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, ~~2020~~2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NO. 001-37615

ATLANTIC CAPITAL BANCSHARES, INC.

(Exact Name of Registrant as Specified in its Charter)


Georgia	20-5728270
(State of Incorporation)	(I.R.S. Employer Identification No.)

945 East Paces Ferry Road NE, Suite 1600, Atlanta, Georgia	30326
(Address of principal executive offices)	(Zip Code)


	(404) 995-6050
	(Registrant’s telephone number, including area code)
	Not Applicable
	(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	ACBI	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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: ~~20,779,353~~20,304,722 shares outstanding as of November 1, ~~2020~~2021

Table of Contents

Atlantic Capital Bancshares, Inc.

Form 10-Q

INDEX

Glossary of Defined Terms


		Page No.
PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements (Unaudited)	1

	Consolidated Balance Sheets – September 30, ~~2020~~2021 and December 31, ~~2019~~2020	1

	Consolidated Statements of Income – Three and Nine Months ended September 30, ~~2020~~2021 and ~~2019~~2020	2

	Consolidated Statements of Comprehensive Income - Three and Nine Months ended September 30, ~~2020~~2021 and ~~2019~~2020	3

	Consolidated Statements of Shareholders’ Equity - Three and Nine Months ended September 30, ~~2020~~2021 and ~~2019~~2020	4

	Consolidated Statements of Cash Flows – Nine Months ended September 30, ~~2020~~2021 and ~~2019~~2020	6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4237

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6762

Item 4.	Controls and Procedures	6762

PART II.	OTHER INFORMATION	6862

Item 1.	Legal Proceedings	6862

Item 1A.	Risk Factors	6862

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6863

Item 3.	Defaults Upon Senior Securities	7063

Item 4.	Mine Safety Disclosures	7063

Item 5.	Other Information	7063

Item 6.	Exhibits	7064

SIGNATURES		7165

Table of Contents

GLOSSARY OF DEFINED TERMS

The following terms may be used throughout this report, including the consolidated financial statements and related

notes.


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 SouthState The Company	Secured Overnight Financing Rate SouthState Corporation Atlantic Capital Bancshares, Inc.
TDR	Troubled debt restructuring

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets

September 30,

December 31,


2020

2019
(in thousands, except share data)

(unaudited)

ASSETS

Cash and due from banks

$
22,715

$
45,249
Interest-bearing deposits in banks

91,243

421,079
Cash and cash equivalents

113,958

466,328
Investment securities available for sale

260,884

282,461
Investment securities held to maturity, net of allowance for credit losses of $15 at September 30, 2020

185,822

116,972
Other investments

26,315

27,556
Loans held for sale

859

370
Loans held for investment

2,188,035

1,873,524
Less: Allowance for credit losses

(31,894)

(18,535)
Loans held for investment, net

2,156,141

1,854,989
Premises and equipment, net

22,558

22,536
Bank owned life insurance

67,489

66,421
Goodwill

19,925

19,925
Other intangibles, net

2,685

3,027
Other real estate owned

563

278
Other assets

66,778

49,516
Total assets

$
2,923,977

$
2,910,379

LIABILITIES AND SHAREHOLDERS’ EQUITY






Deposits:




Noninterest-bearing demand

$
843,656

$
824,646
Interest-bearing checking

387,858

373,727
Savings

568

1,219
Money market

945,834

1,173,218
Time

196,343

44,389
Brokered deposits

94,463

81,847
Total deposits

2,468,722

2,499,046
Federal funds purchased

—

—
Federal Home Loan Bank borrowings

—

—
Long-term debt

73,814

49,873
Other liabilities

41,132

34,965
Total liabilities

2,583,668

2,583,884
SHAREHOLDERS’ EQUITY


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
Retained earnings

104,188

91,669
Accumulated other comprehensive income

15,478

4,561
Total shareholders’ equity

340,309

326,495
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$
2,923,977

$
2,910,379



	September 30,		December 31,
	2021		2020
(in thousands, except share data)	(unaudited)
ASSETS
Cash and due from banks	$	25,725	$	16,865
Interest-bearing deposits in banks		811,168		636,537
Other short-term investments		140,848		—
Cash and cash equivalents		977,741		653,402
Investment securities available for sale		535,158		335,423
Investment securities held to maturity, net of allowance for credit losses of $13 and $14 at September 30, 2021 and December 31, 2020, respectively		237,829		200,156
Other investments		23,877		25,892
Loans held for sale		11,814		—
Loans held for investment		2,273,856		2,249,036
Less: Allowance for loan losses		(23,924)		(31,818)
Loans held for investment, net		2,249,932		2,217,218
Premises and equipment, net		18,517		21,589
Bank owned life insurance		74,000		72,856
Goodwill		19,925		19,925
Other intangibles, net		2,573		2,731
Other real estate owned		—		16
Other assets		58,950		66,409
Total assets	$	4,210,316	$	3,615,617

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	1,691,616	$	1,033,765
Interest-bearing checking		721,525		760,638
Savings		800		625
Money market		930,929		1,030,753
Time		287,865		241,328
Brokered deposits		94,586		94,399
Total deposits		3,727,321		3,161,508
Long-term debt		74,024		73,807
Other liabilities		45,046		41,716
Total liabilities		3,846,391		3,277,031
SHAREHOLDERS’ EQUITY
Preferred Stock, 0 par value - 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020		—		—
Common stock, 0 par value - 100,000,000 shares authorized; 20,305,109 and 20,394,912 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		207,214		209,942
Retained earnings		152,619		114,137
Accumulated other comprehensive income		4,092		14,507
Total shareholders’ equity		363,925		338,586
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,210,316	$	3,615,617

See Accompanying Notes to Consolidated Financial Statements

Table of Contents

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Income

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(in thousands, except per share data)	2020		2019		2020		2019		2021		2020		2021		2020
INTEREST INCOME
Loans, including fees	$	21,049	$	23,541	$	63,971	$	69,847	$	22,151	$	21,049	$	67,272	$	63,971
Investment securities		2,910		2,176		8,683		7,146		3,920		2,910		11,194		8,683
Interest and dividends on other interest-earning assets		274		803		1,399		2,322		593		274		1,226		1,399
Total interest income		24,233		26,520		74,053		79,315		26,664		24,233		79,692		74,053
INTEREST EXPENSE
Interest on deposits		1,151		5,223		6,632		15,502		789		1,151		2,611		6,632
Interest on Federal Home Loan Bank advances		16		390		54		660		—		16		—		54
Interest on federal funds purchased and securities sold under agreements to repurchase		3		99		41		385		—		3		—		41
Interest on long-term debt		1,345		824		2,997		2,471		1,106		1,345		3,307		2,997
Total interest expense		2,515		6,536		9,724		19,018		1,895		2,515		5,918		9,724
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES		21,718		19,984		64,329		60,297		24,769		21,718		73,774		64,329
Provision for credit losses		28		413		16,965		1,925		(2,405)		28		(7,857)		16,965
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		21,690		19,571		47,364		58,372		27,174		21,690		81,631		47,364
NONINTEREST INCOME
Service charges		1,217		925		3,530		2,589		1,765		1,217		5,155		3,530
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										38		(145)		38		(140)
Derivatives (loss) income										21		10		61		246
Bank owned life insurance		363		422		1,092		1,171		391		363		1,170		1,092
SBA lending activities		893		1,150		2,089		3,332		1,276		893		3,732		2,089
Other noninterest income		166		172		452		557		1,118		166		1,597		452
Total noninterest income		2,504		2,769		7,269		8,046		4,609		2,504		11,755		7,269
NONINTEREST EXPENSE
Salaries and employee benefits		8,850		8,295		25,792		26,037		10,290		8,850		31,073		25,792
Employee retention credit										(3,035)		—		(3,035)		—
Occupancy		739		722		2,416		2,050		756		739		2,268		2,416
Equipment and software		826		842		2,368		2,334		857		826		2,450		2,368
Professional services		562		764		2,059		2,331		737		562		2,382		2,059
Communications and data processing		757		796		2,324		2,133		889		757		2,550		2,324
Marketing and business development		141		243		373		702		142		141		388		373
Travel, meals and entertainment		39		152		213		504		91		39		148		213
FDIC premiums		213		(193)		388		217		478		213		1,174		388
Merger and conversion costs										2,899		—		2,899		—
Other noninterest expense		1,586		1,056		3,561		3,418		914		1,586		3,067		3,561
Total noninterest expense		13,713	$	12,677		39,494		39,726		15,018		13,713		45,364		39,494
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES		10,481		9,663		15,139		26,692
INCOME BEFORE PROVISION FOR INCOME TAXES										16,765		10,481		48,022		15,139
Provision for income taxes		1,863		2,094		2,548		5,674		3,461		1,863		9,540		2,548
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	$	13,304	$	8,618	$	38,482	$	12,591

Net income per common share ‑ basic										0.66		0.40		1.89		0.58
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		0.40		1.88		0.58
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

Table of Contents

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2020

2019

2020

2019

Net income

$
8,618

$
8,186

$
12,591

$
42,715

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

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

Changes from cash flow hedges

(447)

1,744

6,565

5,201

Other comprehensive income, net of tax

(412)

2,914

10,917

16,800

Comprehensive income

$
8,206

$
11,100

$
23,508

$
59,515


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands)	2021		2020		2021		2020
Net income	$	13,304	$	8,618	$	38,482	$	12,591
Other comprehensive income
Unrealized (losses) gains on available-for-sale securities:
Unrealized holding (losses) gains arising during the period, net of tax of ($801), $11, ($2,427) and $1,419, respectively		(2,439)		35		(7,388)		4,352
Reclassification adjustment for losses (gains) included in net income net of tax of $0 for all periods presented		—		—		(2)		—
Unrealized (losses) gains on available-for-sale securities, net of tax		(2,439)		35		(7,390)		4,352
Cash flow hedges:
Net unrealized derivative (losses) gains on cash flow hedges, net of tax of ($237), ($146), ($994) and $2,144, respectively		(720)		(447)		(3,025)		6,565
Changes from cash flow hedges		(720)		(447)		(3,025)		6,565
Other comprehensive (loss) income, net of tax		(3,159)		(412)		(10,415)		10,917
Comprehensive income	$	10,145	$	8,206	$	28,067	$	23,508

See Accompanying Notes to Consolidated Financial Statements

Table of Contents

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Shareholders’ Equity

(Unaudited)


For the Nine months ended September 30, 2020
For the Nine months ended September 30, 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	—		—		38,482		—		38,482
Change in unrealized gains (losses) on investment securities available-for-sale, net	—		—		—		4,352		4,352
Change in unrealized gains (losses) on cash flow hedges	—		—		—		6,565		6,565
Change in unrealized losses on investment securities available-for-sale, net										—		—		—		(7,390)		(7,390)
Change in unrealized losses on cash flow hedges										—		—		—		(3,025)		(3,025)
Total comprehensive income									23,508									28,067
Change in accounting principle - allowance for credit losses	—		—		(72)		—		(72)
Net issuance of restricted stock	185,901		—		—		—		—	41,370		—		—		—		—
Issuance of common stock for option exercises	60,940		660		—		—		660	112,499		962		—		—		962
Issuance of common stock for long-term incentive plan	25,265		444		—		—		444	28,920		—		—		—		—
Restricted stock activity	—		945		—		—		945	—		913		—		—		913
Stock-based compensation	—		53		—		—		53
Performance share compensation	—		307		—		—		307
Performance share activity										—		884		—		—		884
Stock repurchases	(820,349)		(12,031)		—		—		(12,031)	(272,592)		(5,487)		—		—		(5,487)
Balance - September 30, 2020	21,202,783	$	220,643	$	104,188	$	15,478	$	340,309
Balance - September 30, 2021										20,305,109	$	207,214	$	152,619	$	4,092	$	363,925

For the Three months ended September 30, 2020
For the Three months ended September 30, 2021
						Accumulated									Accumulated
						Other									Other
	Common Stock			Retained		Comprehensive				Common Stock			Retained		Comprehensive
	Shares	Amount		Earnings		Income (Loss)		Total		Shares	Amount		Earnings		Income		Total
Balance - June 30, 2020	21,477,631	$	224,520	$	95,570	$	15,890	$	335,980
Balance - June 30, 2021										20,319,429	$	206,619	$	139,315	$	7,251	$	353,185
Comprehensive income:
Net income	—		—		8,618		—		8,618	—		—		13,304		—		13,304
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)
Change in unrealized gains on investment securities available-for-sale, net										—		—		—		(2,439)		(2,439)
Change in unrealized gains on cash flow hedges										—		—		—		(720)		(720)
Total comprehensive income									8,206									10,145
Change in accounting principle - leases	—		—		—		—		—
Net issuance of restricted stock	126,643		—		—		—		—	(14,320)		—		—		—		—
Issuance of common stock for option exercises	—		—		—		—		—	—		—		—		—		—
Issuance of common stock for long-term incentive plan	—		—		—		—		—
Restricted stock activity	—		448		—		—		448	—		188		—		—		188
Stock-based compensation	—		18		—		—		18
Performance share compensation	—		277		—		—		277
Performance share activity										—		407		—		—		407
Stock repurchases	(401,491)		(4,620)		—		—		(4,620)	—		—		—		—		—
Balance - September 30, 2020	21,202,783	$	220,643	$	104,188	$	15,478	$	340,309
Balance - September 30, 2021										20,305,109	$	207,214	$	152,619	$	4,092	$	363,925

Table of Contents


For the Nine months ended September 30, 2019
For the Nine months ended September 30, 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	—		—		12,591		—		12,591
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										—		—		—		4,352		4,352
Change in unrealized gains on cash flow hedges										—		—		—		6,565		6,565
Total comprehensive income									59,515									23,508
Change in accounting principle - leases	—		—		(373)		—		(373)
Change in accounting principle - allowance for credit losses										—		—		(72)		—		(72)
Net issuance of restricted stock	30,263		—		—		—		—	185,901		—		��		—		—
Issuance of common stock for option exercises	79,980		1,044		—		—		1,044	60,940		660		—		—		660
Issuance of common stock for long-term incentive plan	35,678		655		—		—		655	25,265		444		—		—		444
Restricted stock activity	—		552		—		—		552	—		945		—		—		945
Stock-based compensation	—		151		—		—		151	—		53		—		—		53
Performance share compensation	—		260		—		—		260
Performance share activity										—		307		—		—		307
Stock repurchases	(3,242,579)		(56,746)		—		—		(56,746)	(820,349)		(12,031)		—		—		(12,031)
Balance - September 30, 2019	22,193,761	$	237,687	$	84,529	$	6,495	$	328,711
Balance - September 30, 2020										21,202,783	$	220,643	$	104,188	$	15,478	$	340,309

For the Three months ended September 30, 2019
For the Three months ended September 30, 2020
						Accumulated									Accumulated
						Other									Other
	Common Stock			Retained		Comprehensive				Common Stock			Retained		Comprehensive
	Shares	Amount		Earnings		Income (Loss)		Total		Shares	Amount		Earnings		Income		Total
Balance - June 30, 2019	23,293,465	$	256,791	$	76,343	$	3,581	$	336,715
Balance - June 30, 2020										21,477,631	$	224,520	$	95,570	$	15,890	$	335,980
Comprehensive income:
Net income	—		—		8,186		—		8,186	—		—		8,618		—		8,618
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
Change in unrealized gains on investment securities available-for-sale, net										—		—		—		35		35
Change in unrealized gains on cash flow hedges										—		—		—		(447)		(447)
Total comprehensive income									11,100									8,206
Net issuance of restricted stock	25,359		—		—		—		—	126,643		—		—		—		—
Issuance of common stock for option exercises	39,000		573		—		—		573
Restricted stock activity	—		327		—		—		327	—		448		—		—		448
Stock-based compensation	—		18		—		—		18	—		18		—		—		18
Performance share compensation	—		106		—		—		106
Performance share activity										—		277		—		—		277
Stock repurchases	(1,164,063)		(20,128)		—		—		(20,128)	(401,491)		(4,620)		—		—		(4,620)
Balance - September 30, 2019	22,193,761	$	237,687	$	84,529	$	6,495	$	328,711
Balance - September 30, 2020										21,202,783	$	220,643	$	104,188	$	15,478	$	340,309

See Accompanying Notes to Consolidated Financial Statements

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Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
(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					$	38,482	$	12,591
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses		16,965		1,925		(7,857)		16,965
Depreciation, amortization, and accretion		3,726		2,497		4,731		3,726
Amortization of operating lease right-of-use assets		1,621		1,703		1,323		1,621
Amortization of restricted stock and performance share compensation		1,282		811		2,550		1,282
Stock option compensation		53		151		—		53
(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
(Gain) loss on disposition of premises and equipment, net						(3)		7
Net write downs and (gains) losses on sales of other real estate owned						(35)		213
Net increase in cash value of bank owned life insurance		(1,068)		(1,100)		(1,144)		(1,068)
(Gain) on bank owned life insurance		—		(46)
Net (gains) on sale of branches		—		(34,475)
Origination of servicing assets		(492)		(975)		(747)		(492)
Proceeds from sales of SBA loans		28,968		54,333		39,088		28,968
Net (gains) on sale of SBA loans		(1,476)		(2,875)		(3,161)		(1,476)
Changes in operating assets and liabilities -
Net change in loans held for sale		(489)		4,973		(11,814)		(489)
Net change in operating lease right-of-use assets		(62)		—		—		(62)
Net (increase) decrease in other assets		(11,888)		6,089		8,325		(11,888)
Net increase (decrease) in accrued expenses and other liabilities		4,602		(3,991)		3,367		4,602
Net cash provided by operating activities		54,553		70,727		73,103		54,553
INVESTING ACTIVITIES
Activity in securities available-for-sale:
Prepayments		24,767		33,199		51,311		24,767
Maturities and calls		1,690		3,450		6,650		1,690
Sales		—		116,963		750		—
Purchases		—		(22,678)		(269,915)		—
Activity in securities held to maturity:
Prepayments						24		—
Purchases		(69,141)		(42,866)		(38,032)		(69,141)
Net change in loans held for investment		(344,743)		(160,851)		(61,532)		(344,743)
Net change in assets held for sale - discontinued operations		—		(11,789)
(Purchases) proceeds of Federal Home Loan Bank stock, net		61		(3,288)		811		61
(Purchases) proceeds of Federal Reserve Bank stock, net		(82)		(92)		(43)		(82)
Proceeds from bank owned life insurance benefits		—		248
Proceeds from sales of other real estate owned		533		847		51		533
Net cash received (paid) for branch divestiture		—		(166,755)
(Purchases) of premises and equipment, net		(3,313)		(1,380)		(85)		(3,313)
Net cash (used in) investing activities		(390,228)		(254,992)		(310,010)		(390,228)
FINANCING ACTIVITIES
Net change in deposits		(30,324)		(98,242)		565,813		(30,324)
Net change in liabilities to be assumed - discontinued operations		—		6,560
Net change in fed funds purchased		—		57,000
Proceeds from Federal Home Loan Bank advances		345,000		566,000		—		345,000
Repayments of Federal Home Loan Bank advances		(345,000)		(490,000)		—		(345,000)
Proceeds from exercise of stock options		660		1,045		920		660
Issuance of subordinated debt		75,000		—		—		75,000
Repayment of subordinated debt		(50,000)		—		—		(50,000)
Repurchase of common stock		(12,031)		(56,746)		(5,487)		(12,031)
Net cash (used in) financing activities		(16,695)		(14,383)
Net cash provided by (used in) financing activities						561,246		(16,695)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(352,370)		(198,648)		324,339		(352,370)
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	$	977,741	$	113,958
SUPPLEMENTAL SCHEDULE OF CASH FLOWS

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest paid	$	9,990	$	20,454	$	7,057	$	9,990
Income taxes paid		2,334		885		6,631		2,334

See Accompanying Notes to Consolidated Financial Statements

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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.

