Proposed Merger with SouthState
As previously disclosed, onJuly 23, 2021 ,Atlantic Capital entered into the Merger Agreement with SouthState. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein,Atlantic Capital will merge with and into SouthState, with SouthState as the surviving corporation, in an all-stock transaction. Following the Merger, the Bank will merge with and intoSouthState Bank , withSouthState Bank as the surviving entity. The Merger Agreement was unanimously approved by the board of directors of each ofAtlantic Capital and SouthState. The transaction is expected to close in the first quarter 2022. The closing of the transactions contemplated by the Merger Agreement is subject to the approval ofAtlantic Capital's shareholders, regulators, and certain other customary closing conditions. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger,Atlantic Capital's shareholders will have the right to receive 0.36 shares of SouthState common stock for each share of common stock ofAtlantic Capital that they hold. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q ofAtlantic Capital Bancshares, Inc. ("we," "us," or "Atlantic Capital ") contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "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. 37
Table of Contents
The following risks, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
? we are subject to business uncertainties and contractual restrictions while the
Merger is pending;
the Merger is subject to certain closing conditions that, if not satisfied or
? waived, will result in the Merger not being completed, which may cause the
price of SouthState's common stock and our common stock to decline;
? SouthState may fail to realize the anticipated benefits of the Merger;
? the termination fee and restrictions on solicitation contained in the Merger
Agreement limit our ability to pursue alternatives to the Merger;
the Merger is subject to the receipt of approvals or waivers from regulatory
? authorities that may impose conditions that could have an adverse effect on
because the market price of SouthState common stock will fluctuate,
? Capital's shareholders cannot be sure of the exact value of the consideration
they will receive in the Merger;
? termination of the Merger Agreement could negatively affect us;
the impact of the COVID-19 pandemic or any other pandemic on the national and
local economy and the responses of governmental and monetary authorities on our
? operations, including declines in credit quality, strains on capital and
liquidity, fluctuations in our payments, fintech and private capital solutions
businesses, and declines in deposits;
? our strategic decision to focus on the greater
positively impact our financial condition in the expected timeframe, or at all;
? costs associated with our growth and hiring initiatives;
risks associated with increased geographic concentration, borrower
? concentration and concentration in commercial real estate and commercial and
industrial loans;
our strategic decision to increase our focus on SBA and franchise lending may
expose us to additional risks associated with these types of lending, including
? industry concentration risks, our ability to sell the guaranteed portion of SBA
loans, the impact of negative economic conditions on small businesses' ability
to repay the non-guaranteed portions of SBA loans, and changes to applicable
federal regulations;
risks related to litigation, regulatory enforcement and reputation as a result
? of our participation in the PPP and the risk that the SBA may not fund some or
all PPP loan guaranties;
risks associated with our ability to manage the planned growth of our payments,
fintech and private capital solutions businesses, including changing
? regulations, security risks, and unforeseen increases in transaction volume
resulting from changes in our customers' businesses and changes in the
competitive landscape for payment processing, fintech and private capital;
? changes in asset quality and credit risk;
? the cost and availability of capital;
? customer acceptance of our products and services;
38 Table of Contents
? 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
results;
? the interest rate environment may compress margins and adversely affect net
interest income;
our ability to anticipate or respond to interest rate changes correctly and
? manage interest rate risk presented through unanticipated changes in our
interest rate risk position and/or short- and long-term interest rates;
? changes in trade, monetary and fiscal policies of various governmental bodies
and central banks could affect the economic environment in which we operate;
? our ability to determine accurate values of certain assets and liabilities;
? adverse developments in securities, public debt, and capital markets, including
changes in market liquidity and volatility;
unanticipated changes in our liquidity position, including but not limited to
? our ability to enter the financial markets to manage and respond to any changes
to our liquidity position;
? the impact of the transition from LIBOR and our ability to adequately manage
such transition;
? adequacy of our risk management program and regulatory assessment thereof;
? increased competitive pressure due to consolidation in the financial services
industry;
? risks related to security breaches, cybersecurity attacks, and other
significant disruptions in our information technology systems; and
other risks and factors identified in our Annual Report on Form 10-K as filed
? with the
the heading "Risk Factors."
CRITICAL ACCOUNTING POLICIES
Our accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. Our financial position and results of operations are affected by management's application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in our consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include our accounting for the allowance for credit losses, fair value measurements, and income tax related items. Significant accounting policies are discussed in the Notes to Consolidated Financial Statements within our Annual Report. 39 Table of Contents Non-GAAP Financial Measures. This Form 10-Q contains non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. Our management uses non-GAAP financial measures, including: (i) taxable equivalent interest income; (ii) taxable equivalent net interest income; (iii) loan yield excluding PPP loans; (iv) taxable equivalent net interest margin; (v) taxable equivalent net interest margin excluding PPP loans; (vi) taxable equivalent income before income taxes; (vii) taxable equivalent income tax expense; (viii) tangible book value per common share; (ix) tangible common equity to tangible assets; (x) allowance for credit losses to loans held for investment excluding PPP loans. Management believes that non-GAAP financial measures provide a greater understanding of ongoing performance and operations, and enhance comparability with prior periods. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as determined in accordance with GAAP, and investors should consider our performance and financial condition as reported under GAAP and all other relevant information when assessing our performance or financial condition. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP. Non-GAAP financial measures may not be comparable to non- GAAP financial measures presented by other companies. A reconciliation of these non-GAAP financial measures to GAAP financial measures is included in Table 1.
EXECUTIVE OVERVIEW AND EARNINGS SUMMARY
We reported net income of$13.3 million for the third quarter of 2021 compared to net income of$8.6 million for the third quarter of 2020. Diluted income per common share was$0.65 for the third quarter of 2021, compared to$0.40 for the same period in 2020. For the nine months endedSeptember 30, 2021 , we reported net income of$38.5 million . This compared to net income of$12.6 million for the nine months endedSeptember 30, 2020 . Diluted income per common share was$1.88 for the nine months endedSeptember 30, 2021 , compared to$0.58 for the same period in 2020. The increase in net income for the three months endedSeptember 30, 2021 , compared to the same period in 2020, was primarily attributable to the recording of negative provision for credit losses of$2.4 million during the third quarter of 2021 compared to a provision for credit losses of$28,000 during the third quarter of 2020. The recording of negative provision was the result of improved CECL economic forecasts and positive credit quality migration lowering the allowance, partially offset by loan growth during the third quarter of 2021. The increase in net income quarter over quarter was also the result of higher net interest income, led by growth in loans and taxable investment securities, as well as higher non-interest income, led by increased service charges as well as the receipt of SBIC distributions. For the nine months endedSeptember 30, 2021 , compared to the first nine months of 2020, the increase in net income was primarily attributable to the recording of negative provision for credit losses of$7.9 million during the first nine months of 2021 compared to a provision for credit losses of$17.0 million during the same period in 2020. The recording of negative provision was the result of improved CECL economic forecasts and credit upgrades, partially offset by loan growth during the first nine months of 2021. Partially offsetting the increase in income was an increase in salaries and employee benefits expense of$5.3 million , or 20%, for the first nine months of 2021 compared to the same period in 2020. Salaries and employee benefits expense included contract labor expense for PPP round two loan processing during the first half of 2021 as well as an increase in SBA commissions and other performance-based incentives. Net interest income before provision for credit losses increased$3.1 million , or 14%, from the third quarter of 2020 to 2021, primarily due to a$2.4 million , or 10%, increase in interest income, driven by higher loan interest and fees, as well as a decrease of$620,000 , or 25%, in interest expense, primarily resulting from a decrease in interest expense on deposits. Net interest income before provision for credit losses increased$9.4 million , or 15%, from the first nine months of 2020 to 2021, primarily due to a$5.6 million , or 8%, increase in interest income, driven by higher loan interest and fees as well as an increase of$2.5 million , or 29%, in interest income from investment securities. Also contributing to the increase in net interest income was a decrease of$3.8 million , or 39%, in interest expense due to lower interest expense on deposits. 40 Table of Contents Taxable equivalent net interest income was$25.1 million for the third quarter of 2021, compared to$22.1 million for the third quarter of 2020. Taxable equivalent net interest margin decreased to 2.69% for the three months endedSeptember 30, 2021 , from 3.14% for the three months endedSeptember 30, 2020 . The margin decrease for the third quarter of 2021 compared to the same period in 2020 was primarily due to the increase in deposits and corresponding increase in low-yielding cash balances. For the nine months endedSeptember 30, 2021 , taxable equivalent net interest income was$74.9 million compared to$65.3 million for the same period of 2020. Taxable equivalent net interest margin decreased to 2.80% for the nine months endedSeptember 30, 2021 , from 3.25% for the nine months endedSeptember 30, 2020 . The margin decrease for the first nine months of 2021 compared to the same period in 2020 was primarily due to lower rates on loans resulting from federal funds rate decreases during 2020 and the increase in deposits and corresponding increase in cash balances, which contributed to the margin decline. The CARES Act and applicable extensions provide relief to borrowers, including the opportunity to defer loan payments while not negatively affecting their credit standing and also provide funding opportunities for small businesses under the PPP from approved SBA lenders. For commercial and consumer customers, we have provided a host of relief options, including payment deferrals (including maturity extensions), loan covenant waivers and low interest rate loan products. Outstanding PPP loans were$48.3 million atSeptember 30, 2021 , a decrease of$143.9 million , or 75%, fromDecember 31, 2020 . The decrease was due to the forgiveness of$243.0 million in PPP loans during the nine months endedSeptember 30, 2021 , offset by the origination of 291 round two PPP loans totaling$73.0 million during the first half of 2021. We recorded negative provision for credit losses for the quarter endedSeptember 30, 2021 , totaling$2.4 million , a decrease of$2.4 million from the quarter endedSeptember 30, 2020 , as a result of improved CECL economic forecasts and positive credit quality migration lowering the allowance, partially offset by loan growth during the third quarter of 2021. For the nine months endedSeptember 30, 2021 , we recorded negative provision for credit losses totaling$7.9 million , a decrease of$24.8 million from the nine months endedSeptember 30, 2020 , primarily due to improved CECL economic forecasts and credit upgrades, partially offset by loan growth during the first nine months of 2021.
