,145	$	1,961			$	123,265	$	5,041	$	138,145	$	1,961

Dealer offsets to customer swap positions		Other liabilities	$	53,066	$	644	$	54,760	$	770		Other liabilities	$	46,917	$	1,119	$	54,760	$	770
Dealer offset to zero premium collar		Other liabilities	82,695		1,884		83,385		1,226			Other liabilities	76,348		4,298		83,385		1,226
Credit risk participation		Other liabilities	9,063		3		9,532		2			Other liabilities	8,594		6		9,532		2
			$	144,824	$	2,531	$	147,677	$	1,998			$	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 ~~March 31,~~June 30, 2019 and 2018.


Derivatives not designated as hedging instruments under ASC 815	Derivatives not designated as hedging instruments under ASC 815							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						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 March 31,							Three Months Ended June 30,					Six Months Ended June 30,
			2019			2018				2019			2018		2019			2018
Interest rate products		Other income / (expense)	$	(110	)	$	108		Other income / (expense)	$	(231	)	$	14	$	(341	)	$	122
Other contracts		Other income / (expense)	(1		)	3			Other income / (expense)	(2		)	1		(3		)	4
Total			$	(111	)	$	111			$	(233	)	$	15	$	(344	)	$	126

Fee income		Other income / (expense)	$	—		$	3		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 ~~March 31,~~June 30, 2019 and 2018:


Derivatives in Cash Flow Hedging Relationships	Derivatives in Cash Flow Hedging Relationships												Derivatives in Cash Flow Hedging Relationships

		Three Months Ended March 31,												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)						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		2019		2018			Location	2019			2018
Interest rate swaps		$	1,268	$	(1,778	)	Interest income	$	(121	)	$	102		$	1,823	$	(717	)	Interest income	$	(8	)	$	19	$	3,091	$	(2,495	)	Interest income	$	(129	)	$	121

NOTE 12 – OTHER BORROWINGS AND LONG TERM DEBT

There were no Federal Home Loan Bank borrowings outstanding as of ~~March 31, 2019 and~~ 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 ~~March 31,~~June 30, 2019 was $270,000. Interest expense for FHLB borrowings for the three and six months ended June 30, 2018 was $0$766,000 and ~~$509,000,~~$1.3 million, respectively.

At ~~March 31,~~June 30, 2019, the Company had available line of credit commitments with the FHLB totaling ~~$886.6~~$856.7 million, with no$82.0 million in outstanding FHLB advances. However, based on actual collateral pledged, ~~$178.8~~$202.1 million was available. At ~~March 31,~~June 30, 2019, the Company had an available line of credit based on the collateral available of ~~$473.2~~$432.8 million with the Federal Reserve Bank of Atlanta. Interest expense on federal funds purchased for the three and six months ended ~~March 31,~~June 30, 2019 totaled $168,000 and ~~2018 totaled $118,000~~$286,000, respectively, and ~~$79,000,~~$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:


	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
	(in thousands)				(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	$	50,000	$	50,000
Principal amount of subordinated debt	$	50,000	$	50,000	$	50,000	$	50,000
Less debt issuance costs		254		296		211		296
Subordinated debt, net	$	49,746	$	49,704	$	49,789	$	49,704

All subordinated debt outstanding at ~~March 31,~~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 ~~March 31,~~June 30, 2019, approximately ~~3,308,000~~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.

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 ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018:


	For the three months ended March 31,				For the six months ended June 30,
	2019		2018		2019		2018
Risk‑free interest rate	2.27	%	1.66	%	2.27	%	1.66	%
Expected term in years	1.82		0.25		1.73-1.82		0.25
Expected stock price volatility	26.8	%	24.2	%	26.8	%	24.2	%
Dividend yield	—	%	—	%	—	%	—	%

The following table represents stock option activity for the ~~three~~six months ended ~~March 31,~~June 30, 2019:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)		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				442,454		$	12.02
Granted/modified⁽¹⁾	5,000		10.00					12,500		10.00
Exercised	(40,040	)	11.36					(41,920	)	11.48
Forfeited⁽¹⁾	(5,000	)	10.00					(38,500	)	13.17
Expired	—		—					(7,594	)	12.43
Outstanding, March 31, 2019	402,414		$	12.08	3.83	$	2,341
Outstanding, June 30, 2019								366,940		$	11.87	2.59	$	1,934

Exercisable, March 31, 2019	356,414		$	11.72	3.46	$	2,203
Exercisable, June 30, 2019								346,940		$	11.69	2.37	$	1,891

⁽¹⁾During the three months ended March 31, 2019, the Company modified options for 5,000 shares. The modifications are included as shares granted/modified and as shares forfeited in this table.
⁽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.								⁽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 ~~$81,000~~$52,000 and ~~$58,000~~$133,000 for the three and six months ended ~~March 31,~~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 ~~three~~six months ended ~~March 31,~~June 30, 2019:


	Shares		Weighted Average Grant-Date Fair Value		Shares		Weighted Average Grant-Date Fair Value
Outstanding, December 31, 2018	272,695		$	18.09	272,695		$	18.09
Granted/modified⁽¹⁾	104,350		20.03		130,093		19.54
Exercised	(5,929	)	13.32		(64,011	)	16.54
Forfeited⁽¹⁾	(2,882	)	17.89		(65,750	)	18.38
Outstanding, March 31, 2019	368,234		$	18.72
Outstanding, June 30, 2019					273,027		$	19.07

⁽¹⁾During the three months ended March 31, 2019, the Company modified 1,561 restricted stock awards. The modifications are included as shares granted/modified and as shares forfeited in this table.
⁽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.					⁽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.

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 ~~March 31,~~June 30, 2019 and 2018, compensation expense of ~~$491,000~~$216,000 and ~~$401,000,~~$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 ~~March 31,~~June 30, 2019, there was ~~$3.3~~$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 ~~2.45~~2.17 years.

During the ~~three~~six months ended ~~March 31,~~June 30, 2019, the Company modified options for ~~5,000~~12,500 shares and ~~1,561~~4,719 restricted stock awards to ~~one individual.~~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 ~~$28,000~~$31,000 for the ~~three~~six months ended ~~March 31,~~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 ~~March 31,~~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.

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 ~~March 31,~~June 30, 2019 and December 31, 2018.


	Fair Value Measurements at March 31, 2019 Using:								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		Quoted Prices in Active Markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)								(in thousands)
Securities available-for-sale—
U.S. government agencies	$	—	$	26,969	$	—	$	26,969	$	—	$	21,863	$	—	$	21,863
U.S. states and political subdivisions	—		89,290		—		89,290		—		78,846		—		78,846
Trust preferred securities	—		4,575		—		4,575		—		4,562		—		4,562
Corporate debt securities	—		12,548		—		12,548		—		9,653		—		9,653
Mortgage-backed securities	—		269,258		—		269,258		—		233,799		—		233,799
Total securities available-for-sale	$	—	$	402,640	$	—	$	402,640	$	—	$	348,723	$	—	$	348,723
Interest rate derivative assets	$	—	$	2,383	$	—	$	2,383	$	—	$	8,536	$	—	$	8,536
Interest rate derivative liabilities	$	—	$	3,142	$	—	$	3,142	$	—	$	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 ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, there was not a change in the methods and significant assumptions used to estimate fair value.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

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


March 31, 2019	Level 1 Fair Value Measurement		Level 2 Fair Value Measurement		Level 3 Fair Value Measurement		Total
June 30, 2019									Level 1 Fair Value Measurement		Level 2 Fair Value Measurement		Level 3 Fair Value Measurement		Total
	(in thousands)								(in thousands)
Impaired Loans	$	—	$	—	$	2,085	$	2,085	$	—	$	—	$	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.

The following table presents the estimated fair values of Atlantic Capital’s financial instruments at ~~March 31,~~June 30, 2019 and December 31, 2018.


	Fair Value Measurements at March 31, 2019 Using:								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)		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)								(in thousands)
Financial assets
Cash and due from banks	$	36,992	$	36,992	$	—	$	—	$	24,206	$	24,206	$	—	$	—
Interest bearing deposits in banks	76,720		76,720		—		—		52,932		52,932		—		—
Other short-term investments	29,457		29,457		—		—
Total securities available-for-sale	402,640		—		402,640		—		348,723		—		348,723		—
FHLB stock	2,680		—		—		2,680		6,165		—		—		6,165
Federal Reserve Bank stock	9,906		—		—		9,906		9,939		—		—		9,939
Loans held for investment, net	1,716,450		—		—		1,777,360		1,771,554		—		—		1,810,480
Loans held for sale	1,530		—		1,530		—
Loans held for sale - discontinued operations	384,779		—		384,779		—
Derivative assets	2,383		—		2,383		—		8,536		—		8,536		—
Financial liabilities
Deposits	$	1,847,184	$	—	$	1,728,417	$	—	$	1,851,531	$	—	$	1,796,404	$	—
Deposits to be assumed - discontinued operations	593,264		—		593,264		—
Securities sold under agreements to repurchase - discontinued operations	9,821		9,821		—		—
Federal funds purchased									35,000		35,000		—		—
Subordinated debt	49,746		—		49,315		—		49,789		—		50,083		—
FHLB advances									82,000		—		82,196		—
Derivative financial instruments	3,142		—		3,142		—		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		—

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 ~~March 31,~~June 30, 2019 and December 31, 2018 was as follows:


	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
	(in thousands)				(in thousands)
Financial Instruments whose contract amount represents credit risk:
Commitments to extend credit	$	681,818	$	715,591	$	628,801	$	715,591
Standby letters of credit	11,518		15,650		8,758		15,650
	$	693,336	$	731,241	$	637,559	$	731,241

Minimum lease payments	$	21,493	$	22,014	$	17,220	$	22,014

The Company also had commitments related to investments in SBICs totaling $2.9 million and $3.2 million at ~~March 31,~~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 aan immaterial cumulative effect adjustment to first quarter 2018 opening retained ~~earnings in an amount of approximately $1,000.~~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.