~~Adoption of New Accounting Standard~~Proposed Merger with SouthState Corporation

On ~~January 1,~~July 23, 2021, Atlantic Capital and SouthState Corporation, a South Carolina corporation, entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Atlantic Capital will merge with and into SouthState, with SouthState as the surviving corporation, in an all-stock transaction (the “Merger”). Following the Merger, the Bank will merge with and into SouthState Bank, National Association, a wholly owned subsidiary of SouthState (“SouthState Bank”), with SouthState Bank as the surviving entity. The Merger Agreement was unanimously approved by the board of directors of each of Atlantic Capital and SouthState. Completion of the merger is subject to customary closing conditions, including receipt of required regulatory approvals and the approval by shareholders of Atlantic Capital. The transaction is expected to close in the first quarter of 2022.

Subject to the terms of the Merger Agreement, Atlantic Capital shareholders will receive 0.36 shares of SouthState common stock, par value $2.50 per share (“SouthState common stock”), for each outstanding share of Atlantic Capital common stock. Additionally, 2 Atlantic Capital directors will join both SouthState's board and the SouthState Bank board.

NOTE 2 – ACCOUNTING STANDARDS UPDATES AND RECENTLY ADOPTED STANDARDS

Recently Adopted Accounting Pronouncements

In March 2020, the ~~Company adopted Accounting Standards Update (“ASU”) 2016-13~~ FASB issued ASU No. 2020-04, “~~Financial Instruments~~Reference Rate Reform (Topic 848) – ~~Credit Losses (Topic 326): Measurement~~Facilitation of ~~Credit Losses~~the Effects of Reference Rate Reform on Financial ~~Instruments~~Reporting.”~~, which replaces the incurred loss methodology with an expected loss methodology that is referred~~ The amendments in this update provide optional expedients and exceptions for applying GAAP 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,contracts, hedging relationships and other ~~similar instruments)~~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 ~~net investments in leases recognized by~~consolidated financial statements. The Company does not expect the discontinuance of LIBOR to have a ~~lessor in accordance with Topic 842~~material impact on ~~leases. Additionally,~~Atlantic Capital’s financial position or results of operations.

In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting ~~Standards Codification (“ASC”) 326 made changes to~~for Income Taxes.” This ASU simplifies the accounting for ~~available-for-sale debt securities. One such change is~~income taxes by eliminating certain exceptions to ~~require credit losses~~the guidance in ASC 740 related to ~~be presented as~~the approach for intraperiod tax allocation, the methodology for calculating income taxes in an ~~allowance rather than as~~interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the

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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 using~~step-up in the ~~modified retrospective method~~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 was effective for ~~all financial assets measured at amortized cost~~interim and ~~off-balance-sheet credit exposures. Results for~~annual reporting periods beginning after ~~January 1,~~December 15, 2020 ~~are presented under ASC 326 while prior~~and 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, net~~any related premium at each reporting period. Adoption of ~~tax,~~this update, which was effective for Atlantic Capital as of January 1, ~~2020 for~~2021, did not have a material impact on the cumulative effect of adopting ASC 326. The transition adjustment includes a $1.3 million increase related to the allowance 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.

consolidated financial statements.

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NOTE 3 – BALANCE SHEET OFFSETTING

Atlantic Capital enters into reverse repurchase agreements to invest short-term funds. The Company ~~finalized~~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 ~~adoption~~same counterparty under master netting agreements and amounts received or pledged as collateral at September 30, 2021 and December 31, 2020. While these agreements are typically over-collateralized, GAAP requires disclosures in this table to limit the amount of ~~January 1, 2020 as detailed in~~such collateral to the ~~following table~~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, 2021	Assets		Balance Sheet		Balance		Instruments		Received		Net Amount
Reverse repurchase agreements	$	140,848	$	—	$	140,848	$	(140,848)	$	—	—	—
Derivatives	$	13,424	$	—	$	13,424	$	—	$	(5,240)	$	8,184
Total	$	154,272	$	—	$	154,272	$	(140,848)	$	(5,240)	$	8,184


							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
Repurchase agreements	$	—	$	—	$	—	$	—	$	—	$	—
Derivatives	$	6,825	$	—	$	6,825	$	(6,825)	$	330	$	(6,495)
Total	$	6,825	$	—	$	6,825	$	(6,825)	$	330	$	(6,495)


							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)

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

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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 September 30, 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)
September 30, 2021
Available-For-Sale
U.S. states and political divisions	$	74,608	$	2,094	$	—	$	76,702
Trust preferred securities		4,855		16		—		4,871
Corporate debt securities		24,006		368		—		24,374
Residential mortgage-backed securities		406,147		2,502		(6,347)		402,302
Commercial mortgage-backed securities		26,381		657		(129)		26,909
Total available-for-sale		535,997		5,637		(6,476)		535,158

			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		237,842		10,593		(2,506)		245,929		(13)		237,829
Total held-to-maturity		237,842		10,593		(2,506)		245,929		(13)		237,829

Total securities	$	773,839	$	16,230	$	(8,982)	$	781,087

			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

⁽¹⁾ T~~he adoption~~Table of ~~CECL resulted~~Contents

The following table presents the activity in ~~a reduction of retained earnings totaling $72,000, net of tax.~~the allowance for credit losses on securities held-to-maturity by major security type for the three and nine months ended September 30, 2021 and 2020.


	For the Three Months Ended September 30,
	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	$	11	$	2	$	13
Provision for credit losses		(2)		2		—
Securities charged-off		—		—		—
Recoveries		—		—		—
Total ending allowance balance	$	9	$	4	$	13


	For the Nine Months Ended September 30,
	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		(1)		—		(1)
Securities charged-off		—		—		—
Recoveries		—		—		—
Total ending allowance balance	$	9	$	4	$	13


	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

~~Allowance for Credit Losses on Held-to-Maturity Securities~~


	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

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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 $1.7 million at September 30, 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 $1.4 million and $1.2 million at September 30, 2021 and December 31, 2020, respectively, 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, 2021, 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, 2021	(in thousands)
Aaa	$	58,171	$	37,375	$	95,546
Aa1		42,772		16,916		59,688
Aa2		37,922		28,927		66,849
Aa3		11,586		1,981		13,567
A1		2,191		1		2,192
Total	$	152,642	$	85,200	$	237,842

As of September 30, 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 ~~portfolio consists entirely of municipal securities. Securities are generally rated A~~debt securities by contractual maturity at September 30, 2021. Actual maturities may differ from contractual maturities because borrowers may have the right to call or ~~higher. Securities are analyzed individually to establish a CECL mark.~~prepay obligations with or without call or prepayment penalties.

~~Allowance for Credit Losses on Available-for-Sale Securities~~


	Available-For-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

	(in thousands)
Within 1 year	$	4,505	$	4,554	$	—	$	—
After 1 year through 5 years		12,538		12,772		—		—
After 5 years through 10 years		40,674		41,663		309		312
After 10 years		45,752		46,958		237,533		245,617
		103,469		105,947		237,842		245,929
Residential mortgage-backed securities		406,147		402,302		—		—
Commercial mortgage-backed securities		26,381		26,909		—		—
Total	$	535,997	$	535,158	$	237,842	$	245,929

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

812

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~~value is less than~~The following table summarizes available-for-sale and held-to-maturity securities in an unrealized loss position as of September 30, 2021 and December 31, 2020.


	Less than 12 months				12 months or greater				Totals
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2021	Value		Losses		Value		Losses		Value		Losses

	(in thousands)
Available-for-Sale
Residential mortgage-backed securities	$	332,099	$	(6,337)	$	160	$	(10)	$	332,259	$	(6,347)
Commercial mortgage-backed securities		3,623		(129)		—		—		3,623		(129)
Total available-for-sale		335,722		(6,466)		160		(10)		335,882		(6,476)
Held-to-Maturity
U.S. states and political divisions		51,775		(2,506)		—		—		51,775		(2,506)
Total held-to-maturity		51,775		(2,506)		—		—		51,775		(2,506)
Total securities	$	387,497	$	(8,972)	$	160	$	(10)	$	387,657	$	(8,982)

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)

At September 30, 2021, there were 50 available-for-sale securities that were in an unrealized loss position. There were also 26 held-to-maturity securities that were in an unrealized loss position at September 30, 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. ~~Any~~Unrealized losses at September 30, 2021 and December 31, 2020 were attributable to changes in market interest rates. NaN credit impairment ~~that has not been~~was recorded ~~through~~for those securities in an ~~allowance~~unrealized loss position for ~~credit~~the three and nine months ended September 30, 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 and nine months ended September 30, 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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(in thousands)
Proceeds from sales	$	—	$	—	$	750	$	—
Gross realized gains		—	$	—	$	2	$	—
Gross realized losses		—		—		—		—
Net gains on sales of securities	$	—	$	—	$	2	$	—

~~Allowance for Credit Losses~~Investment securities with a carrying value of $43.3 million and $43.9 million were pledged to secure public funds and other borrowings at September 30, 2021 and December 31, 2020, respectively.

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As of September 30, 2021 and December 31, 2020, Atlantic Capital had investments with a carrying value of $5.3 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 ~~Loans~~the Consolidated Balance Sheets. During the three and nine months ended September 30, 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.

NOTE 5 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio as of September 30, 2021 and December 31, 2020, is summarized below.


	September 30, 2021		December 31, 2020

	(in thousands)
Loans held for sale
Loans held for sale	$	11,814	$	—
Total loans held for sale	$	11,814	$	—

Loans held for investment
Commercial loans:
Commercial and industrial	$	838,741	$	952,805
Commercial real estate		960,319		909,101
Construction and land		205,148		145,595
Total commercial loans		2,004,208		2,007,501
Residential:
Residential mortgages		47,076		33,783
Home equity		28,943		25,443
Total residential loans		76,019		59,226
Consumer		192,462		176,066
Other		4,921		13,897
Total loans		2,277,610		2,256,690
Less net deferred fees and other unearned income		(3,754)		(7,654)
Less allowance for credit losses on loans		(23,924)		(31,818)
Loans held for investment, net	$	2,249,932	$	2,217,218

At September 30, 2021 and December 31, 2020, loans with a carrying value of $525.4 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 September 30, 2021, the remaining accretable fair value discount on loans acquired through a business combination and not accounted for under ASC 310-30 was $180,000 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. ~~Loans~~It is comprised of specific allowance for individually assessed loans and a general allowance for loans that are ~~charged off against the~~collectively assessed in pools with similar risk characteristics. The allowance ~~when management believes the uncollectibility of~~is regularly evaluated to maintain a ~~loan balance is confirmed and recoveries are credited~~level adequate to ~~the allowance when received. The Company may also account for~~absorb 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 2015~~loan portfolio. Accrued interest receivable totaled $9.4 million at September 30, 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 September 30, 2021 and December 31, 2020 was $31,000 and $49,000, respectively, related to ~~present. Adjustments to historical loss information are made when management determines historical data are not likely reflective~~accrued interest receivable totaling $3.6 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

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~~Journal survey of economists’ forecast. After~~The following table presents the ~~forecast period, PD rates revert~~balance 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 and nine months ended September 30, 2021 and 2020.


	For the Three Months Ended September 30,
	2021
	Commercial		Residential		Consumer		Total

	(in thousands)
Allowance for credit losses on loans
Beginning balance	$	25,070	$	519	$	534	$	26,123
Provision for loan losses		(2,071)		(58)		(92)		(2,221)
Loans charged-off		(131)		—		—		(131)
Recoveries		151		—		2		153
Total ending allowance balance	$	23,019	$	461	$	444	$	23,924


	For the Three Months Ended September 30,
	2020
	Commercial		Residential		Consumer		Total

	(in thousands)
Allowance for credit losses on loans
Beginning balance	$	30,834	$	517	$	254	$	31,605
Provision for loan losses		(83)		149		570		636
Loans charged-off		(404)		—		—		(404)
Recoveries		56		—		1		57
Total ending allowance balance	$	30,403	$	666	$	825	$	31,894


	For the Nine Months Ended September 30,
	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		(6,604)		(47)		(458)		(7,109)
Loans charged-off		(805)		(223)		—		(1,028)
Recoveries		207		32		4		243
Total ending allowance balance	$	23,019	$	461	$	444	$	23,924


	For the Nine Months Ended September 30,
	2020
	Commercial		Residential		Consumer		Total

	(in thousands)
Allowance for credit losses on loans
Beginning balance	$	18,203	$	145	$	187	$	18,535
Impact of adopting ASC 326		(947)		8		85		(854)
Provision for loan losses		15,051		673		543		16,267
Loans charged-off		(1,979)		(161)		—		(2,140)
Recoveries		75		1		10		86
Total ending allowance balance	$	30,403	$	666	$	825	$	31,894

The ~~Company recognizes that all significant factors that affect~~decrease in the ~~collectability~~allowance for credit losses at September 30, 2021 compared to December 31, 2020 was due to an improvement in the CECL economic forecast partially offset by growth in commercial real estate loans and in construction loans.

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realizable value of the loan ~~portfolio must be considered to determine~~collateral. When assessing property value for the ~~estimated credit losses as~~purpose of ~~the~~determining 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 Assessment~~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.

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.

~~Table of Contents~~

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, “F~~~~air 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.

~~Table of Contents~~

~~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.~~

~~Table of Contents~~

~~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)

$
—

$
—

~~Table of Contents~~

~~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

~~Table of Contents~~

~~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.

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

~~Table of Contents~~

~~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

~~Table of Contents~~

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.

~~Table of Contents~~

~~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.

~~Table of Contents~~

~~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, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had a recorded investment in TDRs of ~~$14.4~~$13.2 million and ~~$13.2~~$14.2 million, respectively. The Company allocated ~~$689,000~~$502,000 in allowance for those loans at September 30, ~~2020~~2021 and had 0 commitments to lend additional funds on loans modified as TDRs as of September 30, ~~2020. The Company had commitments to lend additional funds of $4,000 on loans modified as TDRs as of~~2021 and December 31, ~~2019.~~2020.

~~Table of Contents~~

~~Loans, by portfolio class,~~There were 0 loans modified as TDRs during the three and nine months ended September 30, 2021, nor during the three months ended September 30, 2020. Loans, by portfolio class, modified as TDRs during the 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
Commercial and industrial	1	$	65	$	3	1	$	65	$	3
Commercial real estate	1		1,920		188	1		1,920		188
Total	2	$	1,985	$	191	2	$	1,985	$	191

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, ~~2020~~2021 and ~~2019.~~2020.

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 and nine months ended September 30, 2020, and within twelve months of their modification date. There were ~~no subsequent defaults for~~0 loans modified as TDRs ~~for~~that defaulted during the three orand 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.~~2021, and within twelve months of their modification date.


	~~Three Months Ended~~
	~~September 30, 2020~~
~~Troubled debt restructurings that subsequently defaulted during the period within twelve months of their modification date:~~	~~Number of Loans~~		~~Outstanding Balance~~

~~(in thousands)~~
~~Commercial~~	-	$	-
~~Total~~	-	$	-

Nine Months Ended

September 30, 2020

Number of Loans

Outstanding Balance

(in thousands)

Commercial

2

$
310
Total

2

$
310


	Three Months Ended			Nine Months Ended
	September 30, 2020			September 30, 2020
	Number of Loans		Outstanding Balance	Number of Loans		Outstanding Balance

(in thousands)
Commercial	-	$	-	2	$	310
Total	-	$	-	2	$	310

Section 4013 “Temporary Relief From Troubled Debt Restructurings,” of the ~~Coronavirus Aid, Relief, and Economic Security~~CARES Act, passed by Congress and signed into law on March 27, 2020, allows financial institutions the option to temporarily suspend certain requirements under

2016

Table of Contents

~~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 ~~National Emergency;~~national emergency;

●

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-value~~LTV 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.

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.

2117

Table of Contents

As of September 30, ~~2020,~~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
September 30, 2021
Commercial - commercial and industrial:
Risk rating
Pass	$	345,849	$	149,459	$	98,060	$	48,319	$	37,375	$	17,129	$	154,115	$	850,306	$	261,015	$	102,552	$	70,930	$	54,530	$	38,707	$	47,740	$	223,244	$	798,718
Special mention		485		8,771		27,186		272		—		331		25,734		62,779		425		500		4,807		6,585		430		834		5,067		18,648
Substandard		—		3,881		9,141		2,890		1,570		6,089		7,745		31,316		—		650		5,690		10,918		—		702		3,043		21,003
Doubtful		—		—		—		—		—		—		—		—		—		—		—		372		—		—		—		372
Total commercial - commercial and industrial	$	346,334	$	162,111	$	134,387	$	51,481	$	38,945	$	23,549	$	187,594	$	944,401	$	261,440	$	103,702	$	81,427	$	72,405	$	39,137	$	49,276	$	231,354	$	838,741
Commercial - commercial real estate:
Risk rating
Pass	$	55,813	$	164,849	$	135,310	$	97,639	$	137,676	$	220,153	$	9,255	$	820,695	$	150,774	$	89,754	$	153,456	$	128,454	$	59,061	$	318,772	$	18,110	$	918,381
Special mention		—		8,463		3,718		—		10,533		4,537		—		27,251		—		2,899		10,157		1,401		256		7,016		1,212		22,941
Substandard		—		11,506		2,126		3,261		—		15,896		50		32,839		—		—		—		5,711		2,959		10,327		—		18,997
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total commercial - commercial real estate loans	$	55,813	$	184,818	$	141,154	$	100,900	$	148,209	$	240,586	$	9,305	$	880,785	$	150,774	$	92,653	$	163,613	$	135,566	$	62,276	$	336,115	$	19,322	$	960,319
Commercial - construction and land:
Risk rating
Pass	$	43,899	$	57,168	$	19,925	$	—	$	663	$	890	$	—	$	122,545	$	54,177	$	90,936	$	34,842	$	88	$	—	$	—	$	25,105	$	205,148
Special mention		—		8,997		6,030		—		2,264		—		—		17,291		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total commercial - construction and land loans	$	43,899	$	66,165	$	25,955	$	—	$	2,927	$	890	$	—	$	139,836	$	54,177	$	90,936	$	34,842	$	88	$	—	$	—	$	25,105	$	205,148
Residential - mortgages:
Risk rating
Pass	$	3,540	$	2,882	$	14,805	$	1,632	$	3,569	$	399	$	—	$	26,827	$	6,858	$	9,002	$	2,871	$	14,538	$	4,548	$	8,189	$	—	$	46,006
Special mention		697		—		859		760		—		—		—		2,316		—		—		—		160		728		—		—		888
Substandard		—		—		179		—		26		112		—		317		—		—		—		156		—		26		—		182
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total residential - mortgage loans	$	4,237	$	2,882	$	15,843	$	2,392	$	3,595	$	511	$	—	$	29,460	$	6,858	$	9,002	$	2,871	$	14,854	$	5,276	$	8,215	$	—	$	47,076
Residential - home equity:
Risk rating
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	24,279	$	24,279	$	—	$	—	$	—	$	—	$	—	$	—	$	28,018	$	28,018
Special mention		—		—		—		—		��		—		249		249		—		—		—		—		—		—		726		726
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—		199		199
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total residential - home equity loans	$	—	$	—	$	—	$	—	$	—	$	—	$	24,528	$	24,528	$	—	$	—	$	—	$	—	$	—	$	—	$	28,943	$	28,943
Consumer:
Risk rating
Pass	$	138,552	$	8,145	$	49	$	56	$	64	$	4,681	$	3,369	$	154,916	$	153,819	$	31,763	$	2,152	$	—	$	22	$	3,700	$	1,006	$	192,462
Special mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total consumer loans	$	138,552	$	8,145	$	49	$	56	$	64	$	4,681	$	3,369	$	154,916	$	153,819	$	31,763	$	2,152	$	—	$	22	$	3,700	$	1,006	$	192,462
Consumer - other:
Other:
Risk rating
Pass	$	—	$	—	$	4,720	$	1,965	$	231	$	784	$	11,973	$	19,673	$	64	$	—	$	—	$	1,551	$	1,164	$	549	$	—	$	3,328
Special mention		—		2,648		—		—		—		—		—		2,648		—		—		—		—		—		—		—		—
Substandard		—		—		—		456		—		—		—		456		—		—		—		—		1,593		—		—		1,593
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total consumer - other loans	$	—	$	2,648	$	4,720	$	2,421	$	231	$	784	$	11,973	$	22,777
Total other loans																	$	64	$	—	$	—	$	1,551	$	2,757	$	549	$	—	$	4,921

Total:
Pass	$	587,653	$	382,503	$	272,869	$	149,611	$	179,578	$	244,036	$	202,991	$	2,019,241	$	626,707	$	324,007	$	264,251	$	199,161	$	103,502	$	378,950	$	295,483	$	2,192,061
Special Mention		1,182		28,879		37,793		1,032		12,797		4,868		25,983		112,534		425		3,399		14,964		8,146		1,414		7,850		7,005		43,203
Substandard		—		15,387		11,446		6,607		1,596		22,097		7,795		64,928		—		650		5,690		16,785		4,552		11,055		3,242		41,974
Doubtful		—		—		—		—		—		—		—		—		—		—		—		372		—		—		—		372
Total	$	588,835	$	426,769	$	322,108	$	157,250	$	193,971	$	271,001	$	236,769	$	2,196,703	$	627,132	$	328,056	$	284,905	$	224,464	$	109,468	$	397,855	$	305,730	$	2,277,610

2218

Table of Contents

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
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

Table of Contents

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, 2021 and December 31, 2020:


									As of September 30, 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	$	—	$	—	$	2,445	$	2,445	$	—
Commercial real estate										13		—		13		—
Total commercial loans		3,725		1,334		5,059		—		13		2,445		2,458		—
Residential mortgages		26		—		26		336		1,619		—		1,619		—
Total loans	$	3,751	$	1,334	$	5,085	$	336	$	1,632	$	2,445	$	4,077	$	—


	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, 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~~$58,000 and ~~$123,000~~$103,000 during the three and nine months ended September 30, ~~2020.~~2021, respectively. During the three and nine months ended September 30, ~~2019,~~2020, Atlantic Capital recognized interest income on nonaccrual loans ~~totaling $2,000~~of $41,000 and ~~$170,000,~~$123,000, respectively.