Noninterest income increased$2.1 million , or 84%, to$4.6 million from the third quarter of 2020. The increase was primarily due to an increase of$548,000 , or 45%, in service charges due to continued growth in our payments, fintech and private capital solutions businesses and a$383,000 , or 43%, increase in SBA lending activities resulting from higher SBA premiums in the secondary market. Also contributing to the increase in noninterest income for the third quarter of 2021 was the receipt of SBIC distributions totaling$930,000 inSeptember 2021 , which was recorded in other noninterest income. For the first nine months of 2021, noninterest income increased$4.5 million , or 62%, to$11.8 million . The increase was primarily due to an increase of$1.6 million , or 79%, in SBA lending activities, an increase of$1.6 million , or 46%, in income from service charges and the aforementioned SBIC distributions of$930,000 . For the third quarter of 2021, noninterest expense increased$1.3 million , or 10%, to$15.0 million compared to the third quarter of 2020. The most significant components of the increase were$2.9 million of merger-related expenses, increases of$1.4 million , or 16%, in salaries and employee benefits expense,$265,000 inFDIC premiums, and$175,000 , or 31%, in professional services. Salaries and employee benefits expense in the third quarter of 2021 included an increase in short-term and long-term incentive costs of$1.1 million , or 78%, compared to the third quarter of 2020. Partially offsetting the increase in noninterest expense was an employee retention payroll tax credit pursuant to the CARES Act totaling$3.0 million . Noninterest expense totaled$45.4 million for the nine months endedSeptember 30, 2021 , compared to$39.5 million for the same period in 2020. The most significant component of the increase was a$5.3 million , or 20%, increase in salaries and employee benefits primarily related to higher incentives, SBA commissions and$255,000 in contract labor expense for PPP round two loan processing. The first nine months of 2021 included an increase in short-term and long-term incentive costs of$3.6 million , or 95%, along with the partial impact of new hires and merit increases. Also contributing to the increase in noninterest expense were merger-related expenses of$2.9 million and an increase of$786,000 inFDIC premiums resulting from overall asset growth in 2021. Partially offsetting the increase in noninterest expense for the nine months endedSeptember 30, 2021 , compared to the same period in 2020 was an employee retention payroll tax credit pursuant to the CARES Act totaling$3.0 million . 41 Table of Contents
Table 1 - Quarterly Selected Financial Data
(dollars in thousands, except share and per share data; taxable equivalent)
2021 2020 For the nine months ended September 30, Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter 2021 2020 INCOME SUMMARY Interest income - taxable equivalent (1) $
27,040
80,808 $ 74,976 Interest expense 1,895 1,958 2,065 2,299 2,515 5,918 9,724 Net interest income - taxable equivalent 25,145 26,035 23,710 22,989 22,063 74,890 65,252 Provision for credit losses (2,405) (933) (4,519) 481 28 (7,857) 16,965 Net interest income after provision for credit losses 27,550 26,968 28,229 22,508 22,035 82,747 48,287 Noninterest income 4,609 3,584 3,562 3,016 2,504 11,755 7,269 Noninterest expense 15,018 15,197 15,149 13,164 13,713 45,364 39,494 Income before income taxes 17,141 15,355 16,642 12,360 10,826 49,138 16,062 Income tax expense 3,837 3,539 3,280 2,410 2,208 10,656 3,471 Net income(1)(2) $
13,304
38,482 $ 12,591 PER SHARE DATA Diluted earnings per share $
0.65
1.88 $ 0.58 Book value per share 17.92 17.38 16.72 16.60 16.05 17.92 16.05 Tangible book value per common share (2) 16.94 16.40 15.74 15.62 15.11 16.94 15.11 PERFORMANCE MEASURES Return on average equity 14.69 % 13.60 % 15.99 % 11.68 % 10.05 % 14.74 % 4.98 % Return on average assets 1.36 1.26 1.50 1.19 1.15 1.37 0.59 Taxable equivalent net interest margin 2.69 2.91 2.81 2.91 3.14 2.80 3.25 Taxable equivalent net interest margin excluding PPP loans
2.54 2.70 2.70 2.81 3.18 2.65 3.31 Efficiency ratio 51.12 51.97 56.30 51.30 56.61 53.04 55.16 Average loans to average deposits 65.81 67.54 71.93 76.81 88.65 68.32 87.07
CAPITAL
Average equity to average assets 9.23 % 9.24 % 9.39 % 10.18 % 11.45 % 9.28 % 11.78 % Tangible common equity to tangible assets 8.21 8.86 8.63 8.86 11.03 8.21 11.03 Leverage ratio 8.5 8.4 8.4 8.9 9.9 8.7 9.9 Total risk based capital ratio 15.9 16.0 16.4 16.1 16.9 15.9 16.9 SHARES OUTSTANDING Number of common shares outstanding - basic
20,305,109 20,319,429 20,354,077 20,394,912 21,202,783
20,305,109 21,202,783 Number of common shares outstanding - diluted
20,590,747 20,595,812 20,617,188 20,492,542 21,298,098
20,590,747 21,298,098 Average number of common shares - basic
20,308,761 20,332,503 20,380,066 20,711,089 21,500,735
20,340,182 21,553,953 Average number of common shares - diluted
20,507,604 20,516,478 20,502,184 20,795,332 21,543,805
20,508,775 21,640,057
ASSET QUALITY Allowance for credit losses on loans to loans held for investment 1.16 %
1.27 % 1.31 % 1.55 % 1.59 % 1.16 % 1.59 % Net charge-offs to average loans(3) - 0.10 0.04 0.05 0.06 0.05 0.13 Non-performing assets to total assets
0.10 0.14 0.06 0.13 0.20 0.10 0.20 AVERAGE BALANCES Total loans $
2,246,529
733,452 656,507 579,547 491,134 453,382 657,066 444,766 Total assets 3,893,049 3,771,970 3,611,417 3,328,719 2,977,444 3,759,841 2,865,884 Deposits 3,413,882 3,307,601 3,156,906 2,874,402 2,472,218 3,293,738 2,379,235 Shareholders' equity 359,300 348,416 338,990 338,948 341,017 348,974 337,521 AT PERIOD END Loans and loans held for sale $
2,285,670
772,987 714,065 613,236 535,579 446,706 772,987 446,706 Total assets 4,210,316 3,780,445 3,732,668 3,615,617 2,923,977 4,210,316 2,923,977 Deposits 3,727,321 3,306,224 3,277,692 3,161,508 2,468,722 3,727,321 2,468,722 Shareholders' equity 363,925 353,185 340,328 338,586 340,309 363,925 340,309
(1) Interest income on tax-exempt securities has been increased to reflect comparable interest on taxable securities. The rate used was 21%, reflecting the statutory federal income tax rate.
(2) Excludes effect of acquisition related intangibles.
