Amerant Bancorp (AMTB) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited interim consolidated financial statements of Amerant Bancorp Inc. and its subsidiaries for the period ended September 30, 2022, including the balance sheets, statements of operations and comprehensive (loss) income, statements of changes in stockholders' equity, and statements of cash flows, along with detailed notes to these financial statements Consolidated Balance Sheets The Consolidated Balance Sheets provide a snapshot of the company's financial position as of September 30, 2022, compared to December 31, 2021, showing changes in assets, liabilities, and stockholders' equity Consolidated Balance Sheets Summary | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Total assets | $8,739,979 | $7,638,399 | | Total liabilities | $8,044,281 | $6,806,526 | | Total stockholders' equity | $695,698 | $831,873 | - Total assets increased by $1.1 billion (14.4%) from December 31, 2021, to September 30, 2022, primarily driven by increases in loans held for investment and debt securities held to maturity[5][417] - Total stockholders' equity decreased by $136.2 million (16.4%) due to after-tax net unrealized holding losses on debt securities available for sale and common stock repurchases, partially offset by net income[5][496] Consolidated Statements of Operations and Comprehensive (Loss) Income This statement details the company's financial performance for the three and nine months ended September 30, 2022, and 2021, highlighting net interest income, noninterest income and expense, and net income, as well as other comprehensive loss components Consolidated Statements of Operations and Comprehensive (Loss) Income Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total interest income | $89,137 | $61,413 | $225,402 | $182,915 | | Total interest expense | $19,240 | $9,592 | $40,915 | $33,554 | | Net interest income | $69,897 | $51,821 | $184,487 | $149,361 | | Provision for (reversal of) loan losses | $3,000 | $(5,000) | $(7,000) | $(10,000) | | Total noninterest income | $15,956 | $13,434 | $42,912 | $43,331 | | Total noninterest expenses | $56,113 | $48,404 | $179,172 | $143,154 | | Net income attributable to Amerant Bancorp Inc. | $20,920 | $17,031 | $44,544 | $47,452 | | Basic earnings per common share | $0.62 | $0.46 | $1.31 | $1.27 | | Diluted earnings per common share | $0.62 | $0.45 | $1.30 | $1.26 | - Net income attributable to Amerant Bancorp Inc. increased 22.8% to $20.9 million for the three months ended September 30, 2022, compared to $17.0 million in the prior year, driven by higher net interest income and noninterest income, partially offset by a provision for loan losses[311] - For the nine months ended September 30, 2022, net income decreased 6.1% to $44.5 million from $47.5 million in the prior year, primarily due to higher noninterest expenses and lower reversals from the allowance for loan losses, partially offset by higher net interest income[318] Consolidated Statements of Changes in Stockholders' Equity This statement outlines the changes in stockholders' equity for the three and nine months ended September 30, 2022, and 2021, detailing impacts from stock repurchases, restricted stock activities, net income, dividends, and other comprehensive loss - Total stockholders' equity decreased from $831.9 million at December 31, 2021, to $695.7 million at September 30, 2022, primarily due to accumulated other comprehensive loss of $(86.2) million and stock repurchases[5][14] - The company repurchased 1,602,887 shares of Class A common stock for approximately $49.9 million in the nine months ended September 30, 2022, under the New Common Stock Repurchase Program[34] - Dividends paid totaled $9.2 million in the nine months ended September 30, 2022, with three quarterly cash dividends of $0.09 per share of Class A common stock[202] Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2022, and 2021, showing the overall change in cash and cash equivalents Consolidated Statements of Cash Flows Summary | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------------------- | :-------------------------- | :-------------------------- | | Net cash (used in) provided by operating activities | $(32,136) | $40,170 | | Net cash (used in) provided by investing activities | $(1,013,334) | $270,948 | | Net cash provided by (used in) financing activities | $1,073,396 | $(359,271) | | Net increase (decrease) in cash and cash equivalents | $27,926 | $(48,153) | | Cash, cash equivalents and restricted cash, End of period | $302,134 | $166,233 | - Net cash used in investing activities was $1.0 billion, primarily due to a net increase in loans of $927.5 million and purchases of investment securities totaling $370.8 million[419] - Net cash provided by financing activities was $1.1 billion, driven by a net increase of $908.7 million in total demand, savings, and money market deposits, and net proceeds from FHLB advances and subordinated notes[420] Notes to Interim Consolidated Financial Statements (Unaudited) These notes provide detailed disclosures and explanations for the interim consolidated financial statements, covering business operations, accounting policies, recent accounting pronouncements, and specific financial instrument details 1. Business, Basis of Presentation and Summary of Significant Accounting Policies This section describes Amerant Bancorp Inc.'s business, its subsidiaries, the basis for preparing the financial statements, significant accounting policies, and the impact of recent events like restructuring activities, stock repurchase programs, and the Amerant Florida Merger. It also addresses the company's status as an Emerging Growth Company (EGC) and the