The following table presents the amortized cost basis of collateral dependent impaired loans by class of loans as of September 30, 2021 and December 31, 2020:


											As of September 30, 2021
		Real				Business		SBA				Real				SBA
		Property		Equipment		Assets		Guaranty-75%		Total		Property		Equipment		Guaranty		Total

Commercial and industrial	$	2,021	$	487	$	147	$	1,426	$	4,081	$	13	$	—	$	1,022	$	1,035
Residential mortgages		26		—		—		—		26		1,024		27		568		1,619
Total loans	$	2,047	$	487	$	147	$	1,426	$	4,107	$	1,037	$	27	$	1,590	$	2,654


	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

2320

Table of Contents

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, ~~2020~~2021 and December 31, ~~2019~~2020 by class of loans.


	As of September 30, 2020														As of September 30, 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	$	1,145	$	848	$	—	$	2,445	$	4,438	$	834,303	$	838,741
Commercial real estate		359		—		—		—		359		880,426		880,785		4,738		—		—		13		4,751		955,568		960,319
Construction and land		—		—		—		—		—		139,836		139,836		—		—		—		—		—		205,148		205,148
Residential mortgages		1,171		766		336		26		2,299		27,161		29,460		1,369		—		—		1,619		2,988		44,088		47,076
Home equity		—		—		—		—		—		24,528		24,528		199		—		—		—		199		28,744		28,943
Consumer		6,113		2,690		—		—		8,803		168,890		177,693		12,069		5,471		—		—		17,540		179,843		197,383
Total Loans	$	8,801	$	3,456	$	336	$	5,085	$	17,678	$	2,179,025	$	2,196,703	$	19,520	$	6,319	$	—	$	4,077	$	29,916	$	2,247,694	$	2,277,610


	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 ~~purchased~~repurchased and/or cash proceeds from loans sold during the three and nine months ended September 30, 2021 and 2020 by portfolio ~~class:~~class. Of the loans sold where the Company has continuing involvement, $4.9 million and $8.4 million were past due thirty days or greater at September 30, 2021 and December 31, 2020, respectively. These amounts are included in the past due table above.

Three Months Ended September 30, 2020

Commercial and

Commercial

Residential


Industrial

Real Estate

Mortgages

Total

(in thousands)

Repurchases of SBA participations

$
1,015

$
-

$
-

$
1,015
SBA Sales

10,258

772

-

11,030
Total Loans

$
11,273

$
772

$
—

$
12,045

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 September 30, 2021
	Commercial and		Commercial		Residential
	Industrial		Real Estate		Mortgages		Total

	(in thousands)

Repurchases of SBA participations	$	279	$	-	$	-	$	279
SBA Sales		10,615		3,036		-		13,651
Total Loans	$	10,894	$	3,036	$	-	$	13,930

	For the nine months ended September 30, 2021
	Commercial and		Commercial		Residential
	Industrial		Real Estate		Mortgages		Total

	(in thousands)

Repurchases of SBA participations	$	1,349	$	2,708	$	1,362	$	5,419
SBA Sales		26,881		11,543		664		39,088
Total Loans	$	28,230	$	14,251	$	2,026	$	44,507

2421

Table of Contents


	For the three months ended September 30, 2020
	Commercial and		Commercial		Residential
	Industrial		Real Estate		Mortgages		Total

	(in thousands)

Repurchases of SBA participations	$	1,015	$	-	$	-	$	1,015
SBA Sales		10,258		772		-		11,030
Total Loans	$	11,273	$	772	$	-	$	12,045

	For the nine months ended September 30, 2020
	Commercial and		Commercial		Residential
	Industrial		Real Estate		Mortgages		Total

	(in thousands)

Repurchases of SBA participations	$	2,338	$	1,467	$	-	$	3,805
SBA Sales		26,427		2,264		277		28,968
Total Loans	$	28,765	$	3,731	$	277	$	32,773

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 ~~considered~~continued to consider the ~~declining~~ market conditions generated by the COVID-19 pandemic during the first nine 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 as~~test during the first nine 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 ~~activity~~the 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


	September 30,		December 31,
	2021		2020

	(in thousands)
Servicing assets, net	$	2,573	$	2,731
Total intangibles subject to amortization, net		2,573		2,731
Goodwill		19,925		19,925
Total goodwill and other intangible assets, net	$	22,498	$	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, ~~2020~~2021 and December 31, ~~2019,~~2020, the balance of SBA loans sold and serviced by Atlantic Capital totaled ~~$186.4~~$195.7 million and ~~$185.5~~$192.9 million, respectively.

2522

Table of Contents

Changes in the balance of servicing assets for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 are presented in the following table.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
SBA Loan Servicing Assets	2020		2019		2020		2019		2021		2020		2021		2020

	(in thousands)				(in thousands)				(in thousands)				(in thousands)
Beginning carrying value, net	$	2,503	$	2,726	$	2,731	$	2,539	$	2,537	$	2,503	$	2,569	$	2,731
Additions		190		350		492		975		262		190		746		492
Amortization		(202)		(296)		(732)		(734)		(296)		(202)		(812)		(732)
Ending carrying value	$	2,491	$	2,780	$	2,491	$	2,780	$	2,503	$	2,491	$	2,503	$	2,491

At September 30, ~~2020~~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			September 30, 2021			December 31, 2020

	(dollars in thousands)						(dollars in thousands)
Fair value of retained servicing assets	$	2,942		$	2,842		$	2,782		$	2,907
Weighted average life		3.22 years			3.77 years			3.27 years			3.17 years
Prepayment speed:		18.09	%		14.87	%		17.40	%		18.03	%
Decline in fair value due to a 10% adverse change	$	(87)		$	(150)		$	(135)		$	(123)
Decline in fair value due to a 20% adverse change	$	(215)		$	(254)		$	(258)		$	(236)
Weighted average discount rate		10.88	%		13.66	%		12.37	%		12.49	%
Decline in fair value due to a 100 bps adverse change	$	(16)		$	(98)		$	(68)		$	(59)
Decline in fair value due to a 200 bps adverse change	$	(83)		$	(156)		$	(133)		$	(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, ~~2020~~2021 and ~~2019~~2020 are presented in the following table.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
TriNet Servicing Assets	2020		2019		2020		2019		2021		2020		2021		2020

	(in thousands)				(in thousands)				(in thousands)				(in thousands)
Beginning carrying value, net	$	228	$	369	$	296	$	444	$	100	$	228	$	162	$	296
Amortization		(33)		(37)		(101)		(112)		(30)		(33)		(92)		(101)
Ending carrying value	$	195	$	332	$	195	$	332	$	70	$	195	$	70	$	195

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At September 30, ~~2020~~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			September 30, 2021			December 31, 2020

	(dollars in thousands)						(dollars in thousands)
Fair value of retained servicing assets	$	350		$	414		$	212		$	298
Weighted average life		4.86 years			5.58 years			3.78 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)		$	(2)		$	(3)
Decline in fair value due to a 20% adverse change	$	(7)		$	(10)		$	(3)		$	(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)		$	(3)		$	(5)
Decline in fair value due to a 200 bps adverse change	$	(13)		$	(18)		$	(6)		$	(11)

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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						For the Nine Months Ended
	September 30, 2020						September 30, 2020						September 30, 2021						September 30, 2021
			Income						Income						Income						Income
			Tax						Tax						Tax						Tax
	Pre-Tax		(Expense)		After-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		Amount		Benefit		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	$	9,650	$	(2,399)	$	7,251	$	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
Unrealized net gains (losses) on derivatives		(593)		146		(447)		8,709		(2,144)		6,565
Unrealized net (losses) gains on investment securities available-for-sale														(3,240)		801		(2,439)		(9,817)		2,427		(7,390)
Reclassification adjustment for net realized (gains)/losses on investment securities available-for-sale ⁽²⁾														—		—		—		(2)		—		(2)
Unrealized net (losses) gains on derivatives														(957)		237		(720)		(4,017)		994		(3,023)
Accumulated other comprehensive income (loss) end of period	$	20,561	$	(5,083)	$	15,478	$	20,561	$	(5,083)	$	15,478	$	5,453	$	(1,361)	$	4,092	$	5,453	$	(1,361)	$	4,092

For the Three Months Ended

For the Nine Months Ended

September 30, 2019

September 30, 2019

Income

Income

Tax

Tax

Pre-Tax

(Expense)

After-Tax

Pre-Tax

(Expense)

After-Tax


Amount

Benefit

Amount

Amount

Benefit

Amount

(in thousands)
Accumulated other comprehensive income (loss) beginning of period

$
4,774

$
(1,193)

$
3,581

$
(13,743)

$
3,438

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

1,813

(453)

1,360

16,375

(4,096)

12,279
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
Accumulated other comprehensive income (loss) end of period

$
8,660

$
(2,165)

$
6,495

$
8,660

$
(2,165)

$
6,495

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	For the Three Months Ended						For the Nine Months Ended
	September 30, 2020						September 30, 2020
			Income						Income
			Tax						Tax
	Pre-Tax		(Expense)		After-Tax		Pre-Tax		(Expense)		After-Tax
	Amount		Benefit		Amount		Amount		Benefit		Amount

	(in thousands)
Accumulated other comprehensive income (loss) beginning of period	$	21,108	$	(5,218)	$	15,890	$	6,081	$	(1,520)	$	4,561
Unrealized net gains (losses) on investment securities available-for-sale		46		(11)		35		5,771		(1,419)		4,352
Unrealized net gains (losses) on derivatives		(593)		146		(447)		8,709		(2,144)		6,565
Accumulated other comprehensive income (loss) end of period	$	20,561	$	(5,083)	$	15,478	$	20,561	$	(5,083)	$	15,478

(1)	The tax impact of each component of accumulated other comprehensive income (loss) 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.

~~Table of Contents~~

The following table represents the earnings per share calculations for the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.


		Three Months Ended			Nine Months Ended					Three Months Ended			Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2020		2019		2020		2019		2021		2020		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	$	13,304	$	8,618	$	38,482	$	12,591

Weighted average shares outstanding
Basic ⁽¹⁾		21,500,735		22,681,904		21,553,953		23,800,525		20,308,761		21,500,735		20,340,182		21,553,953
Effect of dilutive securities:
Stock options and performance share awards		43,070		155,627		86,104		157,390		198,843		43,070		168,593		86,104
Diluted		21,543,805		22,837,531		21,640,057		23,957,915		20,507,604		21,543,805		20,508,775		21,640,057

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	$	0.40	$	1.89	$	0.58
Diluted										0.65		0.40	$	1.88	$	0.58

(1)	Unvested restricted shares are participating securities and included in basic share calculations.

Stock options outstanding of 109,446 at September 30, 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 September 30, 2021 whose exercise price of the award was higher than the market value of the shares.

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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 ~~21,202,783~~20,305,109 shares of common stock issued and outstanding at September 30, ~~2020.~~2021. At December 31, ~~2019, 21,751,026~~2020, 20,394,912 shares of common stock were issued and outstanding. Atlantic Capital had 0 shares of preferred stock outstanding at September 30, ~~2020~~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 and nine months ended September 30, 2021. NaN dividends were paid by the Bank to Atlantic Capital during the three months ended September 30, 2020. For the nine months ended September 30, 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

~~Table of Contents~~

constitute authorized but unissued shares. During the first nine months of ~~2020,~~2021, the Company repurchased ~~820,349~~272,592 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.$5.5 million.

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,~~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, ~~2020~~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 changes~~Changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Atlantic Capital expects that approximately ~~$1.7~~$2.0 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 ~~customers~~clients 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

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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, ~~2020~~2021 and December 31, ~~2019,~~2020, Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of ~~$70.4~~$58.5 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, ~~2020~~2021 and

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December 31, ~~2019,~~2020, Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of ~~$141.2~~$122.7 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, ~~2020~~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~~$9.6 million and ~~$13.6~~$11.8 million, respectively, against its obligations under these agreements. Cash collateral related to derivative contracts is recorded in other assets in the Consolidated Balance Sheets.

Atlantic Capital has master netting agreements with the derivatives dealers with which it does business but reflects gross assets and liabilities on the Consolidated Balance Sheets.

In conjunction with the FASB’s fair value measurement guidance, management made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting arrangements on a net basis.

To accommodate clients, Atlantic Capital occasionally enters into credit risk participation agreements with counterparty banks to accept a portion of the credit risk related to interest rate swaps. This allows clients to execute an interest rate swap with one bank while allowing for distribution of the credit risk among participating members. Credit risk participation agreements arise when Atlantic Capital contracts with other financial institutions, as a guarantor, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third party default on the underlying swap. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, Atlantic Capital had credit risk participation agreements with a notional amount of ~~$6.3~~$2.5 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, 2020 and December 31, 2019:~~

~~Derivatives 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
Cash flow hedge of LIBOR based loans

Other assets

$
125,000

$
12,155

$
125,000

$
3,578

Cash flow hedge of LIBOR based loans

Other liabilities

$
0

$
0

$
50,000

$
8

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The following table reflects the estimated fair value positions of derivative contracts and credit risk participation agreements as of September 30, 2021 and December 31, 2020:

Derivatives designated as hedging instruments under ASC 815


		September 30, 2021				December 31, 2020
(in thousands)	Balance Sheet	Notional				Notional
Interest Rate Products	Location	Amount		Fair Value		Amount		Fair Value
Cash flow hedge of LIBOR based loans	Other assets	$	150,000	$	6,655	$	125,000	$	10,799


Cash flow hedge of LIBOR based loans	Other liabilities	$	0	$	0	$	0	$	0

Derivatives not designated as hedging instruments under ASC 815


		September 30, 2020				December 31, 2019					September 30, 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
Customer swap positions	Other assets	$	35,210	$	2,308	$	44,763	$	1,025	Other assets	$	29,239	$	1,246	$	34,224	$	2,057
Zero premium collar	Other assets		70,613		10,896		74,562		4,253	Other assets		61,354		5,522		68,527		9,328
		$	105,823	$	13,204	$	119,325	$	5,278		$	90,593	$	6,768	$	102,751	$	11,385

Dealer offsets to customer swap positions	Other liabilities	$	35,210	$	2,342	$	44,763	$	1,090	Other liabilities	$	29,239	$	1,264	$	34,224	$	2,087
Dealer offset to zero premium collar	Other liabilities		70,613		10,974		74,562		4,545	Other liabilities		61,354		5,560		68,527		9,398
Credit risk participation	Other liabilities		6,251		8		7,657		4	Other liabilities		2,501		—		5,782		11
		$	112,074	$	13,324	$	126,982	$	5,639		$	93,094	$	6,824	$	108,533	$	11,496

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, ~~2020~~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)				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 Derivative				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 September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Interest rate products	Other income	$	7	$	(292)	$	249	$	(633)	Other income	$	19	$	7	$	51	$	249
Other contracts	Other income		3		(1)		(3)		(4)	Other income		2		3		10		(3)
Total		$	10	$	(293)	$	246	$	(637)		$	21	$	10	$	61	$	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, ~~2020~~2021 and ~~2019:~~2020:

Derivatives in Cash Flow Hedging Relationships

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

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

(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

OCI on Derivatives

Accumulated OCI in Income

(Effective Portion)

(in thousands)

2020

2019

Location

2020

2019

2020

2019

Location

2020

2019

2021

2020

Location

2021

2020

2021

2020

Location

2021

2020

Interest rate swaps

(611)

2,212

Interest income

(619)

(113)

8,657

5,303

Interest income

(1,271)

(242)

(869)

(611)

Interest income

(637)

(619)

(4,444)

8,657

Interest income

(1,878)

(1,271)

~~NOTE 12 – OTHER BORROWINGS AND LONG TERM DEBT~~

There were 0 Federal Home Loan Bank borrowings outstanding as of September 30, 2020 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. Interest expense for FHLB borrowings for the three and nine months ended September 30, 2019 was $390,000 and $660,000, respectively.

At September 30, 2020, the Company had available line of credit commitments with the FHLB totaling $867.1 million, with 0 outstanding FHLB advances. However, based on actual collateral pledged, $87.4. million was available. At September 30, 2020, the Company had an available line of credit based on the collateral available of $248.6 million with the Federal Reserve Bank of Atlanta (“FRB”). Interest expense on federal funds purchased for the three and nine months ended September 30, 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.

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NOTE 11 – OTHER BORROWINGS AND LONG TERM DEBT

There were 0 FHLB borrowings outstanding as of September 30, 2021, and December 31, 2020. There was 0 interest expense for FHLB borrowings for the three and nine months ended September 30, 2021. For the three and nine months ended September 30, 2020, interest expense for FHLB borrowings totaled $16,000 and $54,000, respectively. At September 30, 2021, the Company had available line of credit commitments with the FHLB totaling $1.1 billion, with 0 outstanding FHLB advances. However, based on actual collateral pledged, $84.3 million was available.

At September 30, 2021, the Company had an available line of credit based on the collateral available of $298.7 million with the FRB. There was 0 interest expense on federal funds purchased for the three and nine months ended September 30, 2021. Interest expense on federal funds purchased for the three and nine months ended September 30, 2020, was $3,000 and $41,000, respectively.

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		September 30, 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		976		1,193
Subordinated debt, net	$	73,814	$	49,873	$	74,024	$	73,807

All subordinated debt outstanding at September 30, ~~2020~~2021 matures after more than five years.