(3) Annualized. 42 Table of Contents
Non-GAAP Performance Measures Reconciliation
(dollars in thousands) For the nine months 2021 2020 ended September 30, Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter 2021 2020 Taxable equivalent interest income reconciliation Interest income - GAAP$ 26,664 $ 27,618 $ 25,410 $ 24,943 $ 24,233 $ 79,692 $ 74,053 Taxable equivalent adjustment 376 375 365 345 345 1,116 923 Interest income - taxable equivalent$ 27,040 $ 27,993 $ 25,775 $ 25,288 $ 24,578 $ 80,808 $ 74,976 Taxable equivalent net interest income reconciliation Net interest income - GAAP$ 24,769 $ 25,660 $ 23,345 $ 22,644 $ 21,718 $ 73,774 $ 64,329 Taxable equivalent adjustment 376 375 365 345 345 1,116 923 Net interest income - taxable equivalent$ 25,145 $ 26,035 $ 23,710 $ 22,989 $ 22,063 $ 74,890 $ 65,252 Loan yield excluding PPP loans reconciliation Loan yield - GAAP 3.91 % 4.19 % 3.89 % 3.89 % 3.82 % 4.00 % 4.12 % Impact of PPP loans (0.20) (0.24) (0.06) (0.03) 0.13 (0.17) 0.14 Loan yield excluding PPP loans 3.71 % 3.95 % 3.83 % 3.86 % 3.95 % 3.83 % 4.26 % Taxable equivalent net interest margin reconciliation Net interest margin - GAAP 2.65 % 2.87 %
2.76 % 2.86 % 3.09 % 2.76 % 3.21 % Impact of taxable equivalent adjustment
0.04 0.04 0.05 0.05 0.05 0.04 0.04 Net interest margin - taxable equivalent 2.69 % 2.91 %
2.81 % 2.91 % 3.14 % 2.80 % 3.25 %
Taxable equivalent net interest margin excluding PPP loans reconciliation Net interest margin - taxable equivalent 2.69 % 2.91 %
2.81 % 2.91 % 3.14 % 2.80 % 3.21 % Impact of PPP loans
(0.15) (0.21) (0.11) (0.10) 0.04 (0.15) 0.10 Net interest margin - taxable equivalent excluding PPP loans 2.54 % 2.70 %
2.70 % 2.81 % 3.18 % 2.65 % 3.31 %
Taxable equivalent income before income taxes reconciliation Income before income taxes - GAAP$ 16,765 $ 14,980 $
16,277
376 375 365 345 345 1,116 923
Income before income taxes
Taxable equivalent income tax expense reconciliation Income tax expense - GAAP$ 3,461 $ 3,164 $ 2,915 $ 2,065 $ 1,863 $ 9,540 $ 2,548 Taxable equivalent adjustment 376 375 365 345 345 1,116 923 Income tax expense$ 3,837 $ 3,539 $ 3,280 $ 2,410 $ 2,208 $ 10,656 $ 3,471 Tangible book value per common share reconciliation Total shareholders' equity$ 363,925 $ 353,185 $ 340,328 $ 338,586 $ 340,309 $ 363,925 $ 340,309 Intangible assets (19,925) (19,925)
(19,925) (19,925) (19,925) (19,925) (19,925)
Total tangible common equity
$ 17.92 $ 17.38 $ 16.72 $ 16.60 $ 16.05 $ 17.92 $ 16.05 Tangible book value 16.94 16.40 15.74 15.62 15.11 16.94 15.11 Tangible common equity to tangible assets reconciliation Total shareholders' equity$ 363,925 $ 353,185 $ 340,328 $ 338,586 $ 340,309 $ 363,925 $ 340,309 Intangible assets (19,925) (19,925)
(19,925) (19,925) (19,925) (19,925) (19,925)
Total tangible common equity
Total assets$ 4,210,316 $ 3,780,445 $
3,732,668
(19,925) (19,925)
(19,925) (19,925) (19,925) (19,925) (19,925) Total tangible assets
$ 4,190,391 $ 3,760,520 $
3,712,743
8.21 % 8.86 %
8.63 % 8.86 % 11.03 % 8.21 % 11.03 %
Allowance for loan losses to loans held for investment reconciliation Total loans held for investment$ 2,273,856 $ 2,264,899 $
2,300,814
(48,304) (105,684) (218,766) (192,160) (231,834) (48,304) (231,834) Total loans held for investment excluding PPP loans$ 2,225,552 $ 2,159,215 $
2,082,048
Allowance for credit losses to loans held for investment 1.16 % 1.27 % 1.31 % 1.55 % 1.59 % 1.16 % 1.59 % Allowance for credit losses to loans held for investment excluding PPP loans 1.18 % 1.33 % 1.45 % 1.70 % 1.78 % 1.18 % 1.78 % 43 Table of Contents RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
Third Quarter 2021 compared to Third Quarter 2020
Taxable equivalent net interest income for the third quarter of 2021 totaled$25.1 million , a$3.1 million , or 14%, increase compared to the third quarter of 2020. This increase was primarily driven by an increase in interest income of$2.5 million , or 10%, compared to the same period in 2020 and a decline in interest expense of$620,000 , or 25%, compared to the same period in 2020. The third quarter of 2021 included$1.9 million in PPP loan income compared to$1.6 million in the third quarter of 2020. The yield on loans increased by 9 basis points to 3.91% from the third quarter of 2020. The yield on loans excluding PPP loans for the three months endedSeptember 30, 2021 , was 3.71%, a decrease of 24 basis points, compared to the same period in 2020.
The increase in interest income for the third quarter of 2021 was primarily
driven by an increase in loan interest of
The change in interest expense was primarily due to a decrease in expense on NOW, money market and savings deposits of$326,000 , or 32%, and a decrease in long-term debt interest expense of$239,000 , or 18%. The rate paid on interest bearing liabilities decreased 21 basis points from the third quarter of 2020 to the third quarter of 2021, driven by a decrease in interest rates on deposits and other borrowings resulting from decreases in the federal funds rate during 2020. Taxable equivalent net interest margin decreased to 2.69% for the three months endedSeptember 30, 2021 compared to 3.14% for the three months endedSeptember 30, 2020 due to a decline in yields on investment securities, partially offset by lower cost of deposits. The large increase in deposits and corresponding increase in low-yielding cash balances also contributed to the lower net interest margin year over year.
Nine Months of 2021 compared to Nine Months of 2020
Taxable equivalent net interest income for the nine months endedSeptember 30, 2021 , totaled$74.9 million , a$9.6 million , or 15%, increase compared to the same period in 2020. This increase was primarily driven by an increase in interest income of$5.8 million , or 8%, compared to the same period in 2020 and a decline in interest expense of$3.8 million , or 39%, compared to the same period in 2020. The first nine months of 2021 included$7.1 million in PPP loan income compared to$2.3 million in the same period of 2020. Additionally, the first nine months of 2021 included$671,000 in interest income related to the receipt of an investment prepayment penalty and the accelerated accretion of a loan discount upon payoff. The yield on loans decreased by 12 basis points to 4.00% from the nine months endedSeptember 30, 2020 . The yield on loans excluding PPP loans for the nine months endedSeptember 30, 2021 , was 3.83%, a decrease of 43 basis points, compared to the same period in 2020. The increase in interest income for the nine months endedSeptember 30, 2021 , was primarily driven by an increase in loan interest of$3.3 million , or 5%, and an increase in taxable investment securities interest totaling$2.0 million , or 41%. The change in interest expense was primarily due to a decrease in expense on NOW, money market and savings deposits of$3.6 million , or 62%. This decrease was partially offset by an increase of$310,000 , or 10%, in interest expense on long-term debt due to the issuance of$75 million in subordinated debt inAugust 2020 . The rate paid on interest bearing liabilities decreased 39 basis points from the first nine months of 2020 to the first nine months of 2021, driven by a decrease in interest rates on deposits and other borrowings resulting from decreases in the federal funds rate during 2020. Taxable equivalent net interest margin decreased to 2.80% for the nine months endedSeptember 30, 2021 , compared to 3.25% for the nine months endedSeptember 30, 2020 . The large increase in deposits and corresponding increase in low-yielding cash balances contributed to the lower net interest margin year over year. 44 Table of Contents
Table 2 - Average Balance Sheets and Net Interest Analysis
(dollars in thousands; taxable equivalent)
Three months ended September 30, 2021 2020 Interest Tax Interest Tax Average Income/ Equivalent Average Income/ Equivalent Balance Expense Yield/Rate Balance Expense Yield/Rate Assets Interest bearing deposits in other banks$ 594,338 $ 266 0.18 %$ 136,459 $ 65 0.19 % Other short-term investments 122,477 156 0.51 - - - Investment securities: Taxable investment securities 503,420 2,411 1.90 237,655 1,467 2.46 Non-taxable investment securities(1) 230,032 1,885 3.25 215,727 1,788 3.30 Total investment securities 733,452 4,296 2.32 453,382 3,255 2.86 Loans 2,246,529 22,151 3.91 2,191,669 21,049 3.82 FHLB and FRB stock 11,931 171 5.69 14,484 209 5.74 Total interest-earning assets 3,708,727 27,040 2.89 2,795,994 24,578 3.50 Non-earning assets 184,322 181,450 Total assets$ 3,893,049 $ 2,977,444 Liabilities Interest bearing deposits: NOW, money market, and savings 1,665,462 680 0.16 1,383,382 1,006 0.29 Time deposits 285,808 50 0.07 166,019 86 0.21 Brokered deposits 87,498 59 0.27 68,102 59 0.34 Total interest-bearing deposits 2,038,768 789 0.15 1,617,503 1,151 0.28 Total borrowings - - - 40,793 19 0.19 Total long-term debt 73,978 1,106 5.93 82,708 1,345 6.47 Total interest-bearing liabilities 2,112,746 1,895 0.36 1,741,004 2,515 0.57 Demand deposits 1,375,114 854,715 Other liabilities 45,889 40,708 Shareholders' equity 359,300 341,017 Total liabilities and shareholders' equity$ 3,893,049 $ 2,977,444 Net interest spread 2.53 % 2.92 % Net interest income and net interest margin(2)$ 25,145 2.69 %$ 22,063 3.14 % Non-taxable equivalent net interest margin 2.65 % 3.09 %
(1) Interest revenue on tax-exempt securities has been increased to reflect
comparable interest on taxable securities. The rate used was 21%, reflecting
the statutory federal income tax rate.
