Atlantic Capital Bancshares, Inc. Reports First Quarter 2020 Results

ATLANTA, April 23, 2020 (GLOBE NEWSWIRE) -- Atlantic Capital Bancshares, Inc. (NASDAQ: ACBI) announced net income from continuing operations for the quarter ended March 31, 2020 of $2.1 million, or $0.10 per diluted share, compared to $6.4 million, or $0.26 per diluted share, for the first quarter of 2019 and $7.1 million, or $0.32 per diluted share, for the fourth quarter of 2019. The decrease in net income was predominantly driven by increases in credit reserves in anticipation of the expected impact from the economic slowdown from COVID-19.

“Atlantic Capital entered the COVID-19 crisis in a position of strength with solid first quarter operating results, a fortress balance sheet, and sound business continuity plans. With that strength, our company will provide needed assistance to businesses in our community, add new client relationships, and strive to continue to build meaningful shareholder value through the crisis,” remarked Douglas Williams, President and Chief Executive Officer.

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 associates. The Company implemented work-from-home initiatives for employees when possible, ceased non-essential business related travel, and began regular meetings of its executive leadership and incident response teams to direct the Company’s response to the ever-changing environment. Each week, Doug Williams and his executive leadership team host an internal company-wide conference call to communicate the latest developments, answer teammate questions, and gather information from teammates based on the challenges their relationship customers are facing.

In addition, Atlantic Capital has taken the following steps to assist borrowers during these challenging times, consistent with sound banking practice:

• facilitating approximately $223 million in loan applications for business borrowers through the Paycheck Protection Program;
  
  
• evaluating business segments in our market areas to evaluate areas of need and focus our assessment and management of portfolio risk;
  
  
• offering payment deferrals to existing customers with a streamlined loan modification process when appropriate;
  
  
• communicating with customers in order to assess developing credit situations and needs; and
  
  
• engaging in liquidity planning, including pausing stock repurchases in March.

Our goal is to continue to support our community of customers and prospective customers while maintaining our historically cautious approach to new loan underwriting. With reliable core deposit funding, solid balance sheet liquidity, a strong capital position, and access to significant wholesale funding, Atlantic Capital anticipates adequate funding capacity for future lending needs.

First Quarter Highlights⁽¹⁾

• Capital ratios remained strong, with a tangible common equity to tangible assets ratio of 11.6%.
• Tangible book value per share increased 19.5% from March 31, 2019 to $14.54, and increased 12.8% annualized from December 31, 2019.
• Net interest margin from continuing operations of 3.41%, compared to 3.74% in the first quarter of 2019 and 3.38% in the fourth quarter of 2019.
• Average deposits from continuing operations increased $460.7 million, or 25.7%, compared to the first quarter of 2019 and $107.9 million, or 20.1% annualized, compared to the fourth quarter of 2019.
• Total loans held for investment increased $198.4 million, or 11.4% from March 31, 2019 and $59.4 million, or 12.7% annualized, from December 31, 2019.
• Annualized net charge-offs to average loans totaled 0.04%, compared 0.11% in the first quarter of 2019 and 0.07% for the fourth quarter of 2019.

Income Statement

Taxable equivalent net interest income from continuing operations totaled $21.2 million for the first quarter of 2020, an increase of $679,000, or 3.3%, from the first quarter of 2019, and an increase of $469,000, or 9.0% annualized, from the fourth quarter of 2019. The linked quarter increase in net interest income was primarily driven by a decrease in the cost of interest bearing liabilities offset by a decrease in loan yields. 

Taxable equivalent net interest margin from continuing operations was 3.41% in the first quarter of 2020, a decrease of 33 basis points from the first quarter of 2019 and an increase of 3 basis points from the fourth quarter of 2019. The linked quarter increase was primarily the result of a drop in the cost of interest bearing deposits and an increase in the yield on investment securities. This was partially offset by a decrease in loan yields.

The yield on loans from continuing operations in the first quarter of 2020 was 4.77%, a decrease of 63 basis points from the first quarter of 2019 and a decrease of 18 basis points from the fourth quarter of 2019. The decrease in loan yields was due primarily to the repricing of variable rate loans as a result of declines in short term interest rates during 2019 and 2020.

The taxable equivalent yield on investment securities in the first quarter of 2020 was 2.84%, an increase of 7 basis points from the first quarter of 2019 and an increase of 21 basis points from the fourth quarter of 2019. The increase in taxable equivalent investment portfolio yields was primarily the result of municipal bond purchases in 2019 and 2020, many of which were non-taxable.

