The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecastforecasted annual consolidated pre-tax income, permanent tax differences and statutory tax rates. Under this method, the tax effect of certain items that do not meet the definition of ordinary income or expense are computed and recognized as discrete items when they occur.
Financial instruments whose contract amount represents off-balance sheet credit risk at JuneSeptember 30, 20182022 are generally short-term and are as follows:
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 |
| (in thousands) | Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1) | | Third-Party
Models with
Observable
Market
Inputs
(Level 2) | | Internal
Models
with
Unobservable
Market
Inputs
(Level 3) | | Total
Carrying
Value in the
Consolidated
Balance
Sheet |
| Assets | | | | | | | |
| Securities available for sale | | | | | | | |
| U.S. government sponsored enterprise debt securities | $ | — |
| | $ | 875,666 |
| | $ | — |
| | $ | 875,666 |
|
| Corporate debt securities | — |
| | 313,392 |
| | — |
| | 313,392 |
|
| U.S. government agency debt securities | — |
| | 291,385 |
| | — |
| | 291,385 |
|
| Municipal bonds | — |
| | 180,396 |
| | — |
| | 180,396 |
|
| Mutual funds | — |
| | 23,617 |
| | — |
| | 23,617 |
|
| U.S. treasury securities | — |
| | 2,701 |
| | — |
| | 2,701 |
|
| | — |
| | 1,687,157 |
| | — |
| | 1,687,157 |
|
| Bank owned life insurance | — |
| | 200,318 |
| | — |
| | 200,318 |
|
| Derivative instruments | — |
| | 7,032 |
| | — |
| | 7,032 |
|
| | $ | — |
| | $ | 1,894,507 |
| | $ | — |
| | $ | 1,894,507 |
|
| Liabilities | | | | | | | |
| Derivative instruments | $ | — |
| | $ | 1,570 |
| | $ | — |
| | $ | 1,570 |
|
Level 2 Valuation Techniques
The valuation of securities and derivative instruments is performed through a monthly pricing process using data provided by third parties considered leading global providers of independent data pricing services (the “Pricing Providers”). These Pricing Providers collect, use and incorporate descriptive market data from various sources, quotes and indicators from leading broker dealers to generate independent and objective valuations.
The valuation techniques and the inputs used in our consolidated financial statements to measure the fair value of our recurring Level 2 financial instruments consider, among other factors, the following:
Similar securities actively traded which are selected from recent market transactions;
Observable market data which includes spreads in relationship to LIBOR, swap curve, and prepayment speed rates, as applicable; and
The actual interest rate spread and prepayment speed are used to obtain the fair value for each related security.
On a quarterly basis, the Company evaluates the reasonableness of the monthly pricing process for the valuation of securities and derivative instruments. This evaluation includes challenging a random sample of the different types of securities in the investment portfolio as of the end of the quarter selected. This challenge consists of obtaining from the Pricing Providers a document explaining the methodology applied to obtain their fair value assessments for each type of investment included in the sample selection. The Company then analyzes in detail the various inputs used in the fair value calculation, both observable and unobservable (e.g., prepayment speeds, yield curve benchmarks, spreads, delinquency rates). Management considers that the consistent application of this methodology allows the Company to understand and evaluate the categorization of its investment portfolio.
Mercantil Bank Holding CorporationAmerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
The methods described above may produce a fair value calculation that may differ from the net realizable value or may not be reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of its financial instruments could result in different estimates of fair value at the reporting date.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following tables present the major categories of assets measured at fair value on a non-recurring basis at September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| (in thousands) | Carrying Amount | | Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total Impairments |
| Description | | | | | | | | | |
| Loans held for investment measured for impairments using the fair value of the collateral | $ | 5,687 | | | $ | — | | | $ | — | | | $ | 5,687 | | | $ | — | |
| Other Real Estate Owned | 6,312 | | | — | | | — | | | 6,312 | | | 3,488 | |
| | | | | | | | | |
| $ | 11,999 | | | $ | — | | | $ | — | | | $ | 11,999 | | | $ | 3,488 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| (in thousands) | Carrying Amount | | Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total Impairments |
| Description | | | | | | | | | |
| Loans held for investment measured for impairments using the fair value of the collateral | $ | 24,753 | | | $ | — | | | $ | — | | | $ | 24,753 | | | $ | 26,334 | |
| Other Real Estate Owned | 9,720 | | | — | | | — | | | 9,720 | | | 80 | |
| $ | 34,473 | | $ | — | | $ | — | | | $ | — | | | $ | 34,473 | | | $ | 26,414 | |
The following table presents the significant unobservable inputs (Level 3) used in the valuation of assets measured at fair value on a nonrecurring basis.