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 ~~March 31,~~June 30, 2019 and 2018:


	For the Three Months Ended March 31,				For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019		2018		2019			2018		2019		2018
	(in thousands)				(in thousands)
Deposit account analysis fees and charges	$	546	$	486	$	676		$	550	$	1,222	$	1,036
ATM fees	47		50		(8		)	56		39		106
NSF fees	14		38		8			28		22		66
Wire fees	110		91		102			102		212		193
Foreign exchange fees	73		37		92			89		165		126
Other	4		5		—			3		4		8
Total service charges - continuing operations	794		707		870			828		1,664		1,535
Service charges - discontinued operations	481		485		46			480		527		965
Total service charges	$	1,275	$	1,192	$	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 ~~March 31,~~June 30, 2018:


	For the Three Months Ended March 31,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018		2019		2018
	(in thousands)				(in thousands)
Personal trust and agency accounts	$	—	$	313	$	—	$	303	$	—	$	616
Employee benefit and retirement-related trust and agency accounts	—		60		—		60		—		120
Investment management and investment advisory agency accounts	—		107		—		110		—		217
Custody and safekeeping accounts	—		13		—		13		—		26
Other	—		25		—		21		—		46
	$	—	$	518	$	—	$	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.

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 ~~March 31,~~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 ~~March 31,~~June 30, 2019, operating lease ROU assets and liabilities were ~~$13.8~~$10.4 million and ~~$18.4~~$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			Three Months Ended			Six Months Ended
	March 31, 2019			June 30, 2019			June 30, 2019
	(in thousands)			(in thousands)
Operating lease cost	$	665		$	461		$	1,126
Short-term lease cost	14			12			26
Sublease income	(74		)	(42		)	(116		)
Net lease cost	$	605		$	431		$	1,036

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


	Three Months Ended		Three Months Ended		Six Months Ended
	March 31, 2019		June 30, 2019		June 30, 2019
	(in thousands)		(in thousands)
Operating cash paid for amounts included in the measurement of lease liabilities	$	521	$	522	$	1,043
Right-of-use assets obtained in exchange for new finance lease liabilities	14,491		716		15,207



	~~March 31,~~June 30, 2019
Weighted-average remaining lease term - operating leases	~~8.6~~9.2 years

Weighted-average discount rate - operating leases	~~3.25~~3.3	%

The table below summarizes the maturity of remaining lease liabilities:


	March 31, 2019			June 30, 2019
Twelve Months Ended:	(in thousands)			(in thousands)
March 31, 2020	$	2,928
March 31, 2021	2,658
March 31, 2022	2,627
March 31, 2023	2,600
March 31, 2024	2,006
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	8,674			7,869
Total future minimum lease payments	21,493			17,220
Less: Interest	(3,117		)	(2,777		)
Present value of net future minimum lease payments	$	18,376		$	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 ~~will be~~were reduced during the second quarter of 2019 by $3.6 million and $4.1 million, respectively, as a result of this divestiture.

~~NOTE 18 – SUBSEQUENT EVENTS~~

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. 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.


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;

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; ~~(vi)~~(vii) income before income taxes-taxable equivalent; and ~~(vii)~~(viii) income tax expense-taxable equivalent. Management uses these non-GAAP financial measures because it believes they provide a greater understanding of ongoing performance and operations, enhance comparability with prior periods, and provide users of our financial information with a meaningful measure for assessing our financial results and credit trends. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as an alternative to any measure of performance or financial condition as determined in accordance with GAAP. In addition, non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures presented by other companies. Investors should consider Atlantic Capital’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. A reconciliation of these non-GAAP financial measures to GAAP financial measures is included in Table 1.

EXECUTIVE OVERVIEW AND EARNINGS SUMMARY

On April 5, 2019, the Bank completed the previously disclosed sale of all 14 of its bank branches located in Tennessee and northwest Georgia, including its mortgage banking business, to FirstBank (the “Branch Sale”). In connection with the Branch Sale, FirstBank assumed deposits and customer repurchase agreements of approximately $598 million and purchased approximately $385 million in loans. FirstBank paid a deposit premium equal to 6.25% of the balance of assumed deposits, less a discount of 0.68% of purchased loans. The income and expenses related to these branches are included in discontinued operations and prior period financial information has been retrospectively adjusted for the impact of discontinued operations. Net income from discontinued operations in the second quarter of 2019 included a gain on sale of branches of $34.5 million and divestiture expenses of $3.6 million.

Atlantic Capital reported net income from continuing operations of ~~$6.4~~$7.0 million for the ~~first~~second quarter of 2019 compared to net income from continuing operations of ~~$5.2~~$8.4 million for the ~~first~~second quarter of 2018. Diluted income per common share from continuing operations was ~~$0.26~~$0.29 for the ~~first~~second quarter of 2019, compared to ~~$0.20~~$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 ~~increase~~decrease in net income from continuing operations for the three months ended ~~March 31,~~June 30, 2019, compared to the same period in 2018, was primarily attributable to a ~~$3.0~~$1.5 million, or ~~17%, increase in net interest income before provision for loan losses, partially offset by an $826,000, or 26%~~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 ~~$20.5~~$20.0 million for the ~~first~~second quarter of 2019, compared to ~~$17.5~~$18.5 million for the ~~first~~second quarter of 2018. Taxable equivalent net interest margin from continuing operations increased to ~~3.74%~~3.61% for the three months ended ~~March 31,~~June 30, 2019 from ~~3.39%~~3.51% for the three months ended ~~March 31,~~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 ~~March 31,~~June 30, 2019 totaled ~~$814,000,~~$698,000, an increase of ~~$42,000, or 5%,~~$871,000 from the quarter ended ~~March 31,~~June 30, 2018. The increase was primarily related to an increase in ~~specific reserve impairments~~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.~~charge-offs for the six months ended June 30, 2019 compared to the first six months of 2018.

Noninterest income from continuing operations decreased ~~$826,000,~~$1.5 million, or ~~26%~~34%, to ~~$2.3~~$2.9 million from the ~~first~~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 ~~$518,000,~~$507,000, or 100%, decrease in trust income due to the sale of the trust business in the second quarter of 2018. ~~Income from SBA lending activities also decreased $216,000, or 17%, due to decreases~~This was offset by a $656,000 increase in ~~loan balances sold and premiums received.~~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 ~~$507,000,~~$631,000, or 4%5%, to ~~$13.8~~$13.3 million compared to the ~~first~~second quarter of 2018. The most significant component of the increase was a ~~$263,000,~~$618,000, or 3%8%, increase in salaries and employee benefits primarily related to an increase in ~~long term incentive expense,~~severance and medical insurance expense.

Noninterest expense ~~and~~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 ~~401(k) matching~~salaries and employee benefits primarily related to severance and medical insurance costs. ~~In 2019, the Company increased its 401(k) employer match from 3% to 5%.~~


Table 1 - Quarterly Selected Financial Data⁽¹⁾	Table 1 - Quarterly Selected Financial Data⁽¹⁾																					Table 1 - Quarterly Selected Financial Data⁽¹⁾
(dollars in thousands, except share and per share data; taxable equivalent)	(dollars in thousands, except share and per share data; taxable equivalent)																					(dollars in thousands, except share and per share data; taxable equivalent)

		2019				2018																	2019							2018												For the six months ended June 30,
		First Quarter				Fourth Quarter				Third Quarter				Second Quarter				First Quarter					Second Quarter			First Quarter				Fourth Quarter				Third Quarter				Second Quarter				2019			2018
INCOME SUMMARY⁽¹⁾
Interest income⁽²⁾		$	26,297			$	26,725			$	24,114			$	22,934			$	21,382				$	26,686		$	26,297			$	26,725			$	24,114			$	22,934			$	52,983		$	44,316
Interest expense		5,773				5,560				4,720				4,392				3,841					6,709			5,773				5,560				4,720				4,392				12,482			8,233
Net interest income		20,524				21,165				19,394				18,542				17,541					19,977			20,524				21,165				19,394				18,542				40,501			36,083
Provision for loan losses		814				502				845				(173		)		772					698			814				502				845				(173		)		1,512			599
Net interest income after provision for loan losses		19,710				20,663				18,549				18,715				16,769					19,279			19,710				20,663				18,549				18,715				38,989			35,484
Noninterest income		2,336				164				2,255				4,466				3,162					2,941			2,336				164				2,255				4,466				5,277			7,628
Noninterest expense		13,795				12,208				11,872				12,623				13,288					13,254			13,795				12,208				11,872				12,623				27,049			25,911
Income from continuing operations before income taxes		8,251				8,619				8,932				10,558				6,643					8,966			8,251				8,619				8,932				10,558				17,217			17,201
Income tax expense		1,811				1,136				1,934				2,180				1,452					1,957			1,811				1,136				1,934				2,180				3,768			3,632
Net income from continuing operations		6,440				7,483				6,998				8,378				5,191					7,009			6,440				7,483				6,998				8,378				13,449			13,569
Income (loss) from discontinued operations, net of tax		(1,063		)		1,347				(485		)		(227		)		(153		)			22,143			(1,063		)		1,347				(485		)		(227		)		21,080			(380		)
Net income		$	5,377			$	8,830			$	6,513			$	8,151			$	5,038				$	29,152		$	5,377			$	8,830			$	6,513			$	8,151			$	34,529		$	13,189

PER SHARE DATA
Basic earnings (loss) per share - continuing operations		$	0.26			$	0.29			$	0.27			$	0.32			$	0.20				$	0.29		$	0.26			$	0.29			$	0.27			$	0.32			$	0.55		$	0.52
Basic earnings (loss) per share - discontinued operations		(0.04		)		0.05				(0.02		)		(0.01		)		(0.01		)			0.93			(0.04		)		0.05				(0.02		)		(0.01		)		0.87			(0.01		)
Basic earnings (loss) per share		0.22				0.34				0.25				0.31				0.20					1.22			0.22				0.34				0.25				0.31				1.42			0.51