(2) Taxable equivalent net interest income divided by total interest-earning
assets using the appropriate day count convention based on the type of interest-earning asset. 45 Table of Contents
Table 2 - Average Balance Sheets and Net Interest Analysis (continued)
(dollars in thousands; taxable equivalent)
Nine months ended September 30, 2021 2020 Interest Tax Interest Tax Average Income/ Equivalent Average Income/ Equivalent Balance Expense Yield/Rate Balance Expense Yield/Rate Assets Interest bearing deposits in other banks$ 615,001 $ 634 0.14 %$ 147,795 $ 756 0.68 % Other short-term investments 41,274 156 0.51 36 - - Investment securities: Taxable investment securities 429,307 6,691 2.08 246,388 4,729 2.56 Non-taxable investment securities(1) 227,759 5,619 3.30 198,378 4,877 3.28 Total investment securities 657,066 12,310 2.50 444,766 9,606 2.88 Loans 2,250,277 67,272 4.00 2,071,673 63,971 4.12 FHLB and FRB stock 12,183 436 4.78 14,667 643 5.86 Total interest-earning assets 3,575,801 80,808 3.02 2,678,937 74,976 3.74 Non-earning assets 184,040 186,947 Total assets$ 3,759,841 $ 2,865,884 Liabilities Interest bearing deposits: NOW, money market, and savings 1,654,990 2,240 0.18 1,397,280 5,889 0.56 Time deposits 283,296 191 0.09 106,271 196 0.25 Brokered deposits 85,454 180 0.28 81,125 547 0.90 Total interest-bearing deposits 2,023,740 2,611 0.17 1,584,676 6,632 0.56 Total borrowings 30 - - 50,055 95 0.25 Total long-term debt 73,905 3,307 5.98 60,922 2,997 6.57 Total interest-bearing liabilities 2,097,675 5,918 0.38 1,695,653 9,724 0.77 Demand deposits 1,269,998 794,559 Other liabilities 43,194 38,151 Shareholders' equity 348,974 337,521 Total liabilities and shareholders' equity$ 3,759,841 $
2,865,884
Net interest spread 2.64 % 2.97 % Net interest income and net interest margin(2)$ 74,890 2.80 %
Non-taxable equivalent net interest margin 2.76 % 3.21 %
(1) Interest revenue on tax-exempt securities has been increased to reflect
comparable interest on taxable securities. The rate used was 21%, reflecting
the statutory federal income tax rate.
(2) Taxable equivalent net interest income divided by total interest-earning
assets using the appropriate day count convention based on the type of interest-earning asset. 46 Table of Contents The following table shows the relative effect on taxable equivalent net interest income for changes in the average outstanding amounts (volume) of interest-earning assets and interest-bearing liabilities and the rates earned and paid on such assets and liabilities (rate). Variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category.
Table 3 - Changes in Taxable Equivalent Net Interest Income
(dollars in thousands) Three months endedSeptember 30, 2021 Nine months endedSeptember 30, 2021 Compared to 2020 Compared to 2020 Increase (Decrease) Due to Changes in: Increase (decrease) Due to Changes in: Total Total Volume Yield/Rate
Change Volume Yield/Rate Change
Interest earning assets
Interest bearing deposits in other banks $ 205
$ 201 $ 482 $ (604) $ (122) Other short-term investments 156 - 156 156 - 156 Investment securities: Taxable investment securities 1,273 (329) 944 2,851 (889) 1,962
Non-taxable investment securities(1) 117 (20)
97 725 17 742 Total investment securities 1,390 (349) 1,041 3,576 (872) 2,704 Loans 541 561 1,102 5,339 (2,038) 3,301 FHLB and FRB stock (37) (1) (38) (89) (118) (207)
Total interest-earning assets 2,255 207 2,462 9,464 (3,632) 5,832 Interest bearing liabilities Interest bearing deposits: NOW, money market, and savings 115 (441)
(326) 349 (3,998) (3,649) Time deposits 21 (57) (36) 119 (124) (5) Brokered deposits 13 (13) - 9 (376) (367)
Total interest-bearing deposits 149 (511)
(362) 477 (4,498) (4,021) Total borrowings - (19) (19) - (95) (95) Total long-term debt (131) (108) (239) 581 (271) 310
Total interest-bearing liabilities 18 (638)
(620) 1,058 (4,864) (3,806) Change in net interest income$ 2,237 $ 845 $ 3,082 $ 8,406 $ 1,232 $ 9,638
(1) Interest revenue on tax-exempt securities has been increased to reflect
comparable interest on taxable securities. The rate used was 21%, reflecting
the statutory federal income tax rate.
Provision for Credit Losses
Management considers a number of factors in determining the required level of the allowance for credit losses and the provision required to achieve what is believed to be appropriate reserve level, including historical loss experience, loan growth, credit risk rating trends, nonperforming loan levels, delinquencies, loan portfolio concentrations, economic forecasts and market trends. The provision for credit losses represents management's determination of the amount necessary to be charged against the current period's earnings to maintain the allowance for credit losses at a level that is considered adequate in relation to the estimated lifetime losses expected in the loan portfolio. For the three months endedSeptember 30, 2021 , we recorded negative provision for credit losses totaling$2.4 million , a decrease of$2.4 million compared to the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , we recorded negative provision for credit losses totaling$7.9 million , a decrease of$24.8 million compared to the nine months endedSeptember 30, 2020 . The provision for credit losses in the first nine months of 2021 included a negative provision for loan losses of$7.1 million and a negative provision for unfunded commitments of$748,000 . The provision decreased primarily because of improved CECL economic forecasts and credit upgrades, partially offset by loan growth during the first nine months of 2021. 47
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AtSeptember 30, 2021 , nonperforming loans totaled$4.1 million compared to$4.9 million atDecember 31, 2020 . Net loan charge-offs for the three and nine months endedSeptember 30, 2021 were 0.00% and 0.05%, respectively, of average loans (annualized), compared to 0.06% and 0.13%, respectively, for the three and nine months endedSeptember 30, 2020 . The allowance for credit losses to total loans atSeptember 30, 2021 was 1.16%, compared to 1.55% atDecember 31, 2020 .
Noninterest Income
Noninterest income for the three and nine months endedSeptember 30, 2021 , was$4.6 million and$11.8 million compared to$2.5 million and$7.3 million for the comparable period of the prior year, representing an increase of$2.1 million , or 84%, for the three month period and an increase of$4.5 million , or 62%, for the nine month period. The following table presents the components of noninterest income.
Table 4 - Noninterest Income
(dollars in thousands) Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 $ % 2021 2020 $ % Service charges$ 1,765 $ 1,217 $ 548 45 %$ 5,155 $ 3,530 $ 1,625 46 % Gain on sales of securities - - - - 2 - 2 - Gain (loss) on sales of other assets 38 (145) 183 - 38 (140) 178 - Derivatives income 21 10 11 - 61 246 (185) (75)
Bank owned life insurance 391 363 28 8 1,170 1,092 78 7 SBA lending activities 1,276 893 383 43 3,732 2,089 1,643 79 Other noninterest income 1,118 166 952 - 1,597 452 1,145 - Total noninterest income$ 4,609 $ 2,504 $ 2,105 84
$ 11,755 $ 7,269 $ 4,486 62
Service charges for the three months endedSeptember 30, 2021 , totaled$1.8 million , an increase of$548,000 , or 45%, from the same period in 2020. For the nine months endedSeptember 30, 2021 , service charges totaled$5.2 million , an increase of$1.6 million , or 46%, from the first nine months of 2020. The increase for the third quarter of 2021 and the first nine months of 2021 compared to the same periods in 2020 was primarily due to continued growth in our payments, fintech and private capital solutions businesses, resulting in higher fee income. Derivatives income for the third quarter of 2021 was$21,000 compared to$10,000 for the same period in 2020. The increase in income was primarily due to changes in the derivatives credit valuation adjustment. For the nine months endedSeptember 30, 2021 , derivatives income decreased$185,000 , or 75%, from the same period in 2020 primarily due to the change in the valuation adjustment. Income from SBA lending activities for the third quarter of 2021 increased$383,000 , or 43%, from the same period in 2020, due to higher SBA premiums in the secondary market. During the three months endedSeptember 30, 2021 and 2020, guaranteed portions of SBA loans totaling$12.0 million and$10.0 million , respectively, were sold in the secondary market. Income from SBA lending activities for the first nine months of 2021 increased$1.6 million , or 79%, from the same period in 2020, due to higher premiums paid. During the nine months endedSeptember 30, 2021 and 2020, guaranteed portions of SBA loans totaling$34.8 million and$26.5 million , respectively, were sold in the secondary market. Other noninterest income increased$952,000 during the three months endedSeptember 30, 2021 , and$1.1 million for the nine months endedSeptember 30, 2021 , compared to the same periods in 2020. The increase for both periods was primarily driven by the receipt of SBIC distributions of$930,000 inSeptember 2021 . 48 Table of Contents Noninterest Expense Noninterest expense for the third quarter of 2021 was$15.0 million , an increase of$1.3 million , or 10%, from the third quarter of 2020. For the nine months endedSeptember 30, 2021 , noninterest expense totaled$45.4 million , an increase of$5.9 million , or 15%, from the same period in 2020. The following table presents the components of noninterest expense.