| | | | | | | | | | | | | | |
| Financial Instrument | Unobservable Inputs | Valuation Methods | Discount Range | Typical Discount |
| Collateral dependent loans | Discount to fair value | Appraisal value, as adjusted | 0-30% | 6-7% |
| | Inventory | 0-100% | 30-50% |
| | Accounts receivables | 0-100% | 20-30% |
| | Equipment | 0-100% | 20-30% |
| Other Real Estate Owned | Discount to fair value | Appraisal value, as adjusted | N/A | 6-7% |
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
Collateral Dependent Loans Measured For Impairment
The Company measures the impairment of collateral dependent loans based on the fair value of the collateral in accordance with the provisions of ASC-310-35 “Impairment of Loans and Receivables.” The Company primarily uses third party appraisals to assist in measuring impairment on collateral dependent impaired loans. The Company also uses third party appraisal reviewers for loans with an outstanding balance of $1 million and above. These appraisals generally use the market or income approach valuation technique and use market observable data to formulate an opinion of the fair value of the loan’s collateral. However, the appraiser uses professional judgment in determining the fair value of the collateral or properties and may also adjust these values for changes in market conditions subsequent to the appraisal date. When current appraisals are not available for certain loans, the Company uses judgment on market conditions to adjust the most current appraisal. The sales prices may reflect prices of sales contracts not closed and the amount of time required to sell out the real estate project may be derived from current appraisals of similar projects. As a consequence, the fair value of the collateral is considered a Level 3 valuation.
Other Real Estate Owned
The Company values OREO at the lower of cost or fair value of the property, less cost to sell. The fair value of the property is generally based upon recent appraisal values of the property, less cost to sell. The Company primarily uses third party appraisals to assist in measuring the valuation of OREO. Period revaluations are classified as Level 3 as the assumptions used may not be observable.
There were no other significant assets or liabilities measured at fair value on a nonrecurring basis at JuneSeptember 30, 2018. The following table presents the major category of assets measured at fair value on a nonrecurring basis at2022 and December 31, 2017:
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 |
| (in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Other Unobservable Inputs (Level 3) | | Total Impairments |
| Description | | | | | | | |
| Loans held for sale | $ | 5,611 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Loans Held for Sale. The Company measures the impairment of loans held for sale based on the amount by which the carrying values of those loans exceed their fair values. The Company primarily uses independent third party quotes to measure any subsequent decline in the value of loans held for sale. As a consequence, the fair value of these loans held for sale are considered a Level 1 valuation.2021.
Fair Value of Financial Instruments
The fair value of a financial instrument represents the price that would be received from its sale in an orderly transaction between market participants at the measurement date. The best indication of the fair value of a financial instrument is determined based upon quoted market prices. However, in many cases, there are no quoted market prices for the Company’s various financial instruments. As a result, the Company derives the fair value of the financial instruments held at the reporting period-end, in part, using present value or other valuation techniques. Those techniques are significantly affected by management’s assumptions, the estimated amount and timing of future cash flows and estimated discount rates included in present value and other techniques. The use of different assumptions could significantly affect the estimated fair values of the Company’s financial instruments. Accordingly, the net realized values could be materially different from the estimates presented below.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Because of their nature and short-term maturities, the carrying values of the following financial instruments were used as a reasonable estimate of their fair value: cash and cash equivalents, interest earning deposits with banks, variable-rate loans with re-pricing terms shorter than twelve months, demand and savings deposits, short-term time deposits and other borrowings.