Diluted earnings (loss) per share - continuing operations		$	0.26			$	0.29			$	0.27			$	0.32			$	0.20				$	0.29		$	0.26			$	0.29			$	0.27			$	0.32			$	0.55		$	0.52
Diluted earnings (loss) per share - discontinued operations		(0.04		)		0.05				(0.02		)		(0.01		)		(0.01		)			0.92			(0.04		)		0.05				(0.02		)		(0.01		)		0.86			(0.01		)
Diluted earnings (loss) per share		0.21				0.34				0.25				0.31				0.19					1.21			0.21				0.34				0.25				0.31				1.41			0.51

PERFORMANCE MEASURES
Return on average equity		6.80			%	10.90			%	8.07			%	10.46			%	6.66			%		34.38		%	6.80			%	10.90			%	8.07			%	10.46			%	21.07		%	8.59			%
Return on average assets		0.77				1.21				0.92				1.20				0.76					4.79			0.77				1.21				0.92				1.20				2.64			0.98
Taxable equivalent net interest margin - continuing operations		3.74				3.66				3.48				3.51				3.39					3.61			3.74				3.66				3.48				3.51				3.73			3.45
Efficiency ratio - continuing operations		60.61				57.50				55.09				55.10				64.50					58.06			60.61				57.50				55.09				55.10				59.33			59.55
Equity to assets		11.23				10.95				11.11				11.77				11.29					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⁾		1.04			%	1.03			%	1.00			%	1.01			%	1.01			%		1.02		%	1.04			%	1.03			%	1.00			%	1.01			%	1.02		%	1.01			%
Net charge-offs		$	558			$	(3	)		$	(15	)		$	129			$	231				$	619		$	558			$	(3	)		$	(15	)		$	129			$	1,177		$	360
Net charge-offs to average loans⁽⁴⁾		0.11			%	—			%	—			%	0.03			%	0.05			%		0.14		%	0.11			%	—			%	—			%	0.03			%	0.12		%	0.04			%
NPAs to total assets		0.40				0.20				0.13				0.14				0.13					0.31			0.40				0.20				0.13				0.14				0.31			0.14

AVERAGE BALANCES
Total loans		$	2,089,465			$	2,076,853			$	1,963,817			$	1,927,063			$	1,938,953
Investment securities		400,101				450,465				461,348				454,634				453,917
Total assets		2,829,072				2,891,327				2,805,740				2,718,071				2,704,822
Deposits		2,387,104				2,380,861				2,254,072				2,135,825				2,153,885
Shareholders’ equity		320,812				321,348				320,090				312,543				306,821
Number of common shares - basic		24,855,171				25,919,445				26,103,397				26,010,914				25,750,824
Number of common shares - diluted		25,019,384				26,043,799				26,254,772				26,200,026				25,945,773

AT PERIOD END
Total loans		$	2,120,866			$	2,106,992			$	2,040,320			$	1,935,923			$	1,960,256
Investment securities		402,640				402,486				465,756				453,968				458,730
Total assets		2,855,887				2,955,440				2,882,721				2,690,674				2,718,665
Deposits		2,440,448				2,544,163				2,379,824				2,066,587				2,096,300
Shareholders’ equity		320,627				323,653				320,237				316,770				307,059
Number of common shares outstanding		24,466,964				25,290,419				26,103,666				26,102,217				25,772,208

⁽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. ⁽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 first quarter 2019 and fourth quarter 2018 ratios are calculated on a continuing operations basis. Prior period ratios have not been retroactively adjusted for the impact of discontinued operations. ⁽⁴⁾ Annualized.
⁽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.																						⁽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.

Non-GAAP Performance Measures Reconciliation
(dollars in thousands)
2019 2018
First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter
Taxable equivalent interest income reconciliation
Interest income - GAAP $ 26,197
$ 26,628
$ 24,017
$ 22,836
$ 21,279
Taxable equivalent adjustment 100
97
97
98
103
Interest income - taxable equivalent $ 26,297
$ 26,725
$ 24,114
$ 22,934
$ 21,382

Taxable equivalent net interest income reconciliation
Net interest income - GAAP $ 20,424
$ 21,068
$ 19,297
$ 18,444
$ 17,438
Taxable equivalent adjustment 100
97
97
98
103
Net interest income - taxable equivalent $ 20,524
$ 21,165
$ 19,394
$ 18,542
$ 17,541

Taxable equivalent net interest income after provision for loan losses reconciliation
Net interest income after provision for loan losses - GAAP $ 19,610
$ 20,566
$ 18,452
$ 18,617
$ 16,666
Taxable equivalent adjustment 100
97
97
98
103
Net interest income after provision for loan losses - taxable equivalent $ 19,710
$ 20,663
$ 18,549
$ 18,715
$ 16,769

Taxable equivalent income before income taxes reconciliation
Income before income taxes - GAAP $ 8,151
$ 8,522
$ 8,835
$ 10,460
$ 6,540
Taxable equivalent adjustment 100
97
97
98
103
Income before income taxes - taxable equivalent $ 8,251
$ 8,619
$ 8,932
$ 10,558
$ 6,643

Taxable equivalent income tax expense reconciliation
Income tax expense - GAAP $ 1,711
$ 1,039
$ 1,837
$ 2,082
$ 1,349
Taxable equivalent adjustment 100
97
97
98
103
Income tax expense - taxable equivalent $ 1,811
$ 1,136
$ 1,934
$ 2,180
$ 1,452

Taxable equivalent net interest margin reconciliation - continuing operations
Net interest margin - GAAP - continuing operations 3.72 % 3.64 % 3.46 % 3.49 % 3.37 %
Impact of taxable equivalent adjustment 0.02
0.02
0.02
0.02
0.02
Net interest margin - taxable equivalent - continuing operations 3.74 % 3.66 % 3.48 % 3.51 % 3.39 %

Taxable equivalent net interest margin reconciliation
Net interest margin - GAAP 3.66 % 3.60 % 3.45 % 3.52 % 3.49 %
Impact of taxable equivalent adjustment 0.02
0.02
0.02
0.02
0.02
Net interest margin - taxable equivalent 3.68 % 3.62 % 3.47 % 3.54 % 3.51 %



Table 1 - Quarterly Selected Financial Data⁽¹⁾
(dollars in thousands, except share and per share data; taxable equivalent)

	2019				2018						For the six months ended June 30,
	Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		2019		2018
AVERAGE BALANCES
Total loans	$	1,800,001	$	2,089,465	$	2,076,853	$	1,963,817	$	1,927,063	$	1,943,933	$	1,932,975
Investment securities	360,047		400,101		450,465		461,348		454,634		379,964		454,277
Total assets	2,440,502		2,829,072		2,891,327		2,805,740		2,718,071		2,633,713		2,711,483
Deposits	1,947,426		2,387,104		2,380,861		2,254,072		2,135,825		2,166,052		2,144,805
Shareholders’ equity	340,119		320,812		321,348		320,090		312,543		330,519		309,698
Number of common shares - basic	23,888,381		24,855,171		25,919,445		26,103,397		26,010,914		24,369,106		25,881,587
Number of common shares - diluted	24,040,806		25,019,384		26,043,799		26,254,772		26,200,026		24,527,392		26,073,602

AT PERIOD END
Total loans	$	1,789,740	$	2,120,866	$	2,106,992	$	2,040,320	$	1,935,923	$	1,789,740	$	1,935,923
Investment securities	348,723		402,640		402,486		465,756		453,968		348,723		453,968
Total assets	2,389,680		2,855,887		2,955,440		2,882,721		2,690,674		2,389,680		2,690,674
Deposits	1,851,531		2,440,448		2,544,163		2,379,824		2,066,587		1,851,531		2,066,587
Shareholders’ equity	336,715		320,627		323,653		320,237		316,770		336,715		316,770
Number of common shares outstanding	23,293,465		24,466,964		25,290,419		26,103,666		26,102,217		23,293,465		26,102,217

⁽¹⁾ On April 5, 2019, Atlantic Capital completed the sale to FirstBank of its Tennessee and northwest Georgia banking operations, including 14 branches and the mortgage business. The banking business and branches subsequently sold to FirstBank are reported as discontinued operations. Discontinued operations have been reported retrospectively for periods presented prior to December 31, 2018.



Non-GAAP Performance Measures Reconciliation
(dollars in thousands)
	2019						2018									For the six months ended June 30,
	Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter			2019			2018
Taxable equivalent interest income reconciliation
Interest income - GAAP	$	26,598		$	26,197		$	26,628		$	24,017		$	22,836		$	52,795		$	44,115
Taxable equivalent adjustment	88			100			97			97			98			188			201
Interest income - taxable equivalent	$	26,686		$	26,297		$	26,725		$	24,114		$	22,934		$	52,983		$	44,316

Taxable equivalent net interest income reconciliation
Net interest income - GAAP	$	19,889		$	20,424		$	21,068		$	19,297		$	18,444		$	40,313		$	35,882
Taxable equivalent adjustment	88			100			97			97			98			188			201
Net interest income - taxable equivalent	$	19,977		$	20,524		$	21,165		$	19,394		$	18,542		$	40,501		$	36,083

Taxable equivalent net interest income after provision for loan losses reconciliation
Net interest income after provision for loan losses - GAAP	$	19,191		$	19,610		$	20,566		$	18,452		$	18,617		$	38,801		$	35,283
Taxable equivalent adjustment	88			100			97			97			98			188			201
Net interest income after provision for loan losses - taxable equivalent	$	19,279		$	19,710		$	20,663		$	18,549		$	18,715		$	38,989		$	35,484

Taxable equivalent income before income taxes reconciliation
Income before income taxes - GAAP	$	8,878		$	8,151		$	8,522		$	8,835		$	10,460		$	17,029		$	17,000
Taxable equivalent adjustment	88			100			97			97			98			188			201
Income before income taxes - taxable equivalent	$	8,966		$	8,251		$	8,619		$	8,932		$	10,558		$	17,217		$	17,201

Taxable equivalent income tax expense reconciliation
Income tax expense - GAAP	$	1,869		$	1,711		$	1,039		$	1,837		$	2,082		$	3,580		$	3,431
Taxable equivalent adjustment	88			100			97			97			98			188			201
Income tax expense - taxable equivalent	$	1,957		$	1,811		$	1,136		$	1,934		$	2,180		$	3,768		$	3,632

