SEC Document

(1) Reflects core deposit intangible related to acquired deposits.

(2) Reflects the recognition of First Security's deferred tax assets totaling approximately $50 million and approximately $9 million in deferred tax assets established as a result of other purchase accounting adjustments.

(3) Reflects approximately $5 million in deferred tax liabilities established as a result of purchase accounting adjustments.

10-Q 1 a20160331-10q.htm 10-Q SEC Document

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________

FORM 10-Q

_________________________________________________

(Mark One)



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

For the quarterly period ended March 31, 2016



¨	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.)

3280 Peachtree Road NE, Suite 1600 Atlanta, Georgia	30305
(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)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	ý	Smaller reporting company	¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, no par value: 24,600,298 shares outstanding as of May 1, 2016

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Atlantic Capital Bancshares, Inc. and Subsidiary

Form 10-Q

INDEX



		Page No.
PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements (Unaudited)	1

	Consolidated Balance Sheets - March 31, 2016 and December 31, 2015	1

	Consolidated Statements of Income - Three Months ended March 31, 2016 and 2015	2

	Consolidated Statements of Comprehensive Income - Three Months ended March 31, 2016 and 2015	3

	Consolidated Statements of Shareholders’ Equity - Three Months ended March 31, 2016 and 2015	4

	Consolidated Statements of Cash Flows - Three Months ended March 31, 2016 and 2015	5

	Notes to Unaudited Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52

Item 4.	Controls and Procedures	52

PART II.	OTHER INFORMATION	53

Item 1.	Legal Proceedings	53

Item 1A.	Risk Factors	53

Item 2.	Unregistered Sales of Equity Securities	53

Item 3.	Defaults Upon Senior Securities	53

Item 4.	Mine Safety Disclosures	53

Item 5.	Other Information	54

Item 6.	Exhibits	54

SIGNATURES		55

EXHIBIT INDEX		56

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PART I - FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)

Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets



	March 31, 2016			December 31, 2015
(in thousands, except share and per share data)	(unaudited)			December 31, 2015
ASSETS
Cash and due from banks	$	49,054		$	58,319
Interest-bearing deposits in banks	91,608			130,900
Other short-term investments	20,392			13,666
Cash and cash equivalents	161,054			202,885
Securities available-for-sale	366,641			346,221
Other investments	11,899			8,034
Loans held for sale	95,291			95,465
Loans held for investment	1,886,763			1,790,669
Less: allowance for loan losses	(17,608		)	(18,905		)
Loans, held for investment, net	1,869,155			1,771,764
Branch premises held for sale	7,200			7,200
Premises and equipment, net	22,780			23,145
Bank owned life insurance	60,981			60,608
Goodwill and intangible assets, net	33,914			35,232
Other real estate owned	1,760			1,982
Other assets	96,213			86,244
Total assets	$	2,726,888		$	2,638,780



LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand	$	560,363	$	544,561
Interest-bearing checking	215,176		232,868
Savings	29,788		28,922
Money market	862,120		875,441
Time	187,750		183,206
Brokered deposits	229,408		183,810
Deposits to be assumed in branch sale	197,857		213,410
Total deposits	2,282,462		2,262,218
Federal funds purchased and securities sold under agreements to repurchase	11,824		11,931
Federal Home Loan Bank borrowings	60,000		—
Long-term debt	49,239		49,197
Other liabilities	27,348		27,442
Total liabilities	2,430,873		2,350,788
SHAREHOLDERS’ EQUITY
Preferred Stock, no par value – 10,000,000 shares authorized; no shares issued and outstanding as of March 31, 2016 and December 31, 2015	—		—
Common stock, no par value – 100,000,000 shares authorized; 24,569,823 and 24,425,546 shares issued and outstanding as of March 31, 2016, and December 31, 2015, respectively	288,271		286,367
Retained earnings	6,072		3,141
Accumulated other comprehensive income (loss)	1,672		(1,516		)
Total shareholders’ equity	296,015		287,992
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,726,888	$	2,638,780

See Accompanying Notes to Consolidated Financial Statements

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Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Income

(Unaudited)



	Three Months Ended
	March 31,
(in thousands, except per share data)	2016		2015
INTEREST INCOME
Loans, including fees	$	19,625	$	8,951
Investment securities – available-for-sale	1,601		703
Interest and dividends on other interest-earning assets	273		258
Total interest income	21,499		9,912
INTEREST EXPENSE
Interest on deposits	1,673		742
Interest on Federal Home Loan Bank advances	44		114
Interest on federal funds purchased and securities sold under agreements to repurchase	67		24
Interest on long-term debt	810		—
Other	38		—
Total interest expense	2,632		880
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES	18,867		9,032
Provision for loan losses	368		364
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	18,499		8,668
NONINTEREST INCOME
Service charges	1,498		326
Gain on sales of securities available-for-sale	33		—
Gain on sales of other assets	48		—
Mortgage income	339		—
Trust income	314		—
Derivatives income	65		83
Bank owned life insurance	393		231
SBA lending activities	880		358
TriNet gains on sale	383		—
Other noninterest income	467		184
Total noninterest income	4,420		1,182
NONINTEREST EXPENSE
Salaries and employee benefits	10,555		4,742
Occupancy	1,100		421
Equipment and software	686		219
Professional services	748		109
Postage, printing and supplies	169		24
Communications and data processing	916		331
Marketing and business development	267		46
FDIC premiums	398		166
Merger and conversion costs	749		508
Amortization of intangibles	762		—
Other noninterest expense	1,916		636
Total noninterest expense	18,266		7,202
INCOME BEFORE PROVISION FOR INCOME TAXES	4,653		2,648
Provision for income taxes	1,722		934
NET INCOME	$	2,931	$	1,714
NET INCOME PER SHARE:
Net income per share – basic	$	0.12	$	0.13
Net income per share – diluted	$	0.12	$	0.12

See Accompanying Notes to Consolidated Financial Statements

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Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended
	March 31,
(in thousands)	2016			2015
Net income	$	2,931		$	1,714
Other comprehensive income
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains arising during the period, net of tax of $1,640 and $248, respectively	2,635			399
Reclassification adjustment for gains included in net income net of tax of $13 and $0, respectively	(20		)	—
Unrealized gains (losses) on available-for-sale securities, net of tax	2,615			399
Cash flow hedges:
Net unrealized derivative gains on cash flow hedges, net of tax of $364 and $253, respectively	573			408
Changes from cash flow hedges	573			408
Other comprehensive income, net of tax	3,188			807
Comprehensive income	$	6,119		$	2,521

See Accompanying Notes to Consolidated Financial Statements

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Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Shareholders’ Equity

(Unaudited)



	Common Stock					Accumulated Other Comprehensive Income (Loss)
(in thousands, except share data)	Shares	Amount		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance - December 31, 2014	13,497,118	$	136,335	$	4,460	$	609		$	(475	)	$	140,929
Comprehensive income:
Net Income	—	—		1,714		—			—			1,714
Change in unrealized gains (losses) on investment securities available-for-sale, net	—	—		—		399			—			399
Change in unrealized gains (losses) on cash flow hedges	—	—		—		408			—			408
Total comprehensive income												2,521
Acquisition of treasury stock	—	—		—		—			(701		)	(701		)
Issuance of restricted stock	8,000	—		—		—			—			—
Restricted stock activity	—	125		—		—			—			125
Issuance of common stock for long-term incentive plan	102,758	1,285		—		—			—			1,285
Stock-based compensation	—	—		—		—			—			—
Balance - March 31, 2015	13,607,876	$	137,745	$	6,174	$	1,416		$	(1,176	)	$	144,159



Balance - December 31, 2015	24,425,546	$	286,367	$	3,141	$	(1,516	)	$	—		$	287,992
Comprehensive income:
Net Income	—	—		2,931		—			—			2,931
Change in unrealized gains (losses) on investment securities available-for-sale, net	—	—		—		2,615			—			2,615
Change in unrealized gains (losses) on cash flow hedges	—	—		—		573			—			573
Total comprehensive income												6,119
Acquisition of treasury stock	—	—		—		—			—			—
Issuance of restricted stock	9,500	—		—		—			—			—
Issuance of common stock for option exercises	68,628	534		—		—			—			534
Issuance of common stock for long-term incentive plan	66,149	884		—		—			—			884
Restricted stock activity	—	239		—		—			—			239
Stock-based compensation	—	247		—		—			—			247
Balance - March 31, 2016	24,569,823	$	288,271	$	6,072	$	1,672		$	—		$	296,015

See Accompanying Notes to Consolidated Financial Statements

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Atlantic Capital Bancshares, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)



	Three Months Ended
	March 31,
(in thousands)	2016			2015
OPERATING ACTIVITIES
Net income	$	2,931		$	1,714
Adjustments to reconcile net income to net cash provided by operating activities
Provision for Loan Losses	368			364
Depreciation, amortization, and accretion	1,352			485
Amortization of restricted stock compensation	239			125
Stock option compensation	247			—
Gain on sales of available-for-sale securities	(33		)	—
Net loss (gains) on sales of other real estate owned	(48		)	—
Net increase in cash value of bank owned life insurance	(373		)	(231		)
Changes in operating assets and liabilities -
Net change in loans held for sale	174			—
Net (increase) decrease in other assets	(7,643		)	(1,169		)
Net increase (decrease) in accrued expenses and other liabilities	(1,345		)	(1,719		)
Net cash used in operating activities	(4,131		)	(431		)
INVESTING ACTIVITIES
Activity in securities available-for-sale:
Prepayments	9,242			4,598
Maturities and calls	5,102			—
Sales	4,953			—
Purchases	(36,231		)	(7,542		)
Net increase in loans held for investment	(97,810		)	(45,522		)
(Purchases) proceeds of Federal Home Loan Bank Stock, net	(3,894		)	(908		)
Proceeds from sales of other real estate	321			—
Purchases of premises and equipment, net	(198		)	(94		)
Net cash used in investing activities	(118,515		)	(49,468		)
FINANCING ACTIVITIES
Net change in deposits	20,244			42,766
Proceeds from Federal Home Loan Bank Advances	155,000			265,000
Repayments of Federal Home Loan Bank Advances	(95,000		)	(242,083		)
Proceeds from exercise of stock options	571			—
Acquisition of treasury stock	—			(701		)
Net cash provided by financing activities	80,815			64,982
NET CHANGE IN CASH AND CASH EQUIVALENTS	(41,831		)	15,083
CASH AND CASH EQUIVALENTS – beginning of period	202,885			94,250
CASH AND CASH EQUIVALENTS – end of period	$	161,054		$	109,333

	Three Months Ended
	March 31,
	2016			2015
SUPPLEMENTAL SCHEDULE OF CASH FLOWS
Interest paid	$	3,393		$	885
Income taxes paid	$	93		$	995

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”) and its subsidiary conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated. On October 31, 2015, Atlantic Capital completed its acquisition of First Security Group, Inc. and its subsidiary FSGBank, N.A. (together, “First Security”). In connection with the acquisition, Atlantic Capital’s subsidiary Atlantic Capital Bank, a Georgia chartered commercial bank merged with and into FSGBank, N.A, which subsequently changed its name to Atlantic Capital Bank, National Association (the "Bank"). The consolidated financial statements reflect the results of operations of Atlantic Capital and Atlantic Capital Bank, and the results of operations of First Security subsequent to the date of acquisition. In connection with the acquisition, Atlantic Capital issued approximately 8,790,193 shares of common stock as partial consideration to former shareholders of First Security, with the remaining consideration consisting of approximately $47.1 million in cash. See Note 3 to the Consolidated Financial Statements for additional information.

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Atlantic Capital’s filing on Form 10-K. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods. Certain prior period amounts have been reclassified to conform to the current year presentation.

NOTE 2 – ACCOUNTING STANDARDS UPDATES AND RECENTLY ADOPTED STANDARDS

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in ASU 2016-09 simplify several aspects of accounting for employee share-based payments including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some areas of the simplification apply only to nonpublic entities. The new guidance will require all income tax effects of awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled and additional paid in capital pools will be eliminated. The guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Companies will be required to account for forfeitures of share-based payments by recognizing forfeitures of awards as they occur or estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as currently required, through an accounting policy election. The guidance will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer's income tax withholding obligation. The guidance requires an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption will be permitted in any interim or annual period for which financial statements have not yet been issued or have not been made available for issuance, however all of the guidance must be adopted in the same period. If early adoption is elected in an interim period, any adjustments should be reflected as of the beginning of the annual period that includes that interim period. The adoption of this guidance is not expected to have a material effect on Atlantic Capital's financial position or results of operations.

In February 2016, the FASB issued Accounting Standards Update 2016-2, Leases. Under the new guidance, leases classified as operating leases under previous GAAP must be recorded on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Atlantic Capital is evaluating the impact of this update and does not believe it will have a significant impact to Atlantic Capital’s financial position or results of operations.

In January 2016, the FASB issued ASU 2016-1, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities. The guidance in this update requires that equity investments (except those accounting for under the equity method of accounting) be measured at fair value with changes in fair value recognized in net income. However, an entity

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may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The guidance also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In addition, the guidance addresses various disclosure and presentation issues related to financial instruments. For public entities, this update is effective for fiscal years beginning after December 15, 2017 with early application permitted. The adoption of this update is not expected to have a material impact on Atlantic Capital’s consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers. This update is a joint project with the International Accounting Standards Board initiated to clarify the principles for recognizing revenue and to develop a common revenue standard that is meant to remove inconsistencies and weaknesses in revenue requirements, provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, provide more useful information to users of financial statements and simplify the preparation of financial statements. The guidance in this update supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition” and most industry-specific guidance throughout the Industry Topics of Codification. In August 2015, the FASB deferred the effective date of this ASU by one year. For public companies, it is effective for annual and interim periods beginning after December 15, 2017. Atlantic Capital is evaluating the impact of this update and does not believe it will have a significant impact to Atlantic Capital’s financial position or results of operations.

