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Atlantic Capital Bancshares, Inc. (NASDAQ:ACBI)
Q2 2020 Earnings Call
Jul 24, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Atlantic Capital Bank Second Quarter 2020 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Gary Fleming, Chief Risk Officer. Please go ahead.

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

Thank you, Andrew, and thank you all for joining us for our second quarter 2020 earnings call. With me today to discuss our results are Doug Williams, Chief Executive Officer and Patrick Oakes, Chief Financial Officer.

As a reminder, the Atlantic Capital earnings release is available in the Investor Relations section of our website. I wish to caution you that we will be making forward-looking statements during this call and that actual results may differ materially. We encourage you to review the disclaimer in the earnings release dealing with forward-looking information. This disclaimer applies equally to statements made in this call.

In addition, some discussions may include references to non-GAAP financial measures. Information about these measures, including reconciliation to GAAP measures may be found in our SEC filings and in our earnings release.

And with that, I will turn the call over to the CEO of Atlantic Capital, Doug Williams.

Douglas L. Williams -- President and Chief Executive Officer

Thank you, Gary. Good morning and thank you for joining us to review Atlantic Capital's second quarter report. You've seen our release, so today we will review the accompanying investor presentation also filed on Form 8-K yesterday evening.

I'll offer some overview remarks, then Pat Oakes will review the financials in greater detail and Gary Fleming will discuss our assessment of Atlantic Capital's credit quality. We will take your questions after that.

I'll start on Page 3 of the presentation, by noting that we recorded another quarter of solid operating performance with strong growth in pre-provision net revenue. Deposits continued to grow at a strong pace, and we reduced deposit cost sharply. To support our clients, we made 821 PPP loans, totaling $234 million, net of prepayments under the Safe Harbor provision.

You will recall that we proactively and pre-emptively offered 90-day principal and interest payment deferrals to our clients. Those deferrals peaked at over $500 million or almost 24% of total loans in the second quarter. And we currently expect second deferral request to decline to around $67 million or 3% of loans.

Our bankers have been frequent dialog with our clients over the last four to five months, and we conducted a comprehensive review of our borrowers during May to assess their prospects during the pandemic. Gary will provide more detail, but we learned that the vast majority of them are doing well, seeing improved business results and are guardedly optimistic about the remainder of 2020.

However, given the uncertainty of the course of the pandemic and the pace of economic recovery, we have prudently built the allowance for credit losses to 1.8% of loans held for investment, excluding PPP loans. The allowance is now 5.6 times non-performing loans.

On Page 4, I'll highlight the pre-provision net revenue was up 20% annualized from the first quarter and grew 16% year-over-year. Loans and deposits grew a solid pace with and without the effect of PPP loans made during the quarter. The other number I would like to highlight is the $0.18 per share growth in tangible book value to $14.72, despite the substantial addition to the allowance for credit losses.

Page 5 provides an 18-quarter perspective on loan growth at Atlantic Capital, excluding the Tennessee operations divested in April of 2019. We've grown commercial loans, which we define as commercial and industrial, and owner-occupied commercial real estate loans at a 15% compound average growth rate over that time frame. Commercial loans, excluding PPP loans are close to 60% of total loans today and over the last four and half years illustrated, the variable rate fixed rate mix has changed from around 90% variable, before we acquired FSG in late 2015, to just over 50% today.

Turning to Page 6. Strong core relationship deposit growth has been a consistent feature of our performance over the last four and half years, with total deposit growth at 16% compound average growth rate. And demand deposit account balance is growing at a terrific 22% compound average growth rate over that time frame. I'll also note that the average deposit cost declined to 22 basis points in the second quarter.

Now, Pat will review the financials in more detail.

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

Thanks, Doug. So on Page 7, I'm going to start with a quick summary of our second quarter income statements, before digging in to some of the details.

Net interest income increased $650,000 to $21.6 million in the second quarter. The increase was primarily due to the addition of the $234 million in PPP loans. The provision for credit losses was $8.9 million. Gary will provide more detail on this, but let me note that this included an $8.2 million provision for loan losses and a $642,000 provision for unfunded commitments.