upcoming adoption of CECL - Amerant Bancorp Inc. is a Florida corporation operating as a bank holding company, with its principal subsidiary Amerant Bank, N.A., and other operating subsidiaries including Amerant Investments, Inc., Amerant Mortgage, LLC, and Elant Bank & Trust[28] - The company recorded approximately $0.3 million and $7.1 million in contract termination costs and $0.4 million and $1.8 million in severance costs for the three and nine months ended September 30, 2022, respectively, related to restructuring activities and technology outsourcing[30][31] - The company completed two Class A common stock repurchase programs in the first nine months of 2022, repurchasing an aggregate of 1,602,887 shares for approximately $49.9 million[34] - Amerant Bancorp Inc. will no longer be deemed an Emerging Growth Company (EGC) effective December 31, 2022, requiring adoption of new accounting standards, including CECL, retroactively effective January 1, 2022. The company expects an increase in the allowance for credit losses (ACL) ranging from $15 million to $20 million upon CECL adoption[49][59] 2. Interest Earning Deposits with Banks and Restricted Cash This note details the composition and balances of interest-earning deposits with banks and restricted cash, highlighting changes in amounts and average interest rates Interest Earning Deposits with Banks and Restricted Cash Summary | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Interest earning deposits with banks | $218,354 | $240,540 | | Restricted cash | $46,149 | $— | | Average interest rate on deposits | 1.14% | 0.12% | - Restricted cash balances of $46.1 million at September 30, 2022, primarily include cash pledged as collateral for derivatives' margin calls and letters of credit[65] 3. Securities This section provides a detailed breakdown of the company's securities portfolio, including debt securities available for sale, held to maturity, and equity securities, along with their amortized cost, fair values, unrealized gains/losses, and contractual maturities Securities Summary | Security Type (in thousands) | Sep 30, 2022 Fair Value | Dec 31, 2021 Fair Value | | :------------------------------------------- | :---------------------- | :---------------------- | | Debt securities available for sale | $1,052,329 | $1,175,319 | | Debt securities held to maturity | $234,317 | $118,175 | | Equity securities with readily determinable fair value not held for trading | $12,232 | $252 | | Total Securities | $1,352,782 | $1,341,241 | - Debt securities available for sale had net unrealized holding losses of $120.1 million at September 30, 2022, compared to net unrealized holding gains of $0.2 million at December 31, 2021, primarily due to increases in market interest rates[69][74][470] - The company does not intend to sell these debt securities and believes it is more likely than not that it will not be required to sell them before their anticipated recovery, indicating the unrealized losses are temporary and not credit-related[77][78][470] - Securities pledged as collateral totaled $318.4 million at September 30, 2022, up from $142.8 million at December 31, 2021, to secure FHLB advances, public funds, and other purposes[91] 4. Loans This note provides a detailed breakdown of the company's loan portfolio, distinguishing between loans held for investment and loans held for sale, categorized by loan class and credit quality indicators Loans Summary | Loan Type (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------- | :----------- | :----------- | | Loans held for investment, gross | $6,445,768 | $5,409,440 | | Loans held for sale, at fair value | $57,591 | $14,905 | | Loans held for sale, at lower of cost or fair value | $— | $143,195 | | Total Loans, gross | $6,503,359 | $5,567,540 | - Total loans held for investment, gross, increased by $1.04 billion (19.1%) from December 31, 2021, to September 30, 2022, primarily driven by increases in domestic single-family residential, commercial, CRE, and consumer loans[95][433] - The company transferred $66 million of New York CRE loans from held for sale to held for investment in Q3 2022, as it now intends to hold these loans until maturity or repayment[104][431] - International loans decreased by $22.9 million (23.0%) to $76.7 million, mainly due to residential loan payoffs from Venezuelan borrowers[96][435] 5. Allowance for Loan Losses This note provides an analysis of the Allowance for Loan Losses (ALL) by loan segment and impairment methodology, detailing changes due to provisions, charge-offs, and recoveries for the three and nine months ended September 30, 2022, and 2021 Allowance for Loan Losses Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance at beginning of period | $52,027 | $104,185 | $69,899 | $110,902 | | Provision for (reversal of) loan losses | $3,000 | $(5,000) | $(7,000) | $(10,000) | | Total Charge-offs | $(1,811) | $(17,063) | $(11,653) | $(20,261) | | Total Recoveries | $495 | $1,320 | $2,465 | $2,801 | | Balance at end of period | $53,711 | $83,442 | $53,711 | $83,442 | - The company recorded a $3.0 million provision for loan losses in Q3 2022, compared to a $5.0 million reversal in Q3 2021, reflecting loan growth and additional reserves for charge-offs, partially offset by macroeconomic improvements[364] - Net charge-offs decreased significantly to $1.3 million in Q3 2022 from $15.7 million in Q3 2021, and to $9.2 million in the first nine months of 2022 from $17.5 million in the prior year period[362] - The ALL coverage of non-performing loans increased to 2.9x at September 30, 2022, from 2.1x at December 31, 2021[303] 6. Time Deposits This note provides details on time deposits, including amounts in large