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”),~~an 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,~~2021, approximately ~~2,981,000~~2,838,000 additional awards could be granted under the plan. Through September 30, ~~2020,~~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. ~~Total~~There was 0 stock-based compensation expense recognized by the Company for ~~the three and nine months ended September 30, 2020 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. Unrecognized stock-based compensation expense related to stock option grants at~~ 2021. For the three and nine months ended September 30, 2020, ~~and 2019 was $6,000 and $77,000, respectively. At September 30, 2020 and 2019, the weighted average period over which this unrecognized~~stock-based compensation expense ~~is expected to be recognized was 0.1 years and 1.1 years, respectively. The weighted average remaining contractual life of options outstanding at September 30, 2020 was 1.8 years.~~

for

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stock option grants was $18,000 and $53,000, respectively. There was 0 unrecognized stock-based compensation expense related to stock option grants at September 30, 2021. At September 30, 2020, unrecognized stock-based compensation expense related to stock option grants was $6,000. At September 30, 2021 and 2020, the weighted average period over which this unrecognized expense is expected to be recognized was 0 years and 0.1 years, respectively. The weighted average remaining contractual life of options outstanding at September 30, 2021 was 3.5 years.

The Company estimates the fair value of its options awards using the Black-Scholes option pricing model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. ~~The table below summarizes the assumptions used to calculate the fair value of options granted/modified during the nine months ended September 30, 2019.~~ NaN stock options were granted/modified during the nine months ended September 30, 2021 or 2020.


	~~For the Nine Months Ended~~
	~~September 30, 2019~~
~~Risk‑free interest rate~~	~~2.27~~	%
~~Expected term in years~~	~~1.73-1.82~~
~~Expected stock price volatility~~	~~26.8~~	%
~~Dividend yield~~	—	%

The following table represents stock option activity for the nine months ended September 30, ~~2020:~~2021:


					Weighted Average							Weighted Average
			Weighted		Remaining	Aggregate				Weighted		Remaining	Aggregate
			Average		Contractual Term	Intrinsic Value				Average		Contractual Term	Intrinsic Value
	Shares		Exercise Price		(in years)	(in thousands)		Shares		Exercise Price		(in years)	(in thousands)
Outstanding, December 31, 2019		318,980	$	11.47
Outstanding, December 31, 2020									214,890	$	11.90
Granted/modified⁽¹⁾		—		—					0		0
Exercised		(60,940)		10.82					(149,850)		10.71
Forfeited⁽¹⁾		—		—					0		0
Expired		(94)		102.12					0		0
Outstanding, September 30, 2020		257,946	$	11.59	1.81	$	195
Exercisable, September 30, 2020		247,946	$	11.45	1.68	$	195
Outstanding, September 30, 2021									65,040	$	14.66	3.47	$	769
Exercisable, September 30, 2021									65,040	$	14.66	3.47	$	769

(1)	During the nine months ended September 30, ~~2020,~~2021, the Company did not modify any options.

The total fair value of option shares vested for both the nine months ended September 30, 2021 and 2020 ~~and 2019~~ was ~~$0 and $137,000, respectively.~~$0.

In ~~2019~~2020 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 ~~2019~~2021 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 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, ~~2020~~2021 was $973,000 and $2.8 million, respectively, and $620,000 and $1.6 ~~million, respectively, and $454,000 and $1.2~~ million for the three and nine months ended September 30, ~~2019, respectively.~~2020, respectively. Unrecognized compensation expense associated with restricted stock was $3.1 million and $3.8 million as of September 30, 2021 and 2020, ~~and $2.6 million as of September 30, 2019.~~respectively. At September 30, ~~2020~~2021 and September 30, ~~2019,~~2020, the weighted average period over which this unrecognized expense is to be recognized was ~~2.30~~1.9 years and ~~2.27~~2.3 years, respectively. During the three and nine months ended September 30, 2021, there were 3,137 and 153,739 restricted stock and performance share awards granted at a weighted average grant price of $24.24 and $19.51 per share, respectively. During the three and nine months ended September 30, 2020, there were 136,155 and 278,705 restricted stock and performance share awards granted at a weighted average grant price of $11.05 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~~ ~~per share, respectively.~~

The Company did not modify any options during the nine months ended September 30, 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~~

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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 nine months ended September 30, ~~2020:~~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	153,739		19.51
Vested	(175,209)		17.60
Forfeited	(18,997)		17.54
Outstanding, September 30, 2021	395,281	$	17.75

~~(1)~~●

~~During the nine months ended September 30, 2020, the Company did not modify any restricted stock awards.~~.

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 and defines~~Accounting standards define fair value as the price that ~~could~~would 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. As~~participants, 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 value~~three-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~~Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents 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 inputassets 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~~measured at fair value on a recurring ~~basis. Investment securities classified as available-for-sale are reported at~~basis by level within the fair value ~~utilizing Level 2 inputs. For these securities, Atlantic Capital~~hierarchy as reported in the Consolidated Balance Sheets at September 30, 2021 and December 31, 2020.


	Fair Value Measurements at September 30, 2021 Using:
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total

	(in thousands)
Securities available-for-sale:
U.S. states and political subdivisions	$	0	$	76,702	$	0	$	76,702
Trust preferred securities		0		4,871		0		4,871
Corporate debt securities		0		24,374		0		24,374
Residential mortgage-backed securities		0		402,302		0		402,302
Commercial mortgage-backed securities		0		26,909		0		26,909
Total securities available-for-sale	$	0	$	535,158	$	0	$	535,158
Interest rate derivative assets	$	0	$	13,423	$	0	$	13,423
Interest rate derivative liabilities	$	0	$	6,824	$	0	$	6,824

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	Fair Value Measurements at December 31, 2020 Using:
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Totals

	(in thousands)
Securities available-for-sale:
U.S. states and political subdivisions	$	0	$	81,019	$	0	$	81,019
Trust preferred securities		0		4,722		0		4,722
Corporate debt securities		0		19,821		0		19,821
Residential mortgage-backed securities		0		194,598		—		194,598
Commercial mortgage-backed securities		0		35,263		—		35,263
Total securities available-for-sale	$	0	$	335,423	$	0	$	335,423
Interest rate derivative assets	$	0	$	22,184	$	0	$	22,184
Interest rate derivative liabilities	$	0	$	11,496	$	0	$	11,496

~~obtains fair value measurements from an independent pricing service. In estimating the~~

For Level 3 securities where quoted prices or market prices of similar securities are not available, fair values ~~for investment securities,~~are calculated using discounted cash flows or other market indicators. Atlantic Capital ~~believes that independent third-party market prices are the best evidence~~had no Level 3 securities as 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, ~~2020~~2021 and December 31, ~~2019.~~2020.

Fair Value Measurements at September 30, 2020 Using:


Quoted Prices






in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Securities

Inputs

Inputs

(Level 1)

(Level 2)

(Level 3)

Total

(in thousands)
Securities available-for-sale:








U.S. states and political subdivisions

$
—

$
82,566

$
—

$
82,566
Trust preferred securities

—

4,590

—

4,590
Corporate debt securities

—

19,644

—

19,644
Mortgage-backed securities

—

154,084

—

154,084
Total securities available-for-sale

$
—

$
260,884

$
—

$
260,884
Interest rate derivative assets

$
—

$
25,359

$
—

$
25,359
Interest rate derivative liabilities

$
—

$
13,324

$
—

$
13,324

Fair Value Measurements at December 31, 2019 Using:


Quoted Prices






in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Securities

Inputs

Inputs

(Level 1)

(Level 2)

(Level 3)

Totals

(in thousands)
Securities available-for-sale:








U.S. states and political subdivisions

$
0

$
82,485

$
0

$
82,485
Trust preferred securities

0

4,688

0

4,688
Corporate debt securities

0

19,920

0

19,920
Mortgage-backed securities

0

175,368

—

175,368
Total securities available-for-sale

$
0

$
282,461

$
0

$
282,461
Interest rate derivative assets

$
0

$
8,856

$
0

$
8,856
Interest rate derivative liabilities

$
0

$
5,647

$
0

$
5,647

~~Table of Contents~~

For the nine months ended September 30, ~~2020~~2021 and ~~twelve months ended December 31, 2019,~~2020, 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, ~~2020~~2021 and December 31, ~~2019.~~2020.

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Fair Value

September 30, 2020

Measurement

Total

September 30, 2021

Measurement

Total

(in thousands)

Impaired Loans

—

4,107

2,403

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Fair Value

December 31, 2019

Measurement

Total

December 31, 2020

Measurement

Total

(in thousands)

Impaired Loans

4,288

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

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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 Bank~~FRB 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 ~~used~~using 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.

~~Table of Contents~~

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, ~~2020~~2021 and December 31, ~~2019.~~2020.

Fair Value Measurements at

September 30, 2020 Using:




Quoted Prices




in Active

Significant

markets for

Other

Significant

Identical

Observable

Unobservable

Carrying

Securities

Inputs

Inputs

Amount

(Level 1)

(Level 2)

(Level 3)

(in thousands)
Financial assets:








Cash and due from banks

$
22,715

$
22,715

$
—

$
—
Interest-bearing deposits in banks

91,243

91,243

—

—
Total securities available-for-sale

260,884

—

260,884

—
Total securities held-to-maturity

185,822

—

196,712

—
FHLB stock

2,619

—

—

2,619
Federal Reserve Bank stock

10,080

—

—

10,080
Loans held for investment, net

2,188,035

—

—

2,228,766
Loans held for sale

859

—

859

—
Derivative assets

25,359

—

25,359

—
Financial liabilities:








Deposits

$
2,468,722

$
—

$
2,442,818

$
—
Subordinated debt

73,814

—

78,089

—
Derivative financial instruments

13,324

—

13,324

—

Fair Value Measurements at

December 31, 2019 Using:




Quoted Prices




in Active

Significant

markets for

Other

Significant

Identical

Observable

Unobservable

Carrying

Securities

Inputs

Inputs

Amount

(Level 1)

(Level 2)

(Level 3)

(in thousands)
Financial assets:








Cash and due from banks

$
45,249

$
45,249

$
0

$
0
Interest-bearing deposits in banks

421,079

421,079

0

0
Total securities available-for-sale

282,461

0

282,461

0
Total securities held-to-maturity

116,972

0

115,291

0
FHLB stock

2,680

0

0

2,680
Federal Reserve Bank stock

9,998

0

0

9,998
Loans held for investment, net

1,873,524

0

0

1,890,258
Loans held for sale

370

0

370

0
Derivative assets

8,856

0

8,856

0
Financial liabilities:






Deposits

$
2,499,046

$
0

$
2,421,957

$
0
Subordinated debt

49,873

0

50,081

0
Derivative financial instruments

5,647

0

5,647

0


	Fair Value Measurements at
	September 30, 2021 Using:
			Quoted Prices
			in Active		Significant
			markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Securities		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)

	(in thousands)
Financial assets:
Cash and due from banks	$	25,725	$	25,725	$	0	$	0
Interest-bearing deposits in banks		811,168		811,168		0		0
Other short-term investments		140,848		140,848		0		0
Total securities available-for-sale		535,158		0		535,158		0
Total securities held-to-maturity		237,829		0		245,929		0
FHLB stock		1,808		0		0		1,808
FRB stock		10,124		0		0		10,124
Loans held for investment, net		2,273,856		0		0		2,357,246
Loans held for sale		11,814		0		11,814		0
Derivative assets		13,423		0		13,423		0
Financial liabilities:
Deposits	$	3,727,321	$	0	$	3,726,074	$	0
Subordinated debt		74,024		0		78,030		0
Derivative financial instruments		6,824		0		6,824		0

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	Fair Value Measurements at
	December 31, 2020 Using:
			Quoted Prices
			in Active		Significant
			markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Securities		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)

	(in thousands)
Financial assets:
Cash and due from banks	$	16,865	$	16,865	$	0	$	0
Interest-bearing deposits in banks		636,537		636,537		0		0
Total securities available-for-sale		335,423		0		335,423		0
Total securities held-to-maturity		200,156		0		214,584		0
FHLB stock		2,619		0		0		2,619
FRB stock		10,080		0		0		10,080
Loans held for investment, net		2,249,036		0		0		2,285,222
Derivative assets		22,184		0		22,184		0
Financial liabilities:
Deposits	$	3,161,508	$	0	$	3,120,246	$	0
Subordinated debt		73,807		0		77,814		0
Derivative financial instruments		11,496		0		11,496		0

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.

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, ~~2020~~2021 and December 31, ~~2019 was~~2020 were as follows:


	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020

	(in thousands)				(in thousands)
Financial Instruments whose contract amount represents credit risk:
Commitments to extend credit	$	764,247	$	735,905	$	850,016	$	813,757
Standby letters of credit		18,690		8,053		21,668		16,141
	$	782,937	$	743,958	$	871,684	$	829,898

Minimum lease payments	$	18,464	$	20,055	$	16,412	$	17,994

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The Company also had commitments related to investments in SBICs totaling ~~$2.0~~$1.5 million and ~~$2.4~~$2.0 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. In addition, Atlantic Capital had private equity commitments totaling ~~$2.0~~$1.2 million and 0$1.5 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

From time to time, Atlantic Capital, in the normal course of business, is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Although it is not possible to predict the outcome of these lawsuits, or the range of any possible loss, management, after consultation with legal counsel, does not anticipate that the ultimate aggregate liability, if any, arising from these lawsuits will have a material adverse effect on Atlantic Capital’s financial position or results of operations.

NOTE 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~~2021 and ~~2019:~~2020:

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	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019		2021		2020		2021		2020

					(in thousands)								(in thousands)
Deposit account analysis fees and charges	$	1,080	$	672	$	3,012	$	1,894	$	1,630	$	1,080	$	4,546	$	3,012
ATM fees		10		—		46		39		31		10		82		46
NSF fees		5		18		30		40		9		5		30		30
Wire fees		18		124		166		336		22		18		73		166
Foreign exchange fees		104		110		272		275		73		104		423		272
Other		—		1		4		5		—		—		1		4
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	$	1,765	$	1,217	$	5,155	$	3,530

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, ~~2020~~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

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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,~~2021, operating lease ROU assets and liabilities were ~~$10.4~~$8.6 million and ~~$15.3~~$13.4 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,

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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. The Company’s leases include variable lease payments with annual increases based on changes in market rental rates.

Rent expense for the three and nine months ended September 30, 2021, was $478,000 and $1.5 million, respectively. For the three and nine months ended September 30, 2020, rent expense was $520,000 and $1.7 million, respectively, 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.~~Income.

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 September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019		2021		2020		2021		2020

	(in thousands)								(in thousands)
Operating lease cost	$	510	$	509	$	1,696	$	1,635	$	478	$	510	$	1,509	$	1,696
Short-term lease cost		10		11		25		37		—		10		2		25
Sublease income		(91)		(70)		(273)		(186)		(126)		(91)		(312)		(273)
Net lease cost	$	429	$	450	$	1,448	$	1,486	$	352	$	429	$	1,199	$	1,448

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 September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019		2021		2020		2021		2020

	(in thousands)								(in thousands)
Operating cash paid for amounts included in the measurement of lease liabilities	$	530	$	551	$	1,655	$	1,594	$	554	$	530	$	1,581	$	1,655
Right-of-use assets obtained in exchange for new finance lease liabilities		62		—		62		15,207		—		62		—		62

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
%


	As of September 30,
	2021			2020
Weighted-average remaining lease term - operating leases		7.7 years			8.5 years

Weighted-average discount rate - operating leases		3.03	%		3.04	%

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The table below summarizes the maturity of remaining lease liabilities:

��

	September 30, 2020		September 30, 2021
	(in thousands)		(in thousands)
Twelve Months Ended:
September 30, 2021	$	2,052
September 30, 2022		2,403	$	2,403
September 30, 2023		2,136		2,136
September 30, 2024		1,966		1,966
September 30, 2025		1,905		1,905
September 30, 2026				1,831
Thereafter		8,002		6,171
Total future minimum lease payments		18,464		16,412
Less: Interest		(3,122)		(2,984)
Present value of net future minimum lease payments	$	15,342	$	13,428

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Proposed Merger with SouthState

As previously disclosed, on July 23, 2021, Atlantic Capital entered into the Merger Agreement with SouthState. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Atlantic Capital will merge with and into SouthState, with SouthState as the surviving corporation, in an all-stock transaction. Following the Merger, the Bank will merge with and into SouthState Bank, with SouthState Bank as the surviving entity. The Merger Agreement was unanimously approved by the board of directors of each of Atlantic Capital and SouthState. The transaction is expected to close in the first quarter 2022. The closing of the transactions contemplated by the Merger Agreement is subject to the approval of Atlantic Capital's shareholders, regulators, and certain other customary closing conditions.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, Atlantic Capital’s shareholders will have the right to receive 0.36 shares of SouthState common stock for each share of common stock of Atlantic Capital that they hold.

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 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.

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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:

●

we are subject to business uncertainties and contractual restrictions while the Merger is pending;

●

the Merger is subject to certain closing conditions that, if not satisfied or waived, will result in the Merger not being completed, which may cause the price of SouthState’s common stock and our common stock to decline;

●

SouthState may fail to realize the anticipated benefits of the Merger;

●

the termination fee and restrictions on solicitation contained in the Merger Agreement limit our ability to pursue alternatives to the Merger;

●

the Merger is subject to the receipt of approvals or waivers from regulatory authorities that may impose conditions that could have an adverse effect on Atlantic Capital and SouthState;

●

because the market price of SouthState common stock will fluctuate, Atlantic Capital’s shareholders cannot be sure of the exact value of the consideration they will receive in the Merger;

●

termination of the Merger Agreement could negatively affect us;

●

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 ~~payment processing business,~~payments, fintech and private capital solutions businesses, and declines in deposits;

●

our strategic decision to focus on the greater Atlanta market may not positively impact our financial condition in the expected timeframe, or at all;

●

costs associated with our growth and hiring ~~initiatives in the Atlanta market area;~~initiatives;

●

risks associated with increased geographic concentration, borrower concentration and concentration in commercial real estate and commercial and industrial ~~loans resulting from our exit of the Tennessee and northwest Georgia markets and our strategic realignment;~~loans;

●

our strategic decision to increase our focus on ~~Small Business Administration ("SBA")~~SBA and franchise lending may expose us to additional risks associated with these types of lending, including industry concentration risks, our ability to sell the guaranteed portion of SBA loans, the impact of negative economic conditions on small businesses’ ability to repay the non-guaranteed portions of SBA loans, and changes to applicable federal regulations;

●

risks related to litigation, regulatory enforcement and reputation as a result of our participation in the ~~Payment Protection Program (“PPP”)~~PPP and the risk that the SBA may not fund some or all PPP loan guaranties;

●

risks associated with our ability to manage the planned growth of our ~~payment processing business,~~payments, fintech and private capital solutions businesses, including changing regulations, security risks, and unforeseen increases in transaction volume resulting from changes in our customers’ businesses and changes in the competitive landscape for payment ~~processing;~~processing, fintech and private capital;

●

changes in asset quality and credit risk;

●

the cost and availability of capital;

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●

customer acceptance of our products and services;

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●

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 ~~or social and civil unrest~~ in our geographic area;

●

a weakening of the economies in which we conduct operations may adversely affect our operating results;

●

the U.S. legal and regulatory framework could adversely affect our operating results;

●

the interest rate environment may compress margins and adversely affect net interest income;

●

our ability to anticipate or respond to interest rate changes correctly and manage interest rate risk presented through unanticipated changes in our interest rate risk position and/or short- and long-term interest rates;

●

changes in trade, monetary and fiscal policies of various governmental bodies and central banks could affect the economic environment in which we operate;

●

our ability to determine accurate values of certain assets and liabilities;

●

adverse developments in securities, public debt, and capital markets, including changes in market liquidity and volatility;

●

unanticipated changes in our liquidity position, including but not limited to our ability to enter the financial markets to manage and respond to any changes to our liquidity position;

●

the impact of the transition from LIBOR and our ability to adequately manage such transition;

●

adequacy of our risk management ~~program;~~program and regulatory assessment thereof;

●

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 ~~Securities and Exchange Commission (“SEC”)~~SEC on March 16, ~~2020~~2021 (the “Annual Report”) in Part I, Item 1A under the heading “Risk ~~Factors” as amended by factors identified in our Quarterly Reports on Form 10-Q as filed with the SEC on May 8, 2020 and August 7, 2020, respectively.~~Factors.”