Noninterest income was $2.3 million, down slightly from the first quarter. Service charge income decreased $151,000 primarily due to COVID-related impact on ACH volumes in our payments business. SBA income $414,000 as we saw a slight increase in the amount of loans sold during the quarter. Expenses in the second quarter were unchanged as seasonally lower benefit costs were offset by an increase in incentive accruals and salaries.

On Page 8, margin decreased 18 basis points in the second quarter to 3.23%. Excluding the impact of the PPP loans, the NIM was closer to 3.37%, down only 4 basis points from the first quarter. Loan yields in the quarter were 3.87%. Excluding the PPP loans, the loan yield was 4.09%, a decrease of 68 basis points from the first quarter.

I would expect to continue seeing some pressure on core loan yields as we see the full impact in the second quarter of reductions in LIBOR, along with pressure on fixed-rate loan pricing, but most of that is behind us.

The loan yield for the PPP loans in the second quarter was 1.52%, and will increase to approximately 2.60% in the third quarter, as we recognize the full quarterly benefit from advertising the loan fees and income over the life of the loans. Even though the exact timing of the loan forgiveness is difficult to predict, the margin and interest income will benefit over the next several quarters from the forgiveness of these loans, and we are able to accelerate the recognition of the remaining $7.1 million in fee income.

As Doug mentioned earlier, we saw a nice decrease in our cost of deposits of 22 basis points. I'm pleased again this quarter with our bankers ability to reduce our cost of deposits, and expect to see some additional decreases in the third quarter. But given the already low rates on deposit, these further reductions will most likely not offset the expected drop in loan yields. This will result in some core margin compression over the next several quarters, excluding any impact from the PPP loans.

On Page 9, you will see that we saw another quarterly decrease in our efficiency ratio to under 54%, as we continue to focus on expense management. As I mentioned earlier, salaries and benefits were unchanged as a reduction in seasonally higher first quarter benefits expense were offset by annual salary increases and higher incentive accruals. The second quarter also included approximately $293,000 in COVID-related payments during the quarter.

We are also benefiting from a decrease in items such as travel and entertainment expense, due to our work from home initiatives. Finally, we booked FDIC expense of $175,000 as we used up our outstanding credit at the end of the first quarter.

On Page 10, you'll see our balance sheet liquidity remained solid, as we continue to focus on building core deposit relationships. Even with the addition of the PPP loans, our loan-to-deposit ratio remained healthy at 87%.

On Page 11, you'll see our capital position remained strong. At June 30, our tangible common equity ratio was 11% and our total risk-based capital ratio at the bank was 14.4%.

Now, I'll turn it back over to Gary.

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

Thanks, Pat. I'll walk through some credit slides. I'll start on Page 12. This is a summary of our current loan portfolio. You will see as we have been, we're a commercial and commercial real estate focused bank. Over 90% of our loan book is in these categories. We're also a Southeast-focused bank, though our specialty, SBA and franchise lending groups do lend nationally.

Turning to Page 13, we have had very strong historical credit quality. Charge-offs and NPAs this quarter have remained low and do not reflect any COVID impact. Classified loans have increased [Indecipherable] this year, as we've recognized potential COVID stress, but among -- almost all of those additions in that category remain current and accruing.

Turning to Page 14, here you can see our reserve build since the end of 2019. As Pat and Doug have mentioned, we had a similar provision in the second quarter as we had in the first. If you look toward the left, the adoption of CECL at the beginning of the year, did not have a significant allowance -- drive a significant allowance change for us, but we think the model has worked as intended in building reserves ahead of seeing material defaults and charge-offs. The $1.5 million in second quarter charge-offs were resolutions of pre-COVID items that had been largely reserved for in Q1 or before. We think the allowance for credit losses at 1.8% of total loans, excluding PPP is conservative, but appropriate given the uncertainty that still exists with the economy and the virus.