Taxable equivalent net interest margin reconciliation - continuing operations
Net interest margin - GAAP - continuing operations	3.60		%	3.72		%	3.64		%	3.46		%	3.49		%	3.71		%	3.43		%
Impact of taxable equivalent adjustment	0.01			0.02			0.02			0.02			0.02			0.02			0.02
Net interest margin - taxable equivalent - continuing operations	3.61		%	3.74		%	3.66		%	3.48		%	3.51		%	3.73		%	3.45		%

Taxable equivalent net interest margin reconciliation
Net interest margin - GAAP	3.54		%	3.66		%	3.60		%	3.45		%	3.52		%	3.61		%	3.51		%
Impact of taxable equivalent adjustment	0.02			0.02			0.02			0.02			0.02			0.01			0.01
Net interest margin - taxable equivalent	3.56		%	3.68		%	3.62		%	3.47		%	3.54		%	3.62		%	3.52		%

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

Taxable equivalent net interest income from continuing operations for the ~~first~~second quarter of 2019 totaled ~~$20.5~~$20.0 million, a ~~$3.0~~$1.4 million, or ~~17%~~8%, increase compared to the ~~first~~second quarter of 2018. This increase was primarily driven by a ~~$4.9~~$3.8 million, or ~~23%~~16%, increase in taxable equivalent interest income from continuing operations. ~~Net accretion income on the acquired loans discount totaled $115,000 for the three months ended March 31, 2019, compared to $448,000 for the same period in 2018.~~

The change in taxable equivalent interest income from continuing operations primarily resulted from ~~the following:~~

a ~~$4.8~~$4.3 million, or ~~27%~~22%, increase in interest income on loans, resulting from increases in the Federal Funds rate and an increase in average loan ~~balances; and~~

~~a $66,000 increase to $463,000 in interest~~balances. Net accretion income on ~~deposits~~the acquired loans discount totaled $175,000 for the three months ended June 30, 2019, compared to $331,000 for the same period in ~~other banks, resulting from increases in~~2018.

Due to the ~~Federal Funds rate.~~

~~Atlantic Capital expects net interest income from continuing operations in future periods to be negatively impacted as a result of the $166~~$167 million in cash paid to the buyer at the closing of the ~~branch sale. The Company anticipates restructuring~~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 ~~March 31,~~June 30, 2019 totaled ~~$5.8~~$6.7 million, a ~~$1.9~~$2.3 million, or ~~50%~~53%, increase from the same period of 2018. The rate paid on interest bearing liabilities increased 5950 basis points from the ~~first~~second quarter of 2018 to the ~~first~~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 ~~3.74%~~3.61% for the three months ended ~~March 31,~~June 30, 2019 compared to ~~3.39%~~3.51% for the three months ended ~~March 31,~~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 ~~months ended March 31, 2019 compared to March 31, 2018~~and six month periods was higher interest rates on loans resulting from Federal Funds rate increases.

The following table presents information regarding average balances for assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing the income or expense by the average balances for assets or liabilities, respectively, for the periods presented. Loan fees are included in interest income on loans.


Table 2 - Average Balance Sheets and Net Interest Analysis	Table 2 - Average Balance Sheets and Net Interest Analysis													Table 2 - Average Balance Sheets and Net Interest Analysis
(dollars in thousands; taxable equivalent)	(dollars in thousands; taxable equivalent)													(dollars in thousands; taxable equivalent)
		Three months ended March 31,													Three months ended June 30,
		2019						2018							2019						2018
		Average Balance		Interest Income/ Expense		Tax Equivalent Yield/Rate		Average Balance		Interest Income/ Expense		Tax Equivalent Yield/Rate			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		$	92,168	$	463	2.04	%	$	78,207	$	397	2.06	%		$	70,628	$	450	2.56	%	$	97,501	$	562	2.31	%
Other short-term investments		11,680		86		2.99		10,346		63		2.47			3,993		32		3.21		9,262		64		2.77
Investment securities:
Taxable investment securities		320,089		2,113		2.68		375,771		2,116		2.28			280,639		1,848		2.64		378,291		2,212		2.35
Non-taxable investment securities⁽¹⁾		80,012		618		3.13		78,146		579		3.00			79,408		579		2.92		76,343		573		3.01
Total investment securities		400,101		2,731		2.77		453,917		2,695		2.41			360,047		2,427		2.70		454,634		2,785		2.46
Loans - continuing operations		1,707,682		22,752		5.40		1,536,636		17,972		4.74			1,769,803		23,554		5.34		1,540,351		19,269		5.02
FHLB and FRB stock		12,528		265		8.58		17,895		255		5.78			14,435		223		6.20		19,357		254		5.26
Total interest-earning assets - continuing operations		2,224,159		26,297		4.80		2,097,001		21,382		4.14			2,218,906		26,686		4.82		2,121,105		22,934		4.34
Loans held for sale - discontinued operations		381,783		4,541		4.82		402,317		4,703		4.74			30,198		47		0.62		386,712		4,510		4.68
Total interest-earning assets		2,605,942		30,838		4.80		2,499,318		26,085		4.23			2,249,104		26,733		4.77		2,507,817		27,444		4.39
Non-earning assets		223,130						205,504							191,398						210,254
Total assets		$	2,829,072					$	2,704,822						$	2,440,502					$	2,718,071
Liabilities
Interest bearing deposits:
NOW, money market, and savings		1,124,350		4,255		1.53		934,415		1,917		0.83			1,175,237		4,733		1.62		932,991		2,222		0.96
Time deposits		12,847		38		1.20		9,800		28		1.16			32,358		50		0.62		9,855		25		1.02
Brokered deposits		81,141		538		2.69		117,787		479		1.65			106,524		665		2.50		100,425		468		1.87
Total interest-bearing deposits		1,218,338		4,831		1.61		1,062,002		2,424		0.93			1,314,119		5,448		1.66		1,043,271		2,715		1.04
Total borrowings		18,056		118		2.65		151,946		588		1.57			70,770		438		2.48		180,699		853		1.89
Total long-term debt		49,719		824		6.72		49,550		829		6.79			49,761		823		6.63		49,592		823		6.66
Total interest-bearing liabilities - continuing operations		1,286,113		5,773		1.82		1,263,498		3,841		1.23			1,434,650		6,709		1.88		1,273,562		4,391		1.38
Interest-bearing liabilities - discontinued operations		473,090		1,416		1.21		458,029		624		0.55			36,255		86		0.95		464,598		941		0.81
Total interest-bearing liabilities		1,759,203		7,189		1.66		1,721,527		4,465		1.05			1,470,905		6,795		1.85		1,738,160		5,332		1.23
Demand deposits		575,453						502,829							587,957						489,722
Demand deposits - discontinued operations		128,977						135,901							9,851						143,391
Other liabilities		44,627						37,744							31,670						34,255
Shareholders' equity		320,812						306,821							340,119						312,543
Total liabilities and shareholders' equity		$	2,829,072					$	2,704,822						$	2,440,502					$	2,718,071
Net interest spread - continuing operations						2.98	%					2.91	%						2.94	%					2.96	%
Net interest income and net interest margin - continuing operations⁽²⁾				$	20,524	3.74	%			$	17,541	3.39	%				$	19,977	3.61	%			$	18,543	3.51	%
Net interest income and net interest margin⁽²⁾				$	23,649	3.68	%			$	21,620	3.51	%				$	19,938	3.56	%			$	22,112	3.54	%

Non-taxable equivalent net interest margin						3.66	%					3.49	%						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.	⁽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.													⁽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.	⁽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.													⁽²⁾ Taxable equivalent net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset.



Table 2 - Average Balance Sheets and Net Interest Analysis (continued)
(dollars in thousands; taxable equivalent)
	Six months ended June 30,
	2019						2018
	Average Balance		Interest Income/ Expense		Tax Equivalent Yield/Rate		Average Balance		Interest Income/ Expense		Tax Equivalent Yield/Rate
Assets
Interest bearing deposits in other banks	$	81,339	$	913	2.26	%	$	87,907	$	959	2.20	%
Other short-term investments	7,815		118		3.04		9,801		127		2.61
Investment securities:
Taxable investment securities	300,255		3,962		2.66		377,038		4,328		2.31
Non-taxable investment securities⁽¹⁾	79,709		1,196		3.03		77,239		1,152		3.01
Total investment securities	379,964		5,158		2.74		454,277		5,480		2.43
Loans - continuing operations	1,708,549		46,306		5.47		1,538,504		37,241		4.88
FHLB and FRB stock	13,487		488		7.30		18,630		509		5.51
Total interest-earning assets - continuing operations	2,191,154		52,983		4.88		2,109,119		44,316		4.24
Loans held for sale - discontinued operations	235,384		4,588		3.93		394,471		9,213		4.71
Total interest-earning assets	2,426,538		57,571		4.78		2,503,590		53,529		4.31
Non-earning assets	207,175						207,893
Total assets	$	2,633,713					$	2,711,483
Liabilities
Interest bearing deposits:
NOW, money market, and savings	1,125,253		8,988		1.61		933,699		4,139		0.89
Time deposits	11,049		88		1.61		9,828		53		1.09
Brokered deposits	93,903		1,203		2.58		109,058		947		1.75
Total interest-bearing deposits	1,230,205		10,279		1.68		1,052,585		5,139		0.98
Total borrowings	43,798		556		2.56		166,402		1,442		1.75
Total long-term debt	49,740		1,647		6.68		49,571		1,652		6.72
Total interest-bearing liabilities - continuing operations	1,323,743		12,482		1.90		1,268,558		8,233		1.31
Interest-bearing liabilities - discontinued operations	290,515		1,502		1.04		461,331		1,564		0.68
Total interest-bearing liabilities	1,614,258		13,984		1.75		1,729,889		9,797		1.14
Demand deposits	571,669						496,239
Demand deposits - discontinued operations	79,156						139,667
Other liabilities	38,111						35,990
Shareholders' equity	330,519						309,698
Total liabilities and shareholders' equity	$	2,633,713					$	2,711,483
Net interest spread - continuing operations					2.98	%					2.94	%
Net interest income and net interest margin - continuing operations⁽²⁾			$	40,501	3.73	%			$	36,083	3.45	%
Net interest income and net interest margin⁽²⁾			$	43,587	3.62	%			$	43,732	3.52	%

Non-taxable equivalent net interest margin					3.61	%					3.51	%

⁽¹⁾ Interest revenue on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 21%, reflecting the statutory federal income tax rate.
⁽²⁾ Taxable equivalent net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset.