denominations and their maturity distribution Time Deposits Summary | Time Deposit Category (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | Time deposits $100,000 or more | $0.7 billion | $0.8 billion | | Time deposits $250,000 or more | $362 million | $423 million | | Brokered time deposits | $460 million | $290 million | Maturity of Large Time Deposits ($100k+) Summary | Maturity of Large Time Deposits ($100k+) | Sep 30, 2022 Amount | Sep 30, 2022 % | Dec 31, 2021 Amount | Dec 31, 2021 % | | :--------------------------------------- | :------------------ | :------------- | :------------------ | :------------- | | Less than 3 months | $162,162 | 21.7% | $261,779 | 31.1% | | 3 to 6 months | $106,492 | 14.2% | $134,709 | 16.0% | | 6 to 12 months | $251,192 | 33.6% | $153,695 | 18.3% | | 1 to 3 years | $219,024 | 29.3% | $281,366 | 33.5% | | Over 3 years | $8,822 | 1.1% | $8,902 | 1.1% | | Total | $747,692 | 100.0% | $840,451 | 100.0% | 7. Advances from the Federal Home Loan Bank This note provides information on outstanding advances from the Federal Home Loan Bank (FHLB), including maturity years, interest rates, and changes due to repayments and new borrowings Advances from the Federal Home Loan Bank Summary | Year of Maturity | Interest Rate Range | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :----------------- | :------------------ | :-------------------------- | :-------------------------- | | 2022 | 3.00% | $100,000 | $— | | 2023 | 0.62% to 1.06% | $104,693 | $104,317 | | 2024 | 1.68% | $100,000 | $— | | 2025 and after | 0.62% to 3.07% | $676,312 | $705,260 | | Total | | $981,005 | $809,577 | - In the first nine months of 2022, the company repaid $530.0 million in callable FHLB advances and borrowed $550.0 million in longer-term advances to extend duration and lock in fixed interest rates[140][336][502] - A loss of $0.7 million was incurred on the early repayment of $180 million in callable FHLB advances in Q1 2022[140] 8. Senior Notes This note provides details on the company's outstanding senior notes, including their issuance, coupon rate, maturity date, and current balance - The company has $60.0 million in senior notes issued on June 23, 2020, with a 5.75% coupon rate and a maturity date of June 30, 2025. As of September 30, 2022, the balance was $59.1 million, net of unamortized issuance costs[143] 9. Subordinated Notes This note describes the issuance and terms of the company's subordinated notes, including their interest rate structure, maturity, and regulatory capital qualification - On March 9, 2022, the company issued $30.0 million aggregate principal amount of 4.25% Fixed-to-Floating Rate Subordinated Notes due March 15, 2032. Net proceeds were $29.1 million[144] - The notes bear a fixed interest rate of 4.25% until March 15, 2027, then reset quarterly to a floating rate of three-month SOFR plus 251 basis points[145] - These subordinated notes qualify as Tier 2 capital for regulatory purposes and rank junior to senior indebtedness[146] 10. Junior Subordinated Debentures Held by Trust Subsidiaries This note provides information on the outstanding Trust Preferred Securities and junior subordinated debentures held by trust subsidiaries, including their amounts, issuance years, rates, and maturities Junior Subordinated Debentures Held by Trust Subsidiaries Summary | Trust | Amount of Trust Preferred Securities Issued (in thousands) | Principal Amount of Debenture Issued to Trust (in thousands) | Year of Issuance | Annual Rate | Year of Maturity | | :----------------------------- | :----------------------------------------- | :------------------------------------------- | :--------------- | :-------------------- | :--------------- | | Commercebank Capital Trust VI | $9,250 | $9,537 | 2002 | 3-M LIBOR + 3.35% | 2033 | | Commercebank Capital Trust VII | $8,000 | $8,248 | 2003 | 3-M LIBOR + 3.25% | 2033 | | Commercebank Capital Trust VIII | $5,000 | $5,155 | 2004 | 3-M LIBOR + 2.85% | 2034 | | Commercebank Capital Trust IX | $25,000 | $25,774 | 2006 | 3-M LIBOR + 1.75% | 2038 | | Commercebank Capital Trust X | $15,000 | $15,464 | 2006 | 3-M LIBOR + 1.78% | 2036 | | Total | $62,250 | $64,178 | | | | 11. Derivative Instruments This note details the fair values and types of derivative instruments used by the company, including interest rate swaps and caps, and mortgage derivatives, distinguishing between those designated as hedging instruments and those not Derivative Instruments Summary | Derivative Type (in thousands) | Sep 30, 2022 Assets | Sep 30, 2022 Liabilities | Dec 31, 2021 Assets | Dec 31, 2021 Liabilities | | :------------------------------------------- | :------------------ | :----------------------- | :------------------ | :----------------------- | | Interest rate swaps designated as cash flow hedges | $59 | $29 | $— | $615 | | Interest rate swaps not designated as hedging instruments | $68,855 | $68,855 | $20,781 | $20,781 | | Interest rate caps not designated as hedging instruments | $8,306 | $9,203 | $477 | $764 | | Mortgage derivatives not designated as hedging instruments | $1,127 | $264 | $612 | $38 | | Total | $78,347 | $78,351 | $21,870 | $22,198 | - The company had 135 interest rate swap contracts with customers totaling $898.8 million notional amount at September 30, 2022, up from 109 contracts totaling $595.4 million at December 31, 2021[161] - The aggregate fair value of interest rate swaps in a liability position was $68.9 million at September 30, 2022, compared to $21.4 million at December 31, 2021[167] 12. Leases This note provides information on the company's operating leases, including lease costs, right-of-use assets, lease liabilities, and a maturity analysis of undiscounted cash flows Leases