Turning to Page 15. As Doug mentioned, we were liberal and proactive with deferrals back in March and April, peaked at a little bit over $500 million or 24% of total loans. These initial deferrals are largely rolling off in July. You can see they're down to a $163 million active as of July 21 and almost 80% will be rolling off deferral by the end of July. We've talked to all of those borrowers that are rolling off in the near-term, and at this point, we only expect as Doug said, $67 million or 3% of total loans to request a second deferral, with most of those as you can see in the hotel segment. We're encouraged overall by this reflection of most of our borrowers optimism and resilience.

On Page 16, we outlined the PPP loans by size. The only other thing I would note is, about half of these loans and dollars were to existing borrowing clients, the other half were to deposit-only clients.

Turning to Page 17. The COVID sensitive segments, where we have significant exposure are still hotels, restaurants and retail. But as we've learned more about the impact of shutdowns on our borrowers, we've narrowed this to certain subsets of these portfolios, which total about 9% of total loans.

Hotels have clearly seen the broadest impact and will be slower to recover than other segments. In that book, we're about half and half commercial real estate and SBA. We have been encouraged by June occupancies averaging 50% across that portfolio, but our borrowers are still cautious about expected normal fall slowdown and leisure travel and not having the business travel yet to replace that.

In the restaurant category, our QSRs are doing very well with June revenues on average across all of our locations up 2% year-over-year, but we do have a small amount of full service restaurants that are still down fairly significantly over last year.

Finally, in retail, I struggled a little bit frankly with this category in what to include as we just don't have material concerns today. We've included in this table $95 million in non-essential retail. But between national companies with good liquidity and local borrowers who are doing fine today, we're just not very concerned at the present time about this segment. Across all these categories that we've listed, the only classified or non-accrual loans we have at this time are some small legacy FSG pre-COVID remnants that are just still out there.

Turning to Page 18. This is the last slide, I will talk about. This shows the risk rating distribution in our portfolio after assessing the expected COVID-19 impacts. As Doug mentioned, we reviewed the entire portfolio in May. This review was led by our bankers and based on discussions that they had with each borrower. Our approach to grades was to recognize current or potential weakness via grade changes. To get loans on our watch list, we wanted to follow it closely.

Of the $54 million increase in criticized loans this quarter, 80% of that was in the special mentioned category, which means potential weakness and only $1 million all in SBA was moved to non-accrual. About $30 million of the $54 million was in hotels and restaurants, and all of that was in the special mentioned category. While our criticized totals are up due to COVID, and we would expect to see some charge-offs down the road, we only have $2 million of non-performing loans today that are not guaranteed by the SBA, and we don't see sizable near term defaults.

That said things are hard to predict in this environment and we think it was prudent to build a healthy reserve to deal with any borrowers who aren't able to successfully navigate the current economic situation.

With that, I will turn it back over to Doug.

Douglas L. Williams -- President and Chief Executive Officer

Thank you, Gary. And Andrew, I believe we are ready to take questions now.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Stephen Scouten of Piper Sandler. Please go ahead.

Stephen Scouten -- Piper Sandler -- Analyst

Yeah, good morning guys. How you doing?

Douglas L. Williams -- President and Chief Executive Officer

Good morning, Steve and good to hear from you.

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

Good morning.

Stephen Scouten -- Piper Sandler -- Analyst

You guys as well. So really impressive decline in interest bearing deposit costs and it sounded like Pat from your comments, maybe not a lot of room left there. But I'm wondering if you can talk to kind of what the dynamics were this quarter and how you think about some of the seemingly transitory inflows and liquidity? And what you think the pace of those migrations might be from here?

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

Well, so when you say transitory, what are you referring to?

Stephen Scouten -- Piper Sandler -- Analyst

Just some of the stimulus PPP things that seemingly, some of which should probably flow back out as that money get spent or the environment normalizes.