The fair value of loans held for sale, securities, bank owned life insurance and derivative instruments, are based on quoted market prices, when available. If quoted market prices are unavailable, fair value is estimated using the pricing process described in Note 17 to the audited consolidated financial statements for the three years ended December 31, 2017 and as of December 31, 2017 and 2016.
Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
The fair value of commitments and letters of credit is based on the assumption that the Company will be required to perform on all such instruments. The commitment amount approximates estimated fair value.
The fair value of fixed-rate loans, advances from the FHLB, and junior subordinated debentures are estimated using a present value technique by discounting the future expected contractual cash flows using the current rates at which similar instruments would be issued with comparable credit ratings and terms at the measurement date.
The fair value of long-term time deposits, including certificates of deposit, is determined using a present value technique by discounting the future expected contractual cash flows using current rates at which similar instruments would be issued at the measurement date.
The estimated fair value of financial instruments where fair value differs from carrying value are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (in thousands) | Carrying
Value | | Estimated
Fair
Value | | Carrying
Value | | Estimated
Fair
Value |
| Financial assets: | | | | | | | |
| Debt securities held to maturity | $ | 234,317 | | | $ | 206,823 | | | $ | 118,175 | | | $ | 119,077 | |
| Loans | 3,129,610 | | | 2,920,943 | | | 2,619,461 | | | 2,559,280 | |
| Financial liabilities: | | | | | | | |
| Time deposits | 925,946 | | | 901,466 | | | 1,048,078 | | | 1,057,759 | |
| Advances from the FHLB | 981,005 | | | 914,230 | | | 809,577 | | | 819,268 | |
| Senior notes | 59,131 | | | 58,785 | | | 58,894 | | | 63,214 | |
| Subordinated notes | 29,241 | | | 28,481 | | | — | | | — | |
| Junior subordinated debentures | 64,178 | | | 63,918 | | | 64,178 | | | 61,212 | |
|
| | | | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| (in thousands) | Carrying
Value | | Estimated
Fair
Value | | Carrying
Value | | Estimated
Fair
Value |
| Financial assets | | | | | | | |
| Loans | $ | 2,754,445 |
| | $ | 2,650,581 |
| | $ | 2,682,790 |
| | $ | 2,566,197 |
|
| Financial liabilities | | | | | | | |
| Time deposits | 1,714,145 |
| | 1,702,150 |
| | 1,466,464 |
| | 1,461,908 |
|
| Advances from the Federal Home Loan Bank | 1,256,000 |
| | 1,252,087 |
| | 1,161,000 |
| | 1,164,686 |
|
| Junior subordinated debentures | 118,110 |
| | 99,304 |
| | 118,110 |
| | 95,979 |
|
Mercantil Bank Holding CorporationAmerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
19.Earnings Per Share
The following tables provide a summarytable shows the calculation of the Company’s financial information asbasic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands, except share data and per share amounts) | | 2022 | | 2021 | | 2022 | | 2021 |
| Numerator: | | | | | | | | |
| Net income before attribution of noncontrolling interest | | $ | 20,876 | | | $ | 16,397 | | | $ | 43,352 | | | $ | 46,001 | |
| Noncontrolling interest | | (44) | | | (634) | | | (1,192) | | | (1,451) | |
| Net income attributable to Amerant Bancorp Inc. | | $ | 20,920 | | | $ | 17,031 | | | $ | 44,544 | | | $ | 47,452 | |
| Net income available to common stockholders | | $ | 20,920 | | | $ | 17,031 | | | $ | 44,544 | | | $ | 47,452 | |
| Denominator: | | | | | | | | |
| Basic weighted average shares outstanding | | 33,476,418 | | | 37,133,783 | | | 33,985,856 | | | 37,358,780 | |
| Dilutive effect of share-based compensation awards | | 270,460 | | | 384,510 | | | 267,706 | | | 325,054 | |
| 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 | |
As of JuneSeptember 30, 20182022 and December 31, 20172021, potential dilutive instruments consisted of unvested shares of restricted stock, RSUs and forPSUs totaling 532,867 and 606,381, respectively. In the three and six monthsnine month periods ended JuneSeptember 30, 20182022 and 2017 on a managed basis. The Company’s definition of managed basis starts with2021, potential dilutive instruments were included in the reported U.S. GAAP results and includes funds transfer pricing (“FTP”)diluted earnings per share computation because, when the unamortized deferred compensation and allocations of direct and indirect expenses from overhead, internal support centers, and product support centers. This allows management to assess the comparability of results from period-to-period arising from segment operations. The corresponding income tax impactcost related to tax-exempt items is recorded within income tax (expense)/benefit.these shares was divided by the average market price per share in those periods, fewer shares would have been purchased than restricted shares assumed issued. Therefore, in those periods, such awards resulted in higher diluted weighted average shares outstanding than basic weighted average shares outstanding, and had a dilutive effect in per share earnings.