NOTE 3 – ACQUISITIONS AND DIVESTITURES

On October 31, 2015, Atlantic Capital completed the acquisition of First Security. First Security operated twenty-five branches in Georgia and Tennessee. In connection with the acquisition, Atlantic Capital acquired approximately $801 million of loans and assumed approximately $970 million of deposits.

Acquisition-related costs totaled $749,000 and $508,000 for the three months ended March 31, 2016 and 2015, respectively, and were included in noninterest expense in the consolidated income statement. Acquisition related costs primarily include severance costs, professional services, data processing fees and other noninterest expenses.

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A summary of assets received and liabilities assumed for First Security, as well as the associated fair value adjustments, are as follows:



	First Security Group, Inc. (As Reported)			Fair Value Adjustments			As recorded by Atlantic Capital
	(in thousands)

Fair value of assets acquired:
Cash and due from banks	$	26,721		$	—		$	26,721
Investment securities	199,104			3,748			202,852
Loans held for sale	44,452			—			44,452
Loans	812,196			(11,059		)	801,137
Less allowance for loan losses	(9,385		)	9,385			—
Loans, net	802,811			(1,674		)	801,137
Premises and equipment, net	29,246			(1,086		)	28,160
Other intangible assets ⁽¹⁾	—			9,544			9,544
Other real estate owned	2,493			(438		)	2,055
Other assets ⁽²⁾	47,559			58,709			106,268
Total assets acquired	$	1,152,386		$	68,803		$	1,221,189
Fair value of liabilities acquired:
Deposits:
Noninterest bearing demand	$	178,174		$	—		$	178,174
Interest bearing demand	121,063			—			121,063
Savings and money market	274,099			—			274,099
Time	253,673			2,233			255,906
Brokered	140,780			—			140,780
Total deposits	967,789			2,233			970,022
Federal funds purchased and securities sold under agreements to repurchase	12,739			—			12,739
Federal Home Loan Bank advances	72,890			—			72,890
Other borrowings	—			—			—
Other liabilities ⁽³⁾	10,942			6,840			17,782
Total liabilities acquired	1,064,360			9,073			1,073,433
Net assets acquired	$	88,026		$	59,730		$	147,756
Total consideration paid to First Security shareholders							171,108
Goodwill							$	23,352

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(in thousands)	Total Purchase Price Consideration

Aggregate Cash Consideration	$	47,098
Aggregate Stock Consideration	121,305
Estimated Value associated with converted stock awards	2,705
Total Purchase Price Consideration	$	171,108

During the first quarter of 2016, Atlantic Capital recorded measurement period adjustments that decreased goodwill by $906,000. The adjustment also increased the book value of securities available for sale.

Divestiture of Branches

On December 17, 2015, the Bank entered into two separate definitive agreements to sell seven branches in the Bank’s Tennessee market. The agreement with First Freedom Bank includes the sale of three branches located in Algood, Cookeville and Gainesboro, Tennessee for a premium of 2.25%. The agreement with Athens Federal Community Bank, N.A. includes the sale of four branches in Athens, Lenoir City, Madisonville and Sweetwater, Tennessee for a premium of 3.50%. Both transactions are scheduled to close in the second quarter of 2016.

The following summarizes the branch assets held for sale and liabilities to be assumed as of March 31, 2016.




(in thousands)	Athens Federal		First Freedom		Total

Branch loans held for sale	$	9,346	$	24,942	$	34,288
Branch premises held for sale	3,050		4,150		7,200
Branch deposits to be assumed	89,074		108,783		197,857

Number of branches	4		3		7

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NOTE 4 – BALANCE SHEET OFFSETTING

Atlantic Capital enters into reverse repurchase agreements in order to invest short-term funds.

The following table presents a summary of amounts outstanding under reverse repurchase agreements and derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements as of March 31, 2016 and December 31, 2015.



(in thousands)							Gross Amounts not Offset in the Balance Sheet
March 31, 2016	Gross Amounts of Recognized Assets		Gross Amounts Offset on the Balance Sheet		Net Asset Balance		Financial Instruments		Collateral Received			Net Amount
Reverse repurchase agreements	$	20,392	$	—	$	20,392	$	—	$	(20,392	)	$	—
Derivatives	13,414		—		13,414		—		—			13,414
Total	$	33,806	$	—	$	33,806	$	—	$	(20,392	)	$	13,414
							Gross Amounts not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset on the Balance Sheet		Net Liability Balance		Financial Instruments		Collateral Pledged			Net Amount
Repurchase agreements	$	11,824	$	—	$	11,824	$	12,975	$	(11,824	)	$	—
Derivatives	12,087		—		12,087		—		(16,144		)	—
Total	$	23,911	$	—	$	23,911	$	12,975	$	(27,968	)	$	—

							Gross Amounts not Offset in the Balance Sheet
December 31, 2015	Gross Amounts of Recognized Assets		Gross Amounts Offset on the Balance Sheet		Net Asset Balance		Financial Instruments		Collateral Received			Net Amount
Reverse repurchase agreements	$	13,666	$	—	$	13,666	$	—	$	(13,666	)	$	—
Derivatives	6,554		—		6,554		—		—			6,554
Total	$	20,220	$	—	$	20,220	$	—	$	(13,666	)	$	6,554
							Gross Amounts not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset on the Balance Sheet		Net Liability Balance		Financial Instruments		Collateral Pledged			Net Amount
Repurchase agreements	$	11,931	$	—	$	11,931	$	14,744	$	(11,931	)	$	—
Derivatives	6,163		—		6,163		—		(13,508		)	—
Total	$	18,094	$	—	$	18,094	$	14,744	$	(25,439	)	$	—

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NOTE 5 – SECURITIES

The following table presents the amortized cost, unrealized gains and losses, and fair value of securities available-for-sale at March 31, 2016 and December 31, 2015.



Available-for-sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
March 31, 2016
Debt securities—
U.S. Government agencies	$	59,861	$	395	$	(82	)	$	60,174
U.S. states and political divisions	36,809		357		(118		)	37,048
Trust preferred securities	4,707		—		(832		)	3,875
Corporate debt securities	24,110		167		(753		)	23,524
Residential mortgage-backed securities-agency	242,500		1,616		(2,096		)	242,020
Total	$	367,987	$	2,535	$	(3,881	)	$	366,641

December 31, 2015
Debt securities—
U.S. treasuries	$	4,952	$	3	$	(33	)	$	4,922
U.S. Government agencies	65,373		249		(770		)	64,852
U.S. states and political divisions	27,751		301		(262		)	27,790
Trust preferred securities	4,732		—		(457		)	4,275
Corporate debt securities	20,653		52		(188		)	20,517
Residential mortgage-backed securities-agency	226,142		1,019		(3,296		)	223,865
Total	$	349,603	$	1,624	$	(5,006	)	$	346,221

The following table presents the amortized cost and fair value of debt securities by contractual maturity at March 31, 2016. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Available-For-Sale
	Amortized Cost		Fair Value
	(in thousands)
Within 1 year	$	6,238	$	6,221
Over 1 year through 5 years	51,027		50,952
5 years to 10 years	41,288		41,203
Over 10 years	26,934		26,245
	125,487		124,621
Mortgage-backed residential securities	242,500		242,020
Total	$	367,987	$	366,641

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The following table summarizes available-for-sale securities in an unrealized loss position as of March 31, 2016 and December 31, 2015.



	Less than 12 months					12 months or greater					Totals
Available-For-Sale	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
March 31, 2016
U.S. Government agencies	$	3,995	$	(5	)	6,773		$	(77	)	$	10,768	$	(82	)
U.S. states and political divisions	12,074		(109		)	1,236		(9		)	13,310		(118		)
Trust preferred securities	—		—			3,875		(832		)	3,875		(832		)
Corporate debt securities	11,039		(753		)	—		—			11,039		(753		)
Residential mortgage-backed securities	114,860		(1,620		)	33,092		(476		)	147,952		(2,096		)
Totals	$	141,968	$	(2,487	)	$	44,976	$	(1,394	)	$	186,944	$	(3,881	)
December 31, 2015
U.S. treasuries	$	—	$	(33	)	$	—	$	—		$	—	$	(33	)
U.S. Government agencies	24,380		(526		)	22,218		(244		)	46,598		(770		)
U.S. states and political divisions	11,280		(249		)	2,248		(13		)	13,528		(262		)
Trust preferred securities	—		—			4,275		(457		)	4,275		(457		)
Corporate debt securities	15,168		(188		)	—		—			15,168		(188		)
Residential mortgage-backed securities	143,611		(2,634		)	40,152		(662		)	183,763		(3,296		)
Totals	$	194,439	$	(3,630	)	$	68,893	$	(1,376	)	$	263,332	$	(5,006	)

At March 31, 2016, there were 29 available-for-sale securities that were in an unrealized loss position. Atlantic Capital does not intend to sell and does not believe it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. Unrealized losses at March 31, 2016 and December 31, 2015 were primarily attributable to changes in interest rates.

Management evaluates securities for other-than-temporary impairment on a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, among other factors. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. No impairment charges were recognized during the three months ended March 31, 2016 or 2015.

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 months ended March 31, 2016 and 2015.



	Three Months Ended March 31,
	2016		2015
	(in thousands)
Proceeds from sales	$	4,953	$	—
Gross realized gains	33		—
Gross realized losses	—		—
Net gains on sales of securities	$	33	$	—

Investment securities with a carrying value of $13.6 million and $29.9 million were pledged to secure borrowings at March 31, 2016 and December 31, 2015, respectively.

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NOTE 6 – LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the loan portfolio as of March 31, 2016 and December 31, 2015, is summarized below.



	March 31, 2016			December 31, 2015
	(in thousands)
Loans held for sale
TriNet loans held for sale	$	54,731		$	58,934
Branch loans held for sale	34,288			35,470
Other loans held for sale	6,272			1,061
Total loans held for sale	$	95,291		$	95,465

Loans held for investment
Commercial loans:
Commercial and industrial	$	499,634		$	467,083
Commercial real estate	843,597			846,413
Construction and land	183,439			166,358
Mortgage warehouse loans	123,875			84,350
Total commercial loans	1,650,545			1,564,204
Residential:
Residential mortgages	106,433			110,381
Home equity	83,094			80,738
Total residential loans	189,527			191,119
Consumer	30,905			30,451
Other	20,925			6,901
Total loans	1,891,902			1,792,675
Less net deferred fees and other unearned income	(5,139		)	(2,006		)
Less allowance for loan losses	(17,608		)	(18,905		)
Loans held for investment, net	$	1,869,155		$	1,771,764

At March 31, 2016 and December 31, 2015, loans with a carrying value of $202.9 million and $168.1 million, respectively, were pledged as collateral to secure FHLB advances and the Federal Reserve discount window.

At March 31, 2016, the carrying value and outstanding balance of PCI loans accounted for under ASC 310-30 was $22.9 million and $26.9 million, respectively. The following table presents changes in the value of the accretable yield for acquired loans accounted for under ASC 310-30.



	Three Months Ended
	March 31, 2016
	(in thousands)
Balance at beginning of period	$	2,369
Additions due to acquisitions	—
Accretion	(281		)
Balance at end of period	$	2,088

In addition to the accretable yield on PCI loans, the fair value adjustments on purchased loans outside the scope of ASC 310-30 are also accreted to interest income over the life of the loans. At December 31, 2015, the remaining accretable fair value discount on loans acquired through a business combination and not accounted for under ASC 310-30 was $5.2 million.

The allowance for loan losses represents management’s estimate of probable incurred losses in the loan portfolio as of the end of the period. It is comprised of specific reserves for impaired loans and a general allowance for pools of loans with similar characteristics not individually evaluated. The allowance is regularly evaluated for loan losses to maintain an adequate level to absorb probable current inherent losses in the loan portfolio. Factors contributing to the determination of the allowance include the credit worthiness of the

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borrower, changes in the value of pledged collateral, and general economic conditions. Most loan commitments rated substandard or worse are specifically reviewed for loss potential. For loans deemed to be impaired, a specific allocation is assigned based on the losses expected to be realized from those loans.

The following table presents the balance and activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2016 and 2015.



	2016												2015
Three Months Ended March 31,	Commercial			Residential			Consumer			Total			Commercial		Residential			Consumer		Total
	(in thousands)
Allowance for loan losses:
Beginning balance	$	16,537		$	1,981		$	387		$	18,905		$	10,967	$	347		$	107	$	11,421
Provision for loan losses	664			(479		)	183			368			308		(20		)	76		364
Loans charged-off	(1,605		)	—			(146		)	(1,751		)	—		—			—		—
Recoveries	17			—			69			86			15		—			—		15
Total ending allowance balance	$	15,613		$	1,502		$	493		$	17,608		$	11,290	$	327		$	183	$	11,800

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

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

A loan is considered to be impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. A specific allowance is established for individually evaluated impaired loans as needed. Reserves on impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the observable market price, or the fair value of the underlying collateral of the loan if the loan is collateral dependent.

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.

Purchased credit impaired ("PCI") loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Loans accounted for under ASC 310-30 were not classified as nonaccrual at March 31, 2016 or December 31, 2015, as the carrying value of the respective loan or pool of loans' cash flows were considered estimable and collection was probable. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows (accretable yield), is being recognized on all acquired loans being accounted for under ASC 310-30.

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The balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method is presented in the following table as of March 31, 2016 and December 31, 2015.