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

Right, right. So, I don't know, it's tough to figure how much is left. We figure it's less than $100 million. It could be $60 million, $80 million. It's on our balance sheet at this point, but that's really hard to predict. So, yes, could that flow out over the next several quarters? That's right. But I don't think that as a significant impact. We can still see good core deposit growth and I'll give our bankers a lot of credit. We're not chasing money. We're not having to pay up for a lot of deposits at this point. So that will help. Again, a little bit of a little bit of help in the third quarter to help drive down costs a little bit, but we're getting toward the bottom here.

Stephen Scouten -- Piper Sandler -- Analyst

Okay, great. And do you still expect the kind of normal seasonal inflows that we've seen mostly fourth quarter toward the end of the year to occur this year?

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

I would think so, yes.

Stephen Scouten -- Piper Sandler -- Analyst

Great.

Douglas L. Williams -- President and Chief Executive Officer

Stephen, we don't see it right now, and that's going to change that pattern. It certainly has been distorted by the late tax payments and by CARES Act related stimulus and just build of liquidity generally among our clients in response to the pandemic. But, as Pat said there's good core deposit growth via business development activity. We've got solid pipelines in these businesses, the treasury management business generally. And I do think we'll see that seasonal build in deposits and liquidity over the second half of the year. So we have a very similar view with respect to our ability to continue to build deposits at an above average pace.

Stephen Scouten -- Piper Sandler -- Analyst

Okay, great. That's helpful. And then on the loan growth front, usually a big chunk of the net end of period growth, ex-PPP was from the consumer, the CD-secured partnership, which I would think would be a pretty attractive business here today, given the environment. I'm wondering if you think that growth will continue? And kind of some thoughts on overall growth. as well as if you could give us an idea what the yields are on those CD-secured loans?

Douglas L. Williams -- President and Chief Executive Officer

Yeah, we do think they just continue to grow. Our agreement with the fintech company is for more capacity there. So, probably won't see the pace of growth that you saw in the second quarter, but it will continue to grow over the course of the year. And of course it's very good credit quality, that the yields in that business are lower -- given the the senior secured nature of the business, the yields are lower than elsewhere in our portfolio, but we still think they are attractive and a good source of incremental income for the Company.

Stephen Scouten -- Piper Sandler -- Analyst

Okay. And maybe just one last clarifying question on the PPP impacts. Pat, I think you said, maybe I heard a 2.6% yield expected in 2Q, if I heard that correctly. And...

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

That's right.

Stephen Scouten -- Piper Sandler -- Analyst

How do you -- how, I mean if forgiveness is more elevated than you would expect today, could that yield be significantly higher? Because I'm just trying to figure out how to get to that $7.1 million remaining over the next several quarters.

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

Right, right. So, the 2.6% assumes no forgiveness, right. That's just -- as we amortize that fee income of the life of the loans. Obviously, as loans get forgiven, that will get accelerated. And so the roughly $7.1 million remaining at July 1, so you can build your model and make your own guess at this point.

Stephen Scouten -- Piper Sandler -- Analyst

Perfect. That's really helpful, Pat. Thanks a lot guys. Appreciate the color.

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

Okay, OK.

Douglas L. Williams -- President and Chief Executive Officer

Thank you, Stephen.

Operator

The next question comes from Jennifer Demba of SunTrust. Please go ahead.

Jennifer Demba -- SunTrust -- Analyst

Good morning. I have two questions. The first is, can you give us a little bit more color about what your hotel borrowers are seeing right now in terms of business trends? And then my second question is, are you seeing any competitive lending opportunities out there, as maybe other banks have pulled back over the last few months? Thanks.

Douglas L. Williams -- President and Chief Executive Officer

Yeah, let Gary, take the first question and I'll take the second.

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

Hi, Jennifer. Hotels, so we've got a pretty wide range of experience, like I mentioned average occupancy in June overall was 50% and that's up from a low point across the entire portfolio in April of 30%. It really depends, and again wide range. But the SBA book is seeing a little bit better trends because they have mostly these drive-by type properties, and so they on the June occupancy was [Phonetic] over 50%. And CRE, we have some properties there that are in great locations, but are in central business districts in a couple of cases and those are slower to come back. And so we're more averaging in the '40s there. So, I would say overall, a lot of these properties except maybe the ones in central business districts are seeing good summer travel pick-up, and they're expecting that to continue in most places into July. But they are cautious, because there's not a lot of business travel and back-to-school, whether that is virtual or in-person, they do think it's going to cut down on leisure travel as it normally this time of the year or in the fall. So, we're -- a lot of our properties are kind of at or getting into that breakeven range, but we're still pretty cautious on all of them and just making sure that we're talking to them about additional sources of capital.