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Personal and Commercial Banking ("PAC") | | Corporate LATAM | | Treasury | | Institutional | | Total |
| Three Months Ended June 30, 2018 | |
| Income Statement: | | | | | | | | | |
| Net interest income | $ | 47,105 |
| | $ | 1,219 |
| | $ | 1,942 |
| | $ | 3,723 |
| | $ | 53,989 |
|
| Provision for (reversal of) loan losses | 824 |
| | 494 |
| | (329 | ) | | (839 | ) | | 150 |
|
| Net interest income after provision for (reversal of) loan losses | 46,281 |
| | 725 |
| | 2,271 |
| | 4,562 |
| | 53,839 |
|
| Noninterest income | 5,708 |
| | 89 |
| | 3,451 |
| | 5,738 |
| | 14,986 |
|
| Noninterest expense | 39,329 |
| | 1,468 |
| | 2,832 |
| | 9,009 |
| | 52,638 |
|
| Net income (loss) before income tax: | | | | | | | | | |
| Banking | 12,660 |
| | (654 | ) | | 2,890 |
| | 1,291 |
| | 16,187 |
|
Non-banking contribution(1) | 1,197 |
| | 11 |
| | — |
| | (1,208 | ) | | — |
|
| | 13,857 |
| | (643 | ) | | 2,890 |
| | 83 |
| | 16,187 |
|
| Income tax (expense) benefit | (4,486 | ) | | 58 |
| | 84 |
| | (1,420 | ) | | (5,764 | ) |
| Net income (loss) | $ | 9,371 |
| | $ | (585 | ) | | $ | 2,974 |
| | $ | (1,337 | ) | | $ | 10,423 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Personal and Commercial Banking ("PAC") | | Corporate LATAM | | Treasury | | Institutional | | Total |
| Six Months Ended June 30, 2018 | |
| Income Statement: | | | | | | | | | |
| Net interest income | $ | 93,786 |
| | $ | 2,699 |
| | $ | 2,898 |
| | $ | 7,239 |
| | $ | 106,622 |
|
| (Reversal of) provision for loan losses | (1,315 | ) | | (225 | ) | | (446 | ) | | 2,136 |
| | 150 |
|
| Net interest income after (reversal of) provision for loan losses | 95,101 |
| | 2,924 |
| | 3,344 |
| | 5,103 |
| | 106,472 |
|
| Noninterest income | 11,416 |
| | 198 |
| | 5,401 |
| | 11,916 |
| | 28,931 |
|
| Noninterest expense | 79,343 |
| | 2,643 |
| | 5,794 |
| | 20,503 |
| | 108,283 |
|
| Net income (loss) before income tax: | | | | | | | | | |
| Banking | 27,174 |
| | 479 |
| | 2,951 |
| | (3,484 | ) | | 27,120 |
|
Non-banking contribution(1) | 1,247 |
| | — |
| | — |
| | (1,247 | ) | | — |
|
| | 28,421 |
| | 479 |
| | 2,951 |
| | (4,731 | ) | | 27,120 |
|
| Income tax (expense) benefit | (6,707 | ) | | (113 | ) | | 396 |
| | (844 | ) | | (7,268 | ) |
| Net income (loss) | $ | 21,714 |
| | $ | 366 |
| | $ | 3,347 |
| | $ | (5,575 | ) | | $ | 19,852 |
|
Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Personal and Commercial Banking ("PAC") | | Corporate LATAM | | Treasury | | Institutional | | Total |
| As of June 30, 2018 | | | | | | | | | |
Loans, net(2) | $ | 5,826,731 |
| | $ | 394,572 |
| | $ | — |
| | $ | (71,685 | ) | | $ | 6,149,618 |
|
| Deposits | $ | 5,567,424 |
| | $ | 20,134 |
| | $ | 737,898 |
| | $ | 37,682 |
