UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020March 31, 2021
OR
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☐ | 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 |
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 ☒ 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 ☒ 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 | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company |
|
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 ☒
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: 20,779,35320,333,006 shares outstanding as of November 1, 2020May 3, 2021
Atlantic Capital Bancshares, Inc.
Form 10-Q
INDEX
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| | Consolidated Balance Sheets – | 1 |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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GLOSSARY OF DEFINED TERMS
The following terms may be used throughout this report, including the consolidated financial statements and related
notes.
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Annual Report | The Company’s Annual Report on Form 10-K as filed with the SEC on March 16, 2021 |
ASC | Accounting Standards Codification |
ASU | Accounting Standards Update |
CARES Act | Coronavirus Aid, Relief, and Economic Security Act |
CECL | Current expected credit losses, which are subject to Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments |
COVID-19 | Coronavirus disease |
FASB | Financial Accounting Standards Board |
FDIC FHLB | Federal Deposit Insurance Corporation Federal Home Loan Bank |
FICO | Fair Isaac Corporation |
First Security | First Security Group, Inc. and FSG Bank, N.A. |
FRB | Federal Reserve Bank |
GAAP | Generally Accepted Accounting Principles in the United States |
LIBOR | The London Interbank Offered Rate |
LTIP | Long Term Incentive Plan |
LTV | Loan-to-value |
MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
MVE | Market value of equity |
Nasdaq | Nasdaq Global Select Market |
NOW | Negotiable order of withdrawal |
NPA | Nonperforming asset |
NPL | Nonperforming loan |
OCI | Other comprehensive income |
PPP | Paycheck Protection Program |
ROU | Right-of-use |
SAR | Stock appreciation right |
SBA | Small Business Administration |
SBIC | Small Business Investment Companies |
SEC | Securities and Exchange Commission |
SOFR | Secured Overnight Financing Rate |
TDR | Troubled debt restructuring |
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets
| | | | | | | ||||||
| | | | | | | | | | | ||
| | September 30, | | December 31, |
| March 31, | | December 31, | ||||
|
| 2020 |
| 2019 | | 2021 |
| 2020 | ||||
(in thousands, except share data) | | (unaudited) | | |
| (unaudited) | | | ||||
ASSETS | | | | | | |
| | | | | |
Cash and due from banks | | $ | 22,715 | | $ | 45,249 |
| $ | 32,850 | | $ | 16,865 |
Interest-bearing deposits in banks | |
| 91,243 | |
| 421,079 |
|
| 612,966 | |
| 636,537 |
Cash and cash equivalents | |
| 113,958 | |
| 466,328 |
|
| 645,816 | |
| 653,402 |
Investment securities available for sale | |
| 260,884 | |
| 282,461 |
|
| 390,701 | |
| 335,423 |
Investment securities held to maturity, net of allowance for credit losses of $15 at September 30, 2020 | | | 185,822 | | | 116,972 | ||||||
Investment securities held to maturity, net of allowance for credit losses of $14 at March 31, 2021 and December 31, 2020, respectively |
| | 222,535 | | | 200,156 | ||||||
Other investments | |
| 26,315 | |
| 27,556 |
|
| 24,709 | |
| 25,892 |
Loans held for sale | |
| 859 | |
| 370 |
|
| 1,847 | |
| — |
Loans held for investment | |
| 2,188,035 | |
| 1,873,524 |
|
| 2,300,814 | |
| 2,249,036 |
Less: Allowance for credit losses | |
| (31,894) | |
| (18,535) | ||||||
Less: Allowance for loan losses |
|
| (27,506) | |
| (31,818) | ||||||
Loans held for investment, net | |
| 2,156,141 | |
| 1,854,989 |
|
| 2,273,308 | |
| 2,217,218 |
Premises and equipment, net | |
| 22,558 | |
| 22,536 |
|
| 20,633 | |
| 21,589 |
Bank owned life insurance | |
| 67,489 | |
| 66,421 |
|
| 73,223 | |
| 72,856 |
Goodwill | |
| 19,925 | |
| 19,925 |
|
| 19,925 | |
| 19,925 |
Other intangibles, net | | | 2,685 | | | 3,027 |
| | 2,688 | | | 2,731 |
Other real estate owned | |
| 563 | |
| 278 |
|
| 16 | |
| 16 |
Other assets | |
| 66,778 | |
| 49,516 |
|
| 57,267 | |
| 66,409 |
Total assets | | $ | 2,923,977 | | $ | 2,910,379 |
| $ | 3,732,668 | | $ | 3,615,617 |
| | | | | | |
| | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
| |
|
| |
|
| | | | | |
Deposits: |
| |
|
| |
|
| | | | | |
Noninterest-bearing demand | | $ | 843,656 | | $ | 824,646 |
| $ | 1,280,524 | | $ | 1,033,765 |
Interest-bearing checking | |
| 387,858 | |
| 373,727 |
|
| 485,540 | |
| 760,638 |
Savings | |
| 568 | |
| 1,219 |
|
| 562 | |
| 625 |
Money market | |
| 945,834 | |
| 1,173,218 |
|
| 1,142,361 | |
| 1,030,753 |
Time | |
| 196,343 | |
| 44,389 |
|
| 294,129 | |
| 241,328 |
Brokered deposits | |
| 94,463 | |
| 81,847 |
|
| 74,576 | |
| 94,399 |
Total deposits | |
| 2,468,722 | |
| 2,499,046 |
|
| 3,277,692 | |
| 3,161,508 |
Federal funds purchased | | | — | | | — | ||||||
Federal Home Loan Bank borrowings | |
| — | |
| — | ||||||
Long-term debt | |
| 73,814 | |
| 49,873 |
|
| 73,878 | |
| 73,807 |
Other liabilities | |
| 41,132 | |
| 34,965 |
|
| 40,770 | |
| 41,716 |
Total liabilities | |
| 2,583,668 | |
| 2,583,884 |
|
| 3,392,340 | |
| 3,277,031 |
SHAREHOLDERS’ EQUITY | |
| | |
|
|
|
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Preferred Stock, 0 par value - 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019 | |
| — | |
| — | ||||||
Common stock, 0 par value - 100,000,000 shares authorized; 21,202,783 and 21,751,026 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | |
| 220,643 | |
| 230,265 | ||||||
Preferred Stock, 0 par value - 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020 |
|
| — | |
| — | ||||||
Common stock, 0 par value - 100,000,000 shares authorized; 20,354,077 and 20,394,912 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively |
|
| 207,047 | |
| 209,942 | ||||||
Retained earnings | |
| 104,188 | |
| 91,669 |
|
| 127,499 | |
| 114,137 |
Accumulated other comprehensive income | |
| 15,478 | |
| 4,561 |
|
| 5,782 | |
| 14,507 |
Total shareholders’ equity | |
| 340,309 | |
| 326,495 |
|
| 340,328 | |
| 338,586 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 2,923,977 | | $ | 2,910,379 |
| $ | 3,732,668 | | $ | 3,615,617 |
See Accompanying Notes to Consolidated Financial Statements
1
Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | ||||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
(in thousands, except per share data) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| ||||||
INTEREST INCOME | | |
|
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|
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Loans, including fees | | $ | 21,049 | | $ | 23,541 | | $ | 63,971 | | $ | 69,847 | | | $ | 21,769 | | $ | 22,426 | |
Investment securities | |
| 2,910 | |
| 2,176 | |
| 8,683 | |
| 7,146 | | |
| 3,374 | |
| 2,732 | |
Interest and dividends on other interest-earning assets | |
| 274 | |
| 803 | |
| 1,399 | |
| 2,322 | | |
| 267 | |
| 865 | |
Total interest income | |
| 24,233 | |
| 26,520 | |
| 74,053 | |
| 79,315 | | |
| 25,410 | |
| 26,023 | |
INTEREST EXPENSE | |
|
| |
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|
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|
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|
| |
Interest on deposits | |
| 1,151 | |
| 5,223 | |
| 6,632 | |
| 15,502 | | |
| 971 | |
| 4,182 | |
Interest on Federal Home Loan Bank advances | |
| 16 | |
| 390 | |
| 54 | |
| 660 | | |||||||
Interest on federal funds purchased and securities sold under agreements to repurchase | |
| 3 | |
| 99 | |
| 41 | |
| 385 | | |
| — | |
| 32 | |
Interest on long-term debt | |
| 1,345 | |
| 824 | |
| 2,997 | |
| 2,471 | | |
| 1,094 | |
| 829 | |
Total interest expense | |
| 2,515 | |
| 6,536 | |
| 9,724 | |
| 19,018 | | |
| 2,065 | |
| 5,043 | |
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES | |
| 21,718 | |
| 19,984 | |
| 64,329 | |
| 60,297 | | |
| 23,345 | |
| 20,980 | |
Provision for credit losses | |
| 28 | |
| 413 | |
| 16,965 | |
| 1,925 | | |
| (4,519) | |
| 8,074 | |
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | |
| 21,690 | |
| 19,571 | |
| 47,364 | |
| 58,372 | | |
| 27,864 | |
| 12,906 | |
NONINTEREST INCOME | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
Service charges | |
| 1,217 | |
| 925 | |
| 3,530 | |
| 2,589 | | |
| 1,663 | |
| 1,232 | |
Gain on sales of securities | |
| — | |
| 253 | |
| — | |
| 907 | | |||||||
Gain (loss) on sales of other assets | |
| (145) | |
| 140 | |
| (140) | |
| 127 | | |||||||
Derivatives income (loss) | |
| 10 | |
| (293) | |
| 246 | |
| (637) | | |||||||
Gains on sales of securities | |
| 2 | |
| — | | |||||||||||||
Gains on sales of other assets | |
| — | |
| 5 | | |||||||||||||
Derivatives income | |
| 47 | |
| 246 | | |||||||||||||
Bank owned life insurance | |
| 363 | |
| 422 | |
| 1,092 | |
| 1,171 | | |
| 391 | |
| 362 | |
SBA lending activities | |
| 893 | |
| 1,150 | |
| 2,089 | |
| 3,332 | | |
| 1,225 | |
| 414 | |
Other noninterest income | |
| 166 | |
| 172 | |
| 452 | |
| 557 | | |
| 234 | |
| 163 | |
Total noninterest income | |
| 2,504 | |
| 2,769 | |
| 7,269 | |
| 8,046 | | |
| 3,562 | |
| 2,422 | |
NONINTEREST EXPENSE | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
Salaries and employee benefits | |
| 8,850 | |
| 8,295 | |
| 25,792 | |
| 26,037 | | |
| 10,421 | |
| 8,476 | |
Occupancy | |
| 739 | |
| 722 | |
| 2,416 | |
| 2,050 | | |
| 734 | |
| 794 | |
Equipment and software | |
| 826 | |
| 842 | |
| 2,368 | |
| 2,334 | | |
| 774 | |
| 779 | |
Professional services | |
| 562 | |
| 764 | |
| 2,059 | |
| 2,331 | | |
| 922 | |
| 705 | |
Communications and data processing | |
| 757 | |
| 796 | |
| 2,324 | |
| 2,133 | | |
| 792 | |
| 897 | |
Marketing and business development | |
| 141 | |
| 243 | |
| 373 | |
| 702 | | |
| 108 | |
| 153 | |
Travel, meals and entertainment | | | 39 | | | 152 | | | 213 | | | 504 | | | | 10 | | | 140 | |
FDIC premiums | |
| 213 | |
| (193) | |
| 388 | |
| 217 | | |
| 275 | |
| — | |
Other noninterest expense | |
| 1,586 | |
| 1,056 | |
| 3,561 | |
| 3,418 | | |
| 1,113 | |
| 933 | |
Total noninterest expense | |
| 13,713 | | $ | 12,677 | |
| 39,494 | |
| 39,726 | | |
| 15,149 | |
| 12,877 | |
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES | |
| 10,481 | |
| 9,663 | |
| 15,139 | |
| 26,692 | | |||||||
INCOME BEFORE PROVISION FOR INCOME TAXES | |
| 16,277 | |
| 2,451 | | |||||||||||||
Provision for income taxes | |
| 1,863 | |
| 2,094 | |
| 2,548 | |
| 5,674 | | |
| 2,915 | |
| 327 | |
NET INCOME FROM CONTINUING OPERATIONS | |
| 8,618 | |
| 7,569 | |
| 12,591 | |
| 21,018 | | |||||||
DISCONTINUED OPERATIONS | |
|
| |
|
| |
|
| |
|
| | |||||||
Income from discontinued operations | | $ | — | | $ | — | | $ | — | | $ | 28,690 | | |||||||
Provision for income taxes | |
| — | |
| (617) | |
| — | |
| 6,993 | | |||||||
Net income from discontinued operations | |
| — | |
| 617 | |
| — | |
| 21,697 | | |||||||
NET INCOME | | $ | 8,618 | | $ | 8,186 | | $ | 12,591 | | $ | 42,715 | | | $ | 13,362 | | $ | 2,124 | |
| | | | | | | | | | | | | | |
|
| |
|
| |
Net income per common share ‑ basic | |
|
| |
|
| |
|
| |
|
| | | | 0.66 | | | 0.10 | |
Net income per common share - continuing operations | | $ | 0.40 | | $ | 0.33 | | $ | 0.58 | | $ | 0.88 | | |||||||
Net income per common share - discontinued operations | |
| — | |
| 0.03 | |
| — | |
| 0.91 | | |||||||
Net income per common share ‑ basic | | | 0.40 | | | 0.36 | | | 0.58 | | | 1.79 | | |||||||
Net income per common share ‑ diluted | |
|
| |
|
| |
|
| |
|
| | | | 0.65 | | | 0.10 | |
Net income per common share - continuing operations | | $ | 0.40 | | $ | 0.33 | | $ | 0.58 | | $ | 0.88 | | |||||||
Net income per common share - discontinued operations | |
| — | |
| 0.03 | |
| — | |
| 0.91 | | |||||||
Net income per common share ‑ diluted | | | 0.40 | | | 0.36 | | | 0.58 | | | 1.78 | |
See Accompanying Notes to Consolidated Financial Statements
2
Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | | | | Three Months Ended | | ||||||||||
| | September 30, | | | September 30, | | | | March 31, | | ||||||||||
(in thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| ||||||
Net income | | $ | 8,618 | | $ | 8,186 | | $ | 12,591 | | $ | 42,715 | | | $ | 13,362 | | $ | 2,124 | |
Other comprehensive income | | | | | | | | | | | | | | | | | | | | |
Unrealized gains on available-for-sale securities: | | | | | | | | | | | | | | |||||||
Unrealized holding gains arising during the period, net of tax of $11, $453, $1,419 and $4,096, respectively | |
| 35 | |
| 1,360 | |
| 4,352 | |
| 12,279 | | |||||||
Reclassification adjustment for losses (gains) included in net income net of tax of ($0), ($63), ($0) and ($227), respectively | |
| — | |
| (190) | |
| — | |
| (680) | | |||||||
Unrealized gains on available-for-sale securities, net of tax | |
| 35 | |
| 1,170 | |
| 4,352 | |
| 11,599 | | |||||||
Unrealized (losses) gains on available-for-sale securities: | | | | | | | | |||||||||||||
Unrealized holding (losses) gains arising during the period, net of tax of ($1,857) and $1,077, respectively | |
| (5,653) | |
| 3,317 | | |||||||||||||
Unrealized (losses) gains on available-for-sale securities, net of tax | |
| (5,653) | |
| 3,317 | | |||||||||||||
Cash flow hedges: | | | | | | | | | | | | | | | | | | | | |
Net unrealized derivative gains on cash flow hedges, net of tax of ($146), $582, $2,144 and $1,734, respectively | |
| (447) | |
| 1,744 | |
| 6,565 | |
| 5,201 | | |||||||
Net unrealized derivative (losses) gains on cash flow hedges, net of tax of ($1,009) and $2,114, respectively | |
| (3,072) | |
| 6,468 | | |||||||||||||
Changes from cash flow hedges | |
| (447) | |
| 1,744 | |
| 6,565 | |
| 5,201 | | |
| (3,072) | |
| 6,468 | |
Other comprehensive income, net of tax | |
| (412) | |
| 2,914 | |
| 10,917 | |
| 16,800 | | |||||||
Other comprehensive (loss) income, net of tax | |
| (8,725) | |
| 9,785 | | |||||||||||||
Comprehensive income | | $ | 8,206 | | $ | 11,100 | | $ | 23,508 | | $ | 59,515 | | | $ | 4,637 | | $ | 11,909 | |
See Accompanying Notes to Consolidated Financial Statements
3
Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Statements of Shareholders’ Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine months ended September 30, 2020 | | | | | | | | | | | | | | | ||||||||||||||
For the Three months ended March 31, 2021 | | | | | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | Accumulated | | | | | | | | | | | | | Accumulated | | | | ||
| | | | | | | | | | Other | | | | | | | | | | | | | Other | | | | ||
|
| Common Stock | | Retained |
| Comprehensive | | | |
| Common Stock | | Retained |
| Comprehensive | | | | ||||||||||
(in thousands, except share data) |
| Shares |
| Amount |
| Earnings |
| Income (Loss) |
| Total |
| Shares |
| Amount |
| Earnings |
| Income (Loss) |
| Total | ||||||||
Balance - December 31, 2019 |
| 21,751,026 |
| $ | 230,265 |
| $ | 91,669 |
| $ | 4,561 |
| $ | 326,495 | ||||||||||||||
Balance - December 31, 2020 |
| 20,394,912 |
| $ | 209,942 |
| $ | 114,137 |
| $ | 14,507 |
| $ | 338,586 | ||||||||||||||
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| — | |
| — | |
| 12,591 | |
| — | |
| 12,591 |
| — | |
| — | |
| 13,362 | |
| — | |
| 13,362 |
Change in unrealized gains (losses) on investment securities available-for-sale, net |
| — | |
| — | |
| — | |
| 4,352 | |
| 4,352 |
| — | |
| — | |
| — | |
| (5,653) | |
| (5,653) |
Change in unrealized gains (losses) on cash flow hedges |
| — | |
| — | |
| — | |
| 6,565 | |
| 6,565 |
| — | |
| — | |
| — | |
| (3,072) | |
| (3,072) |
Total comprehensive income | | | | | | | | | | | | |
| 23,508 | | | | | | | | | | | | |
| 4,637 |
Change in accounting principle - allowance for credit losses |
| — | |
| — | |
| (72) | |
| — | |
| (72) | ||||||||||||||
Net issuance of restricted stock |
| 185,901 | |
| — | |
| — | |
| — | |
| — |
| 54,939 | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock for option exercises |
| 60,940 | |
| 660 | |
| — | |
| — | |
| 660 |
| 97,499 | |
| 788 | |
| — | |
| — | |
| 788 |
Issuance of common stock for long-term incentive plan |
| 25,265 | |
| 444 | |
| — | |
| — | |
| 444 |
| 28,920 | |
| — | |
| — | |
| — | |
| — |
Restricted stock activity |
| — | |
| 945 | |
| — | |
| — | |
| 945 |
| — | |
| 310 | |
| — | |
| — | |
| 310 |
Stock-based compensation |
| — | |
| 53 | |
| — | |
| — | |
| 53 | ||||||||||||||
Performance share compensation |
| — | |
| 307 | |
| — | |
| — | |
| 307 | ||||||||||||||
Performance share activity |
| — | |
| 199 | |
| — | |
| — | |
| 199 | ||||||||||||||
Stock repurchases |
| (820,349) | |
| (12,031) | |
| — | |
| — | |
| (12,031) |
| (222,193) | |
| (4,192) | |
| — | |
| — | |
| (4,192) |
Balance - September 30, 2020 |
| 21,202,783 |
| $ | 220,643 |
| $ | 104,188 |
| $ | 15,478 |
| $ | 340,309 | ||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||
For the Three months ended September 30, 2020 | | | | | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | Accumulated | | | | |||||||||||||||
| | | | | | | | | | Other | | | | |||||||||||||||
|
| Common Stock | | Retained |
| Comprehensive | | | | |||||||||||||||||||
|
| Shares |
| Amount |
| Earnings |
| Income (Loss) |
| Total | ||||||||||||||||||
Balance - June 30, 2020 |
| 21,477,631 |
| $ | 224,520 |
| $ | 95,570 |
| $ | 15,890 |
| $ | 335,980 | ||||||||||||||
Comprehensive income: | | | | | | | | | | | | | | | ||||||||||||||
Net income |
| — | |
| — | |
| 8,618 | |
| — | |
| 8,618 | ||||||||||||||
Change in unrealized gains (losses) on investment securities available-for-sale, net |
| — | |
| — | |
| — | |
| 35 | |
| 35 | ||||||||||||||
Change in unrealized gains (losses) on cash flow hedges |
| — | |
| — | |
| — | |
| (447) | |
| (447) | ||||||||||||||
Total comprehensive income | | | | | | | | | | | | |
| 8,206 | ||||||||||||||
Change in accounting principle - leases | | — | | | — | | | — | | | — | | | — | ||||||||||||||
Net issuance of restricted stock |
| 126,643 | |
| — | |
| — | |
| — | |
| — | ||||||||||||||
Issuance of common stock for option exercises |
| — | |
| — | |
| — | |
| — | |
| — | ||||||||||||||
Issuance of common stock for long-term incentive plan | | — | | | — | | | — | | | — | | | — | ||||||||||||||
Restricted stock activity |
| — | |
| 448 | |
| — | |
| — | |
| 448 | ||||||||||||||
Stock-based compensation |
| — | |
| 18 | |
| — | |
| — | |
| 18 | ||||||||||||||
Performance share compensation |
| — | |
| 277 | |
| — | |
| — | |
| 277 | ||||||||||||||
Stock repurchases |
| (401,491) | |
| (4,620) | |
| — | |
| — | |
| (4,620) | ||||||||||||||
Balance - September 30, 2020 |
| 21,202,783 |
| $ | 220,643 |
| $ | 104,188 |
| $ | 15,478 |
| $ | 340,309 | ||||||||||||||
Balance - March 31, 2021 |
| 20,354,077 |
| $ | 207,047 |
| $ | 127,499 |
| $ | 5,782 |
| $ | 340,328 |
4
| | | | | | | | | | | | | | | | | | | | | | | | | ||||
For the Nine months ended September 30, 2019 | | | | | | | | | | | | | ||||||||||||||||
For the Three months ended March 31, 2020 | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | Accumulated | | | | | | | | | | | Accumulated | | | ||||||
| | | | | | | | | Other | | | | | | | | | | | Other | | | ||||||
|
| Common Stock | | Retained |
| Comprehensive | | |
| Common Stock | | Retained |
| Comprehensive | | | ||||||||||||
(in thousands, except share data) |
| Shares |
| Amount |
| Earnings |
| Income (Loss) |
| Total |
| Shares |
| Amount |
| Earnings |
| Income |
| Total | ||||||||
Balance - December 31, 2018 |
| 25,290,419 |
| $ | 291,771 |
| $ | 42,187 |
| $ | (10,305) |
| $ | 323,653 | ||||||||||||||
Balance - December 31, 2019 |
| 21,751,026 |
| $ | 230,265 |
| $ | 91,669 |
| $ | 4,561 |
| $ | 326,495 | ||||||||||||||
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | ||||
Net income |
| — | |
| — | |
| 42,715 | |
| — | |
| 42,715 |
| — | |
| — | |
| 2,124 | |
| — | |
| 2,124 |
Change in unrealized gains (losses) on investment securities available-for-sale, net |
| — | |
| — | |
| — | |
| 11,599 | |
| 11,599 | ||||||||||||||
Change in unrealized gains (losses) on cash flow hedges |
| — | |
| — | |
| — | |
| 5,201 | |
| 5,201 | ||||||||||||||
Change in unrealized gains on investment securities available-for-sale, net |
| — | |
| — | |
| — | |
| 3,317 | |
| 3,317 | ||||||||||||||
Change in unrealized gains on cash flow hedges |
| — | |
| — | |
| — | |
| 6,468 | |
| 6,468 | ||||||||||||||
Total comprehensive income | | | | | | | | | | | |
| 59,515 | | | | | | | | | | | |
| 11,909 | ||
Change in accounting principle - leases |
| — | |
| — | |
| (373) | |
| — | |
| (373) | ||||||||||||||
Change in accounting principle - allowance for credit losses |
| — | |
| — | |
| (72) | |
| — | |
| (72) | ||||||||||||||
Net issuance of restricted stock |
| 30,263 | |
| — | |
| — | |
| — | |
| — |
| 68,067 | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock for option exercises |
| 79,980 | |
| 1,044 | |
| — | |
| — | |
| 1,044 |
| 54,486 | |
| 535 | |
| — | |
| — | |
| 535 |
Issuance of common stock for long-term incentive plan |
| 35,678 | |
| 655 | |
| — | |
| — | |
| 655 |
| 25,265 | |
| 444 | |
| — | |
| — | |
| 444 |
Restricted stock activity |
| — | |
| 552 | |
| — | |
| — | |
| 552 |
| — | |
| 421 | |
| — | |
| — | |
| 421 |
Stock-based compensation |
| — | |
| 151 | |
| — | |
| — | |
| 151 |
| — | |
| 17 | |
| — | |
| — | |
| 17 |
Performance share compensation |
| — | |
| 260 | |
| — | |
| — | |
| 260 |
| — | |
| (38) | |
| — | |
| — | |
| (38) |
Stock repurchases |
| (3,242,579) | |
| (56,746) | |
| — | |
| — | |
| (56,746) |
| (418,858) | |
| (7,411) | |
| — | |
| — | |
| (7,411) |
Balance - September 30, 2019 |
| 22,193,761 |
| $ | 237,687 |
| $ | 84,529 |
| $ | 6,495 |
| $ | 328,711 | ||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
For the Three months ended September 30, 2019 | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | Accumulated | | | |||||||||||||||||
| | | | | | | | | Other | | | |||||||||||||||||
|
| Common Stock | | Retained |
| Comprehensive | | | ||||||||||||||||||||
|
| Shares |
| Amount |
| Earnings |
| Income (Loss) |
| Total | ||||||||||||||||||
Balance - June 30, 2019 |
| 23,293,465 |
| $ | 256,791 |
| $ | 76,343 |
| $ | 3,581 |
| $ | 336,715 | ||||||||||||||
Comprehensive income: | | | | | | | | | | | | | ||||||||||||||||
Net income |
| — | |
| — | |
| 8,186 | |
| — | |
| 8,186 | ||||||||||||||
Change in unrealized gains (losses) on investment securities available-for-sale, net |
| — | |
| — | |
| — | |
| 1,170 | |
| 1,170 | ||||||||||||||
Change in unrealized gains (losses) on cash flow hedges |
| — | |
| — | |
| — | |
| 1,744 | |
| 1,744 | ||||||||||||||
Total comprehensive income | | | | | | | | | | | |
| 11,100 | |||||||||||||||
Net issuance of restricted stock |
| 25,359 | |
| — | |
| — | |
| — | |
| — | ||||||||||||||
Issuance of common stock for option exercises |
| 39,000 | |
| 573 | |
| — | |
| — | |
| 573 | ||||||||||||||
Restricted stock activity |
| — | |
| 327 | |
| — | |
| — | |
| 327 | ||||||||||||||
Stock-based compensation |
| — | |
| 18 | |
| — | |
| — | |
| 18 | ||||||||||||||
Performance share compensation |
| — | |
| 106 | |
| — | |
| — | |
| 106 | ||||||||||||||
Stock repurchases |
| (1,164,063) | |
| (20,128) | |
| — | |
| — | |
| (20,128) | ||||||||||||||
Balance - September 30, 2019 |
| 22,193,761 |
| $ | 237,687 |
| $ | 84,529 |
| $ | 6,495 |
| $ | 328,711 | ||||||||||||||
Balance - March 31, 2020 |
| 21,479,986 |
| $ | 224,233 |
| $ | 93,721 |
| $ | 14,346 |
| $ | 332,300 |
See Accompanying Notes to Consolidated Financial Statements
54
Atlantic Capital Bancshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | | |
| | Nine Months Ended | | Three Months Ended | ||||||||
| | September 30, | | March 31, | ||||||||
(in thousands) |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
OPERATING ACTIVITIES | | | | | | | | | | | | |
Net income from continuing operations | | $ | 12,591 | | $ | 21,018 | ||||||
Net income from discontinued operations, net of tax | |
| — | |
| 21,697 | ||||||
Net income | | $ | 13,362 | | $ | 2,124 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities | |
| | |
| | |
| | |
| |
Provision for credit losses | |
| 16,965 | |
| 1,925 | |
| (4,519) | |
| 8,074 |
Depreciation, amortization, and accretion | |
| 3,726 | |
| 2,497 | |
| 1,427 | |
| 898 |
Amortization of operating lease right-of-use assets | | | 1,621 | | | 1,703 | | | 445 | | | 555 |
Amortization of restricted stock and performance share compensation | |
| 1,282 | |
| 811 | |
| 753 | |
| 258 |
Stock option compensation | |
| 53 | |
| 151 | |
| — | |
| 17 |
(Gain) loss on sales of available-for-sale securities | |
| — | |
| (907) | |
| (2) | |
| — |
Loss on disposition of premises and equipment, net | |
| 7 | |
| 27 | ||||||
Net write downs and gains on sales of other real estate owned | |
| 213 | |
| (154) | ||||||
Small Business Investment Company (SBIC) impairment | |
| — | |
| 26 | ||||||
Net write downs and (gains) losses on sales of other real estate owned | |
| — | |
| (5) | ||||||
Net increase in cash value of bank owned life insurance | |
| (1,068) | |
| (1,100) | |
| (367) | |
| (340) |
(Gain) on bank owned life insurance | |
| — | |
| (46) | ||||||
Net (gains) on sale of branches | |
| — | |
| (34,475) | ||||||
Origination of servicing assets | |
| (492) | |
| (975) | |
| (236) | |
| (105) |
Proceeds from sales of SBA loans | |
| 28,968 | |
| 54,333 | |
| 13,139 | |
| 6,399 |
Net (gains) on sale of SBA loans | |
| (1,476) | |
| (2,875) | |
| (988) | |
| (308) |
Changes in operating assets and liabilities - | |
| | |
| | |
| | |
| |
Net change in loans held for sale | |
| (489) | |
| 4,973 | |
| (1,847) | |
| 370 |
Net change in operating lease right-of-use assets | | | (62) | | | — | ||||||
Net (increase) decrease in other assets | |
| (11,888) | |
| 6,089 | |
| 8,414 | |
| (7,280) |
Net increase (decrease) in accrued expenses and other liabilities | |
| 4,602 | |
| (3,991) | |
| (702) | |
| 856 |
Net cash provided by operating activities | |
| 54,553 | |
| 70,727 | |
| 28,879 | |
| 11,513 |
INVESTING ACTIVITIES | |
| | |
| | |
| | |
| |
Activity in securities available-for-sale: | |
| | |
| | |
| | |
| |
Prepayments | |
| 24,767 | | | 33,199 | |
| 11,813 | | | 6,203 |
Maturities and calls | |
| 1,690 | | | 3,450 | |
| 1,000 | | | — |
Sales | |
| — | | | 116,963 | |
| 750 | | | — |
Purchases | |
| — | | | (22,678) | |
| (76,780) | | | — |
Activity in securities held to maturity: | | | | | | | | | | | | |
Prepayments | | | 10 | | | — | ||||||
Purchases | | | (69,141) | | | (42,866) | | | (22,498) | | | (69,141) |
Net change in loans held for investment | |
| (344,743) | | | (160,851) | |
| (64,167) | | | (65,909) |
Net change in assets held for sale - discontinued operations | |
| — | | | (11,789) | ||||||
(Purchases) proceeds of Federal Home Loan Bank stock, net | |
| 61 | | | (3,288) | |
| 811 | | | — |
(Purchases) proceeds of Federal Reserve Bank stock, net | |
| (82) | | | (92) | |
| (44) | | | — |
Proceeds from bank owned life insurance benefits | |
| — | | | 248 | ||||||
Proceeds from sales of other real estate owned | |
| 533 | | | 847 | |
| — | | | 88 |
Net cash received (paid) for branch divestiture | |
| — | | | (166,755) | ||||||
(Purchases) of premises and equipment, net | |
| (3,313) | | | (1,380) | |
| (98) | | | (1,039) |
Net cash (used in) investing activities | |
| (390,228) | |
| (254,992) | |
| (149,203) | |
| (129,798) |
FINANCING ACTIVITIES | |
| | |
|
| |
| | |
| |
Net change in deposits | |
| (30,324) | | | (98,242) | |
| 116,184 | | | (273,927) |
Net change in liabilities to be assumed - discontinued operations | |
| — | | | 6,560 | ||||||
Net change in fed funds purchased | | | — | | | 57,000 | | | — | | | 75,000 |
Proceeds from Federal Home Loan Bank advances | |
| 345,000 | | | 566,000 | ||||||
Repayments of Federal Home Loan Bank advances | |
| (345,000) | | | (490,000) | ||||||
Proceeds from exercise of stock options | |
| 660 | | | 1,045 | |
| 746 | | | 660 |
Issuance of subordinated debt | | | 75,000 | | | — | ||||||
Repayment of subordinated debt | | | (50,000) | | | — | ||||||
Repurchase of common stock | |
| (12,031) | | | (56,746) | |
| (4,192) | | | (7,411) |
Net cash (used in) financing activities | |
| (16,695) | |
| (14,383) | ||||||
Net cash provided by (used in) financing activities | |
| 112,738 | |
| (205,678) | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| (352,370) | |
| (198,648) | |
| (7,586) | |
| (323,963) |
CASH AND CASH EQUIVALENTS – beginning of period | |
| 466,328 | |
| 268,392 | |
| 653,402 | |
| 466,328 |
CASH AND CASH EQUIVALENTS – end of period | | $ | 113,958 | | $ | 69,744 | | $ | 645,816 | | $ | 142,365 |
SUPPLEMENTAL SCHEDULE OF CASH FLOWS | | | | | | | ||||||
| | | | | | | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | | | ||||||
Cash paid during the period for: | | | | | | | ||||||
Interest paid | | $ | 9,990 | | $ | 20,454 | | $ | 3,198 | | $ | 5,850 |
Income taxes paid | |
| 2,334 | |
| 885 | ||||||
Income taxes (refunded) paid | |
| (11) | |
| 344 |
See Accompanying Notes to Consolidated Financial Statements
65
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”)GAAP and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated.
In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. Certain prior period amounts have been reclassified to conform to the current year presentation. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Atlantic Capital’s Annual Report on Form 10-K. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods.
NOTE 2 – ACCOUNTING STANDARDS UPDATES AND RECENTLY ADOPTED STANDARDS
AdoptionRecently Adopted Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of New Accounting Standardthe Effects of Reference Rate Reform on Financial Reporting.” The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuance of LIBOR. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The Company is in the process of making the necessary adjustments to prepare for the impact that the discontinuance of LIBOR will have on its existing contracts and consolidated financial statements.
On January 1, 2020,In December 2019, the Company adoptedFASB issued ASU No. 2019-12, “Simplifying the Accounting Standards Update (“ASU”) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. Additionally, Accounting Standards Codification (“ASC”) 326 made changes toIncome Taxes.” This ASU simplifies the accounting for available-for-sale debt securities. One such change isincome taxes by eliminating certain exceptions to require credit lossesthe guidance in ASC 740 related to be presented asthe approach for intraperiod tax allocation, the methodology for calculating income taxes in an allowance rather than asinterim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a write-down on available-for-sale debt securities.
The Company adopted ASC 326 usingstep-up in the modified retrospective methodtax basis of goodwill. Finally, it clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. ASU 2019-12 was effective for all financial assets measured at amortized costinterim and off-balance-sheet credit exposures. Results forannual reporting periods beginning after January 1,December 15, 2020 are presented under ASC 326 while priorand did not have a material impact on Atlantic Capital’s financial position or results of operations.
In October 2020, the FASB issued ASU No. 2020-08, “Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs.” This update clarifies that an entity should reevaluate whether a callable debt security meets the criteria to adjust the amortization period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a decrease to retained earnings of $72,000, netany related premium at each reporting period. Adoption of tax,this update, which was effective for Atlantic Capital as of January 1, 20202021, did not have a material impact on the consolidated financial statements.