March 31, 2016	Commercial		Residential		Consumer		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	15,613		1,502		493		17,608
PCI	—		—		—		—
Total ending allowance balance	$	15,613	$	1,502	$	493	$	17,608

Loans:
Loans individually evaluated for impairment	$	4,847	$	—	$	—	$	4,847
Loans collectively evaluated for impairment	1,629,194		183,159		51,809		1,864,162
PCI	16,504		6,368		21		22,893
Total ending loans balance	$	1,650,545	$	189,527	$	51,830	$	1,891,902

December 31, 2015	Commercial		Residential		Consumer		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	1,619	$	—	$	—	$	1,619
Collectively evaluated for impairment	14,918		1,981		387		17,286
PCI	—		—		—		—
Total ending allowance balance	$	16,537	$	1,981	$	387	$	18,905

Loans:
Loans individually evaluated for impairment	$	12,049	$	—	$	—	$	12,049
Loans collectively evaluated for impairment	1,534,507		184,447		37,323		1,756,277
PCI	17,648		6,672		29		24,349
Total ending loans balance	$	1,564,204	$	191,119	$	37,352	$	1,792,675

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The following table presents information on Atlantic Capital’s impaired loans as of March 31, 2016 and December 31, 2015:



	As of March 31, 2016										As of December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Balance of Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Balance of Recorded Investment		Interest Income Recognized
	(in thousands)
Impaired loans with no related allowance recorded:
Commercial and industrial	$	2,779	$	2,779	$	—	$	2,743	$	36	$	2,706	$	2,706	$	—	$	2,706	$	265
Commercial real estate	2,209		2,068		—		2,068		21		1,659		1,659		—		1,659		55
Construction and land	—		—		—		—		—		—		—		—		—		—
Residential mortgages	—		—		—		—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—		—		—		—
Mortgage warehouse	—		—		—		—		—		—		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—		—
Total	$	4,988	$	4,847	$	—	$	4,811	$	57	$	4,365	$	4,365	$	—	$	4,365	$	320
Impaired loans with an allowance recorded:
Commercial and industrial	$	—	$	—	$	—	$	—	$	—	$	3,235	$	3,235	$	1,456	$	3,235	$	43
Commercial real estate	—		—		—		—		—		4,949		4,449		163		4,907		135
Construction and land	—		—		—		—		—		—		—		—		—		—
Residential mortgages	—		—		—		—		—		—		—		—		—		—
Home equity	—		—		—		—		—		—		—		—		—		—
Mortgage warehouse	—		—		—		—		—		—		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	8,184	$	7,684	$	1,619	$	8,142	$	178
Total impaired loans	$	4,988	$	4,847	$	—	$	4,811	$	57	$	12,549	$	12,049	$	1,619	$	12,507	$	498

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

Atlantic Capital did not modify any new loans as a TDR during the three months ended March 31, 2016 and 2015, and no previous TDRs defaulted during those periods. As of March 31, 2016 and December 31, 2015, TDR balances totaled $4.6 million and $9.1 million, respectively.

Atlantic Capital individually rates loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, consumer credit risk scores (FICO scores), rating agency information, LTV ratios, collateral, collection

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experience, and other internal metrics. Atlantic Capital uses a dual rating system. The likelihood of default of a credit transaction is graded in the Obligor Rating. The risk of loss given default is graded in the Facility Rating. The Obligor Rating is determined through thorough credit analysis. Facility Ratings are used to describe the value to the bank that the collateral represents. Facility Ratings are based on the collateral package or market expectations regarding the value or liquidity of the collateral. Ratings are generally reviewed at least annually or more frequently if there is a material change in creditworthiness. Exceptions to this policy may include well collateralized term loans and loans to individuals with limited exposure or complexity.

Atlantic Capital uses the following definitions for risk ratings:

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

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

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

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

As of March 31, 2016 and December 31, 2015, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows.



	Pass		Special Mention		Substandard Accruing		Substandard Nonaccruing		Doubtful Nonaccruing		Total
	(in thousands)
March 31, 2016
Commercial and industrial	$	475,607	$	1,755	$	13,216	$	—	$	—	$	490,578
Commercial real estate	828,212		6,044		2,385		409		—		837,050
Construction and Land	178,356		4,150		32		—		—		182,538
Residential mortgages	98,988		2,556		883		—		—		102,427
Home equity	80,480		132		120		—		—		80,732
Mortgage warehouse	123,875		—		—		—		—		123,875
Consumer/Other	51,788		—		21		—		—		51,809
Total loans, excluding PCI loans	$	1,837,306	$	14,637	$	16,657	$	409	$	—	$	1,869,009
Commercial and industrial	$	6,369	$	97	$	2,590	$	—	$	—	$	9,056
Commercial real estate	637		704		5,206		—		—		6,547
Construction and Land	16		307		578		—		—		901
Residential mortgages	288		1,850		1,868		—		—		4,006
Home equity	—		1,574		788		—		—		2,362
Mortgage warehouse	—		—		—		—		—		—
Consumer/Other	6		4		11		—		—		21
Total PCI loans	$	7,316	$	4,536	$	11,041	$	—	$	—	$	22,893

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	Pass		Special Mention		Substandard Accruing		Substandard Nonaccruing		Doubtful Nonaccruing		Total
	(in thousands)
December 31, 2015
Commercial and industrial	$	450,523	$	2,507	$	2,707	$	3,235	$	—	$	458,972
Commercial real estate	826,339		5,411		1,659		4,449		—		837,858
Construction and Land	161,226		4,150		—		—		—		165,376
Residential mortgages	105,948		—		200		—		—		106,148
Home equity	78,189		—		110		—		—		78,299
Mortgage warehouse	84,350		—		—		—		—		84,350
Consumer/Other	37,312		11		—		—		—		37,323
Total loans, excluding PCI loans	$	1,743,887	$	12,079	$	4,676	$	7,684	$	—	$	1,768,326
Commercial and industrial	$	—	$	5,142	$	2,786	$	183	$	—	$	8,111
Commercial real estate	1,063		850		5,465		1,177		—		8,555
Construction and Land	27		354		601		—		—		982
Residential mortgages	—		1,929		2,053		251		—		4,233
Home equity	—		1,606		492		341		—		2,439
Mortgage warehouse	—		—		—		—		—		—
Consumer/Other	—		15		13		1		—		29
Total PCI loans	$	1,090	$	9,896	$	11,410	$	1,953	$	—	$	24,349

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Atlantic Capital monitors loans by past due status. The following table presents the aging of the recorded investment in past due loans as of March 31, 2016 and December 31, 2015 by class of loans.



	As of March 31, 2016
	Accruing Current		30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing		PCI Loans		Total
	(in thousands)
Loans by Classification
Commercial and industrial	$	499,634	$	—	$	—	$	—	$	9,056	$	499,634
Commercial real estate	842,694		494		—		409		6,547		843,597
Construction and land	183,439		—		—		—		901		183,439
Residential mortgages	106,265		144		24		—		4,006		106,433
Home equity	83,094		—		—		—		2,362		83,094
Mortgage warehouse	123,875		—		—		—		—		123,875
Consumer	51,662		35		133		—		21		51,830
Total Loans	$	1,890,663	$	673	$	157	$	409	$	22,893	$	1,891,902



	As of December 31, 2015
	Accruing Current		30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing		PCI Loans		Total
	(in thousands)
Loans by Classification
Commercial and industrial	$	455,647	$	—	$	90	$	3,235	$	8,111	$	467,083
Commercial real estate	832,845		—		564		4,449		8,555		846,413
Construction and land	165,376		—		—		—		982		166,358
Residential mortgages	106,042		106		—		—		4,233		110,381
Home equity	78,299		—		—		—		2,439		80,738
Mortgage warehouse	84,350		—		—		—		—		84,350
Consumer	37,082		30		123		88		29		37,352
Total Loans	$	1,759,641	$	136	$	777	$	7,772	$	24,349	$	1,792,675

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NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill and other intangible assets as of March 31, 2016 and December 31, 2015 is summarized below:



	March 31,			December 31,
	2016			2015
	(in thousands)
Core deposit intangible	$	9,544		$	9,544
Less: accumulated amortization	(1,288		)	(526		)
Core deposit intangible, net	8,256			9,018
Servicing assets, net	3,212			2,862
Total other intangibles, net	11,468			11,880
Goodwill	22,446			23,352
Total goodwill and other intangible assets, net	$	33,914		$	35,232

NOTE 8 – SERVICING RIGHTS

SBA Servicing Rights

SBA servicing rights are initially recorded at fair value. Subsequently, Atlantic Capital accounts for SBA servicing rights using the amortization method and they are included in other assets. As of March 31, 2016 and December 31, 2015, the balance of SBA loans sold and serviced by Atlantic Capital totaled $73.1 million and $65.9 million, respectively.

Changes in the balance of servicing assets for the three months ended March 31, 2016 and 2015 are presented in the following table.



	Three months ended March 31,
SBA Loan Servicing Rights	2016			2015
	(in thousands)
Beginning carrying value, net	$	1,687		$	782
Additions	202			91
Amortization	(29		)	(25		)
Impairment	—			—
Ending carrying value	$	1,860		$	848

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At March 31, 2016, the sensitivity of the fair value of the SBA loan servicing rights to immediate changes in key economic assumptions are presented in the table below.



Sensitivity of the SBA Servicing Asset	March 31, 2016
	(dollars in thousands)
Fair value of retained servicing assets	$	1,957
Weighted average life	6.95 years
Prepayment speed:	7.67			%
Decline in fair value due to a 10% adverse change	$	(61	)
Decline in fair value due to a 20% adverse change	$	(112	)
Weighted average discount rate	11.43			%
Decline in fair value due to a 100 bps adverse change	$	(71	)
Decline in fair value due to a 200 bps adverse change	$	(130	)

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 Rights

Changes in the balance of TriNet servicing assets for the three months ended March 31, 2016 and 2015 are presented in the following table.



	Three months ended March 31,
TriNet Servicing Rights	2016			2015
	(in thousands)
Beginning carrying value, net	$	1,175		$	—
Additions	227			—
Amortization	(50		)	—
Impairment	—			—
Ending carrying value	$	1,352		$	—

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NOTE 9 – OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) for Atlantic Capital consists of changes in net unrealized gains and losses on investment securities available-for-sale and derivatives. The following tables present a summary of the changes in accumulated other comprehensive income (loss) balances for the applicable periods.



	For the Three Months Ended
	March 31, 2016
	Pre-Tax Amount			Income Tax (Expense) Benefit			After-Tax Amount
	(in thousands)
Accumulated other comprehensive income beginning of period	$	(2,455	)	$	939		$	(1,516	)
Unrealized net gains on investment securities available-for-sale	4,275			(1,640		)	2,635
Reclassification adjustment for net realized gains on investment securities available-for-sale	(33		)	13			(20		)
Unrealized net gains on derivatives	937			(364		)	573
Accumulated other comprehensive income end of period	$	2,724		$	(1,052	)	$	1,672



	For the Three Months Ended
	March 31, 2015
	Pre-Tax Amount		Income Tax (Expense) Benefit			After-Tax Amount
	(in thousands)
Accumulated other comprehensive income beginning of period	$	986	$	(377	)	$	609
Unrealized net gains on investment securities available-for-sale	647		(248		)	399
Reclassification adjustment for net realized gains on investment securities available-for-sale	—		—			—
Unrealized net gains on derivatives	661		(253		)	408
Accumulated other comprehensive income end of period	$	2,294	$	(878	)	$	1,416

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NOTE 10 – EARNINGS PER COMMON SHARE

Basic earnings per share amounts are computed by dividing net income by the weighted average number of shares of common stock outstanding.

Diluted earnings per share amounts are computed by dividing net income by the weighted average number of shares of common stock outstanding and the dilutive effects of the shares awarded under the stock option plan, based on the treasury stock method using an average fair market value of the stock during the respective periods.

The following table represents the earnings per share calculations for the three months ended March 31, 2016 and 2015.



	Three Months Ended
	March 31,
	2016		2015
(in thousands, except per share amounts)
Net income available to common shareholders	$	2,931	$	1,714
Weighted average shares outstanding
Basic ⁽¹⁾	24,485,900		13,465,579
Effect of dilutive securities:
Stock options and warrants	507,697		332,765
Diluted	24,993,597		13,798,344
Income per common share:
Basic	$	0.12	$	0.13
Diluted	$	0.12	$	0.12
⁽¹⁾Unvested restricted shares are participating securities and included in basic share calculations.

The Amended and Restated Articles of Incorporation of Atlantic Capital, which were approved by the Board of Directors on March 24, 2015 and by Atlantic Capital’s shareholders on May 21, 2015, authorized Atlantic Capital to issue 110,000,000 shares of capital stock, of which 10,000,000 shares are designated as preferred stock, no par value per share, and 100,000,000 shares are designated as common stock, no par value per share. Prior periods have been restated to reflect the change in the par value of the common stock from $1 to no par value.

The authorized capital stock of Atlantic Capital consists of 100,000,000 shares of common stock, no par value. At March 31, 2016, 24,569,823 shares of common stock were issued and outstanding. At December 31, 2015, 24,425,546 shares of common stock were issued and outstanding.

The primary source of funds available to Atlantic Capital is payments of dividends from the Bank. The Bank has not paid any dividends to Atlantic Capital in 2016 or 2015. 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.

NOTE 11 – DERIVATIVES AND HEDGING

Risk Management

Atlantic Capital’s objectives in using interest rate derivatives are to add stability to net interest revenue and to manage its exposure to interest rate movements. To accomplish this objective, Atlantic Capital primarily uses interest rate swaps as part of its interest rate risk management strategy.