Summary | Lease Cost (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease cost | $4,278 | $1,902 | $13,008 | $5,730 | | Variable lease cost | $414 | $334 | $1,304 | $1,003 | | Sublease income | $(527) | $— | $(2,164) | $(108) | | Total lease cost, net | $4,183 | $2,257 | $12,210 | $6,801 | - The company recorded $1.6 million and $0.8 million in right-of-use (ROU) asset impairment charges in the nine months ended September 30, 2022 and 2021, respectively, related to branch closures[169] Undiscounted Cash Flows Summary | Undiscounted Cash Flows (in thousands) | Amount | | :------------------------------------- | :----- | | For the remaining three months of 2022 | $3,683 | | 2023 | $12,975 | | 2024 | $13,047 | | 2025 | $13,001 | | 2026 | $13,201 | | Thereafter | $194,972 | | Total undiscounted cash flows | $250,879 | | Less: implied interest | $(104,506) | | Total lease obligations | $146,373 | 13. Stock-based Incentive Compensation Plan This note details the company's stock-based incentive compensation plans, including activity for restricted stock awards (RSAs), restricted stock units (RSUs), and performance stock units (PSUs) during the nine months ended September 30, 2022 Stock-based Incentive Compensation Plan Summary | Restricted Stock Awards Activity | Number of restricted shares | Weighted-average grant date fair value | | :------------------------------- | :-------------------------- | :------------------------------------- | | Non-vested shares, beginning of year | 229,779 | $18.61 | | Granted | 164,900 | $32.14 | | Vested | (60,768) | $16.83 | | Forfeited | (37,523) | $23.98 | | Non-vested shares at Sep 30, 2022 | 296,388 | $25.82 | - The company recorded compensation expense related to RSAs of $0.9 million and $0.7 million during the three months ended September 30, 2022 and 2021, respectively, and $2.4 million and $2.1 million during the nine months ended September 30, 2022 and 2021, respectively[184] - The total unamortized deferred compensation expense for all unvested restricted stock outstanding at September 30, 2022, was $4.4 million, to be recognized over a weighted average period of 1.6 years[184] 14. Income Taxes This note provides information on the company's income tax expense, effective tax rates, and deferred tax assets Income Taxes Summary | Income Tax Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income before income tax expense | $26,740 | $21,851 | $55,227 | $59,538 | | Income tax expense | $5,864 | $5,454 | $11,875 | $13,537 | | Effective income tax rate | 21.93% | 24.96% | 21.50% | 22.74% | - Net deferred tax assets increased to $45.8 million at September 30, 2022, from $11.3 million at December 31, 2021, primarily due to $135.6 million in net unrealized holding losses on debt securities available for sale[415] 15. Accumulated Other Comprehensive (loss) Income ("AOCL/AOCI") This note details the components of Accumulated Other Comprehensive (Loss) Income (AOCL/AOCI), including unrealized holding gains/losses on debt securities and interest rate swaps, and their tax effects Accumulated Other Comprehensive (loss) Income ("AOCL/AOCI") Summary | AOCL/AOCI Component (in thousands) | Sep 30, 2022 Net of Tax | Dec 31, 2021 Net of Tax | | :--------------------------------------------------------------------------------- | :---------------------- | :---------------------- | | Net unrealized holding (losses) gains on debt securities available for sale | $(89,104) | $11,987 | | Net unrealized holding gains on interest rate swaps designated as cash flow hedges | $2,896 | $3,230 | | Total (AOCL) AOCI | $(86,208) | $15,217 | - The company recorded net unrealized holding losses of $101.0 million (net of tax) on debt securities available for sale during the nine months ended September 30, 2022, primarily due to increases in market interest rates[198] 16. Stockholders' Equity This note provides information on common stock, including shares outstanding, repurchases, and dividends declared and paid - Shares of Class A common stock outstanding were 33,773,249 at September 30, 2022, down from 35,883,320 at December 31, 2021, reflecting stock repurchases and cancellations[201] - The Board of Directors declared cash dividends of $0.09 per share of Class A common stock for each of the first three quarters of 2022, totaling $9.2 million[202] - A cash dividend of $0.09 per common share was declared on October 19, 2022, payable on November 30, 2022[203] 17. Contingencies This note addresses legal proceedings and off-balance sheet credit risks, including commitments to extend credit and letters of credit - The company is involved in various legal actions in the ordinary course of business, but management believes the outcome will not have a significant effect on its financial position or results of operations[206] Contingencies Summary | Off-Balance Sheet Arrangement (in thousands) | Approximate Contract Amount | | :------------------------------------------- | :-------------------------- | | Commitments to extend credit | $1,115,817 | | Standby letters of credit | $21,362 | | Commercial letters of credit | $156 | | Total | $1,137,335 | 18. Fair Value Measurements This note provides fair value measurements for assets and liabilities on both a recurring and non-recurring basis, categorized by valuation input levels (Level 1, 2, and 3) Fair Value Measurements Summary | Asset Category (in thousands) | Sep 30, 2022 Fair Value | Dec 31, 2021 Fair Value | | :------------------------------------------- | :---------------------- | :---------------------- | | Debt securities available for sale | $1,052,329 | $1,175,319 | | Equity securities with readily determinable fair values not held for trading | $12,232 | $252 | | Mortgage