The following table shows the relative effect on taxable equivalent net interest income for changes in the average outstanding amounts (volume) of interest-earning assets and interest-bearing liabilities and the rates earned and paid on such assets and liabilities (rate). Variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category.


Table 3 - Changes in Taxable Equivalent Net Interest Income	Table 3 - Changes in Taxable Equivalent Net Interest Income										Table 3 - Changes in Taxable Equivalent Net Interest Income
(dollars in thousands)
		Three Months Ended March 31, 2019 Compared to 2018 Increase (decrease) Due to Changes in:										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			Volume			Yield/Rate			Total Change
Interest earning assets
Interest bearing deposits in other banks		$	70		$	(4	)	$	66			$	(171	)	$	59		$	(112	)	$	(74	)	$	28		$	(46	)
Other short-term investments		10			13			23				(42		)	10			(32		)	(30		)	21			(9		)
Investment securities:
Taxable investment securities		(368		)	365			(3		)		(643		)	279			(364		)	(1,013		)	647			(366		)
Non-taxable investment securities		14			25			39				22			(16		)	6			37			7			44
Total investment securities		(354		)	390			36				(621		)	263			(358		)	(976		)	654			(322		)
Loans - continuing operations		2,279			2,501			4,780				3,054			1,231			4,285			4,609			4,456			9,065
FHLB and FRB stock		(114		)	124			10				(76		)	45			(31		)	(186		)	165			(21		)
Total interest-earning assets - continuing operations		1,891			3,024			4,915				2,144			1,608			3,752			3,343			5,324			8,667
Loans held for sale - discontinued operations		(244		)	82			(162		)		(555		)	(3,908		)	(4,463		)	(3,101		)	(1,524		)	(4,625		)
Total interest-earning assets		1,647			3,106			4,753				1,589			(2,300		)	(711		)	242			3,800			4,042

Interest bearing liabilities
Interest bearing deposits:
NOW, money market, and savings		719			1,619			2,338				976			1,535			2,511			1,530			3,319			4,849
Time deposits		9			1			10				35			(10		)	25			10			24			34
Brokered deposits		(243		)	302			59				38			159			197			(194		)	450			256
Total interest-bearing deposits		485			1,922			2,407				1,049			1,684			2,733			1,346			3,793			5,139
Total borrowings		(875		)	405			(470		)		(680		)	265			(415		)	(1,623		)	738			(885		)
Total long-term debt		3			(8		)	(5		)		3			(3		)	—			6			(11		)	(5		)
Total interest-bearing liabilities - continuing operations		(387		)	2,319			1,932				372			1,946			2,318			(271		)	4,520			4,249
Interest-bearing liabilities - discontinued operations		45			747			792				(1,016		)	161			(855		)	(883		)	821			(62		)
Total interest-bearing liabilities		(342		)	3,066			2,724				(644		)	2,107			1,463			(1,154		)	5,341			4,187

Change in net interest income - continuing operations		$	2,278		$	705		$	2,983			$	1,772		$	(338	)	$	1,434		$	3,614		$	804		$	4,418
Change in net interest income		$	1,989		$	40		$	2,029			$	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 ~~March 31,~~June 30, 2019, the provision for loan losses from continuing operations was ~~$814,000,~~$698,000, an increase of ~~$42,000~~$871,000 compared to the three months ended ~~March 31,~~June 30, 2018. For the six months ended June 30, 2019, the provision for loan losses from continuing operations was $1.5 million, an increase of $913,000 compared to the six months ended June 30, 2018.

The higher provision for the three and six months ended ~~March 31,~~June 30, 2019, compared to the same periods in 2018, was primarily related to an increase in ~~specific reserve impairments~~net charge-offs as well as an increase in ~~net charge-offs.~~specific reserve impairments. At ~~March 31,~~June 30, 2019, nonperforming loans totaled ~~$10.3~~$6.4 million compared to ~~$2.5~~$2.4 million at ~~March 31,~~June 30, 2018. Net loan charge-offs were ~~0.11%~~0.14% and 0.12%, respectively, of average loans (annualized) for the three and six months ended ~~March 31,~~June 30, 2019 compared to ~~0.05%~~0.03% and 0.04%, respectively, for the three and six months ended ~~March 31,~~June 30, 2018. The allowance for loan losses to total loans at ~~March 31,~~June 30, 2019 was ~~1.04%~~1.02%, compared to 1.01% at ~~March 31,~~June 30, 2018.

Noninterest Income

Noninterest income for the three and six months ended ~~March 31,~~June 30, 2019 was ~~$3.1~~$37.4 million ~~a decrease~~and $40.6 million, respectively, an increase of ~~$857,000, or 22%,~~$32.1 million compared to the ~~first~~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	Table 4 - Noninterest Income													Table 4 - Noninterest Income
(dollars in thousands)
		Three months ended March 31,						Change							Three months ended June 30,						Change						Six months ended June 30,						Change
		2019			2018			$			%				2019			2018			$			%			2019			2018			$			%
Service charges		$	794		$	707		$	87		12		%		$	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		(3		)	(46		)	43			93				(10		)	(166		)	156			(94	)		(13		)	(212		)	199			(94	)
Trust income		—			518			(518		)	(100	)			—			507			(507		)	(100	)		—			1,025			(1,025		)	(100	)
Derivatives income (loss)		(111		)	114			(225		)	(197	)			(233		)	20			(253		)	(1,265	)		(344		)	134			(478		)	(357	)
Bank owned life insurance		360			369			(9		)	(2	)			389			378			11			3			749			747			2			—
SBA lending activities		1,086			1,302			(216		)	(17	)			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		210			198			12			6				175			223			(48		)	(22	)		385			421			(36		)	(9	)
Total noninterest income - continuing operations		2,336			3,162			(826		)	(26	)			2,941			4,466			(1,525		)	(34	)		5,277			7,628			(2,351		)	(31	)
Noninterest income - discontinued operations		790			821			(31		)	(4	)			34,499			865			33,634			3,888			35,289			1,686			33,603			1,993
Noninterest income		$	3,126		$	3,983		$	(857	)	(22	)	%		$	37,440		$	5,331		$	32,109		602		%	$	40,566		$	9,314		$	31,252		336		%

Service charges from continuing operations for the three months ended ~~March 31,~~June 30, 2019 totaled ~~$794,000,~~$870,000, an increase of ~~$87,000,~~$42,000, or ~~12%~~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 ~~first quarter of~~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 ~~decreased $518,000, or 100%,~~ due to the sale of the trust business in the second quarter of 2018.

~~Derivative~~Derivatives income (loss) for the ~~first~~second quarter of 2019 was ~~($111,000),~~a loss of $233,000, a decrease of ~~$225,000~~$253,000 from the same period in 2018. The decrease was primarily due to a decrease in credit valuation adjustment income of ~~$220,000.~~$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 ~~first~~second quarter of 2019 ~~decreased $216,000,~~increased $99,000, or ~~17%~~10%, from the same period in 2018, due to ~~decreases~~an increase in loan balances ~~sold and premiums received.~~sold. During the three months ended ~~March 31,~~June 30, 2019 and 2018, guaranteed portions of 2931 and 1719 SBA loans totaling ~~$15.7~~$16.9 million and ~~$17.7~~$13.9 million, respectively, were sold in the secondary market. Income from SBA lending activities for the first six months of 2019 decreased $117,000, or 5%, from the same period in 2018, due to lower premiums paid. During the six months ended June 30, 2019 and 2018, guaranteed portions of 60 and 36 SBA loans with principal balances of $32.6 million and $29.3 million, respectively, were sold in the secondary market.

Noninterest income from discontinued operations increased $33.6 million for the three and six months ended June 30, 2019 compared to the same periods in 2018 due to a $34.5 million gain in connection with the Branch Sale.

Noninterest Expense

Noninterest expense for the ~~first~~second quarter of 2019 was ~~$19.1~~$17.6 million, an increase of ~~$735,000,~~$246,000, or 4%1%, from the ~~first~~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 March 31,				Change						Three months ended June 30,				Change						Six months ended June 30,				Change
	2019		2018		$			%			2019		2018		$			%			2019		2018		$			%
Salaries and employee benefits	$	9,213	$	8,950	$	263		3		%	$	8,529	$	7,911	$	618		8		%	$	17,742	$	16,861	$	881		5		%
Occupancy	639		885		(246		)	(28	)		689		700		(11		)	(2	)		1,328		1,585		(257		)	(16	)
Equipment and software	739		586		153			26			753		701		52			7			1,492		1,287		205			16
Professional services	775		825		(50		)	(6	)		792		943		(151		)	(16	)		1,567		1,768		(201		)	(11	)
Postage, printing and supplies	48		37		11			30			29		44		(15		)	(34	)		77		81		(4		)	(5	)
Communications and data processing	675		681		(6		)	(1	)		662		657		5			1			1,337		1,338		(1		)	—
Marketing and business development	226		140		86			61			233		135		98			73			459		275		184			67
FDIC premiums	235		108		127			118			175		143		32			22			410		251		159			63
Other noninterest expense	1,245		1,076		169			16			1,392		1,389		3			—			2,637		2,465		172			7
Total noninterest expense	13,795		13,288		507			4			13,254		12,623		631			5			27,049		25,911		1,138			4
Noninterest expense - discontinued operations	5,332		5,104		228			4			4,353		4,738		(385		)	(8	)		9,685		9,842		(157		)	(2	)
Noninterest expense	$	19,127	$	18,392	$	735		4		%	$	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 ~~March 31,~~June 30, 2019 totaled ~~$9.2~~$8.5 million, an increase of ~~$263,000,~~$618,000, or 3%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 ~~March 31,~~June 30, 2019, was primarily attributable to severance expense unrelated to the Branch Sale, ~~an increase in long term incentive expense,~~ and an increase in ~~401(k) matching costs.~~medical insurance expense. Full time equivalent headcount totaled ~~324~~199 at ~~March 31,~~June 30, 2019, compared to ~~339~~331 at ~~March 31,~~June 30, 2018, a net decrease of 15132 positions, primarily due to a reduction in retail and support staff related to the ~~sale of the trust business.~~Branch Sale.