Cash Flow Hedges

At March 31, 2016, Atlantic Capital’s interest rate swaps designated as cash flow hedges involve the payment of floating-rate amounts to a counterparty in exchange for receiving fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. At March 31, 2016 and December 31, 2015, Atlantic Capital had interest rate swaps designated as cash flow hedges with an aggregate notional amount of $50.0 million, respectively.

No hedge ineffectiveness gains or losses were recognized on active cash flow hedges in 2016 or 2015. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other

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comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Atlantic Capital expects that approximately $402,000 will be reclassified as an increase to loan interest income over the next twelve months related to these cash flow hedges.

Customer Swaps

Atlantic Capital also enters into derivative contracts, which consist of interest rate swaps, to facilitate the needs of clients desiring to manage interest rate risk. These swaps are not designated as accounting hedges under ASC 815, Derivatives and Hedging. In order to economically hedge the interest rate risk associated with offering this product, Atlantic Capital simultaneously enters into derivative contracts with third parties to offset the customer contracts, such that Atlantic Capital minimizes its net risk exposure resulting from such transactions. The derivative contracts are structured such that the notional amounts reduce over time to generally match the expected amortization of the underlying loans. These derivatives are not speculative and arise from a service provided to clients.

Atlantic Capital’s derivative instruments are recorded at fair value in other assets and accrued interest receivable and other liabilities and accrued interest payable in the Consolidated Balance Sheets. The changes in the fair value of the derivative instruments are recognized in other noninterest income in the Consolidated Statements of Income. At March 31, 2016 and December 31, 2015, Atlantic Capital had interest rate swaps related to this program with an aggregate notional amount of $147.3 million and $137.1 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 the Bank enters into a dealer facing trade exactly mirroring the terms in the loan addendum.

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. On a quarterly basis, the customer derivative contracts and related counterparties are evaluated for credit risk and an adjustment is made to the contract’s fair value. This adjustment is recognized in the Consolidated Statements of Income.

Most derivative contracts with clients are secured by collateral. Additionally, in accordance with the interest rate agreements with derivatives dealers, Atlantic Capital may be required to post margin to these counterparties. At March 31, 2016 and December 31, 2015, Atlantic Capital had minimum collateral posting thresholds with certain of its derivative counterparties and posted collateral of $16.1 million and $13.5 million, respectively, against its obligations under these agreements. Cash collateral related to derivative contracts is recorded in other assets in the Consolidated Balance Sheets.

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

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

To accommodate clients, Atlantic Capital occasionally enters into credit risk participation agreements with counterparty banks to accept a portion of the credit risk related to interest rate swaps. This allows clients to execute an interest rate swap with one bank while allowing for distribution of the credit risk among participating members. Credit risk participation agreements arise when Atlantic Capital contracts with other financial institutions, as a guarantor, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third party default on the underlying swap. At March 31, 2016 and December 31, 2015, Atlantic Capital had credit risk participation agreements with a notional amount of $22.2 million and $22.4 million, respectively.

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The following table reflects the estimated fair value positions of derivative contracts and credit risk participation agreements as of March 31, 2016 and December 31, 2015:



Derivatives designated as hedging instruments under ASC 815

(in thousands)		March 31, 2016				December 31, 2015
Interest Rate Products	Balance Sheet Location	Notional Amount		Fair Value		Notional Amount		Fair Value
Cash flow hedge of LIBOR based loans	Other assets	$	50,000	$	1,476	$	50,000	$	474

Derivatives not designated as hedging instruments under ASC 815

(in thousands)		March 31, 2016				December 31, 2015
Interest Rate Products	Balance Sheet Location	Notional Amount		Fair Value		Notional Amount		Fair Value
Customer swap positions	Other assets	$	73,630	$	2,811	$	68,560	$	1,617
Zero premium collar	Other assets	100,740		9,127		101,407		4,463
		$	174,370	$	11,938	$	169,967	$	6,080

Dealer offsets to customer swap positions	Other liabilities	$	73,630	$	2,957	$	68,560	$	1,697
Credit risk participation	Other liabilities	22,176		3		22,447		3
Dealer offset to zero premium collar	Other liabilities	100,740		9,127		101,407		4,463
		$	196,546	$	12,087	$	192,414	$	6,163

The following table reflects the impact to the Consolidated Statements of Income related to derivative contracts for the three months ended March 31, 2016 and 2015:



Derivatives in Cash Flow Hedging Relationships
	Three months ended March 31,
(in thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)				Gain or (Loss) Reclassified from Accumulated OCI in Income (Effective Portion)
	2016		2015		Location	2016		2015
Interest rate swaps	$	573	$	408	Interest income	$	186	$	68

NOTE 12 – SUBORDINATED DEBT

On September 28, 2015, Atlantic Capital issued subordinated notes (the “Notes”) totaling $50.0 million in aggregate principal amount. The Notes are due September 30, 2025 and bear a fixed rate of interest of 6.25% per year until September 29, 2020. From September 30, 2020 to the maturity date, the interest rate will be a floating rate equal to the three-month LIBOR plus 468 basis points. The Notes were priced at 100% of their par value. The Notes qualify as Tier 2 regulatory capital.

Subordinated debt is summarized as follows.



	March 31, 2016		December 31, 2015
	(in thousands
Floating rate 10 year capital securities, with interest paid semi-annually at an annual fixed rate of 6.25% until September 30, 2020	$	50,000	$	50,000
Principal amount of subordinated debt	$	50,000	$	50,000
Less debt issuance costs		761		803
Subordinated debt, net	$	49,239	$	49,197

All subordinated debt outstanding at March 31, 2016 matures after more than five years.

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NOTE 13 – SHARE-BASED COMPENSATION

Atlantic Capital sponsors a stock incentive plan for the benefit of directors and employees. Under the 2015 Stock Incentive Plan, there were approximately 4,525,000 shares reserved for issuance to directors and employees. The Compensation Committee has the authority to grant the following: an incentive or nonqualified option; a restricted stock award (including a restricted stock award or a restricted unit award); a performance award (including a performance share award or a performance unit award); a phantom stock award; a dividend equivalent award; or any other award granted under the plan.

As of March 31, 2016, approximately 500,000 additional awards could be granted under the plan. Through March 31, 2016, incentive stock options, nonqualified stock options, restricted and non-restricted stock 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.

As of March 31, 2016 and December 31, 2015, warrants for 588,000 shares were outstanding for the purchase of common stock at a price of $10.00 per warrant. The warrants were issued as of May 14, 2007, the date of issuance of common stock sold in the initial private placement, and are exercisable for a period of ten years following the issuance.

The Company estimates the fair value of its options and warrants awards using the Black-Scholes option pricing model. The risk-free rate for periods within the contractual life of the option and warrant is based on the U.S.Treasury yield curve in effect at the time of grant. There were no options or warrants granted during the three months ended March 31, 2016 or 2015.

The following table represents stock option and warrant activity for the three months ended March 31, 2016:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding, December 31, 2015	2,369,759		$	11.30
Exercised	(74,240	)	10.16
Forfeited	(4,700	)	10.31
Expired	(225	)	40.77
Outstanding, March 31, 2016	2,290,594		$	11.34	3.87	$	6,949

Exercisable, March 31, 2016	1,905,003		$	10.83	2.86	$	6,684

Atlantic Capital recognized compensation expense relating to stock options of $242,000 and $0 for the three months ended March 31, 2016 and 2015, respectively. Using the Black-Scholes pricing model, the amount of compensation expense was determined based on the fair value of the options at the time of grant, multiplied by the number of options granted that were expected to vest, which was then amortized over the vesting period.

The following table represents restricted stock activity for the three months ended March 31, 2016:



	Shares		Weighted Average Grant-Date Fair Value
Outstanding, December 31, 2015	217,658		$	13.07
Granted	9,500		13.35
Vested	(6,336	)	11.84
Forfeited	(2,000	)	15.00
Outstanding, March 31, 2016	218,822		$	13.10

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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. The value of restricted stock grants that are expected to vest is amortized into expense over the vesting period. For the three months ended March 31, 2016 and 2015, compensation expense of $250,000 and $125,000, respectively, was recognized related to restricted stock awards.

As of March 31, 2016, there was $1.8 million of unrecognized compensation cost related to restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted-average period of 3.47 years.

NOTE 14 – FAIR VALUE MEASUREMENTS

Atlantic Capital follows the guidance pursuant to ASC 820-10, Fair Value Measurements and Disclosures. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This issuance applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. Atlantic Capital measures its investment securities and interest rate derivative assets and liabilities at fair value on a recurring basis. Fair value is used on a nonrecurring basis either when assets are evaluated for impairment or for disclosure purposes. Atlantic Capital measures its servicing assets, impaired loans and other real estate owned at fair value on a nonrecurring basis. The basis for accounting for other real estate owned is the lower of cost or fair value, less selling costs.

The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement and defines fair value as the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, this guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Atlantic Capital applied the following fair value hierarchy:

Level 1 – Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts.

Level 2 – Assets or liabilities valued based on observable market data for similar instruments.

Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market, instruments valued based on the best available data, some of which is internally-developed, and risk premiums that a market participant would require.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement. There were no transfers between Level 1 and Level 2 or Level 2 and Level 3 during the three months ended March 31, 2015. There was one transfer between Level 2 and Level 3 and no transfers between Level 1 and Level 2 during the three months ended March 31, 2016.

Atlantic Capital records investment securities available-for-sale at fair value on a recurring basis. Investment securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. For these securities, Atlantic Capital obtains fair value measurements from an independent pricing service. In estimating the fair values for investment securities, Atlantic Capital believes that independent third-party market prices are the best evidence of an exit price. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the Treasury Department yield curve, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things.

Derivative instruments are primarily transacted as over-the-counter trades and priced with observable market assumptions. Ongoing measurements include observable market assumptions with appropriate valuation adjustments for liquidity and for credit risk of counterparties and Atlantic Capital's own credit. For these instruments, Atlantic Capital obtains fair value measurements from an independent pricing service. The fair value measurements consider factors such as the likelihood of default by Atlantic Capital and its counterparties, total exposure and remaining maturities in determining the appropriate fair value adjustments to record. Generally, the expected loss of each client counterparty is estimated using Atlantic Capital’s internal risk rating system. For financial institution counterparties that are rated by national rating agencies, those ratings are used in determining the credit risk. This approach used to estimate exposures to counterparties is also used by Atlantic Capital to estimate its own credit risk on derivative liability positions.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the assets that were measured at fair value on a recurring basis by level within the fair value hierarchy as reported in the Consolidated Balance Sheets at March 31, 2016 and December 31, 2015.



	Fair Value Measurements at
	March 31, 2016 Using:
	Quoted Prices in Active markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Securities available-for-sale—
U.S. government agencies	$	—	$	60,174	$	—	$	60,174
U.S. states and political subdivisions	—		37,048		—		37,048
Trust preferred securities	—		3,875		—		3,875
Corporate debt securities	—		23,524		—		23,524
Mortgage-backed securities	—		242,020		—		242,020
Total securities available-for-sale	$	—	$	366,641	$	—	$	366,641
Interest rate derivative assets	$	—	$	13,414	$	—	$	13,414
Interest rate derivative liabilities	$	—	$	12,087	$	—	$	12,087



	Fair Value Measurements at
	December 31, 2015 Using:
	Quoted Prices in Active markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Securities available-for-sale—
U.S. treasuries	$	—	$	4,922	$	—	$	4,922
U.S. government agencies	—		64,852		—		64,852
U.S. states and political subdivisions	—		27,790		—		27,790
Trust preferred securities	—		4,275		—		4,275
Corporate debt securities	—		20,517		—		20,517
Mortgage-backed securities	—		221,451		2,414		223,865
Total securities available-for-sale	$	—	$	343,807	$	2,414	$	346,221
Interest rate derivative assets	$	—	$	6,554	$	—	$	6,554
Interest rate derivative liabilities	$	—	$	6,163	$	—	$	6,163

The following table shows a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs that are classified as Level 3 values:



	Securities Available-for-Sale
	(in thousands)
December 31, 2015	$	2,414
Change due to presence of observable market data	(2,414		)
March 31, 2016	$	—

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For Level 3 securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators.

For the three months ended March 31, 2016 and 2015, there was not a change in the methods and significant assumptions used to estimate fair value.

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

The following table presents the assets that were measured at fair value on a nonrecurring basis by level within the fair value hierarchy as reported in the Consolidated Balance Sheets at March 31, 2016 and December 31, 2015.



March 31, 2016		Level 1 Fair Value Measurement		Level 2 Fair Value Measurement		Level 3 Fair Value Measurement		Total
	(in thousands)
Impaired Loans		$	—	$	—	$	409	$	409



December 31, 2015		Level 1 Fair Value Measurement		Level 2 Fair Value Measurement		Level 3 Fair Value Measurement		Total
	(in thousands)
Impaired Loans		$	—	$	—	$	4,449	$	4,449

Level 3 loans consist of impaired loans which have been partially charged-off or have specific valuation allowances. The fair value of Level 3 assets is estimated based on the underlying collateral value. For loans which the cash proceeds from the sale of the underlying collateral is the expected source of repayment, the fair value of these loans was derived from internal estimates of the underlying collateral incorporating market data, including third party appraisals or evaluations, when available. Appraised values may be discounted based on management’s assessment of the level of inactivity in the real estate market and other markets for the underlying collateral, changes in market conditions from the time of the valuation, and other information that in management’s judgment may affect the value. Impaired loans are evaluated on at least a quarterly basis and adjusted accordingly.

Assets and Liabilities Not Measured at Fair Value

For financial instruments that have quoted market prices, those quotes are used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, are assumed to have a fair value that approximates the reported book value, after taking into consideration any applicable credit risk. If no market quotes are available, financial instruments are valued by discounting the expected cash flows using an estimated current market interest rate for the financial instrument. For off-balance sheet derivative instruments, fair value is estimated as the amount that Atlantic Capital would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts.