loans held for sale (at fair value) | $57,591 | $14,905 | | Bank owned life insurance | $227,034 | $223,006 | | Derivative instruments (assets) | $78,347 | $21,870 | | Derivative instruments (liabilities) | $78,351 | $22,198 | - Loans held for investment measured for impairment using the fair value of collateral (Level 3) totaled $5.7 million at September 30, 2022, down from $24.8 million at December 31, 2021[222] - Other Real Estate Owned (OREO) measured at fair value (Level 3) was $6.3 million at September 30, 2022, with total impairments of $3.5 million[222] 19. Earnings Per Share This note presents the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2022, and 2021 Earnings Per Share Summary | EPS Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income attributable to Amerant Bancorp Inc. | $20,920 | $17,031 | $44,544 | $47,452 | | Basic weighted average shares outstanding | 33,476,418 | 37,133,783 | 33,985,856 | 37,358,780 | | Diluted weighted average shares outstanding | 33,746,878 | 37,518,293 | 34,253,562 | 37,683,834 | | Basic earnings per common share | $0.62 | $0.46 | $1.31 | $1.27 | | Diluted earnings per common share | $0.62 | $0.45 | $1.30 | $1.26 | - Diluted EPS increased to $0.62 in Q3 2022 from $0.45 in Q3 2021, and to $1.30 for the nine months ended September 30, 2022, from $1.26 in the prior year, reflecting higher net income and a lower weighted average number of shares outstanding[232][493] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, offering a detailed analysis of key financial metrics, business developments, and strategic initiatives for the three and nine months ended September 30, 2022, compared to 2021 Cautionary Note Regarding Forward-Looking Statements This section advises readers that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from projections. It lists numerous factors that could impact future performance and emphasizes that these statements are not guarantees of future results - Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied[236] - Key risk factors include interest rate risk, concentration of commercial real estate (CRE) loans, adequacy of allowance for loan losses, liquidity risks, and the impact of technological changes and cybersecurity threats[237][238] - The company does not undertake any obligation to update or revise forward-looking statements, except as required by law[242] Overview This overview introduces Amerant Bancorp Inc., its services, primary markets, and its status as an Emerging Growth Company (EGC). It also covers recent business developments, strategic initiatives, and the impact of external events like the COVID-19 pandemic and Hurricane Ian on the company's operations and financial condition - Amerant Bancorp Inc. is a bank holding company providing deposit, credit, investment, wealth management, and mortgage services in South Florida and Houston, Texas, with a loan production office in Tampa, Florida[244] - The company will transition from an Emerging Growth Company (EGC) to a large accelerated filer effective December 31, 2022, requiring compliance with heightened regulatory requirements, including auditor attestation for Section 404 of Sarbanes-Oxley and earlier adoption of new accounting standards like CECL[248][249] - Strategic initiatives include growing core deposits, accelerating digital transformation, improving brand awareness (e.g., partnerships with NBA's Miami Heat and NHL's Florida Panthers), rationalizing lines of business and geographies, and optimizing capital structure[258][260][261][263][267] - Hurricane Ian impacted the company's service areas in late September 2022, with an estimated $300 million in outstanding loan balances in affected regions. The company recorded $1.6 million in loan loss reserves for initial probable credit losses related to the hurricane[275] Results of Operations - Comparison of Results of Operations for the Three and Nine Month Periods Ended September 30, 2022 and 2021 This section provides a detailed comparison of the company's financial performance for the three and nine months ended September 30, 2022, and 2021, analyzing net income, net interest income, allowance for loan losses, noninterest income, noninterest expense, and income taxes Results of Operations - Comparison of Results of Operations for the Three and Nine Month Periods Ended September 30, 2022 and 2021 Summary | Metric (in thousands, except percentages) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change 2022 vs 2021 % | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change 2022 vs 2021 % | | :--------------------------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Net interest income | $69,897 | $51,821 | 34.9% | $184,487 | $149,361 | 23.5% | | Provision for (reversal of) loan losses | $3,000 | $(5,000) | (160.0)% | $(7,000) | $(10,000) | 30.0% | | Noninterest income | $15,956 | $13,434 | 18.8% | $42,912 | $43,331 | (1.0)% | | Noninterest expense | $56,113 | $48,404 | 15.9% | $179,172 | $143,154 | 25.2% | | Net income attributable to Amerant Bancorp Inc. | $20,920 | $17,031 | 22.8% | $44,544 | $47,452 | (6.1)% | | Net interest margin | 3.61% | 2.94% | 67 bps | 3.36% | 2.81% | 55 bps | - Net interest income increased by $18.1 million (34.9%) in Q3 2022 and $35.1 million (23.5%) in the first nine months of 2022, primarily due to higher average yields on interest-earning assets and increased loan balances, partially offset by higher funding costs[313][319][334][349] - Noninterest expense increased by $7.7 million (15.9%) in Q3 2022 and $36.0 million (25.2%) in the first nine months of 2022, driven by higher professional fees, occupancy costs, advertising, and salaries, including restructuring costs and technology transition