6
NOTE 3 – BALANCE SHEET OFFSETTING
Atlantic Capital enters into reverse repurchase agreements 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 in derivative financial instruments including those entered into in connection with the cumulative effectsame counterparty under master netting agreements and amounts received or pledged as collateral at March 31, 2021 and December 31, 2020. While these agreements are typically over-collateralized, GAAP requires disclosures in this table to limit the amount of adopting ASC 326. The transition adjustment includes a $1.3 million increase relatedsuch collateral to the allowanceamount of the related recognized asset or liability for credit losses on unfunded commitments mostly offset by an $854,000 decrease related to the allowance for credit losses on loans as well as a $20,000 increase related to held-to-maturity securities.each counterparty.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Gross Amounts not Offset in the | | | | ||||
|
| Gross |
| | |
| | |
| Balance Sheet |
| | | |||||
| | Amounts of | | Gross Amounts | | Net | | | | | Cash | | | | ||||
(in thousands) | | Recognized | | Offset on the | | Asset | | Financial | | Collateral | | | | |||||
March 31, 2021 | | Assets | | Balance Sheet | | Balance | | Instruments | | Received | | Net Amount | ||||||
Derivatives | | $ | 13,480 | | $ | — | | $ | 13,480 | | $ | — | | $ | (6,070) | | $ | 7,410 |
Total | | $ | 13,480 | | $ | — | | $ | 13,480 | | $ | — | | $ | (6,070) | | $ | 7,410 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Gross Amounts not Offset in the | | | | ||||
|
| Gross |
| | |
| | |
| Balance Sheet |
| | | |||||
| | Amounts of | | Gross Amounts | | Net | | | | | Cash | | | | ||||
| | Recognized | | Offset on the | | Liability | | Financial | | Collateral | | | | |||||
| | Liabilities | | Balance Sheet | | Balance | | Instruments | | Pledged | | Net Amount | ||||||
Derivatives | | $ | 6,868 | | $ | — | | $ | 6,868 | | $ | (6,868) | | $ | 330 | | $ | (6,538) |
Total | | $ | 6,868 | | $ | — | | $ | 6,868 | | $ | (6,868) | | $ | 330 | | $ | (6,538) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Gross Amounts not Offset in the | | | | ||||
| | Gross | | | | | | | | Balance Sheet | | | | |||||
| | Amounts of | | Gross Amounts | | Net | | | | | Cash | | | | ||||
| | Recognized | | Offset on the | | Asset | | Financial | | Collateral | | | | |||||
December 31, 2020 |
| Assets |
| Balance Sheet |
| Balance |
| Instruments |
| Received |
| Net Amount | ||||||
Derivatives | | $ | 22,184 | | $ | — | | $ | 22,184 | | $ | — | | $ | — | | $ | 22,184 |
Total | | $ | 22,184 | | $ | — | | $ | 22,184 | | $ | — | | $ | — | | $ | 22,184 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Gross Amounts not Offset in the | | | | ||||
|
| Gross |
| | |
| | |
| Balance Sheet |
| | | |||||
| | Amounts of | | Gross Amounts | | Net | | | | | Cash | | | | ||||
| | Recognized | | Offset on the | | Liability | | Financial | | Collateral | | | | |||||
| | Liabilities | | Balance Sheet | | Balance | | Instruments | | Pledged | | Net Amount | ||||||
Derivatives | | $ | 11,496 | | $ | — | | $ | 11,496 | | $ | (11,496) | | $ | 330 | | $ | (11,166) |
Total | | $ | 11,496 | | $ | — | | $ | 11,496 | | $ | (11,496) | | $ | 330 | | $ | (11,166) |
7
NOTE 4 – SECURITIES
The following table presents the amortized cost, fair value, and allowance for credit losses on securities available-for-sale and held-to-maturity at March 31, 2021 and December 31, 2020 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses:
| | | | | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | | | | | | |||
| | Amortized | | Unrealized | | Unrealized | | | | | | | | | ||||
|
| Cost |
| Gains |
| Losses |
| Fair Value |
| | |
| | | ||||
| | (in thousands) | | | | |||||||||||||
March 31, 2021 |
| |
|
| |
|
| |
|
| | |
| |
|
| |
|
Available-For-Sale |
| |
|
| |
|
| |
|
| | |
| |
|
| |
|
U.S. states and political divisions | | $ | 77,328 | | $ | 2,080 | | $ | — | | $ | 79,408 | | | | | | |
Trust preferred securities | |
| 4,841 | |
| — | |
| (33) | | | 4,808 | |
| | |
| |
Corporate debt securities | |
| 20,519 | |
| 166 | |
| (52) | | | 20,633 | |
| | |
| |
Residential mortgage-backed securities | |
| 248,823 | |
| 3,284 | |
| (5,563) | | | 246,544 | |
| | |
| |
Commercial mortgage-backed securities | |
| 37,722 | |
| 1,781 | |
| (195) | | | 39,308 | |
| | |
| |
Total available-for-sale | | | 389,233 | | | 7,311 | | | (5,843) | | | 390,701 | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | | Allowance | | Net | ||||
| | Amortized | | Unrecognized | | Unrecognized | | | | | for Credit | | Carrying | |||||
| | Cost | | Gains | | Losses | | Fair Value | | Losses | | Value | ||||||
Held-to-Maturity | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | | 222,549 | | | 9,105 | | | (3,232) | | | 228,422 | | | (14) | | | 222,535 |
Total held-to-maturity | | | 222,549 | | | 9,105 | | | (3,232) | | | 228,422 | | | (14) | | | 222,535 |
| | | | | | | | | | | | | | | | | | |
Total securities | | $ | 611,782 | | $ | 16,416 | | $ | (9,075) | | $ | 619,123 | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | | | | | | | ||
December 31, 2020 | | Amortized | | Unrealized | | Unrealized | | | | | | | | | | |||
Available-For-Sale | | Cost | | Gains | | Losses | | Fair Value | | | | | | | ||||
U.S. states and political divisions | | $ | 78,117 | | $ | 2,906 | | $ | (4) | | $ | 81,019 | | | | | | |
Trust preferred securities | |
| 4,835 | |
| — | |
| (113) | | | 4,722 | |
| | |
| |
Corporate debt securities | |
| 19,526 | |
| 295 | |
| — | | | 19,821 | |
| | |
| |
Residential mortgage-backed securities | |
| 190,817 | |
| 4,023 | |
| (242) | | | 194,598 | |
| | |
| |
Commercial mortgage-backed securities | |
| 33,150 | |
| 2,123 | |
| (10) | | | 35,263 | |
| | |
| |
Total available-for-sale | | | 326,445 | | | 9,347 | | | (369) | | | 335,423 | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | | Allowance | | Net | ||||
| | Amortized | | Unrecognized | | Unrecognized | | | | | for Credit | | Carrying | |||||
| | Cost | | Gains | | Losses | | Fair Value | | Losses | | Value | ||||||
Held-to-Maturity | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | | 200,170 | | | 14,439 | | | (25) | | | 214,584 | | | (14) | | | 200,156 |
Total held-to-maturity | | | 200,170 | | | 14,439 | | | (25) | | | 214,584 | | | (14) | | | 200,156 |
Total securities | | | | | | | | | | | | | | | | | | |
| | $ | 526,615 | | $ | 23,786 | | $ | (394) | | $ | 550,007 | | | | | | |
8
The Company finalizedfollowing table presents the adoption as of January 1, 2020 as detailedactivity in the following table.allowance for credit losses on securities held-to-maturity by major security type for the three months ended March 31, 2021 and 2020.
| | | | | | | | | |
| | For the Three Months Ended March 31, | |||||||
| | 2021 | |||||||
| | U.S. States and | | U.S. States and | | | | ||
| | Political Subdivisions | | Political Subdivisions | | | | ||
|
| Tax-exempt |
| Taxable | | Total | |||
| | (in thousands) | |||||||
Allowance for credit losses on securities held-to-maturity: | | | | | | | | | |
Beginning balance |
| $ | 10 | | $ | 4 | | $ | 14 |
Provision for credit losses | |
| — | |
| — | | | — |
Securities charged-off | | | — | | | — | | | — |
Recoveries | |
| — | |
| — | | | — |
Total ending allowance balance |
| $ | 10 | | $ | 4 | | $ | 14 |
| | | | | | | | | |
| | | January 1, 2020 | ||||||
| | | | | | As Reported | | | Impact of |
| | | Pre-ASC 326 | | | Under | | | ASC 326 |
(in thousands) | | | Adoption | | | ASC 326 | | | Adoption (1) |
Assets: | | | | | | | | | |
Allowance for credit losses on debt securities held-to-maturity |
| | | | | | | | |
U.S. states and political divisions - tax-exempt | | $ | - | | $ | 13 | | $ | 13 |
U.S. states and political divisions - taxable | | | - | | | 7 | | | 7 |
Total allowance for credit losses on debt securities held-to-maturity | | | - | | | 20 | | | 20 |
Allowance for credit losses on loans | | | | | | | | | |
Loans | | | | | | | | | |
Commercial and industrial | | | 9,015 | | | 8,578 | | | (437) |
Commercial real estate | | | 7,504 | | | 6,868 | | | (636) |
Construction and land |
| | 1,685 | | | 1,819 | | | 134 |
Residential mortgages | | | 81 | | | 108 | | | 27 |
Home equity | | | 63 | | | 121 | | | 58 |
Consumer | | | 42 | | | 101 | | | 59 |
Other | | | 145 | | | 78 | | | (67) |
Mortgage warehouse | | | - | | | 8 | | | 8 |
Total allowance for credit losses on loans | | | 18,535 | | | 17,681 | | | (854) |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Allowance for credit losses on unfunded commitments | | | 892 | | | 2,167 | | | 1,275 |
Total allowance for credit losses | | $ | 19,427 | | $ | 19,868 | | $ | 441 |
(1) The adoption of CECL resulted in a reduction of retained earnings totaling $72,000, net of tax.
Allowance for Credit Losses on Held-to-Maturity Securities
| | | | | | | | | |
| | For the Three Months Ended March 31, | |||||||
| | 2020 | |||||||
| | U.S. States and | | U.S. States and | | | | ||
| | Political Subdivisions | | Political Subdivisions | | | | ||
|
| Tax-exempt |
| Taxable | | Total | |||
| | (in thousands) | |||||||
Allowance for credit losses on securities held-to-maturity: | | | | | | | | | |
Beginning balance |
| $ | — | | $ | — | | $ | — |
Impact of adopting ASU 2016-13 | | | 13 | | | 7 | | | 20 |
Provision for credit losses | |
| (3) | |
| (3) | | | (6) |
Securities charged-off | | | — | | | — | | | — |
Recoveries | |
| — | |
| — | | | — |
Total ending allowance balance |
| $ | 10 | | $ | 4 | | $ | 14 |
Management measures expected credit losses on held-to-maturity debt securities byon an individual security.basis. Accrued interest receivable on held-to-maturity debt securities totaled $1.6 million at March 31, 2021 and $2.1 million at December 31, 2020, is recorded in Other Assets on the Consolidated Balance Sheets and is excluded from the estimate of credit losses. The estimate of expected credit losses considers credit ratings and historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on available-for-sale debt securities totaled $1.2 million at both March 31, 2021 and December 31, 2020, is recorded in Other Assets on the Consolidated Balance Sheets and is not included in the estimate of credit losses.
Atlantic Capital monitors the credit quality of debt securities held-to-maturity quarterly through the use of credit rating, material event notices, and changes in market value. The following table summarizes the amortized cost of debt securities held-to-maturity at March 31, 2021, aggregated by credit quality indicator.
The held-to-maturity portfolio consists entirely of municipal securities. Securities are generally rated A or higher. Securities are analyzed individually to establish a CECL mark.
| | | | | | | | | |
| | Held-to-Maturity | |||||||
| | U.S. States and | | U.S. States and | | | | ||
| | Political Subdivisions | | Political Subdivisions | | | | ||
| | Tax-exempt | | Taxable | | Total | |||
March 31, 2021 | | (in thousands) | |||||||
Aaa | | $ | 60,808 | | $ | 27,933 | | $ | 88,741 |
Aa1 | | | 41,174 | | | 17,957 | | | 59,131 |
Aa2 | | | 34,019 | | | 22,825 | | | 56,844 |
Aa3 | |
| 11,590 | |
| 4,042 | | | 15,632 |
A1 | | | 2,201 | | | — | | | 2,201 |
Total | | $ | 149,792 | | $ | 72,757 | | $ | 222,549 |
Allowance for Credit Losses on Available-for-Sale Securities
For available-for-sale securities in an unrealized loss position, management first assesses whether it intends to sell, or more likely than not will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, Atlantic Capital evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair
89
value is less thanAs of March 31, 2021, there were 0 debt securities held-to-maturity that were classified as either nonaccrual or past due over 89 days and still accruing.
The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at March 31, 2021. 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 | | Held-to-Maturity | ||||||||
|
| Amortized |
| Fair |
| Amortized |
| Fair | ||||
| | Cost | | Value | | Cost | | Value | ||||
|
| (in thousands) | ||||||||||
Within 1 year | | $ | 8,519 | | $ | 8,685 | | $ | — | | $ | — |
After 1 year through 5 years | |
| 9,608 | |
| 9,742 | |
| — | |
| — |
After 5 years through 10 years | |
| 34,247 | |
| 34,912 | |
| 312 | |
| 314 |
After 10 years | |
| 50,314 | |
| 51,510 | |
| 222,237 | |
| 228,108 |
| |
| 102,688 | |
| 104,849 | |
| 222,549 | |
| 228,422 |
Residential mortgage-backed securities | |
| 248,823 | |
| 246,544 | |
| — | |
| — |
Commercial mortgage-backed securities | |
| 37,722 | |
| 39,308 | |
| — | |
| — |
Total | | $ | 389,233 | | $ | 390,701 | | $ | 222,549 | | $ | 228,422 |
The following table summarizes available-for-sale and held-to-maturity securities in an unrealized loss position as of March 31, 2021 and December 31, 2020.
| | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or greater | | Totals | ||||||||||||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
March 31, 2021 |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
|
| (in thousands) | ||||||||||||||||
Available-for-Sale |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Trust preferred securities | | $ | — | | $ | — | | $ | 4,808 | | $ | (33) | | $ | 4,808 | | $ | (33) |
Corporate debt securities | |
| 9,948 | |
| (52) | |
| — | |
| — | |
| 9,948 | |
| (52) |
Residential mortgage-backed securities | |
| 153,169 | |
| (5,550) | |
| 191 | |
| (13) | |
| 153,360 | |
| (5,563) |
Commercial mortgage-backed securities | |
| 3,563 | |
| (195) | |
| — | |
| — | |
| 3,563 | |
| (195) |
Total available-for-sale | | | 166,680 | | | (5,797) | | | 4,999 | | | (46) | | | 171,679 | | | (5,843) |
Held-to-Maturity | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | | 58,272 | | | (3,232) | | | — | | | — | | | 58,272 | | | (3,232) |
Total held-to-maturity | | | 58,272 | | | (3,232) | | | — | | | — | | | 58,272 | | | (3,232) |
Total securities | | $ | 224,952 | | $ | (9,029) | | $ | 4,999 | | $ | (46) | | $ | 229,951 | | $ | (9,075) |
| | | | | | | | | | | | | | | | | | |
December 31, 2020 | |
| | |
| | |
| | |
| | |
| | |
| |
Available-for-Sale | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | $ | — | | $ | — | | $ | 1,987 | | $ | (4) | | $ | 1,987 | | $ | (4) |
Trust preferred securities | |
| — | |
| — | |
| 4,721 | |
| (113) | |
| 4,721 | |
| (113) |
Residential mortgage-backed securities | |
| 68,042 | |
| (231) | |
| 205 | |
| (11) | |
| 68,247 | |
| (242) |
Commercial mortgage-backed securities | |
| 3,750 | |
| (10) | |
| — | |
| — | |
| 3,750 | |
| (10) |
Total available-for-sale | | | 71,792 | | | (241) | | | 6,913 | | | (128) | | | 78,705 | | | (369) |
Held-to-Maturity | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | | 2,241 | | | (25) | | | — | | | — | | | 2,241 | | | (25) |
Total held-to-maturity | | | 2,241 | | | (25) | | | — | | | — | | | 2,241 | | | (25) |
Total securities | | $ | 74,033 | | $ | (266) | | $ | 6,913 | | $ | (128) | | $ | 80,946 | | $ | (394) |
10
At March 31, 2021, there were 28 available-for-sale securities that were in an unrealized loss position. There were also 28 held-to-maturity securities that were in an unrealized loss position at March 31, 2021. At December 31, 2020, there were 13 available-for-sale securities and 1 held-to-maturity security 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. AnyUnrealized losses at March 31, 2021 and December 31, 2020 were attributable to changes in market interest rates. NaN credit impairment that has not beenwas recorded throughfor those securities in an allowanceunrealized loss position for creditthe three months ended March 31, 2021 or 2020.
Realized gains and losses is recognized in other comprehensive income (“OCI”).are derived using the specific identification method for determining the cost of securities sold. The following table summarizes securities sales activity for the three months ended March 31, 2021 and 2020.
Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is not included in the estimate of credit losses.
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
| | | | | | | |
Proceeds from sales | | $ | 750 | | $ | — | |
Gross realized gains | | $ | 2 | | $ | — | |
Gross realized losses | |
| — | |
| — | |
Net gains on sales of securities | | $ | 2 | | $ | — | |
Allowance for Credit LossesInvestment securities with a carrying value of $56.2 million and $43.9 million were pledged to secure public funds and other borrowings at March 31, 2021 and December 31, 2020, respectively.
As of March 31, 2021 and December 31, 2020, Atlantic Capital had investments with a carrying value of $5.5 million and $5.4 million, respectively, in SBICs and other investments where Atlantic Capital is the limited partner. These investments are included in other assets on Loansthe Consolidated Balance Sheets. During the first three months of 2021 and 2020, the Company did not record any impairment on these investments. There have been no upward adjustments, cumulatively or year-to-date, on these investments.
11
NOTE 5 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio as of March 31, 2021 and December 31, 2020, is summarized below.
| | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | ||
| | (in thousands) | ||||
Loans held for sale |
| |
|
| |
|
Loans held for sale | | $ | 1,847 | | $ | — |
Total loans held for sale | | $ | 1,847 | | $ | — |
| | | | | | |
Loans held for investment | |
|
| |
|
|
Commercial loans: | |
|
| |
|
|
Commercial and industrial | | $ | 954,053 | | $ | 952,805 |
Commercial real estate | |
| 942,091 | |
| 909,101 |
Construction and land | |
| 142,796 | |
| 145,595 |
Total commercial loans | |
| 2,038,940 | |
| 2,007,501 |
Residential: | |
| | |
| |
Residential mortgages | |
| 31,817 | |
| 33,783 |
Home equity | |
| 26,293 | |
| 25,443 |
Total residential loans | |
| 58,110 | |
| 59,226 |
Consumer | |
| 203,176 | |
| 176,066 |
Other | |
| 7,689 | |
| 13,897 |
Total loans | |
| 2,307,915 | |
| 2,256,690 |
Less net deferred fees and other unearned income | |
| (7,101) | |
| (7,654) |
Less allowance for credit losses on loans | |
| (27,506) | |
| (31,818) |
Loans held for investment, net | | $ | 2,273,308 | | $ | 2,217,218 |
At March 31, 2021 and December 31, 2020, loans with a carrying value of $497.2 million and $474.5 million, respectively, were pledged as collateral to secure FHLB advances and the Federal Reserve discount window.
The fair value adjustments on purchased loans outside the scope of ASC 310-30 are accreted to interest income over the life of the loans. At March 31, 2021, the remaining accretable fair value discount on loans acquired through a business combination and not accounted for under ASC 310-30 was $249,000 compared to $262,000 at December 31, 2020.
The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. LoansIt is comprised of specific allowance for individually assessed loans and a general allowance for loans that are charged off against thecollectively assessed in pools with similar risk characteristics. The allowance when management believes the uncollectibility ofis regularly evaluated to maintain a loan balance is confirmed and recoveries are creditedlevel adequate to the allowance when received. The Company may also account forabsorb expected recoveries should information of an anticipated recovery become available. In the case of actual or expected recoveries, amounts may not exceed the aggregate of amounts previously charged off.
Management utilizes relevant available information, from internal and external sources, relating to past events, current conditions, historical loss experience, and reasonable and supportable forecasts. The lookback periodlosses inherent in the analysis includes historical data from June 2015loan portfolio. Accrued interest receivable totaled $10.7 million at March 31, 2021 and $10.8 million at December 31, 2020 and was reported in Other Assets on the Consolidated Balance Sheets. Included in the estimate of credit losses for loans at March 31, 2021 and December 31, 2020 was $51,000 and $49,000, respectively, related to present. Adjustments to historical loss information are made when management determines historical data are not likely reflectiveaccrued interest receivable totaling $4.3 million and $4.4 million, respectively, on loans with payment deferrals. The remaining balance of the current portfolio such as limited data sets or lack of default or loss history. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data. Accruedaccrued interest receivable was excluded from the estimate of credit losses for loans.
Collective Assessment
The allowance for credit losses on loans is measured on a collective cohort basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by call report code and then risk grade grouping. Risk grade is grouped within each call code by pass, special mention, substandard, and doubtful. Other loan types are separated into their own cohorts due to specific risk characteristics for that pool of loans. Examples include CD-secured fintech loans, Small Business Administration (“SBA”) purchased loans, Payment Protection Program (“PPP”) loans and TriNet loans.
The Company has elected the discounted cash flows (“DCF”) methodology with probability of default (“PD”) and loss given default (“LGD”) for all call code cohorts and TriNet. CD-secured fintech loans, PPP loans and SBA purchased loans are measured with zero risk due to cash collateral and full guaranty, respectively.
The PD calculation looks at the historical loan portfolio at particular points in time (each month during the lookback period) to determine the probability that loans in a certain cohort will default over the next 12 month period. A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or experienced a charge-off during the period. In cohorts where the Company’s historical data are insufficient due to less than 20 loans on average in the pool or zero defaults, management uses index PDs in place of the Company’s historical PDs. Additionally, management reviews all other cohorts to determine if index PDs should be used outside of these criteria.
The LGD calculation looks at actual losses (net charge-offs) experienced over the entire lookback period for each cohort of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate. All defaults (non-accrual, charge-off, or greater than 90 days past due) occurring during the lookback period are included in the denominator, whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default event (i.e. nonaccrual or charge-off). Due to very limited charge-off history, management uses index LGDs in place of the Company’s historical LGDs.
The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the allowance for credit losses on loans. The calculation includes a 12-month PD forecast based on the Company’s regression model comparing peer nonperforming loan ratios to the national unemployment rate and the most recently published Wall Street
912
Journal survey of economists’ forecast. AfterThe following table presents the forecast period, PD rates revertbalance and activity in the allowance for credit losses on a straight-line basis to long-term average rates over a 12-month period.loans by portfolio segment for the three months ended March 31, 2021 and 2020.
| | | | | | | | | | | | |
| | For the Three Months Ended March 31, | ||||||||||
| | 2021 | ||||||||||
| | Commercial | | Residential | | Consumer | | Total | ||||
| | (in thousands) | ||||||||||
Allowance for credit losses on loans |
| | |
| | |
| | |
| | |
Beginning balance | | $ | 30,221 | | $ | 699 | | $ | 898 | | $ | 31,818 |
Provision for loan losses | |
| (3,799) | | | (154) | | | (121) | |
| (4,074) |
Loans charged-off |
|
| (288) | | | — | | | — |
|
| (288) |
Recoveries | |
| 50 | | | — | | | — | |
| 50 |
Total ending allowance balance | | $ | 26,184 | | $ | 545 | | $ | 777 | | $ | 27,506 |
| | | | | | | | | | | | |
|
| For the Three Months Ended March 31, | ||||||||||
| | 2020 | ||||||||||
| | Commercial | | Residential | | Consumer | | Total | ||||
Allowance for credit losses on loans | | (in thousands) | ||||||||||
Beginning balance | | $ | 18,203 | | $ | 145 | | $ | 187 | | $ | 18,535 |
Impact of adopting ASC 326 | | | (947) | | | 8 | | | 85 | | | (854) |
Provision for loan losses | |
| 6,652 | |
| 386 | |
| 371 | |
| 7,409 |
Loans charged-off |
|
| (96) |
|
| (125) |
|
| — |
|
| (221) |
Recoveries | |
| 18 | |
| 1 | |
| 8 | |
| 27 |
Total ending allowance balance | | $ | 23,830 | | $ | 415 | | $ | 651 | | $ | 24,896 |
The Company recognizes that all significant factors that affectdecrease in the collectabilityallowance for credit losses at March 31, 2021 compared to December 31, 2020 was due to an improvement in the CECL economic forecast along with credit rating upgrades for criticized and classified loans.
A charge-off is recognized when the amount of the loss is quantifiable and timing is known. A collateral based loan charge-off is measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated net realizable value of the loan portfolio must be considered to determinecollateral. When assessing property value for the estimated credit losses aspurpose of thedetermining a charge-off, a third-party appraisal or an independently derived internal evaluation date. Furthermore, the DCF methodology, in and of itself and even when selectively adjusted by comparison to market and peer data, does not provide a sufficient basis to determine the estimated credit losses. The Company adjusts the modeled historical losses by a Qualitative and Environmental factor to incorporate all significant risks to form a sufficient basis to estimate the credit losses.is generally employed.
Individual AssessmentNonaccrual loans include both homogeneous loans that are collectively evaluated for impairment and individually evaluated impaired loans. Atlantic Capital’s policy is to place loans on nonaccrual status when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in accordance with the loan terms or when the loan becomes 90 days past due and is not 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.
Loans classified as Nonaccrual, Troubled Debt Restructuring (“TDR”), or Reasonably Expected TDR will be reviewed quarterly for potential individual assessment. Any loan classified as a Nonaccrual or TDR that is not determined to need individual assessment will be evaluated collectively within its respective cohort. All Reasonably Expected TDR loans will be evaluated individually to account for expected modifications in loan terms.
Where the primary and/or expected source of repayment of a specific loan is believed to be the future liquidation of available collateral, impairment will generally be measured based upon expected future collateral proceeds, net of disposition expenses including sales commissions as well as other costs potentially necessary to sell the asset(s) (i.e. past due taxes, liens, etc.) Estimates of future collateral proceeds will be based upon available appraisals, reference to recent valuations of comparable properties, use of consultants or other professionals with relevant market and/or property-specific knowledge, and any other sources of information believed appropriate by management under the specific circumstances. When appraisals are ordered to support the impairment analysis of an impaired loan, the appraisal is reviewed by Atlantic Capital’s internal appraisal reviewer or a qualified third party reviewer.
Where the primary and/or expected source of repayment of a specific loan is believed to be the receipt of principal and interest payments from the borrower and/or the refinancing of the loan by another creditor, impairment will generally be measured based upon the present value of expected proceeds discounted at the contractual interest rate. Expected refinancing proceeds may be estimated from review of term sheets actually received by the borrower from other creditors and/or from the Company’s knowledge of terms generally available from other banks, asset-based lenders, factoring companies and institutional lenders (Government Sponsored Entities, insurance companies, etc.)
Determining the Contractual Term
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Prepayment assumptions will be determined by analysis of historical behavior by loan cohort.
Troubled Debt Restructurings
A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a TDR. Any loan that is being considered for modification and expected to result in a TDR is identified as a Reasonably Expected TDR. Reasonably Expected TDRs are assessed in the CECL calculation utilizing their expected modified terms. The allowance for credit losses on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows when a rate modification has occurred.
Allowance for Credit Losses on Unfunded Commitments
Atlantic Capital estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by Atlantic Capital.
10
The allowance for credit losses on unfunded commitments is adjusted through a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate utilizes the same factors and assumptions as the allowance for credit losses on loans and is applied at the same collective cohort level.
NOTE 2 – ACCOUNTING STANDARDS UPDATES AND RECENTLY ADOPTED STANDARDS
Recently Adopted Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuance of London Interbank Offered Rate (“LIBOR”). ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The Company is in the process of evaluating the impact that the discontinuance of LIBOR will have on its existing contracts and consolidated financial statements.
In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments - 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 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 did not elect the fair value option, and therefore, ASU 2019-05 did not impact the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework -
Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this 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 did not have a material effect on the Company’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 was effective for the Company on January 1, 2020. The new guidance did not 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 was effective for public companies for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Entities 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 and this totaled $72,000, net of tax. For more information, refer to Note 1 of the Consolidated Financial Statements.
11
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes.” This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Finally, it clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020, and early adoption is permitted. The Company is evaluating this ASU to determine any potential impact to the Company’s Consolidated Financial Statements.
NOTE 3 – ACQUISITIONS AND DIVESTITURES
Discontinued Operations
On April 5, 2019, the Bank completed the sale to FirstBank of its Tennessee and northwest Georgia banking operations, including 14 branches and the mortgage business (the “Branch Sale”). FirstBank assumed deposits and customer repurchase agreements of approximately $598 million and purchased approximately $385 million in loans. FirstBank paid a deposit premium equal to 6.25% of the balance of assumed deposits, less a discount of 0.68% of purchased loans.
The income and expenses related to these branches for the three and nine months ended September 30, 2019 are included in discontinued operations.
The following table presents results of the discontinued operations for the three and nine months ended September 30, 2019:
Components of Net Income from Discontinued Operations
| | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | ||
(in thousands) |
| September 30, 2019 |
| September 30, 2019 | ||
Net interest income | | $ | — | | $ | 3,086 |
Service charges | |
| — | |
| 527 |
Mortgage income | |
| — | |
| 288 |
Gain on sale of branches | |
| — | |
| 34,475 |
Other income | |
| — | |
| (1) |
Total noninterest income | |
| — | |
| 35,289 |
Salaries and employee benefits | |
| — | |
| 2,757 |
Occupancy | |
| — | |
| 410 |
Equipment and software | |
| — | |
| 131 |
Amortization of intangibles | |
| — | |
| 247 |
Communications and data processing | |
| — | |
| 586 |
Divestiture expense | |
| — | |
| 5,095 |
Other noninterest expense | |
| — | |
| 459 |
Total noninterest expense | |
| — | |
| 9,685 |
Net income before provision for income taxes | |
| — | |
| 28,690 |
(Benefit) provision for income taxes | |
| (617) | |
| 6,993 |
Net income from discontinued operations | | $ | 617 | | $ | 21,697 |
There were 0 assets or liabilities related to discontinued operations on the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019.
12
NOTE 4 – BALANCE SHEET OFFSETTING
Atlantic Capital enters into reverse repurchase agreements 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 in derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements at September 30, 2020 and December 31, 2019. 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.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Gross Amounts not Offset in the | | | | ||||
|
| Gross |
| | |
| | |
| Balance Sheet |
| | | |||||
| | Amounts of | | Gross Amounts | | Net | | | | | Cash | | | | ||||
(in thousands) | | Recognized | | Offset on the | | Asset | | Financial | | Collateral | | | | |||||
September 30, 2020 | | Assets | | Balance Sheet | | Balance | | Instruments | | Received | | Net Amount | ||||||
Derivatives | | $ | 25,359 | | $ | — | | $ | 25,359 | | $ | — | | $ | — | | $ | 25,359 |
Total | | $ | 25,359 | | $ | — | | $ | 25,359 | | $ | — | | $ | — | | $ | 25,359 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Gross Amounts not Offset in the | | | | ||||
|
| Gross |
| | |
| | |
| Balance Sheet |
| | | |||||
| | Amounts of | | Gross Amounts | | Net | | | | | Cash | | | | ||||
| | Recognized | | Offset on the | | Liability | | Financial | | Collateral | | | | |||||
| | Liabilities | | Balance Sheet | | Balance | | Instruments | | Pledged | | Net Amount | ||||||
Derivatives | | $ | 13,323 | | $ | — | | $ | 13,323 | | $ | (13,323) | | $ | — | | $ | — |
Total | | $ | 13,323 | | $ | — | | $ | 13,323 | | $ | (13,323) | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Gross Amounts not Offset in the | | | | ||||
| | Gross | | | | | | | | Balance Sheet | | | | |||||
| | Amounts of | | Gross Amounts | | Net | | | | | Cash | | | | ||||
| | Recognized | | Offset on the | | Asset | | Financial | | Collateral | | | | |||||
December 31, 2019 |
| Assets |
| Balance Sheet |
| Balance |
| Instruments |
| Received |
| Net Amount | ||||||
Derivatives | | $ | 8,856 | | $ | — | | $ | 8,856 | | $ | — | | $ | — | | $ | 8,856 |
Total | | $ | 8,856 | | $ | — | | $ | 8,856 | | $ | — | | $ | — | | $ | 8,856 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Gross Amounts not Offset in the | | | | ||||
|
| Gross |
| | |
| | |
| Balance Sheet |
| | | |||||
| | Amounts of | | Gross Amounts | | Net | | | | | Cash | | | | ||||
| | Recognized | | Offset on the | | Liability | | Financial | | Collateral | | | | |||||
| | Liabilities | | Balance Sheet | | Balance | | Instruments | | Pledged | | Net Amount | ||||||
Derivatives | | $ | 5,647 | | $ | — | | $ | 5,647 | | $ | (5,647) | | $ | — | | $ | — |
Total | | $ | 5,647 | | $ | — | | $ | 5,647 | | $ | (5,647) | | $ | — | | $ | — |
13
NOTE 5 – SECURITIES
The following table presents the amortized cost, fair value, and allowance for credit losses on securities available-for-sale and held-to-maturity at September 30, 2020 and December 31, 2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses:
| | | | | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | | | | | | |||
| | Amortized | | Unrealized | | Unrealized | | | | | | | | | ||||
|
| Cost |
| Gains |
| Losses |
| Fair Value |
| | |
| | | ||||
| | (in thousands) | | | | |||||||||||||
September 30, 2020 |
| |
|
| |
|
| |
|
| | |
| |
|
| |
|
Available-For-Sale |
| |
|
| |
|
| |
|
| | |
| |
|
| |
|
U.S. states and political divisions | | $ | 80,037 | | $ | 2,536 | | $ | (7) | | $ | 82,566 | | | | | | |
Trust preferred securities | |
| 4,828 | |
| — | |
| (238) | | | 4,590 | |
| | |
| |
Corporate debt securities | |
| 19,533 | |
| 265 | |
| (154) | | | 19,644 | |
| | |
| |
Residential mortgage-backed securities | |
| 113,372 | |
| 4,293 | |
| (15) | | | 122,377 | |
| | |
| |
Commercial mortgage-backed securities | |
| 34,159 | |
| 2,275 | |
| — | | | 31,707 | |
| | |
| |
Total available-for-sale | | | 251,929 | | | 9,369 | | | (414) | | | 260,884 | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | | Allowance | | Net | ||||
| | Amortized | | Unrecognized | | Unrecognized | | | | | for Credit | | Carrying | |||||
| | Cost | | Gains | | Losses | | Fair Value | | Losses | | Value | ||||||
Held-to-Maturity | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | | 185,837 | | | 10,875 | | | — | | | 196,712 | | | (15) | | | 185,822 |
Total held-to-maturity | | | 185,837 | | | 10,875 | | | — | | | 196,712 | | | (15) | | | 185,822 |
| | | | | | | | | | | | | | | | | | |
Total securities | | $ | 437,766 | | $ | 20,244 | | $ | (414) | | $ | 457,596 | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | | | | | | | ||
December 31, 2019 | | Amortized | | Unrealized | | Unrealized | | | | | | | | | | |||
Available-For-Sale | | Cost | | Gains | | Losses | | Fair Value | | | | | | | ||||
U.S. states and political divisions | | $ | 81,865 | | $ | 863 | | $ | (243) | | $ | 82,485 | | | | | | |
Trust preferred securities | |
| 4,808 | |
| — | |
| (120) | | | 4,688 | | | | | | |
Corporate debt securities | |
| 19,557 | |
| 363 | |
| — | | | 19,920 | | | | | | |
Residential mortgage-backed securities | |
| 138,552 | |
| 1,885 | |
| (424) | | | 140,013 | | | | | | |
Commercial mortgage-backed securities | |
| 34,495 | |
| 912 | |
| (52) | | | 35,355 | | | | | | |
Total available-for-sale | | | 279,277 | | | 4,023 | | | (839) | | | 282,461 | | | | | | |
| | | | | | | | | | | | | | | | | | |
Held-to-Maturity | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | | 116,972 | | | 104 | | | (1,785) | | | 115,291 | | | | | | |
Total held-to-maturity | | | 116,972 | | | 104 | | | (1,785) | | | 115,291 | | | | | | |
Total securities | | $ | 396,249 | | $ | 4,127 | | $ | (2,624) | | $ | 397,752 | | | | | | |
14
The following table presents the activity in the allowance for credit losses on securities held-to-maturity by major security type for the three and nine months ended September 30, 2020.
| | | | | | | | | |
| | For the Three Months Ended September 30, | |||||||
| | 2020 | |||||||
| | U.S. States and | | U.S. States and | | | | ||
| | Political Subdivisions | | Political Subdivisions | | | | ||
|
| Tax-exempt |
| Taxable | | Total | |||
|
| (in thousands) | |||||||
Allowance for credit losses on securities held-to-maturity: | | | | | | | | | |
Beginning balance |
| $ | 9 | | $ | 4 | | $ | 13 |
Provision for credit losses | |
| 2 | |
| — | | | 2 |
Securities charged-off | | | — | | | — | | | — |
Recoveries | |
| — | |
| — | | | — |
Total ending allowance balance |
| $ | 11 | | $ | 4 | | $ | 15 |
| | | | | | | | | |
| | For the Nine Months Ended September 30, | |||||||
| | 2020 | |||||||
| | U.S. States and | | U.S. States and | | | | ||
| | Political Subdivisions | | Political Subdivisions | | | | ||
|
| Tax-exempt |
| Taxable | | Total | |||
| | (in thousands) | |||||||
Allowance for credit losses on securities held-to-maturity: | | | | | | | | | |
Beginning balance |
| $ | — | | $ | — | | $ | — |
Impact of adopting ASU 2016-13 | | | 13 | | | 7 | | | 20 |
Provision for credit losses | |
| (2) | |
| (3) | | | (5) |
Securities charged-off | | | — | | | — | | | — |
Recoveries | |
| — | |
| — | | | — |
Total ending allowance balance |
| $ | 11 | | $ | 4 | | $ | 15 |
Management measures expected credit losses on held-to-maturity debt securities on an individual basis. Accrued interest receivable on held-to-maturity debt securities totaled $1.5 million at September 30, 2020 and $796,000 at December 31, 2019, is recorded in Other Assets on the Consolidated Balance Sheets and is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on available-for-sale debt securities totaled $1.0 million at September 30, 2020, is recorded in Other Assets on the Consolidated Balance Sheets and is not included in the estimate of credit losses.
Atlantic Capital monitors the credit quality of debt securities held-to-maturity quarterly through the use of credit rating, material event notices, and changes in market value. The following table summarizes the amortized cost of debt securities held-to-maturity at September 30, 2020, aggregated by credit quality indicator.
| | | | | | | | | | |
| | | Held-to-Maturity | |||||||
| | | U.S. States and | | U.S. States and | | | | ||
| | | Political Subdivisions | | Political Subdivisions | | | | ||
|
|
| Tax-exempt |
| Taxable | | Total | |||
September 30, 2020 | |
| (in thousands) | |||||||
Aaa |
|
| $ | 48,509 | | $ | 20,755 | | $ | 69,264 |
Aa1 | | | | 32,317 | | | 7,748 | | | 40,065 |
Aa2 | | | | 32,161 | | | 20,862 | | | 53,023 |
Aa3 | | |
| 17,228 | |
| 4,045 | | | 21,273 |
A1 | | | | 2,212 | | | — | | | 2,212 |
Total |
|
| $ | 132,427 | | $ | 53,410 | | $ | 185,837 |
| | | | | | | | | | |
15
As of September 30, 2020, there were 0 debt securities held-to-maturity that were classified as either nonaccrual or past due over 89 days and still accruing.
The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity debt securities by contractual maturity at September 30, 2020. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| | | | | | | | | | | | |
| | Available-For-Sale | | Held-to-Maturity | ||||||||
|
| Amortized |
| Fair |
| Amortized |
| Fair | ||||
| | Cost | | Value | | Cost | | Value | ||||
|
| (in thousands) | ||||||||||
Within 1 year | | $ | 1,001 | | $ | 1,006 | | $ | — | | $ | — |
Over 1 year through 5 years | |
| 9,556 | |
| 9,854 | |
| — | |
| — |
5 years to 10 years | |
| 36,762 | |
| 37,340 | |
| 316 | |
| 321 |
Over 10 years | |
| 57,079 | |
| 58,600 | |
| 185,521 | |
| 196,391 |
| |
| 104,398 | |
| 106,800 | |
| 185,837 | |
| 196,712 |
Residential mortgage-backed securities | |
| 113,372 | |
| 117,650 | |
| — | |
| — |
Commercial mortgage-backed securities | |
| 34,159 | |
| 36,434 | |
| — | |
| — |
Total | | $ | 251,929 | | $ | 260,884 | | $ | 185,837 | | $ | 196,712 |
The following table summarizes available-for-sale and held-to-maturity securities in an unrealized loss position as of September 30, 2020 and December 31, 2019.
| | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or greater | | Totals | ||||||||||||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
September 30, 2020 |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
|
| (in thousands) | ||||||||||||||||
Available-for-Sale |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
U.S. states and political divisions | | $ | — | | $ | — | | $ | 1,984 | | $ | (7) | | $ | 1,984 | | $ | (7) |
Trust preferred securities | |
| — | |
| — | |
| 4,590 | |
| (238) | |
| 4,590 | |
| (238) |
Corporate debt securities | |
| — | |
| — | |
| 9,846 | |
| (154) | |
| 9,846 | |
| (154) |
Residential mortgage-backed securities | |
| — | |
| — | |
| 1,674 | |
| (15) | |
| 1,674 | |
| (15) |
Total available-for-sale | | | — | | | — | | | 18,094 | | | (414) | | | 18,094 | | | (414) |
Held-to-Maturity | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | | — | | | — | | | — | | | — | | | — | | | — |
Total held-to-maturity | | | — | | | — | | | — | | | — | | | — | | | — |
Total securities | | $ | — | | $ | — | | $ | 18,094 | | $ | (414) | | $ | 18,094 | | $ | (414) |
| | | | | | | | | | | | | | | | | | |
December 31, 2019 | |
| | |
| | |
| | |
| | |
| | |
| |
Available-for-Sale | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | $ | 20,019 | | $ | (190) | | $ | 4,090 | | $ | (53) | | $ | 24,109 | | $ | (243) |
Trust preferred securities | |
| — | |
| — | |
| 4,687 | |
| (120) | |
| 4,687 | |
| (120) |
Residential mortgage-backed securities | |
| 8,271 | |
| (26) | |
| 30,292 | |
| (398) | |
| 38,563 | |
| (424) |
Commercial mortgage-backed securities | |
| 2,480 | |
| (52) | |
| — | |
| — | |
| 2,480 | |
| (52) |
Total available-for-sale | | | 30,770 | | | (268) | | | 39,069 | | | (571) | | | 69,839 | | | (839) |
Held-to-Maturity | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | | 96,854 | | | (1,785) | | | — | | | — | | | 96,854 | | | (1,785) |
Total held-to-maturity | | | 96,854 | | | (1,785) | | | — | | | — | | | 96,854 | | | (1,785) |
Total securities | | $ | 127,624 | | $ | (2,053) | | $ | 39,069 | | $ | (571) | | $ | 166,693 | | $ | (2,624) |
At September 30, 2020, there were 6 available-for-sale securities that were in an unrealized loss position. There were 0 held-to-maturity securities that were in an unrealized loss position at September 30, 2020. At December 31, 2019, there were 77 available-for-sale securities and 35 held-to-maturity securities that were in an unrealized loss position. Atlantic
16
Capital does not intend to sell and does not believe it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. Unrealized losses at September 30, 2020 and December 31, 2019 were attributable to changes in market interest rates. NaN credit impairment was recorded for those securities in an unrealized loss position for the three and nine months of 2020 or 2019.
Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. The following table summarizes securities sales activity for the three and nine months ended September 30, 2020 and 2019.
| | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
| | (in thousands) | | ||||||||||
Proceeds from sales | | $ | — | | $ | 62,025 | | $ | — | | $ | 116,963 | |
Gross realized gains | | | — | | $ | 553 | | $ | — | | $ | 1,675 | |
Gross realized losses | |
| — | |
| (300) | |
| — | |
| (768) | |
Net gains on sales of securities | | $ | — | | $ | 253 | | $ | — | | $ | 907 | |
Investment securities with a carrying value of $27.6 million and $32.3 million were pledged to secure public funds and other borrowings at September 30, 2020 and December 31, 2019, respectively.
As of September 30, 2020 and December 31, 2019, Atlantic Capital had investments with a carrying value of $5.1 million and $4.7 million, respectively, in Small Business Investment Companies (“SBICs”) where Atlantic Capital is the limited partner. These investments are included in other assets on the Consolidated Balance Sheets. During the first nine months of 2020, the Company did not record any impairment on these SBICs. For the same period in 2019, the Company recorded impairment in the amount of $26,000 on these SBICs. The impairment resulted from deterioration in the credit quality of one of the SBICs and their inability to pay distributions until their financial position improves. There have been no upward adjustments, cumulatively or year-to-date, on these investments.
17
NOTE 6 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio as of September 30, 2020 and December 31, 2019, is summarized below.
| | | | | | |
|
| September 30, 2020 |
| December 31, 2019 | ||
| | (in thousands) | ||||
Loans held for sale |
| |
|
| |
|
Loans held for sale | |
| 859 | |
| 370 |
Total loans held for sale | | $ | 859 | | $ | 370 |
| | | | | | |
Loans held for investment | |
|
| |
|
|
Commercial loans: | |
|
| |
|
|
Commercial and industrial | | $ | 944,401 | | $ | 705,115 |
Commercial real estate | |
| 880,785 | |
| 916,328 |
Construction and land | |
| 139,836 | |
| 127,540 |
Mortgage warehouse participations | |
| — | |
| 13,941 |
Total commercial loans | |
| 1,965,022 | |
| 1,762,924 |
Residential: | |
| | |
| |
Residential mortgages | |
| 29,460 | |
| 31,315 |
Home equity | |
| 24,528 | |
| 25,002 |
Total residential loans | |
| 53,988 | |
| 56,317 |
Consumer | ��� |
| 154,916 | |
| 37,765 |
Other | |
| 22,777 | |
| 19,552 |
Total loans | |
| 2,196,703 | |
| 1,876,558 |
Less net deferred fees and other unearned income | |
| (8,668) | |
| (3,034) |
Less allowance for credit losses on loans | |
| (31,894) | |
| (18,535) |
Loans held for investment, net | | $ | 2,156,141 | | $ | 1,854,989 |
At September 30, 2020 and December 31, 2019, loans with a carrying value of $465.1 million and $729.6 million, respectively, were pledged as collateral to secure Federal Home Loan Bank of Atlanta (“FHLB”) advances and the Federal Reserve discount window.
The fair value adjustments on purchased loans outside the scope of ASC 310-30 are accreted to interest income over the life of the loans. At September 30, 2020, the remaining accretable fair value discount on loans acquired through a business combination and not accounted for under ASC 310-30 was $284,000 compared to $279,000 at December 31, 2019.
The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. It is comprised of specific allowance for individually assessed loans and a general allowance for loans that are collectively assessed in pools with similar risk characteristics. The allowance is regularly evaluated to maintain a level adequate to absorb expected losses inherent in the loan portfolio. Refer to Note 1, “Accounting Policies and Basis of Presentation” to the Consolidated Financial Statements for additional information. Accrued interest receivable totaled $10.2 million at September 30, 2020, was reported in Other Assets on the Consolidated Balance Sheets and was excluded from the estimate of credit losses for loans.
18
The following table presents the balance and activity in the allowance for credit losses on loans by portfolio segment for the three and nine months ended September 30, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | ||||||||||||||||||||||
| | 2020 | | 2019 | ||||||||||||||||||||
| | Commercial | | Residential | | Consumer | | Total | | Commercial | | Residential | | Consumer | | Total | ||||||||
| | (in thousands) | ||||||||||||||||||||||
Allowance for credit losses on loans |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Beginning balance, prior to adoption of ASC 326 | | $ | 30,834 | | $ | 517 | | $ | 254 | | $ | 31,605 | | $ | 17,817 | | $ | 164 | | $ | 205 | | $ | 18,186 |
Provision for loan losses | |
| (83) | | | 149 | | | 570 | |
| 636 | |
| 434 | |
| (24) | |
| 3 | |
| 413 |
Loans charged-off |
|
| (404) | | | — | | | — |
|
| (404) |
|
| (541) |
|
| — |
|
| (2) |
|
| (543) |
Recoveries | |
| 56 | | | — | | | 1 | |
| 57 | |
| 18 | |
| — | |
| 6 | |
| 24 |
Total ending allowance balance | | $ | 30,403 | | $ | 666 | | $ | 825 | | $ | 31,894 | | $ | 17,728 | | $ | 140 | | $ | 212 | | $ | 18,080 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| | 2020 | | 2019 | ||||||||||||||||||||
| | Commercial | | Residential | | Consumer | | Total | | Commercial | | Residential | | Consumer | | Total | ||||||||
| | (in thousands) | ||||||||||||||||||||||
Allowance for credit losses on loans |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Beginning balance, prior to adoption of ASC 326 | | $ | 18,203 | | $ | 145 | | $ | 187 | | $ | 18,535 | | $ | 17,322 | | $ | 292 | | $ | 237 | | $ | 17,851 |
Impact of adopting ASC 326 | | | (947) | | | 8 | | | 85 | | | (854) | | | — | | | — | | | — | | | — |
Provision for loan losses | |
| 15,051 | | | 673 | | | 543 | |
| 16,267 | |
| 2,096 | |
| (151) | |
| (20) | |
| 1,925 |
Loans charged-off |
|
| (1,979) | | | (161) | | | — |
|
| (2,140) |
|
| (1,725) |
|
| (9) |
|
| (39) |
|
| (1,773) |
Recoveries | |
| 75 | | | 1 | | | 10 | |
| 86 | |
| 35 | |
| 8 | |
| 34 | |
| 77 |
Total ending allowance balance | | $ | 30,403 | | $ | 666 | | $ | 825 | | $ | 31,894 | | $ | 17,728 | | $ | 140 | | $ | 212 | | $ | 18,080 |
A charge-off is recognized when the amount of the loss is quantifiable and timing is known. A collateral based loan charge-off is measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated net realizable value of the loan collateral. When assessing property value for the purpose of determining a charge-off, a third-party appraisal or an independently derived internal evaluation is generally employed.
Nonaccrual loans include both homogeneous loans that are collectively evaluated for impairment and individually evaluated impaired loans. Atlantic Capital’s policy is to place loans on nonaccrual status when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in accordance with the loan terms or when the loan becomes 90 days past due and is not 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.
Troubled Debt Restructurings
Atlantic Capital evaluates loans in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors. TDRs are made to provide relief to customers experiencing liquidity challenges or other circumstances that could affect their ability to meet their debt obligations. Typical modifications include short-term deferral of interest or modification of payment terms. Nonperforming TDRs do not accrue interest and are included as nonperforming assets (“NPAs”)NPAs within nonaccrual loans (“NPLs”).NPLs. TDRs which are accruing interest based on the restructured terms are considered performing.
As of September 30, 2020March 31, 2021 and December 31, 2019,2020, the Company had a recorded investment in TDRs of $14.4$13.8 million and $13.2$14.2 million, respectively. The Company allocated $689,000$55,000 in allowance for those loans at September 30, 2020March 31, 2021 and had 0 commitments to lend additional funds on loans modified as TDRs as of September 30,March 31, 2021 and December 31, 2020. The Company had commitments to lend additional funds of $4,000 on
There were 0 loans modified as TDRs during the three months ended March 31, 2021. Loans, by portfolio class, modified as of DecemberTDRs during the three months ended March 31, 2019.2020 are as follows:
| | | | | | | | |
| | | | | | | |
1913
Loans, by portfolio class, modified as TDRs during the three and nine months ended September 30, 2020 and 2019 are as follows:
| | | | | | | | | ||||||||
| | | | | | | | |||||||||
| | | | Outstanding Balance | | Increase in Allowance | ||||||||||
|
| Number of Loans |
| at September 30, 2020 |
| at September 30, 2020 | | Number of Loans | | Outstanding Balance | | Increase in Allowance | ||||
| | | | (in thousands) | | | | (in thousands) | ||||||||
Three Months Ended September 30, 2020 | | | | | | | | | ||||||||
Commercial and industrial | | — | | $ | — | | $ | — | ||||||||
Total |
| — | | $ | — | | $ | — | ||||||||
| | | | | | | | | ||||||||
Nine Months Ended September 30, 2020 | | | | | | | | | ||||||||
Three Months Ended March 31, 2020 | | | | | | | | | ||||||||
Commercial and industrial |
| 1 | | $ | 65 | | $ | 3 | | 1 | | $ | 67 | | $ | 2 |
Commercial real estate |
| 1 | |
| 1,920 | |
| 188 | | 1 | |
| 1,945 | |
| 154 |
Total |
| 2 | | $ | 1,985 | | $ | 191 | | 2 | | $ | 2,012 | | $ | 156 |
| | | | | | | | | ||||||||
Three Months Ended September 30, 2019 | | | | | | | | | ||||||||
Commercial real estate | | 1 | | $ | 1,512 | | $ | — | ||||||||
Total |
| 1 | | $ | 1,512 | | $ | — | ||||||||
| | | | | | | | | ||||||||
Nine Months Ended September 30, 2019 | | | | | | | | | ||||||||
Commercial and industrial |
| 6 | | $ | 1,235 | | $ | 32 | ||||||||
Commercial real estate |
| 3 | |
| 2,438 | |
| — | ||||||||
Total |
| 9 | | $ | 3,673 | | $ | 32 |
The Company did not forgive any principal on TDRs during the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.
The following table presents by class, all loans modified as TDRs that defaulted during the three and nine months ended September 30, 2020 and within twelve months of their modification date. There were no subsequent defaults for TDRs for the three or nine months ended September 30, 2019. A TDR is considered to be in default once it becomes 90 days or more contractually past due under the modified terms. The following table presents by class, all loans modified as TDRs that defaulted during the three months ended March 31, 2021 and 2020 and within twelve months of their modification date.
|
|
|
|
|
|
|
|
| |||
|
|
| |||
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | |
| | Three Months Ended | |||
| | March 31, 2021 | |||
Troubled debt restructurings that subsequently defaulted during the period within twelve months of their modification date: | | Number of Loans |
| | Outstanding Balance |
| | | | | |
(in thousands) |
| | | | |
Commercial real estate | | 1 | | $ | 12 |
Total | | 1 | | $ | 12 |
| | | | | |
| | Nine Months Ended | |||
| | September 30, 2020 | |||
|
| Number of Loans |
| | Outstanding Balance |
| | | | | |
(in thousands) |
| | | | |
Commercial | | 2 | | $ | 310 |
Total | | 2 | | $ | 310 |
| | | | | |
| | Three Months Ended | |||
| | March 31, 2020 | |||
|
| Number of Loans |
| | Outstanding Balance |
| | | | | |
(in thousands) |
| | | | |
Commercial | | 2 | | $ | 320 |
Total | | 2 | | $ | 320 |
Section 4013 “Temporary Relief From Troubled Debt Restructurings,” of the Coronavirus Aid, Relief, and Economic SecurityCARES Act, passed by Congress and signed into law on March 27, 2020, allows financial institutions the option to
20
temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. The relief was extended by the 2021 Consolidated Appropriations Act through January 1, 2022. On April 7, 2020, the Federal Financial Institutions Examination Council provided additional guidance in its Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised). This guidance received concurrence from the FASB and clarified that loan modifications made under the following criteria are generally not considered TDRs if:
● | the modification is in response to the |
● | the borrower was current on payments at the time the modification program is implemented; and |
● | the modification is short-term (e.g., six months). |
Atlantic Capital individually rates loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, consumer credit risk scores (Fair Isaac Corporation (FICO) scores), rating agency information, loan-to-valueLTV ratios, collateral, collection experience, and other internal metrics. The likelihood of default of a credit transaction is graded in the Obligor Rating and is determined through credit analysis. Ratings are generally reviewed at least annually or more frequently if there is a material change in creditworthiness. Exceptions to this policy may include loans with commitments less than $1 million, well-collateralized term loans and loans to individuals with limited exposure or complexity.
Atlantic Capital uses the following definitions for risk ratings:
Pass: Loans that are analyzed individually as part of the above described process and that do not meet the criteria of special mention, substandard or doubtful.
14
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.
2115
As of September 30, 2020,March 31, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans Amortized Cost Basis by Origination Year | | | | | | | | Term Loans Amortized Cost Basis by Origination Year | | | | | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | Revolving Loans | | | | | | | | | | | | | | | | | | | | | | | Revolving Loans | | | | ||
| | | | | | | | | | | | | | | Amortized | | | | | | | | | | | | | | | | | | Amortized | | | | ||||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Cost Basis |
| Total |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| Prior |
| Cost Basis |
| Total | ||||||||||||||||
| | (in thousands) | | | | | (in thousands) | | | | ||||||||||||||||||||||||||||||||||||||
September 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
March 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Commercial - commercial and industrial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | 345,849 | | $ | 149,459 | | $ | 98,060 | | $ | 48,319 | | $ | 37,375 | | $ | 17,129 | | $ | 154,115 | | $ | 850,306 | | $ | 105,540 | | $ | 299,781 | | $ | 103,040 | | $ | 80,096 | | $ | 42,897 | | $ | 52,271 | | $ | 189,327 | | $ | 872,952 |
Special mention | |
| 485 | |
| 8,771 | |
| 27,186 | |
| 272 | |
| — | | | 331 | | | 25,734 | |
| 62,779 | |
| — | |
| 1,004 | |
| 15,562 | |
| 25,119 | |
| 495 | | | 390 | | | 24,243 | |
| 66,813 |
Substandard | |
| — | |
| 3,881 | |
| 9,141 | |
| 2,890 | |
| 1,570 | | | 6,089 | | | 7,745 | |
| 31,316 | |
| 21 | |
| — | |
| 4,019 | |
| 6,529 | |
| 718 | | | 1,727 | | | 1,274 | |
| 14,288 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total commercial - commercial and industrial | | $ | 346,334 | | $ | 162,111 | | $ | 134,387 | | $ | 51,481 | | $ | 38,945 | | $ | 23,549 | | $ | 187,594 | | $ | 944,401 | | $ | 105,561 | | $ | 300,785 | | $ | 122,621 | | $ | 111,744 | | $ | 44,110 | | $ | 54,388 | | $ | 214,844 | | $ | 954,053 |
Commercial - commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | 55,813 | | $ | 164,849 | | $ | 135,310 | | $ | 97,639 | | $ | 137,676 | | $ | 220,153 | | $ | 9,255 | | $ | 820,695 | | $ | 28,232 | | $ | 86,992 | | $ | 159,789 | | $ | 147,059 | | $ | 94,317 | | $ | 328,834 | | $ | 24,680 | | $ | 869,903 |
Special mention | |
| — | |
| 8,463 | |
| 3,718 | |
| — | |
| 10,533 | | | 4,537 | | | — | |
| 27,251 | |
| — | |
| — | |
| 22,377 | |
| 1,492 | |
| — | | | 14,612 | | | 258 | |
| 38,739 |
Substandard | |
| — | |
| 11,506 | |
| 2,126 | |
| 3,261 | |
| — | | | 15,896 | | | 50 | |
| 32,839 | |
| — | |
| 5,281 | |
| 6,022 | |
| 6,381 | |
| 3,223 | | | 12,542 | | | — | |
| 33,449 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total commercial - commercial real estate loans | | $ | 55,813 | | $ | 184,818 | | $ | 141,154 | | $ | 100,900 | | $ | 148,209 | | $ | 240,586 | | $ | 9,305 | | $ | 880,785 | | $ | 28,232 | | $ | 92,273 | | $ | 188,188 | | $ | 154,932 | | $ | 97,540 | | $ | 355,988 | | $ | 24,938 | | $ | 942,091 |
Commercial - construction and land: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | 43,899 | | $ | 57,168 | | $ | 19,925 | | $ | — | | $ | 663 | | $ | 890 | | $ | — | | $ | 122,545 | | $ | 96 | | $ | 83,921 | | $ | 51,725 | | $ | 107 | | $ | — | | $ | — | | $ | 2,505 | | $ | 138,354 |
Special mention | |
| — | |
| 8,997 | |
| 6,030 | |
| — | |
| 2,264 | | | — | | | — | |
| 17,291 | |
| — | |
| — | |
| — | |
| 2,664 | |
| — | | | 1,778 | | | — | |
| 4,442 |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total commercial - construction and land loans | | $ | 43,899 | | $ | 66,165 | | $ | 25,955 | | $ | — | | $ | 2,927 | | $ | 890 | | $ | — | | $ | 139,836 | | $ | 96 | | $ | 83,921 | | $ | 51,725 | | $ | 2,771 | | $ | — | | $ | 1,778 | | $ | 2,505 | | $ | 142,796 |
Residential - mortgages: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | 3,540 | | $ | 2,882 | | $ | 14,805 | | $ | 1,632 | | $ | 3,569 | | $ | 399 | | $ | — | | $ | 26,827 | | $ | 2,188 | | $ | 8,239 | | $ | 3,825 | | $ | 12,089 | | $ | 739 | | $ | 3,100 | | $ | — | | $ | 30,180 |
Special mention | |
| 697 | |
| — | |
| 859 | |
| 760 | |
| — | | | — | | | — | |
| 2,316 | |
| — | |
| 532 | |
| — | |
| 156 | |
| 744 | | | — | | | — | |
| 1,432 |
Substandard | |
| — | |
| — | |
| 179 | |
| — | |
| 26 | | | 112 | | | — | |
| 317 | |
| — | |
| — | |
| — | |
| 179 | |
| — | | | 26 | | | — | |
| 205 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total residential - mortgage loans | | $ | 4,237 | | $ | 2,882 | | $ | 15,843 | | $ | 2,392 | | $ | 3,595 | | $ | 511 | | $ | — | | $ | 29,460 | | $ | 2,188 | | $ | 8,771 | | $ | 3,825 | | $ | 12,424 | | $ | 1,483 | | $ | 3,126 | | $ | — | | $ | 31,817 |
Residential - home equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 24,279 | | $ | 24,279 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 486 | | $ | 25,081 | | $ | 25,567 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| ��� | | | — | | | 249 | |
| 249 | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | 726 | |
| 726 |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total residential - home equity loans | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 24,528 | | $ | 24,528 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 486 | | $ | 25,807 | | $ | 26,293 |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | 138,552 | | $ | 8,145 | | $ | 49 | | $ | 56 | | $ | 64 | | $ | 4,681 | | $ | 3,369 | | $ | 154,916 | | $ | 93,592 | | $ | 98,528 | | $ | 3,903 | | $ | — | | $ | 22 | | $ | 3,705 | | $ | 3,426 | | $ | 203,176 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total consumer loans | | $ | 138,552 | | $ | 8,145 | | $ | 49 | | $ | 56 | | $ | 64 | | $ | 4,681 | | $ | 3,369 | | $ | 154,916 | | $ | 93,592 | | $ | 98,528 | | $ | 3,903 | | $ | — | | $ | 22 | | $ | 3,705 | | $ | 3,426 | | $ | 203,176 |
Consumer - other: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | — | | $ | — | | $ | 4,720 | | $ | 1,965 | | $ | 231 | | $ | 784 | | $ | 11,973 | | $ | 19,673 | | $ | 99 | | $ | — | | $ | — | | $ | 4,299 | | $ | 1,317 | | $ | 582 | | $ | 23 | | $ | 6,320 |
Special mention | |
| — | |
| 2,648 | |
| — | |
| — | |
| — | | | — | | | — | |
| 2,648 | |
| — | |
| — | |
| 914 | |
| — | |
| — | | | — | | | — | |
| 914 |
Substandard | |
| — | |
| — | |
| — | |
| 456 | |
| — | | | — | | | — | |
| 456 | |
| — | |
| — | |
| — | |
| — | |
| 455 | | | — | | | — | |
| 455 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total consumer - other loans | | $ | — | | $ | 2,648 | | $ | 4,720 | | $ | 2,421 | | $ | 231 | | $ | 784 | | $ | 11,973 | | $ | 22,777 | | $ | 99 | | $ | — | | $ | 914 | | $ | 4,299 | | $ | 1,772 | | $ | 582 | | $ | 23 | | $ | 7,689 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 587,653 | | $ | 382,503 | | $ | 272,869 | | $ | 149,611 | | $ | 179,578 | | $ | 244,036 | | $ | 202,991 | | $ | 2,019,241 | | $ | 229,747 | | $ | 577,461 | | $ | 322,282 | | $ | 243,650 | | $ | 139,292 | | $ | 388,978 | | $ | 245,042 | | $ | 2,146,452 |
Special Mention | | | 1,182 | | | 28,879 | | | 37,793 | | | 1,032 | | | 12,797 | | | 4,868 | | | 25,983 | | | 112,534 | | | — | | | 1,536 | | | 38,853 | | | 29,431 | | | 1,239 | | | 16,780 | | | 25,227 | | | 113,066 |
Substandard | | | — | | | 15,387 | | | 11,446 | | | 6,607 | | | 1,596 | | | 22,097 | | | 7,795 | | | 64,928 | | | 21 | | | 5,281 | | | 10,041 | | | 13,089 | | | 4,396 | | | 14,295 | | | 1,274 | | | 48,397 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 588,835 | | $ | 426,769 | | $ | 322,108 | | $ | 157,250 | | $ | 193,971 | | $ | 271,001 | | $ | 236,769 | | $ | 2,196,703 | | $ | 229,768 | | $ | 584,278 | | $ | 371,176 | | $ | 286,170 | | $ | 144,927 | | $ | 420,053 | | $ | 271,543 | | $ | 2,307,915 |
2216
As of December 31, 2019,2020, the risk category of loans by class of loans is as follows.
| | | | | | | | | | | | | | | | | | |
| | | | Special | | Substandard | | Substandard | | Doubtful | | | ||||||
|
| Pass |
| Mention |
| Accruing |
| Nonaccruing |
| Nonaccruing |
| Total | ||||||
|
| (in thousands) | ||||||||||||||||
December 31, 2019 | | | | | | | | | | | | | | | | | | |
Commercial and industrial |
| $ | 648,895 |
| $ | 40,179 |
| $ | 10,051 |
| $ | 5,990 |
| $ | - |
| $ | 705,115 |
Commercial real estate | | | 891,078 | | | 5,483 | | | 19,504 | | | 263 | | | - | | | 916,328 |
Construction and land | | | 127,540 | | | - | | | - | | | - | | | - | | | 127,540 |
Residential mortgages | | | 30,941 | | | - | | | 119 | | | 151 | | | 104 | | | 31,315 |
Home equity | | | 24,302 | | | - | | | - | | | 700 | | | - | | | 25,002 |
Mortgage warehouse | | | 13,941 | | | - | | | - | | | - | | | - | | | 13,941 |
Consumer/Other | | | 56,336 | | | 500 | | | 481 | | | - | | | - | | | 57,317 |
Total Loans | | $ | 1,793,033 | | $ | 46,162 | | $ | 30,155 | | $ | 7,104 | | $ | 104 | | $ | 1,876,558 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans Amortized Cost Basis by Origination Year | | | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | Revolving Loans | | | | |
| | | | | | | | | | | | | | | Amortized | | | | ||||||
|
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Cost Basis |
| Total | ||||||||
| | (in thousands) | | | | |||||||||||||||||||
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial - commercial and industrial: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | 358,320 | | $ | 130,466 | | $ | 94,596 | | $ | 44,706 | | $ | 35,098 | | $ | 16,621 | | $ | 179,521 | | $ | 859,328 |
Special mention | |
| 1,260 | |
| 11,475 | |
| 26,683 | |
| 540 | |
| 684 | | | 310 | | | 24,844 | |
| 65,796 |
Substandard | |
| — | |
| 4,069 | |
| 7,917 | |
| 2,436 | |
| 997 | | | 5,474 | | | 6,779 | |
| 27,672 |
Doubtful | |
| — | |
| — | |
| 9 | |
| — | |
| — | | | — | | | — | |
| 9 |
Total commercial - commercial and industrial | | $ | 359,580 | | $ | 146,010 | | $ | 129,205 | | $ | 47,682 | | $ | 36,779 | | $ | 22,405 | | $ | 211,144 | | $ | 952,805 |
Commercial - commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | 88,246 | | $ | 160,205 | | $ | 146,807 | | $ | 93,956 | | $ | 123,959 | | $ | 213,204 | | $ | 9,189 | | $ | 835,566 |
Special mention | |
| — | |
| 21,964 | |
| 1,534 | |
| — | |
| 865 | | | 4,142 | | | 175 | |
| 28,680 |
Substandard | |
| 5,328 | |
| 6,102 | |
| 4,323 | |
| 3,262 | |
| 9,674 | | | 16,166 | | | — | |
| 44,855 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total commercial - commercial real estate loans | | $ | 93,574 | | $ | 188,271 | | $ | 152,664 | | $ | 97,218 | | $ | 134,498 | | $ | 233,512 | | $ | 9,364 | | $ | 909,101 |
Commercial - construction and land: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | 71,828 | | $ | 57,807 | | $ | 4,407 | | $ | — | | $ | — | | $ | 720 | | $ | 6,012 | | $ | 140,774 |
Special mention | |
| — | |
| — | |
| 2,665 | |
| — | |
| 2,156 | | | — | | | — | |
| 4,821 |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total commercial - construction and land loans | | $ | 71,828 | | $ | 57,807 | | $ | 7,072 | | $ | — | | $ | 2,156 | | $ | 720 | | $ | 6,012 | | $ | 145,595 |
Residential - mortgages: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | 9,848 | | $ | 2,862 | | $ | 14,040 | | $ | 747 | | $ | 2,817 | | $ | 307 | | $ | — | | $ | 30,621 |
Special mention | |
| 1,237 | |
| — | |
| 857 | |
| 753 | |
| — | | | — | | | — | |
| 2,847 |
Substandard | |
| — | |
| — | |
| 179 | |
| — | |
| 26 | | | 110 | | | — | |
| 315 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total residential - mortgage loans | | $ | 11,085 | | $ | 2,862 | | $ | 15,076 | | $ | 1,500 | | $ | 2,843 | | $ | 417 | | $ | — | | $ | 33,783 |
Residential - home equity: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 24,717 | | $ | 24,717 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | 726 | |
| 726 |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total residential - home equity loans | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 25,443 | | $ | 25,443 |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | 162,671 | | $ | 5,429 | | $ | — | | $ | 50 | | $ | 64 | | $ | 4,964 | | $ | 2,888 | | $ | 176,066 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total consumer loans | | $ | 162,671 | | $ | 5,429 | | $ | — | | $ | 50 | | $ | 64 | | $ | 4,964 | | $ | 2,888 | | $ | 176,066 |
Consumer - other: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| |
Pass | | $ | — | | $ | — | | $ | 4,609 | | $ | 1,327 | | $ | — | | $ | 640 | | $ | 5,748 | | $ | 12,324 |
Special mention | |
| — | |
| 1,117 | |
| — | |
| — | |
| — | | | — | | | — | |
| 1,117 |
Substandard | |
| — | |
| — | |
| — | |
| 456 | |
| — | | | — | | | — | |
| 456 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | |
| — |
Total consumer - other loans | | $ | — | | $ | 1,117 | | $ | 4,609 | | $ | 1,783 | | $ | — | | $ | 640 | | $ | 5,748 | | $ | 13,897 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total: | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 690,913 | | $ | 356,769 | | $ | 264,459 | | $ | 140,786 | | $ | 161,938 | | $ | 236,456 | | $ | 228,075 | | $ | 2,079,396 |
Special Mention | | | 2,497 | | | 34,556 | | | 31,739 | | | 1,293 | | | 3,705 | | | 4,452 | | | 25,745 | | | 103,987 |
Substandard | | | 5,328 | | | 10,171 | | | 12,419 | | | 6,154 | | | 10,697 | | | 21,750 | | | 6,779 | | | 73,298 |
Doubtful | | | — | | | — | | | 9 | | | — | | | — | | | — | | | — | | | 9 |
Total | | $ | 698,738 | | $ | 401,496 | | $ | 308,626 | | $ | 148,233 | | $ | 176,340 | | $ | 262,658 | | $ | 260,599 | | $ | 2,256,690 |
17
The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of September 30,March 31, 2021 and December 31, 2020:
| | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | | | | As of March 31, 2021 | ||||||||||
| | | Nonaccrual | | | Nonaccrual | | | | | | Loans Past | | | Nonaccrual | | | Nonaccrual | | | | | | Loans Past |
| | | With No | | | With | | | | | | Due Over | | | With No | | | With | | | | | | Due Over |
| | | Allowance for | | | Allowance for | | | Total | | | 89 Days | | | Allowance for | | | Allowance for | | | Total | | | 89 Days |
|
| | Credit Losses |
| | Credit Losses |
| | Nonaccrual |
| | Still Accruing |
| | Credit Losses |
| | Credit Losses |
| | Nonaccrual |
| | Still Accruing |
Commercial loans: |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Commercial and industrial |
| $ | 3,725 |
| $ | 1,334 |
| $ | 5,059 |
| $ | — |
| $ | 111 |
| $ | 1,476 |
| $ | 1,587 |
| $ | — |
Commercial real estate |
| | 13 |
| | — |
| | 13 |
| | — | ||||||||||||
Total commercial loans |
| | 3,725 | | | 1,334 | | | 5,059 | | | — |
| | 124 | | | 1,476 | | | 1,600 | | | — |
Residential mortgages | | | 26 | | | — | | | 26 | | | 336 | | | 26 | | | 179 | | | 205 | | | 251 |
Total loans | | $ | 3,751 |
| $ | 1,334 |
| $ | 5,085 |
| $ | 336 | | $ | 150 |
| $ | 1,655 |
| $ | 1,805 |
| $ | 251 |
| | | | | | | | | | | | |
| | As of December 31, 2020 | ||||||||||
| | | Nonaccrual | | | Nonaccrual | | | | | | Loans Past |
| | | With No | | | With | | | | | | Due Over |
| | | Allowance for | | | Allowance for | | | Total | | | 89 Days |
|
| | Credit Losses |
| | Credit Losses |
| | Nonaccrual |
| | Still Accruing |
Commercial loans: |
| | |
| | |
| | |
| | |
Commercial and industrial |
| $ | 2,597 |
| $ | 934 |
| $ | 3,531 |
| $ | — |
Commercial real estate |
| | 42 |
| | — |
| | 42 |
| | — |
Total commercial loans |
| | 2,639 | | | 934 | | | 3,573 | | | — |
Residential mortgages | | | 205 | | | — | | | 205 | | | 1,084 |
Total loans | | $ | 2,844 |
| $ | 934 |
| $ | 3,778 |
| $ | 1,084 |
The gross additional interest income that would have been earned during the three and nine months ended September 30,March 31, 2021 and 2020 had performing TDRs performed in accordance with the original terms is immaterial. Atlantic Capital recognized interest income on nonaccrual loans of $41,000$19,000 and $123,000$31,000 during the three and nine months ended September 30, 2020. During the threeMarch 31, 2021 and nine months ended September 30, 2019, Atlantic Capital recognized interest income on nonaccrual loans totaling $2,000 and $170,000,2020, respectively.
The following table presents the amortized cost basis of collateral dependent impaired loans by class of loans as of September 30,March 31, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | As of March 31, 2021 | |||||||||||||
| | | Real | | | | | | Business | | | SBA | | | | | | Real | | | | | | Business | | | SBA | | | |
|
| | Property |
| | Equipment |
| | Assets |
| | Guaranty-75% |
| | Total |
| | Property |
| | Equipment |
| | Assets |
| | Guaranty |
| | Total |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Commercial and industrial |
| $ | 2,021 |
| $ | 487 |
| $ | 147 |
| $ | 1,426 |
| $ | 4,081 |
| $ | 12 |
| $ | — |
| $ | — |
| $ | 112 |
| $ | 124 |
Residential mortgages | | | 26 | | | — | | | — | | | — | | | 26 | | | 26 | | | — | | | — | | | — | | | 26 |
Total loans |
| $ | 2,047 |
| $ | 487 |
| $ | 147 |
| $ | 1,426 |
| $ | 4,107 |
| $ | 38 |
| $ | — |
| $ | — |
| $ | 112 |
| $ | 150 |
| | | | | | | | | | | | | | | |
| | As of December 31, 2020 | |||||||||||||
| | | Real | | | | | | Business | | | SBA | | | |
|
| | Property |
| | Equipment |
| | Assets |
| | Guaranty |
| | Total |
| | | | | | | | | | | | | | | |
Commercial and industrial |
| $ | 2,165 |
| $ | 262 |
| $ | 150 |
| $ | 212 |
| $ | 2,789 |
Residential mortgages | | | 205 | | | — | | | — | | | — | | | 205 |
Total loans |
| $ | 2,370 |
| $ | 262 |
| $ | 150 |
| $ | 212 |
| $ | 2,994 |
2318
Atlantic Capital monitors loans by past due status. The following table presents the aging of the recorded investment in past due loans as of September 30, 2020March 31, 2021 and December 31, 20192020 by class of loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | As of September 30, 2020 | | As of March 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| | 30 - 59 | | 60 - 89 | | Greater Than | | | | | | | | | | 30 - 59 | | 60 - 89 | | Greater Than | | | | | | | | | ||||||||||||||
| | Days | | Days | | 89 Days | | | | Total Past Due | | Loans Not | | | | Days | | Days | | 89 Days | | | | Total Past Due | | Loans Not | | | ||||||||||||||
|
| Past Due |
| Past Due |
| Past Due |
| Nonaccruing |
| and Nonaccruing |
| Past Due |
| Total |
| Past Due |
| Past Due |
| Past Due |
| Nonaccruing |
| and Nonaccruing |
| Past Due |
| Total | ||||||||||||||
|
| (in thousands) |
| (in thousands) | ||||||||||||||||||||||||||||||||||||||
Loans by Classification |
| |
|
| |
|
| |
|
| | | |
|
| |
|
| | |
| |
|
| |
|
| |
|
| | | |
|
| |
|
| | | ||
Commercial and industrial | | $ | 1,158 | | $ | — | | $ | — | | $ | 5,059 | | $ | 6,217 | | $ | 938,184 | | $ | 944,401 | | $ | 149 | | $ | 3,921 | | $ | 95 | | $ | 1,587 | | $ | 5,752 | | $ | 948,301 | | $ | 954,053 |
Commercial real estate | |
| 359 | | | — | | | — | | | — | | 359 | |
| 880,426 | |
| 880,785 | |
| 2,959 | | | 1,354 | | | — | | | 13 | | 4,326 | |
| 937,765 | |
| 942,091 | ||
Construction and land | |
| — | | | — | | | — | | | — | | — | |
| 139,836 | |
| 139,836 | |
| — | | | — | | | — | | | — | | — | |
| 142,796 | |
| 142,796 | ||
Residential mortgages | |
| 1,171 | | | 766 | | | 336 | | | 26 | | 2,299 | |
| 27,161 | |
| 29,460 | |
| 638 | | | 507 | | | 156 | | | 205 | | 1,506 | |
| 30,311 | |
| 31,817 | ||
Home equity | |
| — | | | — | | | — | | | — | | — | |
| 24,528 | |
| 24,528 | |
| — | | | — | | | — | | | — | | — | |
| 26,293 | |
| 26,293 | ||
Consumer | |
| 6,113 | | | 2,690 | | | — | | | — | | | 8,803 | |
| 168,890 | |
| 177,693 | |
| 8,472 | | | 3,441 | | | — | | | — | | | 11,913 | |
| 198,952 | |
| 210,865 |
Total Loans | | $ | 8,801 | | $ | 3,456 | | $ | 336 | | $ | 5,085 | | $ | 17,678 | | $ | 2,179,025 | | $ | 2,196,703 | | $ | 12,218 | | $ | 9,223 | | $ | 251 | | $ | 1,805 | | $ | 23,497 | | $ | 2,284,418 | | $ | 2,307,915 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | As of December 31, 2019 | | As of December 31, 2020 | ||||||||||||||||||||||||||||||||||||||
| | 30 - 59 | | 60 - 89 | | Greater Than | | | | | | | | | | | 30 - 59 | | 60 - 89 | | Greater Than | | | | | | | | | | ||||||||||||
| | Days | | Days | | 89 Days | | | | Total Past Due | | Loans Not | | | | | Days | | Days | | 89 Days | | | | Total Past Due | | Loans Not | | | | ||||||||||||
|
| Past Due |
| Past Due |
| Past Due |
| Nonaccruing |
| and Nonaccruing |
| Past Due |
| | Total |
| Past Due |
| Past Due |
| Past Due |
| Nonaccruing |
| and Nonaccruing |
| Past Due |
| | Total | ||||||||||||
|
| (in thousands) |
| (in thousands) | ||||||||||||||||||||||||||||||||||||||
Loans by Classification |
| |
|
| |
|
| |
|
| | | |
|
| |
|
| | |
| |
|
| |
|
| |
|
| | | |
|
| |
|
| | | ||
Commercial and industrial | | $ | 4,069 | | $ | 30 | | $ | 0 | | $ | 5,990 | | $ | 10,089 | | $ | 695,026 | | $ | 705,115 | | $ | 1,166 | | $ | 1,749 | | $ | 817 | | $ | 3,531 | | $ | 7,263 | | $ | 945,542 | | $ | 952,805 |
Commercial real estate | |
| 1,194 | |
| 0 | |
| 85 | |
| 262 | | 1,541 | |
| 914,787 | | | 916,328 | |
| 4,008 | | | 357 | | | 0 | | | 42 | | 4,407 | |
| 904,694 | |
| 909,101 | ||
Construction and land | |
| — | |
| 0 | |
| 0 | |
| — | | 0 | |
| 127,540 | | | 127,540 | |
| — | | | 0 | | | 0 | | | — | | 0 | |
| 145,595 | |
| 145,595 | ||
Residential mortgages | |
| 707 | |
| 0 | |
| 0 | |
| 256 | | 963 | |
| 30,352 | | | 31,315 | |
| 479 | | | 925 | | | 267 | | | 205 | | 1,876 | |
| 31,907 | |
| 33,783 | ||
Home equity | |
| — | |
| 0 | |
| 0 | |
| 700 | | 700 | |
| 24,302 | | | 25,002 | |
| — | | | 0 | | | 0 | | | — | | 0 | |
| 25,443 | |
| 25,443 | ||
Mortgage warehouse | |
| — | |
| 0 | |
| 0 | |
| — | | 0 | |
| 13,941 | | | 13,941 | ||||||||||||||||||||||
Consumer | |
| 136 | |
| 0 | |
| 0 | |
| — | | | 136 | |
| 57,181 | | | 57,317 | |
| 10,374 | | | 5,776 | | | 0 | | | — | | | 16,150 | |
| 173,813 | | | 189,963 |
Total Loans | | $ | 6,106 | | $ | 30 | | $ | 85 | | $ | 7,208 | | $ | 13,429 | | $ | 1,863,129 | | $ | 1,876,558 | | $ | 16,027 | | $ | 8,807 | | $ | 1,084 | | $ | 3,778 | | $ | 29,696 | | $ | 2,226,994 | | $ | 2,256,690 |
The following table presents loans purchasedrepurchased and/or cash proceeds from loans sold during the three and nine months ended September 30,March 31, 2021 and March 31, 2020 by portfolio class:class. Of the loans sold where the Company has continuing involvement, $3.4 million and $8.4 million were past due thirty days or greater at March 31, 2021 and December 31, 2020, respectively. These amounts are included in the past due table above.
| | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | For the three months ended March 31, 2021 | ||||||||||||||||||||
| | Commercial and | | Commercial | | Residential | | | | Commercial and | | Commercial | | Residential | | | ||||||||
|
| Industrial |
| Real Estate |
| Mortgages |
| Total |
| Industrial |
| Real Estate |
| Mortgages |
| Total | ||||||||
|
| (in thousands) |
| (in thousands) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Repurchases of SBA participations |
| $ | 1,015 |
| $ | - |
| $ | - |
| $ | 1,015 |
| $ | 659 |
| $ | 2,708 |
| $ | - |
| $ | 3,367 |
SBA Sales | | | 10,258 | | | 772 | | | - | | | 11,030 | | | 8,214 | | | 4,925 | | | - | | | 13,139 |
Total Loans | | $ | 11,273 | | $ | 772 | | $ | — | | $ | 12,045 | | $ | 8,873 | | $ | 7,633 | | $ | — | | $ | 16,506 |
| | | | | | | | | | | | | ||||||||||||
| | Nine Months Ended September 30, 2020 | ||||||||||||||||||||||
| | Commercial and | | Commercial | | Residential | | | ||||||||||||||||
|
| Industrial |
| Real Estate |
| Mortgages |
| Total | ||||||||||||||||
|
| (in thousands) | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
Repurchases of SBA participations |
| $ | 1,323 |
| $ | 1,466 |
| $ | - |
| $ | 2,789 | ||||||||||||
SBA Sales | | | 26,427 | | | 2,264 | | | 277 | | | 28,968 | ||||||||||||
Total Loans | | $ | 27,750 | | $ | 3,730 | | $ | 277 | | $ | 31,757 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | For the three months ended March 31, 2020 | ||||||||||
| | Commercial and | | Commercial | | Residential | | | ||||
|
| Industrial |
| Real Estate |
| Mortgages |
| Total | ||||
|
| (in thousands) | ||||||||||
| | | | | | | | | | | | |
Repurchases of SBA participations |
| $ | 691 |
| $ | 1,467 |
| $ | - |
| $ | 2,158 |
SBA Sales | | | 5,964 | | | 158 | | | 277 | | | 6,399 |
Total Loans | | $ | 6,655 | | $ | 1,625 | | $ | 277 | | $ | 8,557 |
2419
NOTE 76 – GOODWILL AND INTANGIBLE ASSETS
Atlantic Capital tests goodwill for impairment annually in the fourth quarter. In assessing the possibility that the Company's fair value has been reduced below its carrying amount due to the occurrence of events or circumstances between annual impairment testing dates, Atlantic Capital considers all available evidence, including (i) downward revisions to internal forecasts or decreases in market multiples (and the magnitude thereof), if any, and (ii) declines in market capitalization below book value (and the magnitude and duration of those declines), if any. The October 1, 2020 annual impairment test indicated that no impairment existed surrounding goodwill. Atlantic Capital consideredcontinued to consider the declining market conditions generated by the COVID-19 pandemic during the first ninethree months of 2020 and performed an interim impairment test as of May 31, 2020 and as of September 30, 2020, which incorporated a combination of income and market valuation approaches and indicated that no impairment existed surrounding goodwill. Atlantic Capital continued2021 to assess events and circumstances through the date of the filing of this Quarterly Report on Form 10-Q that could potentially indicate goodwill impairment including analyzing the impacts from the COVID-19 pandemic.