The short maturity of Atlantic Capital’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and due from banks, interest-bearing deposits in other banks, other short-term investments, and FHLB stock. The fair value of securities available-for-sale equals the balance sheet value. Due to the short-term settlement of accrued interest receivable and payable, the carrying amount closely approximates fair value.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect the premium or discount on any particular financial instrument that could result from the sale of Atlantic Capital’s entire holdings. Because no ready market exists for a significant portion of Atlantic Capital's financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Off-balance sheet financial instruments (commitments to extend credit and standby letters of credit) are generally short-term and at variable rates. Therefore, both the carrying amount and the estimated fair value associated with these instruments are immaterial.

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The following table presents the estimated fair values of Atlantic Capital’s financial instruments at March 31, 2016 and December 31, 2015.



	Fair Value Measurements at
	March 31, 2016 Using:
	Carrying Value		Quoted Prices in Active markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Financial assets
Cash and due from banks	$	49,054	$	49,054	$	—	$	—
Interest bearing deposits in banks	91,608		91,608		—		—
Reverse repurchase agreements	20,392		20,392		—		—
Total securities available-for-sale	366,641		—		366,641		—
FHLB stock	4,922		—		—		4,922
Federal Reserve Bank stock	6,615		—		—		6,615
Loans held for investment, net	1,869,155		—		—		1,875,792
Derivative assets	13,414		—		13,414		—
Financial liabilities
Deposits	$	2,084,605	$	—	$	2,028,874	$	—
Subordinated debt	49,239		—		49,239		—
FHLB advances	60,000		—		59,863		—
Derivative financial instruments	12,087		—		12,087		—



	Fair Value Measurements at
	December 31, 2015 Using:
	Carrying Value		Quoted Prices in Active markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Financial assets
Cash and due from banks	$	58,319	$	58,319	$	—	$	—
Interest-bearing deposits in other banks	130,900		130,900		—		—
Reverse repurchase agreements	13,666		13,666		—		—
Total securities available-for-sale	346,221		—		343,807		2,414
FHLB stock	8,034		—		—		8,034
Loans held for investment, net	1,771,764		—		—		1,752,796
Derivative assets	6,554		—		6,554		—
Financial liabilities
Deposits	$	2,048,808	$	—	$	2,018,898	$	—
Subordinated debt	49,197		—		49,197		—
Derivative financial instruments	6,163		—		6,163		—

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NOTE 15 – COMMITMENTS AND CONTINGENCIES

Atlantic Capital is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit, most of which are standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract amounts of these instruments reflect the extent of involvement Atlantic Capital has in particular classes of financial instruments.

Standby letters of credit are written conditional commitments issued by Atlantic Capital to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. Most letters of credit expire in less than one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Atlantic Capital’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. Atlantic Capital uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Atlantic Capital’s maximum exposure to credit risk for unfunded loan commitments and standby letters of credit at March 31, 2016 and December 31, 2015 was as follows:



	March 31, 2016		December 31, 2015

Commitments to extend credit	$	643,145	$	559,448
Standby letters of credit	13,834		10,502
	$	656,979	$	569,950

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

NOTE 16 – SUBSEQUENT EVENTS

On April 1, 2016, Atlantic Capital Bank closed the transaction contemplated under a Purchase and Assumption Agreement dated December 17, 2015, as amended (the “Agreement”) with Athens Federal Community Bank, N.A., a national bank (“Athens Federal”). Pursuant to the Agreement, Athens Federal purchased, and the Bank sold, approximately $89 million in customer deposits, approximately $10 million in loans and approximately $4 million in other assets, including four branch offices of the Bank’s Tennessee banking operation.

The branch offices acquired by Athens Federal are located at the following addresses:


•	835 South Congress Parkway, Athens, McMinn County, Tennessee 37303;


•	705 East Broadway, Lenoir City, Loudon County, Tennessee 37771;


•	215 Warren Street, Madisonville, Monroe County, Tennessee 37354; and


•	761 New Highway 68, Sweetwater, Monroe County, Tennessee 37874.

The branches reopened Monday, April 4, 2016 as Athens Federal.

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q of Atlantic Capital Bancshares, Inc. (the "Company" or "Atlantic Capital") contains forward-looking statements within the meaning of section 27A of the Securities Act and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

The following risks, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:


•	our Company’s business may not integrate successfully with the former First Security Group, Inc. (“First Security”) business, or the integration may be more difficult, time-consuming, or costly than expected;


•	the expected growth opportunities and cost savings from the First Security acquisition may not be fully realized or may take longer to realize than expected;


•	revenues may be lower than expected as a result of losses of customers or other reasons, including issues arising in connection with integration of First Security’s operations and the pending sale and recent sale of certain branches;


•	deposit attrition, operating costs, customer loss, and business disruption resulting from the acquisition of First Security and branch sales, including difficulties in maintaining relationships with employees, may be greater than expected;


•	reputational risks and customers’ reactions to the acquisition of First Security and to branch sales;


•	diversion of management time on integration related issues;


•	changes in asset quality and credit risk;


•	the cost and availability of capital;


•	customer acceptance of our products and services;


•	customer borrowing, repayment, investment and deposit practices;


•	the introduction, withdrawal, success and timing of business initiatives;


•	the impact, extent, and timing of technological changes;


•	severe catastrophic events in our geographic area;


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


•	the U.S. legal and regulatory framework, including those associated with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), could adversely affect the operating results of the combined company;


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


•	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;

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•	our ability to anticipate 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;


•	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;


•	adequacy of our risk management program;


•	increased costs associated with operating as a public company;


•	competition from other financial services companies could adversely affect operations; or


•	other risks and factors identified in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 30, 2016 (the “Annual Report”) in Part I, Item 1A under the heading “Risk Factors.”

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of Atlantic Capital are in accordance with GAAP and conform to general practices within the banking industry. Atlantic Capital’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in Atlantic Capital’s consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include Atlantic Capital’s accounting for the allowance for loan losses, fair value measurements, and income tax related items. Significant accounting policies are discussed in Note 1 of the consolidated financial statements.

The following is a summary of Atlantic Capital’s critical accounting policies that are material to the consolidated financial statements and are highly dependent on estimates and assumptions.

Allowance for loan losses.

The allowance for loan losses (ALL) is management’s estimate of probable credit losses inherent in Atlantic Capital’s loan portfolio at the balance sheet date. Atlantic Capital determines the allowance for loan losses based on an ongoing estimation process. This estimation process is inherently subjective, as it requires material estimates, including the amounts and timing of cash flows expected to be received on impaired loans and losses incurred as of the balance sheet date in Atlantic Capital’s loan portfolio. Those estimates may be susceptible to significant change. Increases to the allowance for loan losses are made by charges to the provision for loan losses. Loans deemed to be uncollectible are charged against the allowance for loan losses. Recoveries of previously charged-off amounts are credited to the allowance for loan losses.

The allowance is the accumulation of various components that are calculated based on an independent estimation process. All components of the allowance for loan losses represent estimates based on data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends, peer analysis, recent loan loss experience, collateral type, loan volumes, seasoning of the loan portfolio, economic conditions, and the findings of internal credit quality assessments and results from external bank regulatory examinations.

While management uses the best information available to establish the allowance for loan losses, future adjustments may become necessary if conditions differ substantially from the assumptions used in making the estimates. In addition, regulatory examiners may require adjustments to the allowance for loan losses based on their judgments about information available to them at the time of their examination. Such adjustments to original estimates, as necessary, are made and reflected in the financial results in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.

Management continuously monitors and actively manages the credit quality of the entire loan portfolio and recognizes provision expense to maintain the allowance at an appropriate level. Specific allowances for impaired loans are determined by analyzing estimated cash flows discounted at a loan’s original rate or collateral values in situations where Atlantic Capital believes repayment is dependent on collateral liquidation.

Management considers the established ALL adequate to absorb losses that relate to loans outstanding at March 31, 2016, although future additions may be necessary based on changes in economic conditions, collateral values, erosion of the borrower’s access to liquidity and other factors. If the financial condition of borrowers were to deteriorate, resulting in an impairment of their ability to make payments, Atlantic Capital’s estimates would be updated and additions to the ALL may be required.

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Fair value measurements.

Atlantic Capital’s impaired loans and foreclosed assets may be measured and carried at fair value, the determination of which requires management to make assumptions, estimates and judgments. At March 31, 2016, the percentage of total assets measured at fair value was 9%, which is primarily securities available-for-sale. See Note 14 “Fair Value Measurements” in the consolidated financial statements for additional disclosures regarding the fair value of our assets and liabilities.

When a loan is considered individually impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. In addition, foreclosed assets are carried at the lower of cost, fair value, less cost to sell, or listed selling price less cost to sell, following foreclosure. Fair value is defined by GAAP “as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.” GAAP further defines an “orderly transaction” as “a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets. It is not a forced transaction (for example, a forced liquidation or distress sale).” Although management believes its processes for determining the value of impaired loans and foreclosed properties are appropriate and allow Atlantic Capital to arrive at a fair value, the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management’s determination of fair value. In addition, because of subjectivity in fair value determinations, there may be grounds for differences in opinions, which may result in disagreements between management and Atlantic Capital’s regulators, disagreements which could cause Atlantic Capital to change its judgments about fair value.

The fair values for available-for-sale securities are generally based upon quoted market prices or observable market prices for similar instruments. Atlantic Capital utilizes a third-party pricing service to assist with determining the fair value of its securities portfolio. The pricing service uses observable inputs when available including benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers. These values take into account recent market activity as well as other market observable data such as interest rate, spread and prepayment information. When market observable data is not available, which generally occurs due to the lack of liquidity for certain securities, the valuation of the security is subjective and may involve substantial judgment by management. Atlantic Capital periodically reviews available-for-sale securities that are in an unrealized loss position to determine whether other-than-temporary impairment exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost-basis. The primary factors Atlantic Capital considers in determining whether impairment is other-than-temporary are long term expectations and recent experience regarding principal and interest payments, and Atlantic Capital’s ability and intent to hold the security until the amortized cost basis is recovered.

Atlantic Capital uses derivatives primarily to manage interest rate risk. The fair values of derivative financial instruments are determined based on quoted market prices, dealer quotes and pricing models that are primarily sensitive to market observable data.

Income taxes.

Atlantic Capital recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies by jurisdiction and entity in making this assessment.

GAAP Reconciliation and Explanation

This Form 10-Q contains non-GAAP financial measures, which are performance measures determined by methods other than in accordance with GAAP. Such non-GAAP financial measures include the following: taxable equivalent net interest margin. Management uses these non-GAAP financial measures because it believes they are useful for evaluating our operations and performance over periods of time, as well as in managing and evaluating our business and in discussions about our operations and performance. Management believes these non-GAAP financial measures provide users of our financial information with a meaningful measure for assessing our financial results and credit trends, as well as comparison to financial results for prior periods. These non-GAAP financial measures should not be considered as a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled financial measures used by other companies. A reconciliation of these operating performance measures to GAAP performance measures is included in Table 1.

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EXECUTIVE OVERVIEW AND EARNINGS SUMMARY

On October 31, 2015, Atlantic Capital completed the acquisition of First Security and its wholly-owned bank subsidiary FSGBank. The acquired entity’s results are included in Atlantic Capital’s consolidated results beginning on October 31, 2015, the acquisition date.

Atlantic Capital reported net income of $2.9 million for the first quarter of 2016. This compared to net income of $1.7 million for the first quarter of 2015. Diluted income per common share was $.12 for the first quarter of 2016 as well as for the first quarter of 2015.

The increase in net income for the three months ended March 31, 2016, compared to the same period in 2015, is primarily the result of a $9.8 million increase in net interest income and a $1.2 million increase in service charges, offset by a $5.8 million increase in salary and benefits expenses, all related to the acquisition of First Security.

Taxable equivalent net interest income was $18.9 million for the first quarter of 2016, compared to $9.0 million for the first quarter of 2015. Taxable equivalent net interest margin increased from 2.86% for the three months ended March 31, 2015 to 3.26% for the same period in 2016. The 40 basis point margin increase for the first quarter of 2016 compared to the prior year was primarily due to higher yields on loans and the increase in loan volume from First Security.

Provision for loan losses for the quarter ended March 31, 2016 totaled $368,000, an increase of $4,000 from the quarter ended March 31, 2015. The slightly higher provision for the three months ended March 31, 2016, resulted from an increase in the general component of the allowance due to loan growth offset by a reduction in reserves of $708,000 for a specifically evaluated impaired credit.

Noninterest income increased $3.2 million, or 274%, to $4.4 million from the first quarter of 2015. The increase was primarily due to a $1.2 million increase in service charges as well as a $522,000 increase in SBA lending activities. The addition of mortgage income, trust income and TriNet lending activities from the acquisition of First Security also increased noninterest income by $1.1 million compared to the quarter ended March 31, 2015.

For the first quarter of 2016, noninterest expense increased $11.1 million, compared to the first quarter of 2015. The most significant components of the increase for the quarterly period were higher salary and benefit, occupancy, equipment and software, and data processing expenses related to the acquisition of First Security. The payment of incentives for new strategic hires during the first quarter of 2016 also contributed to the increase.