expenses[315][321][397][404] - The efficiency ratio improved to 65.4% in Q3 2022 from 74.2% in Q3 2021, but increased to 78.8% in the first nine months of 2022 from 74.3% in the prior year period[304] Financial Condition - Comparison of Financial Condition as of September 30, 2022 and December 31, 2021 This section analyzes the company's financial condition as of September 30, 2022, compared to December 31, 2021, focusing on changes in assets, liabilities, equity, loan quality, securities portfolio, deposits, capital resources, and regulatory capital requirements Assets This subsection details the changes in the company's total assets, including loans, securities, and cash and cash equivalents, from December 31, 2021, to September 30, 2022 - Total assets increased by $1.1 billion (14.4%) to $8.7 billion at September 30, 2022, primarily driven by a $952.0 million increase in total loans and a $116.1 million increase in debt securities held to maturity[417] - Cash and cash equivalents increased to $302.1 million at September 30, 2022, from $274.2 million at December 31, 2021, including $46.1 million in restricted cash for derivative margin calls[418] Loans This subsection provides a detailed breakdown of the loan portfolio, including composition by type (domestic and international), credit quality indicators, and changes in outstanding balances Loans Summary | Loan Type (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------- | :----------- | :----------- | | Total loans, gross | $6,503,359 | $5,567,540 | | Total loans, gross / total assets | 74.4% | 72.9% | | Allowance for loan losses / total loans held for investment, gross | 0.83% | 1.29% | - Total loans, including loans held for sale, increased by $935.8 million (16.8%) to $6.5 billion at September 30, 2022, compared to December 31, 2021[433] - Domestic loans increased by $958.7 million (17.5%), driven by single-family residential loans (up $371.5 million), commercial loans (up $243.7 million), CRE loans (up $161.4 million), and consumer loans (up $153.5 million)[433] International Loan Exposure (in thousands) Summary | International Loan Exposure (in thousands) | Sep 30, 2022 Net Exposure | Sep 30, 2022 % Total Assets | Dec 31, 2021 Net Exposure | Dec 31, 2021 % Total Assets | | :--------------------------------------- | :------------------------ | :-------------------------- | :------------------------ | :-------------------------- | | Venezuela | $50,012 | 0.6% | $64,636 | 0.9% | | Other | $26,708 | 0.3% | $35,006 | 0.4% | | Total | $76,720 | 0.9% | $99,642 | 1.3% | Loan Quality This subsection analyzes the allocation of the Allowance for Loan Losses (ALL) by loan segment, non-performing assets, and credit quality indicators, including special mention and substandard loans Loan Quality Summary | ALL Allocation (in thousands) | Sep 30, 2022 Allowance | Sep 30, 2022 % of Loans in Category | Dec 31, 2021 Allowance | Dec 31, 2021 % of Loans in Category | | :-------------------------------- | :--------------------- | :---------------------------------- | :--------------------- | :---------------------------------- | | Domestic Real estate | $17,147 | 41.1% | $17,952 | 43.5% | | Domestic Commercial | $29,124 | 37.3% | $38,616 | 38.7% | | Domestic Consumer and others | $6,773 | 20.2% | $11,762 | 15.7% | | Total Allowance for Loan Losses | $53,711 | 100.0% | $69,899 | 100.0% | - Non-performing assets decreased by $34.4 million (57.9%) to $25.1 million at September 30, 2022, compared to December 31, 2021, primarily due to loan payoffs, sales, charge-offs, and loans placed back in accrual status[450] - Classified loans (substandard and doubtful) totaled $20.1 million at September 30, 2022, a decrease of $31.3 million (61.0%) from $51.4 million at December 31, 2021[456] - Special mention loans decreased by $34.9 million (47.1%) to $39.2 million at September 30, 2022, from $74.1 million at December 31, 2021, mainly due to upgrades and paydowns[458] Securities This subsection details the composition, book value, and weighted average yields of the company's securities portfolio, including debt securities available for sale and held to maturity, and equity securities Securities Summary | Security Category (in thousands) | Sep 30, 2022 Amount | Sep 30, 2022 % | Dec 31, 2021 Amount | Dec 31, 2021 % | | :------------------------------------------- | :------------------ | :------------- | :------------------ | :------------- | | Debt securities available for sale | $1,052,329 | 77.9% | $1,175,319 | 87.7% | | Debt securities held to maturity | $234,317 | 17.3% | $118,175 | 8.8% | | Equity securities with readily determinable fair value not held for trading | $12,232 | 0.9% | $252 | 0.0% | | Total Securities | $1,352,782 | 100.0% | $1,341,241 | 100.0% | - Total securities increased by $11.5 million (0.9%) to $1.4 billion at September 30, 2022, driven by purchases of $370.8 million, partially offset by maturities, sales, and net unrealized holding losses[469] - The investment portfolio's weighted average effective duration increased to 5.0 years at September 30, 2022, from 3.6 years at December 31, 2021, due to lower expected prepayments in mortgage-backed securities from rising interest rates[474] Liabilities This subsection outlines the changes in the company's total liabilities, including deposits, FHLB advances, and subordinated notes, from December 31, 2021, to September 30, 2022 - Total liabilities increased by $1.2 billion (18.2%) to $8.0 billion at September 30, 2022, primarily due to a $957.3 million increase in total deposits and a $171.4 million net increase in FHLB advances[476] - Other liabilities increased by $75.3 million (70.7%) to $181.7 million, mainly driven by changes in the estimated