The Company conducted its annual There were no triggering events requiring an impairment testing astest during the first three months of October 1, 2019, utilizing a qualitative assessment. Based on these assessments, management concluded that the 2019 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill). Therefore, a step one quantitative analysis was not required.2021.
The following table presents activitythe balances for goodwill and other intangible assets:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | ||||||||||||||
|
| Goodwill |
| Core Deposit Intangible |
| Total |
| Goodwill |
| Core Deposit Intangible |
| Total | ||||||
|
| (in thousands) | ||||||||||||||||
2020 | | | | | | | | | | | | | | | | | | |
Balance, beginning of period |
| $ | 19,925 | | $ | — | | $ | 19,925 | | $ | 19,925 | | $ | — | | $ | 19,925 |
Amortization | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Balance, end of period |
| $ | 19,925 | | $ | — | | $ | 19,925 | | $ | 19,925 | | $ | — | | $ | 19,925 |
| | | | | | | | | | | | | | | | | | |
2019 | | | | | | | | | | | | | | | | | | |
Balance, beginning of period |
| $ | 19,925 | | $ | — | | $ | 19,925 | | $ | 21,690 | | $ | 1,405 | | $ | 23,095 |
Amortization | |
| — | |
| — | |
| — | |
| — | |
| (247) | |
| (247) |
Impairment, due to Branch Sale | |
| — | |
| — | |
| — | |
| (1,765) | |
| (1,158) | |
| (2,923) |
Balance, end of period |
| $ | 19,925 | | $ | — | | $ | 19,925 | | $ | 19,925 | | $ | — | | $ | 19,925 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
| | (in thousands) | ||||
Servicing assets, net | | $ | 2,688 | | $ | 2,731 |
Total intangibles subject to amortization, net | |
| 2,688 | |
| 2,731 |
Goodwill | |
| 19,925 | |
| 19,925 |
Total goodwill and other intangible assets, net | | $ | 22,613 | | $ | 22,656 |
NOTE 87 – SERVICING ASSETS
SBA Servicing Assets
SBA servicing assets are initially recorded at fair value. Subsequently, Atlantic Capital accounts for SBA servicing assets using the amortization method and they are included in other intangibles, net on the Consolidated Balance Sheets. As of September 30, 2020March 31, 2021 and December 31, 2019,2020, the balance of SBA loans sold and serviced by Atlantic Capital totaled $186.4$194.9 million and $185.5$192.9 million, respectively.
Changes in the balance of servicing assets for the three months ended March 31, 2021 and 2020 are presented in the following table.
| | | | | | | |
| | Three Months Ended March 31, | | ||||
SBA Loan Servicing Assets |
| 2021 |
| 2020 | | ||
| | (in thousands) | | ||||
Beginning carrying value, net | | $ | 2,569 | | $ | 2,731 | |
Additions | |
| 235 | |
| 105 | |
Amortization | |
| (247) | |
| (313) | |
Ending carrying value | | $ | 2,557 | | $ | 2,523 | |
2520
Changes in the balance of servicing assets for the three and nine months ended September 30, 2020 and 2019 are presented in the following table.
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
SBA Loan Servicing Assets |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Beginning carrying value, net | | $ | 2,503 | | $ | 2,726 | | $ | 2,731 | | $ | 2,539 |
Additions | |
| 190 | |
| 350 | |
| 492 | |
| 975 |
Amortization | |
| (202) | |
| (296) | |
| (732) | |
| (734) |
Ending carrying value | | $ | 2,491 | | $ | 2,780 | | $ | 2,491 | | $ | 2,780 |
At September 30, 2020March 31, 2021 and December 31, 2019,2020, the sensitivity of the fair value of the SBA loan servicing assets to immediate changes in key economic assumptions are presented in the table below.
| | | | | | | | | | | | | | |
Sensitivity of the SBA Servicing Assets |
| September 30, 2020 |
| December 31, 2019 |
|
| March 31, 2021 |
| December 31, 2020 |
| ||||
| | (dollars in thousands) |
| | (dollars in thousands) |
| ||||||||
Fair value of retained servicing assets | | $ | 2,942 | | $ | 2,842 | | | $ | 2,907 | | $ | 2,907 | |
Weighted average life | |
| 3.22 years | |
| 3.77 years | | |
| 3.19 years | |
| 3.17 years | |
Prepayment speed: | |
| 18.09 | % |
| 14.87 | % | |
| 18.44 | % |
| 18.03 | % |
Decline in fair value due to a 10% adverse change | | $ | (87) | | $ | (150) | | | $ | (143) | | $ | (123) | |
Decline in fair value due to a 20% adverse change | | $ | (215) | | $ | (254) | | | $ | (274) | | $ | (236) | |
Weighted average discount rate | |
| 10.88 | % |
| 13.66 | % | |
| 11.26 | % |
| 12.49 | % |
Decline in fair value due to a 100 bps adverse change | | $ | (16) | | $ | (98) | | | $ | (69) | | $ | (59) | |
Decline in fair value due to a 200 bps adverse change | | $ | (83) | | $ | (156) | | | $ | (135) | | $ | (115) | |
The above sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on valuation assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.
TriNet Servicing Assets
TriNet servicing rights are initially recorded at fair value. Subsequently, Atlantic Capital accounts for TriNet servicing rights using the amortization method and they are included in other intangibles, net.
Changes in the balance of TriNet servicing assets for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 are presented in the following table.
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | | ||||||||||||
TriNet Servicing Assets |
| 2020 |
| 2019 |
| 2020 |
| 2019 | |
| 2021 |
| 2020 | | ||||||
| | (in thousands) | | (in thousands) | | | (in thousands) | | ||||||||||||
Beginning carrying value, net | | $ | 228 | | $ | 369 | | $ | 296 | | $ | 444 | | | $ | 162 | | $ | 296 | |
Amortization | |
| (33) | |
| (37) | |
| (101) | |
| (112) | | |
| (31) | |
| (34) | |
Ending carrying value | | $ | 195 | | $ | 332 | | $ | 195 | | $ | 332 | | | $ | 131 | | $ | 262 | |
26
At September 30, 2020March 31, 2021 and December 31, 2019,2020, the sensitivity of the fair value of the TriNet servicing assets to immediate changes in key economic assumptions are presented in the table below.
| | | | | | | | | | | | | | |
Sensitivity of the TriNet Servicing Assets |
| September 30, 2020 |
| December 31, 2019 |
|
| March 31, 2021 |
| December 31, 2020 |
| ||||
| | (dollars in thousands) |
| | (dollars in thousands) |
| ||||||||
Fair value of retained servicing assets | | $ | 350 | | $ | 414 |
| | $ | 276 | | $ | 298 |
|
Weighted average life |
| | 4.86 years |
| | 5.58 years | |
| | 4.36 years |
| | 4.58 years | |
Prepayment speed: |
| | 5.00 | % | | 5.00 | % |
| | 5.00 | % | | 5.00 | % |
Decline in fair value due to a 10% adverse change | | $ | (4) | | $ | (5) | | | $ | (3) | | $ | (3) | |
Decline in fair value due to a 20% adverse change | | $ | (7) | | $ | (10) | | | $ | (5) | | $ | (6) | |
Weighted average discount rate | |
| 8.00 | % |
| 8.00 | % | |
| 8.00 | % |
| 8.00 | % |
Decline in fair value due to a 100 bps adverse change | | $ | (7) | | $ | (9) | | | $ | (5) | | $ | (5) | |
Decline in fair value due to a 200 bps adverse change | | $ | (13) | | $ | (18) | | | $ | (9) | | $ | (11) | |
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.
2721
NOTE 98 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) for Atlantic Capital consists of changes in net unrealized gains and losses on investment securities available-for-sale and derivatives. The following tables present a summary of the changes in accumulated other comprehensive income (loss) balances for the applicable periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | | For the Three Months Ended | |||||||||||||||||||||
| | September 30, 2020 | | September 30, 2020 | | March 31, 2021 | |||||||||||||||||||||
| | | | | Income | | | | | | | | Income | | | | | | | | Income | | | | |||
| | | | | Tax | | | | | | | | Tax | | | | | | | | Tax | | | | |||
| | Pre-Tax | | (Expense) | | After-Tax | | Pre-Tax | | (Expense) | | After-Tax | | Pre-Tax | | (Expense) | | After-Tax | |||||||||
|
| Amount |
| Benefit |
| Amount |
| Amount |
| Benefit |
| Amount |
| Amount |
| Benefit (1) |
| Amount | |||||||||
| | (in thousands) | | (in thousands) | |||||||||||||||||||||||
Accumulated other comprehensive income (loss) beginning of period | | $ | 21,108 | | $ | (5,218) | | $ | 15,890 | | $ | 6,081 | | $ | (1,520) | | $ | 4,561 | | $ | 19,289 | | $ | (4,782) | | $ | 14,507 |
Unrealized net gains (losses) on investment securities available-for-sale | | | 46 | |
| (11) | |
| 35 | | | 5,771 | |
| (1,419) | |
| 4,352 | | | (7,508) | |
| 1,857 | |
| (5,651) |
Reclassification adjustment for net realized (gains)/losses on investment securities available-for-sale (2) | | | (2) | | | — | | | (2) | ||||||||||||||||||
Unrealized net gains (losses) on derivatives | | | (593) | |
| 146 | |
| (447) | | | 8,709 | |
| (2,144) | |
| 6,565 | | | (4,081) | |
| 1,009 | |
| (3,072) |
Accumulated other comprehensive income (loss) end of period | | $ | 20,561 | | $ | (5,083) | | $ | 15,478 | | $ | 20,561 | | $ | (5,083) | | $ | 15,478 | | $ | 7,698 | | $ | (1,916) | | $ | 5,782 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | | For the Three Months Ended | |||||||||||||||||||||
| | September 30, 2019 | | September 30, 2019 | | March 31, 2020 | |||||||||||||||||||||
| | | | | Income | | | | | | | | Income | | | | | | | | Income | | | | |||
| | | | | Tax | | | | | | | | Tax | | | | | | | | Tax | | | | |||
| | Pre-Tax | | (Expense) | | After-Tax | | Pre-Tax | | (Expense) | | After-Tax | | Pre-Tax | | (Expense) | | After-Tax | |||||||||
|
| Amount |
| Benefit |
| Amount |
| Amount |
| Benefit |
| Amount |
| Amount |
| Benefit |
| Amount | |||||||||
| | (in thousands) | | (in thousands) | |||||||||||||||||||||||
Accumulated other comprehensive income (loss) beginning of period | | $ | 4,774 | | $ | (1,193) | | $ | 3,581 | | $ | (13,743) | | $ | 3,438 | | $ | (10,305) | | $ | 6,081 | | $ | (1,520) | | $ | 4,561 |
Unrealized net gains (losses) on investment securities available-for-sale | | | 1,813 | |
| (453) | |
| 1,360 | | | 16,375 | |
| (4,096) | |
| 12,279 | | | 4,394 | |
| (1,077) | |
| 3,317 |
Reclassification adjustment for net realized losses on investment securities available-for-sale | | | (253) | |
| 63 | |
| (190) | | | (907) | |
| 227 | |
| (680) | |||||||||
Unrealized net gains (losses) on derivatives | | | 2,326 | |
| (582) | |
| 1,744 | | | 6,935 | |
| (1,734) | |
| 5,201 | | | 8,582 | |
| (2,114) | |
| 6,468 |
Accumulated other comprehensive income (loss) end of period | | $ | 8,660 | | $ | (2,165) | | $ | 6,495 | | $ | 8,660 | | $ | (2,165) | | $ | 6,495 | | $ | 19,057 | | $ | (4,711) | | $ | 14,346 |
(1) | The tax impact of each component of AOCI is calculated using an effective tax rate of approximately 25%. |
(2) | Reclassification amount is recognized in gains on sales of securities in the consolidated statements of income. |
NOTE 109 – 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.
2822
The following table represents the earnings per share calculations for the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | |||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | |
| 2021 |
| 2020 | | ||||||
(in thousands, except share and per share amounts) | | | | | | | | | | | | | | | | | | | | |
Net income from continuing operations | | $ | 8,618 | | $ | 7,569 | | $ | 12,591 | | $ | 21,018 | | |||||||
Net income from discontinued operations | |
| — | |
| 617 | |
| — | |
| 21,697 | | |||||||
Net income available to common shareholders | | $ | 8,618 | | $ | 8,186 | | $ | 12,591 | | $ | 42,715 | | | $ | 13,362 | | $ | 2,124 | |
| | | | | | | | | | | | | | | | | | | | |
Weighted average shares outstanding | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
Basic (1) | |
| 21,500,735 | |
| 22,681,904 | |
| 21,553,953 | |
| 23,800,525 | | |
| 20,380,066 | |
| 21,689,038 | |
Effect of dilutive securities: | |
| | |
| | |
| | |
| | | |
| | |
| | |
Stock options and performance share awards | |
| 43,070 | |
| 155,627 | |
| 86,104 | |
| 157,390 | | |
| 122,118 | |
| 153,137 | |
Diluted | |
| 21,543,805 | |
| 22,837,531 | |
| 21,640,057 | |
| 23,957,915 | | |
| 20,502,184 | |
| 21,842,175 | |
| | | | | | | | | | | | | | | | | | | | |
Net income per common share - basic | |
|
| |
|
| |
|
| |
|
| | |||||||
Net income per common share - continuing operations | | $ | 0.40 | | $ | 0.33 | | $ | 0.58 | | $ | 0.88 | | |||||||
Net income per common share - discontinued operations | |
| — | |
| 0.03 | |
| — | |
| 0.91 | | |||||||
Net income per common share - basic | | $ | 0.40 | | $ | 0.36 | | $ | 0.58 | | $ | 1.79 | | |||||||
Net income per common share - diluted | |
| | |
| | |
| | |
| | | |||||||
Net income per common share - continuing operations | | $ | 0.40 | | $ | 0.33 | | $ | 0.58 | | $ | 0.88 | | |||||||
Net income per common share - discontinued operations | |
| — | |
| 0.03 | |
| — | |
| 0.91 | | |||||||
Net income per common share - diluted | | $ | 0.40 | | $ | 0.36 | | $ | 0.58 | | $ | 1.78 | | |||||||
Net income per common share: | |
|
| |
|
| | |||||||||||||
Basic | | $ | 0.66 | | $ | 0.10 | | |||||||||||||
Diluted | | $ | 0.65 | | $ | 0.10 | |
(1) | Unvested restricted shares are participating securities and included in basic share calculations. |
Stock options outstanding of 109,446109,540 at September 30,March 31, 2020 and 150 at September 30, 2019 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. There were 0 stock options outstanding at March 31, 2021 whose 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, 0 par value per share, and 100,000,000 shares are designated as common stock, 0 par value per share. Atlantic Capital had 21,202,78320,354,077 shares of common stock issued and outstanding at September 30, 2020. March 31, 2021. At December 31, 2019, 21,751,0262020, 20,394,912 shares of common stock were issued and outstanding. Atlantic Capital had 0 shares of preferred stock outstanding at September 30, 2020March 31, 2021 or December 31, 2019.2020.
The primary source of funds available to Atlantic Capital is payments of dividends from the Bank. NaN dividends were paid by the Bank to Atlantic Capital during the three months ended September 30, 2020.March 31, 2021. For the ninethree months ended September 30,March 31, 2020, the Bank paid dividends totaling $12.5 million. For the three and nine months ended September 30, 2019, the Bank paid dividends totaling $10.0 million and $36.5 million, respectively to Atlantic Capital. Banking laws and other regulations limit the amount of dividends a bank subsidiary may pay without prior regulatory approval. Additionally, Atlantic Capital’s ability to pay dividends to its shareholders will depend on the ability of the Bank to pay dividends to Atlantic Capital. The Bank is subject to regulatory restrictions on the payment of cash dividends, which generally may be paid only from current earnings.
During the first quarter of 2020, the Company completed the $85.0 million stock repurchase program authorized by the Board of Directors on November 14, 2018. On March 4, 2020, the Board of Directors authorized a new stock repurchase program pursuant to which the Company may purchase up to $25 million of its issued and outstanding common stock. The repurchase program commenced immediately with respect to $15 million of stock, and the remaining $10 million is subject to regulatory approval of a dividend from the Bank to Atlantic Capital. The timing and amounts of any repurchases will depend on certain factors, including but not limited to market conditions and prices, available funds and alternative uses of capital. The stock repurchase program may be carried out through open-market purchases, block trades, negotiated private transactions and pursuant to a trading plan that will be adopted in accordance with Rule 10b-18 or Rule 10b5-1 under the Securities Exchange Act of 1934. Any repurchased shares will constitute authorized but unissued shares. During the three months ended March 31, 2021, the Company repurchased 222,193 shares totaling $4.2 million.
2923
constitute authorized but unissued shares. During the first nine months of 2020, the Company repurchased 820,349 shares totaling $12.0 million, of which 516,083 shares totaling $5.2 million were purchased under the new stock buyback program with the remaining shares purchased under the previous program. The Company initially paused repurchases in March 2020 as part of its holding company liquidity planning in response to the COVID-19 pandemic and resumed repurchases in August 2020.
NOTE 1110 – DERIVATIVES AND HEDGING
Risk Management
Atlantic Capital’s objectives in using interest rate derivatives are to stabilize 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 September 30, 2020,March 31, 2021, Atlantic Capital’s interest rate swaps designated as cash flow hedges involve the payment of floating-rate amounts to a counterparty in exchange for receiving fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. At September 30, 2020March 31, 2021 and December 31, 2019,2020, Atlantic Capital had interest rate swaps designated as cash flow hedges with aggregate notional amounts of $125.0$150.0 million and $175.0$125.0 million, respectively.
NaN hedge ineffectiveness gains or losses were recognized on active cash flow hedges for the three and nine months ended September 30, 2020 and 2019. The effective portion of changesChanges 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 $1.7$1.9 million will be reclassified as an increase to loan interest income over the next twelve months related to these cash flow hedges.
Customer Swaps
Atlantic Capital also enters into derivative contracts, which consist of interest rate swaps, to facilitate the needs of customersclients 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.Income and in net increase/decrease in other assets and accrued expenses and other liabilities in the Consolidated Statements of Cash Flows. At September 30, 2020March 31, 2021 and December 31, 2019,2020, Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of $70.4$67.6 million and $89.5$68.4 million, respectively.
Atlantic Capital acquired a loan level hedging program, which First Security utilized to accommodate clients preferring a fixed rate loan. The loan documents include an addendum with a zero premium collar. The zero premium collar is a cap and a floor at the same interest rate, resulting in a fixed rate to the borrower. To hedge this embedded option, First Security entered into a dealer facing trade exactly mirroring the terms in the loan addendum. At September 30, 2020March 31, 2021 and
30
December 31, 2019,2020, Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of $141.2$135.7 million and $149.1$137.1 million, respectively.
Counterparty Credit Risk
As a result of its derivative contracts, Atlantic Capital is exposed to credit risk. Specifically approved counterparties and exposure limits are defined. 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.
In accordance with the interest rate agreements with derivatives dealers, Atlantic Capital may be required to post margin to these counterparties. At September 30, 2020March 31, 2021 and December 31, 2019,2020, Atlantic Capital had minimum collateral posting thresholds with certain of its derivative counterparties and posted collateral of $13.2$9.0 million and $13.6$11.8 million, respectively,
24
against its obligations under these agreements. Cash collateral related to derivative contracts is recorded in other assets in the Consolidated Balance Sheets.
Atlantic Capital has master netting agreements with the derivatives dealers with which it does business, but reflects gross assets and liabilities on the Consolidated Balance Sheets.
In conjunction with the FASB’s fair value measurement guidance, management made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting arrangements on a net basis.
To accommodate clients, Atlantic Capital occasionally enters into credit risk participation agreements with counterparty banks to accept a portion of the credit risk related to interest rate swaps. This allows clients to execute an interest rate swap with one bank while allowing for distribution of the credit risk among participating members. Credit risk participation agreements arise when Atlantic Capital contracts with other financial institutions, as a guarantor, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third party default on the underlying swap. At September 30, 2020March 31, 2021 and December 31, 2019,2020, Atlantic Capital had credit risk participation agreements with a notional amount of $6.3$5.3 million and $7.7$5.8 million, respectively.
The following table reflects the estimated fair value positions of derivative contracts and credit risk participation agreements as of September 30, 2020March 31, 2021 and December 31, 2019:2020:
Derivatives designated as hedging instruments under ASC 815
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2020 | | December 31, 2019 | | | | March 31, 2021 | | December 31, 2020 | ||||||||||||||||
(in thousands) |
| Balance Sheet |
| Notional |
| | |
| Notional |
| | |
| Balance Sheet |
| Notional |
| | |
| Notional |
| | | ||||
Interest Rate Products | | Location | | Amount | | Fair Value | | Amount | | Fair Value | | Location | | Amount | | Fair Value | | Amount | | Fair Value | ||||||||
Cash flow hedge of LIBOR based loans |
| Other assets | | $ | 125,000 | | $ | 12,155 | | $ | 125,000 | | $ | 3,578 |
| Other assets | | $ | 150,000 | | $ | 6,677 | | $ | 125,000 | | $ | 10,799 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flow hedge of LIBOR based loans |
| Other liabilities | | $ | 0 | | $ | 0 | | $ | 50,000 | | $ | 8 |
| Other liabilities | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 |
Derivatives not designated as hedging instruments under ASC 815
| | | | | | | | | | | | | | |
| | | | March 31, 2021 | | December 31, 2020 | ||||||||
(in thousands) | | Balance Sheet | | Notional | | | | Notional | | | ||||
Interest Rate Products |
| Location |
| Amount |
| Fair Value |
| Amount |
| Fair Value | ||||
Customer swap positions | | Other assets | | $ | 33,820 | | $ | 1,524 | | $ | 34,224 | | $ | 2,057 |
Zero premium collar | | Other assets | |
| 67,869 | |
| 5,280 | |
| 68,527 | |
| 9,328 |
| | | | $ | 101,689 | | $ | 6,804 | | $ | 102,751 | | $ | 11,385 |
| | | | | | | | | | | | | | |
Dealer offsets to customer swap positions | | Other liabilities | | $ | 33,820 | | $ | 1,545 | | $ | 34,224 | | $ | 2,087 |
Dealer offset to zero premium collar | | Other liabilities | |
| 67,869 | |
| 5,320 | |
| 68,527 | |
| 9,398 |
Credit risk participation | | Other liabilities | |
| 5,313 | |
| 3 | |
| 5,782 | |
| 11 |
| | | | $ | 107,002 | | $ | 6,868 | | $ | 108,533 | | $ | 11,496 |
3125
Derivatives not designated as hedging instruments under ASC 815
| | | | | | | | | | | | | | |
| | | | September 30, 2020 | | December 31, 2019 | ||||||||
(in thousands) | | Balance Sheet | | Notional | | | | Notional | | | ||||
Interest Rate Products |
| Location |
| Amount |
| Fair Value |
| Amount |
| Fair Value | ||||
Customer swap positions | | Other assets | | $ | 35,210 | | $ | 2,308 | | $ | 44,763 | | $ | 1,025 |
Zero premium collar | | Other assets | |
| 70,613 | |
| 10,896 | |
| 74,562 | |
| 4,253 |
| | | | $ | 105,823 | | $ | 13,204 | | $ | 119,325 | | $ | 5,278 |
| | | | | | | | | | | | | | |
Dealer offsets to customer swap positions | | Other liabilities | | $ | 35,210 | | $ | 2,342 | | $ | 44,763 | | $ | 1,090 |
Dealer offset to zero premium collar | | Other liabilities | |
| 70,613 | |
| 10,974 | |
| 74,562 | |
| 4,545 |
Credit risk participation | | Other liabilities | |
| 6,251 | |
| 8 | |
| 7,657 | |
| 4 |
| | | | $ | 112,074 | | $ | 13,324 | | $ | 126,982 | | $ | 5,639 |
The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the Consolidated Statements of Income for the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.
Derivatives not designated as hedging instruments under ASC 815
| | | | | | | | | | | | | | | | | | | | | | |
|
| Location of Gain or |
| Amount of Gain or (Loss) | | Amount of Gain or (Loss) |
| Location of Gain or |
| Amount of Gain or (Loss) | ||||||||||||
| | (Loss) Recognized in |
| Recognized in Income on Derivative | | Recognized in Income on Derivative | | (Loss) Recognized in |
| Recognized in Income on Derivatives | ||||||||||||
(in thousands) |
| Income on Derivative |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| Income on Derivatives |
| Three Months Ended March 31, | ||||||||||||
| | |
| 2020 |
| 2019 |
| 2020 |
| 2019 | | |
| 2021 |
| 2020 | ||||||
Interest rate products |
| Other income |
| $ | 7 | | $ | (292) | | $ | 249 | | $ | (633) |
| Other income |
| $ | 39 | | $ | (254) |
Other contracts |
| Other income | |
| 3 | |
| (1) | |
| (3) | |
| (4) |
| Other income | |
| 8 | |
| 8 |
Total | | |
| $ | 10 | | $ | (293) | | $ | 246 | | $ | (637) | | |
| $ | 47 | | $ | (246) |
The following table reflects the impact to the Consolidated Statements of Income related to derivative contracts for the three and nine months ended September 30, 2020March 31, 2021 and 2019:2020:
Derivatives in Cash Flow Hedging Relationships
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | | | | ||||||||||||||||||||||||||||||||||||
| | Amount of Gain or | | | | | | | | Amount of Gain or | | | | | | | | | Amount of Gain or | | | | | | | | | | | | ||||||||||||||||
| | (Loss) Recognized in | | Gain or (Loss) Reclassified from | | (Loss) Recognized in | | Gain or (Loss) Reclassified from | | | (Loss) Recognized in | | Gain or (Loss) Reclassified from | | | | ||||||||||||||||||||||||||||||
| | OCI on Derivatives | | Accumulated OCI in Income | | OCI on Derivatives | | Accumulated OCI in Income | | | OCI on Derivatives | | Accumulated OCI in Income | | | | ||||||||||||||||||||||||||||||
| | (Effective Portion) | | (Effective Portion) | | (Effective Portion) | | (Effective Portion) | | | (Effective Portion) | | (Effective Portion) | | | | ||||||||||||||||||||||||||||||
(in thousands) | | 2020 | | 2019 | | Location | | 2020 | | 2019 | | 2020 | | 2019 | | Location | | 2020 | | 2019 | | | 2021 | | 2020 | | Location | | 2021 | | 2020 | |
| | ||||||||||||
Interest rate swaps |
| $ | (611) |
| $ | 2,212 |
| Interest income |
| $ | (619) |
| $ | (113) |
| $ | 8,657 |
| $ | 5,303 |
| Interest income |
| $ | (1,271) |
| $ | (242) |
|
| $ | (4,123) |
| $ | 5,599 |
| Interest income |
| $ | (614) |
| $ | (142) |
| |
|
NOTE 1211 – OTHER BORROWINGS AND LONG TERM DEBT
There were 0 Federal Home Loan BankFHLB borrowings outstanding as of September 30, 2020March 31, 2021 and December 31, 2019. Interest expense for FHLB borrowings totaled $16,000 and $54,000 for the three and nine months ended September 30, 2020, respectively. Interest2020. There was no interest expense for FHLB borrowings for the three and nine months ended September 30, 2019 was $390,000 and $660,000, respectively.
March 31, 2021 or 2020. At September 30, 2020,March 31, 2021, the Company had available line of credit commitments with the FHLB totaling $867.1 million,$1.1 billion, with 0 outstanding FHLB advances. However, based on actual collateral pledged, $87.4.$86.2 million was available.
At September 30, 2020,March 31, 2021, the Company had an available line of credit based on the collateral available of $248.6$275.8 million with the Federal Reserve Bank of Atlanta (“FRB”).FRB. There was 0 interest expense on federal funds purchased for the three months ended March 31, 2021. Interest expense on federal funds purchased for the three and nine months ended September 30,March 31, 2020 totaled $3,000 and $41,000, respectively, and $99,000 and $385,000, for the three and nine months ended September 30, 2019, respectively.was $32,000.
32
On August 20, 2020, Atlantic Capital issued 5.50% fixed-to-floating rate subordinated notes (the “Notes”) totaling $75 million in aggregate principal amount and callable at par plus accrued but unpaid interest on September 1, 2025. The Notes are due September 1, 2030 and bear a fixed rate of interest of 5.50% per year until September 1, 2025. From September 1, 2025 to the maturity date, the interest rate will be a floating rate equal to the three-month SOFR plus 536.3 basis points. The Notes were priced at 100% of their par value and qualify as Tier 2 regulatory capital.
On September 30, 2020, Atlantic Capital redeemed its 6.25% fixed-to-floating rate subordinated notes due 2025, previously issued on September 28, 2015 and totaling $50 million.
Subordinated debt is summarized as follows:
| | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 |
| March 31, 2021 |
| December 31, 2020 | ||||
| | (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 | ||||||
Floating rate 10 year capital securities, with interest paid semi-annually at an annual fixed rate of 5.50% until September 1, 2025 | | | 75,000 | | | — | | $ | 75,000 | | $ | 75,000 |
Principal amount of subordinated debt | | $ | 75,000 | | $ | 50,000 | | | 75,000 | | | 75,000 |
Less debt issuance costs | |
| 1,186 | |
| 127 | |
| 1,122 | |
| 1,193 |
Subordinated debt, net | | $ | 73,814 | | $ | 49,873 | | $ | 73,878 | | $ | 73,807 |
All subordinated debt outstanding at September 30, 2020March 31, 2021 matures after more than five years.
26
NOTE 1312 – SHARE-BASED COMPENSATION
Atlantic Capital sponsors a stock incentive plan for the benefit of directors and employees. Under the Company’s 2015 Stock Incentive Plan (as amended and restated effective May 16, 2018), there were approximately 4,525,000 shares reserved for issuance to directors, employees, and independent contractors of Atlantic Capital and its affiliates. The Compensation Committee has the authority to grant the following: an incentive or nonqualified option; a stock appreciation right (“SAR”),SAR, which includes a related SAR or a freestanding SAR; a restricted award (including a restricted stock award or a restricted stock unit award); a performance award (including a performance share award or a performance unit award); a phantom stock award; an other stock-based award; a cash bonus award; a dividend equivalent award; or any other award granted under the plan.
At September 30, 2020,March 31, 2021, approximately 2,981,0002,845,000 additional awards could be granted under the plan. Through September 30, 2020,March 31, 2021, incentive stock options, nonqualified stock options, restricted stock awards, performance share awards, and other stock-based awards have been granted under the plan. Stock options are granted at a price which is no less than the fair market value of a share of Atlantic Capital common stock on the grant date. Stock options generally vest over three years and expire after ten years.
The Company accounts for stock options in accordance with FASB ASC 718, Stock Compensation, which requires the Company to recognize the costs of its employee stock option awards in its Consolidated Statements of Operations. According to ASC 718, the total cost of the Company’s share-based awards is equal to their grant date fair value and is recognized as expense on a straight-line basis over the vesting period of the awards. TotalThere was 0 stock-based compensation expense recognized by the Company for stock option grants for the three and nine months ended September 30, 2020March 31, 2021. Stock-based compensation expense for stock option grants was $18,000 and $53,000, respectively, and $18,000 and $151,000 for the three and nine months ended September 30, 2019, respectively. UnrecognizedMarch 31, 2020. There was 0 unrecognized stock-based compensation expense related to stock option grants at September 30,for the three months ended March 31, 2021 and $42,000 for the three months ended March 31, 2020. At March 31, 2021 and 2020, and 2019 was $6,000 and $77,000, respectively. At September 30, 2020 and 2019, the weighted average period over which this unrecognized expense is expected to be recognized was 0.10 years and 1.10.6 years, respectively. The weighted average remaining contractual life of options outstanding at September 30, 2020March 31, 2021 was 1.83.5 years.
33
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 nine months ended September 30, 2019. NaN stock options were granted/modified during the ninethree months ended September 30,March 31, 2021 or 2020.
|
|
|
|
|
|
|
|
|
| ||
|
|
| |
|
| ||
|
|
| |
|
|
|
The following table represents stock option activity for the ninethree months ended September 30, 2020:March 31, 2021:
| | | | | | | | | | | |
| | | | | | | | Weighted Average | | | |
| | | | | Weighted | | Remaining | | Aggregate | ||
| | | | | Average | | Contractual Term | | Intrinsic Value | ||
|
| Shares |
| Exercise Price |
| (in years) |
| (in thousands) | |||
Outstanding, December 31, 2019 | | | 318,980 | | $ | 11.47 | |
| |
| |
Granted/modified(1) | | | — | | | — | |
| |
| |
Exercised | | | (60,940) | | | 10.82 | |
| |
| |
Forfeited(1) |
| | — |
| | — |
|
|
| |
|
Expired |
| | (94) |
| | 102.12 |
|
|
| |
|
Outstanding, September 30, 2020 |
| | 257,946 | | $ | 11.59 |
| 1.81 | | $ | 195 |
Exercisable, September 30, 2020 |
| | 247,946 | | $ | 11.45 |
| 1.68 | | $ | 195 |
| | | | | | | | | | | |
| | | | | | | | Weighted Average | | | |
| | | | | Weighted | | Remaining | | Aggregate | ||
| | | | | Average | | Contractual Term | | Intrinsic Value | ||
|
| Shares |
| Exercise Price |
| (in years) |
| (in thousands) | |||
Outstanding, December 31, 2020 | | | 214,890 | | $ | 11.90 | |
| |
| |
Granted/modified | | | 0 | | | 0 | |
| |
| |
Exercised | | | (134,850) | | | 10.61 | |
| |
| |
Forfeited |
| | 0 |
| | 0 |
|
|
| |
|
Expired |
| | 0 |
| | 0 |
|
|
| |
|
Outstanding, March 31, 2021 |
| | 80,040 | | $ | 14.09 |
| 3.52 | | $ | 802 |
Exercisable, March 31, 2021 |
| | 80,040 | | $ | 14.09 |
| 3.52 | | $ | 802 |
The total fair value of option shares vested for both the ninethree months ended September 30,March 31, 2021 and 2020 and 2019 was $0 and $137,000, respectively.$0.