Douglas L. Williams -- President and Chief Executive Officer

And Jennifer with respect to your question about new business opportunity, particularly on the credit side, over the course of the second quarter, we continued to add new clients and make new loans. However, you have some countervailing forces and that -- those of course are soft demand. We also saw a number of commercial revolving credits repaid during the course of the quarter. They've built up, they've drawn down under the lines of credit in the first quarter to ensure liquidity and didn't have the need to continue to maintain that level of liquidity in the second quarter. So we saw a lot of revolving credit pay downs.

In the wake of the PPP loans, we do discern a lot of dissatisfaction with large banks in particular, and that is creating some opportunity. We're following up with those clients and other prospects and adding new business booked depository and credit business. It's hard to say what loan growth -- with all those factors that play, it's hard to say what loan growth will be in the second half of the year. We are in the -- we've indicated that we expected low-to-mid single digits outside of PPP in the second quarter. That's sort of where we came in. And we're hopeful that we'll have some loan growth in the second half of the year, but again a lot of uncertainty and not a lot of confidence in terms of where that might come in.

Jennifer Demba -- SunTrust -- Analyst

Thank you so much.

Operator

The next question comes from Brady Gailey of KBW. Please go ahead.

Brady Gailey -- KBW -- Analyst

Hey, thanks. Good morning, guys.

Douglas L. Williams -- President and Chief Executive Officer

Good morning.

Brady Gailey -- KBW -- Analyst

So Pat, I heard your comments about the core NIM going forward likely seeing some weakness. I was surprised at how well it held-in in the second quarter, with the reduction of deposit costs. But maybe just help us think about how much decline we could see in the core margin from here, ex-PPP?

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

So ex-PPP, that 4 basis points is probably a good benchmark for third quarter, I would guess roughly. And then obviously, I wouldn't be surprised if it continues to trend down over the next several quarters, as we move into late next year and then kind of bottom out from there. And then the whole margin, obviously, we could get a little bit of pickup in the third quarter with the additional income from the PPP loans. So I wouldn't be surprised if it comes off the bottom of the 3.23%.

Brady Gailey -- KBW -- Analyst

All right, that's helpful. And then as you said, expenses were pretty much flat linked quarter at just under $13 million per quarter. Should we expect much growth there? Do you think the expenses will be flat in the near-term?

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

Yeah, for the remainder of the year, that's probably a good benchmark.

Brady Gailey -- KBW -- Analyst

All right. And then finally for me, Atlantic Capital has been so active in share buybacks. I think if you look over the last two or three years, you repurchased, I don't know, 15% or 20% of the Company. Your stock is pretty attractive here, trading well under tangible at 77% of tangible book value. I know there's not a lot of corporate share repurchases, right now, just given the backdrop, but -- and you still have a lot of capital. So any idea when share buybacks could return for you guys?

Douglas L. Williams -- President and Chief Executive Officer

Brady, that's something we continue to evaluate. We think there is exceptional value for our shareholders in buying back shares at these levels, and we've been -- we paused our share buyback program in the first quarter, given all the uncertainty. That uncertainty remains, but somewhere on the horizon, we'd like to resume the buyback program as the picture clears more.

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

Yeah Brady, the constraint is not capital. The constraint is cash at the holding company to do that and our dividend capacity from the bank, right. With us having been aggressive last year that dividend capacity is somewhat limited. So we're just trying to keep and make sure we have the liquidity at the holding company at this point -- so we have some flexibility.

Brady Gailey -- KBW -- Analyst

Would you ever think about raising additional debt at the holdco to finance buybacks?

