The CAD/JPY currency pair, which expresses the value of the Canadian dollar in terms of the Japanese yen, has been edging its way toward levels that were seen prior to the start of 2020. As stocks began to sour in February this year, the Canadian dollar also started to fall alongside other commodity currencies. Currencies such as the Japanese yen rallied, which was unsurprising to most traders given the reputation of the yen as a conventional safe haven.

From the start of the fourth quarter of 2019 into the first quarter of 2020, CAD was trading against JPY inside of the range of 80-85, with an approximate midpoint being at the 83 handle (as illustrated below). A stronger CAD is in most cases a constructive for risk assets such as equities, especially when set such strength is against JPY.

CAD/JPY Price Action in 2020

(Source: TradingView. The same applies to all subsequent price charts presented hereafter.)

From the level of 85 down to the lows in March this year at the 74 handle, the midpoint is around 80, which the current market price for CAD/JPY is perched just above. The question now becomes whether we will see further strength.

Certain commodity currencies such as the Australian dollar and New Zealand dollar were able to retrace their steps back to their previous highs (after also crashing in February and March). These two currencies have already rallied against USD and JPY (both conventional safe havens in their own right). The Canadian dollar has struggled against the Japanese yen, although, interestingly, CAD is currently as strong against USD as it was prior to the emergence of the COVID-19 pandemic which shook financial markets (including FX) this year.

USD/CAD Price Action in 2020

(USD/CAD is now trading at similar levels to 2019; the Canadian dollar has effectively won back all its

Investment Thesis

Headquartered in Atlanta, Georgia, and with about $3 billion in assets, Atlantic Capital Bancshares, Inc. (ACBI) is a commercially focused bank with specialties in specialty corporate lending, private banking, and commercial real estate finance solutions. The company has the 13th largest deposit market share in the greater Atlanta MSA, just behind Cadence Bancorp (CADE), Renasant (RNST), and Bank OZK (OZK).

I am a little more constructive on the bank since the first quarter update. The exposure to economically sensitive loans has narrowed to 9% of total loans (from ~30%). To me, this means that potential realized losses could be lower than previously expected and roughly in line with other regional bank peers. The core net interest margin (NIM) remains under pressure but expense control should help profitability over the near term.

When weighing out the puts and takes, I am still neutral on the stock. This partially is due to ACBI’s valuation, which is roughly in line with its peer group. While I believe the company should be a beneficiary of competitive disruption in the Atlanta market, I think there are more pressing issues over the next few quarters.

When mixing in valuation relative to the riskier credit profile, I suggest potential shareholder remain on the sidelines, at least until the third quarter update in a few weeks.

ChartData by YCharts

Revenue Outlook

In the second quarter, ACBI reported EPS from continuing operations of $0.09 versus consensus expectations of $0.13, relative to its $0.10 in the first quarter. The second quarter downside came primarily from elevated provisioning offset partially by higher revenue and lower expenses. The company’s pre-provision net revenue was $11.1 million, compared to $10.5 million in the first quarter and $9.7 million in the second quarter of last year.

In the second quarter, net interest income