Occupancy costs from continuing operations were ~~$639,000~~$689,000 for the ~~first~~second quarter of 2019, a decrease of ~~$246,000,~~$11,000, or ~~28%~~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 ~~quarter~~six months of 2018. The decrease for the ~~three~~six months ended ~~March 31,~~June 30, 2019, was the result of higher rent expense in the ~~first~~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 ~~$739,000~~$753,000 for the ~~first~~second quarter of 2019, an increase of ~~$153,000,~~$52,000, or ~~26%~~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 ~~quarter~~six months of 2018. The increase for both periods was the result of ~~higher depreciation expense from the Bank’s new headquarters and~~ additional investments in technology.

Professional services costs from continuing operations were ~~$775,000~~$792,000 for the ~~first~~second quarter of 2019, a decrease of ~~$50,000,~~$151,000, or 6%16%, compared to the ~~first~~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 ~~audit and accounting~~consultant fees.

FDIC premiums from continuing operations were ~~$235,000~~$175,000 for the ~~first~~second quarter of 2019, an increase of ~~$127,000,~~$32,000, or ~~118%~~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 ~~quarter~~six months of 2018. The increase for the three and six months ended ~~March 31,~~June 30, 2019 was due to an increase in the assessment base as well as the assessment rate.

Income Taxes

Atlantic Capital monitors and evaluates the potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities. On a periodic basis, Atlantic Capital evaluates its income tax positions based on current tax law and positions taken by various tax auditors within the jurisdictions where Atlantic Capital is required to file income tax returns.

The income tax expense from continuing operations for the three and six months ended ~~March 31,~~June 30, 2019 was ~~$1.7~~$1.9 million and $3.6 million, respectively, as compared ~~to income tax expense from continuing operations of $1.3~~with $2.1 million and $3.4 million for the same ~~period~~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 ~~March 31,~~June 30, 2019 compared to ~~20.6%~~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 ~~March 31,~~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 ~~March 31,~~June 30, 2019 and 2018, Atlantic Capital recorded a deferred tax asset valuation allowance totaling $7.4 million and $8.5 million, respectively, on certain net operating loss carryforwards due to the fact that certain tax attributes are subject to an annual limitation as a result of the acquisition of First Security, which constituted a change of ownership as defined under Internal Revenue Code Section 382. Management expects to generate future taxable income and believes this will allow for full utilization of Atlantic Capital’s remaining net operating loss carryforwards within the statutory carryforward periods.

FINANCIAL CONDITION

Total assets at ~~March 31,~~June 30, 2019 and December 31, 2018 were ~~$2.86~~$2.39 billion and $2.96 billion, respectively. Average total assets for the ~~first~~second quarter of 2019 were ~~$2.83~~$2.44 billion, compared to ~~$2.70~~$2.72 billion in the ~~first~~second quarter of 2018.

Loans

At ~~March 31,~~June 30, 2019, total loans held for investment increased ~~$13.9~~$61.7 million, or 1%4%, to ~~$2.12~~$1.79 billion compared to ~~$2.11~~$1.73 billion at December 31, 2018. Table 6 provides additional information regarding Atlantic Capital’s loan portfolio.


Table 6 - Loans
(dollars in thousands)
	March 31, 2019			% of Total Loans		December 31, 2018			% of Total Loans		June 30, 2019			% of Total Loans		December 31, 2018			% of Total Loans
Loans held for sale
Loans held for sale - discontinued operations	$	384,779				$	373,030				$	—				$	373,030
Other loans held for sale	1,530					5,889					—					5,889
Total loans held for sale	$	386,309				$	378,919				$	—				$	378,919

Loans held for investment
Commercial loans:
Commercial and industrial	$	679,489		39	%	$	645,374		37	%	$	701,566		39	%	$	645,374		37	%
Commercial real estate:
Owner occupied	304,945			18		298,291			17		313,310			18		298,291			17
Non-owner occupied	438,016			25		496,537			30		453,536			25		496,537			30
Construction and land	173,885			10		156,232			9		198,956			11		156,232			9
Mortgage warehouse participations	22,267			1		27,967			2		10,665			1		27,967			2
Total commercial loans	1,618,602			93		1,624,401			95		1,678,033			94		1,624,401			95

Residential:
Residential mortgages	32,915			2		32,800			2		31,338			2		32,800			2
Home equity	23,171			1		22,822			1		24,303			1		22,822			1
Total residential loans	56,086			3		55,622			3		55,641			3		55,622			3

Consumer	35,203			2		25,851			1		34,618			2		25,851			1
Other	26,663			2		24,712			1		24,126			1		24,712			1
	1,736,554					1,730,586					1,792,418					1,730,586
Less net deferred fees and other unearned income	(1,997		)			(2,513		)			(2,678		)			(2,513		)
Total loans held for investment	1,734,557					1,728,073					1,789,740					1,728,073

Total loans	$	2,120,866				$	2,106,992				$	1,789,740				$	2,106,992

Nonperforming Assets

Nonperforming assets include nonaccrual loans, accruing loans past due 90 days or more, and other real estate owned. Loans are considered to be past due when payment is not received from the borrower by the contractually specified due date. Interest accruals on loans are discontinued when interest or principal has been in default 90 days or more, unless the loan is both secured by collateral that is sufficient to repay the debt in full and the loan is in the process of collection. When a loan is placed on nonaccrual status, interest accrued and not paid in the current accounting period is reversed against current period income. Interest accrued and not paid in prior periods, if significant, is reversed against the allowance for loan losses.

Income on such loans is subsequently recognized on a cash basis as long as the future collection of principal is deemed probable or after all principal payments are received. Commercial loans are placed back on accrual status after sustained performance of timely and current principal and interest payments and it is probable that all remaining amounts due, both principal and interest, are fully collectible according to the terms of the loan agreement. Residential loans and consumer loans are generally placed back on accrual status when they are no longer past due.

Purchased Credit Impaired (“PCI”) loans accounted for under ASC 310-30 are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans are considered as performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period covered loan loss provision or future period yield adjustments. PCI loans were not classified as nonaccrual for periods ended prior to December 31, 2018, as the carrying value of the respective loan or pool of loans cash flows were considered estimable and collection was probable. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, was recognized on all PCI loans. As of December 31, 2018, PCI loans were designated as held for sale in the upcoming Branch Sale.

At ~~March 31,~~June 30, 2019, Atlantic Capital’s nonperforming assets totaled ~~$11.3~~$7.3 million, or ~~0.40%~~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 ~~$3.5~~$1.8 million which was placed on nonaccrual status.

Nonaccrual loans totaled ~~$10.3~~$6.0 million and $4.7 million as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. Loans past due 90 days and still accruing totaled $0$353,000 at ~~March 31,~~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
Table 7 - Nonperforming Assets
(dollars in thousands)

	March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018
Nonaccrual loans	$	10,336		$	4,697		$	2,716		$	2,404		$	2,466		$	5,999		$	10,336		$	4,697		$	2,716		$	2,404
Loans past due 90 days and still accruing	—			479			—			2			35			353			—			479			—			2
Total nonperforming loans⁽¹⁾ (NPLs)	10,336			5,176			2,716			2,406			2,501			6,352			10,336			5,176			2,716			2,406
Other real estate owned	971			874			968			1,288			927			971			971			874			968			1,288
Total nonperforming assets (NPAs)	$	11,307		$	6,050		$	3,684		$	3,694		$	3,428		$	7,323		$	11,307		$	6,050		$	3,684		$	3,694
NPLs as a percentage of total loans	0.49		%	0.25		%	0.13		%	0.12		%	0.13		%	0.35		%	0.49		%	0.25		%	0.13		%	0.12		%
NPAs as a percentage of total assets	0.40			0.20			0.13			0.14			0.13			0.31			0.40			0.20			0.13			0.14

⁽¹⁾Nonperforming loans as of September 30, 2018 and June 30, ~~2018, and March 31,~~ 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.

Troubled 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)
	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Accruing TDRs	$	7,937	$	8,237	$	7,820	$	8,237
Nonaccruing TDRs	1,022		—		1,332		—
Total TDRs	$	8,959	$	8,237	$	9,152	$	8,237

The increase in TDRs was due to the Company extending the repayment period on ~~three~~four commercial and industrial loans and two commercial real estate loans, resulting in their reclassification as TDRs. Additionally, ~~one~~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 ~~$48.1~~$43.6 million and ~~$58.2~~$57.7 million ~~respectively,~~ as of ~~March 31,~~June 30, 2019 and December 31, ~~2018.~~2018, respectively. Management closely tracks the financial performance of the borrower and the current values of collateral when assessing the collectability of these loans.

Allowance for Loan Losses

At ~~March 31,~~June 30, 2019, the allowance for loan losses totaled ~~$18.1~~$18.2 million, or ~~1.04%~~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 ~~reserve impairments.~~reserves.