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

That's something to consider.

Brady Gailey -- KBW -- Analyst

Okay, thanks guys.

Operator

The next question comes from Michael Rose of Raymond James. Please go ahead.

Michael Rose -- Raymond James -- Analyst

Hi guys. Hope you're well. Just had a question on the deferral slide, I appreciate the color there. It looks like about 78% of your initial deferrals will expire at the end of the month. Second, redeferral rate is about 3%. Do you think that those kind of materially higher from here? And is it going to, I assume most of it's going to be concentrated as you can see on the slide in restaurant and hotel. Thanks.

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

Yeah, Michael, there will be some -- it was a little hard to lay this out in July, since July is the big month where these are rolling off. But there'll be some overlap where some initial deferrals were granted in May and maybe a little bit in June, we'll still be on the books, along with the redeferrals or the second deferrals. But really, if you kind of fast forward to September, we think it will really settle more around this 3% range of the second deferrals. There might be some of the later initial deferrals that depending on what's happening a few months from now need a second deferral. But we really think it's trending toward that level, we just -- we were more stringent in terms of really asking borrowers to prove that they needed additional deferral we charged -- we're charging a fee for a second deferral. And in most cases when we kind of talked through that with our borrowers, they've said well I don't actually need it. And so that just kind of told us that, as a lot of banks experience, the requests and the acceptance of deferrals back in March and April, for the most part was insurance for uncertainty.

Michael Rose -- Raymond James -- Analyst

That's helpful and then just a follow-up question on this quarter's reserve build. How much, and I'm sorry if I missed it, but how much of it was related to risk rating downgrades versus kind of environmental COVID impact and economic overlays?

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

So in the second quarter, it was about half and half.

Michael Rose -- Raymond James -- Analyst

Half and half.

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

In the first quarter it was more heavily weighted toward the economic forecasts.

Michael Rose -- Raymond James -- Analyst

Okay. So, I guess going forward under the incurred loss model, any reserve builds assuming the economic environment doesn't get worse would likely just be further migration, correct?

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

That's right. That's a fair assumption.

Michael Rose -- Raymond James -- Analyst

Okay, perfect. And then just finally for me, just a follow-up on the lending environment in your market. What's does the talent pool situation look like, obviously you have a couple of banks that are trying to hire. You had a large MOE in the market. What's the hiring schematic look like at this point for you guys? Thanks.

Douglas L. Williams -- President and Chief Executive Officer

Well there is talent available and it does seem to be in motion probably not to the degree that we would have anticipated last year. But, we still see people moving around and we've in fact hired some people this year, but recall that our hiring plans for 2020 were down substantially from what we did in 2019. And we really feel like in 2019, we built a lot of capacity. And given the soft demand in the environment this year, we really don't feel like we're using all that capacity and we've got it there for for next year and beyond. So, we don't anticipate hiring new bankers in the same pace that we did last year. And, but we continue to be opportunistic. And as we find good bankers, we'll bring them on.

Michael Rose -- Raymond James -- Analyst

Thanks for taking my questions, guys.

Douglas L. Williams -- President and Chief Executive Officer

Certainly.

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

Thank you.

Operator

The next question comes from Christopher Marinac of Janney Montgomery Scott. Please go ahead.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Hey, thanks. Good morning. So thanks for all the details you gave us this morning and last night. I guess I want to follow-up on some of Gary's comments just about the retail and not being worried about it. And I think that is, I just want to get into more detail about that. Because I think you've learned a lot from, looking at your borrowers and sort of deep dive you've been doing on the forbearance. So, just want to get some more color about what you learned and just from there, their own liquidity and what they're sort of planning for the future. It feels like they're a lot better suited than I think it was realized before.

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

Yeah, Chris. That's a good question, because we have a healthy amount in the broad category of retail and we talked last quarter about the essential businesses, drugstores, gas stations, auto parts, those sort of things. And so we really dug in this time on what broadly is called non-essential. And this is really kind of portfolio specific and dependent these days. And we are just fortunate as we looked through this to have found that a good chunk of those in that non-essential category are large national retailers and so that might be tenants in our TriNet book or some selected shared national credit pieces in that book. And while they are being impacted, they have good liquidity, good support from investors and we chose good borrowers, where we got into those areas.