~~Response to COVID-19~~

As the COVID-19 pandemic affected all areas of economic and social life, Atlantic Capital responded with measures to protect the health of its community, customers and employees. We implemented work-from-home initiatives for employees when possible and ceased non-essential business related travel.

~~In addition, we have taken the following steps to assist customers during these challenging times, consistent with sound banking practice:~~

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●

~~funding loans for business borrowers through the PPP with $232 million outstanding as of September 30, 2020;~~

●

~~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. At September 30, 2020, there were $7.5 million in loans outstanding with payment deferrals.

The COVID-19 pandemic has negatively impacted the global economy, and in response to this crisis, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law on March 27, 2020. The CARES Act provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other relief. Some of the provisions applicable to us include, but are not limited to:

●

~~Accounting for Loan Modifications~~ - The CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a Troubled Debt Restructuring (“TDR”) and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes.

●

~~Paycheck Protection Program~~ - The CARES Act established the PPP, an expansion of the SBA’s 7(a) loan program and the Economic Injury Disaster Loan Program, administered directly by the SBA. The PPP is a loan program designed to provide a direct incentive for small businesses to keep their workers on the payroll. The PPP closed to new applicants on August 8, 2020. SBA will generally forgive loans if all employees are kept on the payroll and the loan proceeds are used for certain payroll, rent, mortgage interest, or utilities expenses during the applicable covered period of eight or twenty-four weeks (as amended by the Paycheck Protection Program Flexibility Act).

●

~~Subsidy Payments~~~~- The CARES Act subsidy provided loan payments for six months on existing SBA 7(a) loans disbursed prior to September 27, 2020.~~

Many of the stimulus programs under the CARES Act are set to expire at the end of 2020 if they have not already. Also in response 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”) issued 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:

●

~~Accounting for Loan Modifications~~ – A loan modification that does not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with FASB staff that short-term modifications made in good faith in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment.

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●

~~Past Due Reporting~~ - With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the loan agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral.

●

~~Nonaccrual Status~~ ~~- During short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.~~

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.

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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 ~~assets; (ix) tangible common equity; (x) tangible~~ book value per common ~~share, and (xi)~~share; (ix) tangible common equity to tangible assets; (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 $13.3 million for the third quarter of 2021 compared to net income of $8.6 million for the third quarter of 2020. Diluted income per common share was $0.65 for the third quarter of 2021, compared to $0.40 for the same period in 2020.

For the nine months ended September 30, 2021, we reported net income of $38.5 million. This compared to net income of $12.6 million for the nine months ended September 30, 2020. Diluted income per common share was $1.88 for the nine months ended September 30, 2021, compared to $0.58 for the same period in 2020.

The increase in net income for the three months ended September 30, 2021, compared to the same period in 2020, was primarily attributable to the recording of negative provision for credit losses of $2.4 million during the third quarter of 2021 compared to a provision for credit losses of $28,000 during the third quarter of 2020. The recording of negative provision was the result of improved CECL economic forecasts and positive credit quality migration lowering the allowance, partially offset by loan growth during the third quarter of 2021. The increase in net income quarter over quarter was also the result of higher net interest income, led by growth in loans and taxable investment securities, as well as higher non-interest income, led by increased service charges as well as the receipt of SBIC distributions.

For the nine months ended September 30, 2021, compared to the first nine months of 2020, the increase in net income was primarily attributable to the recording of negative provision for credit losses of $7.9 million during the first nine months of 2021 compared to a provision for credit losses of $17.0 million during the same period in 2020. The recording of negative provision was the result of improved CECL economic forecasts and credit upgrades, partially offset by loan growth during the first nine months of 2021. Partially offsetting the increase in income was an increase in salaries and employee benefits expense of $5.3 million, or 20%, forthe first nine monthsof2021 compared to the same period in 2020. Salaries and employee benefits expense includedcontract labor expense for PPP round two loan processing during the first half of 2021 as well as an increase in SBA commissions and other performance-based incentives.

Net interest income before provision for credit losses increased $3.1 million, or 14%, from the third quarter of 2020 to 2021, primarily due to a $2.4 million, or 10%, increase in interest income, driven by higher loan interest and fees, as well as a decrease of $620,000, or 25%, in interest expense, primarily resulting from a decrease in interest expense on deposits. Net interest income before provision for credit losses increased $9.4 million, or 15%, from the first nine months of 2020 to 2021, primarily due to a $5.6 million, or 8%, increase in interest income, driven by higher loan interest and fees as well as an increase of $2.5 million, or 29%, in interest income from investment securities. Also contributing to the increase in net interest income was a decrease of $3.8 million, or 39%, in interest expense due to lower interest expense on deposits.

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~~EXECUTIVE OVERVIEW AND EARNINGS SUMMARY~~

~~We reported~~Taxable equivalent net interest income ~~from continuing operations of $8.6~~was $25.1 million for the third quarter of ~~2020~~2021, compared to ~~net income from continuing operations of $7.6~~$22.1 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~~2020. Taxable equivalent net interest margin decreased 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~~2.69% for the three months ended September 30, ~~2020, compared 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.~~

~~For the nine months ended September 30, 2020 compared to the first nine months of 2019, the decrease in net income~~2021, from continuing operations was primarily attributable to an increase in 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%~~2020. The margin decrease for the ~~three months ended September 30, 2019. Driving the decrease in interest expense was the decline in the cost~~third quarter of ~~interest-bearing deposits for the three months ended September 30, 2020~~2021 compared to the same period in ~~2019, particularly in Negotiable Order of Withdrawal (“NOW”), money market and savings accounts. The~~2020 was primarily due to 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 andeposits and corresponding increase in ~~average loan balances totaling $390 million, or 22%, during the same period.~~

low-yielding cash balances. For the nine months ended September 30, ~~2020,~~2021, taxable equivalent net interest income ~~from continuing operations~~ was ~~$65.3~~$74.9 million compared to ~~$60.6~~$65.3 million for the same period of ~~2019.~~2020. Taxable equivalent net interest margin ~~from continuing operations~~ decreased to 2.80% for the nine months ended September 30, 2021, from 3.25% for the nine months ended September 30, 2020. The margin decrease for the first nine months of 2021 compared to the same period in 2020 was primarily due to lower rates on loans resulting from ~~3.66%~~federal funds rate decreases during 2020 and the increase in deposits and corresponding increase in cash balances, which contributed to the margin decline.

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 $48.3 million at September 30, 2021, a decrease of $143.9 million, or 75%, from December 31, 2020. The decrease was due to the forgiveness of $243.0 million in PPP loans during the nine months ended September 30, ~~2019. The margin decrease for~~2021, offset by the ~~three and nine months ended September 30, 2020 compared to~~origination of 291 round two PPP loans totaling $73.0 million during the ~~prior year was primarily the result~~first half of ~~a decrease in loan yields due to the declining interest rate environment and the addition of the lower yielding PPP loans.~~2021.

~~Provision~~We recorded negative provision for credit losses for the quarter ended September 30, ~~2020 totaled $28,000,~~2021, totaling $2.4 million, a decrease of ~~$385,000~~$2.4 million from the quarter ended September 30, ~~2019.~~2020, as a result of improved CECL economic forecasts and positive credit quality migration lowering the allowance, partially offset by loan growth during the third quarter of 2021. For the nine months ended September 30, ~~2020, our~~2021, we recorded negative provision for credit losses totaling $7.9 million, a decrease of $24.8 million from the nine months ended September 30, 2020, primarily due to improved CECL economic forecasts and credit upgrades, partially offset by loan ~~losses was $17.0 million compared to a provision of $1.9 million for~~growth during the first nine months of 2019. The adoption of ASC 326 added a forecasting element to the calculation of expected credit losses in the first nine months of 2020, which contributed to the increase in provision 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.2021.

Noninterest income ~~decreased $265,000,~~increased $2.1 million, or ~~10%~~84%, to ~~$2.5~~$4.6 million from the third quarter of ~~2019.~~2020. The ~~decrease~~increase was primarily due to an increase of ~~$285,000~~$548,000, or 45%, in ~~loss on sales of other assets, a decrease of $253,000~~service charges due to continued growth in ~~gains on sale of securities,~~our payments, fintech and private capital solutions businesses and a ~~decrease of $257,000,~~$383,000, or ~~22%~~43%, increase in SBA lending ~~activities. Partially offsetting this decrease was an~~activities resulting from higher SBA premiums in the secondary market. Also contributing to the increase in noninterest income ~~from service charges~~for the third quarter of ~~$292,000, or 32%, resulting from continued growth~~2021 was the receipt of SBIC distributions totaling $930,000 in ~~the payments processing business and an increase of $303,000~~September 2021, which was recorded in ~~derivatives income due to changes in the derivatives credit valuation adjustment.~~other noninterest income.

For the first nine months of ~~2020,~~2021, noninterest income ~~from continuing operations decreased $777,000,~~increased $4.5 million, or ~~10%~~62%, to ~~$7.3~~$11.8 million. The ~~decrease~~increase was primarily due to ~~a decrease~~an increase of ~~$1.2~~$1.6 million, or ~~37%~~79%, 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~~

~~Table of Contents~~

~~decrease was an increase~~$1.6 million, or 46%, in income from service charges and the aforementioned SBIC distributions of ~~$941,000, or 36%, and an increase of $883,000 in derivatives income.~~$930,000.

For the third quarter of ~~2020,~~2021, noninterest expense increased ~~$1.0~~$1.3 million, or 8%10%, to ~~$13.7~~$15.0 million compared to the third quarter of ~~2019.~~2020. The most significant components of the increase were $2.9 million of merger-related expenses, increases of ~~$555,000,~~$1.4 million, or 7%16%, in salaries and employee benefits ~~$530,000,~~expense, $265,000 in FDIC premiums, and $175,000, or ~~50%~~31%, in ~~other noninterest~~professional services. Salaries and employee benefits expense in the third quarter of 2021 included an increase in short-term and ~~$406,000 in FDIC premiums.~~long-term incentive costs of $1.1 million, or 78%, compared to the third quarter of 2020. Partially offsetting the increase ~~were decreases~~ in ~~professional services of $202,000 or, 26%, $113,000, or 74%, in travel, meals and entertainment~~noninterest expense ~~and $102,000, or 42%, in marketing and business development expense.~~was an employee retention payroll tax credit pursuant to the CARES Act totaling $3.0 million.

Noninterest expense ~~from continuing operations~~ totaled ~~$39.5~~$45.4 million for the nine months ended September 30, ~~2020,~~2021, compared to ~~$39.7~~$39.5 million for the same period in ~~2019.~~2020. The most significant ~~components~~component of the ~~decrease were~~increase was a ~~$329,000,~~$5.3 million, or ~~47%~~20%, 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%,increase in salaries and employee ~~benefits. Partially offsetting~~benefits primarily related to higher incentives, SBA commissionsand$255,000incontract labor expense for PPP round two loan processing. The first nine months of 2021 included an increase in short-term and long-term incentive costs of $3.6 million, or 95%, along with the ~~decrease~~partial impact of new hires and merit increases. Also contributing to the increase in noninterest expense were ~~increases in occupancy~~merger-related expenses of ~~$366,000, or 18%, $191,000, or 9%, in communications~~$2.9 million and ~~data processing, and $171,000, or 79%,~~an increase of $786,000 in FDIC premiums resulting from ~~small bank assessment credits issued~~overall asset growth in 2021. Partially offsetting the ~~third quarter of 2019.~~

increase in noninterest expense for the nine months ended September 30, 2021, compared to the same period in 2020 was an employee retention payroll tax credit pursuant to the CARES Act totaling $3.0 million.

4741

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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						For the nine months ended September 30,
	Third			Second			First			Fourth			Third			September 30,						Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter			2020			2019			Quarter			Quarter			Quarter			Quarter			Quarter			2021			2020
INCOME SUMMARY⁽¹⁾
Interest income - taxable equivalent⁽²⁾⁽¹⁾	$	24,578		$	24,151		$	26,246		$	26,699		$	26,624		$	74,976		$	79,607		$	27,040		$	27,993		$	25,775		$	25,288		$	24,578		$	80,808		$	74,976
Interest expense		2,515			2,166			5,043			5,965			6,536			9,724			19,018			1,895			1,958			2,065			2,299			2,515			5,918			9,724
Net interest income - taxable equivalent		22,063			21,985			21,203			20,734			20,088			65,252			60,589			25,145			26,035			23,710			22,989			22,063			74,890			65,252
Provision for credit losses		28			8,863			8,074			787			413			16,965			1,925			(2,405)			(933)			(4,519)			481			28			(7,857)			16,965
Net interest income after provision for credit losses		22,035			13,122			13,129			19,947			19,675			48,287			58,664			27,550			26,968			28,229			22,508			22,035			82,747			48,287
Noninterest income		2,504			2,343			2,422			2,679			2,769			7,269			8,046			4,609			3,584			3,562			3,016			2,504			11,755			7,269
Noninterest expense		13,713			12,904			12,877			13,382			12,677			39,494			39,726			15,018			15,197			15,149			13,164			13,713			45,364			39,494
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																							17,141			15,355			16,642			12,360			10,826			49,138			16,062
Income tax expense		2,208			712			550			2,104			2,198			3,471			5,966			3,837			3,539			3,280			2,410			2,208			10,656			3,471
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⁾																						$	13,304		$	11,816		$	13,362		$	9,950		$	8,618		$	38,482		$	12,591

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		$	0.58		$	0.65		$	0.48		$	0.40		$	1.88		$	0.58
Book value per share		16.05			15.64			15.47			15.01			14.81			16.05			14.81			17.92			17.38			16.72			16.60			16.05			17.92			16.05
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⁾																							16.94			16.40			15.74			15.62			15.11			16.94			15.11

PERFORMANCE MEASURES
Return on average equity		10.05	%		2.20	%		2.56	%		8.65	%		9.77	%		4.98	%		17.25	%		14.69	%		13.60	%		15.99	%		11.68	%		10.05	%		14.74	%		4.98	%
Return on average assets		1.15			0.25			0.32			1.08			1.32			0.59			2.22			1.36			1.26			1.50			1.19			1.15			1.37			0.59
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																							2.69			2.91			2.81			2.91			3.14			2.80			3.25
Taxable equivalent net interest margin excluding PPP loans		3.18			3.35			3.41			3.38			3.52			3.31			3.66			2.54			2.70			2.70			2.81			3.18			2.65			3.31
Efficiency ratio - continuing operations		56.61			53.82			55.03			57.57			55.72			55.16			58.13
Efficiency ratio																							51.12			51.97			56.30			51.30			56.61			53.04			55.16
Average loans to average deposits		88.65			88.46			83.84			86.54			92.41			87.07			93.96			65.81			67.54			71.93			76.81			88.65			68.32			87.07

CAPITAL
Average equity to average assets		11.45	%		11.53	%		12.41	%		12.47	%		13.54	%		11.78	%		12.87	%		9.23	%		9.24	%		9.39	%		10.18	%		11.45	%		9.28	%		11.78	%
Tangible common equity to tangible assets		11.03			11.01			11.57			10.61			12.92			11.03			12.92			8.21			8.86			8.63			8.86			11.03			8.21			11.03
Leverage ratio		9.9			9.9			10.7			11.0			11.8			9.9			11.8			8.5			8.4			8.4			8.9			9.9			8.7			9.9
Total risk based capital ratio		16.9			14.8			14.9			15.0			15.5			16.9			15.5			15.9			16.0			16.4			16.1			16.9			15.9			16.9

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			20,305,109			20,319,429			20,354,077			20,394,912			21,202,783			20,305,109			21,202,783
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			20,590,747			20,595,812			20,617,188			20,492,542			21,298,098			20,590,747			21,298,098
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			20,308,761			20,332,503			20,380,066			20,711,089			21,500,735			20,340,182			21,553,953
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			20,507,604			20,516,478			20,502,184			20,795,332			21,543,805			20,508,775			21,640,057

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																							1.16	%		1.27	%		1.31	%		1.55	%		1.59	%		1.16	%		1.59	%
Net charge-offs to average loans⁽³⁾																							—			0.10			0.04			0.05			0.06			0.05			0.13
Non-performing assets to total assets		0.20			0.24			0.27			0.26			0.29			0.20			0.29			0.10			0.14			0.06			0.13			0.20			0.10			0.20

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																						$	2,246,529		$	2,233,906		$	2,270,660		$	2,207,956		$	2,191,669		$	2,250,277		$	2,071,673
Investment securities		453,382			462,850			417,971			389,667			340,872			444,766			366,790			733,452			656,507			579,547			491,134			453,382			657,066			444,766
Total assets		2,977,444			2,932,716			2,686,266			2,626,388			2,453,438			2,865,884			2,572,961			3,893,049			3,771,970			3,611,417			3,328,719			2,977,444			3,759,841			2,865,884
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																							3,413,882			3,307,601			3,156,906			2,874,402			2,472,218		��	3,293,738			2,379,235
Shareholders’ equity		341,017			338,027			333,480			327,543			332,291			337,521			331,116			359,300			348,416			338,990			338,948			341,017			348,974			337,521

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		$	2,285,670		$	2,264,899		$	2,302,661		$	2,249,036		$	2,188,894		$	2,285,670		$	2,188,894
Investment securities		446,706			457,749			466,405			399,433			329,648			446,706			329,648			772,987			714,065			613,236			535,579			446,706			772,987			446,706
Total assets		2,923,977			2,890,622			2,719,658			2,910,379			2,410,198			2,923,977			2,410,198			4,210,316			3,780,445			3,732,668			3,615,617			2,923,977			4,210,316			2,923,977
Deposits		2,468,722			2,407,631			2,225,119			2,499,046			1,854,272			2,468,722			1,854,272			3,727,321			3,306,224			3,277,692			3,161,508			2,468,722			3,727,321			2,468,722
Shareholders’ equity		340,309			335,980			332,300			326,495			328,711			340,309			328,711			363,925			353,185			340,328			338,586			340,309			363,925			340,309

⁽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.