| | $ | 6,363,138 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Personal and Commercial Banking ("PAC") | | Corporate LATAM | | Treasury | | Institutional | | Total |
| Three Months Ended June 30, 2017 | |
| Income Statement: | | | | | | | | | |
| Net interest income | $ | 43,776 |
| | $ | 2,339 |
| | $ | 2,268 |
| | $ | 3,058 |
| | $ | 51,441 |
|
| Provision for (reversal of) loan losses | 8,681 |
| | (1,845 | ) | | (819 | ) | | (2,371 | ) | | 3,646 |
|
| Net interest income after provision for (reversal of) loan losses | 35,095 |
| | 4,184 |
| | 3,087 |
| | 5,429 |
| | 47,795 |
|
| Noninterest income | 8,062 |
| | 148 |
| | 2,933 |
| | 6,616 |
| | 17,759 |
|
| Noninterest expense | 38,618 |
| | 1,135 |
| | 2,445 |
| | 8,467 |
| | 50,665 |
|
| Net income before income tax: | | | | | | | | | |
| Banking | 4,539 |
| | 3,197 |
| | 3,575 |
| | 3,578 |
| | 14,889 |
|
Non-banking contribution(1) | 1,263 |
| | 24 |
| | — |
| | (1,287 | ) | | — |
|
| | 5,802 |
| | 3,221 |
| | 3,575 |
| | 2,291 |
| | 14,889 |
|
| Income tax expense | (2,001 | ) | | (1,147 | ) | | (446 | ) | | (905 | ) | | (4,499 | ) |
| Net income | $ | 3,801 |
| | $ | 2,074 |
| | $ | 3,129 |
| | $ | 1,386 |
| | $ | 10,390 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Personal and Commercial Banking ("PAC") | | Corporate LATAM | | Treasury | | Institutional | | Total |
| Six Months Ended June 30, 2017 | |
| Income Statement: | | | | | | | | | |
| Net interest income | $ | 85,164 |
| | $ | 4,903 |
| | $ | 4,593 |
| | $ | 5,132 |
| | $ | 99,792 |
|
| Provision for (reversal of) loan losses | 9,812 |
| | 358 |
| | (894 | ) | | (1,533 | ) | | 7,743 |
|
| Net interest income after provision for (reversal of) loan losses | 75,352 |
| | 4,545 |
| | 5,487 |
| | 6,665 |
| | 92,049 |
|
| Noninterest income | 14,145 |
| | 275 |
| | 4,113 |
| | 13,443 |
| | 31,976 |
|
| Noninterest expense | 78,495 |
| | 2,517 |
| | 5,194 |
| | 13,607 |
| | 99,813 |
|
| Net income before income tax: | | | | | | | | | |
| Banking | 11,002 |
| | 2,303 |
| | 4,406 |
| | 6,501 |
| | 24,212 |
|
Non-banking contribution(1) | 2,349 |
| | 22 |
| | — |
| | (2,371 | ) | | — |
|
| | 13,351 |
| | 2,325 |
| | 4,406 |
| | 4,130 |
| | 24,212 |
|
| Income tax expense | (4,730 | ) | | (823 | ) | | (59 | ) | | (1,703 | ) | | (7,315 | ) |
| Net income | $ | 8,621 |
| | $ | 1,502 |
| | $ | 4,347 |
| | $ | 2,427 |
| | $ | 16,897 |
|
Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Personal and Commercial Banking ("PAC") | | Corporate LATAM | | Treasury | | Institutional | | Total |
| As of December 31, 2017 | | | | | | | | | |
Loans, net(2)(3) | $ | 5,542,545 |
| | $ | 521,616 |
| | $ | — |
| | $ | (64,325 | ) | | $ | 5,999,836 |
|
| Deposits | $ | 5,454,216 |
| | $ | 18,670 |
| | $ | 779,969 |
| | $ | 70,118 |
| | $ | 6,322,973 |
|
__________________
| |