Table 5 - Noninterest Expense
(dollars in thousands) Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 $ % 2021 2020 $ % Salaries and employee benefits$ 10,290 $ 8,850 $ 1,440 16
%
- (3,035) - (3,035) - (3,035) - Occupancy 756 739 17 2 2,268 2,416 (148) (6) Equipment and software 857 826 31 4 2,450 2,368 82 3 Professional services 737 562 175 31 2,382 2,059 323 16 Communications and data processing 889 757 132 17 2,550 2,324 226 10 Marketing and business development 142 141 1 1 388 373 15 4 Travel, meals and entertainment 91 39 52 133 148 213 (65) (31) FDIC premiums 478 213 265 124 1,174 388 786 - Merger and conversion costs 2,899 - 2,899 - 2,899 - 2,899 -
Other noninterest expense 914 1,586 (672) (42) 3,067 3,561 (494) (14) Total noninterest expense$ 15,018 $ 13,713 $ 1,305 10
$ 45,364 $ 39,494 $ 5,870 15
Salaries and employee benefits expense for the three months endedSeptember 30, 2021 , totaled$10.3 million , an increase of$1.4 million , or 16%, from the same period in 2020. For the first nine months of 2021, salaries and employee benefits expense totaled$31.1 million , an increase of$5.3 million , or 20%, from the first nine months of 2020. The increase for the three and nine months endedSeptember 30, 2021 , was primarily attributable to higher short-term and long-term incentive costs along with the impact of new hires and merit increases, as well as contract labor expense for PPP round two loan processing. The third quarter of 2021 included an expense reduction of$3.0 million as a result of the employee retention payroll tax credit pursuant to the CARES Act. Full time equivalent headcount totaled 212 atSeptember 30, 2021 compared to 201 atSeptember 30, 2020 , a net increase of 11 positions. Occupancy costs were$756,000 for the third quarter of 2021, an increase of$17,000 , or 2%, compared to the third quarter of 2020. For the nine months endedSeptember 30, 2021 , occupancy costs were$2.3 million , a decrease of$148,000 , or 6%, from the first nine months of 2020. The decrease for the nine months endedSeptember 30, 2021 , was due to savings from relocating our operations center partially offset by expenses related to expansion of our corporate headquarters. Professional services expense increased$175,000 , or 31%, from the three months endedSeptember 30, 2020 , to$737,000 for the three months endedSeptember 30, 2021 . The increase was primarily driven by recruiter and consulting expense. For the nine months endedSeptember 30, 2021 , professional services expense increased$323,000 , or 16%, compared to the nine months endedSeptember 30, 2020 . Primarily driving the increase for the nine months endedSeptember 30, 2021 , was higher consulting expense for PPP round two loan processing and PPP round one loan forgiveness that was incurred in the first quarter of 2021. Communications and data processing expense totaled$889,000 for the three months endedSeptember 30, 2021 , an increase of$132,000 , or 17%, compared to the same period in 2020. For the nine months endedSeptember 30, 2021 , communications and data processing expense totaled$2.6 million , an increase of$226,000 , or 10%, from the same period in 2020. The increases were due to increased volumes in the payments processing and fintech businesses. For the three months endedSeptember 30, 2021 , travel, meals and entertainment expense increased$52,000 compared to the same period in 2020. For the nine months endedSeptember 30, 2021 , travel, meals and entertainment expense totaled$148,000 , a decrease of$65,000 , or 31%, from the same period in 2020.The decline for the nine months ended September 49
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30, 2021 was due to limitations from COVID-19 on non-essential business travel and an overall decrease in customer-related meals and entertainment expense.
FDIC premiums increased$265,000 for the third quarter of 2021 compared to the third quarter of 2020. The increase for the three months endedSeptember 30, 2021 , resulted from the higher assessment rate due to our rapid growth in assets. For the nine months endedSeptember 30, 2021 ,FDIC premiums were$1.2 million , an increase of$786,000 from the first nine months of 2020. The year-to-date increase also resulted from the higher assessment rate, as well as the reduction in prior year expense related to the Small Business Assessment Credits utilized in the first and second quarters of 2020.
Merger related expenses for the three and nine months ended
Income Taxes We monitor and evaluate the potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities. Periodically, we evaluate our income tax positions based on current tax law and positions taken by various tax auditors within the jurisdictions where we are required to file income tax returns. Income tax expense for the three and nine months endedSeptember 30, 2021 was$3.5 million and$9.5 million , respectively. Comparatively, for the three and nine months endedSeptember 30, 2020 , income tax expense was$1.9 million and$2.5 million , respectively. The effective tax rate (as a percentage of pre-tax earnings) was 20.6% and 19.9% for the three and nine months endedSeptember 30, 2021 , respectively, compared to 17.8% and 16.8% for the same periods in 2020. The increase in income tax expense was the result of higher forecasted pretax earnings for 2021. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and their respective tax basis including operating losses and tax credit carryforwards. Net deferred tax assets (deferred tax assets net of deferred tax liabilities and valuation allowance) are reported in the Consolidated Balance Sheets as a component of other assets. ASC Topic 740, Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all evidence with more weight given to evidence that can be objectively verified. Each quarter, management considers both positive and negative evidence and analyzes changes in near-term market conditions as well as other factors which may impact future operating results. Based on all evidence considered, as ofSeptember 30, 2021 and 2020, management concluded that it was more likely than not that the net deferred tax asset would be realized, except as outlined in the following discussion. At bothSeptember 30, 2021 andSeptember 30, 2020 , we recorded a deferred tax asset valuation allowance totaling$6.8 million on certain net operating loss carryforwards due to the fact that certain tax attributes are subject to an annual limitation as a result of the acquisition of First Security, which constituted a change of ownership as defined under Internal Revenue Code Section 382. Management expects to generate future taxable income and believes this will allow for full utilization of our remaining net operating loss carryforwards within the statutory carryforward periods.
FINANCIAL CONDITION
Total assets atSeptember 30, 2021 andDecember 31, 2020 were$4.21 billion and$3.62 billion , respectively. Average total assets for the third quarter of 2021 were$3.89 billion , compared to$2.98 billion in the third quarter of 2020. The increase in average total assets was primarily due to increases in cash, loans as well as the investment securities portfolio.
Loans
AtSeptember 30, 2021 , total loans held for investment increased$24.8 million , or 1%, to$2.27 billion compared to$2.25 billion atDecember 31, 2020 . The increase was primarily due to increases of$59.6 million , or 41%, in construction and land loans,$40.2 million , or 11%, in owner occupied commercial real estate loans and$16.4 million , or 9%, in consumer 50
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loans. Partially offsetting this increase was a decrease in commercial and industrial loans of$114.1 million , or 12%, primarily driven by$243.0 million in PPP loans forgiven during the nine months endedSeptember 30, 2021 . Table 6 provides additional information regarding our loan portfolio. Table 6 - Loans (dollars in thousands) % of % of Total Total September 30, 2021 Loans December 31, 2020 Loans Loans held for sale Loans held for sale $ 11,814 $ - Total loans held for sale $ 11,814 $ - Loans held for investment Commercial loans: Commercial and industrial $ 838,741 37 %
$ 952,805 42 % Commercial real estate: Owner occupied 413,875 18 373,689 17 Non-owner occupied 546,444 24 535,412 24 Construction and land 205,148 9 145,595 6 Total commercial loans 2,004,208 88 2,007,501 89 Residential: Residential mortgages 47,076 2 33,783 1 Home equity 28,943 1 25,443 1 Total residential loans 76,019 3 59,226 2 Consumer 192,462 9 176,066 8 Other 4,921 - 13,897 1 Total loans 2,277,610 2,256,690 Less net deferred fees and other unearned income (3,754) (7,654) Total loans held for investment 2,273,856
2,249,036 Total loans $ 2,285,670 $ 2,249,036 Nonperforming Assets Nonperforming assets include nonaccrual loans, accruing loans past due 90 days or more, and other real estate owned. Loans are considered to be past due when payment is not received from the borrower by the contractually specified due date. Interest accruals on loans are discontinued when interest or principal has been in default 90 days or more, unless the loan is both secured by collateral that is sufficient to repay the debt in full and the loan is in the process of collection. When a loan is placed on nonaccrual status, interest accrued and not paid in the current accounting period is reversed against current period income. Interest accrued and not paid in prior periods, if significant, is reversed against the allowance for credit losses on loans. Income on such loans is subsequently recognized on a cash basis as long as the future collection of principal is deemed probable or after all principal payments are received. Commercial loans are placed back on accrual status after sustained performance of timely and current principal and interest payments and it is probable that all remaining amounts due, both principal and interest, are fully collectible according to the terms of the loan agreement. Residential loans and consumer loans are generally placed back on accrual status when they are no longer past due. 51 Table of Contents
At
Nonaccrual loans totaled$4.1 million and$3.8 million as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. There were no loans past due 90 days and still accruing atSeptember 30, 2021 . Loans past due 90 days and still accruing atDecember 31, 2020 totaled$1.1 million . The gross additional interest revenue that would have been earned if the loans classified as nonaccrual had performed in accordance with the original terms for the three and nine months endedSeptember 30, 2021 and for the same periods in 2020 is immaterial. Table 7 provides details on nonperforming assets and other risk elements.