4842

Table of Contents

Non-GAAP Performance Measures Reconciliation

(dollars in thousands)



																																					For the nine months
	2020									2019						For the Nine months						2021									2020						ended September 30,
	Third			Second			First			Fourth			Third			ended September 30,						Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter			2020			2019			Quarter			Quarter			Quarter			Quarter			Quarter			2021			2020
Taxable equivalent interest income reconciliation
Interest income - GAAP	$	24,233		$	23,797		$	26,023		$	26,532		$	26,520		$	74,053		$	79,315		$	26,664		$	27,618		$	25,410		$	24,943		$	24,233		$	79,692		$	74,053
Taxable equivalent adjustment		345			354			223			167			104			923			292			376			375			365			345			345			1,116			923
Interest income - taxable equivalent	$	24,578		$	24,151		$	26,246		$	26,699		$	26,624		$	74,976		$	79,607		$	27,040		$	27,993		$	25,775		$	25,288		$	24,578		$	80,808		$	74,976

Taxable equivalent net interest income reconciliation - continuing operations
Taxable equivalent net interest income reconciliation
Net interest income - GAAP	$	21,718		$	21,631		$	20,980		$	20,567		$	19,984		$	64,329		$	60,297		$	24,769		$	25,660		$	23,345		$	22,644		$	21,718		$	73,774		$	64,329
Taxable equivalent adjustment		345			354			223			167			104			923			292			376			375			365			345			345			1,116			923
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																						$	25,145		$	26,035		$	23,710		$	22,989		$	22,063		$	74,890		$	65,252

Loan yield excluding PPP loans reconciliation
Loan yield - GAAP		3.82	%		3.87	%		4.77	%		4.95	%		5.18	%		4.12	%		5.37	%		3.91	%		4.19	%		3.89	%		3.89	%		3.82	%		4.00	%		4.12	%
Impact of PPP loans		0.13			0.22			—			—			—			0.14			—			(0.20)			(0.24)			(0.06)			(0.03)			0.13			(0.17)			0.14
Loan yield excluding PPP loans		3.95	%		4.09	%		4.77	%		4.95	%		5.18	%		4.26	%		5.37	%		3.71	%		3.95	%		3.83	%		3.86	%		3.95	%		3.83	%		4.26	%

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	%

Taxable equivalent net interest margin reconciliation
Net interest margin - GAAP		3.09	%		3.17	%		3.38	%		3.35	%		3.51	%		3.21	%		3.57	%		2.65	%		2.87	%		2.76	%		2.86	%		3.09	%		2.76	%		3.21	%
Impact of taxable equivalent adjustment		0.05			0.06			0.03			0.03			0.01			0.04			0.02			0.04			0.04			0.05			0.05			0.05			0.04			0.04
Net interest margin - taxable equivalent		3.14	%		3.23	%		3.41	%		3.38	%		3.52	%		3.25	%		3.59	%		2.69	%		2.91	%		2.81	%		2.91	%		3.14	%		2.80	%		3.25	%

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																							2.69	%		2.91	%		2.81	%		2.91	%		3.14	%		2.80	%		3.21	%
Impact of PPP loans		0.09			0.18			—			—			—			0.10			—			(0.15)			(0.21)			(0.11)			(0.10)			0.04			(0.15)			0.10
Net interest margin - taxable equivalent excluding PPP loans		3.18	%		3.35	%		3.38	%		3.35	%		3.51	%		3.31	%		3.57	%		2.54	%		2.70	%		2.70	%		2.81	%		3.18	%		2.65	%		3.31	%

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		$	16,765		$	14,980		$	16,277		$	12,015		$	10,481		$	48,022		$	15,139
Taxable equivalent adjustment		345			354			223			167			104			923			292			376			375			365			345			345			1,116			923
Income before income taxes	$	10,826		$	2,561		$	2,674		$	9,244		$	9,767		$	16,062		$	26,984		$	17,141		$	15,355		$	16,642		$	12,360		$	10,826		$	49,138		$	16,062

Taxable equivalent income tax expense reconciliation	��
Income tax expense - GAAP	$	1,863		$	358		$	327		$	1,937		$	2,094		$	2,548		$	5,674		$	3,461		$	3,164		$	2,915		$	2,065		$	1,863		$	9,540		$	2,548
Taxable equivalent adjustment		345			354			223			167			104			923			292			376			375			365			345			345			1,116			923
Income tax expense	$	2,208		$	712		$	550		$	2,104		$	2,198		$	3,471		$	5,966		$	3,837		$	3,539		$	3,280		$	2,410		$	2,208		$	10,656		$	3,471

Tangible book value per common share reconciliation
Total shareholders' equity	$	340,309		$	335,980		$	332,300		$	326,495		$	328,711		$	340,309		$	328,711		$	363,925		$	353,185		$	340,328		$	338,586		$	340,309		$	363,925		$	340,309
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)			(19,925)			(19,925)
Total tangible common equity	$	320,384		$	316,055		$	312,375		$	306,570		$	308,786		$	320,384		$	308,786		$	344,000		$	333,260		$	320,403		$	318,661		$	320,384		$	344,000		$	320,384
Common shares outstanding		21,202,783			21,477,631			21,479,986			21,751,026			22,193,761			21,202,783			22,193,761			20,305,109			20,319,429			20,354,077			20,394,912			21,202,783			20,305,109			21,202,783
Book value per common share - GAAP	$	16.05		$	15.64		$	15.47		$	15.01		$	14.81		$	16.05		$	14.81		$	17.92		$	17.38		$	16.72		$	16.60		$	16.05		$	17.92		$	16.05
Tangible book value		15.11			14.72			14.54			14.09			13.91			15.11			13.91			16.94			16.40			15.74			15.62			15.11			16.94			15.11

Tangible common equity to tangible assets reconciliation
Total shareholders' equity	$	340,309		$	335,980		$	332,300		$	326,495		$	328,711		$	340,309		$	328,711		$	363,925		$	353,185		$	340,328		$	338,586		$	340,309		$	363,925		$	340,309
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)			(19,925)			(19,925)
Total tangible common equity	$	320,384		$	316,055		$	312,375		$	306,570		$	308,786		$	320,384		$	308,786		$	344,000		$	333,260		$	320,403		$	318,661		$	320,384		$	344,000		$	320,384

Total assets	$	2,923,977		$	2,890,622		$	2,719,658		$	2,910,379		$	2,410,198		$	2,923,977		$	2,410,198		$	4,210,316		$	3,780,445		$	3,732,668		$	3,615,617		$	2,923,977		$	4,210,316		$	2,923,977
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)			(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		$	4,190,391		$	3,760,520		$	3,712,743		$	3,595,692		$	2,904,052		$	4,190,391		$	2,904,052
Tangible common equity to tangible assets		11.03	%		11.01	%		11.57	%		10.61	%		12.92	%		11.03	%		12.92	%		8.21	%		8.86	%		8.63	%		8.86	%		11.03	%		8.21	%		11.03	%

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		$	2,273,856		$	2,264,899		$	2,300,814		$	2,249,036		$	2,188,035		$	2,273,856		$	2,188,035
PPP loans		(231,834)			(234,049)			—			—			—			(231,834)			—			(48,304)			(105,684)			(218,766)			(192,160)			(231,834)			(48,304)			(231,834)
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		$	2,225,552		$	2,159,215		$	2,082,048		$	2,056,876		$	1,956,201		$	2,225,552		$	1,956,201

Allowance for credit losses to loans held for investment		1.59	%		1.61	%		1.43	%		1.04	%		1.03	%		1.59	%		1.03	%		1.16	%		1.27	%		1.31	%		1.55	%		1.59	%		1.16	%		1.59	%
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	%		1.18	%		1.33	%		1.45	%		1.70	%		1.78	%		1.18	%		1.78	%

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RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

Third Quarter ~~2020~~2021 compared to Third Quarter ~~2019~~2020

Taxable equivalent net interest income for the third quarter of ~~2020~~2021 totaled ~~$22.1~~$25.1 million, a ~~$2.0~~$3.1 million, or ~~10%~~14%, increase compared to the third quarter of ~~2019.~~2020. This increase was primarily driven by ~~a decline~~an increase in interest ~~expense~~income of ~~$4.0~~$2.5 million, or ~~62%~~10%, compared to the same period in ~~2019, partially offset by~~2020 and a ~~decrease~~decline in ~~loan~~ interest ~~income~~expense of ~~$2.5 million,~~$620,000, or ~~11%~~25%, compared to the same period in ~~2019.~~2020. The third quarter of 2021 included $1.9 million in PPP loan income compared to $1.6 million in the third quarter of 2020. The yield on loans ~~decreased~~increased by ~~136~~9 basis points to ~~3.82%~~3.91% from the third quarter of ~~2019.~~2020. The yield on loans excluding PPP loans for the three months ended September 30, 2021, was 3.71%, a decrease of 24 basis points, compared to the same period in 2020.

The increase in interest income for the third quarter of 2021 was primarily driven by an increase in loan interest of $1.1 million, or 5%, and an increase in taxable investment securities interest totaling $944,000, or 64%.

The change in interest expense was primarily due to a decrease in expense on NOW, money market and savings deposits of $326,000, or 32%, and a decrease in long-term debt interest expense of $239,000, or 18%. The rate paid on interest bearing liabilities decreased 21 basis points from the third quarter of 2020 to the third quarter of 2021, driven by a decrease in interest rates on deposits and other borrowings resulting from decreases in the federal funds rate during 2020.

Taxable equivalent net interest margin decreased to 2.69% for the three months ended September 30, 2021 compared to 3.14% for the three months ended September 30, 2020 due to a decline in yields on investment securities, partially offset by lower cost of deposits. The large increase in deposits and corresponding increase in low-yielding cash balances also contributed to the lower net interest margin year over year.

Nine Months of 2021 compared to Nine Months of 2020

Taxable equivalent net interest income for the nine months ended September 30, 2021, totaled $74.9 million, a $9.6 million, or 15%, increase compared to the same period in 2020. This increase was ~~3.95%~~primarily driven by an increase in interest income of $5.8 million, or 8%, compared to the same period in 2020 and a decline in interest expense of $3.8 million, or 39%, compared to the same period in 2020. The first nine months of 2021 included $7.1 million in PPP loan income compared to $2.3 million in the same period of 2020. Additionally, the first nine months of 2021 included $671,000 in interest income related to the receipt of an investment prepayment penalty and the accelerated accretion of a loan discount upon payoff. The yield on loans decreased by 12 basis points to 4.00% from the nine months ended September 30, 2020. The yield on loans excluding PPP loans for the nine months ended September 30, 2021, was 3.83%, a decrease of 43 basis points, compared to the same period in 2020.

The increase in interest income for the nine months ended September 30, 2021, was primarily driven by an increase in loan interest of $3.3 million, or 5%, and an increase in taxable investment securities interest totaling $2.0 million, or 41%.

The change in interest expense was primarily due to a decrease in expense on NOW, money market and savings deposits of $3.6 million, or ~~78%, and a~~62%. This decrease ~~in total borrowings interest expense of $470,000, or 96%. These decreases were~~was partially offset by an increase of ~~$521,000,~~$310,000, or ~~63%~~10%, 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 ~~122~~39 basis points from the ~~third quarter~~first nine months of ~~2019~~2020 to the ~~third quarter~~first nine months 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% for the three months ended September 30, 2020 compared to 3.52% for the three months ended September 30, 2019 due to additional interest expense resulting from the $75 million subordinated debt issuance in August 2020 along with a decrease in loan yields, partially offset by a decrease in the cost of interest bearing deposits. Taxable equivalent 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~~2.80% for the nine months ended September 30, ~~2020 totaled $65.3 million, a $4.7 million, or 8%, increase~~2021, 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%3.25% for the nine months ended September 30, ~~2020 compared~~2020. The large increase in deposits and corresponding increase in low-yielding cash balances contributed 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~~lower 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.

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~~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 September 30,
	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	%	$	594,338	$	266	0.18	%	$	136,459	$	65	0.19	%
Other short-term investments														122,477		156	0.51			—		—	—
Investment securities:
Taxable investment securities		237,655		1,467	2.46			257,005		1,657	2.56			503,420		2,411	1.90			237,655		1,467	2.46
Non-taxable investment securities⁽¹⁾		215,727		1,788	3.30			83,867		623	2.95			230,032		1,885	3.25			215,727		1,788	3.30
Total investment securities		453,382		3,255	2.86			340,872		2,280	2.65			733,452		4,296	2.32			453,382		3,255	2.86
Loans		2,191,669		21,049	3.82			1,801,629		23,541	5.18			2,246,529		22,151	3.91			2,191,669		21,049	3.82
FHLB and FRB stock		14,484		209	5.74			15,524		239	6.11			11,931		171	5.69			14,484		209	5.74
Total interest-earning assets		2,795,994		24,578	3.50			2,261,979		26,624	4.67			3,708,727		27,040	2.89			2,795,994		24,578	3.50
Non-earning assets		181,450						191,459						184,322						181,450
Total assets	$	2,977,444					$	2,453,438					$	3,893,049					$	2,977,444
Liabilities
Interest bearing deposits:
NOW, money market, and savings		1,383,382		1,006	0.29			1,191,293		4,642	1.55			1,665,462		680	0.16			1,383,382		1,006	0.29
Time deposits		166,019		86	0.21			32,409		51	0.62			285,808		50	0.07			166,019		86	0.21
Brokered deposits		68,102		59	0.34			88,146		530	2.39			87,498		59	0.27			68,102		59	0.34
Total interest-bearing deposits		1,617,503		1,151	0.28			1,311,848		5,223	1.58			2,038,768		789	0.15			1,617,503		1,151	0.28
Total borrowings		40,793		19	0.19			85,478		489	2.27			—		—	—			40,793		19	0.19
Total long-term debt		82,708		1,345	6.47			49,803		824	6.56			73,978		1,106	5.93			82,708		1,345	6.47
Total interest-bearing liabilities		1,741,004		2,515	0.57			1,447,129		6,536	1.79			2,112,746		1,895	0.36			1,741,004		2,515	0.57
Demand deposits		854,715						637,809						1,375,114						854,715
Other liabilities		40,708						36,209						45,889						40,708
Shareholders' equity		341,017						332,291						359,300						341,017
Total liabilities and shareholders' equity	$	2,977,444					$	2,453,438					$	3,893,049					$	2,977,444
Net interest spread					2.92	%					2.88	%					2.53	%					2.92	%
Net interest income and net interest margin⁽²⁾			$	22,063	3.14	%			$	20,088	3.52	%			$	25,145	2.69	%			$	22,063	3.14	%

Non-taxable equivalent net interest margin					3.09	%					3.51	%					2.65	%					3.09	%

(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.

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Table 2 - Average Balance Sheets and Net Interest Analysis (continued)

(dollars in thousands; taxable equivalent)


	Nine months ended September 30,												Nine months ended September 30,
	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	$	147,795	$	756	0.68	%	$	88,960	$	1,476	2.22	%	$	615,001	$	634	0.14	%	$	147,795	$	756	0.68	%
Other short-term investments		36		—	—			5,181		118	3.05			41,274		156	0.51			36		—	—
Investment securities:
Taxable investment securities		246,388		4,729	2.56			284,978		5,619	2.64			429,307		6,691	2.08			246,388		4,729	2.56
Non-taxable investment securities⁽¹⁾		198,378		4,877	3.28			81,812		1,819	2.97			227,759		5,619	3.30			198,378		4,877	3.28
Total investment securities		444,766		9,606	2.88			366,790		7,438	2.71			657,066		12,310	2.50			444,766		9,606	2.88
Loans - continuing operations		2,071,673		63,971	4.12			1,739,917		69,847	5.37
Loans														2,250,277		67,272	4.00			2,071,673		63,971	4.12
FHLB and FRB stock		14,667		643	5.86			14,173		727	6.86			12,183		436	4.78			14,667		643	5.86
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			3,575,801		80,808	3.02			2,678,937		74,976	3.74
Non-earning assets		186,947						201,880						184,040						186,947
Total assets	$	2,865,884					$	2,572,961					$	3,759,841					$	2,865,884
Liabilities
Interest bearing deposits:
NOW, money market, and savings		1,397,280		5,889	0.56			1,147,508		13,630	1.59			1,654,990		2,240	0.18			1,397,280		5,889	0.56
Time deposits		106,271		196	0.25			18,246		139	1.02			283,296		191	0.09			106,271		196	0.25
Brokered deposits		81,125		547	0.90			91,963		1,733	2.52			85,454		180	0.28			81,125		547	0.90
Total interest-bearing deposits		1,584,676		6,632	0.56			1,257,717		15,502	1.65			2,023,740		2,611	0.17			1,584,676		6,632	0.56
Total borrowings		50,055		95	0.25			57,844		1,045	2.42			30		—	—			50,055		95	0.25
Total long-term debt		60,922		2,997	6.57			49,761		2,471	6.64			73,905		3,307	5.98			60,922		2,997	6.57
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			2,097,675		5,918	0.38			1,695,653		9,724	0.77
Demand deposits		794,559						593,957						1,269,998						794,559
Demand deposits - discontinued operations		—						52,481
Other liabilities		38,151						37,472						43,194						38,151
Shareholders' equity		337,521						331,116						348,974						337,521
Total liabilities and shareholders' equity	$	2,865,884					$	2,572,961					$	3,759,841					$	2,865,884
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 spread																	2.64	%					2.97	%
Net interest income and net interest margin⁽²⁾			$	65,252	3.25	%			$	63,674	3.59	%			$	74,890	2.80	%			$	65,252	3.25	%

Non-taxable equivalent net interest margin					3.21	%					3.57	%					2.76	%					3.21	%

(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.

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

Table 3 - Changes in Taxable Equivalent Net Interest Income

(dollars in thousands)



	Three months ended September 30, 2020						Nine months ended September 30, 2020						Three months ended September 30, 2021						Nine months ended September 30, 2021
	Compared to 2019						Compared to 2019						Compared to 2020						Compared to 2020
	Increase (decrease) Due to Changes in:						Increase (decrease) Due to Changes in:						Increase (Decrease) Due to Changes in:						Increase (decrease) Due to Changes in:
					Total						Total						Total						Total
	Volume		Yield/Rate		Change		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)	$	205	$	(4)	$	201	$	482	$	(604)	$	(122)
Other short-term investments		—		—		—		—		(118)		(118)		156		—		156		156		—		156
Investment securities:								��
Taxable investment securities		(119)		(71)		(190)		(741)		(149)		(890)		1,273		(329)		944		2,851		(889)		1,962
Non-taxable investment securities⁽¹⁾		1,093		72		1,165		2,866		192		3,058		117		(20)		97		725		17		742
Total investment securities		974		1		975		2,125		43		2,168		1,390		(349)		1,041		3,576		(872)		2,704
Loans - continuing operations		3,746		(6,238)		(2,492)		10,244		(16,120)		(5,876)
Loans														541		561		1,102		5,339		(2,038)		3,301
FHLB and FRB stock		(15)		(15)		(30)		22		(106)		(84)		(37)		(1)		(38)		(89)		(118)		(207)
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)		2,255		207		2,462		9,464		(3,632)		5,832

Interest bearing liabilities
Interest bearing deposits:
NOW, money market, and savings		140		(3,776)		(3,636)		1,053		(8,794)		(7,741)		115		(441)		(326)		349		(3,998)		(3,649)
Time deposits		69		(34)		35		162		(105)		57		21		(57)		(36)		119		(124)		(5)
Brokered deposits		(17)		(454)		(471)		(73)		(1,113)		(1,186)		13		(13)		—		9		(376)		(367)
Total interest-bearing deposits		192		(4,264)		(4,072)		1,142		(10,012)		(8,870)		149		(511)		(362)		477		(4,498)		(4,021)
Total borrowings		(21)		(449)		(470)		(15)		(935)		(950)		—		(19)		(19)		—		(95)		(95)
Total long-term debt		535		(14)		521		549		(23)		526		(131)		(108)		(239)		581		(271)		310
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)		18		(638)		(620)		1,058		(4,864)		(3,806)
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	$	2,237	$	845	$	3,082	$	8,406	$	1,232	$	9,638

(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

~~Table of Contents~~

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, the~~2021, we recorded negative provision for credit losses ~~from continuing operations was $28,000,~~totaling $2.4 million, a decrease of ~~$385,000~~$2.4 million compared to the three months ended September 30, ~~2019.~~2020. For the nine months ended September 30, ~~2020, the~~2021, we recorded negative provision for credit losses ~~from continuing operations was $17.0~~totaling $7.9 million, ~~an increase~~a decrease of ~~$15.0~~$24.8 million compared to the nine months ended September 30, ~~2019.~~2020. The provision for credit losses in the first nine months of ~~2020~~2021 included a ~~$16.3 million~~negative provision for loan losses of $7.1 million and a ~~$704,000~~negative provision for unfunded ~~commitments.~~commitments of $748,000. The provision ~~increased~~decreased primarily ~~as a response to~~because of improved CECL economic forecasts and credit upgrades, partially offset by loan growth during the ~~expected impact from the economic slowdown from COVID-19. Due to the adoption~~first nine months of ~~ASC 326 on January 1, 2020, management now incorporates reasonable and supportable forecasts into its calculation~~2021.