And then the other piece of it, there is retail commercial real estate. So certainly that is struggling in some areas, but most of this for us is with one relationship that's a very good, long-in-the-tooth developer of centers that for the most part are either anchored by a drug store, a dollar store or a grocery store, and doing OK. Or in some cases are in retail, rural areas, where they just -- they haven't been impacted very much, they haven't had a whole lot of closures. They maybe missed a few rent payments that they have to write-off for April and May, but they are telling us that,,that won't be a problem. They've got low leverage and feel like they're fine. And then we've got some car dealerships, and I think results there are mixed, but we really primarily have that in one relationship in the Atlanta area, and they're doing very well and profitable across all their locations. So it was good to see after we went through that portfolio and, but it's really just been specific to where our borrowers happened to be situated there that we feel pretty good overall about that category.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Great, that's very helpful. So, I guess the question whether it's in retail specifically or really anything else from -- coming off of these forbearance improving that if the pandemic this quarter lingers longer, there is enough liquidity and stability in these businesses that the risk of them going back on deferrals seems low. Is that a fair conclusion?

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

That is fair. And that's a lot of what we talked about when we were talking about each situation and a lot of what we heard from bankers and from them from their borrowers were, I appreciate the assistance, I appreciate the PPP funding, that's all going to just kind of help me give some cushion, but I've also got the ability to kind of keep this thing going. And so everybody will put the caveat of what can't go on like this forever. But we felt pretty good coming out of those discussions of -- at least in the near-term, most of our borrowers being solid and having access to other sources of capital. The SBA book is not necessarily the same. By definition, those are some earlier stage, less access to traditional financing kind of things and they've got good assistance through the CARES Act. But we do expect some of those will struggle coming out of that, but it's kind of a business that we've built for that and we expect some losses, but they should be fairly spread out and fairly limited because of the SBA guarantees that we have.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Okay, great. Thanks again for that. And then just a final question on the payments business. I know you gave us some trends from the graphs last night. But just was curious kind of what those businesses have been seeing, particularly as June finished and early July has played out so far. Is it better now than it would have been in April, May?

Douglas L. Williams -- President and Chief Executive Officer

Yeah, Chris, it certainly is. In April and May, on a same-store sales basis, we saw ACH volumes down 10% to 15%. In June, those same same-store sales volumes were up 12%, and then the total -- we added a lot of business over the last few months and the total volumes year-over-year in May and June were up about 30%. So we continue to see very strong trends in volume and fees and balances coming out of that business.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Okay, great. Thanks again.

Douglas L. Williams -- President and Chief Executive Officer

Certainly.

Operator

The next question comes from Ross Haberman of RLH investments. Please go ahead.

Ross Haberman -- RLH investments -- Analyst

Good morning, gentlemen. Thanks for the time. Most of my questions have been answered. Could you talk about just sort of how quickly Atlanta is opening up? Are you guys going to restaurants? Give us a general sense or do you think like California some of the restaurants and stuff might begin to reverse and only do outdoors as opposed to indoors? Thank you.

Douglas L. Williams -- President and Chief Executive Officer

Yeah, that's a tough question to answer, Andrew, it's. -- Ross, I am sorry. Certainly my impressions are anecdotal and I'll invite Pat and Gary to offer theirs as well. But I don't think that, Georgia was one of the first states to reopen and there doesn't -- with the resurgence of cases and so forth here and elsewhere, there doesn't seem to be a lot of reversal of those openings. For the most part, restaurants were serving either outside or via delivery. I don't know of a lot of restaurants that are offering service in dining rooms, but I think there are some and I haven't heard that they've been -- they've changed their posture in the last month or so here. If you look at traffic volumes on the street, they continue to increase. So I just don't think it's had much effect, and I really don't think we're looking at any meaningful new shutdowns.