Table 7 - Nonperforming Assets
(dollars in thousands) September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 Nonaccrual loans $ 4,077 $ 4,387 $ 1,805 $ 3,778 $ 5,085 Loans past due 90 days and still accruing - 807 251 1,084 336 Total nonperforming loans (NPLs) 4,077 5,194 2,056 4,862 5,421 Other real estate owned - 16 16 16 563 Total nonperforming assets (NPAs) $ 4,077 $ 5,210 $ 2,072 $ 4,878 $ 5,984 NPLs as a percentage of total loans 0.18 % 0.23 % 0.09 % 0.22 % 0.25 % NPAs as a percentage of total assets 0.10 % 0.14 % 0.06 % 0.13 % 0.20 %
Troubled Debt Restructurings
TDRs are made to provide relief to customers experiencing liquidity challenges or other circumstances that could affect their ability to meet their debt obligations. Typical modifications include interest rate reductions, term extensions and other concessions intended to minimize losses. Nonperforming TDRs are not accruing interest and are included as nonperforming assets within nonaccrual loans. TDRs, which are accruing interest based on the restructured terms, are considered performing. Table 8 below summarizes TDRs.
Table 8 - Troubled Debt Restructurings
(dollars in thousands) September 30, 2021 December 31, 2020 2021 2021 Accruing TDRs $ 12,604 $ 13,047 Nonaccruing TDRs 638 1,141 Total TDRs $ 13,242 $ 14,188 The gross additional interest income that would have been earned had performing TDRs performed in accordance with the original terms during the three and nine months endedSeptember 30, 2021 and for the same periods in 2020 is immaterial. Certain borrowers may be unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof. In the absence of other intervening factors, such short-term modifications made in good faith are not categorized as TDRs, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the
deferral). 52 Table of Contents Potential Problem Loans Management identifies and maintains a list of potential problem loans. These are loans that are internally risk graded special mention or below but which are not included in nonaccrual status and are not past due 90 days or more. A loan is added to the potential problem list when management becomes aware of information about possible credit problems of the borrower, which raises doubts as to the ability of such borrower to comply with the loan repayment terms. Potential problem loans totaled$85.9 million and$172.7 million as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. As a percentage of total loans, potential problem loans were 3.6% and 7.7% as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. The decrease was primarily related to credit rating upgrades for certain criticized and classified loans. As a number of potential problem loans are real estate secured, management closely tracks the values of real estate collateral when assessing the collectability of these loans.
Allowance for Credit Losses on Loans and Unfunded Commitments
The allowance for credit losses was 1.16% of total loans held for investment atSeptember 30, 2021 , compared to 1.55% atDecember 31, 2020 . The allowance for credit losses to loans held for investment excluding PPP loans was 1.18% as ofSeptember 30, 2021 compared to 1.70% atDecember 31, 2020 . The decrease fromDecember 31, 2020 was due to an improvement in the CECL economic forecast and credit upgrades, partially offset by loan growth. The base case economic forecast used for theSeptember 30, 2021 calculation was published in early September. Management applied an economic and business conditions qualitative adjustment to the allowance by incorporating an alternative forecast scenario. The alternative forecast scenario was derived from economic conditions experienced during 2008 and 2009, which included a significant recession. Other qualitative adjustments applied by management during the nine months endedSeptember 30, 2021 related to credit concentrations and competition.
For the three months endedSeptember 30, 2021 , there was a net recovery of$22,000 . Net charge-offs for the nine months endedSeptember 30, 2021 were$785,000 . Net charge-offs for the three and nine months endedSeptember 30, 2020 were$347,000 and$2.1 million , respectively. The net recovery in the third quarter of 2021 was primarily driven by one commercial and industrial relationship. The decrease for the nine months endedSeptember 30, 2021 compared to the same period in 2020 was related primarily to charge-offs of two commercial and industrial loan relationships in the second quarter of 2020
totaling$1.5 million . 53 Table of Contents
Table 9 provides details concerning the allowance for credit losses on loans during the past five quarters.
Table 9 - Allowance for Credit Losses on Loans
(dollars in thousands) 2021 2020 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Allowance for credit losses on loans Balance at beginning of period$ 26,123 $ 27,506 $ 31,818 $ 31,894 $ 31,605 Provision for loan losses (2,221) (814) (4,074) 225 636 Loans charged-off: Commercial and industrial (131) (386) (288) (401) (404) Commercial real estate - - - - - Construction and land - - - - - Residential mortgages - (223) - - - Home equity - - - - - Consumer - - - - - Other - - - - - Total loans charged-off (131) (609) (288) (401) (404) Recoveries on loans previously charged-off: Commercial and industrial 151 6 50 37 56 Commercial real estate - - - 44 - Construction and land - - - 18 - Residential mortgages - 32 - - - Home equity - - - - - Consumer 2 2 - 1 1 Other - - - - - Total recoveries 153 40 50 100 57 Net charge-offs 22 (569) (238) (301) (347) Balance at period end$ 23,924 $ 26,123 $ 27,506 $ 31,818 $ 31,894 Allowance for credit losses on unfunded commitments Balance at beginning of period$ 2,565 $ 2,683 $ 3,128 $ 2,871 $ 3,480 Provision for unfunded commitments (185) (118) (445) 257 (609) Balance at period end$ 2,380 $ 2,565 $ 2,683 $ 3,128 $ 2,871 Total allowance for credit losses on loans and unfunded commitments$ 26,304 $ 28,688 $ 30,189 $ 34,946 $ 34,765 Provision for credit losses under CECL Provision for loan losses$ (2,221) $ (814) $ (4,074) $ 225 $ 636 Provision for securities
held-to-maturity credit losses 1 (1) -
(1) 1 Provision for unfunded commitments (185) (118) (445) 257 (609) Total provision for credit losses$ (2,405) $ (933) $ (4,519) $ 481 $ 28 Allowance for loan losses on loans to loans held-for-investment 1.05 % 1.15 % 1.20 % 1.41 % 1.46 % Allowance for credit losses to loans held-for-investment 1.16 % 1.27 % 1.31 % 1.55 % 1.59 % Allowance for credit losses to loans held-for-investment excluding PPP loans 1.18 % 1.33 % 1.45 % 1.70 % 1.78 % Net charge-offs to average loans (1) - 0.10 0.04 0.05 0.06 Non-performing loans as a percentage of total loans 0.18 % 0.23 % 0.09 % 0.22 % 0.25 % Non-performing assets as a percentage of total assets 0.10 % 0.14 % 0.06 % 0.13 % 0.20 % (1) Annualized. 54 Table of ContentsInvestment Securities Investment securities available-for-sale totaled$535.2 million atSeptember 30, 2021 compared to$335.4 million atDecember 31, 2020 . Held-to-maturity securities, net totaled$237.8 million atSeptember 30, 2021 compared to$200.2 million atDecember 31, 2020 . Available-for-sale securities are reported at their aggregate fair value, and unrealized gains and losses are included as a component of other comprehensive income, net of deferred taxes. Held-to-maturity securities are carried at amortized cost. As ofSeptember 30, 2021 , investment securities available-for-sale had a net unrealized loss of$839,000 compared to a net unrealized gain of$9.0 million as ofDecember 31, 2020 . Market changes in interest rates and credit spreads will result in temporary unrealized gains or losses as the market price of securities fluctuate. Management evaluated all available-for-sale securities in an unrealized loss position atSeptember 30, 2021 andDecember 31, 2020 and concluded no impairment existed at the balance sheet dates. Changes in the amount of our investment securities portfolio result primarily from balance sheet trends including loans, deposit balances, and short-term borrowings. When inflows arising from the management of deposits and short-term borrowings exceed loan demand, we invest excess funds in the securities portfolio or in short-term investments. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow interest-bearing balances with other banks to decline and uses proceeds from maturing securities to fund loan demand. During the first nine months of 2021, we purchased$269.9 million in securities available-for-sale and$38.0 million in held-to-maturity municipal securities to invest excess cash from customer deposits. Details of investment securities atSeptember 30, 2021 andDecember 31, 2020 are provided in Table 10. Table 10 - Securities (dollars in thousands) September 30, 2021 December 31, 2020 Carrying Amortized Available-for-Sale Securities Value Fair Value Cost Fair Value U.S. states and political divisions$ 74,608 $ 76,702 $ 78,117 $ 81,019 Trust preferred securities 4,855 4,871 4,835 4,722 Corporate debt securities 24,006 24,374 19,526 19,821 Residential mortgage-backed securities 406,147 402,302 190,817 194,598 Commercial mortgage-backed securities 26,381 26,909 33,150 35,263 Total available-for-sale 535,997 535,158 326,445 335,423Held-to-Maturity Securities U.S. states and political divisions 237,842 245,929 200,170 214,584 Less: allowance for credit losses on securities held-to-maturity 13 - 14 - Total held-to-maturity 237,829 245,929 200,156 214,584 Total securities$ 773,826 $ 781,087 $ 526,601 $ 550,007