Net charge-offs for the three months ended ~~March 31,~~June 30, 2019 and 2018 were ~~$558,000~~$619,000 and ~~$231,000,~~$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.~~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)	Table 9 - Allowance for Loan Losses (ALL)																			Table 9 - Allowance for Loan Losses (ALL)
(dollars in thousands)
	2019				2018															2019								2018
	First				Fourth				Third			Second				First				Second				First				Fourth				Third			Second
	Quarter				Quarter				Quarter			Quarter				Quarter				Quarter				Quarter				Quarter				Quarter			Quarter
Balance at beginning of period	$	17,851			$	20,443			$	19,583		$	19,885			$	19,344			$	18,107			$	17,851			$	20,443			$	19,583		$	19,885
Provision for loan losses	814				595				758			(173		)		811				698				814				595				758			(173		)
Provision for loan losses (reversal of provision) - discontinued operations	—				(3,097		)		—			—				—				—				—				(3,097		)		—			—
Provision for PCI loan losses	—				(93		)		87			—				(39		)		—				—				(93		)		87			—
Loans charged-off:
Commercial and industrial	(549		)		—				—			—				(126		)		(588		)		(549		)		—				—			—
Commercial real estate	—				—				—			(50		)		—				(47		)		—				—				—			(50		)
Construction and land	—				—				—			—				—				—				—				—				—			—
Residential mortgages	(9		)		(5		)		—			—				(70		)		—				(9		)		(5		)		—			—
Home equity	—				—				—			(102		)		(58		)		—				—				—				—			(102		)
Consumer	(37		)		(3		)		—			(10		)		(3		)		—				(37		)		(3		)		—			(10		)
Other	—				—				—			—				—				—				—				—				—			—
Total loans charged-off	(595		)		(8		)		—			(162		)		(257		)		(635		)		(595		)		(8		)		—			(162		)
Recoveries on loans previously charged-off:
Commercial and industrial	14				—				—			—				19				—				14				—				—			—
Commercial real estate	—				—				—			28				—				—				—				—				—			28
Construction and land	3				—				—			—				—				—				3				—				—			—
Residential mortgages	7				4				—			—				—				—				7				4				—			—
Home equity	1				—				—			—				—				—				1				—				—			—
Consumer	12				7				15			5				7				16				12				7				15			5
Other	—				—				—			—				—				—				—				—				—			—
Total recoveries	37				11				15			33				26				16				37				11				15			33
Net charge-offs	(558		)		3				15			(129		)		(231		)		(619		)		(558		)		3				15			(129		)
Allowance for loan losses at end of period ⁽¹⁾	$	18,107			$	17,851			$	20,443		$	19,583			$	19,885			$	18,186			$	18,107			$	17,851			$	20,443		$	19,583

Average loans	2,089.465				2,076.853				1,963.817			1,927.063				1,938.953				$	1,800,001			$	2,089,465			$	2,076,853			$	1,963,817		$	1,927,063
Loans at end of period	1,734.557				1,728.073				2,038.434			1,934.311				1,959.421				1,789,740				1,734,557				1,728,073				2,038,434			1,934,311
Ratios:
Net charge-offs (annualized) to average loans	0.11			%	0.00			%	0.00		%	0.03			%	0.05			%	0.14			%	0.11			%	0.00			%	0.00		%	0.03			%
Allowance for loan losses to total loans ⁽¹⁾	1.04				1.03				1.00			1.01				1.01				1.02				1.04				1.03				1.00			1.01

(1) The allowance for loan losses has not been adjusted retrospectively for discontinued operations in periods prior to the fourth quarter of 2018.

Investment Securities

Investment securities available-for-sale totaled ~~$402.6~~$348.7 million at ~~March 31,~~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 ~~March 31,~~June 30, 2019, investment securities available-for-sale had a net unrealized ~~loss~~gain of ~~$3.3~~$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 ~~March 31,~~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 ~~March 31,~~June 30, 2019 and December 31, 2018 are provided in Table 10.


Table 10 - Securities	Table 10 - Securities									Table 10 - Securities
(dollars in thousands)
		March 31, 2019				December 31, 2018					June 30, 2019				December 31, 2018
Available-For-Sale Securities		Amortized Cost		Fair Value		Amortized Cost		Fair Value			Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Government agencies		$	27,042	$	26,969	$	27,259	$	26,849		$	21,518	$	21,863	$	27,259	$	26,849
U.S. states and political divisions		92,096		89,290		91,864		84,834			79,078		78,846		91,864		84,834
Trust preferred securities		4,788		4,575		4,781		4,400			4,794		4,562		4,781		4,400
Corporate debt securities		12,832		12,548		12,855		12,363			9,572		9,653		12,855		12,363
Residential mortgage-backed securities		269,207		269,258		277,524		274,040			231,650		233,799		277,524		274,040
Total		$	405,965	$	402,640	$	414,283	$	402,486		$	346,612	$	348,723	$	414,283	$	402,486

The effective duration of Atlantic Capital’s securities at ~~March 31,~~June 30, 2019 was ~~4.87~~4.54 years.

Goodwill and Other Intangible Assets

Atlantic Capital’s core deposit intangible representing the value of the acquired deposit base, is an amortizing intangible asset that is required to be tested for impairment only when events or circumstances indicate that impairment may exist. There were no events or circumstances that led management to believe that any impairment existed at March 31, 2019 in Atlantic Capital’s 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 ~~sale of all 14 of its bank branches located in Tennessee and northwest Georgia, including its mortgage banking business, to FirstBank.~~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 ~~March 31,~~June 30, 2019 and no events or circumstances led management to believe any impairment existed at the balance sheet date.

Atlantic Capital’s core deposit intangible representing the value of the acquired deposit base, was an amortizing intangible asset that was required to be tested for impairment only when events or circumstances indicated that impairment may exist. This core deposit intangible was fully amortized in the second quarter of 2019 as a result of the Branch Sale.

LIQUIDITY AND CAPITAL RESOURCES

Deposits

At ~~March 31,~~June 30, 2019, total deposits from continuing operations were ~~$2.44~~$1.85 billion, a decrease of ~~$97.5~~$101.0 million, or 4%5%, from December 31, 2018. Noninterest-bearing demand deposits from continuing operations decreased ~~$40.4~~$32.6 million, or 7%5%, and money market deposits decreased ~~$24.4~~$184.2 million, or 2%19%, from December 31, 2018 to ~~March 31,~~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 ~~March 31,~~June 30, 2019 were ~~$2.39~~$1.90 billion, an increase of ~~$233.2~~$369.1 million, or ~~11%~~24%, from the same period in 2018. For the quarter ended ~~March 31,~~June 30, 2019 compared to the same period in 2018, average noninterest-bearing demand deposits from continuing operations increased ~~$72.6~~$98.2 million, or ~~14%~~20%, average interest-bearing demand deposits from continuing operations increased ~~$39.4~~$27.3 million, or ~~17%~~10%, average money market deposits from continuing operations increased ~~$150.2~~$214.6 million, or ~~22%~~33%, and average ~~brokered~~time deposits ~~decreased $36.6~~from continuing operations increased $22.5 million, or ~~31%~~228%. Table 11 provides additional information regarding deposits during the past five quarters.


Table 11 - Deposits
(dollars in thousands)

Period End Deposits	March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			Year To Date Change				Year Over Year Change				June 30, 2019				March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018			Year To Date Change			Year Over Year Change
DDA	$	561,829		$	602,252		$	518,155		$	464,282		$	472,181		$	(40,423	)		$	89,648			$	569,693			$	561,829			$	602,252			$	518,155			$	464,282		$	(32,559	)	$	105,411
NOW	233,838			252,490			407,214			241,461			214,333			(18,652		)		19,505				309,709				233,838				252,490				407,214				241,461			57,219			68,248
Savings	896			725			698			951			3,593			171				(2,697		)		1,090				896				725				698				951			365			139
Money market	962,741			987,183			759,583			647,247			699,311			(24,442		)		263,430				802,973				962,741				987,183				759,583				647,247			(184,210		)	155,726
Time	22,069			10,623			10,396			10,359			3,074			11,446				18,995				33,902				22,069				10,623				10,396				10,359			23,279			23,543
Brokered	65,811			99,241			79,119			92,656			112,376			(33,430		)		(46,565		)		134,164				65,811				99,241				79,119				92,656			34,923			41,508
Total deposits - continuing operations	1,847,184			1,952,514			1,775,165			1,456,956			1,504,868			(105,330		)		342,316				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			591,432			7,835				1,832				—				593,264				585,429				604,659				609,631			(585,429		)	(609,631		)
Total deposits	$	2,440,448		$	2,537,943		$	2,379,824		$	2,066,587		$	2,096,300		$	(97,495	)		$	344,148			$	1,851,531			$	2,440,448			$	2,537,943			$	2,379,824			$	2,066,587		$	(686,412	)	$	(215,056	)

Payments clients	$	361,192		$	397,608		$	258,320		$	251,748		$	311,943		$	(36,416	)		$	49,249			$	301,413			$	361,192			$	397,608			$	258,320			$	251,748		$	(96,195	)	$	49,665


Average Deposits	2019			2018												Q1 2019 vs Q4 2018 Change				Q1 2019 vs Q1 2018 Change				2019								2018											Q2 2019 vs Q1 2019 Change			Q2 2019 vs Q2 2018 Change
	First Quarter			Fourth Quarter			Third Quarter			Second Quarter			First Quarter							Q1 2019 vs Q1 2018 Change			Second Quarter				First Quarter				Fourth Quarter				Third Quarter				Second Quarter				Q2 2019 vs Q1 2019 Change			Q2 2019 vs Q2 2018 Change
DDA	$	575,453		$	597,239		$	561,355		$	489,722		$	502,829		Q1 2019 vs Q4 2018 Change	$	(21,786	)		$	72,624			$	587,957			$	575,453			$	597,239			$	561,355			$	489,722		$	12,504		$	98,235
NOW	276,212			280,449			314,759			287,283			236,796			(4,237		)		39,416				314,601				276,212				280,449				314,759				287,283			38,389			27,318
Savings	884			712			616			674			527			172				357				956				884				712				616				674			72			282
Money market	847,254			798,017			697,578			645,034			697,092			49,237				150,162				859,680				847,254				798,017				697,578				645,034			12,426			214,646
Time	12,847			10,117			10,406			9,855			9,800			2,730				3,047				32,358				12,847				10,117				10,406				9,855			19,511			22,503
Brokered	81,141			93,558			67,937			100,425			117,787			(12,417		)		(36,646		)		106,524				81,141				93,558				67,937				100,425			25,383			6,099
Total deposits - continuing operations	1,793,791			1,780,092			1,652,651			1,532,993			1,564,831			13,699				228,960				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	593,313			600,769			601,421			602,832			589,054			(7,456		)		4,259				45,350				593,313				600,769				601,421				602,832			(547,963		)	(557,482		)
Total deposits	$	2,387,104		$	2,380,861		$	2,254,072		$	2,135,825		$	2,153,885		$	6,243			$	233,219			$	1,947,426			$	2,387,104			$	2,380,861			$	2,254,072			$	2,135,825		$	(439,678	)	$	(188,399	)