In 20192020 and 2020,2021, the Company granted performance share awards under Atlantic Capital’s 2015 Stock Incentive Plan to members of executive management to evidence awards granted under the Long Term Incentive Plan.LTIP. The Company also granted restricted stock awards to certain employees in 20192021 and 2020 under the 2015 Stock Incentive Plan. Compensation expense for restricted stock is based on the fair value of restricted stock awards at the time of grant, which is equal to the value of Atlantic Capital’s common stock on the date of grant. Compensation expense for performance share awards are based on the fair value of Atlantic Capital’s stock at the grant date adjusted for market conditions, as well as the subsequent achievement of performance conditions over the vesting period. The value of restricted stock awards and performance
27
share awards that are expected to vest is amortized into expense over the vesting period. Restricted stock awards may cliff vest over 1-3 years or vest on a pro-rata basis, generally over 3 years. The market value at the date of award is amortized by charges to compensation expense over the vesting period.
Compensation expense related to restricted stock and performance shares for the three and nine months ended September 30, 2020March 31, 2021 was $620,000$1.0 million and $1.6 million, respectively, and $454,000 and $1.2 million$383,000 for the three and nine months ended September 30, 2019, respectively.March 31, 2020. Unrecognized compensation expense associated with restricted stock was $3.8$4.0 million and $3.1 million as of September 30,March 31, 2021 and 2020, respectively. At March 31, 2021 and $2.6 million as of September 30, 2019. At September 30,March 31, 2020, and September 30, 2019, the weighted average period over which this unrecognized expense is to be recognized was 2.302.2 years and 2.272.4 years, respectively. During the three and nine months ended September 30,March 31, 2021 and 2020, there were 136,155133,130 and 278,705123,833 restricted stock and performance share awards granted at a weighted average grant price of $11.05$18.77 and $14.67 per share, respectively. During the three and nine months ended September 30, 2019, there were 28,500 and 158,593 restricted stock and performance share awards granted at a weighted average grant price of $17.57 and $19.19$19.15 per share, respectively.
The Company did not modify any options during the ninethree months ended September 30,March 31, 2021 or 2020. During the nine months ended September 30, 2019, the Company modified options for 12,500 shares and 4,719 restricted stock awards to two
34
individuals. The modifications allowed for the immediate vesting of the awards upon termination of service. The total incremental cost resulting from the modifications was $31,000 for the nine months ended September 30, 2019.
The following table represents restricted stock and performance share award activity for the ninethree months ended September 30, 2020:March 31, 2021:
| | | | | |
| | | | Weighted Average Grant- | |
|
| Shares |
| Date Fair Value | |
Outstanding, December 31, 2019 | | 292,877 | | $ | 19.00 |
Granted/modified(1) | | 278,705 |
| | 14.67 |
Vested | | (109,390) |
| | 17.56 |
Forfeited | | (11,834) |
| | 17.31 |
Outstanding, September 30, 2020 | | 450,358 | | $ | 16.72 |
|
| | | | | |
| | | | Weighted Average Grant- | |
|
| Shares |
| Date Fair Value | |
Outstanding, December 31, 2020 | | 435,748 | | $ | 16.80 |
Granted/modified | | 133,130 |
| | 18.77 |
Vested | | (86,266) |
| | 22.01 |
Forfeited | | (13,437) |
| | 18.59 |
Outstanding, March 31, 2021 | | 469,175 | | $ | 16.62 |
|
.
NOTE 1413 – FAIR VALUE MEASUREMENTS
Atlantic Capital follows the guidance pursuant to ASC 820-10, Fair Value Measurements and Disclosures. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This issuance applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. Atlantic Capital measures its investment securities available-for-sale and interest rate derivative assets and liabilities at fair value on a recurring basis. Fair value is used on a nonrecurring basis either when assets are evaluated for impairment or for disclosure purposes. Atlantic Capital measures its servicing assets, goodwill, intangible assets, loans held for sale, impaired loans and other real estate owned at fair value on a nonrecurring basis if necessary.
The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement andAccounting standards defines fair value as the price that couldwould be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants. Asparticipants, with 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 valuethree-level measurement 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 0 transfers between Level 1 and Level 2 or Level 2 and Level 3 during the three or nine months ended September 30, 2020 and 2019.
Atlantic Capital records investment securities available-for-sale at fair value on a recurring basis. Investment securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. For these securities, Atlantic Capital
3528
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. For these instruments, Atlantic Capital obtains fair value measurements from an independent pricing service. The fair value measurements consider factors such as the prevailing level of interest rates, total exposure and remaining maturities in determining the appropriate fair value adjustments to record. Generally, the expected loss of each client counterparty is estimated using Atlantic Capital’s internal risk rating system. For financial institution counterparties that are rated by national rating agencies, those ratings are used in determining the credit risk. This approach used to estimate exposures to counterparties is also used by Atlantic Capital to estimate its own credit risk on derivative liability positions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the assets that were measured at fair value on a recurring basis by level within the fair value hierarchy as reported in the Consolidated Balance Sheets at September 30, 2020March 31, 2021 and December 31, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at September 30, 2020 Using: | | Fair Value Measurements at March 31, 2021 Using: | ||||||||||||||||||||
|
| Quoted Prices |
| | |
| | |
| | |
| Quoted Prices |
| | |
| | |
| | | ||
| | in Active | | Significant | | | | | | | | in Active | | Significant | | | | | | | ||||
| | Markets for | | Other | | Significant | | | | | Markets for | | Other | | Significant | | | | ||||||
| | Identical | | Observable | | Unobservable | | | | | Identical | | Observable | | Unobservable | | | | ||||||
| | Securities | | Inputs | | Inputs | | | | | Securities | | Inputs | | Inputs | | | | ||||||
| | (Level 1) | | (Level 2) | | (Level 3) | | Total | | (Level 1) | | (Level 2) | | (Level 3) | | Total | ||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||
Securities available-for-sale: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
U.S. states and political subdivisions | | $ | — | | $ | 82,566 | | $ | — | | $ | 82,566 | | $ | 0 | | $ | 79,408 | | $ | 0 | | $ | 79,408 |
Trust preferred securities | |
| — | |
| 4,590 | |
| — | |
| 4,590 | |
| 0 | |
| 4,808 | |
| 0 | |
| 4,808 |
Corporate debt securities | |
| — | |
| 19,644 | |
| — | |
| 19,644 | |
| 0 | |
| 20,633 | |
| 0 | |
| 20,633 |
Mortgage-backed securities | |
| — | |
| 154,084 | |
| — | |
| 154,084 | ||||||||||||
Residential mortgage-backed securities | |
| 0 | |
| 246,544 | |
| 0 | |
| 246,544 | ||||||||||||
Commercial mortgage-backed securities | |
| 0 | |
| 39,308 | |
| 0 | |
| 39,308 | ||||||||||||
Total securities available-for-sale | | $ | — | | $ | 260,884 | | $ | — | | $ | 260,884 | | $ | 0 | | $ | 390,701 | | $ | 0 | | $ | 390,701 |
Interest rate derivative assets | | $ | — | | $ | 25,359 | | $ | — | | $ | 25,359 | | $ | 0 | | $ | 13,481 | | $ | 0 | | $ | 13,481 |
Interest rate derivative liabilities | | $ | — | | $ | 13,324 | | $ | — | | $ | 13,324 | | $ | 0 | | $ | 6,868 | | $ | 0 | | $ | 6,868 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2019 Using: | | Fair Value Measurements at December 31, 2020 Using: | ||||||||||||||||||||
|
| Quoted Prices |
| | |
| | |
| | |
| Quoted Prices |
| | |
| | |
| | | ||
| | in Active | | Significant | | | | | | | | in Active | | Significant | | | | | | | ||||
| | Markets for | | Other | | Significant | | | | | Markets for | | Other | | Significant | | | | ||||||
| | Identical | | Observable | | Unobservable | | | | | Identical | | Observable | | Unobservable | | | | ||||||
| | Securities | | Inputs | | Inputs | | | | | Securities | | Inputs | | Inputs | | | | ||||||
| | (Level 1) | | (Level 2) | | (Level 3) | | Totals | | (Level 1) | | (Level 2) | | (Level 3) | | Totals | ||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||
Securities available-for-sale: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
U.S. states and political subdivisions | | $ | 0 | | $ | 82,485 | | $ | 0 | | $ | 82,485 | | $ | 0 | | $ | 81,019 | | $ | 0 | | $ | 81,019 |
Trust preferred securities | |
| 0 | |
| 4,688 | |
| 0 | |
| 4,688 | |
| 0 | |
| 4,722 | |
| 0 | |
| 4,722 |
Corporate debt securities | |
| 0 | |
| 19,920 | |
| 0 | |
| 19,920 | |
| 0 | |
| 19,821 | |
| 0 | |
| 19,821 |
Mortgage-backed securities | |
| 0 | |
| 175,368 | |
| — | |
| 175,368 | ||||||||||||
Residential mortgage-backed securities | |
| 0 | |
| 194,598 | |
| — | |
| 194,598 | ||||||||||||
Commercial mortgage-backed securities | |
| 0 | |
| 35,263 | |
| — | |
| 35,263 | ||||||||||||
Total securities available-for-sale | | $ | 0 | | $ | 282,461 | | $ | 0 | | $ | 282,461 | | $ | 0 | | $ | 335,423 | | $ | 0 | | $ | 335,423 |
Interest rate derivative assets | | $ | 0 | | $ | 8,856 | | $ | 0 | | $ | 8,856 | | $ | 0 | | $ | 22,184 | | $ | 0 | | $ | 22,184 |
Interest rate derivative liabilities | | $ | 0 | | $ | 5,647 | | $ | 0 | | $ | 5,647 | | $ | 0 | | $ | 11,496 | | $ | 0 | | $ | 11,496 |
For Level 3 securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. Atlantic Capital had no Level 3 securities as of March 31, 2021 and December 31, 2020.
For the three months ended March 31, 2021 and 2020, there was no change in the methods and significant assumptions used to estimate fair value.
3629
For the nine months ended September 30, 2020 and twelve months ended December 31, 2019, there was no change in the methods and significant assumptions used to estimate fair value.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The following table presents the assets that were measured at fair value on a nonrecurring basis by level within the fair value hierarchy as reported in the Consolidated Balance Sheets at September 30, 2020March 31, 2021 and December 31, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Level 1 |
| Level 2 |
| Level 3 |
| | |
| Level 1 |
| Level 2 |
| Level 3 |
| | | ||||||
| | Fair Value | | Fair Value | | Fair Value | | | | | Fair Value | | Fair Value | | Fair Value | | | | ||||||
September 30, 2020 | | Measurement | | Measurement | | Measurement | | Total | ||||||||||||||||
March 31, 2021 | | Measurement | | Measurement | | Measurement | | Total | ||||||||||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||
Impaired Loans | | $ | — | | $ | — | | $ | 4,107 | | $ | 4,107 | | $ | 0 | | $ | 0 | | $ | 150 | | $ | 150 |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Level 1 |
| Level 2 |
| Level 3 |
| | |
| Level 1 |
| Level 2 |
| Level 3 |
| | | ||||||
| | Fair Value | | Fair Value | | Fair Value | | | | | Fair Value | | Fair Value | | Fair Value | | | | ||||||
December 31, 2019 | | Measurement | | Measurement | | Measurement | | Total | ||||||||||||||||
December 31, 2020 | | Measurement | | Measurement | | Measurement | | Total | ||||||||||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||
Impaired Loans | | $ | 0 | | $ | 0 | | $ | 4,288 | | $ | 4,288 | | $ | 0 | | $ | 0 | | $ | 2,844 | | $ | 2,844 |
Level 3 loans consist of impaired loans which have been partially charged-off or have specific valuation allowances based on collateral value. The fair value of Level 3 assets is estimated based on the underlying collateral value. For loans which the cash proceeds from the sale of the underlying collateral is the expected source of repayment, the fair value of these loans was derived from internal estimates of the underlying collateral incorporating market data, including third party appraisals or evaluations, when available. Appraised values may be discounted based on management’s assessment of the level of inactivity in the real estate market and other markets for the underlying collateral, changes in market conditions from the time of the valuation, and other information that in management’s judgment may affect the value. Impaired loans are evaluated on at least a quarterly basis and adjusted accordingly.
Assets and Liabilities Not Measured at Fair Value
For financial instruments that have quoted market prices, those quotes are used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, are assumed to have a fair value that approximates the reported book value, after taking into consideration any applicable credit risk. If no market quotes are available, financial instruments are valued by discounting the expected cash flows using an estimated current market interest rate for the financial instrument. For loans held for investment, fair value is measured using the exit price notion. For off-balance sheet derivative instruments, fair value is estimated as the amount that Atlantic Capital would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts.
The short maturity of Atlantic Capital’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and due from banks, interest-bearing deposits in other banks, other short-term investments, Federal Reserve BankFRB stock and FHLB stock. The fair value of securities equals quoted market prices, if available. If a quoted market price is not available, fair value is estimated usedusing quoted market prices for similar securities or dealer quotes. Due to the short-term settlement of accrued interest receivable and payable, the carrying amount closely approximates fair value.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect the premium or discount on any particular financial instrument that could result from the sale of Atlantic Capital’s entire holdings. Because no ready market exists for a significant portion of Atlantic Capital’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature, 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.
3730
Off-balance sheet financial instruments (commitments to extend credit and standby letters of credit) are generally short-term and at variable rates. Therefore, both the carrying amount and the estimated fair value associated with these instruments are immaterial.
The following table presents the estimated fair values of Atlantic Capital’s financial instruments at September 30, 2020March 31, 2021 and December 31, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at | | Fair Value Measurements at | ||||||||||||||||||||
| | September 30, 2020 Using: | | March 31, 2021 Using: | ||||||||||||||||||||
|
| | |
| Quoted Prices |
| | |
| | |
| | |
| Quoted Prices |
| | |
| | | ||
| | | | | in Active | | Significant | | | | | | | | in Active | | Significant | | | | ||||
| | | | | markets for | | Other | | Significant | | | | | markets for | | Other | | Significant | ||||||
| | | | | Identical | | Observable | | Unobservable | | | | | Identical | | Observable | | Unobservable | ||||||
| | Carrying | | Securities | | Inputs | | Inputs | | Carrying | | Securities | | Inputs | | Inputs | ||||||||
| | Amount | | (Level 1) | | (Level 2) | | (Level 3) | | Amount | | (Level 1) | | (Level 2) | | (Level 3) | ||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||
Financial assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and due from banks | | $ | 22,715 | | $ | 22,715 | | $ | — | | $ | — | | $ | 32,850 | | $ | 32,850 | | $ | 0 | | $ | 0 |
Interest-bearing deposits in banks | |
| 91,243 | |
| 91,243 | |
| — | |
| — | |
| 612,966 | |
| 612,966 | |
| 0 | |
| 0 |
Total securities available-for-sale | |
| 260,884 | |
| — | |
| 260,884 | |
| — | |
| 390,701 | |
| 0 | |
| 390,701 | |
| 0 |
Total securities held-to-maturity | | | 185,822 | | | — | | | 196,712 | | | — | | | 222,535 | | | 0 | | | 228,422 | | | 0 |
FHLB stock | |
| 2,619 | |
| — | |
| — | |
| 2,619 | |
| 1,808 | |
| 0 | |
| 0 | |
| 1,808 |
Federal Reserve Bank stock | |
| 10,080 | |
| — | |
| — | |
| 10,080 | ||||||||||||
FRB stock | |
| 10,124 | |
| 0 | |
| 0 | |
| 10,124 | ||||||||||||
Loans held for investment, net | |
| 2,188,035 | |
| — | |
| — | |
| 2,228,766 | |
| 2,300,814 | |
| 0 | |
| 0 | |
| 2,377,979 |
Loans held for sale | |
| 859 | |
| — | |
| 859 | |
| — | |
| 1,847 | |
| 0 | |
| 1,847 | |
| 0 |
Derivative assets | |
| 25,359 | |
| — | |
| 25,359 | |
| — | |
| 13,481 | |
| 0 | |
| 13,481 | |
| 0 |
Financial liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Deposits | | $ | 2,468,722 | | $ | — | | $ | 2,442,818 | | $ | — | | $ | 3,277,692 | | $ | 0 | | $ | 3,281,591 | | $ | 0 |
Subordinated debt | |
| 73,814 | |
| — | |
| 78,089 | |
| — | |
| 73,878 | |
| 0 | |
| 75,864 | |
| 0 |
Derivative financial instruments | |
| 13,324 | |
| — | |
| 13,324 | |
| — | |
| 6,868 | |
| 0 | |
| 6,868 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at | | Fair Value Measurements at | ||||||||||||||||||||
| | December 31, 2019 Using: | | December 31, 2020 Using: | ||||||||||||||||||||
|
| | |
| Quoted Prices |
| | |
| | |
| | |
| Quoted Prices |
| | |
| | | ||
| | | | | in Active | | Significant | | | | | | | | in Active | | Significant | | | | ||||
| | | | | markets for | | Other | | Significant | | | | | markets for | | Other | | Significant | ||||||
| | | | | Identical | | Observable | | Unobservable | | | | | Identical | | Observable | | Unobservable | ||||||
| | Carrying | | Securities | | Inputs | | Inputs | | Carrying | | Securities | | Inputs | | Inputs | ||||||||
| | Amount | | (Level 1) | | (Level 2) | | (Level 3) | | Amount | | (Level 1) | | (Level 2) | | (Level 3) | ||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||
Financial assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and due from banks | | $ | 45,249 | | $ | 45,249 | | $ | 0 | | $ | 0 | | $ | 16,865 | | $ | 16,865 | | $ | 0 | | $ | 0 |
Interest-bearing deposits in banks | | | 421,079 | | | 421,079 | |
| 0 | |
| 0 | | | 636,537 | | | 636,537 | |
| 0 | |
| 0 |
Total securities available-for-sale | | | 282,461 | | | 0 | |
| 282,461 | |
| 0 | | | 335,423 | | | 0 | |
| 335,423 | |
| 0 |
Total securities held-to-maturity | | | 116,972 | | | 0 | | | 115,291 | | | 0 | | | 200,156 | | | 0 | | | 214,584 | | | 0 |
FHLB stock | | | 2,680 | | | 0 | |
| 0 | |
| 2,680 | | | 2,619 | | | 0 | |
| 0 | |
| 2,619 |
Federal Reserve Bank stock | | | 9,998 | | | 0 | |
| 0 | |
| 9,998 | ||||||||||||
FRB stock | | | 10,080 | | | 0 | |
| 0 | |
| 10,080 | ||||||||||||
Loans held for investment, net | | | 1,873,524 | | | 0 | |
| 0 | |
| 1,890,258 | | | 2,249,036 | | | 0 | |
| 0 | |
| 2,285,222 |
Loans held for sale | | | 370 | | | 0 | |
| 370 | |
| 0 | ||||||||||||
Derivative assets | | | 8,856 | | | 0 | |
| 8,856 | |
| 0 | | | 22,184 | | | 0 | |
| 22,184 | |
| 0 |
Financial liabilities: | | | | | |
| |
|
| |
|
| | | | | |
| |
|
| |
|
|
Deposits | | $ | 2,499,046 | | $ | 0 | | $ | 2,421,957 | | $ | 0 | | $ | 3,161,508 | | $ | 0 | | $ | 3,120,246 | | $ | 0 |
Subordinated debt | | | 49,873 | | | 0 | |
| 50,081 | |
| 0 | | | 73,807 | | | 0 | |
| 77,814 | |
| 0 |
Derivative financial instruments | | | 5,647 | | | 0 | |
| 5,647 | |
| 0 | | | 11,496 | | | 0 | |
| 11,496 | |
| 0 |
38
NOTE 1514 – 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.
31
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 as well as a summary of minimum lease payments at September 30, 2020March 31, 2021 and December 31, 2019 was2020 were as follows:
| | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 |
| March 31, 2021 |
| December 31, 2020 | ||||
| | (in thousands) | | (in thousands) | ||||||||
Financial Instruments whose contract amount represents credit risk: |
| |
|
| |
|
| |
|
| |
|
Commitments to extend credit | | $ | 764,247 | | $ | 735,905 | | $ | 789,869 | | $ | 813,757 |
Standby letters of credit | |
| 18,690 | |
| 8,053 | |
| 15,133 | |
| 16,141 |
| | $ | 782,937 | | $ | 743,958 | | $ | 805,002 | | $ | 829,898 |
| | | | | | | | | | | | |
Minimum lease payments | | $ | 18,464 | | $ | 20,055 | | $ | 17,483 | | $ | 17,994 |
The Company also had commitments related to investments in SBICs totaling $1.9 million and $2.0 million and $2.4 million at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. In addition, Atlantic Capital had private equity commitments totaling $2.0$1.5 million and 0 at September 30, 2020both March 31, 2021 and December 31, 2019, respectively.2020.
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 1615 – REVENUE RECOGNITION
Service Charges on Deposit Accounts
Service charges represent general service fees for monthly account maintenance and activity, or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed, such as a wire transfer or ATM withdrawal. Payment for such performance obligations are generally received at the time the performance obligations are satisfied.
The following table presents service charges by type of service provided for the three and nine months ended September 30, 2020 and 2019:
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| | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | | ||||
| | | | | | | | (in thousands) | | ||||
Deposit account analysis fees and charges | | $ | 1,080 | | $ | 672 | | $ | 3,012 | | $ | 1,894 | |
ATM fees | |
| 10 | |
| — | |
| 46 | |
| 39 | |
NSF fees | |
| 5 | |
| 18 | |
| 30 | |
| 40 | |
Wire fees | |
| 18 | |
| 124 | |
| 166 | |
| 336 | |
Foreign exchange fees | |
| 104 | |
| 110 | |
| 272 | |
| 275 | |
Other | |
| — | |
| 1 | |
| 4 | |
| 5 | |
Total service charges - continuing operations | |
| 1,217 | |
| 925 | |
| 3,530 | |
| 2,589 | |
Service charges - discontinued operations | |
| — | |
| — | |
| — | |
| 527 | |
Total service charges | | $ | 1,217 | | $ | 925 | | $ | 3,530 | | $ | 3,116 | |
The following table presents service charges by type of service provided for the three months ended March 31, 2021 and 2020:
| | | | | | | |
| | For the Three Months Ended March 31, | | ||||
|
| 2021 |
| 2020 | | ||
| | (in thousands) | | ||||
Deposit account analysis fees and charges | | $ | 1,406 | | $ | 934 | |
ATM fees | |
| 25 | |
| 20 | |
NSF fees | |
| 12 | |
| 18 | |
Wire fees | |
| 28 | |
| 133 | |
Foreign exchange fees | |
| 192 | |
| 126 | |
Other | |
| — | |
| 1 | |
Total service charges | | $ | 1,663 | | $ | 1,232 | |
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2020March 31, 2021 and December 31, 2019,2020, the Company did not have any significant contract balances.
NOTE 1716 – 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 September 30, 2020,March 31, 2021, operating lease ROU assets and liabilities were $10.4$9.5 million and $15.3$14.4 million, respectively, compared to $11.9$9.9 million and $16.9$14.9 million, respectively, as of December 31, 2019.2020. 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 Company’s leases include variable lease payments with annual increases based on changes in market rental rates.
Rent expense, which was included in occupancy expense in the Consolidated Statements of Income, for the three months ended March 31, 2021 and 2020 was $503,000 and $603,000, respectively.
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the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component.
Rent expense, which was included in occupancy expense in the Consolidated Statements of Income, for both the three and nine months ended September 30, 2020 and 2019 was $520,000 and $1.7 million, respectively.
The table below summarizes the Company’s net lease cost:
| | | | | | | | | | | | |||||||
| | Three Months Ended | | Nine Months Ended | | | | | | | ||||||||
| | September 30, |
| September 30, | | For the Three Months Ended March 31, | ||||||||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 |
| 2021 |
| 2020 | ||||||
| | (in thousands) | | (in thousands) | ||||||||||||||
Operating lease cost | | $ | 510 | | $ | 509 | | $ | 1,696 | | $ | 1,635 | | $ | 501 | | $ | 594 |
Short-term lease cost | | | 10 | |
| 11 | | 25 | |
| 37 | | | 2 | |
| 9 | |
Sublease income | | | (91) | |
| (70) | | | (273) | |
| (186) | | | (92) | |
| (90) |
Net lease cost | | $ | 429 | | $ | 450 | | $ | 1,448 | | $ | 1,486 | | $ | 411 | | $ | 513 |
The tables below summarize other information related to the Company’s operating leases:
| | | | | | | | | | | | | ||||||
|
| Three Months Ended |
| Nine Months Ended | | | | | | | ||||||||
|
| September 30, |
| September 30, |
| For the Three Months Ended March 31, | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||||
| | (in thousands) | | (in thousands) | ||||||||||||||
Operating cash paid for amounts included in the measurement of lease liabilities | | $ | 530 | | $ | 551 | | $ | 1,655 | | $ | 1,594 | | $ | 511 | | $ | 560 |
Right-of-use assets obtained in exchange for new finance lease liabilities | | | 62 | | | — | | | 62 | | | 15,207 |
| | | | | | | |
| | As of September 30, | | ||||
| | 2020 |
| 2019 | | ||
Weighted-average remaining lease term - operating leases | |
| 8.5 years | |
| 9.0 years | |
| | | | | | | |
Weighted-average discount rate - operating leases | |
| 3.04 | % |
| 3.30 | % |
| | | | | | | |
| | For the Three Months Ended March 31, | | ||||
| | 2021 |
| 2020 | | ||
Weighted-average remaining lease term - operating leases | |
| 8.1 years | |
| 8.8 years | |
| | | | | | | |
Weighted-average discount rate - operating leases | |
| 3.03 | % |
| 3.05 | % |
The table below summarizes the maturity of remaining lease liabilities:
�� | | | | |||
| | | | |||
| | September 30, 2020 | | March 31, 2021 | ||
|
| (in thousands) |
| (in thousands) | ||
Twelve Months Ended: | | | | | | |
September 30, 2021 |
| $ | 2,052 | |||
September 30, 2022 | |
| 2,403 | |||
September 30, 2023 | |
| 2,136 | |||
September 30, 2024 | |
| 1,966 | |||
September 30, 2025 | |
| 1,905 | |||
March 31, 2022 |
| $ | 2,263 | |||
March 31, 2023 | |
| 2,352 | |||
March 31, 2024 | |
| 1,996 | |||
March 31, 2025 | |
| 1,909 | |||
March 31, 2026 | |
| 1,880 | |||
Thereafter | |
| 8,002 | |
| 7,083 |
Total future minimum lease payments | |
| 18,464 | |
| 17,483 |
Less: Interest | |
| (3,122) | |
| (3,063) |
Present value of net future minimum lease payments |
| $ | 15,342 |
| $ | 14,420 |
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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. (“we,” “us,” or “Atlantic Capital”) contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “would,” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates, and
34
projections about our industry, management’s beliefs, and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
The following risks, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
● | the impact of the COVID-19 pandemic or any other pandemic on the national and local economy and the responses of governmental and monetary authorities on our operations, including declines in credit quality, strains on capital and liquidity, fluctuations in our |
● | 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 |
● | risks associated with increased geographic concentration, borrower concentration and concentration in commercial real estate and commercial and industrial |
● | our strategic decision to increase our focus on |
● | risks related to litigation, regulatory enforcement and reputation as a result of our participation in the |
● | risks associated with our ability to manage the planned growth of our |
● | changes in asset quality and credit risk; |
● | the cost and availability of capital; |
42
● | 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 |
● | a weakening of the economies in which we conduct operations may adversely affect our operating results; |
● | the U.S. legal and regulatory framework could adversely affect our operating results; |
35
● | 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 |
● | increased competitive pressure due to consolidation in the financial services industry; |
● | risks related to security breaches, cybersecurity attacks, and other significant disruptions in our information technology systems; and |
● | other risks and factors identified in our Annual Report on Form 10-K as filed with the |
Response to COVID-19
As theThe COVID-19 pandemic has negatively impacted the global economy and affected all areas of economic and social life, Atlantic Capital responded withlife. In response to the pandemic, we implemented measures to protect the health of itsour community, customers and employees. We implemented work-from-home initiatives for employees, when possible and ceased non-essential business related travel.
many of which are continuing. In addition, we have takentook the following steps to assist customers during these challenging times, consistent with sound banking practice:
43
● | funding loans for business borrowers through the PPP with |
● | evaluating business segments in our market areas to identify areas of need and focusing our assessment and management of portfolio risk; |
● | communicating with customers to assess developing credit situations and needs assessment; and |
● | offering payment deferrals to existing customers with a streamlined loan modification process when appropriate. |
The COVID-19 pandemicFederal government has negatively impactedalso responded to the global economy, and in response to this crisis, the Coronavirus Aid, Relief, and Economic Security (“CARES”)pandemic. The CARES Act was passed by Congress and signed into law on March 27, 2020. The CARES Act provides2020 and provided an estimated $2.2 trillion to fightaddress the COVID-19economic impact of the pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other types of relief. Some of the provisions applicable to us include, but are not limited to:
Many of the stimulus programs under the CARES Act are setalso included provisions to expire atencourage financial institutions to work prudently with borrowers. On December 27, 2020, the endEconomic Aid Act was signed into law. This second coronavirus relief package granted additional funds for a new round of 2020 if they have not already. Also in responsePPP loans. Additionally, it expanded the eligibility for loans and allows certain businesses to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issuedrequest a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions that apply to us include, but are not limited to:
second loan.
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On August 3, 2020, the agencies issued guidance in anticipation of the end of accommodations to borrowers to encourage financial institutions to consider prudent accommodation options that are based on an understanding of the credit risk of the borrower; are consistent with applicable laws and regulations; and, that can ease cash flow pressures on affected borrowers, improve their capacity to service debt, and facilitate a financial institution’s ability to collect on its loans. We will continue to communicate with customers to address continuing credit situations and in a manner in line with the published guidance.
CRITICAL ACCOUNTING POLICIES
Our accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. Our 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 our consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include our accounting for the allowance for credit losses, on loans, fair value measurements, and income tax related items. On January 1, 2020, we adopted ASC 326, which changes the accounting for the allowance for credit losses. For a discussion of this new accounting policy, refer to Note 1 of the September 30, 2020 Consolidated Financial Statements. Other significantSignificant accounting policies are discussed in the Notes to Consolidated Financial Statements within our Annual Report.
Non-GAAP Financial Measures.
This Form 10-Q contains non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. Our management uses non-GAAP financial measures, including: (i) taxable equivalent interest income; (ii) taxable equivalent net interest income; (iii) loan yield excluding PPP loans; (iv) taxable equivalent net interest margin; (v) taxable equivalent net interest margin excluding PPP loans; (vi) taxable equivalent income before income taxes; (vii) taxable equivalent income tax expense; (viii) tangible common equity to tangible assets; (ix) tangible common equity; (x) tangible book value per common share, and (xi)share; (x) allowance for credit losses to loans held for investment excluding PPP loans.loans.
Management believes that non-GAAP financial measures provide a greater understanding of ongoing performance and operations, and enhance comparability with prior periods. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as determined in accordance with GAAP, and investors should consider our performance and financial condition as reported under GAAP and all other relevant information when assessing our performance or financial condition. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP. Non-GAAP financial measures may not be comparable to non- GAAP financial measures presented by other companies. A reconciliation of these non-GAAP financial measures to GAAP financial measures is included in Table 1.
EXECUTIVE OVERVIEW AND EARNINGS SUMMARY
We reported net income of $13.4 million for the first quarter of 2021 compared to net income of $2.1 million for the first quarter of 2020. Diluted income per common share was $0.65 for the first quarter of 2021, compared to $0.10 for the same period in 2020. The increase in net income for the three months ended March 31, 2021, compared to the same period in 2020, was primarily attributable to the recording of negative provision for credit losses of $4.5 million during the first quarter of 2021 compared to a provision for credit losses of $8.1 million during the first quarter of 2020.
Net interest income before provision for credit losses increased $2.4 million, or 11%, from the first quarter of 2020 to 2021, primarily due to a $3.0 million, or 59%, decrease in interest expense, partially offset by a $471,000, or 2%, decrease in interest income.
Taxable equivalent net interest income was $23.7 million for the first quarter of 2021, compared to $21.2 million for the first quarter of 2020. Taxable equivalent net interest margin decreased to 2.81% for the three months ended March 31, 2021 from 3.41% for the three months ended March 31, 2020. The margin decrease was primarily due to lower rates on loans resulting from federal funds rate decreases during 2020. In addition, the increase in deposits and corresponding increase in cash balances contributed to the margin decline quarter over quarter.
The CARES Act and applicable extensions provide relief to borrowers, including the opportunity to defer loan payments while not negatively affecting their credit standing and also provide funding opportunities for small businesses under the PPP from approved SBA lenders. For commercial and consumer customers, we have provided a host of relief options, including payment deferrals (including maturity extensions), loan covenant waivers and low interest rate loan products. Outstanding PPP loans were $218.8 million at March 31, 2021, an increase of $26.6 million, or 14%, from December 31, 2020. The increase was due to the origination of 291 round two PPP loans totaling $73.0 million during the first quarter
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EXECUTIVE OVERVIEW AND EARNINGS SUMMARY
We reported net income from continuing operations of $8.62021, partially offset by $47.0 million for the third quarter of 2020 compared to net income from continuing operations of $7.6 million for the third quarter of 2019. Diluted income per common share from continuing operations was $0.40 for the third quarter of 2020, compared to $0.33 for the same period in 2019.
For the nine months ended September 30, 2020, we reported net income from continuing operations of $12.6 million. This compared to net income from continuing operations of $21.0 million for the nine months ended September 30, 2019. Diluted income per common share from continuing operations was $0.58 for the nine months ended September 30, 2020 compared to $0.88 for the same period in 2019.
The increase in net income from continuing operations forPPP loans forgiven during the three months ended September 30, 2020, comparedMarch 31, 2021. See “—Response to COVID-19” for additional information regarding our responses to the same period in 2019, was primarily attributable to a $4.0 million decrease in interest expense offset by a $1.0 million, or 8% increase in noninterest expense.
COVID-19 pandemic.
For the nine months ended September 30, 2020 compared to the first nine months of 2019, the decrease in net income from continuing operations was primarily attributable to an increase inWe recorded negative provision for credit losses of $15.0 million, and a $777,000, or 10%, decrease in noninterest income from continuing operations, partially offset by an increase of $4.7 million, or 8%, in taxable equivalent net interest income.
Taxable equivalent net interest income was $22.1 million for the third quarter of 2020, compared to $20.1 million for the third quarter of 2019. Taxable equivalent net interest margin decreased to 3.14% for the three months ended September 30, 2020 from 3.52% for the three months ended September 30, 2019. Driving the decrease in interest expense was the decline in the cost of interest-bearing deposits for the three months ended September 30, 2020 compared to the same period in 2019, particularly in Negotiable Order of Withdrawal (“NOW”), money market and savings accounts. The increase in net income was partially offset by a decrease in loan yields of 136 basis points for the three months ended September 30, 2020 compared to the same period in 2019. However, the decrease in loan yields was mitigated by an increase in average loan balances totaling $390 million, or 22%, during the same period.
For the nine months ended September 30, 2020, taxable equivalent net interest income from continuing operations was $65.3 million compared to $60.6 million for the same period of 2019. Taxable equivalent net interest margin from continuing operations decreased to 3.25% for the nine months ended September 30, 2020 from 3.66% for the nine months ended September 30, 2019. The margin decrease for the three and nine months ended September 30, 2020 compared to the prior year was primarily the result of a decrease in loan yields due to the declining interest rate environment and the addition of the lower yielding PPP loans.
Provision for credit losses for the quarter ended September 30, 2020 totaled $28,000,March 31, 2021 totaling $4.5 million, a decrease of $385,000$12.6 million from the quarter ended September 30, 2019. For the nine months ended September 30,March 31, 2020 our provision for loan losses was $17.0 million compareddue to a provision of $1.9 million for the first nine months of 2019. The adoption of ASC 326 added a forecasting element to the calculation of expected credit lossesan improvement in the first nine months of 2020, which contributed to the increase in provisionCECL economic forecast along with credit rating upgrades for the nine month period in 2020. The COVID-19 pandemic was also factored into adverse economic forecasts used under the current expected credit loss (“CECL”) model, which likely had a greater impact on the CECL model given its use of forecasting elements, whereas the incurred loss model used prior to 2020 primarily considered historical data.criticized and classified loans.
Noninterest income decreased $265,000,increased $1.1 million, or 10%47%, to $2.5$3.6 million from the thirdfirst quarter of 2019.2020. The decreaseincrease was primarily due to an increase of $285,000 in loss on sales of other assets, a decrease of $253,000 in gains on sale of securities, and a decrease of $257,000,$811,000, or 22%196%, in SBA lending activities. Partially offsetting this decrease wasactivities resulting from higher SBA origination volume and higher SBA premiums in the secondary market and an increase in income from service charges of $292,000,$431,000, or 32%35%, resulting fromdue to continued growth in theour payments, processing businessfintech and an increase of $303,000private capital solutions businesses. Partially offsetting these increases was a decrease in derivatives income of $199,000, or 81%, due to changes in the derivatives credit valuation adjustment.
For the first nine months of 2020, noninterest income from continuing operations decreased $777,000, or 10%, to $7.3 million. The decrease was primarily due to a decrease of $1.2 million, or 37%, in SBA lending activities, a decrease of $907,000 in gains on sale of securities and an increase in loss on sales of other assets of $267,000. Partially offsetting this
46
decrease was an increase in income from service charges of $941,000, or 36%, and an increase of $883,000 in derivatives income.
For the third quarter of 2020,2021, noninterest expense increased $1.0$2.3 million, or 8%18%, to $13.7$15.1 million compared to the thirdfirst quarter of 2019.2020. The most significant components of the increase were increases of $555,000,$1.9 million, or 7%23%, in salaries and employee benefits, $530,000,$275,000 in FDIC premiums and $217,000, or 50%31%, in other noninterest expense, and $406,000 in FDIC premiums.professional services. Partially offsetting the increaseincreases were decreases in professional services of $202,000$130,000, or 26%, $113,000, or 74%93%, in travel, meals and entertainment expense and $102,000,$105,000, or 42%, in marketing and business development expense.
Noninterest expense from continuing operations totaled $39.5 million for the nine months ended September 30, 2020, compared to $39.7 million for the same period in 2019. The most significant components of the decrease were a $329,000, or 47%, decrease in marketing and business development expense, a $291,000 or 58%, decrease in travel, meals and entertainment, a decrease of $272,000, or 12%, in professional services, and a decrease of $245,000, or 1%, in salaries and employee benefits. Partially offsetting the decrease were increases in occupancy of $366,000, or 18%, $191,000, or 9%, in communications and data processing and $171,000, or 79%, in FDIC premiums resulting from small bank assessment credits issued in the third quarter of 2019.
expense.