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

	2016			2015
	First Quarter			Fourth Quarter				Third Quarter				Second Quarter			First Quarter
INCOME SUMMARY
Interest income	$	21,553		$	18,270			$	10,345			$	10,492		$	9,923
Interest expense	2,632			2,292				840				911			880
Net interest income	18,921			15,978				9,505				9,581			9,043
Provision (credit) for loan losses	368			7,623				(137		)		185			364
Net interest income after provision for loan losses	18,553			8,355				9,642				9,396			8,679
Noninterest income	4,420			3,460				1,729				3,028			1,182
Noninterest expense	18,266			23,239				7,671				7,821			7,202
Income (loss) before income taxes	4,707			(11,424		)		3,700				4,603			2,659
Income tax expense (benefit)	1,776			(3,263		)		1,474				1,701			945
Net income (loss)	$	2,931		$	(8,161	)		$	2,226			$	2,902		$	1,714

PER SHARE DATA
Basic earnings per share	$	0.12		$	(0.40	)		$	0.16			$	0.21		$	0.13
Diluted earnings per share	0.12			(0.40		)		0.16				0.21			0.12

PERFORMANCE MEASURES
Return on average equity	4.02		%	(13.22		)	%	6.08			%	7.99		%	4.83			%
Return on average assets	0.45			(1.45		)		0.66				0.84			0.51
Taxable equivalent net interest margin	3.26			3.13				2.93				2.92			2.86
Efficiency ratio	77.12			119.74				68.35				61.95			69.66
Equity to assets	10.81			10.91				10.53				10.54			10.62

ASSET QUALITY
Allowance for loan losses to loans	0.93		%	1.06			%	1.13			%	1.13		%	1.09			%
Net charge-offs	1,665			580				(14		)		—			(15		)
Net charge-offs to average loans⁽¹⁾	0.35			0.15				(0.01		)		—			(0.01		)
NPAs to total assets	0.08			0.40				—				—			0.11

AVERAGE BALANCES
Total loans	$	1,881,749		$	1,583,280			$	1,052,785			$	1,062,760		$	1,040,657
Investment securities	357,728			255,312				134,016				139,707			134,638
Total assets	2,620,750			2,248,614				1,349,997				1,379,150			1,346,437
Deposits	2,155,683			1,886,292				1,101,434				1,113,333			1,085,749
Shareholders’ equity	291,806			246,842				146,430				145,210			141,930
Number of common shares - basic	24,485,900			20,494,895				13,562,125				13,552,820			13,465,579
Number of common shares - diluted	24,993,597			21,004,577				13,904,395				13,895,090			13,798,344

⁽¹⁾ Annualized.

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Table 1 - Quarterly Selected Financial Data (continued)
(in thousands, except share and per share data)

	2016			2015
	First Quarter			Fourth Quarter			Third Quarter			Second Quarter			First Quarter
AT PERIOD END
Total loans	$	1,982,054		$	1,886,134		$	1,046,437		$	1,058,456		$	1,085,250
Investment securities	366,641			346,221			127,168			140,716			136,783
Total assets	2,726,888			2,638,780			1,381,698			1,373,267			1,380,768
Deposits	2,282,462			2,262,218			1,128,608			1,103,061			1,148,611
Shareholders’ equity	296,015			287,992			149,809			146,485			144,159
Number of common shares outstanding	24,569,823			24,425,546			13,562,125			13,562,125			13,508,480

Non-GAAP Performance Measures Reconciliation
(in thousands)
	2016			2015
	First Quarter			Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Interest income reconciliation
Interest income - taxable equivalent	$	21,553		$	18,270		$	10,345		$	10,492		$	9,923
Taxable equivalent adjustment	(54		)	(30		)	(11		)	(11		)	(11		)
Interest income - GAAP	$	21,499		$	18,240		$	10,334		$	10,481		$	9,912

Net interest income reconciliation
Net interest income - taxable equivalent	$	18,921		$	15,978		$	9,505		$	9,581		$	9,043
Taxable equivalent adjustment	(54		)	(30		)	(11		)	(11		)	(11		)
Net interest income - GAAP	$	18,867		$	15,948		$	9,494		$	9,570		$	9,032

Net interest income after provision for loan losses reconciliation
Net interest income after provision for loan losses	$	18,553		$	8,355		$	9,642		$	9,396		$	8,679
Taxable equivalent adjustment	(54		)	(30		)	(11		)	(11		)	(11		)
Net interest income after provision for loan losses - GAAP	$	18,499		$	8,325		$	9,631		$	9,385		$	8,668

Income (loss) before income taxes reconciliation
Income (loss) before income taxes	$	4,707		$	(11,424	)	$	3,700		$	4,603		$	2,659
Taxable equivalent adjustment	(54		)	(30		)	(11		)	(11		)	(11		)
Income (loss) before income taxes - GAAP	$	4,653		$	(11,454	)	$	3,689		$	4,592		$	2,648

Income tax expense (benefit) reconciliation
Income tax expense (benefit) - taxable equivalent	$	1,776		$	(3,263	)	$	1,474		$	1,701		$	945
Taxable equivalent adjustment	(54		)	(30		)	(11		)	(11		)	(11		)
Income tax expense (benefit) - GAAP	$	1,722		$	(3,293	)	$	1,463		$	1,690		$	934

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RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

Taxable equivalent net interest income for the first quarter of 2016 totaled $18.9 million, a $9.9 million, or 109%, increase compared to the first quarter of 2015. This increase was primarily driven by an $11.6, or 117%, increase in interest income. The interest income increase primarily resulted from the following:


•	a $10.7 million, or 119%, increase to $19.6 million in interest income on loans, resulting from an $841 million, or 81% higher average balance, due primarily to the addition of the First Security loan portfolio as well as organic loan growth; and


•	Net accretion income on acquired loans totaling $886,000.

The company recorded a $941,000 increase in tax equivalent interest income on investment securities due to the addition of the First Security portfolio. The increase resulted from a $223 million increase in the average balance of securities and was offset by a 29 basis point decline in the yield.

Interest expense for the three months ended March 31, 2016 totaled $2.6 million, a $1.8 million, or 199% increase from the same period of 2015. The rate paid on interest bearing liabilities increased 21 basis points from the first quarter of 2015 to the first quarter of 2016, driven by an increase in the balance of long-term debt to approximately $50 million in 2016, compared to zero in 2015. In addition, premium amortization of acquired time deposits reduced interest expense during the first quarter of 2016 in the amount of $308,000.

Taxable equivalent net interest margin increased to 3.26% for the three months ended March 31, 2016 compared to 2.86% the three months ended March 31, 2015. The primary reason for the increase in net interest margin quarter-over-quarter was the increase in loan volume and the higher yield earned on the First Security loan portfolio. Net accretion income on the acquired loans discount totaled $886,000 for the first quarter of 2016 and also contributed to the increase in net interest margin.

Overall funding costs remained relatively stable from the first quarter of 2015 to the first quarter of 2016 although the long-term debt issued in September of 2015 added a relatively high cost funding source to the balance sheet.

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

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Table 2 - Average Balance Sheets and Net Interest Analysis
(Dollars in thousands; taxable equivalent)
	Three months ended March 31,
	2016						2015
	Average Balance		Interest Income/Expense		Yield/Rate		Average Balance		Interest Income/Expense		Yield/Rate
Assets
Deposits in other banks	$	63,976	$	173	1.09	%	$	39,710	$	24	0.25	%
Other short-term investments	29,768		99		1.34	%	61,278		192		1.27	%
Investment securities:
Taxable investment securities	338,880		1,498		1.78	%	132,276		682		2.09	%
Non-taxable investment securities⁽¹⁾	18,848		157		3.35	%	2,362		32		5.49	%
Total investment securities	357,728		1,655		1.86	%	134,638		714		2.15	%
Total loans	1,881,749		19,625		4.19	%	1,040,657		8,951		3.49	%
FHLB stock	2,434		1		0.17	%	4,633		42		3.68	%
Total interest-earning assets	2,335,655		21,553		3.71	%	1,280,916		9,923		3.14	%
Non-earning assets	285,095						65,521
Total assets	$	2,620,750					$	1,346,437
Liabilities
Interest bearing deposits:
NOW, money market, and savings	1,117,316		1,050		0.38	%	644,298		614		0.39	%
Time deposits	267,330		224		0.34	%	16,000		16		0.41	%
Internet and brokered deposits	216,490		399		0.74	%	125,542		112		0.36	%
Total interest-bearing deposits	1,601,136		1,673		0.42	%	785,840		742		0.38	%
Other borrowings	99,357		149		0.60	%	108,771		138		0.51	%
Long-term debt	49,213		810		6.62	%	—		—		—	%
Total interest-bearing liabilities	1,749,706		2,632		0.61	%	894,611		880		0.40	%
Demand deposits	554,547						299,909
Other liabilities	24,691						9,986
Shareholders' equity	291,806						141,931
Total liabilities and shareholders' equity	$	2,620,750					$	1,346,437
Net interest spread					3.10	%					2.74	%
Net interest income and net interest margin⁽²⁾			$	18,921	3.26	%			$	9,043	2.86	%

⁽¹⁾ Interest revenue on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 35%, 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 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 Net Interest Income
(Dollars in thousands)
	Three Months Ended March 31, 2016 Compared to 2015 Increase (decrease) Due to Changes in:
	Volume			Yield/Rate			Total Change
Interest earning assets
Deposits in other banks	$	66		$	83		$	149
Other short-term investments	(103		)	10			(93		)
Investment securities:
Taxable investment securities	922			(106		)	816
Non-taxable investment securities	138			(13		)	125
Total investment securities	1,060			(119		)	941
Total loans	8,854			1,820			10,674
FHLB stock	(1		)	(40		)	(41		)
Total interest-earning assets	9,876			1,754			11,630
Interest bearing liabilities
Interest bearing deposits:
NOW, money market, and savings	451			(15		)	436
Time deposits	211			(3		)	208
Internet and brokered deposits	169			118			287
Total interest-bearing deposits	831			100			931
Total borrowings	(16		)	27			11
Total long-term debt	810			—			810
Total interest-bearing liabilities	1,625			127			1,752
Change in net interest income	$	8,251		$	1,627		$	9,878

Provision for Loan Losses

Management considers a number of factors in determining the required level of the allowance for loan losses and the provision required to achieve what is believed to be appropriate reserve level, including historical loss experience, loan growth, credit risk rating trends, nonperforming loan levels, delinquencies, loan portfolio concentrations and economic and market trends. The provision for loan losses represents management’s determination of the amount necessary to be charged against the current period’s earnings to maintain the allowance for loan losses at a level that it considered adequate in relation to the estimated losses inherent in the loan portfolio.

For the three months ended March 31, 2016, the provision for loan losses was $368,000 an increase of $4,000 compared to the three months ended March 31, 2015. The slightly higher provision for the three months ended March 31, 2016 resulted from an increase in the general component of the allowance due to loan growth offset by a reduction in reserves for a specifically evaluated impaired credit. Specific loan loss allowances relating to impaired loans decreased to $0, compared to $708,000 at March 31, 2015. At March 31, 2016, nonperforming loans totaled $566,000 compared to zero at March 31, 2015. Net loan charge-offs were 0.35% and (0.01)%, respectively, of average loans (annualized) for the three months ended March 31, 2016 and 2015, respectively. The allowance for loan losses to total loans at March 31, 2016 was 0.93%, compared to 1.09% at March 31, 2015.

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Noninterest Income

Noninterest income was $4.4 million for the first quarter of 2016 compared to $1.2 million for the first quarter of 2015. The following table presents the components of noninterest income.



Table 4 - Noninterest Income
(Dollars in thousands)
	Three months ended March 31,				Change
	2016		2015		$			%
Service charges	$	1,498	$	326	$	1,172		360		%
Securities gains, net	33		—		33			—
Gain on sale of other assets	48		—		48			—
Mortgage income	339		—		339			—
Trust income	314		—		314			—
Derivatives income	65		83		(18		)	(22	)
Bank owned life insurance	393		231		162			70
SBA lending activities	880		358		522			146
Tri net activities	383		—		383			—
Other noninterest income	467		184		283			154
Total noninterest income	$	4,420	$	1,182	$	3,238		274		%

Service charges of $1.5 million were up $1.2 million, or 360%, for the first quarter of 2016 compared to the first quarter of 2015. The increase was primarily due to the addition of First Security deposits. Mortgage income and trust income were up from the first quarter of 2015 due to these new lines of business acquired from First Security. For the three months ended March 31, 2016, bank owned life insurance income of $393,000 was up $162,000, or 70% from the same period of the prior year due to the addition of policies acquired from First Security.

In addition, SBA lending activities increased $522,000, or 146%, compared to the first quarter of 2015, due to a higher level of loan sales. During the three months ended March 31, 2016 and 2015, guaranteed portions of 10 and 7 SBA loans with principal balances of $10.4 million and $4.8 million, respectively, were sold in the secondary market. During the first quarter of 2016, the TriNet lending division contributed $383,000 in noninterest income from the sale of loans.

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Noninterest Expense

The following table presents the components of noninterest expense.



Table 5 - Noninterest Expense
(Dollars in thousands)
	Three months ended March 31,				Change
	2016		2015		$		%
Salaries and employee benefits	$	10,555	$	4,742	$	5,813	123	%
Occupancy	1,100		421		679		161
Equipment and software	686		219		467		213
Professional services	748		109		639		586
Postage, printing and supplies	169		24		145		604
Communications and data processing	916		331		585		177
Marketing and business development	267		46		221		480
FDIC premiums	398		166		232		140
Merger and conversion costs	749		508		241		47
Amortization of intangibles	762		—		762		—
Other noninterest expense	1,916		636		1,280		201
Total noninterest expense	$	18,266	$	7,202	$	11,064	154	%

Noninterest expense for the first quarter of 2016 was $18.3 million compared to $7.2 million for the first quarter of 2015. The increase from the prior year mostly reflects the inclusion of the expenses of First Security, as well as higher salaries, employee benefits, occupancy, equipment and software and data processing related to the acquisition of First Security.