The cost of deposits from continuing operations in the first quarter of 2020 was 0.75%, a decrease of 34 basis points from the first quarter of 2019 and a decrease of 15 basis points from the fourth quarter of 2019. The cost of interest bearing deposits from continuing operations decreased 52 basis points to 1.09% from the first quarter of 2019, and decreased 27 basis points from the fourth quarter of 2019.

The provision for credit losses for continuing operations was $8.1 million in the first quarter of 2020 compared to $814,000 in the first quarter of 2019 and $787,000 in the fourth quarter of 2019. The provision for credit losses in the first quarter of 2020 included a $7.4 million provision for loan losses and a $671,000 provision for unfunded commitments. The provision increased primarily as a response to the expected impact from the economic slowdown from COVID-19.

Noninterest income from continuing operations totaled $2.4 million in the first quarter of 2020 compared to $2.3 million in the first quarter of 2019 and $2.7 million in the fourth quarter of 2019. Service charge income in the first quarter of 2020 totaled $1.2 million, an increase of $438,000 or 55.2%, compared to the first quarter of 2019 and an increase of $234,000, or 93.8% annualized, from the fourth quarter of 2019. Continued strong growth in core deposits, particularly in our payments processing businesses, drove the increases in service charge income. SBA income totaled $414,000, a decrease from $1.1 million in the first quarter of 2019 and $846,000 in the fourth quarter of 2019, primarily from lower SBA origination volume and a decrease in loan premiums during the quarter.

Noninterest expense from continuing operations totaled $12.9 million in the first quarter of 2020, a decrease of $918,000 compared to the first quarter of 2019 and $505,000 compared to the fourth quarter of 2019. Salaries and employee benefits totaled $8.5 million in the first quarter of 2020, unchanged from the previous quarter as the higher first quarter benefits costs were offset by lower incentive accruals.

The effective tax rate from continuing operations for the first quarter of 2020 was 13.3% compared to 21.3% for the full year of 2019, and was impacted by lower pretax earnings as well as increased non-taxable securities income from municipal bonds.

(1) Commentary is on a fully taxable-equivalent basis unless otherwise noted. Consistent with SEC guidance in Industry Guide 3 that contemplates the calculation of tax-exempt income on a tax equivalent basis, net interest income and net interest margin are provided on a fully taxable-equivalent basis, which generally assumes a 21% marginal tax rate. We provide detailed reconciliations in the Non-GAAP Performance and Financial Measures Reconciliation table on page 14.

Balance Sheet

Total loans held for investment were $1.93 billion at March 31, 2020, an increase of $198.4 million, or 11.4%, from March 31, 2019 and an increase of $59.4 million, or 12.7% annualized, from December 31, 2019. Commercial and industrial loans were $760.0 million at March 31, 2020, an increase of 11.9% from March 31, 2019 and 31.2% annualized from December 31, 2019. The increase from December 31, 2019 was primarily due to organic growth across different areas of the Company. Mortgage warehouse loan participations decreased to zero as we exited the business during the first quarter of 2020. Consumer loans increased $20.4 million from December 31, 2019 to $58.2 million at March 31, 2020, due to the growth in a partnership with a fintech firm that offers CD-secured loans to its customers. 

On January 1, 2020, the Company adopted the CECL accounting standard, which resulted in a day one reduction of $854,000 to the allowance for loan losses offset by an increase of $1.3 million to the allowance for unfunded commitments. The allowance for loan losses totaled $18.5 million as of December 31, 2019, was reduced by $854,000 due to CECL adoption, was increased by $7.4 million related to the first quarter 2020 provision, and ended the quarter at $24.9 million. The allowance for unfunded commitments totaled $892,000 at December 31, 2019, was increased by $1.3 million due to CECL adoption, was increased by $671,000 related to the first quarter 2020 provision, and ended the quarter at $2.8 million. At March 31, 2020, the combined allowance for credit losses for loans and unfunded commitments was $27.7 million, compared to $19.4 million at December 31, 2019.

The allowance for loan losses was 1.29% of total loans held for investment at March 31, 2020, compared to 0.99% at December 31, 2019. The increase reflects the impact of COVID-19 on the economic forecast used in the estimation of expected credit losses. Non-performing assets from continuing operations totaled $7.3 million, or 0.27% of total assets, as of March 31, 2020, compared to 0.34% of total assets as of March 31, 2019 and 0.26% of total assets as of December 31, 2019.