Table of expected credit losses. An example of this forecasting element includes changes in unemployment rates used by management in the CECL forecasts, which could result in changes to the allowance for credit losses.Contents

At September 30, ~~2020,~~2021, nonperforming loans totaled ~~$5.4~~$4.1 million compared to ~~$7.3~~$4.9 million at December 31, ~~2019.~~2020. Net loan charge-offs ~~were 0.06% and 0.13%, respectively, of average loans (annualized)~~ for the three and nine months ended September 30, ~~2020~~2021 were 0.00% and 0.05%, respectively, of average loans (annualized), compared to ~~0.11%~~0.06% and ~~0.12%~~0.13%, respectively, for the three and nine months ended September 30, ~~2019.~~2020. The allowance for credit losses to total loans at September 30, ~~2020~~2021 was ~~1.59%~~1.16%, compared to ~~1.04%~~1.55% at December 31, ~~2019.~~2020.

Noninterest Income

Noninterest income ~~from continuing operations~~ for the three and nine months ended September 30, ~~2020~~2021, was $4.6 million and $11.8 million compared to $2.5 million and $7.3 ~~million compared to $2.8 million and $8.0~~ million for the comparable period of the prior ~~year;~~year, representing ~~a decrease~~an increase of ~~$265,000,~~$2.1 million, or ~~10%~~84%, for the three month period and ~~a decrease~~an increase of ~~$777,000,~~$4.5 million, or ~~10%~~62%, for the nine month period. 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								Nine Months Ended
	September 30,				Change				September 30,				Change					September 30,				Change				September 30,				Change
	2020		2019			$	%		2020		2019		$		%			2021		2020			$	%		2021		2020		$		%
Service charges	$	1,217	$	925	$	292	32	%	$	3,530	$	2,589	$	941		36	%	$	1,765	$	1,217	$	548	45	%	$	5,155	$	3,530	$	1,625		46	%
Gain (loss) on sales of securities		—		253		(253)	—			—		907		(907)		(100)
Gain on sales of securities																			—		—		—	—			2		—		2		—
Gain (loss) on sales of other assets		(145)		140		(285)	(204)			(140)		127		(267)		(210)			38		(145)		183	—			38		(140)		178		—
Derivatives income (loss)		10		(293)		303	(103)			246		(637)		883		(139)
Derivatives income																			21		10		11	—			61		246		(185)		(75)
Bank owned life insurance		363		422		(59)	(14)			1,092		1,171		(79)		(7)			391		363		28	8			1,170		1,092		78		7
SBA lending activities		893		1,150		(257)	(22)			2,089		3,332		(1,243)		(37)			1,276		893		383	43			3,732		2,089		1,643		79
Other noninterest income		166		172		(6)	(4)			452		557		(105)		(19)			1,118		166		952	—			1,597		452		1,145		—
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																		$	4,609	$	2,504	$	2,105	84		$	11,755	$	7,269	$	4,486		62

Service charges for the three months ended September 30, ~~2020~~2021, totaled ~~$1.2~~$1.8 million, an increase of ~~$292,000,~~$548,000, or ~~32%~~45%, from the same period in ~~2019.~~2020. For the nine months ended September 30, ~~2020,~~2021, service charges ~~from continuing operations~~ totaled ~~$3.5~~$5.2 million, an increase of ~~$941,000,~~$1.6 million, or ~~36%~~46%, from the first nine months of ~~2019.~~2020. The increase for the third quarter of 2021 and the first nine months of ~~2020~~2021 compared to the same periods in ~~2019~~2020 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 third quarter of ~~2020~~2021 was ~~a gain of $10,000~~$21,000 compared to ~~a loss of $293,000~~$10,000 for the same period in ~~2019.~~2020. The increase in income was primarily due to changes in the derivatives credit valuation adjustment. For the nine months ended September 30, ~~2020,~~2021, derivatives income ~~increased $883,000~~decreased $185,000, or 75%, from the same period in ~~2019~~2020 primarily due to the change in the ~~credit~~ valuation adjustment.

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Income from SBA lending activities for the third quarter of ~~2020 decreased $257,000,~~2021 increased $383,000, or ~~22%~~43%, from the same period in ~~2019,~~2020, due to ~~lower~~higher SBA ~~origination volume and a decrease~~premiums in ~~loan premiums.~~the secondary market. During the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, guaranteed portions of SBA loans totaling ~~$10.0~~$12.0 million and ~~$17.0~~$10.0 million, respectively, were sold in the secondary market. Income from SBA lending activities for the first nine months of ~~2020 decreased $1.2~~2021 increased $1.6 million, or ~~37%~~79%, from the same period in ~~2019,~~2020, due to ~~lower~~higher premiums paid. During the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, guaranteed portions of SBA loans totaling ~~$26.5~~$34.8 million and ~~$49.7~~$26.5 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~~Other noninterest income increased $952,000 during 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 three2021, and ~~nine month periods of 2020 were primarily the result of the sale of OREO properties.~~

~~Noninterest income from discontinued operations decreased $35.3~~$1.1 million for the nine months ended September 30, ~~2020, respectively,~~2021, compared to the same periods in ~~2019 due to a $34.5 million gain~~2020. The increase for both periods was primarily driven by the receipt of SBIC distributions of $930,000 in ~~connection with the Branch Sale.~~September 2021.

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Noninterest Expense

Noninterest expense for the third quarter of ~~2020~~2021 was ~~$13.7~~$15.0 million, an increase of ~~$1.0~~$1.3 million, or 8%10%, from the third quarter of ~~2019.~~ 2020. For the nine months ended September 30, ~~2020,~~2021, noninterest expense ~~from continuing operations~~ totaled ~~$39.5~~$45.4 million, ~~a decrease~~an increase of ~~$232,000,~~$5.9 million, or 1%15%, 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 September 30,				Change					Nine Months Ended September 30,				Change
	2020		2019		$		%			2020		2019		$		%			2021		2020		$		%			2021		2020		$		%
Salaries and employee benefits	$	8,850	$	8,295	$	555		7	%	$	25,792	$	26,037	$	(245)		(1)	%	$	10,290	$	8,850	$	1,440		16	%	$	31,073	$	25,792	$	5,281		20	%
Employee retention credit																				(3,035)		—		(3,035)		—			(3,035)		—		(3,035)		—
Occupancy		739		722		17		2			2,416		2,050		366		18			756		739		17		2			2,268		2,416		(148)		(6)
Equipment and software		826		842		(16)		(2)			2,368		2,334		34		1			857		826		31		4			2,450		2,368		82		3
Professional services		562		764		(202)		(26)			2,059		2,331		(272)		(12)			737		562		175		31			2,382		2,059		323		16
Communications and data processing		757		796		(39)		(5)			2,324		2,133		191		9			889		757		132		17			2,550		2,324		226		10
Marketing and business development		141		243		(102)		(42)			373		702		(329)		(47)			142		141		1		1			388		373		15		4
Travel, meals and entertainment		39		152		(113)		(74)			213		504		(291)		(58)			91		39		52		133			148		213		(65)		(31)
FDIC premiums		213		(193)		406		(210)			388		217		171		79			478		213		265		124			1,174		388		786		—
Merger and conversion costs																				2,899		—		2,899		—			2,899		—		2,899		—
Other noninterest expense		1,586		1,056		530		50			3,561		3,418		143		4			914		1,586		(672)		(42)			3,067		3,561		(494)		(14)
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																			$	15,018	$	13,713	$	1,305		10		$	45,364	$	39,494	$	5,870		15

Salaries and employee benefits expense for the three months ended September 30, ~~2020~~2021, totaled ~~$8.9~~$10.3 million, an increase of ~~$555,000,~~$1.4 million, or 7%16%, from the same period in ~~2019. The increase for the three months ended September 30, 2020 was primarily attributable to higher incentive accruals and a decrease in loan production salary cost deferrals.~~2020. For the first nine months of ~~2020,~~2021, salaries and employee benefits expense totaled ~~$25.8~~$31.1 million, ~~a decrease~~an increase of ~~$245,000,~~$5.3 million, or 1%20%, from the first nine months of ~~2019 as a result of decreases in SBA commissions. Full time equivalent headcount totaled 201 at September 30, 2020 compared to 197 at September 30, 2019, a net increase of 4 positions.~~

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~~Occupancy costs from continuing operations were $2.4 million for the nine months ended September 30, 2020, an increase of $366,000, or 18%, from the same period in 2019.~~2020. The increase for the three and nine months ended September 30, 2021, was primarily attributable to higher short-term and long-term incentive costs along with the impact of new hires and merit increases, as well as contract labor expense for PPP round two loan processing. The third quarter of 2021 included an expense reduction of $3.0 million as a result of the employee retention payroll tax credit pursuant to the CARES Act. Full time equivalent headcount totaled 212 at September 30, 2021 compared to 201 at September 30, 2020, a net increase of 11 positions.

Occupancy costs were $756,000 for the third quarter of 2021, an increase of $17,000, or 2%, compared to the third quarter of 2020. For the nine months ended September 30, 2021, occupancy costs were $2.3 million, a decrease of $148,000, or 6%, from the first nine months of 2020. The decrease for the nine months ended September 30, 2021, was due to ~~an increase in leasehold improvement depreciation associated with~~savings from relocating our operations center partially offset by expenses related to expansion of our corporate ~~location and operations center.~~headquarters.

~~Communications and data processing~~Professional services expense ~~totaled $757,000~~increased $175,000, or 31%, from the three months ended September 30, 2020, to $737,000 for the three months ended September 30, ~~2020, a decrease of $39,000, or 5%, compared to the same period in 2019.~~2021. The increase was primarily driven by recruiter and consulting expense. For the nine months ended September 30, ~~2020, communications and data processing~~2021, professional services expense ~~totaled $2.3 million, an increase of $191,000,~~increased $323,000, or 9%16%, ~~from~~compared to the ~~same period in 2019. The~~nine months ended September 30, 2020. Primarily driving the increase for the nine months ended September 30, ~~2020~~2021, was ~~primarily~~higher consulting expense for PPP round two loan processing and PPP round one loan forgiveness that was incurred in the first quarter of 2021.

Communications and data processing expense totaled $889,000 for the three months ended September 30, 2021, an increase of $132,000, or 17%, compared to the same period in 2020. For the nine months ended September 30, 2021, communications and data processing expense totaled $2.6 million, an increase of $226,000, or 10%, from the same period in 2020. The increases were due to increased volumes in the payments processing ~~business.~~

~~Marketing~~ and business development expense totaled $141,000 for the three months ended September 30, 2020, a decrease of $102,000, or 42%, 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. The decrease reflected our efforts to reduce expenses in the uncertain environment surrounding COVID-19.fintech businesses.

For the three months ended September 30, ~~2020,~~2021, travel, meals and entertainment expense ~~decreased $113,000, or 74%,~~increased $52,000 compared to the same period in ~~2019.~~ 2020. For the nine months ended September 30, ~~2020,~~2021, travel, meals and entertainment expense totaled ~~$213,000,~~$148,000, a decrease of ~~$291,000,~~$65,000, or ~~58%~~31%, from the same period in ~~2019.~~ 2020.The decline for ~~both periods~~the nine months ended September

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30, 2021 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 $213,000~~increased $265,000 for the third quarter of ~~2020, an increase of $406,000~~2021 compared to the third quarter of ~~2019.~~2020. The increase for the three months ended September 30, 2021, resulted from the higher assessment rate due to our rapid growth in assets. For the nine months ended September 30, ~~2020,~~2021, FDIC premiums were ~~$388,000,~~$1.2 million, an increase of ~~$171,000, or 79%,~~$786,000 from the first nine months of ~~2019.~~2020. The ~~increases~~year-to-date increase also resulted from the higher assessment rate, as well as the reduction in prior year expense related to the Small Business Assessment Credits utilized in the first and second quarters of 2020.

Merger related expenses for the three and nine months ended September 30, ~~2020~~2021, were ~~due to small bank assessment credits issued in the third quarter of 2019 that were fully utilized in the third quarter of 2020.~~$2.9 million.

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 income~~Income tax expense for the three and nine months ended September 30, ~~2020~~2021 was ~~$1.9~~$3.5 million and ~~$2.5~~$9.5 million, respectively. Comparatively, for the three and nine months ended September 30, ~~2019,~~2020, income tax expense ~~from continuing operations~~ was ~~$2.1~~$1.9 million and ~~$5.7~~$2.5 million, respectively. The effective tax rate (as a percentage of pre-tax earnings) was ~~17.8%~~20.6% and ~~16.8%~~19.9% for the three and nine months ended September 30, ~~2020,~~2021, respectively, compared to ~~21.7%~~17.8% and ~~21.3%, respectively,~~16.8% for the same periods in ~~2019.~~2020. The ~~decrease~~increase in income tax expense ~~in the current year~~ was the result of ~~lower~~higher 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 Codification~~ASC 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

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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, ~~2020~~2021 and ~~2019,~~2020, 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 both September 30, 2021 and September 30, 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, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~$2.92~~$4.21 billion and ~~$2.91~~$3.62 billion, respectively. Average total assets for the third quarter of ~~2020~~2021 were ~~$2.98~~$3.89 billion, compared to ~~$2.45~~$2.98 billion in the third quarter of ~~2019.~~2020. The increase in average total assets was primarily due to increases in ~~loan growth, which included $234 million in SBA PPP~~cash, loans ~~funded during~~as well as the ~~second quarter of 2020. In addition, consumer loans increased $117.2 million due to growth in a partnership with a fintech firm that offers CD-secured consumer loans to its customers.~~investment securities portfolio.

Loans

At September 30, ~~2020,~~2021, total loans held for investment increased ~~$314.5~~$24.8 million, or ~~17%~~1%, to ~~$2.19~~$2.27 billion compared to ~~$1.87~~$2.25 billion at December 31, ~~2019.~~2020. The increase was primarily due to anincreases of $59.6 million, or 41%, in construction and land loans, $40.2 million, or 11%, in owner occupied commercial real estate loans and $16.4 million, or 9%, in consumer

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loans. Partially offsetting this increase was a decrease in commercial and industrial loans of ~~$239.3~~$114.1 million, or ~~34%~~12%, ~~resulting from the funding of $234~~primarily driven by $243.0 million ofin PPP loans forgiven during the ~~second quarter of 2020 and growth in a partnership with a fintech firm that offers CD-secured loans to its customers.~~nine months ended September 30, 2021. Table 6 provides additional information regarding our loan portfolio.

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
	September 30, 2021		Loans		December 31, 2020		Loans
Loans held for sale
Loans held for sale	$	11,814			$	—
Total loans held for sale	$	11,814			$	—

Loans held for investment
Commercial loans:
Commercial and industrial	$	838,741	37	%	$	952,805	42	%
Commercial real estate:
Owner occupied		413,875	18			373,689	17
Non-owner occupied		546,444	24			535,412	24
Construction and land		205,148	9			145,595	6
Total commercial loans		2,004,208	88			2,007,501	89

Residential:
Residential mortgages		47,076	2			33,783	1
Home equity		28,943	1			25,443	1
Total residential loans		76,019	3			59,226	2

Consumer		192,462	9			176,066	8
Other		4,921	-			13,897	1
Total loans		2,277,610				2,256,690
Less net deferred fees and other unearned income		(3,754)				(7,654)
Total loans held for investment		2,273,856				2,249,036

Total loans	$	2,285,670			$	2,249,036

~~Table of Contents~~

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.

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At September 30, ~~2020,~~2021, our nonperforming assets totaled ~~$6.0~~$4.1 million, or ~~0.20%~~0.10% 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~~the charge-offs of two commercial and industrial loans ~~resulting from an increase in net charge-offs during~~and the ~~second quarter~~pay off of ~~2020.~~one nonaccruing TDR residential loan.

Nonaccrual loans totaled ~~$5.1~~$4.1 million and ~~$7.2~~$3.8 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. There were no loans past due 90 days and still accruing at September 30, 2021. Loans past due 90 days and still accruing ~~totaled $336,000 at September 30, 2020 compared to $85,000~~ at December 31, ~~2019.~~2020 totaled $1.1 million. 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 and nine months ended September 30, 2021 and for the same periods in 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			September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020

Nonaccrual loans	$	5,085		$	5,930		$	6,250		$	7,208		$	6,770		$	4,077		$	4,387		$	1,805		$	3,778		$	5,085
Loans past due 90 days and still accruing		336			335			265			85			—			—			807			251			1,084			336
Total nonperforming loans(NPLs)		5,421			6,265			6,515			7,293			6,770			4,077			5,194			2,056			4,862			5,421
Other real estate owned		563			779			779			278			278			—			16			16			16			563
Total nonperforming assets (NPAs)	$	5,984		$	7,044		$	7,294		$	7,571		$	7,048		$	4,077		$	5,210		$	2,072		$	4,878		$	5,984
NPLs as a percentage of total loans		0.25	%		0.29	%		0.34	%		0.39	%		0.37	%		0.18	%		0.23	%		0.09	%		0.22	%		0.25	%
NPAs as a percentage of total assets		0.20	%		0.24	%		0.27	%		0.26	%		0.29	%		0.10	%		0.14	%		0.06	%		0.13	%		0.20	%

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.

~~Table of Contents~~

Table 8 - Troubled Debt Restructurings

(dollars in thousands)


					September 30, 2021		December 31, 2020
	September 30, 2020		December 31, 2019		2021		2021
Accruing TDRs	$	13,350	$	11,953	$	12,604	$	13,047
Nonaccruing TDRs		1,030		1,217		638		1,141
Total TDRs	$	14,380	$	13,170	$	13,242	$	14,188

The gross additional interest income that would have been earned ~~during the three and nine months ended September 30, 2020~~ had performing TDRs performed in accordance with the original terms during the three and nine months ended September 30, 2021 and for the same periods in 2020 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).

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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~~$85.9 million and ~~$76.3~~$172.7 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. As a percentage of total loans, potential problem loans were ~~8.0%~~3.6% and ~~4.1%~~7.7% as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The ~~increase~~decrease was primarily related to ~~downgrades resulting from COVID-19.~~credit rating upgrades for certain 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%~~1.16% of total loans held for investment at September 30, ~~2020,~~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%~~1.18% as of September 30, 2021 compared to 1.70% at December 31, 2020. The ~~increase~~decrease from December 31, ~~2019 reflects~~2020 was due to an improvement in the ~~impact of COVID-19 on the~~CECL economic forecast ~~used in the estimation of expected~~and credit ~~losses as well as credit grade downgrades driven~~upgrades, partially offset by ~~COVID-19.~~loan growth.

The base case economic forecast used for the September 30, ~~2020~~2021 calculation was published in early ~~September.~~September. 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~~ nine months ~~of 2020~~ended September 30, 2021 related to ~~the nature and volume of loans,~~ credit concentrations and competition.

For the three months ended September 30, 2021, there was a net recovery of $22,000. Net charge-offs for the nine months ended September 30, 2021 were $785,000. Net charge-offs for the three and nine months ended September 30, 2020 were $347,000 and $2.1 million, respectively. ~~Net charge-offs~~The net recovery in the third quarter of 2021 was primarily driven by one commercial and industrial relationship. The decrease for the ~~three and~~ nine months ended September 30, ~~2019 were $519,000 and $1.7 million, respectively. The year~~2021 compared to ~~date increase~~the same period in 2020 was related primarily to charge-offs of two commercial and industrial loan relationships in the second quarter of 2020 totaling $1.5 million.

5953

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~~quarter of 2020 totaling $1.5 million.~~ Table 9 provides details concerning the allowance for credit losses on loans during the past five quarters.