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Table 1 - Quarterly Selected Financial Data(1)
(dollars in thousands, except share and per share data; taxable equivalent)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | For the Nine months ended | | 2021 | | 2020 | | ||||||||||||||||||||||||||
| Third | | Second | | First | | Fourth | | Third | | September 30, | | First | | Fourth | | Third | | Second | | First | | ||||||||||||||
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| 2020 |
| 2019 | | Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| ||||||||||||
INCOME SUMMARY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income - taxable equivalent | $ | 24,578 | | $ | 24,151 | | $ | 26,246 | | $ | 26,699 | | $ | 26,624 | | $ | 74,976 | | $ | 79,607 | | $ | 25,775 | | $ | 25,288 | | $ | 24,578 | | $ | 24,151 | | $ | 26,246 | |
Interest expense | | 2,515 | | | 2,166 | | | 5,043 | | | 5,965 | | | 6,536 | | | 9,724 | | | 19,018 | | | 2,065 | | | 2,299 | | | 2,515 | | | 2,166 | | | 5,043 | |
Net interest income - taxable equivalent | | 22,063 | | | 21,985 | | | 21,203 | | | 20,734 | | | 20,088 | | | 65,252 | | | 60,589 | | | 23,710 | | | 22,989 | | | 22,063 | | | 21,985 | | | 21,203 | |
Provision for credit losses | | 28 | | | 8,863 | | | 8,074 | | | 787 | | | 413 | | | 16,965 | | | 1,925 | | | (4,519) | | | 481 | | | 28 | | | 8,863 | | | 8,074 | |
Net interest income after provision for credit losses | | 22,035 | | | 13,122 | | | 13,129 | | | 19,947 | | | 19,675 | | | 48,287 | | | 58,664 | | | 28,229 | | | 22,508 | | | 22,035 | | | 13,122 | | | 13,129 | |
Noninterest income | | 2,504 | | | 2,343 | | | 2,422 | | | 2,679 | | | 2,769 | | | 7,269 | | | 8,046 | | | 3,562 | | | 3,016 | | | 2,504 | | | 2,343 | | | 2,422 | |
Noninterest expense | | 13,713 | | | 12,904 | | | 12,877 | | | 13,382 | | | 12,677 | | | 39,494 | | | 39,726 | | | 15,149 | | | 13,164 | | | 13,713 | | | 12,904 | | | 12,877 | |
Income from continuing operations before income taxes | | 10,826 | | | 2,561 | | | 2,674 | | | 9,244 | | | 9,767 | | | 16,062 | | | 26,984 | | |||||||||||||||
Income before income taxes | | 16,642 | | | 12,360 | | | 10,826 | | | 2,561 | | | 2,674 | | |||||||||||||||||||||
Income tax expense | | 2,208 | | | 712 | | | 550 | | | 2,104 | | | 2,198 | | | 3,471 | | | 5,966 | | | 3,280 | | | 2,410 | | | 2,208 | | | 712 | | | 550 | |
Net income from continuing operations (2)(3) | | 8,618 | | | 1,849 | | | 2,124 | | | 7,140 | | | 7,569 | | | 12,591 | | | 21,018 | | |||||||||||||||
Income from discontinued operations, net of tax | | — | | | — | | | — | | | — | | | 617 | | | — | | | 21,697 | | |||||||||||||||
Net income | $ | 8,618 | | $ | 1,849 | | $ | 2,124 | | $ | 7,140 | | $ | 8,186 | | $ | 12,591 | | $ | 42,715 | | |||||||||||||||
Net income(1)(2) | $ | 13,362 | | $ | 9,950 | | $ | 8,618 | | $ | 1,849 | | $ | 2,124 | | |||||||||||||||||||||
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PER SHARE DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share - continuing operations | $ | 0.40 | | $ | 0.09 | | $ | 0.10 | | $ | 0.32 | | $ | 0.33 | | $ | 0.58 | | $ | 0.88 | | |||||||||||||||
Diluted earnings per share - discontinued operations | | — | | | — | | | — | | | — | | | 0.03 | | | — | | | 0.91 | | |||||||||||||||
Diluted earnings per share | | 0.40 | | | 0.09 | | | 0.10 | | | 0.32 | | | 0.36 | | | 0.58 | | | 1.78 | | $ | 0.65 | | $ | 0.48 | | $ | 0.40 | | $ | 0.09 | | $ | 0.10 | |
Book value per share | | 16.05 | | | 15.64 | | | 15.47 | | | 15.01 | | | 14.81 | | | 16.05 | | | 14.81 | | | 16.72 | | | 16.60 | | | 16.05 | | | 15.64 | | | 15.47 | |
Tangible book value per common share (3) | | 15.11 | | | 14.72 | | | 14.54 | | | 14.09 | | | 13.91 | | | 15.11 | | | 13.91 | | |||||||||||||||
Tangible book value per common share (2) | | 15.74 | | | 15.62 | | | 15.11 | | | 14.72 | | | 14.54 | | |||||||||||||||||||||
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PERFORMANCE MEASURES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Return on average equity | | 10.05 | % | | 2.20 | % | | 2.56 | % | | 8.65 | % | | 9.77 | % | | 4.98 | % | | 17.25 | % | | 15.99 | % | | 11.68 | % | | 10.05 | % | | 2.20 | % | | 2.56 | % |
Return on average assets | | 1.15 | | | 0.25 | | | 0.32 | | | 1.08 | | | 1.32 | | | 0.59 | | | 2.22 | | | 1.50 | | | 1.19 | | | 1.15 | | | 0.25 | | | 0.32 | |
Taxable equivalent net interest margin - continuing operations | | 3.14 | | | 3.23 | | | 3.41 | | | 3.38 | | | 3.52 | | | 3.25 | | | 3.66 | | |||||||||||||||
Taxable equivalent net interest margin | | 2.81 | | | 2.91 | | | 3.14 | | | 3.23 | | | 3.41 | | |||||||||||||||||||||
Taxable equivalent net interest margin excluding PPP loans | | 3.18 | | | 3.35 | | | 3.41 | | | 3.38 | | | 3.52 | | | 3.31 | | | 3.66 | | | 2.70 | | | 2.81 | | | 3.18 | | | 3.35 | | | 3.41 | |
Efficiency ratio - continuing operations | | 56.61 | | | 53.82 | | | 55.03 | | | 57.57 | | | 55.72 | | | 55.16 | | | 58.13 | | |||||||||||||||
Efficiency ratio | | 56.30 | | | 51.30 | | | 56.61 | | | 53.82 | | | 55.03 | | |||||||||||||||||||||
Average loans to average deposits | | 88.65 | | | 88.46 | | | 83.84 | | | 86.54 | | | 92.41 | | | 87.07 | | | 93.96 | | | 71.93 | | | 76.81 | | | 88.65 | | | 88.46 | | | 83.84 | |
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CAPITAL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average equity to average assets | | 11.45 | % | | 11.53 | % | | 12.41 | % | | 12.47 | % | | 13.54 | % | | 11.78 | % | | 12.87 | % | | 9.39 | % | | 10.18 | % | | 11.45 | % | | 11.53 | % | | 12.41 | % |
Tangible common equity to tangible assets | | 11.03 | | | 11.01 | | | 11.57 | | | 10.61 | | | 12.92 | | | 11.03 | | | 12.92 | | | 8.63 | | | 8.86 | | | 11.03 | | | 11.01 | | | 11.57 | |
Leverage ratio | | 9.9 | | | 9.9 | | | 10.7 | | | 11.0 | | | 11.8 | | | 9.9 | | | 11.8 | | | 8.4 | | | 8.9 | | | 9.9 | | | 9.9 | | | 10.7 | |
Total risk based capital ratio | | 16.9 | | | 14.8 | | | 14.9 | | | 15.0 | | | 15.5 | | | 16.9 | | | 15.5 | | | 16.4 | | | 16.1 | | | 16.9 | | | 14.8 | | | 14.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SHARES OUTSTANDING | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Number of common shares outstanding - basic | | 21,202,783 | | | 21,477,631 | | | 21,479,986 | | | 21,751,026 | | | 22,193,761 | | | 21,202,783 | | | 22,193,761 | | | 20,354,077 | | | 20,394,912 | | | 21,202,783 | | | 21,477,631 | | | 21,479,986 | |
Number of common shares outstanding - diluted | | 21,298,098 | | | 21,569,050 | | | 21,675,934 | | | 21,974,959 | | | 22,405,141 | | | 21,298,098 | | | 22,405,141 | | | 20,617,188 | | | 20,492,542 | | | 21,298,098 | | | 21,569,050 | | | 21,675,934 | |
Average number of common shares - basic | | 21,500,735 | | | 21,472,462 | | | 21,689,038 | | | 21,876,487 | | | 22,681,904 | | | 21,553,953 | | | 23,800,525 | | | 20,380,066 | | | 20,711,089 | | | 21,500,735 | | | 21,472,462 | | | 21,689,038 | |
Average number of common shares - diluted | | 21,543,805 | | | 21,535,040 | | | 21,842,175 | | | 22,053,907 | | | 22,837,531 | | | 21,640,057 | | | 23,957,915 | | | 20,502,184 | | | 20,795,332 | | | 21,543,805 | | | 21,535,040 | | | 21,842,175 | |
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ASSET QUALITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses on loans to loans held for investment(4) | | 1.59 | % | | 1.61 | % | | 1.43 | % | | 1.04 | % | | 1.03 | % | | 1.59 | % | | 1.03 | % | |||||||||||||||
Net charge-offs to average loans(5) | | 0.06 | | | 0.29 | | | 0.04 | | | 0.07 | | | 0.11 | | | 0.13 | | | 0.12 | | |||||||||||||||
Allowance for credit losses on loans to loans held for investment | | 1.31 | % | | 1.55 | % | | 1.59 | % | | 1.61 | % | | 1.43 | % | |||||||||||||||||||||
Net charge-offs to average loans(3) | | 0.04 | | | 0.05 | | | 0.06 | | | 0.29 | | | 0.04 | | |||||||||||||||||||||
Non-performing assets to total assets | | 0.20 | | | 0.24 | | | 0.27 | | | 0.26 | | | 0.29 | | | 0.20 | | | 0.29 | | | 0.06 | | | 0.13 | | | 0.20 | | | 0.24 | | | 0.27 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
AVERAGE BALANCES | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | |
Total loans - continuing operations | $ | 2,191,669 | | $ | 2,131,847 | | $ | 1,890,184 | | $ | 1,857,736 | | $ | 1,801,629 | | $ | 2,071,673 | | $ | 1,739,917 | | |||||||||||||||
Total loans | $ | 2,270,660 | | $ | 2,207,956 | | $ | 2,191,669 | | $ | 2,131,847 | | $ | 1,890,184 | | |||||||||||||||||||||
Investment securities | | 453,382 | | | 462,850 | | | 417,971 | | | 389,667 | | | 340,872 | | | 444,766 | | | 366,790 | | | 579,547 | | | 491,134 | | | 453,382 | | | 462,850 | | | 417,971 | |
Total assets | | 2,977,444 | | | 2,932,716 | | | 2,686,266 | | | 2,626,388 | | | 2,453,438 | | | 2,865,884 | | | 2,572,961 | | | 3,611,417 | | | 3,328,719 | | | 2,977,444 | | | 2,932,716 | | | 2,686,266 | |
Deposits - continuing operations | | 2,472,218 | | | 2,409,958 | | | 2,254,505 | | | 2,146,626 | | | 1,949,657 | | | 2,379,235 | | | 1,851,674 | | |||||||||||||||
Deposits | | 3,156,906 | | | 2,874,402 | | | 2,472,218 | | | 2,409,958 | | | 2,254,505 | | |||||||||||||||||||||
Shareholders’ equity | | 341,017 | | | 338,027 | | | 333,480 | | | 327,543 | | | 332,291 | | | 337,521 | | | 331,116 | | | 338,990 | | | 338,948 | | | 341,017 | | | 338,027 | | | 333,480 | |
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AT PERIOD END | | �� | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans and loans held for sale | $ | 2,188,894 | | $ | 2,185,847 | | $ | 1,932,909 | | $ | 1,873,524 | | $ | 1,836,589 | | $ | 2,188,894 | | $ | 1,836,589 | | $ | 2,302,661 | | $ | 2,249,036 | | $ | 2,188,894 | | $ | 2,185,847 | | $ | 1,932,909 | |
Investment securities | | 446,706 | | | 457,749 | | | 466,405 | | | 399,433 | | | 329,648 | | | 446,706 | | | 329,648 | | | 613,236 | | | 535,579 | | | 446,706 | | | 457,749 | | | 466,405 | |
Total assets | | 2,923,977 | | | 2,890,622 | | | 2,719,658 | | | 2,910,379 | | | 2,410,198 | | | 2,923,977 | | | 2,410,198 | | | 3,732,668 | | | 3,615,617 | | | 2,923,977 | | | 2,890,622 | | | 2,719,658 | |
Deposits | | 2,468,722 | | | 2,407,631 | | | 2,225,119 | | | 2,499,046 | | | 1,854,272 | | | 2,468,722 | | | 1,854,272 | | | 3,277,692 | | | 3,161,508 | | | 2,468,722 | | | 2,407,631 | | | 2,225,119 | |
Shareholders’ equity | | 340,309 | | | 335,980 | | | 332,300 | | | 326,495 | | | 328,711 | | | 340,309 | | | 328,711 | | | 340,328 | | | 338,586 | | | 340,309 | | | 335,980 | | | 332,300 | |
(1) On April 5, 2019, we completed the sale to FirstBank of its Tennessee and northwest Georgia banking operations, including 14 branches and the mortgage business. The mortgage business and branches sold to FirstBank are reported as discontinued operations.
(2) Interest income on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 21%, reflecting the statutory federal income tax rate.
(3)(2) Excludes effect of acquisition related intangibles.
(4) The ratio for the third quarter of 2019 is calculated on a continuing operations basis.
(5)(3) Annualized.
4839
Non-GAAP Performance Measures Reconciliation
(dollars in thousands)
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| | 2020 | | 2019 | | For the Nine months | | | 2021 | | 2020 | | ||||||||||||||||||||||||||
| | Third | | Second | | First | | Fourth | | Third | | ended September 30, | | | First | | Fourth | | Third | | Second | | First | | ||||||||||||||
| | Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| 2020 |
| 2019 | | | Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
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Taxable equivalent interest income reconciliation | | | | | | | | | | | | | | | |
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Interest income - GAAP | | $ | 24,233 | | $ | 23,797 | | $ | 26,023 | | $ | 26,532 | | $ | 26,520 |
| $ | 74,053 | | $ | 79,315 | | | $ | 25,410 | | $ | 24,943 | | $ | 24,233 | | $ | 23,797 | | $ | 26,023 |
|
Taxable equivalent adjustment | |
| 345 | |
| 354 | |
| 223 | |
| 167 | |
| 104 |
|
| 923 | |
| 292 | | |
| 365 | |
| 345 | |
| 345 | |
| 354 | |
| 223 |
|
Interest income - taxable equivalent | | $ | 24,578 | | $ | 24,151 | | $ | 26,246 | | $ | 26,699 | | $ | 26,624 |
| $ | 74,976 | | $ | 79,607 | | | $ | 25,775 | | $ | 25,288 | | $ | 24,578 | | $ | 24,151 | | $ | 26,246 |
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Taxable equivalent net interest income reconciliation - continuing operations | | | | | | | | | | | | | | | |
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Taxable equivalent net interest income reconciliation | | | | | | | | | | | | | | | |
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Net interest income - GAAP | | $ | 21,718 | | $ | 21,631 | | $ | 20,980 | | $ | 20,567 | | $ | 19,984 |
| $ | 64,329 | | $ | 60,297 | | | $ | 23,345 | | $ | 22,644 | | $ | 21,718 | | $ | 21,631 | | $ | 20,980 |
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Taxable equivalent adjustment | |
| 345 | |
| 354 | |
| 223 | |
| 167 | |
| 104 |
|
| 923 | |
| 292 | | |
| 365 | |
| 345 | |
| 345 | |
| 354 | |
| 223 |
|
Net interest income - taxable equivalent - continuing operations | | $ | 22,063 | | $ | 21,985 | | $ | 21,203 | | $ | 20,734 | | $ | 20,088 |
| $ | 65,252 | | $ | 60,589 | | ||||||||||||||||
Net interest income - taxable equivalent | | $ | 23,710 | | $ | 22,989 | | $ | 22,063 | | $ | 21,985 | | $ | 21,203 |
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Loan yield excluding PPP loans reconciliation | | |
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Loan yield - GAAP | | | 3.82 | % | | 3.87 | % | | 4.77 | % | | 4.95 | % | | 5.18 | % | | 4.12 | % | | 5.37 | % | | | 3.89 | % | | 3.89 | % | | 3.82 | % | | 3.87 | % | | 4.77 | % |
Impact of PPP loans | | | 0.13 | | | 0.22 | | | — | | | — | | | — | | | 0.14 | | | — | | | | (0.06) | | | (0.03) | | | 0.13 | | | 0.22 | | | — | |
Loan yield excluding PPP loans | | | 3.95 | % | | 4.09 | % | | 4.77 | % | | 4.95 | % | | 5.18 | % | | 4.26 | % | | 5.37 | % | | | 3.83 | % | | 3.86 | % | | 3.95 | % | | 4.09 | % | | 4.77 | % |
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Taxable equivalent net interest margin reconciliation - continuing operations | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Net interest margin - GAAP - continuing operations | | | 3.09 | % | | 3.17 | % | | 3.38 | % | | 3.35 | % | | 3.51 | % | | 3.21 | % | | 3.64 | % | ||||||||||||||||
Impact of taxable equivalent adjustment | | | 0.05 | | | 0.06 | | | 0.03 | | | 0.03 | | | 0.01 | | | 0.04 | | | 0.02 | | ||||||||||||||||
Net interest margin - taxable equivalent - continuing operations | | | 3.14 | % | | 3.23 | % | | 3.41 | % | | 3.38 | % | | 3.52 | % | | 3.25 | % | | 3.66 | % | ||||||||||||||||
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Taxable equivalent net interest margin reconciliation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest margin - GAAP | | | 3.09 | % | | 3.17 | % | | 3.38 | % | | 3.35 | % | | 3.51 | % | | 3.21 | % | | 3.57 | % | | | 2.76 | % | | 2.86 | % | | 3.09 | % | | 3.17 | % | | 3.38 | % |
Impact of taxable equivalent adjustment | | | 0.05 | | | 0.06 | | | 0.03 | | | 0.03 | | | 0.01 | | | 0.04 | | | 0.02 | | | | 0.05 | | | 0.05 | | | 0.05 | | | 0.06 | | | 0.03 | |
Net interest margin - taxable equivalent | | | 3.14 | % | | 3.23 | % | | 3.41 | % | | 3.38 | % | | 3.52 | % | | 3.25 | % | | 3.59 | % | | | 2.81 | % | | 2.91 | % | | 3.14 | % | | 3.23 | % | | 3.41 | % |
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Taxable equivalent net interest margin excluding PPP loans reconciliation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest margin - GAAP | | | 3.09 | % | | 3.17 | % | | 3.38 | % | | 3.35 | % | | 3.51 | % | | 3.21 | % | | 3.57 | % | ||||||||||||||||
Net interest margin - taxable equivalent | | | 2.81 | % | | 2.91 | % | | 3.14 | % | | 3.23 | % | | 3.41 | % | ||||||||||||||||||||||
Impact of PPP loans | | | 0.09 | | | 0.18 | | | — | | | — | | | — | | | 0.10 | | | — | | | | (0.11) | | | (0.10) | | | 0.04 | | | 0.12 | | | — | |
Net interest margin - taxable equivalent excluding PPP loans | | | 3.18 | % | | 3.35 | % | | 3.38 | % | | 3.35 | % | | 3.51 | % | | 3.31 | % | | 3.57 | % | | | 2.70 | % | | 2.81 | % | | 3.18 | % | | 3.35 | % | | 3.41 | % |
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Taxable equivalent income before income taxes reconciliation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes - GAAP | | $ | 10,481 |
| $ | 2,207 |
| $ | 2,451 |
| $ | 9,077 | | $ | 9,663 | | $ | 15,139 | | $ | 26,692 | | | $ | 16,277 |
| $ | 12,015 |
| $ | 10,481 |
| $ | 2,207 | | $ | 2,451 | |
Taxable equivalent adjustment | |
| 345 | |
| 354 | |
| 223 | |
| 167 | |
| 104 | |
| 923 | |
| 292 | | |
| 365 | |
| 345 | |
| 345 | |
| 354 | |
| 223 | |
Income before income taxes | | $ | 10,826 |
| $ | 2,561 |
| $ | 2,674 |
| $ | 9,244 | | $ | 9,767 | | $ | 16,062 | | $ | 26,984 | | | $ | 16,642 |
| $ | 12,360 |
| $ | 10,826 |
| $ | 2,561 | | $ | 2,674 | |
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Taxable equivalent income tax expense reconciliation | | ��� | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income tax expense - GAAP | | $ | 1,863 | | $ | 358 | | $ | 327 | | $ | 1,937 | | $ | 2,094 | | $ | 2,548 | | $ | 5,674 | | | $ | 2,915 | | $ | 2,065 | | $ | 1,863 | | $ | 358 | | $ | 327 | |
Taxable equivalent adjustment | |
| 345 | |
| 354 | |
| 223 | |
| 167 | |
| 104 | |
| 923 | |
| 292 | | |
| 365 | |
| 345 | |
| 345 | |
| 354 | |
| 223 | |
Income tax expense | | $ | 2,208 | | $ | 712 | | $ | 550 | | $ | 2,104 | | $ | 2,198 | | $ | 3,471 | | $ | 5,966 | | | $ | 3,280 | | $ | 2,410 | | $ | 2,208 | | $ | 712 | | $ | 550 | |
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Tangible book value per common share reconciliation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total shareholders' equity | | $ | 340,309 | | $ | 335,980 | | $ | 332,300 | | $ | 326,495 | | $ | 328,711 | | $ | 340,309 | | $ | 328,711 | | | $ | 340,328 | | $ | 338,586 | | $ | 340,309 | | $ | 335,980 | | $ | 332,300 | |
Intangible assets | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
Total tangible common equity | | $ | 320,384 | | $ | 316,055 | | $ | 312,375 | | $ | 306,570 | | $ | 308,786 | | $ | 320,384 | | $ | 308,786 | | | $ | 320,403 | | $ | 318,661 | | $ | 320,384 | | $ | 316,055 | | $ | 312,375 | |
Common shares outstanding | | | 21,202,783 | | | 21,477,631 | | | 21,479,986 | | | 21,751,026 | | | 22,193,761 | | | 21,202,783 | | | 22,193,761 | | | | 20,354,077 | | | 20,394,912 | | | 21,202,783 | | | 21,477,631 | | | 21,479,986 | |
Book value per common share - GAAP | | $ | 16.05 | | $ | 15.64 | | $ | 15.47 | | $ | 15.01 | | $ | 14.81 | | $ | 16.05 | | $ | 14.81 | | | $ | 16.72 | | $ | 16.60 | | $ | 16.05 | | $ | 15.64 | | $ | 15.47 | |
Tangible book value | | | 15.11 | | | 14.72 | | | 14.54 | | | 14.09 | | | 13.91 | | | 15.11 | | | 13.91 | | | | 15.74 | | | 15.62 | | | 15.11 | | | 14.72 | | | 14.54 | |
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|
Tangible common equity to tangible assets reconciliation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total shareholders' equity | | $ | 340,309 | | $ | 335,980 | | $ | 332,300 | | $ | 326,495 | | $ | 328,711 | | $ | 340,309 | | $ | 328,711 | | | $ | 340,328 | | $ | 338,586 | | $ | 340,309 | | $ | 335,980 | | $ | 332,300 | |
Intangible assets | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
Total tangible common equity | | $ | 320,384 | | $ | 316,055 | | $ | 312,375 | | $ | 306,570 | | $ | 308,786 | | $ | 320,384 | | $ | 308,786 | | | $ | 320,403 | | $ | 318,661 | | $ | 320,384 | | $ | 316,055 | | $ | 312,375 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
|
Total assets | | $ | 2,923,977 | | $ | 2,890,622 | | $ | 2,719,658 | | $ | 2,910,379 | | $ | 2,410,198 | | $ | 2,923,977 | | $ | 2,410,198 | | | $ | 3,732,668 | | $ | 3,615,617 | | $ | 2,923,977 | | $ | 2,890,622 | | $ | 2,719,658 | |
Intangible assets | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
| (19,925) | |
Total tangible assets | | $ | 2,904,052 | | $ | 2,870,697 | | $ | 2,699,733 | | $ | 2,890,454 | | $ | 2,390,273 | | $ | 2,904,052 | | $ | 2,390,273 | | | $ | 3,712,743 | | $ | 3,595,692 | | $ | 2,904,052 | | $ | 2,870,697 | | $ | 2,699,733 | |
Tangible common equity to tangible assets | | | 11.03 | % | | 11.01 | % | | 11.57 | % | | 10.61 | % | | 12.92 | % | | 11.03 | % | | 12.92 | % | | | 8.63 | % | | 8.86 | % | | 11.03 | % | | 11.01 | % | | 11.57 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
|
Allowance for loan losses to loans held for investment reconciliation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans held for investment | | $ | 2,188,035 | | $ | 2,184,694 | | $ | 1,932,909 | | $ | 1,873,524 | | $ | 1,835,673 | | $ | 2,188,035 | | $ | 1,835,673 | | | $ | 2,300,814 | | $ | 2,249,036 | | $ | 2,188,035 | | $ | 2,184,694 | | $ | 1,932,909 | |
PPP loans | | | (231,834) | | | (234,049) | | | — | | | — | | | — | | | (231,834) | | | — | | | | (218,766) | | | (192,160) | | | (231,834) | | | (234,049) | | | — | |
Total loans held for investment excluding PPP loans | | $ | 1,956,201 | | $ | 1,950,645 | | $ | 1,932,909 | | $ | 1,873,524 | | $ | 1,835,673 | | $ | 1,956,201 | | $ | 1,835,673 | | | $ | 2,082,048 | | $ | 2,056,876 | | $ | 1,956,201 | | $ | 1,950,645 | | $ | 1,932,909 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
|
Allowance for credit losses to loans held for investment | | | 1.59 | % | | 1.61 | % | | 1.43 | % | | 1.04 | % | | 1.03 | % | | 1.59 | % | | 1.03 | % | | | 1.31 | % | | 1.55 | % | | 1.59 | % | | 1.61 | % | | 1.43 | % |
Allowance for credit losses to loans held for investment excluding PPP loans | | | 1.78 | % | | 1.80 | % | | 1.43 | % | | 1.04 | % | | 1.03 | % | | 1.78 | % | | 1.03 | % | | | 1.45 | % | | 1.70 | % | | 1.78 | % | | 1.80 | % | | 1.43 | % |
4940
RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
Third Quarter 2020 compared to Third Quarter 2019
Taxable equivalent net interest income for the thirdfirst quarter of 20202021 totaled $22.1$23.7 million, a $2.0$2.5 million, or 10%12%, increase compared to the thirdfirst quarter of 2019.2020. This increase was primarily driven by a decline in interest expense of $4.0$3.0 million, or 62%59%, compared to the same period in 2019,2020, partially offset by a decrease in loan interest income of $2.5 million,$471,000, or 11%2%, compared to the same period in 2019.2020. The yield on loans decreased by 13688 basis points to 3.82%3.89% from the thirdfirst quarter of 2019.2020. The yield on loans excluding PPP loans for the three months ended September 30, 2020March 31, 2021 was 3.95%3.83%.
The change in interest expense was primarily due to a decrease in expense on NOW, money market and savings deposits of $3.6$2.9 million, or 78%, and a decrease in total borrowingsbrokered deposits interest expense of $470,000,$300,000, or 96%83%. These decreases were offset by an increase of $521,000,$265,000, or 63%32%, in interest expense on long-term debt, due to the issuance of $75 million in subordinated debt in August 2020. The existing $50 million of subordinated debt was not redeemed until September 30, 2020. The rate paid on interest bearing liabilities decreased 12287 basis points from the thirdfirst quarter of 20192020 to the thirdfirst quarter of 2020,2021, driven by a decrease in interest rates on deposits and other borrowings resulting from decreases in the federal funds rate during 2019 and 2020.
Taxable equivalent net interest margin decreased to 3.14%2.81% for the three months ended September 30, 2020March 31, 2021 compared to 3.52%3.41% for the three months ended September 30, 2019March 31, 2020 due to additional interest expense resulting from the $75 million subordinated debt issuance in August 2020 along with a decreasedecline in loan yields partially offset by a decrease in thelower cost of interest bearing deposits. Taxable equivalentThe large increase in deposits and corresponding increase in low-yielding cash balances also contributed to the lower net interest margin excluding PPP loans for the three months ended September 30, 2020 was 3.18%.
Nine Months of 2020 compared to Nine Months of 2019
Taxable equivalent net interest income from continuing operations for the nine months ended September 30, 2020 totaled $65.3 million, a $4.7 million, or 8%, increase compared to the same period in 2019. This increase was primarily driven by a decrease of $9.3 million, or 49%, in interest expense from continuing operations compared to the same period in 2019, partially offset by a decrease of $4.6 million, or 6%, in taxable equivalent interest income from continuing operations. The change in taxable equivalent interest income from continuing operations primarily resulted from a $5.9 million, or 8%, decrease in interest income on loans, resulting from decreases in the federal funds rate, partially offset by an increase in average loan balances. The yield on loans from continuing operations decreased by 125 basis points to 4.12% for the nine months ended September 30, 2020 compared to the same period in 2019. However, the increase in average loan balances helped to mitigate the declines in yield. The yield on loans from continuing operations excluding PPP loans for the nine months ended September 30, 2020 was 4.26%.
Interest expense from continuing operations for the nine months ended September 30, 2020 totaled $9.3 million, a $9.3 million, or 49%, decrease from the same period of 2019, primarily due to an $8.9 million, or 57%, decrease in interest paid on deposits. The rate paid on interest bearing liabilities from continuing operations decreased 109 basis points from the first nine months of 2019 to the same period of 2020, driven by a decrease in interest rates on deposits and other borrowings.
Taxable equivalent net interest margin from continuing operations for the nine months ended September 30, 2020 decreased to 3.25% compared to 3.66% for the nine months ended September 30, 2019. The primary reason for the decrease in taxable equivalent net interest margin from continuing operations for the nine month period was lower interest rates on loans resulting from federal funds rate decreases during 2019 and 2020.
The following table presents information regarding average balances for assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated areyear over year.
5041
derived by dividing the income or expense by the average balances for assets or liabilities, respectively, for the periods presented. Loan fees are included in interest income on loans.
Table 2 - Average Balance Sheets and Net Interest Analysis
(dollars in thousands; taxable equivalent)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | Three months ended September 30, | | | Three months ended March 31, | | ||||||||||||||||||||||||||||||
| | 2020 | | 2019 | | | 2021 | | 2020 | | ||||||||||||||||||||||||||
| | | | | Interest | | Tax | | | | | Interest | | Tax | | | | | | Interest | | Tax | | | | | Interest | | Tax | | ||||||
| | Average | | Income/ | | Equivalent | | Average | | Income/ | | Equivalent | | | Average | | Income/ | | Equivalent | | Average | | Income/ | | Equivalent | | ||||||||||
|
| Balance |
| Expense |
| Yield/Rate |
| | Balance |
| Expense |
| Yield/Rate | |
| Balance |
| Expense |
| Yield/Rate |
| | Balance |
| Expense |
| Yield/Rate | | ||||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Interest bearing deposits in other banks | | $ | 136,459 | | $ | 65 | | 0.19 | % | | $ | 103,954 | | $ | 564 | | 2.15 | % | | $ | 561,809 | | $ | 168 | | 0.12 | % | | $ | 177,063 | | $ | 668 | | 1.52 | % |
Other short-term investments | | | — | | | — | | — | | | 110 | | | — | | — | | |||||||||||||||||||
Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Taxable investment securities | | | 237,655 | | | 1,467 | | 2.46 | | | 257,005 | | | 1,657 | | 2.56 | | | | 356,250 | | | 1,898 | | 2.16 | | | 253,937 | | | 1,680 | | 2.66 | | ||
Non-taxable investment securities(1) | | | 215,727 | | | 1,788 | | 3.30 | | | 83,867 | | | 623 | | 2.95 | | | | 223,297 | | | 1,841 | | 3.34 | | | 164,034 | | | 1,275 | | 3.13 | | ||
Total investment securities | | | 453,382 | | | 3,255 | | 2.86 | | | 340,872 | | | 2,280 | | 2.65 | | | | 579,547 | | | 3,739 | | 2.62 | | | 417,971 | | | 2,955 | | 2.84 | | ||
Loans | | | 2,191,669 | | | 21,049 | | 3.82 | | | 1,801,629 | | | 23,541 | | 5.18 | | | | 2,270,660 | | | 21,769 | | 3.89 | | | 1,890,184 | | | 22,426 | | 4.77 | | ||
FHLB and FRB stock | | | 14,484 | | | 209 | | 5.74 | | | 15,524 | | | 239 | | 6.11 | | | | 12,701 | | | 99 | | 3.14 | | | 12,678 | | | 197 | | 6.25 | | ||
Total interest-earning assets | | | 2,795,994 | | | 24,578 | | 3.50 | | | 2,261,979 | | | 26,624 | | 4.67 | | | | 3,424,717 | | | 25,775 | | 3.05 | | | 2,498,006 | | | 26,246 | | 4.23 | | ||
Non-earning assets | | | 181,450 | | | | | | | | 191,459 | | | | | | | | | 186,700 | | | | | | | | 188,260 | | | | | | | ||
Total assets | | $ | 2,977,444 | | | | | | | $ | 2,453,438 | | | | | | | | $ | 3,611,417 | | | | | | | $ | 2,686,266 | | | | | | | ||
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Interest bearing deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
NOW, money market, and savings | | | 1,383,382 | | | 1,006 | | 0.29 | | | 1,191,293 | | | 4,642 | | 1.55 | | | | 1,662,097 | | | 834 | | 0.20 | | | 1,393,541 | | | 3,767 | | 1.09 | | ||
Time deposits | | | 166,019 | | | 86 | | 0.21 | | | 32,409 | | | 51 | | 0.62 | | | | 273,615 | | | 74 | | 0.11 | | | 55,775 | | | 52 | | 0.37 | | ||
Brokered deposits | | | 68,102 | | | 59 | | 0.34 | | | 88,146 | | | 530 | | 2.39 | | | | 84,663 | | | 63 | | 0.30 | | | 92,188 | | | 363 | | 1.58 | | ||
Total interest-bearing deposits | | | 1,617,503 | | | 1,151 | | 0.28 | | | 1,311,848 | | | 5,223 | | 1.58 | | | | 2,020,375 | | | 971 | | 0.19 | | | 1,541,504 | | | 4,182 | | 1.09 | | ||
Total borrowings | | | 40,793 | | | 19 | | 0.19 | | | 85,478 | | | 489 | | 2.27 | | | | — | | | — | | — | | | 11,703 | | | 32 | | 1.10 | | ||
Total long-term debt | | | 82,708 | | | 1,345 | | 6.47 | | | 49,803 | | | 824 | | 6.56 | | | | 73,830 | | | 1,094 | | 6.01 | | | 49,888 | | | 829 | | 6.68 | | ||
Total interest-bearing liabilities | | | 1,741,004 | | | 2,515 | | 0.57 | | | 1,447,129 | | | 6,536 | | 1.79 | | | | 2,094,205 | | | 2,065 | | 0.40 | | | 1,603,095 | | | 5,043 | | 1.27 | | ||
Demand deposits | | | 854,715 | | | | | | | | 637,809 | | | | | | | | | 1,136,531 | | | | | | | | 713,001 | | | | | | | ||
Other liabilities | | | 40,708 | | | | | | | | 36,209 | | | | | | | | | 41,691 | | | | | | | | 36,690 | | | | | | | ||
Shareholders' equity | | | 341,017 | | | | | | | | 332,291 | | | | | | | | | 338,990 | | | | | | | | 333,480 | | | | | | | ||
Total liabilities and shareholders' equity | | $ | 2,977,444 | | | | | | | $ | 2,453,438 | | | | | | | | $ | 3,611,417 | | | | | | | $ | 2,686,266 | | | | | | | ||
Net interest spread | | | | | | | | 2.92 | % | | | | | | | | 2.88 | % | | | | | | | | 2.65 | % | | | | | | | | 2.96 | % |
Net interest income and net interest margin(2) | | | | | $ | 22,063 | | 3.14 | % | | | | | $ | 20,088 | | 3.52 | % | | | | | $ | 23,710 | | 2.81 | % | | | | | $ | 21,203 | | 3.41 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Non-taxable equivalent net interest margin | | | | | | | | 3.09 | % | | | | | | | | 3.51 | % | | | | | | | | 2.76 | % | | | | | | | | 3.38 | % |
(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. |
51
Table 2 - Average Balance Sheets and Net Interest Analysis (continued)
(dollars in thousands; taxable equivalent)
| | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, | | |||||||||||||||
| | 2020 | | | 2019 | | ||||||||||||
| | | | | Interest | | Tax | | | | | | Interest | | Tax | | ||
| | Average | | Income/ | | Equivalent | | | Average | | Income/ | | Equivalent | | ||||
|
| Balance |
| Expense |
| Yield/Rate |
| | Balance |
| Expense |
| Yield/Rate |
| ||||
Assets | | | | | | | | | | | | | | | | | | |
Interest bearing deposits in other banks | | $ | 147,795 | | $ | 756 | | 0.68 | % | | $ | 88,960 | | $ | 1,476 | | 2.22 | % |
Other short-term investments | | | 36 | | | — | | — | | | | 5,181 | | | 118 | | 3.05 | |
Investment securities: | | | | | | | | | | | | | | | | | | |
Taxable investment securities | | | 246,388 | | | 4,729 | | 2.56 | | | | 284,978 | | | 5,619 | | 2.64 | |
Non-taxable investment securities(1) | | | 198,378 | | | 4,877 | | 3.28 | | | | 81,812 | | | 1,819 | | 2.97 | |
Total investment securities | | | 444,766 | | | 9,606 | | 2.88 | | | | 366,790 | | | 7,438 | | 2.71 | |
Loans - continuing operations | | | 2,071,673 | | | 63,971 | | 4.12 | | | | 1,739,917 | | | 69,847 | | 5.37 | |
FHLB and FRB stock | | | 14,667 | | | 643 | | 5.86 | | | | 14,173 | | | 727 | | 6.86 | |
Total interest-earning assets - continuing operations | | | 2,678,937 | | | 74,976 | | 3.74 | | | | 2,215,021 | | | 79,606 | | 4.81 | |
Loans held for sale - discontinued operations | | | — | | | — | | — | | | | 156,060 | | | 4,588 | | 3.93 | |
Total interest-earning assets | | | 2,678,937 | | | 74,976 | | 3.74 | | | | 2,371,081 | | | 84,194 | | 4.75 | |
Non-earning assets | | | 186,947 | | | | | | | | | 201,880 | | | | | | |
Total assets | | $ | 2,865,884 | | | | | | | | $ | 2,572,961 | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Interest bearing deposits: | | | | | | | | | | | | | | | | | | |
NOW, money market, and savings | | | 1,397,280 | | | 5,889 | | 0.56 | | | | 1,147,508 | | | 13,630 | | 1.59 | |
Time deposits | | | 106,271 | | | 196 | | 0.25 | | | | 18,246 | | | 139 | | 1.02 | |
Brokered deposits | | | 81,125 | | | 547 | | 0.90 | | | | 91,963 | | | 1,733 | | 2.52 | |
Total interest-bearing deposits | | | 1,584,676 | | | 6,632 | | 0.56 | | | | 1,257,717 | | | 15,502 | | 1.65 | |
Total borrowings | | | 50,055 | | | 95 | | 0.25 | | | | 57,844 | | | 1,045 | | 2.42 | |
Total long-term debt | | | 60,922 | | | 2,997 | | 6.57 | | | | 49,761 | | | 2,471 | | 6.64 | |
Total interest-bearing liabilities - continuing operations | | | 1,695,653 | | | 9,724 | | 0.77 | | | | 1,365,322 | | | 19,018 | | 1.86 | |
Interest-bearing liabilities - discontinued operations | | | — | | | — | | — | | | | 192,613 | | | 1,502 | | 1.04 | |
Total interest-bearing liabilities | | | 1,695,653 | | | 9,724 | | 0.77 | | | | 1,557,935 | | | 20,520 | | 1.76 | |
Demand deposits | | | 794,559 | | | | | | | | | 593,957 | | | | | | |
Demand deposits - discontinued operations | | | — | | | | | | | | | 52,481 | | | | | | |
Other liabilities | | | 38,151 | | | | | | | | | 37,472 | | | | | | |
Shareholders' equity | | | 337,521 | | | | | | | | | 331,116 | | | | | | |
Total liabilities and shareholders' equity | | $ | 2,865,884 | | | | | | | | $ | 2,572,961 | | | | | | |
Net interest spread - continuing operations | | | | | | | | 2.97 | % | | | | | | | | 2.95 | % |
Net interest income and net interest margin - continuing operations(2) | | | | | $ | 65,252 | | 3.25 | % | | | | | $ | 60,588 | | 3.66 | % |
Net interest income and net interest margin(2) | | | | | $ | 65,252 | | 3.25 | % | | | | | $ | 63,674 | | 3.59 | % |
| | | | | | | | | | | | | | | | | | |
Non-taxable equivalent net interest margin | | | | | | | | 3.21 | % | | | | | | | | 3.57 | % |
52
The following table shows the relative effect on taxable equivalent net interest income for changes in the average outstanding amounts (volume) of interest-earning assets and interest-bearing liabilities and the rates earned and paid on such assets and liabilities (rate). Variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category.
