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Loans and Allowance for Credit Losses
9 Months Ended
Sep. 30, 2021
Loans and Allowance for Credit Losses  
Loans and Allowance for Credit Losses

NOTE 5 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

    

September 30, 2021

    

December 31, 2020

(in thousands)

Loans held for sale

 

  

 

  

Loans held for sale

$

11,814

$

Total loans held for sale

$

11,814

$

Loans held for investment

 

  

 

  

Commercial loans:

 

  

 

  

Commercial and industrial

$

838,741

$

952,805

Commercial real estate

 

960,319

 

909,101

Construction and land

 

205,148

 

145,595

Total commercial loans

 

2,004,208

 

2,007,501

Residential:

 

 

Residential mortgages

 

47,076

 

33,783

Home equity

 

28,943

 

25,443

Total residential loans

 

76,019

 

59,226

Consumer

 

192,462

 

176,066

Other

 

4,921

 

13,897

Total loans

 

2,277,610

 

2,256,690

Less net deferred fees and other unearned income

 

(3,754)

 

(7,654)

Less allowance for credit losses on loans

 

(23,924)

 

(31,818)

Loans held for investment, net

$

2,249,932

$

2,217,218

At September 30, 2021 and December 31, 2020, loans with a carrying value of $525.4 million and $474.5 million, respectively, were pledged as collateral to secure FHLB advances and the Federal Reserve discount window.

The fair value adjustments on purchased loans outside the scope of ASC 310-30 are accreted to interest income over the life of the loans. At September 30, 2021, the remaining accretable fair value discount on loans acquired through a business combination and not accounted for under ASC 310-30 was $180,000 compared to $262,000 at December 31, 2020.

The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.  It is comprised of specific allowance for individually assessed loans and a general allowance for loans that are collectively assessed in pools with similar risk characteristics. The allowance is regularly evaluated to maintain a level adequate to absorb expected losses inherent in the loan portfolio. Accrued interest receivable totaled $9.4 million at September 30, 2021 and $10.8 million at December 31, 2020 and was reported in Other Assets on the Consolidated Balance Sheets. Included in the estimate of credit losses for loans at September 30, 2021 and December 31, 2020 was $31,000 and $49,000, respectively, related to accrued interest receivable totaling $3.6 million and $4.4 million, respectively, on loans with payment deferrals. The remaining balance of accrued interest receivable was excluded from the estimate of credit losses for loans.

The following table presents the balance and activity in the allowance for credit losses on loans by portfolio segment for the three and nine months ended September 30, 2021 and 2020.

For the Three Months Ended September 30, 

2021

Commercial

Residential

Consumer

Total

(in thousands)

Allowance for credit losses on loans

 

 

 

 

Beginning balance

$

25,070

$

519

$

534

$

26,123

Provision for loan losses

 

(2,071)

(58)

(92)

 

(2,221)

Loans charged-off

 

 

(131)

 

 

(131)

Recoveries

 

151

2

 

153

Total ending allowance balance

$

23,019

$

461

$

444

$

23,924

 

For the Three Months Ended September 30, 

2020

Commercial

Residential

Consumer

Total

(in thousands)

Allowance for credit losses on loans

Beginning balance

$

30,834

$

517

$

254

$

31,605

Provision for loan losses

 

(83)

 

149

 

570

 

636

Loans charged-off

 

 

(404)

 

 

 

 

 

 

(404)

Recoveries

 

56

 

 

1

 

57

Total ending allowance balance

$

30,403

$

666

$

825

$

31,894

For the Nine Months Ended September 30, 

2021

Commercial

Residential

Consumer

Total

(in thousands)

Allowance for credit losses on loans

 

 

 

 

Beginning balance

$

30,221

$

699

$

898

$

31,818

Provision for loan losses

 

(6,604)

(47)

(458)

 

(7,109)

Loans charged-off

 

 

(805)

(223)

 

 

(1,028)

Recoveries

 

207

32

4

 

243

Total ending allowance balance

$

23,019

$

461

$

444

$

23,924

For the Nine Months Ended September 30, 

2020

Commercial

Residential

Consumer

Total

(in thousands)

Allowance for credit losses on loans

Beginning balance

$

18,203

$

145

$

187

$

18,535

Impact of adopting ASC 326

(947)

8

85

(854)

Provision for loan losses

 

15,051

 

673

 

543

 

16,267

Loans charged-off

 

(1,979)

 

 

(161)

 

 

 

 

(2,140)

Recoveries

 

75

 

1

 

10

 

86

Total ending allowance balance

$

30,403

$

666

$

825

$

31,894

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

A charge-off is recognized when the amount of the loss is quantifiable and timing is known. A collateral based loan charge-off is measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated net

realizable value of the loan collateral. When assessing property value for the purpose of determining a charge-off, a third-party appraisal or an independently derived internal evaluation is generally employed.