Tangible common equity to tangible assets was 11.6% at March 31, 2020, an increase from 10.6% at December 31, 2019 due to the elevated levels of cash related to year-end deposits at December 31, 2019. The estimated total risk based capital ratio was 14.9% at March 31, 2020 compared to 13.7% at March 31, 2019 and 15.0% at December 31, 2019.

Earnings Conference Call

The Company will host a conference call at 9:30 a.m. EDT on Friday, April 24, 2020, to discuss the financial results for the quarter ended March 31, 2020. Individuals wishing to participate in the conference call may do so by dialing 877-270-2148 from the United States. The call will also be available live via webcast on the Investor Relations page of the Company's website, www.atlanticcapitalbank.com. A presentation will be used during the earnings conference call and is available at http://www.snl.com/IRW/CorporateProfile/4155740.

Non-GAAP Financial Measures

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. Atlantic Capital management uses non-GAAP financial measures, including: (i) taxable equivalent interest income; (ii) taxable equivalent net interest income; (iii) taxable equivalent net interest margin; (iv) taxable equivalent income before income taxes; (v) taxable equivalent income tax expense; (vi) tangible assets; (vii) tangible common equity; and (viii) tangible book value per common share, in its analysis of the Company's performance. Tangible common equity excludes goodwill and other intangible assets from shareholders' equity.

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 Atlantic Capital’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. 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.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “project,” “expect,” “intend,” “plan,” “strive,” or words or phases of similar meaning. Forward-looking statements may include, among other things, statements about Atlantic Capital’s confidence in its strategies and its expectations about financial performance, the impact of COVID-19 on operations, market growth, market and regulatory trends and developments, acquisitions and divestitures, new technologies, services and opportunities and earnings. The forward-looking statements are based largely on Atlantic Capital’s expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond Atlantic Capital’s control. Atlantic Capital undertakes no obligation to publicly update any forward-looking statement to reflect developments occurring after the statement is made, except as otherwise required by law. Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements as a result of, among other factors, the risks and uncertainties described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Atlantic Capital’s Annual Report on Form 10-K, as supplemented by our Current Report on Form 8-K filed on April 23, 2020, and Quarterly Reports on Form 10-Q. Please refer to the SEC’s website at www.sec.gov where you can review those documents.

About Atlantic Capital Bancshares

Atlantic Capital Bancshares, Inc. is a $2.7 billion publicly traded bank holding company headquartered in Atlanta, Georgia. Atlantic Capital offers commercial and not-for-profit banking services, specialty corporate financial services, private banking services and commercial real estate finance solutions to privately held companies and individuals in the Atlanta area, as well as specialized financial services for select clients nationally.

Media Contact:
Ashley Carson
Email: ashley.carson@atlcapbank.com
Phone: 404-995-6050

Financial Contact:
Patrick Oakes
Email: patrick.oakes@atlcapbank.com
Phone: 404-995-6050

ATLANTIC CAPITAL BANCSHARES, INC.
Selected Financial Information

⁽¹⁾ On April 5, 2019, Atlantic Capital completed the sale to FirstBank of its Tennessee and northwest Georgia banking operations, including 14 branches and the mortgage business. The mortgage business and branches sold to FirstBank are reported as discontinued operations.
⁽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⁾ Excludes effect of acquisition related intangibles.
⁽⁴⁾ Amounts are estimates as of March 31, 2020.
⁽⁵⁾ The ratios for the first, second, and third quarters of 2019 are calculated on a continuing operations basis.
⁽⁶⁾ Annualized.

ATLANTIC CAPITAL BANCSHARES, INC.
Financial Information from Discontinued Operations

Assets and Liabilities from Discontinued Operations

Components of Net Income (Loss) from Discontinued Operations

ATLANTIC CAPITAL BANCSHARES, INC.
Consolidated Balance Sheets (unaudited)

¹⁾ Assets and liabilities related to the sale of Tennessee and northwest Georgia banking operations were classified as held for sale as of March 31, 2019.

ATLANTIC CAPITAL BANCSHARES, INC.
Consolidated Statements of Income (unaudited)

ATLANTIC CAPITAL BANCSHARES, INC.
Average Balance Sheets and Net Interest Margin Analysis
Selected Financial Information

⁽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⁾ Tax equivalent net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset.

ATLANTIC CAPITAL BANCSHARES, INC.
Average Balance Sheets and Net Interest Margin Analysis
Selected Financial Information

⁽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⁾ Tax equivalent net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset.

ATLANTIC CAPITAL BANCSHARES, INC.
Period End Loans

ATLANTIC CAPITAL BANCSHARES, INC.
Allowance for Credit Losses Activity and Credit Quality