Salaries and employee benefits expense for the three months ended March 31, 2016 totaled $10.6 million, an increase of $5.8 million, or 123%, from the same period in 2015. The increase was due to continued investment in new talent as well as additional staff from the First Security acquisition. Full time equivalent headcount totaled 353 at March 31, 2016, compared to 105 at March 31, 2015, an increase of 248 positions, mainly from the First Security acquisition.

Occupancy expense of $1.1 million for the first quarter of 2016 was up $679,000, or 161%, from the first quarter of 2015. The increase was due to a higher number of locations due to the acquisition.

Professional services fees increased $639,000 to $748,000 for the first quarter of 2016, compared to the first quarter of 2015. The increase was due to the addition of First Security as well as an overall higher cost associated with being a publicly traded company.

Communications and data processing expense was $916,000 for the three months ended March 31, 2016, an increase of $585,000 from the three months ended March 31, 2015. The increase was attributable to the acquisition of First Security, whose core systems are expected to convert to Atlantic Capital’s systems early in the third quarter of 2016.

Merger and conversion costs of $749,000 for the first quarter of 2016, were up $241,000 or 47% compared to the first quarter of 2015. Merger expenses include professional fees, severance and data conversion costs. During the three months ended March 31, 2016, the Company recorded $265,000 related to an estimated settlement of a shareholder lawsuit associated with the First Security acquisition, which is included in merger and conversion costs.

Atlantic Capital expects salary and benefits, occupancy, data processing and equipment expenses to decrease in future periods due to pending branch sales and merger-related costs to decrease in future periods following completion of the integration of First Security's operations.

Amortization of intangibles includes the amortization of core deposit intangible related to the acquisition of First Security and totaled $762,000 for the first quarter of 2016.

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Income Taxes

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

Income tax expense for the first quarter of 2016 was $1.7 million compared to income tax expense of $934,000 for the same period of 2015. The effective tax rate (as a percentage of pre-tax earnings) for the three months ended March 31, 2016 and 2015 was 37.0% and 35.3%, respectively. The increase in the effective tax rate for the first quarter of 2016 resulted from the impact of a higher federal statutory rate.

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 sheet as a component of total assets.

Accounting Standards Codification Topic 740, Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative evidence with more weight given to evidence that can be objectively verified. Each quarter, management considers both positive and negative evidence and analyzes changes in near-term market conditions as well as other factors which may impact future operating results.

Based on all evidence considered, as of March 31, 2016 and 2015, management concluded that it was more likely than not that the net deferred tax asset would be realized, except as outlined in the following discussion. At March 31, 2016, Atlantic Capital had a deferred tax asset valuation allowance totaling $9.5 million due to the fact that certain tax attributes are subject to an annual limitation as a result of the acquisition of First Security, which constitutes a change of ownership as defined under Internal Revenue Code Section 382. Management expects to generate higher levels of future taxable income and believes this will allow for full utilization of Atlantic Capital’s net operating loss carryforwards within the statutory carryforward periods.

FINANCIAL CONDITION

Total assets at March 31, 2016 and December 31, 2015 were $2.7 billion and $2.6 billion, respectively. Average total assets for the first quarter of 2016 were $2.6 billion, compared to $2.2 billion in the fourth quarter of 2015. The balances acquired from First Security were included in Atlantic Capital’s average balances subsequent to the acquisition date.

Loans

At March 31, 2016, total loans increased $96 million, or 5%, to $1.9 billion compared to $1.8 billion at December 31, 2015, primarily due to an increase of $39.5 million in the mortgage warehouse as well as a $32.6 million increase in commercial and industrial loans. Details of loans are provided in Table 6.

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Table 6 - Loans
(Dollars in thousands)
	March 31, 2016			% of Total Loans		December 31, 2015			% of Total Loans

Loans held for sale
TriNet loans held for sale	$	54,731				$	58,934
Branch loans held for sale	34,288					35,470
Other loans held for sale	6,272					1,061
Total loans held for sale	$	95,291				$	95,465

Loans held for investment
Commercial loans:
Commercial and industrial	$	499,634		26	%	$	467,083		26	%
Commercial real estate:
Owner occupied	333,172			18		320,656			18
Non-owner occupied	510,425			27		525,757			29
Construction and land	183,439			10		166,358			9
Mortgage warehouse loans	123,875			7		84,350			5
Total commercial loans	1,650,545			87		1,564,204			87

Residential:
Residential mortgages	106,433			6		110,381			6
Home equity	83,094			4		80,738			5
Total residential loans	189,527			10		191,119			11

Consumer	30,905			2		30,451			2
Other	20,925			1		6,901			—
	1,891,902					1,792,675
Less net deferred fees and other unearned income	(5,139		)			(2,006		)
Less allowance for loan losses	(17,608		)			(18,905		)
Loans held for investment, net	$	1,869,155				$	1,771,764

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 secured by collateral that is sufficient to repay the debt in full and the loan is in the process of collection. When a loan is placed on nonaccrual status, interest accrued and not paid in the current accounting period is reversed against current period income. Interest accrued and not paid in prior periods, if significant, is reversed against the allowance for loan losses.

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

Purchased Credit Impaired (“PCI”) loans accounted for under ASC 310-30 are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans are considered as performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period covered loan loss provision or future period yield adjustments. PCI loans were not classified as nonaccrual at March 31, 2016 as the carrying value of the respective loan or pool of loans cash flows were considered

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estimable and collection was probable. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all PCI loans.

At March 31, 2016, Atlantic Capital’s nonperforming assets amounted to $2.3 million, or 0.08% of assets, compared to $10.5 million, or 0.40% of assets, at December 31, 2015. The decrease was primarily due to the first quarter 2016 payoff and sale of $7.7 million in loans classified as nonperforming as of December 31, 2015.

Nonaccrual loans totaled $409,000 and $7.8 million as of March 31, 2016 and December 31, 2015, respectively. The decrease was primarily due to the payoff and sale of loans classified as nonaccrual at December 31, 2015. Loans past due 90 days and still accruing totaled $157,000 at March 31, 2016 compared to $777,000 at December 31, 2015. Table 7 provides details on nonperforming assets and other risk elements.



Table 7 - Nonperforming assets
(Dollars in thousands)
	2016			2015
	First Quarter			Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Nonaccrual loans	$	409		$	7,772		$	—		$	—		$	—
Loans past due 90 days and still accruing	157			777			—			—			—
Total nonperforming loans* (NPLs)	566			8,549			—			—			—
Other real estate owned	1,760			1,982			27			27			1,531
Total nonperforming assets (NPAs)	$	2,326		$	10,531		$	27		$	27		$	1,531
NPLs as a percentage of total loans	0.02		%	0.45		%	—		%	—		%	—		%
NPAs as a percentage of total assets	0.08			0.40			—			—			0.11

*Nonperforming loans exclude those loans which are purchased credit-impaired loans

Troubled Debt Restructurings

TDRs are selectively made to provide relief to customers experiencing liquidity challenges or other circumstances that could affect their ability to meet their debt obligations. Typical modifications include short-term deferral of interest or modification of payment terms. Nonperforming TDRs are not accruing interest and are included as nonperforming assets within nonaccrual loans. TDRs, which are accruing interest based on the restructured terms, are considered performing. Table 8 summarizes TDRs.



Table 8 - Troubled Debt Restructurings
(Dollars in thousands)
	March 31, 2016		December 31, 2015
Accruing TDRs	$	4,607	$	4,616
Nonaccruing TDRs	—		4,449
Total TDRs	$	4,607	$	9,065

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 serious doubts as to the ability of such borrower to comply with the current loan repayment terms. Potential problem loans totaled $31.3 million and $16.8 million, respectively, as of March 31, 2016 and December 31, 2015. As a number of potential problem loans are real estate secured, management closely tracks the current values of real estate collateral when assessing the collectability of these loans.

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Allowance for Loan Losses

At March 31, 2016, the allowance for loan losses totaled $17.6 million, or 0.93% of loans, compared to $18.9 million, or 1.06% of loans, at December 31, 2015. The decrease in the allowance was due to the payoff and sale of two relationships during the first quarter of 2016 that required specific reserves totaling $1.6 million at December 31, 2015.

Net charge-offs during the first quarter of 2016 and 2015 were $1.7 million and ($15,000), respectively. Table 9 provides details concerning the allowance for loan losses during the past five quarters.



Table 9 - Allowance for Loan Losses (ALL)
(Dollars in thousands)
	2016				2015
	First				Fourth				Third				Second			First
	Quarter				Quarter				Quarter				Quarter			Quarter
Balance at beginning of period	$	18,905			$	11,862			$	11,985			$	11,800		$	11,421
Provision for loan losses	368				7,623				(137		)		185			364
Loans charged-off:
Commercial and industrial	(1,465		)		—				—				—			—
Commercial real estate	(140		)		(500		)		—				—			—
Consumer	(146		)		(128		)		—				—			—
Total loans charged-off	(1,751		)		(628		)		—				—			—
Recoveries on loans previously charged‑off:
Construction and land	15				—				14				—			15
Commercial and industrial	2				—				—				—			—
Consumer	69				48				—				—			—
Total recoveries	86				48				14				—			15
Balance at period end	$	17,608			$	18,905			$	11,862			$	11,985		$	11,800

Net charge-offs (annualized) to average loans	0.35			%	0.15			%	(0.01		)	%	—		%	(0.01		)	%
Allowance for loan losses to total loans	0.93				1.06				1.13				1.13			1.09

Investment Securities

Investment securities available-for-sale totaled $366.6 million at March 31, 2016, compared to $346.2 million at December 31, 2015. Available-for-sale securities are reported at their aggregate fair value, and unrealized gains and losses are included as a component of other comprehensive income, net of deferred taxes. As of March 31, 2016, investment securities available-for-sale had a net unrealized loss of $1.3 million, compared to a net unrealized loss of $3.4 million as of December 31, 2015. Market changes in interest rates and credit spreads result in temporary unrealized losses as the market price of securities fluctuate. After evaluating the securities with unrealized losses, management concluded that no other than temporary impairment existed as of March 31, 2016.

Changes in the amount of Atlantic Capital’s investment securities portfolio result primarily from balance sheet trends including loans, deposit balances and short-term borrowings. When inflows arising from deposits and short-term borrowings exceed loan demand, Atlantic Capital invests excess funds in the securities portfolio or in short-term investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, Atlantic Capital allows interest-bearing balances with other banks to decline and uses proceeds from maturing securities to fund loan demand. Details of investment securities at March 31, 2016 and December 31, 2015 are provided in Table 10.

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Table 10 - Investment Securities
(dollars in thousands)
	March 31, 2016				December 31, 2015
Available for Sale Securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Treasuries	$	—	$	—	$	4,952	$	4,922
U.S. Government agencies	59,861		60,174		65,373		64,852
U.S. states and political divisions	36,809		37,048		27,751		27,790
Trust preferred securities	4,707		3,875		4,732		4,275
Corporate debt securities	24,110		23,524		20,653		20,517
Residential mortgage-backed securities-agency	242,500		242,020		226,142		223,865
Total	$	367,987	$	366,641	$	349,603	$	346,221

The effective duration of Atlantic Capital's investment securities at March 31, 2016 was 2.85.

Goodwill and Other Intangible Assets

Atlantic Capital’s core deposit intangible representing the value of the acquired deposit base, is an amortizing intangible asset that is required to be tested for impairment only when events or circumstances indicate that impairment may exist. There were no events or circumstances that led management to believe that any impairment existed at March 31, 2016 in Atlantic Capital’s other intangible assets.

Goodwill represents the premium paid for acquired companies above the fair value of the assets acquired and liabilities assumed, including separately identifiable intangible assets. Atlantic Capital evaluates its goodwill annually, or more frequently if necessary, to determine if any impairment exists.

LIQUIDITY AND CAPITAL RESOURCES

Deposits

At March 31, 2016, total deposits were $2.3 billion, an increase of $20.2 million, or 1%, since December 31, 2015. Noninterest-bearing demand increased $15.8 million, or 3%, and brokered deposits increased $45.6 million, or 25%, from December 31, 2015 to March 31, 2016. These increases were offset by decreases in money market and interest-bearing checking of $13.3 million and $17.7 million, respectively. At March 31, 2016, deposits totaling $198 million will be sold as part of the divestiture of seven legacy First Security branches, which is expected to occur during the second quarter of 2016.

Short-Term Borrowings

At March 31, 2016, and December 31, 2015, securities sold under repurchase agreements with commercial checking customers totaled $11.8 million and $11.9 million, respectively. There were no balances of federal funds purchased as of March 31, 2016 or December 31, 2015.

As a member of the Federal Home Loan Bank of Atlanta (“FHLB”), Atlantic Capital has the ability to acquire short and long-term advances through a blanket agreement secured by our unencumbered qualifying 1-4 family first mortgage loans and by pledging investment securities or individual, qualified loans, subject to approval of the FHLB. At March 31, 2016 and December 31, 2015, Atlantic Capital had FHLB advances of $60 million and $0, respectively.

Long-Term Debt

During the third quarter of 2015, Atlantic Capital issued $50.0 million in fixed-to-floating rate subordinated notes due in 2025, all of which was outstanding at March 31, 2016.

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Liquidity risk management

Liquidity risk is the risk that an institution will be unable to generate or obtain sufficient funding, at a reasonable cost, to meet operational cash needs and to take advantage of revenue producing opportunities as they arise. Other forms of liquidity risk include market constraints on the ability to convert assets into cash at expected levels, an inability to access funding sources at sufficient levels at a reasonable cost, and changes in economic conditions or exposure to credit, market, operational, legal and reputation risks that can affect an institution’s liquidity risk profile. Liquidity management involves maintaining Atlantic Capital’s ability to meet the daily cash flow requirements of Atlantic Capital's customers, both depositors and borrowers.