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

Troubled Debt Restructurings

Atlantic Capital evaluates loans in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors. TDRs are made to provide relief to customers experiencing liquidity challenges or other circumstances that could affect their ability to meet their debt obligations. Typical modifications include short-term deferral of interest or modification of payment terms. Nonperforming TDRs do not accrue interest and are included as NPAs within NPLs. TDRs which are accruing interest based on the restructured terms are considered performing.

As of September 30, 2021 and December 31, 2020, the Company had a recorded investment in TDRs of $13.2 million and $14.2 million, respectively. The Company allocated $502,000 in allowance for those loans at September 30, 2021 and had no commitments to lend additional funds on loans modified as TDRs as of September 30, 2021 and December 31, 2020.

There were no loans modified as TDRs during the three and nine months ended September 30, 2021, nor during the three months ended September 30, 2020. Loans, by portfolio class, modified as TDRs during the nine months ended September 30, 2020 are as follows:

Number of Loans

Outstanding Balance

Increase in Allowance

(in thousands)

Nine Months Ended September 30, 2020

Commercial and industrial

1

$

65

$

3

Commercial real estate

1

 

1,920

 

188

Total

2

$

1,985

$

191

The Company did not forgive any principal on TDRs during the three and nine months ended September 30, 2021 and 2020.

A TDR is considered to be in default once it becomes 90 days or more contractually past due under the modified terms. The following table presents by class, all loans modified as TDRs that defaulted during the three and nine months ended September 30, 2020, and within twelve months of their modification date. There were no loans modified as TDRs that defaulted during the three and nine months ended September 30, 2021, and within twelve months of their modification date.

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2020

    

Number of Loans

    

Outstanding Balance

Number of Loans

    

Outstanding Balance

(in thousands)

 

Commercial

-

$

-

2

$

310

Total

-

$

-

2

$

310

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

GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. The relief was extended by the 2021 Consolidated Appropriations Act through January 1, 2022. On April 7, 2020, the Federal Financial Institutions Examination Council provided additional guidance in its Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised). This guidance received concurrence from the FASB and clarified that loan modifications made under the following criteria are generally not considered TDRs if:

the modification is in response to the national emergency;
the borrower was current on payments at the time the modification program is implemented; and
the modification is short-term (e.g., six months).

Atlantic Capital individually rates loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, consumer credit risk scores (FICO), rating agency information, LTV ratios, collateral, collection experience, and other internal metrics. The likelihood of default of a credit transaction is graded in the Obligor Rating and is determined through credit analysis. Ratings are generally reviewed at least annually or more frequently if there is a material change in creditworthiness. Exceptions to this policy may include loans with commitments less than $1 million, well-collateralized term loans and loans to individuals with limited exposure or complexity.

Atlantic Capital uses the following definitions for risk ratings:

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

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

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

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

As of September 30, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows.

Term Loans Amortized Cost Basis by Origination Year

Revolving Loans

Amortized

    

2021

    

2020

    

2019

    

2018

    

2017

    

Prior

    

Cost Basis

    

Total

(in thousands)

September 30, 2021

Commercial - commercial and industrial:

Risk rating

 

 

 

 

 

 

Pass

$

261,015

$

102,552

$

70,930

$

54,530

$

38,707

$

47,740

$

223,244

$

798,718

Special mention

 

425

 

500

 

4,807

 

6,585

 

430

834

5,067

 

18,648

Substandard

 

 

650

 

5,690

 

10,918

 

702

3,043

 

21,003

Doubtful

 

 

 

 

372

 

 

372

Total commercial - commercial and industrial

$

261,440

$

103,702

$

81,427

$

72,405

$

39,137

$

49,276

$

231,354

$

838,741

Commercial - commercial real estate:

Risk rating

 

 

 

 

 

 

Pass

$

150,774

$

89,754

$

153,456

$

128,454

$

59,061

$

318,772

$

18,110

$

918,381

Special mention

 

 

2,899

 

10,157

 

1,401

 

256

7,016

1,212

 

22,941

Substandard

 

 

 

 

5,711

 

2,959

10,327

 

18,997

Doubtful

 

 

 

 

 

 

Total commercial - commercial real estate loans

$

150,774

$

92,653

$

163,613

$

135,566

$

62,276

$

336,115

$

19,322

$

960,319

Commercial - construction and land:

Risk rating

 

 

 

 

 

 

Pass

$

54,177

$

90,936

$

34,842

$

88

$

$

$

25,105

$

205,148

Special mention

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total commercial - construction and land loans

$

54,177

$

90,936

$

34,842

$

88

$

$

$

25,105

$

205,148

Residential - mortgages:

Risk rating

 

 

 

 

 

 

Pass

$

6,858

$

9,002

$

2,871

$

14,538

$

4,548

$

8,189

$

$

46,006

Special mention

 

 

 

 

160

 

728

 

888

Substandard

 

 

 

 

156

 

26

 

182

Doubtful

 

 

 

 

 

 

Total residential - mortgage loans

$

6,858

$

9,002

$

2,871

$

14,854

$

5,276

$

8,215

$

$

47,076

Residential - home equity:

Risk rating

 

 

 

 

 

 

Pass

$

$

$

$

$

$

$

28,018

$

28,018

Special mention

 

 

 

 

 

726

 

726

Substandard

 

 

 

 

 

199

 

199

Doubtful

 

 

 

 

 

 

Total residential - home equity loans

$

$

$

$

$

$

$

28,943

$

28,943

Consumer:

Risk rating

 

 

 

 

 

 

Pass

$

153,819

$

31,763

$

2,152

$

$

22

$

3,700

$

1,006

$

192,462

Special mention

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total consumer loans

$

153,819

$

31,763

$

2,152

$

$

22

$

3,700

$

1,006

$

192,462

Other:

Risk rating

 

 

 

 

 

 

Pass

$

64

$

$

$

1,551

$

1,164

$

549

$

$

3,328

Special mention

 

 

 

 

 

 

Substandard

 

 

 

 

 

1,593

 

1,593

Doubtful

 

 

 

 

 

 

Total other loans

$

64

$

$

$

1,551

$

2,757

$

549

$

$

4,921

Total:

Pass

$

626,707

$

324,007

$

264,251

$

199,161

$

103,502

$

378,950

$

295,483

$

2,192,061

Special Mention

425

3,399

14,964

8,146

1,414

7,850

7,005

43,203

Substandard

650

5,690

16,785

4,552

11,055

3,242

41,974

Doubtful

372

372

Total

$

627,132

$

328,056

$

284,905

$

224,464

$

109,468

$

397,855

$

305,730

$

2,277,610

As of December 31, 2020, the risk category of loans by class of loans is as follows.

Term Loans Amortized Cost Basis by Origination Year

Revolving Loans

Amortized

    

2020

    

2019

    

2018

    

2017

    

2016

    

Prior

    

Cost Basis

    

Total

(in thousands)

December 31, 2020

Commercial - commercial and industrial:

Risk rating

 

 

 

 

 

 

Pass

$

358,320

$

130,466

$

94,596

$

44,706

$

35,098

$

16,621

$

179,521

$

859,328

Special mention

 

1,260

 

11,475

 

26,683

 

540

 

684

310

24,844

 

65,796

Substandard

 

 

4,069

 

7,917

 

2,436

 

997

5,474

6,779

 

27,672

Doubtful

 

 

 

9

 

 

 

9

Total commercial - commercial and industrial

$

359,580

$

146,010

$

129,205

$

47,682

$

36,779

$

22,405

$

211,144

$

952,805

Commercial - commercial real estate:

Risk rating

 

 

 

 

 

 

Pass

$

88,246

$

160,205

$

146,807

$

93,956

$

123,959

$

213,204

$

9,189

$

835,566

Special mention

 

 

21,964

 

1,534

 

 

865

4,142

175

 

28,680

Substandard

 

5,328

 

6,102

 

4,323

 

3,262

 

9,674

16,166

 