(1) | Non-banking contribution reflects allocations of the net results of the Trust Company and Investment Services subsidiaries to the customers’ primary business unit. |
| |
(2) | Provisions for the periods presented are allocated to each applicable reportable segment. The allowance for loan losses and unearned deferred loan costs and fees are reported entirely within Institutional. |
| |
(3) | Balances include loans held for sale of $5,611 thousand which are allocated to PAC. |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is designed to provide a better understanding of various factors related to the Company’sAmerant Bancorp Inc.’s (the “Company,” “Amerant,” “our” or “we”) results of operations and financial condition and its wholly and partially owned subsidiaries, including its principal subsidiary, MercantilAmerant Bank, N.A. (the “Bank”). The Bank has two principalthree operating subsidiaries, Mercantil Trust Company, N.A. (the “Trust Company”) and Mercantil Investment Services,Amerant Investments, Inc., a securities broker-dealer (“Investment Services”Amerant Investments”), Amerant Mortgage, LLC (“Amerant Mortgage”), a 80% owned mortgage lending company domiciled in Florida, and Elant Bank & Trust, a Grand-Cayman based trust company (the “Cayman Bank”).
This discussion is intended to supplement and highlight information contained in the accompanying unaudited interim unaudited consolidated financial statements and related footnotes included in this Quarterly Report on Form 10-Q (“Form 10-Q”), as well as the information contained in the Company’s definitive Information Statement filed with the SEC as Exhibit 99.1 to its CurrentAnnual Report on Form 8-K on August 10, 201810-K for the year ended December 31, 2021 (the “Information Statement”“Form 10-K”).
Special Notice
Cautionary Note Regarding Forward-Looking Statements
CertainVarious of the statements made in this discussion and analysis and elsewhere,Form 10-Q, including information incorporated herein by reference to other documents, are “forward-looking statements” within the meaning of, and subject to, the protections of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and condition, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance, achievements, or financial condition of the Company to be materially different from future results, performance, achievements, or financial condition expressed or implied by such forward-looking statements. You should not expect us to update any forward-looking statements.statements, except as required by law. These forward-looking statements should be read together with the “Risk Factors” included in our August 10, 2018 Registration Statementthe Form 10-K, in the Form 10-Q for the quarter ended March 31, 2022, the Form 10-Q for the quarter ended June 30, 2022, and in this Form 10-Q, and in our other reports filed with the SEC.Securities and Exchange Commission (the “SEC”).