Atlantic Capital utilizes various measures to monitor and control liquidity risk across three different types of liquidity:


•	tactical liquidity measures the risk of a negative cash flow position whereby cash outflows exceed cash inflows over a short-term horizon;


•	structural liquidity measures the amount by which illiquid assets are supported by long-term funding; and


•	contingent liquidity utilizes cash flow stress testing across three crisis scenarios to determine the adequacy of Atlantic Capital's liquidity.

Atlantic Capital aims to maintain a diverse mix of existing and potential liquidity sources to support the liquidity management function. At its core is a reliance on the customer deposit book, due to the low cost it offers. Other sources of liquidity include asset-based liquidity in the form of cash and unencumbered securities, as well as access to wholesale funding from external counterparties, primarily advances from the FHLB of Atlanta, Federal Funds lines and other borrowing facilities. Atlantic Capital aims to avoid funding concentrations by diversifying external secured and unsecured funding with respect to maturities, counterparties and nature. At March 31, 2016, Atlantic Capital expected to maintain sufficient on-balance sheet liquidity to meet its funding needs.

At March 31, 2016, Atlantic Capital had access to $375.0 million in unsecured borrowings and $349.2 million in secured borrowings through various sources. Atlantic Capital also has the ability to attract more retail deposits by offering aggressively priced rates.

Shareholders’ Equity and Capital Adequacy

Atlantic Capital and Atlantic Capital Bank are required to meet minimum requirements imposed by regulatory authorities. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on Atlantic Capital’s consolidated financial statements.

Shareholders’ equity at March 31, 2016 was $296 million, an increase of $8.0 million, or 3%, from December 31, 2015. 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. Excluding the change in the accumulated other comprehensive income, shareholders’ equity increased $4.8 million, or 2%, from December 31, 2015.

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Table 11 - Capital Ratios
(dollars in thousands)	Consolidated						Bank						Regulatory Guidelines
													Minimum				Well capitalized
	March 31, 2016			December 31, 2015			March 31, 2016			December 31, 2015			Prior to January 1, 2015		Beginning January 1, 2015		Prior to January 1, 2015		Beginning January 1, 2015
Risk based ratios:
Common equity tier 1 capital	9.5		%	9.8		%	11.0		%	11.4		%	N/A	%	4.5	%	N/A	%	6.5	%
Tier 1 Capital	9.5			9.8			11.0			11.4			4.0		6.0		6.0		8.0
Total capital	12.4			12.9			11.8			12.3			8.0		8.0		10.0		10.0
Leverage ratio	8.7			9.9			10.1			11.6			4.0		4.0		5.0		5.0

Common equity tier 1 capital	$	221,159		$	215.812		$	257,770		$	251.727
Tier 1 capital	221,159			215,812			257,770			251,727
Total capital	288,687			284,663			276,058			271,312

Risk weighted assets	2,333,245			2,200,478			2,333,176			2,200,387
Quarterly average total assets for leverage ratio	2,547,567			2,174,918			2,550,227			2,175,049

Atlantic Capital continues to exceed minimum capital standards and Atlantic Capital Bank remains “well-capitalized” under regulatory guidelines.

In July 2013, bank regulatory agencies approved the Basel III capital guidelines, which are aimed at strengthening existing capital requirements for bank holding companies through a combination of higher minimum capital requirements, new capital conservation buffers and more conservative definitions of capital and balance sheet exposure. Atlantic Capital and Atlantic Capital Bank became subject to the requirements of Basel III effective January 1, 2015, subject to a transition period for several aspects of the rule.

Under the revised rules, Atlantic Capital’s common equity tier 1 ratio was 9.5% at March 31, 2016, compared to the fully phased-in, well-capitalized minimum of 7.0%, which includes the 2.5% minimum conservation buffer. Management continues to monitor Basel III developments and remains committed to managing Atlantic Capital’s capital levels in a prudent manner.



Table 12 - Tier 1 Common Equity Under Basel III
(dollars in thousands)

	March 31, 2016
Tier 1 capital	$	221,159
Less: restricted core capital	—
Tier 1 common equity	$	221,159

Risk-adjusted assets	$	2,333,245
Tier 1 common equity ratio	9.5		%

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Table 13 discloses the minimum and well-capitalized requirements for the transitional period beginning during 2016 and the fully phased-in requirements that become effective during 2019.



Table 13 - Basel III Capital Requirements

	Basel III minimum requirement 2016		Basel III well capitalized 2016		Minimum Capital plus capital conservation buffer 2019
Common equity tier I to risk weighted assets	4.5	%	6.5	%	7.0	%
Tier 1 capital to risk weighted assets	6.0		8.0		8.5
Total capital ratio to risk weighted assets	8.0		10.0		10.5
Leverage ratio	4.0		5.0		N/A

Off-Balance Sheet Arrangements

Atlantic Capital makes contractual commitments to extend credit and issues standby letters of credit in the ordinary course of its business activities. These commitments are legally binding agreements to lend money to customers at predetermined interest rates for a specified period of time. In addition to commitments to extend credit, Atlantic Capital also issues standby letters of credit which are assurances to a third party that it will not suffer a loss if the customer fails to meet a contractual obligation to the third party. At March 31, 2016, Atlantic Capital had issued commitments to extend credit of approximately $643 million and standby letters of credit of approximately $14 million through various types of commercial lending arrangements.

Based on historical experience, many of the commitments and letters of credit will expire unfunded. Through its various sources of liquidity, Atlantic Capital believes it will be able to fund these obligations as they arise. Atlantic Capital evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on Atlantic Capital’s credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

Contractual Obligations

There have been no significant changes in Atlantic Capital’s contractual obligations during the three months ended March 31, 2016 as compared to the year ended December 31, 2015.

RISK MANAGEMENT

Effective risk management is critical to Atlantic Capital’s success. The Dodd-Frank Act requires that bank holding companies with total assets in excess of $10 billion establish an enterprise-wide risk committee consisting of members of its board of directors. Although Atlantic Capital does not have total assets in excess of $10 billion, the Bank's board of directors has an Audit and Risk Committee that, among other responsibilities, provides oversight of enterprise-wide risk management activities. The Audit and Risk Committee reviews the Bank's activities in identifying, measuring and mitigating existing and emerging risks (including credit, liquidity, interest-rate, compliance, operational, strategic and reputational risks.) The committee monitors management's execution of risk management practices in accordance with the risk appetite of the Bank, reviews supervisory examination reports together with management's response to such examinations and discusses legal matters that may have a material impact on the financial statements or Atlantic Capital's compliance policies. With guidance from and oversight by the Audit and Risk Committee, management continually refines and enhances its risk management policies and procedures to maintain effective risk management programs and processes.

Credit risk management

Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and investment securities. Atlantic Capital’s independent credit review function conducts risk reviews and analyses of loans to help assure compliance with credit policies and to monitor asset quality trends. The risk reviews include portfolio analysis by geographic location, industry, collateral type and product. Atlantic Capital strives to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain adequate allowances for loan losses that are inherent in the loan portfolio.

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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. Atlantic Capital’s market risk arises primarily from interest rate risk inherent in Atlantic Capital’s lending and deposit-taking activities. The structure of Atlantic Capital’s loan and deposit portfolios is such that a significant decline in interest rates may adversely impact net market values and net interest income. Atlantic Capital does not maintain a trading account nor is Atlantic Capital subject to currency exchange risk or commodity price risk.

Interest rate risk management

Interest rate risk results principally from assets and liabilities maturing or repricing at different points in time, from assets and liabilities repricing at the same point in time but in different amounts and from short-term and long-term interest rates changing in different magnitudes. Market interest rates also have an impact on the interest rate and repricing characteristics of loans that are originated as well as the rate characteristics of interest-bearing liabilities.

Atlantic Capital assesses interest rate risk by forecasting net interest income under various interest rate scenarios and comparing those results to forecasted net interest income assuming stable rates. Atlantic Capital’s rate shock simulation, as of March 31, 2016, indicates that, over a 12-month period, net interest income is estimated to increase by 12.39% with rates rising 200-basis points. The increase in net interest income is primarily due to the short-term repricing characteristics of the loan portfolio, combined with a favorable funding mix. Atlantic Capital’s loan book consists mainly of floating rate loans. Atlantic Capital’s core client deposits are likely to allow Atlantic Capital to lag short term interbank rate indices when pricing deposits. Transaction accounts comprise a significant amount of Atlantic Capital’s total deposits.

Table 14 provides the impact on net interest income resulting from various interest rate scenarios as of March 31, 2016 and December 31, 2015.



Table 14 - Net Interest Income Sensitivity Simulation Analysis

	Estimated increase (decrease) in net interest income
Change in interest rate (basis point)	March 31, 2016		December 31, 2015
+100	5.58	%	6.52	%
+200	12.39		14.00
+300	19.52		21.99

Atlantic Capital also utilizes the market value of equity (MVE) as a tool in measuring and managing interest rate risk. Long-term interest rate risk exposure is measured using the MVE sensitivity analysis to study the impact of long-term cash flows on capital. As of March 31, 2016, the MVE calculated with a 200-basis point shock up in rates decreased by 1.10% from the base case MVE value. Table 15 presents the MVE profile as of March 31, 2016 and December 31, 2015.



Table 15 - Market Value of Equity Modeling Analysis

	Estimated % change in MVE
Change in interest rate (basis point)	March 31, 2016			December 31, 2015
+100	0.62		%	2.57	%
+200	(1.10	)		2.29
+300	(2.74	)		2.47

Atlantic Capital may utilize interest rate swaps, floors, collars or other derivative financial instruments in an attempt to manage Atlantic Capital’s overall sensitivity to changes in interest rates.

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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

The Company maintains disclosure controls and procedures as required under Rule 13a-15 promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed in 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 the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of March 31, 2016, the Company’s management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2016.

No changes were made to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act) during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

In the ordinary course of operations, the Company and the Bank are defendants in various legal proceedings. Additionally, in the ordinary course of business, the Company 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 matter which would result in a material adverse change, either individually or in the aggregate, in the consolidated financial condition or results of operations of the Company.

Two putative shareholder class action lawsuits were filed in connection with the merger. Knutson v. First Security Group, Inc. et al., filed April 15, 2015 in the Chancery Court for Hamilton County, Tennessee, names First Security, the members of its board of directors, and the Company as defendants. Meade v. Kramer, et al., filed April 24, 2015 in the Chancery Court for Hamilton County, Tennessee, names First Security, the members of its board of directors, FSGBank, the Company, and the Bank as defendants. Each of these complaints alleges, among other things, that the First Security directors breached their fiduciary duties in connection with the negotiation and approval of the merger agreement and that the other named defendants, including the Company, aided and abetted those alleged breaches of fiduciary duties. Among other relief, the plaintiffs sought injunctive relief preventing the parties from consummating the merger, rescission of the transactions completed by the merger agreement, an award of attorney’s fees and expenses for plaintiffs and other forms of relief. On June 1, 2015, the Chancery Court entered an order consolidating these two suits under the caption In re First Security Group, Inc. Stockholder Litigation, Case No. 15-0212. On June 25, 2015, the plaintiffs filed an amended and consolidated class action complaint in the Chancery Court for Hamilton County, Chattanooga. The amended complaint repeats many of the same allegations of the original complaints but also makes additional allegations with respect to disclosures contained in the joint proxy statement/prospectus. On July 24, 2015, the defendants filed motions to dismiss the amended complaint.

On August 25, 2015, First Security, the Company and the other named defendants and the plaintiffs entered into a Memorandum of Understanding (the “MOU”) regarding the settlement of the above-described lawsuits. The MOU agreed on the terms of a settlement of the lawsuits, including the dismissal with prejudice of the suit captioned In re First Security Group, Inc. Stockholder Litigation and a release of all claims that were made or could have been made therein against all of the defendants. The parties have agreed on a Stipulation of Settlement, a Proposed Order on Notice and Scheduling, a Proposed Notice to class members, and a Proposed Final Order and those documents have been submitted to the Chancery Court for Hamilton County, Tennessee. In addition, in connection with the settlement and as provided in the MOU, the parties have agreed on an amount of attorneys’ fees and expenses, $265,000, that Plaintiffs’ counsel will request from the Court and to which the defendants will not object. The proposed settlement is conditioned upon, among other things, final approval of the proposed settlement by the Court after notice is given to shareholders. There can be no assurance that the court will approve the settlement in all respects and if the court does not approve the proposed settlement, the proposed settlement as contemplated by the MOU could become void. The settlement will not affect the amount of the merger consideration that First Security shareholders received in the merger.


ITEM 1A.	RISK FACTORS

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


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES

None.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS

The exhibits listed in the accompanying Exhibit Index are filed as part of this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.



	ATLANTIC CAPITAL BANCSHARES, INC.

	/s/ Douglas L. Williams
	Douglas L. Williams
	Chief Executive Officer (Principal Executive Officer)


	/s/ Patrick T. Oakes
	Patrick T. Oakes
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)




	Date: May 13, 2016

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EXHIBIT INDEX



3.1	Amended and Restated Articles of Incorporation of Atlantic Capital Bancshares, Inc.*
3.2	Amended and Restated Bylaws of Atlantic Capital Bancshares, Inc.*
10.1	Form of Amendment to Warrant Agreement (Executives and Directors)**
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015; (ii) the Consolidated Statements of Income for the three months ended March 31, 2016 and 2015; (iii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015; (iv) the Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2016 and 2015; (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015; and (vi) the Notes to the Unaudited Consolidated Financial Statements

* Incorporated by reference to Atlantic Capital’s Registration Statement on Form S-4 (file no. 333-204855), initially filed with the Securities and Exchange Commission on June 10, 2015.

**Management contract or compensatory plan or arrangement.