42
Table 3 - Changes in Taxable Equivalent Net Interest Income
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |||||||||||||||||||||
| | Three months ended September 30, 2020 | | Nine months ended September 30, 2020 | | Three Months Ended March 31, 2021 | |||||||||||||||||||||
| | Compared to 2019 | | Compared to 2019 | | Compared to 2020 | |||||||||||||||||||||
| | Increase (decrease) Due to Changes in: | | Increase (decrease) Due to Changes in: | | Increase (Decrease) Due to Changes in: | |||||||||||||||||||||
| | | | | | Total | | | | | | Total | | | | | | Total | |||||||||
| | Volume |
| Yield/Rate |
| Change | | Volume |
| Yield/Rate |
| Change | | Volume |
| Yield/Rate |
| Change | |||||||||
Interest earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing deposits in other banks | | $ | 15 | | $ | (514) | | $ | (499) | | $ | 301 | | $ | (1,021) | | $ | (720) | | $ | 115 | | $ | (615) | | $ | (500) |
Other short-term investments | |
| — | |
| — | |
| — | |
| — | |
| (118) | |
| (118) | |||||||||
Investment securities: | |
|
| |
|
| |
| | |
| �� | |
|
| |
| | |
|
| |
|
| |
| |
Taxable investment securities | |
| (119) | |
| (71) | |
| (190) | |
| (741) | |
| (149) | |
| (890) | |
| 545 | |
| (327) | |
| 218 |
Non-taxable investment securities(1) | |
| 1,093 | |
| 72 | |
| 1,165 | |
| 2,866 | |
| 192 | |
| 3,058 | |
| 489 | |
| 77 | |
| 566 |
Total investment securities | |
| 974 | |
| 1 | |
| 975 | |
| 2,125 | |
| 43 | |
| 2,168 | |
| 1,034 | |
| (250) | |
| 784 |
Loans - continuing operations | |
| 3,746 | |
| (6,238) | |
| (2,492) | |
| 10,244 | |
| (16,120) | |
| (5,876) | |||||||||
Loans | |
| 3,648 | |
| (4,305) | |
| (657) | ||||||||||||||||||
FHLB and FRB stock | |
| (15) | |
| (15) | |
| (30) | |
| 22 | |
| (106) | |
| (84) | |
| — | |
| (98) | |
| (98) |
Total interest-earning assets - continuing operations | |
| 4,720 | |
| (6,766) | |
| (2,046) | |
| 12,692 | |
| (17,322) | |
| (4,630) | |||||||||
Loans held for sale - discontinued operations | |
| — | |
| — | |
| — | |
| — | |
| (4,588) | |
| (4,588) | |||||||||
Total interest-earning assets | |
| 4,720 | |
| (6,766) | |
| (2,046) | |
| 12,692 | |
| (21,910) | |
| (9,218) | |
| 4,797 | |
| (5,268) | |
| (471) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing liabilities | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest bearing deposits: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
NOW, money market, and savings | |
| 140 | |
| (3,776) | |
| (3,636) | |
| 1,053 | |
| (8,794) | |
| (7,741) | |
| 135 | |
| (3,068) | |
| (2,933) |
Time deposits | |
| 69 | |
| (34) | |
| 35 | |
| 162 | |
| (105) | |
| 57 | |
| 59 | |
| (37) | |
| 22 |
Brokered deposits | |
| (17) | |
| (454) | |
| (471) | |
| (73) | |
| (1,113) | |
| (1,186) | |
| (6) | |
| (294) | |
| (300) |
Total interest-bearing deposits | |
| 192 | |
| (4,264) | |
| (4,072) | |
| 1,142 | |
| (10,012) | |
| (8,870) | |
| 188 | |
| (3,399) | |
| (3,211) |
Total borrowings | |
| (21) | |
| (449) | |
| (470) | |
| (15) | |
| (935) | |
| (950) | |
| — | |
| (32) | |
| (32) |
Total long-term debt | |
| 535 | |
| (14) | |
| 521 | |
| 549 | |
| (23) | |
| 526 | |
| 355 | |
| (90) | |
| 265 |
Total interest-bearing liabilities - continuing operations | |
| 706 | |
| (4,727) | |
| (4,021) | |
| 1,676 | |
| (10,970) | |
| (9,294) | |||||||||
Interest-bearing liabilities - discontinued operations | |
| — | |
| — | |
| — | |
| — | |
| (1,502) | |
| (1,502) | |||||||||
Total interest-bearing liabilities | |
| 706 | |
| (4,727) | |
| (4,021) | |
| 1,676 | |
| (12,472) | |
| (10,796) | |
| 543 | |
| (3,521) | |
| (2,978) |
Change in net interest income - continuing operations | | $ | 4,014 | | $ | (2,039) | | $ | 1,975 | | $ | 11,016 | | $ | (6,352) | | $ | 4,664 | |||||||||
Change in net interest income | | $ | 4,014 | | $ | (2,039) | | $ | 1,975 | | $ | 11,016 | | $ | (9,438) | | $ | 1,578 | | $ | 4,254 | | $ | (1,747) | | $ | 2,507 |
(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. |
Provision for Credit Losses
Management considers a number of factors in determining the required level of the allowance for credit losses and the provision required to achieve what is believed to be appropriate reserve level, including historical loss experience, loan
53
growth, credit risk rating trends, nonperforming loan levels, delinquencies, loan portfolio concentrations, economic forecasts and market trends. The provision for credit losses represents management’s determination of the amount necessary to be charged against the current period’s earnings to maintain the allowance for credit losses at a level that is considered adequate in relation to the estimated lifetime losses expected in the loan portfolio.
For the three months ended September 30, 2020, theMarch 31, 2021, we recorded negative provision for credit losses from continuing operations was $28,000,totaling $4.5 million, a decrease of $385,000$12.6 million compared to the three months ended September 30, 2019. For the nine months ended September 30, 2020, the provision for credit losses from continuing operations was $17.0 million, an increase of $15.0 million compared to the nine months ended September 30, 2019.March 31, 2020. The provision for credit losses in the first ninethree months of 20202021 included a $16.3 millionnegative provision for loan losses of $4.1 million and a $704,000negative provision for unfunded commitments.commitments of $445,000. The provision increaseddecreased primarily as a response to the expected impact from the economic slowdown from COVID-19. Due to the adoptionbecause of ASC 326 on January 1, 2020, management now incorporates reasonable and supportable forecasts into its calculation of expected credit losses. An example of this forecasting element includes changes in unemployment rates used by managementan improvement in the CECL forecasts, which could result in changes to the allowanceeconomic forecast along with credit rating upgrades for credit losses.criticized and classified loans.
At September 30, 2020,March 31, 2021, nonperforming loans totaled $5.4$2.1 million compared to $7.3$4.9 million at December 31, 2019.2020. Net loan charge-offs for the three months ended March 31, 2021 were 0.06% and 0.13%, respectively,0.04% of average loans (annualized) for, unchanged from the three and nine months ended September 30, 2020 compared to 0.11% and 0.12%, respectively, for the three and nine months ended September 30, 2019.March 31, 2020. The allowance for credit losses to total loans at September 30, 2020March 31, 2021 was 1.59%1.31%, compared to 1.04%1.55% at December 31, 2019.2020.
43
Noninterest Income
Noninterest income from continuing operations for the three and nine months ended September 30, 2020March 31, 2021 was $2.5 million and $7.3$3.6 million compared to $2.8 million and $8.0$2.4 million for the comparable period of the prior year;year, representing a decreasean increase of $265,000,$1.1 million, or 10%, for the three month period and a decrease of $777,000, or 10%, for the nine month period.47%. The following table presents the components of noninterest income.
Table 4 - Noninterest Income
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | | Nine Months Ended | | | | | | | Three Months Ended | | | | | | ||||||||||||||||||
| | September 30, | | Change | | | September 30, | | Change | | | March 31, | | Change | | ||||||||||||||||||||||||
|
| 2020 |
| 2019 |
|
| $ | | | % | |
| 2020 |
| 2019 |
| $ |
| % | |
| 2021 |
| 2020 |
| $ |
| % | | ||||||||||
Service charges | | $ | 1,217 | | $ | 925 | | $ | 292 | | | 32 | % | | $ | 3,530 | | $ | 2,589 | | $ | 941 | | | 36 | % | | $ | 1,663 | | $ | 1,232 | | $ | 431 | | | 35 | % |
Gain (loss) on sales of securities | |
| — | |
| 253 | |
| (253) | |
| — | | |
| — | |
| 907 | |
| (907) | | | (100) | | |||||||||||||
Gain (loss) on sales of other assets | |
| (145) | |
| 140 | |
| (285) | |
| (204) | | |
| (140) | |
| 127 | |
| (267) | | | (210) | | |||||||||||||
Derivatives income (loss) | |
| 10 | |
| (293) | |
| 303 | |
| (103) | | |
| 246 | |
| (637) | |
| 883 | | | (139) | | |||||||||||||
Gain on sales of securities | |
| 2 | |
| — | |
| 2 | | | — | | ||||||||||||||||||||||||||
Gain on sales of other assets | |
| — | |
| 5 | |
| (5) | | | (100) | | ||||||||||||||||||||||||||
Derivatives income | |
| 47 | |
| 246 | |
| (199) | | | (81) | | ||||||||||||||||||||||||||
Bank owned life insurance | |
| 363 | |
| 422 | |
| (59) | |
| (14) | | |
| 1,092 | |
| 1,171 | |
| (79) | | | (7) | | |
| 391 | |
| 362 | |
| 29 | | | 8 | |
SBA lending activities | |
| 893 | |
| 1,150 | |
| (257) | |
| (22) | | |
| 2,089 | |
| 3,332 | |
| (1,243) | | | (37) | | |
| 1,225 | |
| 414 | |
| 811 | | | 196 | |
Other noninterest income | |
| 166 | |
| 172 | |
| (6) | |
| (4) | | |
| 452 | |
| 557 | |
| (105) | | | (19) | | |
| 234 | |
| 163 | |
| 71 | | | 44 | |
Total noninterest income - continuing operations | |
| 2,504 | |
| 2,769 | |
| (265) | |
| (10) | | |
| 7,269 | |
| 8,046 | |
| (777) | | | (10) | | |||||||||||||
Noninterest income - discontinued operations | |
| — | |
| — | |
| — | |
| — | | |
| — | |
| 35,289 | |
| (35,289) | | | (100) | | |||||||||||||
Noninterest income | | $ | 2,504 | | $ | 2,769 | | $ | (265) | | | (10) | % | | $ | 7,269 | | $ | 43,335 | | $ | (36,066) | | | (83) | % | |||||||||||||
Total noninterest income | | $ | 3,562 | | $ | 2,422 | | $ | 1,140 | | | 47 | |
Service charges for the three months ended September 30, 2020March 31, 2021 totaled $1.2$1.7 million, an increase of $292,000,$431,000, or 32%35%, from the same period in 2019. For the nine months ended September 30, 2020, service charges from continuing operations totaled $3.5 million, an increase of $941,000, or 36%, from the first nine months of 2019.2020. The increase for the thirdfirst quarter and first nine months of 20202021 compared to the same periodsperiod in 20192020 was primarily due to continued growth in our payments, processing business,fintech and private capital solutions businesses, resulting in higher fee income.
Derivatives income (loss) for the thirdfirst quarter of 20202021 was a gain of $10,000$47,000 compared to a lossgain of $293,000$246,000 for the same period in 2019.2020. The increasedecrease in income was primarily due to changes in the derivatives credit valuation adjustment. For
Income from SBA lending activities for the nine months ended September 30, 2020, derivatives incomefirst quarter of 2021 increased $883,000$811,000, or 196%, from the same period in 2019 primarily2020, due to the changehigher SBA origination volume and higher SBA premiums in the credit valuation adjustment.secondary market. During the three months ended March 31, 2021 and 2020, guaranteed portions of SBA loans totaling $11.7 million and $5.8 million, respectively, were sold in the secondary market.
5444
Income from SBA lending activities for the third quarter of 2020 decreased $257,000, or 22%, from the same period in 2019, due to lower SBA origination volume and a decrease in loan premiums. During the three months ended September 30, 2020 and 2019, guaranteed portions of SBA loans totaling $10.0 million and $17.0 million, respectively, were sold in the secondary market. Income from SBA lending activities for the first nine months of 2020 decreased $1.2 million, or 37%, from the same period in 2019, due to lower premiums paid. During the nine months ended September 30, 2020 and 2019, guaranteed portions of SBA loans totaling $26.5 million and $49.7 million, respectively, were sold in the secondary market.
Gain (loss) on sales of securities for the first nine months of 2020 decreased $907,000 compared to the same period in 2019 as a result of the balance sheet realignment due to the April 5, 2019 Branch Sale to FirstBank.
Gain (loss) on sales of other assets for the three months ended September 30, 2020 was a loss of $145,000 compared to a gain of $140,000 for the same period in 2019. For the first nine months of 2020, gain (loss) on sales of other assets was a loss of $140,000 compared to a gain of $127,000 for the first nine months of 2019. The loss recorded for the three and nine month periods of 2020 were primarily the result of the sale of OREO properties.
Noninterest income from discontinued operations decreased $35.3 million for the nine months ended September 30, 2020, respectively, compared to the same periods in 2019 due to a $34.5 million gain in connection with the Branch Sale.
Noninterest Expense
Noninterest expense for the thirdfirst quarter of 20202021 was $13.7$15.1 million, an increase of $1.0$2.3 million, or 8%18%, from the thirdfirst quarter of 2019. For the nine months ended September 30, 2020, noninterest expense from continuing operations totaled $39.5 million, a decrease of $232,000, or 1%, from the same period in 2019.2020. The following table presents the components of noninterest expense.
Table 5 - Noninterest Expense
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change | | | Three Months Ended March 31, | | Change | | |||||||||||||||||||||||||
|
| 2020 |
| 2019 |
| $ |
| % |
| 2020 |
| 2019 |
| $ |
| % | |
| 2021 |
| 2020 |
| $ |
| % | | |||||||||||||
Salaries and employee benefits | | $ | 8,850 | | $ | 8,295 | | $ | 555 | | | 7 | % | | $ | 25,792 | | $ | 26,037 | | $ | (245) | | | (1) | % | | $ | 10,421 | | $ | 8,476 | | $ | 1,945 | | | 23 | % |
Occupancy | |
| 739 | |
| 722 | |
| 17 | | | 2 | |
| 2,416 | |
| 2,050 | |
| 366 | | | 18 | | |
| 734 | |
| 794 | |
| (60) | | | (8) | | |
Equipment and software | |
| 826 | |
| 842 | |
| (16) | | | (2) | |
| 2,368 | |
| 2,334 | |
| 34 | | | 1 | | |
| 774 | |
| 779 | |
| (5) | | | (1) | | |
Professional services | |
| 562 | |
| 764 | |
| (202) | | | (26) | |
| 2,059 | |
| 2,331 | |
| (272) | | | (12) | | |
| 922 | |
| 705 | |
| 217 | | | 31 | | |
Communications and data processing | |
| 757 | |
| 796 | |
| (39) | | | (5) | |
| 2,324 | |
| 2,133 | |
| 191 | | | 9 | | |
| 792 | |
| 897 | |
| (105) | | | (12) | | |
Marketing and business development | |
| 141 | |
| 243 | |
| (102) | | | (42) | |
| 373 | |
| 702 | |
| (329) | | | (47) | | |
| 108 | |
| 153 | |
| (45) | | | (30) | | |
Travel, meals and entertainment | |
| 39 | |
| 152 | |
| (113) | | | (74) | |
| 213 | |
| 504 | |
| (291) | | | (58) | | |
| 10 | |
| 140 | |
| (130) | | | (93) | | |
FDIC premiums | | | 213 | | | (193) | | | 406 | | | (210) | | | 388 | | | 217 | | | 171 | | | 79 | | | | 275 | | | — | | | 275 | | | — | | |
Other noninterest expense | |
| 1,586 | |
| 1,056 | |
| 530 | | | 50 | |
| 3,561 | |
| 3,418 | |
| 143 | | | 4 | | |
| 1,113 | |
| 933 | |
| 180 | | | 19 | | |
Total noninterest expense - continuing operations | |
| 13,713 | |
| 12,677 | |
| 1,036 | | | 8 | |
| 39,494 | |
| 39,726 | |
| (232) | | | (1) | | ||||||||||||||
Noninterest expense - discontinued operations | |
| — | |
| — | |
| — | | | — | |
| — | |
| 9,685 | |
| (9,685) | | | (100) | | ||||||||||||||
Noninterest expense | | $ | 13,713 | | $ | 12,677 | | $ | 1,036 | | | 8 | % | | $ | 39,494 | | $ | 49,411 | | $ | (9,917) | | | (20) | % | |||||||||||||
Total noninterest expense | | $ | 15,149 | | $ | 12,877 | | $ | 2,272 | | | 18 | |
Salaries and employee benefits expense for the three months ended September 30, 2020March 31, 2021 totaled $8.9$10.4 million, an increase of $555,000,$1.9 million, or 7%23%, from the same period in 2019.2020. The increase for the three months ended September 30, 2020March 31, 2021 was primarily attributable to higher short-term and long-term incentive accrualscosts along with the impact of new hires and a decrease inmerit increases, as well as contract labor expense for PPP round two loan production salary cost deferrals. For the first nine months of 2020, salaries and employee benefits totaled $25.8 million, a decrease of $245,000, or 1%, from the first nine months of 2019 as a result of decreases in SBA commissions.processing. Full time equivalent headcount totaled 201209 at September 30, 2020March 31, 2021 compared to 197206 at September 30, 2019,March 31, 2020, a net increase of 43 positions.
55
Occupancy costs from continuing operations were $2.4 million$734,000 for the ninethree months ended September 30, 2020, an increaseMarch 31, 2021, a decrease of $366,000,$60,000, or 18%8%, from the same period in 2019.2020. The increasedecrease for the three and nine months ended September 30, 2020March 31, 2021 was due to an increase in leasehold improvement depreciation associated withsavings from relocating our operations center partially offset by expenses related to expansion of our corporate locationheadquarters.
Professional services expense increased $217,000, or 31%, from the three months ended March 31, 2020 to $922,000 for the three months ended March 31, 2021. The increase was primarily driven by consulting expense for PPP round two loan processing and operations center.PPP round one loan forgiveness.
Communications and data processing expense totaled $757,000$792,000 for the three months ended September 30, 2020,March 31, 2021, a decrease of $39,000,$105,000, or 5%12%, compared to the same period in 2019. For the nine months ended September 30, 2020, communications and data processing expense totaled $2.3 million, an increase of $191,000, or 9%, from the same period in 2019.2020. The increase for the nine months ended September 30, 2020decrease was primarily due to increased volumes inan account purge and program implementation costs during the payments processing business.first quarter of the prior year.
Marketing and business development expense totaled $141,000 forFor the three months ended September 30, 2020, a decrease of $102,000,March 31, 2021, travel, meals and entertainment expense decreased $130,000, or 42%93%, compared to the same period in 2019. For the nine months ended September 30, 2020, marketing and business development expense totaled $373,000, a decrease of $329,000, or 47%, from the same period in 2019.2020. The decrease reflected our efforts to reduce expenses in the uncertain environment surrounding COVID-19.
For the three months ended September 30, 2020, travel, meals and entertainment expense decreased $113,000, or 74%, compared to the same period in 2019. For the nine months ended September 30, 2020, travel, meals and entertainment expense totaled $213,000, a decrease of $291,000, or 58%, from the same period in 2019. The decline for both periods was due to limitations from COVID-19 on non-essential business travel and an overall decrease in customer-related meals and entertainment expense.
FDIC premiums from continuing operations were $213,000increased $275,000 for the thirdfirst quarter of 2020, an increase of $406,0002021 compared to the thirdfirst quarter of 2019. For the nine months ended September 30, 2020, FDIC premiums were $388,000, an2020. The increase of $171,000, or 79%, from the first nine months of 2019. The increases for the three and nine months ended September 30, 2020 wereMarch 31, 2021 was due to small bank assessment credits issued in the thirdsecond quarter of 2019 that were fully utilized in the third quarter of 2020.
For the three months ended September 30, 2020, other noninterest expense increased $530,000, or 50%, from $1.1 million to $1.6 million primarily as a result of losses on customer accounts totaling $470,000 during the third quarter of 2020, of which $290,000 was recovered in October 2020. For the nine months ended September 30, 2020, other noninterest expense totaled $3.6 million, an increase of $143,000, or 4%, from the same period in 2019.
Income Taxes
We monitor and evaluate the potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities. Periodically, we evaluate our income tax positions based on current tax law and positions taken by various tax auditors within the jurisdictions where we are required to file income tax returns.
The income45
Income tax expense for the three and nine months ended September 30,March 31, 2021 and 2020 was $1.9$2.9 million and $2.5 million, respectively. Comparatively, for the three and nine months ended September 30, 2019, income tax expense from continuing operations was $2.1 million and $5.7 million,$327,000, respectively. The effective tax rate (as a percentage of pre-tax earnings) was 17.8% and 16.8%17.9% for the three and nine months ended September 30, 2020, respectively,March 31, 2021 compared to 21.7% and 21.3%, respectively,13.3% for the same periodsperiod in 2019.2020. The decreaseincrease in income tax expense in the current year was the result of lowerhigher forecasted pretax earnings in 2020, combined with a lower estimated effective tax rate. The lower estimated effective tax rate for 2020 was driven by an increase in non-taxable securities income from municipal bonds as well as a decrease in forecasted pretax earnings.2021.
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 CodificationASC 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
56
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 evidence with more weight given to evidence that can be objectively verified. Each quarter, management considers both positive and negative evidence and analyzes changes in near-term market conditions as well as other factors which may impact future operating results.
Based on all evidence considered, as of September 30,March 31, 2021 and 2020, and 2019, management concluded that it was more likely than not that the net deferred tax asset would be realized, except as outlined in the following discussion. At September 30,March 31, 2021 and 2020, and 2019, we recorded a deferred tax asset valuation allowance totaling $6.8 million 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 our remaining net operating loss carryforwards within the statutory carryforward periods.
FINANCIAL CONDITION
Total assets at September 30, 2020March 31, 2021 and December 31, 20192020 were $2.92$3.73 billion and $2.91$3.62 billion, respectively. Average total assets for the thirdfirst quarter of 20202021 were $2.98$3.61 billion, compared to $2.45$2.69 billion in the thirdfirst quarter of 2019.2020. The increase in average total assets was primarily due to increases in loan growth, which included $234the origination of 291 round two PPP loans totaling $73.0 million during the first quarter of 2021, partially offset by $47.0 million in SBA PPP loans fundedforgiven during the second quarter of 2020.three months ended March 31, 2021. In addition, consumer loans increased $117.2$27.1 million due to growth in a partnership with a fintech firm that offers CD-secured consumer loans to its customers.customers.
Loans
At September 30, 2020,March 31, 2021, total loans held for investment increased $314.5$51.8 million, or 17%2%, to $2.19$2.30 billion compared to $1.87$2.25 billion at December 31, 2019.2020. The increase was primarily due to an increase in commercial and industrialconsumer loans of $239.3$27.1 million, or 34%15%, resulting from the funding of $234 million of PPP loans during the second quarter of 2020 and growth in a partnership with a fintech firm that offers CD-secured loans to its customers. Also contributing to the increase from December 31, 2020 to March 31, 2021 was an increase of $25.7 million, or 5%, in non-owner occupied commercial real estate loans. Table 6 provides additional information regarding our loan portfolio.
46
Table 6 - Loans
(dollars in thousands)
| | | | | | | | | | | | |
| | | | | % of | | | | | | % of | |
| | | | | Total | | | | | | Total | |
|
| September 30, 2020 |
| Loans |
|
| December 31, 2019 |
| Loans | | ||
Loans held for sale | | | | | | | | | | | | |
Loans held for sale | | $ | 859 | | | | | $ | 370 | | | |
Total loans held for sale | | $ | 859 | | | | | $ | 370 | | | |
| | | | | | | | | | | | |
Loans held for investment | | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | |
Commercial and industrial |
| $ | 944,401 |
| 43 | % | | $ | 705,115 |
| 38 | % |
Commercial real estate: | | | | | | | | | | | | |
Owner occupied | |
| 364,170 | | 17 | | |
| 357,912 | | 19 | |
Non-owner occupied | |
| 516,615 | | 24 | | |
| 558,416 | | 30 | |
Construction and land | |
| 139,836 | | 6 | | |
| 127,540 | | 7 | |
Mortgage warehouse participations | |
| — | | — | | |
| 13,941 | | 1 | |
Total commercial loans | |
| 1,965,022 | | 90 | | |
| 1,762,924 | | 94 | |
| | | | | | | | | | | | |
Residential: | | | | | | | | | | | | |
Residential mortgages | |
| 29,460 | | 1 | | |
| 31,315 | | 2 | |
Home equity | |
| 24,528 | | 1 | | |
| 25,002 | | 1 | |
Total residential loans | |
| 53,988 | | 2 | | |
| 56,317 | | 3 | |
| | | | | | | | | | | | |
Consumer | |
| 154,916 | | 7 | | |
| 37,765 | | 2 | |
Other | |
| 22,777 | | 1 | | |
| 19,552 | | 1 | |
Total loans | |
| 2,196,703 | | | | |
| 1,876,558 | | | |
Less net deferred fees and other unearned income | |
| (8,668) | | | | |
| (3,034) | | | |
Total loans held for investment | |
| 2,188,035 | | | | |
| 1,873,524 | | | |
| | | | | | | | | | | | |
Total loans |
| $ | 2,188,894 |
| | | | $ | 1,873,894 |
| | |
| | | | | | | | | | | | |
| | | | | % of | | | | | | % of | |
| | | | | Total | | | | | | Total | |
|
| March 31, 2021 |
| Loans |
|
| December 31, 2020 |
| Loans | | ||
Loans held for sale | | | | | | | | | | | | |
Loans held for sale | | $ | 1,847 | | | | | $ | — | | | |
Total loans held for sale | | $ | 1,847 | | | | | $ | — | | | |
| | | | | | | | | | | | |
Loans held for investment | | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | |
Commercial and industrial |
| $ | 954,053 |
| 42 | % | | $ | 952,805 |
| 42 | % |
Commercial real estate: | | | | | | | | | | | | |
Owner occupied | |
| 381,018 | | 17 | | |
| 373,689 | | 17 | |
Non-owner occupied | |
| 561,073 | | 24 | | |
| 535,412 | | 24 | |
Construction and land | |
| 142,796 | | 6 | | |
| 145,595 | | 6 | |
Total commercial loans | |
| 2,038,940 | | 89 | | |
| 2,007,501 | | 89 | |
| | | | | | | | | | | | |
Residential: | | | | | | | | | | | | |
Residential mortgages | |
| 31,817 | | 1 | | |
| 33,783 | | 1 | |
Home equity | |
| 26,293 | | 1 | | |
| 25,443 | | 1 | |
Total residential loans | |
| 58,110 | | 2 | | |
| 59,226 | | 3 | |
| | | | | | | | | | | | |
Consumer | |
| 203,176 | | 9 | | |
| 176,066 | | 8 | |
Other | |
| 7,689 | | - | | |
| 13,897 | | 1 | |
Total loans | |
| 2,307,915 | | | | |
| 2,256,690 | | | |
Less net deferred fees and other unearned income | |
| (7,101) | | | | |
| (7,654) | | | |
Total loans held for investment | |
| 2,300,814 | | | | |
| 2,249,036 | | | |
| | | | | | | | | | | | |
Total loans |
| $ | 2,302,661 |
| | | | $ | 2,249,036 |
| | |
57
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 credit losses on loans.
Income on such loans is subsequently recognized on a cash basis as long as the future collection of principal is deemed probable or after all principal payments are received. Commercial loans are placed back on accrual status after sustained performance of timely and current principal and interest payments and it is probable that all remaining amounts due, both principal and interest, are fully collectible according to the terms of the loan agreement. Residential loans and consumer loans are generally placed back on accrual status when they are no longer past due.
At September 30, 2020,March 31, 2021, our nonperforming assets totaled $6.0$2.1 million, or 0.20%0.06% of total assets, compared to $7.6$4.9 million, or 0.26%0.13% of total assets, at December 31, 2019.2020. The decrease was primarily due to a decline in nonperforming loans resulting from an increasethe SBA guaranty on one commercial and industrial relationship and reduction in net charge-offsloans past due over 90 days during the second quarterfirst three months of 2020.2021.
47
Nonaccrual loans totaled $5.1$1.8 million and $7.2$3.8 million as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Loans past due 90 days and still accruing totaled $336,000$251,000 at September 30, 2020March 31, 2021 compared to $85,000$1.1 million at December 31, 2019.2020. The gross additional interest revenue that would have been earned if the loans classified as nonaccrual had performed in accordance with the original terms for the three months ended March 31, 2021 and 2020 is immaterial. Table 7 provides details on nonperforming assets and other risk elements.
Table 7 - Nonperforming Assets
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nonaccrual loans | | $ | 5,085 | | $ | 5,930 | | $ | 6,250 | | $ | 7,208 | | $ | 6,770 | | | $ | 1,805 | | $ | 3,778 | | $ | 5,085 | | $ | 5,930 | | $ | 6,250 | |
Loans past due 90 days and still accruing | |
| 336 | |
| 335 | |
| 265 | |
| 85 | |
| — | | |
| 251 | |
| 1,084 | |
| 336 | |
| 335 | |
| 265 | |
Total nonperforming loans (NPLs) | |
| 5,421 | |
| 6,265 | |
| 6,515 | |
| 7,293 | |
| 6,770 | | |
| 2,056 | |
| 4,862 | |
| 5,421 | |
| 6,265 | |
| 6,515 | |
Other real estate owned | |
| 563 | |
| 779 | |
| 779 | |
| 278 | |
| 278 | | |
| 16 | |
| 16 | |
| 563 | |
| 779 | |
| 779 | |
Total nonperforming assets (NPAs) | | $ | 5,984 | | $ | 7,044 | | $ | 7,294 | | $ | 7,571 | | $ | 7,048 | | | $ | 2,072 | | $ | 4,878 | | $ | 5,984 | | $ | 7,044 | | $ | 7,294 | |
NPLs as a percentage of total loans | |
| 0.25 | % |
| 0.29 | % |
| 0.34 | % |
| 0.39 | % |
| 0.37 | % | |
| 0.09 | % |
| 0.22 | % |
| 0.25 | % |
| 0.29 | % |
| 0.34 | % |
NPAs as a percentage of total assets | |
| 0.20 | % |
| 0.24 | % |
| 0.27 | % |
| 0.26 | % |
| 0.29 | % | |
| 0.06 | % |
| 0.13 | % |
| 0.20 | % |
| 0.24 | % |
| 0.27 | % |
Troubled Debt Restructurings
TDRs are made to provide relief to customers experiencing liquidity challenges or other circumstances that could affect their ability to meet their debt obligations. Typical modifications include interest rate reductions, term extensions and other concessions intended to minimize losses. Nonperforming TDRs are not accruing interest and are included as nonperforming assets within nonaccrual loans. TDRs, which are accruing interest based on the restructured terms, are considered performing. Table 8 below summarizes TDRs.
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Table 8 - Troubled Debt Restructurings
(dollars in thousands)
| | | | | | | | |||||||||
| | | | | | | | | March 31, 2021 | | December 31, 2020 | | | |||
| | September 30, 2020 | | December 31, 2019 | | |
| 2021 |
| 2021 |
| |||||
Accruing TDRs | | $ | 13,350 | | $ | 11,953 | | | $ | 12,839 | | $ | 13,047 | | ||
Nonaccruing TDRs | |
| 1,030 | |
| 1,217 | | |
| 949 | |
| 1,141 | | ||
Total TDRs | | $ | 14,380 | | $ | 13,170 | | | $ | 13,788 | | $ | 14,188 | |
The gross additional interest income that would have been earned during the three and nine months ended September 30,March 31, 2021 and 2020 had performing TDRs performed in accordance with the original terms is immaterial.
Certain borrowers may be unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof. In the absence of other intervening factors, such short-term modifications made in good faith are not categorized as TDRs, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral).
48
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 loan repayment terms. Potential problem loans totaled $172.6$160.0 million and $76.3$172.7 million as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. As a percentage of total loans, potential problem loans were 8.0%6.9% and 4.1%7.7% as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. The increasedecrease was primarily related to downgrades resulting from COVID-19.credit rating upgrades for criticized and classified loans. As a number of potential problem loans are real estate secured, management closely tracks the values of real estate collateral when assessing the collectability of these loans.
Allowance for Credit Losses on Loans and Unfunded Commitments
On January 1, 2020, we adopted ASC 326, which resulted in a day one reduction of $854,000 to the allowance for credit losses on loans offset by an increase of $1.3 million to the allowance for credit losses on unfunded commitments. The allowance for credit losses on loans totaled $18.5 million as of December 31, 2019, was reduced by $854,000 due to ASC 326 adoption, was increased by $16.3 million related to the first nine months of 2020 provision, and ended the third quarter of 2020 at $31.9 million. The allowance for credit losses on unfunded commitments totaled $892,000 at December 31, 2019, was increased by $1.3 million due to ASC 326 adoption, was increased by $704,000 million related to the first nine months of 2020 provision, and ended the quarter at $2.9 million. At September 30, 2020, the combined allowance for credit losses on loans and unfunded commitments was $34.8 million, compared to $19.4 million at December 31, 2019.
The allowance for credit losses was 1.59%1.31% of total loans held for investment at September 30, 2020,March 31, 2021, compared to 1.04%1.55% at December 31, 2019.2020. The allowance for credit losses to loans held for investment excluding PPP loans was 1.78%1.45% as of September 30,March 31, 2021 compared to 1.70% at December 31, 2020. The increasedecrease from December 31, 2019 reflects2020 was due to an improvement in the impact of COVID-19 on theCECL economic forecast used in the estimation of expectedalong with credit losses as well as credit grade downgrades driven by COVID-19.rating upgrades for criticized and classified loans.
The base case economic forecast used for the September 30, 2020March 31, 2021 calculation was published in early September.March. Management applied an economic and business conditions qualitative adjustment to the allowance by incorporating an alternative forecast scenario. The alternative forecast scenario was derived from economic conditions experienced during 2008 and 2009, which included a significant recession. Other qualitative adjustments applied by management during the first ninethree months of 2020ended March 31, 2021 related to the nature and volume of loans, credit concentrations and competition.
Net charge-offs for the three and nine months ended September 30,March 31, 2021 and 2020 were $347,000$238,000 and $2.1 million,$194,000, respectively. Net charge-offs for the three and nine months ended September 30, 2019 were $519,000 and $1.7 million, respectively. The year to date increase related primarily to charge-offs of two commercial and industrial loan relationships in the second
59
2021 totaling $250,000 compared to one commercial real estate and home equity relationship in the first quarter of 2020 totaling $1.5 million.$203,000. Table 9 provides details concerning the allowance for credit losses on loans during the past five quarters.