fair value of derivative instruments[477] Deposits This subsection provides a detailed analysis of the company's deposit base, including total deposits, core deposits, brokered deposits, large fund providers, and time deposits by maturity, categorized by country of domicile Deposits Summary | Deposit Category (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change Amount | Change % | | :-------------------------------- | :----------- | :----------- | :------------ | :------- | | Domestic Deposits | $4,166,281 | $3,137,258 | $1,029,023 | 32.8% | | Foreign Deposits | $2,421,841 | $2,493,613 | $(71,772) | (2.9)% | | Total Deposits | $6,588,122 | $5,630,871 | $957,251 | 17.0% | - Total deposits increased by $957.3 million (17.0%) to $6.6 billion at September 30, 2022, primarily due to a $908.7 million (21.2%) increase in core deposits[478] - Core deposits, defined as total deposits excluding all time deposits, were $5.2 billion at September 30, 2022, representing 79.0% of total deposits[484] - Brokered deposits increased by $117.1 million (30.2%) to $504.4 million, primarily due to an increase in brokered time deposits to lock in lower interest rates[485] Short-Term Borrowings This subsection provides information on the company's short-term borrowings, including outstanding amounts and weighted average interest rates Short-Term Borrowings Summary | Short-Term Borrowings (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | Outstanding at period-end | $204,693 | $— | | Average amount | $69,227 | $28,273 | | Maximum amount outstanding at any month-end | $204,693 | $130,000 | | Weighted average interest rate (during period) | 1.16% | 0.36% | | Weighted average interest rate (end of period) | 1.88% | —% | - There were no outstanding short-term borrowings at December 31, 2021, but $204.7 million at September 30, 2022, with a weighted average interest rate of 1.88% at period-end[490] Return on Equity and Assets This subsection presents annualized return on average assets (ROA), return on average equity (ROE), and average equity to average assets ratios Return on Equity and Assets Summary | Metric (in thousands, except percentages) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income attributable to the Company | $20,920 | $17,031 | $44,544 | $47,452 | | Net income attributable to the Company / Average total assets (ROA) | 1.00% | 0.90% | 0.75% | 0.83% | | Net income attributable to the Company / Average stockholders' equity (ROE) | 11.28% | 8.38% | 7.84% | 8.01% | | Average stockholders' equity / Average total assets ratio | 8.83% | 10.70% | 9.58% | 10.35% | - ROA increased to 1.00% in Q3 2022 from 0.90% in Q3 2021, while ROE increased to 11.28% from 8.38% in the same periods[492] Capital Resources and Liquidity Management This subsection discusses the company's capital resources and liquidity management strategies, including stockholders' equity, common stock transactions, FHLB borrowing capacity, and the impact of the Amerant Florida Merger - Total stockholders' equity decreased by $136.2 million (16.4%) to $695.7 million at September 30, 2022, primarily due to after-tax net unrealized holding losses on debt securities available for sale and common stock repurchases[496] - The company repurchased $72.1 million of Class A common stock in the first nine months of 2022 under its repurchase programs[498] - At September 30, 2022, the company had $1.5 billion of available borrowing capacity under FHLB facilities, in addition to $981.0 million in outstanding advances[502] - The Amerant Florida Merger, completed on August 2, 2022, resulted in the company assuming all assets and liabilities of Amerant Florida, including direct ownership of the Bank and junior subordinated debentures, with no impact on consolidated financial condition[508] Regulatory Capital Requirements This subsection presents the company's and the Bank's consolidated regulatory capital amounts and ratios, demonstrating compliance with minimum capital adequacy standards Regulatory Capital Requirements Summary | Capital Ratio | Sep 30, 2022 Actual Ratio | Sep 30, 2022 Required for Capital Adequacy | Sep 30, 2022 Regulatory Minimums to be Well Capitalized | | :------------------------ | :------------------------ | :----------------------------------------- | :---------------------------------------------------- | | Total capital ratio | 12.49% | 8.00% | 10.00% | | Tier 1 capital ratio | 11.34% | 6.00% | 8.00% | | Tier 1 leverage ratio | 9.88% | 4.00% | 5.00% | | Common Equity Tier 1 (CET1) | 10.50% | 4.50% | 6.50% | - The company and the Bank maintained capital ratios well above regulatory minimums for capital adequacy and to be considered well-capitalized at September 30, 2022[511][512] Tangible Common Equity Ratio and Tangible Book Value Per Common Share This subsection provides a reconciliation of tangible common equity and tangible assets, non-GAAP financial measures, to total equity and total assets, respectively, along with tangible book value per common share Tangible Common Equity Ratio and Tangible Book Value Per Common Share Summary | Metric (in thousands, except percentages) | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------------------------------------------------------- | :----------- | :----------- | | Stockholders' equity | $695,698 | $749,396 | | Less: goodwill and other intangibles | $(22,814) | $(22,795) | | Tangible common stockholders' equity | $672,884 | $726,601 | | Total assets | $8,739,979 | $7,805,836 | | Less: goodwill and other intangibles | $(22,814) | $(22,795) | | Tangible assets | $8,717,165 | $7,783,041 | | Tangible common equity ratio | 7.72% | 9.34% | | Tangible stockholders' book value per common share | $19.92 | $21.15 | - Tangible