All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “seek,” “should,” “indicate,” “would,” “believe,” “contemplate,” “consider”, “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:
•Our profitability is subject to interest rate risk;
•We may be adversely affected by the effectstransition of futureLIBOR as a reference rate;
•Our concentration of commercial real estate (“CRE”) loans could result in increased loan losses, and adversely affect our business, earnings and financial condition;
•Many of our loans are to commercial borrowers, which have unique risks compared to other types of loans;
•Our allowance for loan losses may prove inadequate or we may be negatively affected by credit risk exposures;
•The collateral securing our loans may not be sufficient to protect us from a partial or complete loss if we are required to foreclose;
•Liquidity risks could affect our operations and jeopardize our financial condition and certain funding sources could increase our interest rate expense;
•Our valuation of securities and investments and the determination of the impairment amounts taken on our investments are subjective and, if changed, could materially adversely affect our results of operations or financial condition;
•Our strategic plan and growth strategy may not be achieved as quickly or as fully as we seek;
•Nonperforming and similar assets take significant time to resolve and may adversely affect our results of operations and financial condition;
•We may be contractually obligated to repurchase mortgage loans we sold to third parties on terms unfavorable to us;
•Mortgage Servicing Rights, or MSRs, requirements may change and require us to incur additional costs and risks;
•We could be required to write down our goodwill and other intangible assets;
•We may incur losses due to minority investments in fintech and specialty finance companies;
•We are subject to risks associated with sub-leasing portions of our corporate headquarters building;
•Our success depends on our ability to compete effectively in highly competitive markets;
•Defaults by or deteriorating asset quality of other financial institutions could adversely affect us;
•Conditions in Venezuela could adversely affect our operations;
•The COVID-19 pandemic and actions taken by governmental authorities to mitigate its spread have significantly impacted economic business, and market conditions, and changes, domestica future outbreak of COVID-19 or another highly contagious disease, could adversely affect our business activities, results of operations and foreign, especially those affecting our Venezuela depositors, including seasonality;financial condition;
governmental monetary and fiscal policies;
legislative and regulatory changes, including changes in banking, securities, and tax laws, regulations and rules and their application by our regulators, including capital and liquidity requirements, and changes in the scope and cost of FDIC insurance and•Potential gaps in our regulationrisk management policies and internal audit procedures may leave us exposed to unidentified or unanticipated risk, which could negatively affect our business;
•We may determine that our internal controls and disclosure controls could have deficiencies or weaknesses;
•Technological changes affect our business including potentially impacting the revenue stream of traditional products and services, and we may have fewer resources than many competitors to invest in technological improvements;
•Our information systems may experience interruptions and security breaches, and are exposed to cybersecurity threats;
•Many of our major systems depend on and are operated by third-party vendors, and any systems failures or interruptions could adversely affect our operations and the U.S. or elsewhere;services we provide to our customers;
changes in accounting policies, rules,
•Any failure to protect the confidentiality of customer information could adversely affect our reputation and practices;subject us to financial sanctions and other costs that could have a material adverse effect on our business, financial condition and results of operations;
•Future acquisitions and expansion activities may disrupt our business, dilute shareholder value and adversely affect our operating results;
•We may not be able to generate sufficient cash to service all of our debt, including the risksSenior Notes and the Subordinated Notes;
•We are a holding company with limited operations and depend on our subsidiaries for the funds required to make payments of changes in inflationprincipal and interest rates on the levels, composition,Senior Notes, the Subordinated Notes and costsjunior subordinated notes;
•We may incur a substantial level of deposits, loan demand,debt that could materially adversely affect our ability to generate sufficient cash to fulfill our obligations under the Senior Notes and the valuesSubordinated Notes;
•Our business may be adversely affected by economic conditions in general and liquidity of loan collateral, securities, and interest sensitive assets and liabilities, and the risks and uncertainty of the amounts realizable;
changes in borrower credit risks and payment behaviors;
changes in the availability and cost of credit and capitalby conditions in the financial markets,markets;
•We are subject to extensive regulation that could limit or restrict our activities and adversely affect our earnings;
•Litigation and regulatory investigations are increasingly common in our businesses and may result in significant financial losses and/or harm to our reputation;