44,855

Doubtful

 

 

 

 

 

 

Total commercial - commercial real estate loans

$

93,574

$

188,271

$

152,664

$

97,218

$

134,498

$

233,512

$

9,364

$

909,101

Commercial - construction and land:

Risk rating

 

 

 

 

 

 

Pass

$

71,828

$

57,807

$

4,407

$

$

$

720

$

6,012

$

140,774

Special mention

 

 

 

2,665

 

 

2,156

 

4,821

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total commercial - construction and land loans

$

71,828

$

57,807

$

7,072

$

$

2,156

$

720

$

6,012

$

145,595

Residential - mortgages:

Risk rating

 

 

 

 

 

 

Pass

$

9,848

$

2,862

$

14,040

$

747

$

2,817

$

307

$

$

30,621

Special mention

 

1,237

 

 

857

 

753

 

 

2,847

Substandard

 

 

 

179

 

 

26

110

 

315

Doubtful

 

 

 

 

 

 

Total residential - mortgage loans

$

11,085

$

2,862

$

15,076

$

1,500

$

2,843

$

417

$

$

33,783

Residential - home equity:

Risk rating

 

 

 

 

 

 

Pass

$

$

$

$

$

$

$

24,717

$

24,717

Special mention

 

 

 

 

 

726

 

726

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total residential - home equity loans

$

$

$

$

$

$

$

25,443

$

25,443

Consumer:

Risk rating

 

 

 

 

 

 

Pass

$

162,671

$

5,429

$

$

50

$

64

$

4,964

$

2,888

$

176,066

Special mention

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total consumer loans

$

162,671

$

5,429

$

$

50

$

64

$

4,964

$

2,888

$

176,066

Other:

Risk rating

 

 

 

 

 

 

Pass

$

$

$

4,609

$

1,327

$

$

640

$

5,748

$

12,324

Special mention

 

 

1,117

 

 

 

 

1,117

Substandard

 

 

 

 

456

 

 

456

Doubtful

 

 

 

 

 

 

Total consumer - other loans

$

$

1,117

$

4,609

$

1,783

$

$

640

$

5,748

$

13,897

Total:

Pass

$

690,913

$

356,769

$

264,459

$

140,786

$

161,938

$

236,456

$

228,075

$

2,079,396

Special Mention

2,497

34,556

31,739

1,293

3,705

4,452

25,745

103,987

Substandard

5,328

10,171

12,419

6,154

10,697

21,750

6,779

73,298

Doubtful

9

9

Total

$

698,738

$

401,496

$

308,626

$

148,233

$

176,340

$

262,658

$

260,599

$

2,256,690

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of September 30, 2021 and December 31, 2020:

As of September 30, 2021

Nonaccrual

Nonaccrual

Loans Past

With No

With

Due Over

Allowance for

Allowance for

Total

89 Days

    

Credit Losses

    

Credit Losses

    

Nonaccrual

    

Still Accruing

Commercial loans:

 

 

 

 

Commercial and industrial

 

$

 

$

2,445

 

$

2,445

 

$

Commercial real estate

 

13

 

 

13

 

Total commercial loans

 

13

2,445

2,458

Residential mortgages

1,619

1,619

Total loans

$

1,632

 

$

2,445

 

$

4,077

 

$

As of December 31, 2020

Nonaccrual

Nonaccrual

Loans Past

With No

With

Due Over

Allowance for

Allowance for

Total

89 Days

    

Credit Losses

    

Credit Losses

    

Nonaccrual

    

Still Accruing

Commercial loans:

 

 

 

 

Commercial and industrial

 

$

2,597

 

$

934

 

$

3,531

 

$

Commercial real estate

 

42

 

 

42

 

Total commercial loans

 

2,639

934

3,573

Residential mortgages

205

205

1,084

Total loans

$

2,844

 

$

934

 

$

3,778

 

$

1,084

The gross additional interest income that would have been earned during the three and nine months ended September 30, 2021 and 2020 had performing TDRs performed in accordance with the original terms is immaterial. Atlantic Capital recognized interest income on nonaccrual loans of $58,000 and $103,000 during the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2020, Atlantic Capital recognized interest income on nonaccrual loans of $41,000 and $123,000, respectively.