The effective duration of our securities was 6.01 years and 6.09 years at
Goodwill represents the premium paid for acquired companies above the fair value of the assets acquired and liabilities assumed, including separately identifiable intangible assets. We evaluate our goodwill annually as ofOctober 1 , or more frequently if necessary, to determine if any impairment exists. Factors that management considers in this assessment includes macroeconomic conditions, industry and market considerations, our overall financial performance and changes in the composition or carrying amount of net assets. We performed our annual goodwill assessment as ofOctober 1, 2020 and concluded that our carrying value was not in excess of its fair value. There were no triggering events requiring an impairment test during the first nine months
of 2021. 55 Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Deposits
AtSeptember 30, 2021 , total deposits were$3.7 billion , an increase of$565.8 million , or 18%, fromDecember 31, 2020 . Noninterest-bearing demand deposits increased$657.9 million , or 64%, during the same period. Time deposits increased$46.5 million , or 19%, due to growth in the partnership with a fintech firm that offers CD-secured loans to its customers. Partially offsetting this increase was a decrease in money market deposits of$99.8 million , or 10%, fromDecember 31, 2020 toSeptember 30, 2021 , and a decrease in interest-bearing checking deposits of$39.1 million , or 5% fromDecember 31, 2020 . Total average deposits for the quarter endedSeptember 30, 2021 , were$3.4 billion , an increase of$941.7 million , or 38%, from the same period in 2020. For the quarter endedSeptember 30, 2021 , compared to the same period in 2020, average money market deposits increased$115.2 million , or 12%, while average noninterest-bearing demand deposits increased$520.4 million , or 61%. Average interest-bearing demand deposits (NOW) increased$166.8 million , or 38%, for the three months endedSeptember 30, 2021 , compared to the same period in 2020. The increase in average non-interest bearing and average interest-bearing demand deposits reflects continued growth in relationship driven core deposits. Average time deposits increased$119.8 million , or 72%, for the three months endedSeptember 30, 2021 from the same period in 2020 due to the aforementioned growth in the partnership with a fintech firm that offers CD-secured loans to its customers. Table 11 provides additional information regarding deposits during the past five quarters. Table 11 - Deposits (dollars in thousands) Year To Year Over September 30, June 30, March 31, December 31, September 30, Date Year Period End Deposits 2021 2021 2021 2020 2020 Change Change Non-interest-bearing demand deposits$ 1,691,616 $ 1,374,018 $ 1,280,524 $ 1,033,765 $ 843,656 $ 657,851 $ 847,960 NOW 721,525 536,677 485,540 760,638 387,858 (39,113) 333,667 Savings 800 676 562 625 568 175 232 Money market 930,929 1,026,239 1,142,361 1,030,753 945,834 (99,824) (14,905) Time 287,865 283,656 294,129 241,328 196,343 46,537 91,522 Brokered 94,586 84,958 74,576 94,399 94,463 187 123 Total deposits$ 3,727,321 $ 3,306,224 $ 3,277,692 $ 3,161,508 $ 2,468,722 $ 565,813 $ 1,258,599 2021 2020 Q3 2021 vs Q3 2021 vs Third Second First Fourth Third Q2 2020 Q3 2020 Average Deposits Quarter Quarter Quarter Quarter Quarter Change Change Non-interest-bearing demand deposits$ 1,375,114 $ 1,295,728 $ 1,136,531 $ 977,009 $ 854,715 $ 79,386 $ 520,399 NOW 607,485 548,358 618,701 558,967 440,734 59,127 166,751 Savings 731 593 587 614 586 138 145 Money market 1,057,246 1,088,423 1,042,809 1,026,347 942,062 (31,177) 115,184 Time 285,808 290,331 273,615 221,792 166,019 (4,523) 119,789 Brokered 87,498 84,168 84,663 89,673 68,102 3,330 19,396 Total deposits$ 3,413,882 $ 3,307,601 $ 3,156,906 $ 2,874,402 $ 2,472,218 $ 106,281 $ 941,664 Noninterest bearing deposits as a percentage of average deposits 40.3 % 39.2 % 36.0 % 34.0 % 34.6 % Cost of interest-bearing deposits 0.15 % 0.17 % 0.19 % 0.25 % 0.28 % Cost of deposits 0.08 % 0.10 % 0.12 % 0.16 % 0.19 % 56 Table of Contents Short-Term Borrowings
There were no outstanding balances of federal funds purchased at
As a member of the FHLB, we have the ability to acquire short and long-term advances through a blanket agreement secured by our unencumbered qualifying 1-4 family first mortgage loans and by pledging investment securities or individual, qualified loans, subject to approval of the FHLB. There were no FHLB advances outstanding atSeptember 30, 2021 andDecember 31, 2020 .
Long-Term Debt
OnAugust 20, 2020 ,Atlantic Capital issued 5.50% fixed-to-floating rate subordinated notes (the "Notes") totaling$75 million in aggregate principal amount and callable at par plus accrued but unpaid interest on or afterSeptember 1, 2025 . The Notes are dueSeptember 1, 2030 and bear a fixed rate of interest of 5.50% per year untilSeptember 1, 2025 . FromSeptember 1, 2025 to the maturity date, the interest rate will be a floating rate equal to the three-month SOFR plus 536.3 basis points. The Notes were priced at 100% of their par value and qualify as Tier 2 regulatory capital.
Liquidity Risk Management
Liquidity risk is the risk that an institution will be unable to generate or obtain sufficient funding, at a reasonable cost, to meet operational cash needs and to take advantage of revenue producing opportunities as they arise. Other forms of liquidity risk include market constraints on the ability to convert assets into cash at expected levels, an inability to access funding sources at sufficient levels at a reasonable cost, and changes in economic conditions or exposure to credit, market, operational, legal, and reputation risks that can affect an institution's liquidity risk profile. Liquidity management involves maintaining our ability to meet the daily cash flow requirements of our customers, both depositors and borrowers.
We utilize various measures to monitor and control liquidity risk across three different types of liquidity:
? tactical liquidity measures the risk of a negative cash flow position whereby
cash outflows exceed cash inflows over a short-term horizon;
? structural liquidity measures the amount by which illiquid assets are supported
by long-term funding; and
? contingent liquidity utilizes cash flow stress testing across four crisis
scenarios to determine the adequacy of our liquidity. We aim to maintain a diverse mix of existing and potential liquidity sources to support the liquidity management function. At its core is a reliance on the customer deposit book, due to the low cost it offers. Other sources of liquidity include asset-based liquidity in the form of cash and unencumbered securities, as well as access to wholesale funding from external counterparties, primarily advances from the FHLB ofAtlanta , federal funds lines and other borrowing facilities. We aim to avoid funding concentrations by diversifying external secured and unsecured funding with respect to maturities, counterparties and nature. AtSeptember 30, 2021 , management believed that we had sufficient liquidity to meet our funding needs. AtSeptember 30, 2021 , we had access to$495.0 million in unsecured borrowings and$993.3 million in secured borrowings through various sources, including FHLB advances and access to federal funds. We also have the ability to attract more deposits by increasing rates.