stockholders' book value per common share decreased to $19.92 at September 30, 2022, from $22.55 at December 31, 2021, reflecting accumulated after-tax unrealized losses on debt securities available for sale[306][516] Off-Balance Sheet Arrangements This subsection details the company's off-balance sheet arrangements, primarily commitments to extend credit and letters of credit Off-Balance Sheet Arrangements Summary | Off-Balance Sheet Arrangement (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------------- | :----------- | :----------- | | Commitments to extend credit | $1,115,817 | $899,016 | | Letters of credit | $21,518 | $32,107 | | Total | $1,137,335 | $931,123 | Contractual Obligations This subsection highlights significant changes to the company's contractual obligations, including FHLB advances and subordinated notes - The company borrowed $150 million in fixed-rate FHLB advances in Q3 2022 and repaid $530.0 million in callable FHLB advances while borrowing $550.0 million in longer-term advances in the first nine months of 2022[520] - Total time deposits increased by $48.6 million in the nine months ended September 30, 2022, driven by a $170.7 million increase in brokered time deposits, partially offset by a $122.1 million decrease in customer time deposits[521] Critical Accounting Policies and Estimates This subsection refers to the company's critical accounting policies and estimates as disclosed in its latest annual report on Form 10-K and notes pending accounting pronouncements - The company's critical accounting policies and estimates are detailed in its Form 10-K for the year ended December 31, 2021[522] - The company is preparing for the adoption of the Current Expected Credit Losses (CECL) guidance, which will be required effective January 1, 2022, due to its change in EGC status[522] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section provides quantitative and qualitative disclosures about the company's exposure to market risks, primarily interest rate and price risks, using sensitivity analyses for earnings and Economic Value of Equity (EVE), and details the investment portfolio's duration - Interest rate and price risks are identified as the most significant market risks, monitored through sensitivity analyses on earnings and equity[524] Item 3. Quantitative and Qualitative Disclosures About Market Risk Summary | Change in Interest Rates (Basis points) | Sep 30, 2022 Change in earnings (1) | Dec 31, 2021 Change in earnings (1) | | :-------------------------------------- | :---------------------------------- | :---------------------------------- | | Increase of 200 | 9.0% | 6.7% | | Increase of 100 | 6.0% | 4.4% | | Decrease of 50 | (2.6)% | (2.8)% | | Decrease of 100 | (6.4)% | —% | - The sensitivity of Economic Value of Equity (EVE) to interest rate changes improved, with the balance sheet becoming more asset sensitive compared to December 31, 2021, and remaining within established risk limits[529] - The average duration of the investment portfolio increased to 5.0 years at September 30, 2022, from 3.6 years at December 31, 2021, mainly due to expected and actual lower mortgage-backed securities prepayments from rising interest rates[531] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, concluding their effectiveness as of September 30, 2022, and noting no material changes in internal control over financial reporting - The company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2022[535] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the period[537] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section states that the company is involved in various legal actions in the ordinary course of business, but management believes potential liabilities are not material to its financial position or results of operations - The company is engaged in litigation and has unresolved claims, but management believes potential liabilities are not likely to be material to its financial position, results of operations, or cash flows[539] Item 1A. Risk Factors This section updates previously disclosed risk factors, highlighting material changes related to cybersecurity threats and the impact of severe weather and natural disasters on the company's business - The company's information systems are exposed to cybersecurity threats, and a recent incident in August 2022 involved unauthorized access to limited customer information from a third-party vendor, though no misuse was discovered[541][542] - Severe weather and natural disasters, particularly hurricanes in South Florida and Houston, Texas, pose significant risks, potentially affecting the stability of the deposit base, borrower repayment ability, collateral values, and overall economic activity in the company's markets[547][548] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report Item 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company Item 5. Other Information This section indicates that there is no other information to report Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including certifications, XBRL documents, and interactive data - Exhibits include certifications by the CEO and CFO (31.1, 31.2, 32.1, 32.2) and various XBRL documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[552] Signatures This section contains the signatures of the company's authorized officers, Gerald P. Plush (Chairman, President and Chief Executive Officer) and Carlos Iafigliola (Executive Vice-President and Chief Financial Officer), certifying the report - The report is signed by Gerald P. Plush, Chairman, President and Chief Executive Officer, and Carlos Iafigliola, Executive Vice-President and Chief Financial Officer, on October 28, 2022[555]