49
Table 9 - Allowance for Credit Losses on Loans (ACL)
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2021 | | 2020 | | ||||||||||||||||||||||
| Third | | Second | | First |
| Fourth |
| Third |
| First | | Fourth | | Third | | Second |
| First |
| ||||||||||
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| ||||||||||
Allowance for credit losses on loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of period | $ | 31,605 |
| $ | 24,896 |
| $ | 18,535 |
| $ | 18,080 |
| $ | 18,186 |
| $ | 31,818 |
| $ | 31,894 |
| $ | 31,605 |
| $ | 24,896 |
| $ | 18,535 |
|
Adoption of ASU 2016-13 | | — | | | — | | | (854) | | | — | | | — | | | — | | | — | | | — | | | — | | | (854) | |
Provision for loan losses |
| 636 | |
| 8,222 | |
| 7,409 | |
| 787 | |
| 413 | |
| (4,074) | |
| 225 | |
| 636 | |
| 8,222 | |
| 7,409 | |
Loans charged-off: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial |
| (404) | |
| (1,479) | |
| (18) | |
| (344) | |
| (541) | |
| (288) | |
| (401) | |
| (404) | |
| (1,479) | |
| (18) | |
Commercial real estate |
| — | |
| — | |
| (78) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (78) | |
Construction and land |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Residential mortgages |
| — | |
| (36) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (36) | |
| — | |
Home equity |
| — | |
| — | |
| (125) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (125) | |
Consumer |
| — | |
| — | |
| — | |
| — | |
| (2) | |
| — | |
| — | |
| — | |
| — | |
| — | |
Other |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Total loans charged-off |
| (404) | |
| (1,515) | |
| (221) | |
| (344) | |
| (543) | |
| (288) | |
| (401) | |
| (404) | |
| (1,515) | |
| (221) | |
Recoveries on loans previously charged-off: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial |
| 56 | |
| 1 | |
| — | |
| 5 | |
| 17 | |
| 50 | |
| 37 | |
| 56 | |
| 1 | |
| — | |
Commercial real estate |
| — | |
| — | |
| 18 | |
| — | |
| — | |
| — | |
| 44 | |
| — | |
| — | |
| 18 | |
Construction and land |
| — | |
| — | |
| — | |
| — | |
| 1 | |
| — | |
| 18 | |
| — | |
| — | |
| — | |
Residential mortgages |
| — | |
| — | |
| 1 | |
| 7 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 1 | |
Home equity |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Consumer |
| 1 | |
| 1 | |
| 8 | |
| — | |
| 6 | |
| — | |
| 1 | |
| 1 | |
| 1 | |
| 8 | |
Other |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Total recoveries |
| 57 | |
| 2 | |
| 27 | |
| 12 | |
| 24 | |
| 50 | |
| 100 | |
| 57 | |
| 2 | |
| 27 | |
Net charge-offs |
| (347) | |
| (1,513) | |
| (194) | |
| (332) | |
| (519) | |
| (238) | |
| (301) | |
| (347) | |
| (1,513) | |
| (194) | |
Balance at period end | $ | 31,894 |
| $ | 31,605 |
| $ | 24,896 |
| $ | 18,535 |
| $ | 18,080 |
| $ | 27,506 |
| $ | 31,818 |
| $ | 31,894 |
| $ | 31,605 |
| $ | 24,896 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses on unfunded commitments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of period | $ | 3,480 |
| $ | 2,838 |
| $ | 892 |
| $ | 836 |
| $ | 785 | | $ | 3,128 |
| $ | 2,871 |
| $ | 3,480 |
| $ | 2,838 |
| $ | 892 | |
Adoption of ASU 2016-13 | | — | | | — | | | 1,275 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,275 | |
Provision for unfunded commitments | | (609) | | | 642 | | | 671 | | | 56 | | | 51 | | | (445) | | | 257 | | | (609) | | | 642 | | | 671 | |
Balance at period end | $ | 2,871 |
| $ | 3,480 |
| $ | 2,838 |
| $ | 892 |
| $ | 836 | | $ | 2,683 |
| $ | 3,128 |
| $ | 2,871 |
| $ | 3,480 |
| $ | 2,838 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total allowance for credit losses on loans and unfunded commitments | $ | 34,765 |
| $ | 35,085 |
| $ | 27,734 |
| $ | 19,427 |
| $ | 18,916 | | $ | 30,189 |
| $ | 34,946 |
| $ | 34,765 |
| $ | 35,085 |
| $ | 27,734 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provision for credit losses under CECL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provision for loan losses | $ | 636 | | $ | 8,222 | | $ | 7,409 | | $ | 787 | | $ | 413 | | $ | (4,074) | | $ | 225 | | $ | 636 | | $ | 8,222 | | $ | 7,409 | |
Provision for securities held-to-maturity credit losses | | 1 | | | (1) | | | (6) | | | — | | | — | | | — | | | (1) | | | 1 | | | (1) | | | (6) | |
Provision for unfunded commitments (1) | | (609) | | | 642 | | | 671 | | | — | | | — | | |||||||||||||||
Provision for unfunded commitments | | (445) | | | 257 | | | (609) | | | 642 | | | 671 | | |||||||||||||||
Total provision for credit losses | $ | 28 |
| $ | 8,863 |
| $ | 8,074 |
| $ | 787 |
| $ | 413 | | $ | (4,519) |
| $ | 481 |
| $ | 28 |
| $ | 8,863 |
| $ | 8,074 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses on loans to loans held-for-investment | | 1.46 | % | | 1.45 | % | | 1.29 | % | | 0.99 | % | | 0.98 | % | | 1.20 | % | | 1.41 | % | | 1.46 | % | | 1.45 | % | | 1.29 | % |
Allowance for credit losses to loans held-for-investment | | 1.59 | % | | 1.61 | % | | 1.43 | % | | 1.04 | % | | 1.03 | % | | 1.31 | % | | 1.55 | % | | 1.59 | % | | 1.61 | % | | 1.43 | % |
Allowance for credit losses to loans held-for-investment excluding PPP loans | | 1.78 | % | | 1.80 | % | | 1.43 | % | | 1.04 | % | | 1.03 | % | | 1.45 | % | | 1.70 | % | | 1.78 | % | | 1.80 | % | | 1.43 | % |
Net charge-offs to average loans | | 0.06 | | | 0.29 | | | 0.04 | | | 0.07 | | | 0.11 | | | 0.04 | | | 0.05 | | | 0.06 | | | 0.29 | | | 0.04 | |
Non-performing loans as a percentage of total loans | | 0.25 | % | | 0.29 | % | | 0.34 | % | | 0.39 | % | | 0.37 | % | | 0.09 | % | | 0.22 | % | | 0.25 | % | | 0.29 | % | | 0.34 | % |
Non-performing assets as a percentage of total assets | | 0.20 | % | | 0.24 | % | | 0.27 | % | | 0.26 | % | | 0.29 | % | | 0.06 | % | | 0.13 | % | | 0.20 | % | | 0.24 | % | | 0.27 | % |
| | | | | | | | | | | | | | | | |||||||||||||||
| | | | | | | | | | | | | | | |
(1) |
Annualized. |
50
Investment Securities
Investment securities available-for-sale totaled $260.9$390.7 million at September 30, 2020March 31, 2021 compared to $282.5$335.4 million at December 31, 2019.2020. Held-to-maturity securities, net totaled $185.8$222.5 million at September 30, 2020March 31, 2021 compared to $117.0$200.2 at December 31, 2019.2020. Available-for-sale securities are reported at their aggregate fair value, and unrealized gains and losses are included as a component of other comprehensive income, net of deferred taxes. Held-to-maturity securities are carried at amortized cost net of an allowance for credit losses.cost. As of September 30, 2020,March 31, 2021, investment securities available-for-sale had a net unrealized gain of $9.0$1.5 million compared to a net unrealized gain of $3.2$9.0 million as of December 31, 2019.2020. Market changes in interest rates and credit spreads will result in temporary unrealized gains or losses as the market price
60
of securities fluctuate. Management evaluated all available-for-sale securities in an unrealized loss position at March 31, 2021 and December 31, 2019 and September 30, 2020 and concluded no impairment existed at the balance sheet dates.
Changes in the amount of our investment securities portfolio result primarily from balance sheet trends including loans, deposit balances, and short-term borrowings. When inflows arising from the management of deposits and short-term borrowings exceed loan demand, we invest excess funds in the securities portfolio or in short-term investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow interest-bearing balances with other banks to decline and uses proceeds from maturing securities to fund loan demand. During the first ninethree months of 2020,2021, we purchased $69.1$76.8 million in securities available-for-sale and $22.5 million in held-to-maturity municipal securities to extend the duration of the securities portfolio as well as to reduce the asset sensitivity of the balance sheet.invest excess cash from customer deposits.
Details of investment securities at September 30, 2020March 31, 2021 and December 31, 20192020 are provided in Table 10.
Table 10 - Securities
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | | March 31, 2021 | | December 31, 2020 | | ||||||||||||||||
| | Carrying | | | | | Amortized | | | | | | Carrying | | | | | Amortized | | | | | ||||
Available-for-Sale Securities |
| Value |
| Fair Value |
| Cost |
| Fair Value | |
| Value |
| Fair Value |
| Cost |
| Fair Value | | ||||||||
U.S. states and political divisions | | $ | 80,037 | | $ | 82,566 | | $ | 81,865 | | $ | 82,485 | | | $ | 77,328 | | $ | 79,408 | | $ | 78,117 | | $ | 81,019 | |
Trust preferred securities | |
| 4,828 | | | 4,590 | | | 4,808 | | | 4,688 | | |
| 4,841 | | | 4,808 | | | 4,835 | | | 4,722 | |
Corporate debt securities | |
| 19,533 | | | 19,644 | | | 19,557 | | | 19,920 | | |
| 20,519 | | | 20,633 | | | 19,526 | | | 19,821 | |
Residential mortgage-backed securities | |
| 113,372 | | | 122,377 | | | 138,552 | | | 140,013 | | |
| 248,823 | | | 246,544 | | | 190,817 | | | 194,598 | |
Commercial mortgage-backed securities | |
| 34,159 | | | 31,707 | | | 34,495 | | | 35,355 | | |
| 37,722 | | | 39,308 | | | 33,150 | | | 35,263 | |
Total available-for-sale | | | 251,929 | | | 260,884 | | | 279,277 | | | 282,461 | | | | 389,233 | | | 390,701 | | | 326,445 | | | 335,423 | |
Held-to-Maturity Securities | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. states and political divisions | | | 185,837 | | | 196,712 | | | 116,972 | | | 115,291 | | | | 222,549 | | | 228,422 | | | 200,170 | | | 214,584 | |
Less: allowance for credit losses on securities held-to-maturity | | | 15 | | | — | | | — | | | — | | | | 14 | | | — | | | 14 | | | — | |
Total held-to-maturity | | | 185,822 | | | 196,712 | | | 116,972 | | | 115,291 | | | | 222,535 | | | 228,422 | | | 200,156 | | | 214,584 | |
Total securities | | $ | 437,751 | | $ | 457,596 | | $ | 396,249 | | $ | 397,752 | | | $ | 611,768 | | $ | 619,123 | | $ | 526,601 | | $ | 550,007 | |
The effective duration of our securities was 6.946.87 years and 6.976.09 years at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
Goodwill and Other Intangible Assets
Our core deposit intangible representing the value of the acquired deposit base, is an amortizing intangible asset that is required to be tested for impairment only when events or circumstances indicate that impairment may exist. This core deposit intangible was fully amortized in the second quarter of 2019 as a result of the Branch Sale.
Goodwill represents the premium paid for acquired companies above the fair value of the assets acquired and liabilities assumed, including separately identifiable intangible assets. We evaluate our goodwill annually as of October 1, or more frequently if necessary, to determine if any impairment exists. Management concluded that the 2019 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill). Factors that management considers in this assessment includeincludes macroeconomic conditions, industry and market considerations, our overall financial performance and changes in the composition or carrying amount of net assets. Due to the impact of recent events related to COVID-19, including challenges from declines in market conditions, weWe performed an interim impairment testour annual goodwill assessment as of May 31, 2020 and as of September 30,October 1, 2020 and concluded that our carrying value was not in excess of its fair value on either date.value. We considered the impact of COVID-19 on these factors as of September 30, 2020March 31, 2021 and will continue to monitor triggering events related to the pandemic between annual impairment assessments.
There were no triggering events requiring an impairment test during the first three months of 2021.
6151
LIQUIDITY AND CAPITAL RESOURCES
Deposits
At September 30, 2020,March 31, 2021, total deposits were $2.5$3.3 billion, a decreasean increase of $30.3$116.2 million, or 1%4%, from December 31, 2019.2020. Money market deposits decreased $227.4increased $111.6 million, or 19%11%, from December 31, 20192020 to September 30, 2020March 31, 2021 and noninterest-bearing demand deposits increased $19.0$246.8 million, or 2%24%, during the same period. Time deposits increased $152.0$52.8 million due to growth in the partnership with a fintech firm that offers CD-secured loans to its customers. Partially offsetting this increase was a decrease in interest-bearing checking deposits of $275.1 million, or 36% from December 31, 2020.
Total average deposits from continuing operations for the quarter ended September 30, 2020March 31, 2021 were $2.5$3.2 billion, an increase of $522.6$902.4 million, or 27%40%, from the same period in 2019.2020. For the quarter ended September 30, 2020March 31, 2021 compared to the same period in 2019,2020, average money market deposits from continuing operations increased $47.0$32.1 million, or 5%3%, while average noninterest-bearing demand deposits from continuing operations increased $216.9$423.5 million, or 34%59%. Average interest-bearing demand deposits (NOW) from continuing operations increased $145.6$236.5 million, or 49%62%, for the three months ended September 30, 2020March 31, 2021 compared to the same period in 2019.2020. The increase in average non-interest bearing and average interest-bearing demand deposits reflects continued growth in relationship driven core deposits. Average time deposits increased $133.6$217.8 million for the three months ended September 30, 2020March 31, 2021 from the thirdfirst quarter of 20192020 due to the aforementioned growth in the partnership with a fintech firm that offers CD-secured loans to its customers.
Table 11 provides additional information regarding deposits during the past five quarters.
Table 11 - Deposits
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Year To | | Year Over | | | | | | | | | | | | Year To | | Year Over | ||||||||||||||
| | September 30, | | June 30, | | March 31, | | December 31, | | September 30, | | Date | | Year | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | Date | | Year | ||||||||||||||
Period End Deposits |
| 2020 |
| 2020 |
| 2020 |
| 2019 |
| 2019 |
| Change |
| Change |
| 2021 |
| 2020 |
| 2020 |
| 2020 |
| 2020 |
| Change |
| Change | ||||||||||||||
Non-interest-bearing demand deposits |
| $ | 843,656 | | $ | 883,662 | | $ | 712,919 | | $ | 824,646 | | $ | 599,657 | | $ | 19,010 | | $ | 243,999 |
| $ | 1,280,524 | | $ | 1,033,765 | | $ | 843,656 | | $ | 883,662 | | $ | 712,919 | | $ | 246,759 | | $ | 567,605 |
Interest-bearing demand deposits | |
| 387,858 | |
| 449,737 | |
| 368,463 | |
| 373,727 | |
| 240,427 | |
| 14,131 | | | 147,431 | |||||||||||||||||||||
NOW | |
| 485,540 | |
| 760,638 | |
| 387,858 | |
| 449,737 | |
| 368,463 | |
| (275,098) | | | 117,077 | |||||||||||||||||||||
Savings | |
| 568 | |
| 583 | |
| 567 | |
| 1,219 | |
| 1,081 | |
| (651) | | | (513) | |
| 562 | |
| 625 | |
| 568 | |
| 583 | |
| 567 | |
| (63) | | | (5) |
Money market | |
| 945,834 | |
| 879,863 | |
| 982,109 | |
| 1,173,218 | |
| 921,133 | |
| (227,384) | | | 24,701 | |
| 1,142,361 | |
| 1,030,753 | |
| 945,834 | |
| 879,863 | |
| 982,109 | |
| 111,608 | | | 160,252 |
Time | |
| 196,343 | |
| 131,353 | |
| 66,793 | |
| 44,389 | |
| 30,782 | |
| 151,954 | | | 165,561 | |
| 294,129 | |
| 241,328 | |
| 196,343 | |
| 131,353 | |
| 66,793 | |
| 52,801 | | | 227,336 |
Brokered | |
| 94,463 | |
| 62,433 | |
| 94,268 | |
| 81,847 | |
| 61,192 | |
| 12,616 | | | 33,271 | |
| 74,576 | |
| 94,399 | |
| 94,463 | |
| 62,433 | |
| 94,268 | |
| (19,823) | | | (19,692) |
Total deposits |
| $ | 2,468,722 | | $ | 2,407,631 | | $ | 2,225,119 | | $ | 2,499,046 | | $ | 1,854,272 | | $ | (30,324) | | $ | 614,450 |
| $ | 3,277,692 | | $ | 3,161,508 | | $ | 2,468,722 | | $ | 2,407,631 | | $ | 2,225,119 | | $ | 116,184 | | $ | 1,052,573 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | Q3 2020 vs | | Q3 2020 vs | | 2021 | | 2020 | | Q1 2021 vs | | Q1 2021 vs | ||||||||||||||||||||||||||
| | Third | | Second | | First | | Fourth | | Third | | Q2 2020 | | Q3 2019 | | First | | Fourth | | Third | | Second | | First | | Q4 2020 | | Q1 2020 | ||||||||||||||
Average Deposits |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Change |
| Change |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Change |
| Change | ||||||||||||||
Non-interest-bearing demand deposits |
| $ | 854,715 | | $ | 815,299 | | $ | 713,001 | | $ | 718,298 | | $ | 637,809 | | $ | 39,416 | | $ | 216,906 |
| $ | 1,136,531 | | $ | 977,009 | | $ | 854,715 | | $ | 815,299 | | $ | 713,001 | | $ | 159,522 | | $ | 423,530 |
Interest-bearing demand deposits | |
| 440,734 | |
| 462,051 | |
| 382,178 | |
| 320,637 | |
| 295,106 | |
| (21,317) | | | 145,628 | |||||||||||||||||||||
NOW | |
| 618,701 | |
| 558,967 | |
| 440,734 | |
| 462,051 | |
| 382,178 | |
| 59,734 | | | 236,523 | |||||||||||||||||||||
Savings | |
| 586 | |
| 574 | |
| 650 | |
| 1,098 | |
| 1,085 | |
| 12 | | | (499) | |
| 587 | |
| 614 | |
| 586 | |
| 574 | |
| 650 | |
| (27) | | | (63) |
Money market | |
| 942,062 | |
| 952,444 | |
| 1,010,713 | |
| 1,006,449 | |
| 895,102 | |
| (10,382) | | | 46,960 | |
| 1,042,809 | |
| 1,026,347 | |
| 942,062 | |
| 952,444 | |
| 1,010,713 | |
| 16,462 | | | 32,096 |
Time | |
| 166,019 | |
| 96,362 | |
| 55,775 | |
| 37,388 | |
| 32,409 | |
| 69,657 | | | 133,610 | |
| 273,615 | |
| 221,792 | |
| 166,019 | |
| 96,362 | |
| 55,775 | |
| 51,823 | | | 217,840 |
Brokered | |
| 68,102 | |
| 83,228 | |
| 92,188 | |
| 62,757 | |
| 88,146 | |
| (15,126) | | | (20,044) | |
| 84,663 | |
| 89,673 | |
| 68,102 | |
| 83,228 | |
| 92,188 | |
| (5,010) | | | (7,525) |
Total deposits |
| $ | 2,472,218 | | $ | 2,409,958 | | $ | 2,254,505 | | $ | 2,146,627 | | $ | 1,949,657 | | $ | 62,260 | | $ | 522,561 |
| $ | 3,156,906 | | $ | 2,874,402 | | $ | 2,472,218 | | $ | 2,409,958 | | $ | 2,254,505 | | $ | 282,504 | | $ | 902,401 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest bearing deposits as a percentage of average deposits | |
| 34.6 | % |
| 33.8 | % |
| 31.6 | % |
| 33.5 | % |
| 32.7 | % | | | | | | |
| 36.0 | % |
| 34.0 | % |
| 34.6 | % |
| 33.8 | % |
| 31.6 | % | | | | | |
Cost of interest-bearing deposits | | | 0.28 | % | | 0.33 | % | | 1.09 | % | | 1.36 | % | | 1.58 | % | | | | | | | | 0.19 | % | | 0.25 | % | | 0.28 | % | | 0.33 | % | | 1.09 | % | | | | | |
Cost of deposits | |
| 0.19 | % |
| 0.22 | % |
| 0.75 | % |
| 0.90 | % |
| 1.06 | % | | | | | | |
| 0.12 | % |
| 0.16 | % |
| 0.19 | % |
| 0.22 | % |
| 0.75 | % | | | | | |
Short-Term Borrowings
There were no outstanding balances of federal funds purchased at September 30, 2020March 31, 2021 and December 31, 2019.2020.
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As a member of the Federal Home Loan Bank of Atlanta (“FHLB”),FHLB, we have the ability to acquire short and long-term advances through a blanket agreement secured by our unencumbered qualifying 1-4 family first mortgage loans and by pledging investment securities or individual, qualified loans, subject to approval of the FHLB. There were no FHLB advances outstanding at September 30, 2020March 31, 2021 and December 31, 2019.2020.
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Long-Term Debt
On August 20, 2020, Atlantic Capital issued 5.50% fixed-to-floating rate subordinated notes (the “Notes”) totaling $75 million in aggregate principal amount and callable at par plus accrued but unpaid interest on September 1, 2025. The Notes are due September 1, 2030 and bear a fixed rate of interest of 5.50% per year until September 1, 2025. From September 1, 2025 to the maturity date, the interest rate will be a floating rate equal to the three-month SOFR plus 536.3 basis points. The Notes were priced at 100% of their par value and qualify as Tier 2 regulatory capital.
On September 30, 2020, Atlantic Capital redeemed its $50 million 6.25% fixed-to-floating rate subordinated notes due 2025, previously issued on September 28, 2015. The approximately one month overlap of the issuance and redemption of the old and new subordinated debt resulted in $521,000 in additional interest expense during the third quarter of 2020.
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 our ability to meet the daily cash flow requirements of our customers, both depositors and borrowers.
We utilize various measures to monitor and control liquidity risk across three different types of liquidity:
● | tactical liquidity measures the risk of a negative cash flow position whereby cash outflows exceed cash inflows over a short-term horizon; |
● | structural liquidity measures the amount by which illiquid assets are supported by long-term funding; and |
● | contingent liquidity utilizes cash flow stress testing across four crisis scenarios to determine the adequacy of our liquidity. |
We aim to maintain a diverse mix of existing and potential liquidity sources to support the liquidity management function. At its core is a reliance on the customer deposit book, due to the low cost it offers. Other sources of liquidity include asset-based liquidity in the form of cash and unencumbered securities, as well as access to wholesale funding from external counterparties, primarily advances from the FHLB of Atlanta, federal funds lines and other borrowing facilities. We aim to avoid funding concentrations by diversifying external secured and unsecured funding with respect to maturities, counterparties and nature. At September 30, 2020,March 31, 2021, management believed that we had sufficient liquidity to meet our funding needs.
At September 30, 2020,March 31, 2021, we had access to $530.0$535.0 million in unsecured borrowings and $650.7$814.6 million in secured borrowings through various sources, including FHLB advances and access to federal funds. We also have the ability to attract more deposits by increasing rates.
We had $232$218.8 million in PPP loans outstanding as of September 30, 2020.March 31, 2021. The loans were funded from existing sources and will reduce available liquidity until the loans are forgiven or purchased by the SBA or third parties.
Shareholders’ Equity and Capital Adequacy
Shareholders’ equity at September 30, 2020March 31, 2021 was $340.3 million, an increase of 13.8$1.7 million, or 4%1%, from December 31, 2019.2020. Net income of $12.6$13.4 million and an increasewas offset by a decrease of $10.9$8.7 million in accumulated other comprehensive income were offset by $12.0and $4.2 million in repurchases of 820,349222,193 shares of common stock during the first ninethree months of 2020.2021. 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 our consolidated financial statements.
6353
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
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Regulatory Guidelines | | | | | | | | | | | | | | | Regulatory Guidelines | | ||||||||
| | | | | | | | | | | | | | | | | | Minimum Capital | | | | | | | | | | | | | | | | | | | Minimum Capital | |
| | Consolidated | | Bank | | | | |
| Plus Capital | | | Consolidated | | Bank | | | | |
| Plus Capital | | ||||||||||||||||
| | September 30, | | December 31, | | September 30, | | December 31, | | | | Well |
| Conservation Buffer | | | March 31, | | December 31, | | March 31, | | December 31, | | | | Well |
| Conservation Buffer | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| Minimum |
| Capitalized |
| 2020 | |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| Minimum |
| Capitalized |
| 2021 | | ||||||||
Risk based ratios: |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Common equity tier 1 capital |
| | 12.5 | % | | 12.0 | % | | 14.3 | % | | 13.8 | % | 4.5 | % | 6.5 | % | 7.0 | % |
| | 12.2 | % | | 11.9 | % | | 14.7 | % | | 14.2 | % | 4.5 | % | 6.5 | % | 7.0 | % |
Tier 1 Capital |
| | 12.5 |
| | 12.0 |
| | 14.3 |
| | 13.8 |
| 6.0 |
| 8.0 |
| 8.5 | |
| | 12.2 |
| | 11.9 |
| | 14.7 |
| | 14.2 |
| 6.0 |
| 8.0 |
| 8.5 | |
Total capital |
| | 16.9 |
| | 15.0 |
| | 15.5 |
| | 14.6 |
| 8.0 |
| 10.0 |
| 10.5 | |
| | 16.4 |
| | 16.1 |
| | 15.9 |
| | 15.4 |
| 8.0 |
| 10.0 |
| 10.5 | |
Leverage ratio |
| | 9.9 |
| | 11.0 |
| | 11.5 |
| | 12.7 |
| 4.0 |
| 5.0 |
| N/A | |
| | 8.4 |
| | 8.9 |
| | 10.2 |
| | 10.6 |
| 4.0 |
| 5.0 |
| N/A | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity tier 1 capital | | $ | 291,453 | | $ | 285,456 | | $ | 336,277 | | $ | 327,426 |
|
|
|
|
|
| | | $ | 301,385 | | $ | 292,890 | | $ | 363,318 | | $ | 349,779 |
|
|
|
|
|
| |
Tier 1 capital | |
| 291,453 | |
| 285,456 | |
| 336,277 | |
| 327,426 |
|
|
|
|
|
| | |
| 301,385 | |
| 292,890 | |
| 363,318 | |
| 349,779 |
|
|
|
|
|
| |
Total capital | |
| 394,735 | |
| 354,757 | |
| 365,745 | |
| 346,854 |
|
|
|
|
|
| | |
| 405,464 | |
| 397,719 | |
| 393,519 | |
| 380,725 |
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk weighted assets | |
| 2,340,295 | |
| 2,372,001 | |
| 2,352,137 | |
| 2,371,384 |
|
|
|
|
|
| | |
| 2,479,365 | |
| 2,470,185 | |
| 2,478,372 | |
| 2,471,702 |
|
|
|
|
|
| |
Quarterly average total assets for leverage ratio | |
| 2,944,066 | |
| 2,589,910 | |
| 2,934,615 | |
| 2,585,629 |
|
|
|
|
|
| | |
| 3,578,256 | |
| 3,297,529 | |
| 3,570,608 | |
| 3,288,402 |
|
|
|
|
|
| |
As of September 30, 2020,March 31, 2021, Atlantic Capital and the Bank remained “well-capitalized” under regulatory guidelines. For more information see “Item 1. Business–Supervision and Regulation–Capital Adequacy” in our 20192020 Annual Report on Form 10-K.
Table 13 - Tier 1 Common Equity
(dollars in thousands)
| | | | | | | | |
|
| September 30, 2020 |
|
| March 31, 2021 |
| ||
Tier 1 capital | | $ | 291,453 | | | $ | 301,385 | |
Less: restricted core capital | |
| — | | |
| — | |
Tier 1 common equity | | $ | 291,453 | | | $ | 301,385 | |
| | | | | | | | |
Risk-adjusted assets | | $ | 2,340,295 | | | $ | 2,479,365 | |
Tier 1 common equity ratio | |
| 12.5 | % | |
| 12.2 | % |
Off-Balance Sheet Arrangements
We make contractual commitments to extend credit and issuesissue standby letters of credit in the ordinary course of itsour 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, we also issue standby letters of credit, which are assurances to a third party that it will not suffer a loss if the customer fails to meet a contractual obligation to the third party. At September 30, 2020,As of March 31, 2021, we had issued commitments to extend credit of approximately $764.2$789.9 million and standby letters of credit of approximately $19.0$15.1 million through various types of commercial lending arrangements.
Based on historical experience, many of the commitments and letters of credit will expire unfunded, although customers may draw down on loans or lines of credit to fund business operations as a result of the COVID-19 pandemic at higher levels than we have previously experienced. Through our various sources of liquidity, we believe we will be able to fund these obligations as they arise. We evaluate each customer’s credit worthiness on a case-by-case basis. The amount of
64
collateral obtained, if deemed necessary upon extension of credit, is based on our credit evaluation of the borrower.
54
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 our contractual obligations at September 30, 2020as of March 31, 2021 compared to December 31, 2019.2020.
RISK MANAGEMENT
Effective risk management is critical to our 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 we do not have total assets in excess of $10 billion, the Audit Committee and the Audit and Risk Committee of the Bank’s board of directors provide oversight of enterprise-wide risk management activities. These committees review our activities in identifying, measuring, and mitigating existing and emerging risks (including credit, liquidity, interest-rate, compliance, market, operational, strategic, financial and reputational risks.) The committees monitorcommittee 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 our compliance policies. With guidance from and oversight by the Audit Committee and the Bank’s Audit and Risk Committee, management continually refines and enhances its risk management policies and procedures to maintain effective risk management programs and processes.processes.
Credit Risk
Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases, investment securities and derivative instruments. Our 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 industry, collateral type and product. We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain adequate allowances for creditloan losses that are inherent in the loan portfolio.
MarketLiquidity Risk
MarketLiquidity risk reflectsis the risk that we will be unable to meet our obligations as they come due because of economic loss resulting from adverse changes inan inability to liquidate assets or obtain adequate funding or that we cannot easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions. Consequently, we closely monitor our cash position, on-balance sheet liquidity and interest rates. This riskavailability of lossoutside funding sources to ensure these are adequate to ensure we can be reflected in diminished current market values and/or reduced potential net interest income in future periods. Our market risk arises primarily from interest rate risk inherent inmeet all our lendingobligations and deposit-taking activities. The structure of our loan and deposit portfolios is such that a significant decline in interest rates may adversely impact net market values and net interest income. We do not maintain a trading account nor are we subject to currency exchange risk or commodity price risk.regulatory expectations.
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.
We assess interest rate risk by forecasting net interest income under various interest rate scenarios and comparing those results to forecasted net interest income assuming stable rates. With rates rising, the estimated increase in net interest income is primarily due to the short-term repricing characteristics of the loan portfolio, combined with a favorable funding mix. Our loan portfolio consists mainly of approximately half floating rate loans and half fixed rate loans. Our core client deposits are likely to allow us to lag short-termshort term interbank rate indices when pricing deposits. Transaction accounts comprise a significant amount of our total deposits. See Table 14 for an analysis of the impact on net interest income resulting from various interest rate shock scenarios as of March 31, 2021 and December 31, 2020 and Table 15 for our MVE profile as of March 31, 2021 and December 31, 2020.
6555
Compliance Risk
Compliance risk is the risk to current or anticipated earnings or capital arising from violations of laws, rules or regulations, or from non-conformity with prescribed practices, internal policies and procedures or ethical standards. This risk exposes us to fines, civil monetary penalties, payment of damages and the voiding of contracts. Compliance risk can result in diminished reputation, reduced enterprise value, limited business opportunities and decreased expansion potential.
A unit within our Enterprise Risk Management division executes an annual compliance monitoring schedule that is risk-based. Our Internal Audit unit also conducts reviews that include compliance. Results of these monitoring and Internal Audit activities are reported to management as well as the Board of Directors. Any issues encountered are tracked to adequate solution and reported. Compliance and other risk management is integrated within our business units as a first line of defense, with compliance monitoring being a second line and Internal Audit being a third line of defense. Our operations are also reviewed by an external accounting firm and are subject to examination by federal banking agencies.
Market Risk
Market risk reflects the risk of economic loss resulting from adverse changes in market price 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. Our market risk arises primarily from interest rate risk inherent in our lending and deposit-taking activities. The structure of our loan and deposit portfolios is such that a significant decline in interest rates may adversely impact net market values and net interest income. We do not maintain a trading account nor are we subject to currency exchange risk or commodity price risk.
Operational Risk
Operational risk is the risk to current or anticipated earnings or capital arising from inadequate or failed internal processes, people and systems or from external events. It includes legal risk, which is the risk of loss arising from defective transactions, litigation or claims made, or the failure to adequately protect company-owned assets. An operational loss occurs when an event results in a loss or reserve originating from operational risk.
We have developed and employ measures that guide business functions in identifying, measuring, responding to, monitoring and reporting on possible operational losses to the organization. This drives internal risk conversations and enables us to clearly and transparently communicate to external stakeholders the level of potential operational risk we face, both presently and in the future, and our position on managing it to acceptable levels.
Strategic and Reputation Risk
Strategic risk is the risk of financial loss, diminished stakeholder confidence, or negative impact to human capital resulting from ineffective strategy setting and execution, adverse business decisions, or lack of responsiveness to changes in the banking industry and operating environment. We are committed to fulfilling our overall strategic objectives by selecting business strategies and operating businesses in a manner consistent with achieving profitability/earnings growth and maintaining strong confidence and trust with our key stakeholders.
Reputation risk is the risk to current or anticipated earnings, capital, enterprise value, our brand, and public confidence arising from negative publicity or public opinion, whether real or perceived, regarding our business practices, products, services, transactions, or other activities undertaken by us, our representatives, or our partners. A negative reputation may impair our relationships with clients, associates, communities or shareholders, and it is often a residual risk that arises when other risks are not managed properly.
We produce and regularly update a strategic plan as a guide to our operations. That plan is presented to and approved by the Board of Directors. Management also produces annual financial plans that are consistent with our strategic objectives. Financial results versus plan are presented to and discussed with the Board of Directors regularly.
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Customer complaints and legal actions taken against us can be valuable indicators of reputation risk. We track and monitor customer complaints through their resolution and make regular reports to the Board of Directors. We also track legal actions in process against us and report their status regularly to the Board of Directors. Our management of compliance risk, as outlined in the Compliance Risk section above, is also valuable to managing reputation risk.
Table 14 provides the impact on net interest income resulting from various interest rate shock scenarios as of September 30, 2020March 31, 2021 and December 31, 2019.2020.
Table 14 - Net Interest Income Sensitivity Simulation Analysis
| | | | | |
| | Estimated change in net interest income |
| ||
Change in interest rate (basis point) |
| September 30, 2020 |
| December 31, 2019 |
|
‑200 | | (8.38) | % | (17.56) | % |
‑100 |
| (5.92) | | (9.88) | |
+100 |
| 9.54 | | 9.83 | |
+200 |
| 19.56 | | 19.24 | |
+300 |
| 29.65 | | 28.28 | |
Increases in year-end deposits that led to temporarily high cash balances at December 31, 2019 contributed to the elevated asset sensitivity at December 31, 2019.
| | | | | |
| | Estimated change in net interest income |
| ||
Change in interest rate (basis point) |
| March 31, 2021 |
| December 31, 2020 |
|
‑200 | | (8.25) | % | (8.85) | % |
‑100 |
| (6.87) | | (6.49) | |
+100 |
| 14.95 | | 15.26 | |
+200 |
| 29.86 | | 30.82 | |
+300 |
| 45.59 | | 46.24 | |
We also utilize the market value of equity (“MVE”)MVE as a tool in measuring and managing interest rate risk. Long-term interest rate risk exposure is measured using MVE sensitivity analysis to study the impact on long-term cash flows on capital. Table 15 presents the MVE profile as of September 30, 2020March 31, 2021 and December 31, 2019.2020.
Table 15 - Market Value of Equity Modeling Analysis
| | | | | | | | | | |
| | Estimated % change in MVE |
| | Estimated % change in MVE |
| ||||
Change in interest rate (basis point) |
| September 30, 2020 |
| December 31, 2019 |
|
| March 31, 2021 |
| December 31, 2020 |
|
‑200 | | (2.22) | % | (6.13) | % | | 12.57 | % | (3.03) | % |
‑100 |
| (2.88) |
| (3.73) | |
| 8.98 |
| (3.58) | |
+100 |
| 3.26 |
| 2.58 | |
| (1.99) |
| 5.89 | |
+200 |
| 6.36 |
| 1.71 | |
| (3.04) |
| 10.77 | |
+300 |
| 6.64 |
| 0.68 | |
| (3.43) |
| 12.65 | |
We may utilize interest rate swaps, floors, collars, or other derivative financial instruments in an attempt to manage our overall sensitivity to changes in interest rates.
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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
We maintain disclosure controls and procedures as required under Rule 13a-15 promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed in our 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 our management, including itsour Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, 2020,March 31, 2021, our management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of itsour disclosure controls and procedures. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.March 31, 2021. No changes were made to our internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act) during the quarter ended September 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 our consolidated financial condition or results of operations.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in our Annual Report under Part I, Item 1A “Risk Factors”, as supplemented by the factors under Part II, Item 1A “Risk Factors” in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, as filed with the SEC on May 8, 2020 and August 7, 2020, respectively (the “Quarterly Reports”), because these risk factors may affect our operations and financial results.
The risks described in the Annual Report and Quarterly Reports are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None.
(b) Not applicable.
(c) On November 14, 2018, we announced that the Board of Directors authorized an $85 million stock repurchase program. After completing the repurchases pursuant to this authorization during the first quarter of 2020, we announced on March 4, 2020, that the Board of Directors had authorized a new stock repurchase program pursuant to which itwe may purchase up to $25 million of our issued and outstanding common stock. The timing and amounts of any repurchases will depend on certain factors, including but not limited to market conditions and prices, available funds and alternative uses of capital. The stock repurchase program may be carried out through open-market purchases, block trades, negotiated private transactions and pursuant to a trading plan 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 March 4, 2022. Any repurchased shares will constitute authorized but unissued shares. We resumedinitially paused repurchases in AugustMarch 2020 as part of our holding company liquidity planning after having paused repurchases in March 2020 in response to the COVID-19 pandemic.pandemic and resumed repurchases in August 2020. During 2020, we repurchased 1,338,858 shares totaling $17.7 million under the new stock buyback program.
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During the three months ended September 30, 2020,March 31, 2021, we repurchased 401,491222,193 shares under the new stock buybackrepurchase program for $4.6$4.2 million. The following table presents information with respect to repurchases of our common shares during the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| |
| Approximate |
|
| |
| | |
| |
| Approximate |
| ||
| | | | | | | Total Number of | | Dollar Value of |
| | | | | | | Total Number of | | Dollar Value of |
| ||
| | | | | | | Shares Purchased | | Shares that May |
| | | | | | | Shares Purchased | | Shares that May |
| ||
| | Total Number of | | | | | as Part of Publicly | | Yet be Purchased |
| | Total Number of | | | | | as Part of Publicly | | Yet be Purchased |
| ||
| | Shares | | Average Price | | Announced Plans | | Under the Plans or |
| | Shares | | Average Price | | Announced Plans | | Under the Plans or |
| ||||
Period | | Purchased | | Paid per Share | | or Programs | | Programs |
| | Purchased | | Paid per Share | | or Programs | | Programs (1) |
| ||||
July 1 - 31, 2020 |
| — | | $ | — |
| — | | $ | 23,421,106 | (1) | |||||||||||
August 1 - 31, 2020 |
| 109,232 | | | 11.30 |
| 109,232 | | | 22,191,056 | | |||||||||||
September 1 - 30, 2020 |
| 292,259 | |
| 11.65 |
| 292,259 | |
| 18,801,828 | | |||||||||||
January 1 - 31, 2021 |
| 84,738 | | $ | 17.00 |
| 84,738 | | $ | 5,857,054 | | |||||||||||
February 1 - 28, 2021 |
| 92,055 | | | 19.04 |
| 92,055 | | | 4,104,157 | | |||||||||||
March 1 - 31, 2021 |
| 45,400 | |
| 21.98 |
| 45,400 | |
| 3,106,042 | | |||||||||||
Total |
| 401,491 | | $ | 11.48 |
| 401,491 | | $ | 18,801,828 | |
| 222,193 | | $ | 18.87 |
| 222,193 | | | | |
(1) | Represents the maximum dollar amount of shares available for repurchase in the $25 million share repurchase program announced March 4, 2020, expiring March 4, 2022. |
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| | Performance Share Award Agreement (for Severance Plan Participants), which is incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (file no. 001-37615), filed with the Securities and Exchange Commission on January 26, 2021. |
10.1 | ||
10.2 | | |
10.3 | | |
10.4 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101 | | The following materials from our Quarterly Report on Form 10-Q for the quarter ended |
104 | | The cover page from Atlantic Capital Bancshares, Inc. Quarterly Report on Form 10-Q for the quarter ended |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
| ATLANTIC CAPITAL BANCSHARES, INC. |
| |
| /s/ Douglas L. Williams |
| Douglas L. Williams |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
| |
| |
| /s/ Patrick T. Oakes |
| Patrick T. Oakes |
| Executive Vice President and |
| Chief Financial Officer |
| (Principal Financial and Accounting Officer) |
| |
| |
| Date: |
| |
| |
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