Ross Haberman -- RLH investments -- Analyst

Okay, thanks. Best of luck guys.

Douglas L. Williams -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] The next question comes from Steve Comery of G. Research. Please go ahead.

Steve Comery -- G. Research -- Analyst

Hey, guys.

Douglas L. Williams -- President and Chief Executive Officer

Good morning.

Steve Comery -- G. Research -- Analyst

Good morning. I wanted to ask, maybe I don't know if you guys have this number, but maybe what the PPP contribution to interest revenue was in the quarter?

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

Yeah, so it was close to that number I gave out earlier, the $650,000 or so.

Steve Comery -- G. Research -- Analyst

Okay. Yeah, sorry if I missed it. Thanks.

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

It's all right.

Steve Comery -- G. Research -- Analyst

And then another question on PPP. I mean, I was wondering, I don't know if you guys mentioned this, but maybe what percentage of the loans do you expect to ultimately be forgiven? Do you have an expectation there?

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

Yeah, I'd say -- kind of most, we're guessing 75%, 80%. We surveyed our PPP borrowers, and one of the questions we asked is, do you expect to apply for full forgiveness or partial? And not surprisingly, most of them said full. But we wonder if that meant they think they're going to get it, or that they want to get it. But we think most, the vast majority will. And it's, the timing is different. Pat keeps asking me, how to predict the timing and there is still changes being proposed and still a lot of push for this notion of auto forgiveness for $150,000 under. That would really accelerate part of the forgiveness into this year. But without that, and the 90-days that the SBA has to approve applications that we submit after we review them, really could start to push most if not all of the forgiveness into 2021.

Steve Comery -- G. Research -- Analyst

Okay, thanks. Very helpful. Maybe one more for me. I mean obviously, really strong deposit inflows. I was wondering if you guys maybe had opportunities to look at maybe some of your borrowings and maybe look to use some of that liquidity there, and if you guys have looked into that?

Douglas L. Williams -- President and Chief Executive Officer

In terms of wholesale borrowing from the Home Loan Bank or the Fed or something like that?

Steve Comery -- G. Research -- Analyst

Yeah, yeah any category where you might have opportunities.

Douglas L. Williams -- President and Chief Executive Officer

We really haven't had need of those -- of that wholesale funding given the strong deposit growth that we've enjoyed and we've been able to handle the PPP loans and still get it -- maintain good liquidity on the balance sheet. So we just -- we certainly have access to a lot of wholesale funding. But we just haven't had the need to access that.

Steve Comery -- G. Research -- Analyst

All right, fair enough. That's it for me.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Doug Williams for any closing remarks.

Douglas L. Williams -- President and Chief Executive Officer

Thank you, Andrew, and thank you all for your questions and for dialing in this morning. If I could summarize, I would just like to say that Atlanta Capital again produced solid core operating results with strong revenue growth and disciplined expense control, despite the effects of 150 basis point decline in the federal funds rate and soft loan demand during the quarter.

We entered the pandemic with a fortress balance sheet with fundamentally sound credit quality, robust capital and plentiful liquidity and we've strengthened that considerably over the last two quarters now with substantial additions to the allowance for credit losses. We have confidence in our credit culture. We're encouraged by our clients' performance during the pandemic, but we're well prepared for the uncertainties ahead.

We look forward to talking to you again in the third quarter, after the third quarter. And if you have any questions for us, we're certainly receptive to those over the next couple of days here. I look forward to talking with you. Thanks for dialing in today. Goodbye.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Gary G. Fleming JR. -- Executive Vice President and Chief Risk Officer

Douglas L. Williams -- President and Chief Executive Officer

Patrick T. Oakes -- Executive Vice President, Chief Financial Officer, Secretary, And Treasurer

Stephen Scouten -- Piper Sandler -- Analyst

Jennifer Demba -- SunTrust -- Analyst

Brady Gailey -- KBW -- Analyst

Michael Rose -- Raymond James -- Analyst

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Ross Haberman -- RLH investments -- Analyst

Steve Comery -- G. Research -- Analyst

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