Table 9 - Allowance for Credit Losses on Loans ~~(ACL)~~

(dollars in thousands)


	2020									2019						2021									2020
	Third			Second			First			Fourth			Third			Third			Second			First			Fourth			Third
	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		$	26,123		$	27,506		$	31,818		$	31,894		$	31,605
Adoption of ASU 2016-13		—			—			(854)			—			—
Provision for loan losses		636			8,222			7,409			787			413			(2,221)			(814)			(4,074)			225			636
Loans charged-off:
Commercial and industrial		(404)			(1,479)			(18)			(344)			(541)			(131)			(386)			(288)			(401)			(404)
Commercial real estate		—			—			(78)			—			—			—			—			—			—			—
Construction and land		—			—			—			—			—			—			—			—			—			—
Residential mortgages		—			(36)			—			—			—			—			(223)			—			—			—
Home equity		—			—			(125)			—			—			—			—			—			—			—
Consumer		—			—			—			—			(2)			—			—			—			—			—
Other		—			—			—			—			—			—			—			—			—			—
Total loans charged-off		(404)			(1,515)			(221)			(344)			(543)			(131)			(609)			(288)			(401)			(404)
Recoveries on loans previously charged-off:
Commercial and industrial		56			1			—			5			17			151			6			50			37			56
Commercial real estate		—			—			18			—			—			—			—			—			44			—
Construction and land		—			—			—			—			1			—			—			—			18			—
Residential mortgages		—			—			1			7			—			—			32			—			—			—
Home equity		—			—			—			—			—			—			—			—			—			—
Consumer		1			1			8			—			6			2			2			—			1			1
Other		—			—			—			—			—			—			—			—			—			—
Total recoveries		57			2			27			12			24			153			40			50			100			57
Net charge-offs		(347)			(1,513)			(194)			(332)			(519)			22			(569)			(238)			(301)			(347)
Balance at period end	$	31,894		$	31,605		$	24,896		$	18,535		$	18,080		$	23,924		$	26,123		$	27,506		$	31,818		$	31,894

Allowance for credit losses on unfunded commitments
Balance at beginning of period	$	3,480		$	2,838		$	892		$	836		$	785		$	2,565		$	2,683		$	3,128		$	2,871		$	3,480
Adoption of ASU 2016-13		—			—			1,275			—			—
Provision for unfunded commitments		(609)			642			671			56			51			(185)			(118)			(445)			257			(609)
Balance at period end	$	2,871		$	3,480		$	2,838		$	892		$	836		$	2,380		$	2,565		$	2,683		$	3,128		$	2,871

Total allowance for credit losses on loans and unfunded commitments	$	34,765		$	35,085		$	27,734		$	19,427		$	18,916		$	26,304		$	28,688		$	30,189		$	34,946		$	34,765

Provision for credit losses under CECL
Provision for loan losses	$	636		$	8,222		$	7,409		$	787		$	413		$	(2,221)		$	(814)		$	(4,074)		$	225		$	636
Provision for securities held-to-maturity credit losses		1			(1)			(6)			—			—			1			(1)			—			(1)			1
Provision for unfunded commitments⁽¹⁾		(609)			642			671			—			—
Provision for unfunded commitments																	(185)			(118)			(445)			257			(609)
Total provision for credit losses	$	28		$	8,863		$	8,074		$	787		$	413		$	(2,405)		$	(933)		$	(4,519)		$	481		$	28

Allowance for loan losses on loans to loans held-for-investment ⁽²⁾		1.46	%		1.45	%		1.29	%		0.99	%		0.98	%
Allowance for credit losses to loans held-for-investment ⁽²⁾		1.59	%		1.61	%		1.43	%		1.04	%		1.03	%
Allowance for credit losses to loans held-for-investment excluding PPP loans ⁽²⁾		1.78	%		1.80	%		1.43	%		1.04	%		1.03	%
Net charge-offs to average loans⁽³⁾		0.06			0.29			0.04			0.07			0.11
Allowance for loan losses on loans to loans held-for-investment																	1.05	%		1.15	%		1.20	%		1.41	%		1.46	%
Allowance for credit losses to loans held-for-investment																	1.16	%		1.27	%		1.31	%		1.55	%		1.59	%
Allowance for credit losses to loans held-for-investment excluding PPP loans																	1.18	%		1.33	%		1.45	%		1.70	%		1.78	%
Net charge-offs to average loans⁽¹⁾																	-			0.10			0.04			0.05			0.06
Non-performing loans as a percentage of total loans		0.25	%		0.29	%		0.34	%		0.39	%		0.37	%		0.18	%		0.23	%		0.09	%		0.22	%		0.25	%
Non-performing assets as a percentage of total assets		0.20	%		0.24	%		0.27	%		0.26	%		0.29	%		0.10	%		0.14	%		0.06	%		0.13	%		0.20	%

(1)

~~Prior to the adoption of ASU 2016-13, the provision for unfunded commitments was included in other expense and totaled $56 and $51 for the fourth and third quarters of 2019, respectively~~.

~~(2)~~

~~The third quarter of 2019 ratios are calculated on a continuing operations basis.~~

~~(3)~~

Annualized.

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Investment Securities

Investment securities available-for-sale totaled ~~$260.9~~$535.2 million at September 30, ~~2020~~2021 compared to ~~$282.5~~$335.4 million at December 31, ~~2019.~~2020. Held-to-maturity securities, net totaled ~~$185.8~~$237.8 million at September 30, ~~2020~~2021 compared to ~~$117.0~~$200.2 million 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,~~2021, investment securities available-for-sale had a net unrealized ~~gain~~loss of ~~$9.0 million~~$839,000 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

~~Table of Contents~~

of securities fluctuate. Management evaluated all available-for-sale securities in an unrealized loss position at September 30, 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 nine months of ~~2020,~~2021, we purchased ~~$69.1~~$269.9 million in securities available-for-sale and $38.0 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, ~~2020~~2021 and December 31, ~~2019~~2020 are provided in Table 10.

Table 10 - Securities

(dollars in thousands)


	September 30, 2020				December 31, 2019				September 30, 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	$	74,608	$	76,702	$	78,117	$	81,019
Trust preferred securities		4,828		4,590		4,808		4,688		4,855		4,871		4,835		4,722
Corporate debt securities		19,533		19,644		19,557		19,920		24,006		24,374		19,526		19,821
Residential mortgage-backed securities		113,372		122,377		138,552		140,013		406,147		402,302		190,817		194,598
Commercial mortgage-backed securities		34,159		31,707		34,495		35,355		26,381		26,909		33,150		35,263
Total available-for-sale		251,929		260,884		279,277		282,461		535,997		535,158		326,445		335,423
Held-to-Maturity Securities
U.S. states and political divisions		185,837		196,712		116,972		115,291		237,842		245,929		200,170		214,584
Less: allowance for credit losses on securities held-to-maturity		15		—		—		—		13		—		14		—
Total held-to-maturity		185,822		196,712		116,972		115,291		237,829		245,929		200,156		214,584
Total securities	$	437,751	$	457,596	$	396,249	$	397,752	$	773,826	$	781,087	$	526,601	$	550,007

The effective duration of our securities was ~~6.94~~6.01 years and ~~6.97~~6.09 years at September 30, ~~2020~~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 ~~include~~includes 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, we~~We performed ~~an interim impairment test~~our 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. We considered the impact of COVID-19 on these factors as of September 30, 2020 and will continue to monitor~~value. There were no triggering events ~~related to~~requiring an impairment test during the ~~pandemic between annual impairment assessments.~~

first nine months of 2021.

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LIQUIDITY AND CAPITAL RESOURCES

Deposits

At September 30, ~~2020,~~2021, total deposits were ~~$2.5~~$3.7 billion, ~~a decrease~~an increase of ~~$30.3~~$565.8 million, or 1%18%, from December 31, ~~2019. Money market deposits decreased $227.4 million, or 19%, from December 31, 2019 to September 30, 2020 and noninterest-bearing~~2020. Noninterest-bearing demand deposits increased ~~$19.0~~$657.9 million, or 2%64%, during the same period. Time deposits increased ~~$152.0~~$46.5 million, or 19%, 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 money market deposits of $99.8 million, or 10%, from December 31, 2020 to September 30, 2021, and a decrease in interest-bearing checking deposits of $39.1 million, or 5% from December 31, 2020.

Total average deposits ~~from continuing operations~~ for the quarter ended September 30, ~~2020~~2021, were ~~$2.5~~$3.4 billion, an increase of ~~$522.6~~$941.7 million, or ~~27%~~38%, from the same period in ~~2019.~~2020. For the quarter ended September 30, ~~2020~~2021, compared to the same period in ~~2019,~~2020, average money market deposits ~~from continuing operations~~ increased ~~$47.0~~$115.2 million, or 5%12%, while average noninterest-bearing demand deposits ~~from continuing operations~~ increased ~~$216.9~~$520.4 million, or ~~34%~~61%. Average interest-bearing demand deposits (NOW) ~~from continuing operations~~ increased ~~$145.6~~$166.8 million, or ~~49%~~38%, for the three months ended September 30, ~~2020~~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~~$119.8 million, or 72%, for the three months ended September 30, ~~2020~~2021 from the ~~third quarter of 2019~~same period in 2020 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		September 30,			June 30,			March 31,			December 31,			September 30,			Date		Year
Period End Deposits	2020			2020			2020			2019			2019			Change		Change		2021			2021			2021			2020			2020			Change		Change
Non-interest-bearing demand deposits	$	843,656		$	883,662		$	712,919		$	824,646		$	599,657		$	19,010	$	243,999	$	1,691,616		$	1,374,018		$	1,280,524		$	1,033,765		$	843,656		$	657,851	$	847,960
Interest-bearing demand deposits		387,858			449,737			368,463			373,727			240,427			14,131		147,431
NOW																					721,525			536,677			485,540			760,638			387,858			(39,113)		333,667
Savings		568			583			567			1,219			1,081			(651)		(513)		800			676			562			625			568			175		232
Money market		945,834			879,863			982,109			1,173,218			921,133			(227,384)		24,701		930,929			1,026,239			1,142,361			1,030,753			945,834			(99,824)		(14,905)
Time		196,343			131,353			66,793			44,389			30,782			151,954		165,561		287,865			283,656			294,129			241,328			196,343			46,537		91,522
Brokered		94,463			62,433			94,268			81,847			61,192			12,616		33,271		94,586			84,958			74,576			94,399			94,463			187		123
Total deposits	$	2,468,722		$	2,407,631		$	2,225,119		$	2,499,046		$	1,854,272		$	(30,324)	$	614,450	$	3,727,321		$	3,306,224		$	3,277,692		$	3,161,508		$	2,468,722		$	565,813	$	1,258,599


	2020									2019						Q3 2020 vs		Q3 2020 vs		2021									2020						Q3 2021 vs		Q3 2021 vs
	Third			Second			First			Fourth			Third			Q2 2020		Q3 2019		Third			Second			First			Fourth			Third			Q2 2020		Q3 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	$	1,375,114		$	1,295,728		$	1,136,531		$	977,009		$	854,715		$	79,386	$	520,399
Interest-bearing demand deposits		440,734			462,051			382,178			320,637			295,106			(21,317)		145,628
NOW																					607,485			548,358			618,701			558,967			440,734			59,127		166,751
Savings		586			574			650			1,098			1,085			12		(499)		731			593			587			614			586			138		145
Money market		942,062			952,444			1,010,713			1,006,449			895,102			(10,382)		46,960		1,057,246			1,088,423			1,042,809			1,026,347			942,062			(31,177)		115,184
Time		166,019			96,362			55,775			37,388			32,409			69,657		133,610		285,808			290,331			273,615			221,792			166,019			(4,523)		119,789
Brokered		68,102			83,228			92,188			62,757			88,146			(15,126)		(20,044)		87,498			84,168			84,663			89,673			68,102			3,330		19,396
Total deposits	$	2,472,218		$	2,409,958		$	2,254,505		$	2,146,627		$	1,949,657		$	62,260	$	522,561	$	3,413,882		$	3,307,601		$	3,156,906		$	2,874,402		$	2,472,218		$	106,281	$	941,664

Noninterest bearing deposits as a percentage of average deposits		34.6	%		33.8	%		31.6	%		33.5	%		32.7	%						40.3	%		39.2	%		36.0	%		34.0	%		34.6	%
Cost of interest-bearing deposits		0.28	%		0.33	%		1.09	%		1.36	%		1.58	%						0.15	%		0.17	%		0.19	%		0.25	%		0.28	%
Cost of deposits		0.19	%		0.22	%		0.75	%		0.90	%		1.06	%						0.08	%		0.10	%		0.12	%		0.16	%		0.19	%

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Short-Term Borrowings

There were no outstanding balances of federal funds purchased at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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, ~~2020~~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 or after 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,~~2021, management believed that we had sufficient liquidity to meet our funding needs.

At September 30, ~~2020,~~2021, we had access to ~~$530.0~~$495.0 million in unsecured borrowings and ~~$650.7~~$993.3 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 million in PPP loans outstanding as of September 30, 2020. 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, ~~2020~~2021 was ~~$340.3~~$363.9 million, an increase of ~~13.8~~$25.3 million, or 4%7%, from December 31, ~~2019.~~2020. Net income of ~~$12.6~~$38.5 million ~~and an increase~~was offset by a decrease of ~~$10.9~~$10.4 million in accumulated other comprehensive income ~~were offset by $12.0~~and $5.5 million in repurchases of ~~820,349~~275,592 shares of common stock during the first nine 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.

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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		September 30,			December 31,			September 30,			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	%		14.6	%		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			14.6			14.2		6.0		8.0		8.5
Total capital		16.9			15.0			15.5			14.6		8.0		10.0		10.5			15.9			16.1			15.6			15.4		8.0		10.0		10.5
Leverage ratio		9.9			11.0			11.5			12.7		4.0		5.0		N/A			8.5			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								$	328,258		$	292,890		$	394,045		$	349,779
Tier 1 capital		291,453			285,456			336,277			327,426									328,258			292,890			394,045			349,779
Total capital		394,735			354,757			365,745			346,854									428,598			397,719			420,361			380,725

Risk weighted assets		2,340,295			2,372,001			2,352,137			2,371,384									2,694,397			2,470,185			2,694,095			2,471,702
Quarterly average total assets for leverage ratio		2,944,066			2,589,910			2,934,615			2,585,629									3,861,474			3,297,529			3,857,877			3,288,402

As of September 30, ~~2020,~~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 ~~2019~~2020 Annual Report on Form 10-K.

~~Table 13 - Tier 1 Common Equity~~

~~(dollars in thousands)~~

September 30, 2020

Tier 1 capital

$
291,453

Less: restricted core capital

—

Tier 1 common equity

$
291,453

Risk-adjusted assets

$
2,340,295

Tier 1 common equity ratio

12.5
%

Off-Balance Sheet Arrangements

We make contractual commitments to extend credit and ~~issues~~issue standby letters of credit in the ordinary course of ~~its~~our 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. AtAs of September 30, ~~2020,~~2021, we had issued commitments to extend credit of approximately ~~$764.2~~$850.0 million and standby letters of credit of approximately ~~$19.0~~$21.7 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

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collateral obtained, if deemed necessary upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

Contractual Obligations

There have been no significant changes in our contractual obligations atas of September 30, ~~2020~~2021 compared to December 31, ~~2019.~~2020.

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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~~These committees monitor management’s execution of risk management practices in accordance with the board of directors’ risk appetite, ~~reviews~~review supervisory examination reports together with management’s response to such examinations and ~~discusses~~discuss 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 ~~credit~~loan losses that are inherent in the loan portfolio.

~~Market~~Liquidity Risk

~~Market~~Liquidity risk ~~reflects~~is the risk that we will be unable to meet our obligations as they come due because of ~~economic loss resulting from adverse changes in~~an 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 risk~~availability of ~~loss~~outside 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 in~~meet all our ~~lending~~obligations 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-term~~short term interbank rate indices when pricing deposits. Transaction accounts comprise a significant amount of our total deposits. See Table 13 for an analysis of the impact on net interest income resulting from various interest rate shock scenarios as of September 30, 2021 and December 31, 2020 and Table 14 for our MVE profile as of September 30, 2021 and December 31, 2020.

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.

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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.

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 1413 provides the impact on net interest income resulting from various interest rate shock scenarios as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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Table 1413 - 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)	September 30, 2021		December 31, 2020
‑200	(12.59)	%	(8.85)	%
‑100	(9.10)		(6.49)
+100	18.20		15.26
+200	35.20		30.82
+300	53.98		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 1514 presents the MVE profile as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Table 1514 - 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		September 30, 2021		December 31, 2020
‑200	(2.22)	%	(6.13)	%	11.22	%	(3.03)	%
‑100	(2.88)		(3.73)		8.65		(3.58)
+100	3.26		2.58		(0.11)		5.89
+200	6.36		1.71		(0.30)		10.77
+300	6.64		0.68		(0.59)		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 ~~its~~our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, ~~2020,~~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 ~~its~~our 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.~~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, ~~2020~~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~~2021 and June 30, ~~2020,~~2021, as filed with the SEC on May ~~8, 2020~~7, 2021 and August ~~7, 2020,~~6, 2021, 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. There have been no material changes in the risk factors disclosed in our Annual Report and Quarterly Reports.

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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 resumed repurchases in August 2020 as part of our holding company liquidity planning after having paused repurchases in March 2020 in response to the COVID-19 pandemic.~~

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~~During the three months ended September 30, 2020, we repurchased 401,491 shares under the new stock buyback program for $4.6 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
July 1 - 31, 2021								—	$	—	—	$	1,810,471
August 1 - 31, 2021								—		—	—		1,810,471
September 1 - 30, 2021								—		—	—		1,810,471
Total	401,491	$	11.48	401,491	$	18,801,828		—	$	—	—

(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.

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ITEM 6. EXHIBITS

		-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
2.1		Agreement and Plan of Merger, dated as of July 22, 2021, by and between South State Corporation and Atlantic Capital Bancshares, Inc.*
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following materials from our Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2020,~~2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of September 30, ~~2020~~2021 and December 31, ~~2019;~~2020; (ii) the Consolidated Statements of Income for the three and nine months ended September 30, ~~2020~~2021 and ~~2019;~~2020; (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2020~~2021 and ~~2019;~~2020; (iv) the Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, ~~2020~~2021 and ~~2019;~~2020; (v) the Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2020~~2021 and ~~2019;~~2020; and (vi) the Notes to the Unaudited Consolidated Financial Statements
104		The cover page from Atlantic Capital Bancshares, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2020,~~2021, formatted in Inline XBRL (eXtensible Business Reporting Language) (embedded within EX – 101).


*	The registrant has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish a copy of any omitted schedule or similar attachment to the United States Securities and Exchange Commission upon request.

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Table of Contents

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: November ~~6, 2020~~5, 2021

7165


		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


			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


	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


	Fair Value Measurements at
	September 30, 2020 Using:
			Quoted Prices
			in Active		Significant
			markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Securities		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)

	(in thousands)
Financial assets:
Cash and due from banks	$	22,715	$	22,715	$	—	$	—
Interest-bearing deposits in banks		91,243		91,243		—		—
Total securities available-for-sale		260,884		—		260,884		—
Total securities held-to-maturity		185,822		—		196,712		—
FHLB stock		2,619		—		—		2,619
Federal Reserve Bank stock		10,080		—		—		10,080
Loans held for investment, net		2,188,035		—		—		2,228,766
Loans held for sale		859		—		859		—
Derivative assets		25,359		—		25,359		—
Financial liabilities:
Deposits	$	2,468,722	$	—	$	2,442,818	$	—
Subordinated debt		73,814		—		78,089		—
Derivative financial instruments		13,324		—		13,324		—


	Fair Value Measurements at
	December 31, 2019 Using:
			Quoted Prices
			in Active		Significant
			markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Securities		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)

	(in thousands)
Financial assets:
Cash and due from banks	$	45,249	$	45,249	$	0	$	0
Interest-bearing deposits in banks		421,079		421,079		0		0
Total securities available-for-sale		282,461		0		282,461		0
Total securities held-to-maturity		116,972		0		115,291		0
FHLB stock		2,680		0		0		2,680
Federal Reserve Bank stock		9,998		0		0		9,998
Loans held for investment, net		1,873,524		0		0		1,890,258
Loans held for sale		370		0		370		0
Derivative assets		8,856		0		8,856		0
Financial liabilities:
Deposits	$	2,499,046	$	0	$	2,421,957	$	0
Subordinated debt		49,873		0		50,081		0
Derivative financial instruments		5,647		0		5,647		0