Shareholders' Equity and Capital Adequacy
Shareholders' equity atSeptember 30, 2021 was$363.9 million , an increase of$25.3 million , or 7%, fromDecember 31, 2020 . Net income of$38.5 million was offset by a decrease of$10.4 million in accumulated other comprehensive income and$5.5 million in repurchases of 275,592 shares of common stock during the first nine months of 2021.Atlantic Capital and the Bank are required to meet minimum capital requirements imposed by regulatory authorities. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our consolidated financial statements. 57 Table of Contents Tables 12 and 13 provide additional information regarding regulatory capital requirements andAtlantic Capital's and the Bank's capital levels. Accumulated other comprehensive income, which includes unrealized gains and losses on securities available-for-sale and unrealized gains and losses on derivatives qualifying as cash flow hedges, is excluded in the calculation of regulatory capital ratios. Table 12 - Capital Ratios (dollars in thousands) Regulatory Guidelines Minimum Capital Consolidated Bank Plus Capital September 30, December 31, September 30, December 31, Well Conservation Buffer 2021 2020 2021 2020 Minimum Capitalized 2021 Risk based ratios: Common equity tier 1 capital 12.2 % 11.9 % 14.6 % 14.2 % 4.5 % 6.5 % 7.0 % Tier 1 Capital 12.2 11.9 14.6 14.2 6.0 8.0 8.5 Total capital 15.9 16.1 15.6 15.4 8.0 10.0 10.5 Leverage ratio 8.5 8.9 10.2 10.6 4.0 5.0 N/A Common equity tier 1 capital$ 328,258 $ 292,890 $ 394,045 $ 349,779 Tier 1 capital 328,258 292,890 394,045 349,779 Total capital 428,598 397,719 420,361 380,725 Risk weighted assets 2,694,397 2,470,185 2,694,095 2,471,702 Quarterly average total assets for leverage ratio 3,861,474 3,297,529 3,857,877 3,288,402
As of
Off-Balance Sheet Arrangements
We make contractual commitments to extend credit and issue standby letters of credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to customers at predetermined interest rates for a specified period of time. In addition to commitments to extend credit, we also issue standby letters of credit, which are assurances to a third party that it will not suffer a loss if the customer fails to meet a contractual obligation to the third party. As ofSeptember 30, 2021 , we had issued commitments to extend credit of approximately$850.0 million and standby letters of credit of approximately$21.7 million through various types of commercial lending arrangements. Based on historical experience, many of the commitments and letters of credit will expire unfunded, although customers may draw down on loans or lines of credit to fund business operations as a result of the COVID-19 pandemic at higher levels than we have previously experienced. Through our various sources of liquidity, we believe we will be able to fund these obligations as they arise. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.
Contractual Obligations
There have been no significant changes in our contractual obligations as of
58 Table of Contents RISK MANAGEMENT Effective risk management is critical to our success. The Dodd-Frank Act requires that bank holding companies with total assets in excess of$10 billion establish an enterprise-wide risk committee consisting of members of its board of directors. Although we do not have total assets in excess of$10 billion , the Audit Committee and theAudit and Risk Committee of the Bank's board of directors provide oversight of enterprise-wide risk management activities. These committees review our activities in identifying, measuring, and mitigating existing and emerging risks (including credit, liquidity, interest-rate, compliance, market, operational, strategic, financial and reputational risks.) These committees monitor management's execution of risk management practices in accordance with the board of directors' risk appetite, review supervisory examination reports together with management's response to such examinations and discuss legal matters that may have a material impact on the financial statements or our compliance policies. With guidance from and oversight by the Audit Committee and the Bank'sAudit and Risk Committee , management continually refines and enhances its risk management policies and procedures to maintain effective risk management programs and processes.
Credit Risk
Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases, investment securities and derivative instruments. Our independent loan review function conducts risk reviews and analyses of loans to help assure compliance with credit policies and to monitor asset quality trends. The risk reviews include portfolio analysis by industry, collateral type and product. We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain adequate allowances for loan losses that are inherent in the loan portfolio.
Liquidity Risk
Liquidity risk is the risk that we will be unable to meet our obligations as they come due because of an inability to liquidate assets or obtain adequate funding or that we cannot easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions. Consequently, we closely monitor our cash position, on-balance sheet liquidity and availability of outside funding sources to ensure these are adequate to ensure we can meet all our obligations and regulatory expectations.
Interest Rate Risk
Interest rate risk results principally from assets and liabilities maturing or repricing at different points in time, from assets and liabilities repricing at the same point in time but in different amounts and from short-term and long-term interest rates changing in different magnitudes. Market interest rates also have an impact on the interest rate and repricing characteristics of loans that are originated as well as the rate characteristics of interest-bearing liabilities. We assess interest rate risk by forecasting net interest income under various interest rate scenarios and comparing those results to forecasted net interest income assuming stable rates. With rates rising, the estimated increase in net interest income is primarily due to the short-term repricing characteristics of the loan portfolio, combined with a favorable funding mix. Our loan portfolio consists of approximately half floating rate loans and half fixed rate loans. Our core client deposits are likely to allow us to lag short term interbank rate indices when pricing deposits. Transaction accounts comprise a significant amount of our total deposits. See Table 13 for an analysis of the impact on net interest income resulting from various interest rate shock scenarios as ofSeptember 30, 2021 andDecember 31, 2020 and Table 14 for our MVE profile as ofSeptember 30, 2021 andDecember 31, 2020 .
Compliance Risk
Compliance risk is the risk to current or anticipated earnings or capital arising from violations of laws, rules or regulations, or from non-conformity with prescribed practices, internal policies and procedures or ethical standards. This risk exposes us to fines, civil monetary penalties, payment of damages and the voiding of contracts. Compliance risk can result in diminished reputation, reduced enterprise value, limited business opportunities and decreased expansion potential. 59
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A unit within our Enterprise Risk Management division executes an annual compliance monitoring schedule that is risk-based. Our Internal Audit unit also conducts reviews that include compliance. Results of these monitoring and Internal Audit activities are reported to management as well as the Board of Directors. Any issues encountered are tracked to adequate solution and reported. Compliance and other risk management is integrated within our business units as a first line of defense, with compliance monitoring being a second line and Internal Audit being a third line of defense. Our operations are also reviewed by an external accounting firm and are subject to examination by federal banking agencies.
Market Risk
Market risk reflects the risk of economic loss resulting from adverse changes in market price and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net interest income in future periods. Our market risk arises primarily from interest rate risk inherent in our lending and deposit-taking activities. The structure of our loan and deposit portfolios is such that a significant decline in interest rates may adversely impact net market values and net interest income. We do not maintain a trading account nor are we subject to currency exchange risk or commodity price risk. Operational Risk
Operational risk is the risk to current or anticipated earnings or capital arising from inadequate or failed internal processes, people and systems or from external events. It includes legal risk, which is the risk of loss arising from defective transactions, litigation or claims made, or the failure to adequately protect company-owned assets. An operational loss occurs when an event results in a loss or reserve originating from operational risk. We have developed and employ measures that guide business functions in identifying, measuring, responding to, monitoring and reporting on possible operational losses to the organization. This drives internal risk conversations and enables us to clearly and transparently communicate to external stakeholders the level of potential operational risk we face, both presently and in the future, and our position on managing it to acceptable levels.
Strategic and Reputation Risk
Strategic risk is the risk of financial loss, diminished stakeholder confidence, or negative impact to human capital resulting from ineffective strategy setting and execution, adverse business decisions, or lack of responsiveness to changes in the banking industry and operating environment. We are committed to fulfilling our overall strategic objectives by selecting business strategies and operating businesses in a manner consistent with achieving profitability/earnings growth and maintaining strong confidence and trust with our key stakeholders. Reputation risk is the risk to current or anticipated earnings, capital, enterprise value, our brand, and public confidence arising from negative publicity or public opinion, whether real or perceived, regarding our business practices, products, services, transactions, or other activities undertaken by us, our representatives, or our partners. A negative reputation may impair our relationships with clients, associates, communities or shareholders, and it is often a residual risk that arises when other risks are not managed properly. We produce and regularly update a strategic plan as a guide to our operations. That plan is presented to and approved by the Board of Directors. Management also produces annual financial plans that are consistent with our strategic objectives. Financial results versus plan are presented to and discussed with the Board of Directors regularly. Customer complaints and legal actions taken against us can be valuable indicators of reputation risk. We track and monitor customer complaints through their resolution and make regular reports to the Board of Directors. We also track legal actions in process against us and report their status regularly to the Board of Directors. Our management of compliance risk, as outlined in the Compliance Risk section above, is also valuable to managing reputation risk.
Table 13 provides the impact on net interest income resulting from various
interest rate shock scenarios as of
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Table 13 - Net Interest Income Sensitivity Simulation Analysis
Estimated change in net interest income Change in interest rate (basis point) September 30, 2021 December 31, 2020 200 (12.59) % (8.85) % 100 (9.10) (6.49) +100 18.20 15.26 +200 35.20 30.82 +300 53.98 46.24 We also utilize the MVE as a tool in measuring and managing interest rate risk. Long-term interest rate risk exposure is measured using MVE sensitivity analysis to study the impact on long-term cash flows on capital. Table 14 presents the MVE profile as ofSeptember 30, 2021 andDecember 31, 2020 .
Table 14 - Market Value of Equity Modeling Analysis
Estimated % change in MVE Change in interest rate (basis point) September 30, 2021 December 31, 2020 200 11.22 % (3.03) % 100 8.65 (3.58) +100 (0.11) 5.89 +200 (0.30) 10.77 +300 (0.59) 12.65
We may utilize interest rate swaps, floors, collars, or other derivative financial instruments in an attempt to manage our overall sensitivity to changes in interest rates.
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