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

As of September 30, 2021

Real

SBA

    

Property

    

Equipment

    

Guaranty

    

Total

 

 

 

 

Commercial and industrial

 

$

13

 

$

 

$

1,022

 

$

1,035

Residential mortgages

1,024

27

568

1,619

Total loans

 

$

1,037

 

$

27

 

$

1,590

 

$

2,654

 

As of December 31, 2020

Real

Business

SBA

    

Property

    

Equipment

    

Assets

    

Guaranty

    

Total

Commercial and industrial

 

$

2,165

 

$

262

 

$

150

 

$

212

 

$

2,789

Residential mortgages

205

205

Total loans

 

$

2,370

 

$

262

 

$

150

 

$

212

 

$

2,994

Atlantic Capital monitors loans by past due status. The following table presents the aging of the recorded investment in past due loans as of September 30, 2021 and December 31, 2020 by class of loans.

As of September 30, 2021

30 - 59

60 - 89

Greater Than

Days

Days

89 Days

Total Past Due

Loans Not

    

Past Due

    

Past Due

    

Past Due

    

Nonaccruing

    

and Nonaccruing

    

Past Due

    

Total

 

(in thousands)

Loans by Classification

 

  

 

  

 

  

 

  

 

  

 

Commercial and industrial

$

1,145

$

848

$

$

2,445

$

4,438

$

834,303

$

838,741

Commercial real estate

 

4,738

13

4,751

 

955,568

 

960,319

Construction and land

 

 

205,148

 

205,148

Residential mortgages

 

1,369

1,619

2,988

 

44,088

 

47,076

Home equity

 

199

199

 

28,744

 

28,943

Consumer

 

12,069

5,471

17,540

 

179,843

 

197,383

Total Loans

$

19,520

$

6,319

$

$

4,077

$

29,916

$

2,247,694

$

2,277,610

As of December 31, 2020

30 - 59

60 - 89

Greater Than

Days

Days

89 Days

Total Past Due

Loans Not

    

Past Due

    

Past Due

    

Past Due

    

Nonaccruing

    

and Nonaccruing

    

Past Due

    

Total

 

(in thousands)

Loans by Classification

 

  

 

  

 

  

 

  

 

  

 

Commercial and industrial

$

1,166

$

1,749

$

817

$

3,531

$

7,263

$

945,542

$

952,805

Commercial real estate

 

4,008

357

42

4,407

 

904,694

 

909,101

Construction and land

 

 

145,595

 

145,595

Residential mortgages

 

479

925

267

205

1,876

 

31,907

 

33,783

Home equity

 

 

25,443

 

25,443

Consumer

 

10,374

5,776

16,150

 

173,813

189,963

Total Loans

$

16,027

$

8,807

$

1,084

$

3,778

$

29,696

$

2,226,994

$

2,256,690

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

For the three months ended September 30, 2021

Commercial and

Commercial

Residential

    

Industrial

    

Real Estate

    

Mortgages

    

Total

 

(in thousands)

Repurchases of SBA participations

 

$

279

 

$

-

 

$

-

 

$

279

SBA Sales

10,615

3,036

-

13,651

Total Loans

$

10,894

$

3,036

$

-

$

13,930

For the nine months ended September 30, 2021

Commercial and

Commercial

Residential

    

Industrial

    

Real Estate

    

Mortgages

    

Total

 

(in thousands)

Repurchases of SBA participations

 

$

1,349

 

$

2,708

 

$

1,362

 

$

5,419

SBA Sales

26,881

11,543

664

39,088

Total Loans

$

28,230

$

14,251

$

2,026

$

44,507

For the three months ended September 30, 2020

Commercial and

Commercial

Residential

    

Industrial

    

Real Estate

    

Mortgages

    

Total

 

(in thousands)

Repurchases of SBA participations

 

$

1,015

 

$

-

 

$

-

 

$

1,015

SBA Sales

10,258

772

-

11,030

Total Loans

$

11,273

$

772

$

-

$

12,045

For the nine months ended September 30, 2020

Commercial and

Commercial

Residential

    

Industrial

    

Real Estate

    

Mortgages

    

Total

 

(in thousands)

Repurchases of SBA participations

 

$

2,338

 

$

1,467

 

$

-

 

$

3,805

SBA Sales

26,427

2,264

277

28,968

Total Loans

$

28,765

$

3,731

$

277

$

32,773