Payments clients	$	295,059		$	263,800		$	227,029		$	219,016		$	256,794		$	31,259			$	38,265			$	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	32.1		%	33.6		%	34.0		%	31.9		%	32.1		%									30.9		%		32.1		%		33.6		%		34.0		%		31.9		%
Cost of deposits - continuing operations	1.09		%	0.93		%	0.76		%	0.71		%	0.63		%									1.15		%		1.09		%		0.93		%		0.76		%		0.71		%

Short-Term Borrowings

At ~~March 31,~~June 30, 2019 and December 31, 2018, ~~there were no~~ balances of federal funds ~~purchased.~~purchased were $35.0 million and $0, respectively. There were securities sold under repurchase agreements with commercial checking customers totaling ~~$9.8 million~~$0 and $6.2 million as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. ~~These balances were~~This balance was classified as discontinued operations in the Consolidated Balance Sheets as of ~~March 31, 2019 and~~ 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 ~~March 31,~~June 30, 2019 and December 31, 2018, Atlantic Capital had ~~no outstanding~~ FHLB ~~advances.~~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 ~~March 31,~~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~~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 ~~March 31,~~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 ~~sold all 14 of its bank branches located in Tennessee and northwest Georgia, including its mortgage banking business, to FirstBank.~~completed the Branch Sale. FirstBank assumed 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 ~~$166~~$167 million to FirstBank at the closing of the ~~transaction.~~Branch Sale. The Company ~~anticipates restructuring~~restructured the balance sheet following the ~~transaction~~Branch Sale with a combination of excess cash, proceeds from sold securities, FHLB borrowings, and brokered deposits.

At ~~March 31,~~June 30, 2019, Atlantic Capital had access to ~~$514.0~~$475.0 million in unsecured borrowings and ~~$809.7~~$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 ~~March 31,~~June 30, 2019 was ~~$320.6~~$336.7 million, ~~a decrease~~an increase of ~~$3.0~~$13.1 million, or 1%4%, from December 31, 2018. Net income of $34.5 million for the first six months of 2019, and an increase of $13.9 million in accumulated other comprehensive income, were offset by $36.6 million in share repurchases. Atlantic Capital and the Bank are required to meet minimum capital requirements imposed by regulatory authorities. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on Atlantic Capital’s consolidated financial statements. Tables 12 and 13 provide additional information regarding regulatory capital requirements and Atlantic Capital’s and the Bank’s capital levels. Accumulated

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


Table 12 - Capital Ratios	Table 12 - Capital Ratios																			Table 12 - Capital Ratios
(dollars in thousands)
		Consolidated						Bank						Regulatory Guidelines							Consolidated						Bank						Regulatory Guidelines
		March 31, 2019			December 31, 2018			March 31, 2019			December 31, 2018			Minimum		Well capitalized		Minimum Capital plus capital conservation buffer 2019			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		11.0		%	11.5		%	12.5		%	12.3		%	4.5	%	6.5	%	7.0	%		13.3		%	11.5		%	14.8		%	12.3		%	4.5	%	6.5	%	7.0	%
Tier 1 Capital		11.0			11.5			12.5			12.3			6.0		8.0		8.5			13.3			11.5			14.8			12.3			6.0		8.0		8.5
Total capital		13.7			14.2			13.2			13.0			8.0		10.0		10.5			16.5			14.2			15.7			13.0			8.0		10.0		10.5
Leverage ratio		9.9			10.0			11.3			10.6			4.0		5.0		N/A			12.3			10.0			13.6			10.6			4.0		5.0		N/A

Common equity tier 1 capital		$	276,580		$	285,250		$	314,197		$	304,907									$	295,512		$	285,250		$	327,289		$	304,907
Tier 1 capital		276,580			285,250			314,197			304,907										295,512			285,250			327,289			304,907
Total capital		345,064			353,458			332,935			323,411										364,272			353,458			346,259			323,411

Risk weighted assets		2,517,820			2,489,631			2,517,662			2,489,373										2,213,010			2,489,631			2,210,137			2,489,373
Quarterly average total assets for leverage ratio		2,782,115			2,842,618			2,792,541			2,864,357										2,402,880			2,842,618			2,403,721			2,864,357

As of ~~March 31,~~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)

	March 31, 2019			June 30, 2019
Tier 1 capital	$	276,580		$	295,512
Less: restricted core capital	—			—
Tier 1 common equity	$	276,580		$	295,512

Risk-adjusted assets	$	2,517,820		$	2,213,010
Tier 1 common equity ratio	11.0		%	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 ~~March 31,~~June 30, 2019, Atlantic Capital had issued commitments to extend credit of approximately ~~$681.8~~$628.8 million and standby letters of credit of approximately ~~$11.5~~$8.8 million through various types of commercial lending arrangements.

Based on historical experience, many of the commitments and letters of credit will expire unfunded. Through its various sources of liquidity, Atlantic Capital believes it will be able to fund these obligations as they arise. Atlantic Capital evaluates each customer’s

credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on Atlantic Capital’s credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

Contractual Obligations

There have been no significant changes in Atlantic Capital’s contractual obligations at ~~March 31,~~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, ~~Atlantic Capital’s~~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 ~~Company’s~~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. ~~Atlantic Capital’s rate shock simulation, as of March 31, 2019, indicates that, over a 12-month period, net interest income is estimated to increase by 13.29% with~~With rates rising, ~~200-basis points. The~~the estimated increase in net interest income is primarily due to the short-term repricing characteristics of the loan portfolio, combined with a favorable funding mix. Atlantic Capital’s loan book consists mainly of floating rate loans. Atlantic Capital’s core client deposits are likely to allow Atlantic Capital to lag short term interbank rate indices when pricing deposits. Transaction accounts comprise a significant amount of Atlantic Capital’s total deposits.

Table 14 provides the impact on net interest income resulting from various interest rate shock scenarios as of ~~March 31,~~June 30, 2019 and December 31, 2018.


Table 14 - Net Interest Income Sensitivity Simulation Analysis	Table 14 - Net Interest Income Sensitivity Simulation Analysis							Table 14 - Net Interest Income Sensitivity Simulation Analysis

		Estimated change in net interest income							Estimated change in net interest income
Change in interest rate (basis point)		March 31, 2019			December 31, 2018				June 30, 2019			December 31, 2018
-200		(14.66	)	%	(19.60	)	%		(16.43	)	%	(19.60	)	%
-100		(6.91	)		(7.17	)			(8.46	)		(7.17	)
+100		6.83			6.92				9.63			6.92
+200		13.29			13.52				17.97			13.52
+300		19.68			20.06				26.06			20.06

Atlantic Capital also utilizes the market value of equity (“MVE”) as a tool in measuring and managing interest rate risk. Long-term interest rate risk exposure is measured using the MVE sensitivity analysis to study the impact of long-term cash flows on capital. ~~As of March 31, 2019, the MVE calculated with a 200-basis point shock up in rates increased by 1.19% from the base case MVE value.~~ Table 15 presents the MVE profile as of ~~March 31,~~June 30, 2019 and December 31, 2018.


Table 15 - Market Value of Equity Modeling Analysis	Table 15 - Market Value of Equity Modeling Analysis							Table 15 - Market Value of Equity Modeling Analysis

		Estimated % change in MVE							Estimated % change in MVE
Change in interest rate (basis point)		March 31, 2019			December 31, 2018				June 30, 2019			December 31, 2018
-200		(7.61	)	%	(9.44	)	%		(6.02	)	%	(9.44	)	%
-100		(3.85	)		(3.73	)			(3.62	)		(3.73	)
+100		1.24			1.44				1.92			1.44
+200		1.19			1.68				2.23			1.68
+300		0.70			1.41				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.


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 ~~March 31,~~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 ~~the foregoing,~~their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~March 31,~~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 ~~March 31,~~June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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, and~~stock. In June 2019, the ~~remaining $45 million is subject to~~Bank received regulatory approval ofto pay a dividend ~~from~~of $20 million to Atlantic Capital. We may need to seek regulatory approval for additional dividends by the Bank in order to ~~Atlantic Capital.~~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 ~~first quarter of~~three months ended June 30, 2019, the Company repurchased ~~$17.1~~$19.5 million, or ~~957,295~~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
January 1 - 31, 2019 441,000
$ 17.61
441,000
$ 63,059,065
February 1 - 28, 2019 162,170
18.69
162,170
60,028,048
March 1 - 31, 2019 354,125
17.73
354,125
53,747,891
Total 957,295
$ 17.84
957,295
$ 53,747,891



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.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS



~~3.1~~	Amended and Restated Articles of Incorporation of Atlantic Capital Bancshares, Inc., which is incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-4 (file no. 333-204855), initially filed with the Securities and Exchange Commission on September 10, 2015
~~3.2~~	Amended and Restated Bylaws of Atlantic Capital Bancshares, Inc., which is incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (file no. 001-37615), filed with the Securities and Exchange Commission on January 19, 2017
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from our Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of ~~March 31,~~June 30, 2019 and ~~March~~December 31, 2018; (ii) the Consolidated Statements of Income for the three and six months ended ~~March 31,~~June 30, 2019 and 2018; (iii) the Consolidated Statements of Comprehensive Income for the three and six months ended ~~March 31,~~June 30, 2019 and 2018; (iv) the Consolidated Statements of Shareholders’ Equity for the three and six months ended ~~March 31,~~June 30, 2019 and 2018; (v) the Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018; and (vi) the Notes to the Unaudited Consolidated Financial Statements

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: ~~May 9,~~August 8, 2019

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