Atlantic Capital Bancshares, Inc. announced earnings of $8.8 million, or $0.34 per diluted share, for the fourth quarter of 2018, compared to $6.5 million, or $0.25 per diluted share, in the third quarter of 2018.  Net income for 2018 was $28.5 million, or $1.09 per diluted share, compared to a loss of $3.7 million, or ($0.15) per diluted share, for 2017.

On November 14, 2018, Atlantic Capital announced the sale of fourteen branches in Tennessee and northwest Georgia and the mortgage business. This branch divestiture includes the sale of approximately $585 million in deposits and $373 million in loans.  The income and expenses related to these branches are included in discontinued operations and prior period financial information has been retrospectively adjusted for the impact of discontinued operations.  Subject to customary closing conditions, including the receipt of all necessary regulatory approvals, the transaction is expected to be completed during the second quarter of 2019.

“Atlantic Capital’s results in the fourth quarter of 2018 and for all of 2018 reflect continued strength in our core Atlanta and national commercial businesses.  We begin 2019 with solid momentum and good prospects for strong operating performance in our continuing operations,” remarked Douglas Williams, President and Chief Executive Officer.

Fourth Quarter Highlights⁽¹⁾

Return on average assets of 1.21% and return on average equity of 10.90%.

Net income from continuing operations totaled $7.5 million, or $0.29 per diluted share, compared to $7.0 million, or $0.27 per diluted share in the third quarter of 2018.

Net interest margin from continuing operations was 3.66% compared to 3.48% for the third quarter of 2018.

Total loans held for investment increased $65.7 million, or 15.8% annualized, compared to September 30, 2018.

Average deposits from continuing operations increased $127.4 million, or 30.8% annualized, compared to the third quarter of 2018.

822,100 shares were repurchased in the fourth quarter totaling $14.2 million.

Noninterest income includes a $1.9 million loss on the sale of securities that were sold in the fourth quarter to help fund the cash owed to the buyer at the upcoming closing of the branch sale.

Provision for income taxes includes a $996,000 net benefit as a result of the pending transaction. 

2018 Highlights

Net income from continuing operations totaled $28.1 million, or $1.07 per diluted share, compared to a loss of $4.8 million, or ($0.19) per diluted share in 2017.

Efficiency ratio - continuing operations improved to 57.9% from 70.4% in 2017.

Total loans held for investment increased $209.6 million, or 13.8%, compared to December 31, 2017.

Average deposits from continuing operations in the fourth quarter of 2018 increased $177 million, or 11.0%, compared to the fourth quarter of 2017.

Net charge-offs to average loans totaled 0.02% compared to 0.23% in 2017.

⁽¹⁾ Commentary is on a fully taxable-equivalent basis unless otherwise noted. Consistent with SEC guidance in Industry Guide 3 that contemplates the calculation of tax-exempt income on a tax equivalent basis, net interest income and net interest margin are provided on a fully taxable-equivalent basis, which generally assumes a 21% marginal tax rate for 2018 and 35% for 2017 and prior. We provide detailed reconciliations in the Non-GAAP Performance and Financial Measures Reconciliation table.

Income Statement

Taxable equivalent net interest income from continuing operations increased to $21.2 million in the fourth quarter of 2018 from $19.4 million in the third quarter of 2018, primarily as a result of higher loan balances and an increase in loan yields offset by an increase in the cost of interest bearing deposits. Net interest income from continuing operations does not currently reflect the planned decrease in net interest income necessary to fund the cash amount owed to the buyer at the closing of the branch sale in the second quarter of 2019.  The Company anticipates funding the transaction with a combination of brokered deposits and proceeds from sold securities.

Net interest margin from continuing operations was 3.66% in the fourth quarter of 2018, an increase of 18 basis points from the third quarter of 2018, as a result of an increase in loan yields partially offset by higher cost of deposits.  Following the close of the branch transaction in the second quarter of 2019, the Company anticipates the net interest margin to range from 3.50% to 3.55%.

The yield on loans from continuing operations in the fourth quarter of 2018 increased 27 basis points to 5.31% from the third quarter of 2018.  Loan yields benefited from increases in 1 month LIBOR during the fourth quarter of 2018.

The cost of deposits from continuing operations in the fourth quarter of 2018 was 0.93%, an increase of 17 basis points from the third quarter of 2018. The cost of interest bearing deposits from continuing operations increased 24 basis points to 1.40% from the third quarter of 2018, driven by the increase in rates on money market accounts.

The provision for loan losses for continuing operations was $502,000 in the fourth quarter of 2018, a decrease compared to $845,000 in the third quarter of 2018.  The Company recorded negative provision for loan losses totaling $3.1 million included in discontinued operations, primarily due to the classification of $373 million of loans to held for sale.

Noninterest income from continuing operations totaled $164,000 in the fourth quarter of 2018 compared to $2.3 million in the third quarter of 2018. The fourth quarter included a loss of $1.9 million on the sale of $63 million in investment securities to help fund the cash owed to the buyer at the closing of the upcoming branch sale.

SBA income totaled $425,000 in the fourth quarter of 2018, a decrease of $457,000 from the third quarter of 2018, partly as a result of the impact on the sale of SBA loans in December from the shutdown of the Small Business Administration. As of December 31, 2018, loans held for sale included $3.6 million in SBA 7a loans that the Company intends to sell.

Noninterest expense from continuing operations totaled $12.2 million in the fourth quarter of 2018, an increase of $336,000 compared to $11.9 million in the third quarter of 2018. Salaries and employee benefits expense increased by $241,000 from the third quarter of 2018 to $7.6 million in the fourth quarter, primarily from an increase in incentive expense.  Compared to the third quarter of 2018, professional fees increased $151,000 in the fourth quarter due to higher consulting fees.

Income tax expense related to continuing operations totaled $1.1 million in the fourth quarter of 2018, compared to $1.9 million in the third quarter of 2018.  In the fourth quarter of 2018, the Company recorded a $4.5 million favorable reduction of the valuation allowance on Federal deferred tax assets related to the limitations under Section 382 of the Internal Revenue Code.  This reduction was offset by an unfavorable increase of $3.5 million in the valuation allowance related to state net operating losses and carryforwards that are not expected to be utilized.

Balance Sheet

Total loans held for investment were $1.73 billion at December 31, 2018, an increase of $65.7 million, or 15.8% annualized, from September 30, 2018.  This included growth of $66.2 million, or 30.2% annualized, in commercial and industrial and owner occupied commercial real estate loans from September 30, 2018.

At December 31, 2018, the allowance for loan losses was $17.9 million, or 1.03% of loans held for investment, a decrease of $2.6 million from the $20.4 million allowance at September 30, 2018.  This decrease included a $3.1 million reduction in the allowance for loan losses due to the transfer of the branch sale loans to held for sale.

Annualized net charge-offs to average loans were 0.00% in the fourth quarter of 2018, unchanged from the third quarter of 2018. Nonperforming assets from continuing operations totaled $4.1 million, or 0.14% of total assets, as of December 30, 2018, compared to $3.1 million, or 0.11% of total assets, as of September 30, 2018.

Total average deposits from continuing operations were $1.78 billion for the fourth quarter of 2018, an increase of $127.4 million from the third quarter of 2018. This included increases in large, year-end deposits that the Company anticipates will decrease in the first quarter of 2019.