•We are subject to capital adequacy and liquidity standards, and if we fail to meet these standards, whether due to losses, growth opportunities or an inability to raise additional capital or otherwise, our financial condition and results of operations would be adversely affected;
•We will be subject to heightened regulatory requirements if our total assets grow in excess of $10 billion;
•The Federal Reserve may require us to commit capital resources to support the typesBank;
•We may face higher risks of instruments thatnoncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations than other financial institutions;
•Failures to comply with the fair lending laws, CFPB regulations or the Community Reinvestment Act, or CRA, could adversely affect us;
•Our ability to receive dividends from our subsidiaries could affect our liquidity and our ability to pay dividends;
•Certain of our existing shareholders could exert significant control over the Company;
•If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price of our common stock and trading volume could decline;
•The stock price of financial institutions, like Amerant, may fluctuate significantly;
•We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding Class A common stock;
•Certain provisions of our amended and restated articles of incorporation and amended and restated bylaws, Florida law, and U.S. banking laws could have anti-takeover effects;
•We are an “emerging growth company,” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be included as capital for regulatory purposes;less attractive to investors;
changes in the prices, values, and sales volumes of residential and commercial real estate;
the effects of competition from a wide variety of local, regional, national, and other providers of financial, investment, trust and other wealth management services;
the failure of assumptions and estimates underlying the establishment of allowances for possible loan and other asset impairments, losses, and other estimates;
the failure of assumptions and estimates, as well as differences in, and changes to, economic, market, and credit conditions, including changes in borrowers’ credit risks and payment behaviors from those used in our loan portfolio stress tests and other evaluations;
changes in technology or products that•We may be more difficult, costly, or less effective than anticipated;unable to attract and retain key people to support our business;
the effects
•Severe weather, natural disasters, global pandemics, acts of war or other conflicts, acts of terrorism, hurricanestheft, civil unrest, government expropriation or other catastrophicexternal events that may affect general economic conditions;could have significant effects on our business; and
cyber attacks and data breaches that may compromise our systems or customers’ information;
the risk that our deferred tax assets, if any, could be reduced if estimates of future taxable income from our operations and tax planning strategies are less than currently estimated, and sales of our capital stock could trigger a reduction in the amount of net operating loss carry-forwards, if any, that we may be able to utilize for income tax purposes; and
the•The other factors and information included in this reportthe Form 10-K and other filings that we make with the SEC under the Exchange Act including the Information Statement. and Securities Act. See “Risk Factors” in the Information Statement.Form 10-K for the year ended December 31, 2021, the Form 10-Q for the quarter ended March 31, 2022, the Form 10-Q for the quarter ended June 30, 2022, and this Form 10-Q.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in the Form 10-K. Because of these risks and other uncertainties, our actual future financial condition, results, performance or achievements, or industry results, may be materially different from the results indicated by the forward-looking statements in this Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results of operations. You should not rely on any forward-looking statements as predictions of future events.
Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update, revise or correct any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. All written or oral forward-looking statements that are made by us or are attributable to us are expressly qualified in their entirety by this cautionary notice. We have no obligationnotice, together with those risks and do not undertake to update, revise or correct any ofuncertainties described in “Risk Factors” in the forward-looking statements afterForm 10-K, the date ofForm 10-Q for the quarter ended March 31, 2022, the Form 10-Q for the quarter ended June 30, 2022, in this report, or afterForm 10-Q, and in our other filings with the respective dates onSEC, which such statements otherwise are made.available at the SEC’s website www.sec.gov.
OVERVIEW
Our Company
We are a bank holding company headquartered in Coral Gables, Florida. We provide individuals and businesses a comprehensive array of deposit, credit, investment, wealth management, retail banking, mortgage services, and fiduciary services, both toservices. We serve customers domiciled in theour United States markets and to select international customers. These services are offered primarily through the Bank, which is also headquartered in Coral Gables, Florida, and its Trust Companysubsidiaries. Fiduciary, investment, wealth management and Investment Services subsidiaries.mortgage lending services are provided by the Bank’s securities broker-dealer, Amerant Investments, the Bank’s Grand-Cayman based trust company, the Cayman Bank, and the mortgage company, Amerant Mortgage. The Bank’s primary markets are South Florida, where it operates 15we are headquartered and operate sixteen banking centers in Miami-Dade, Broward and Palm Beach counties; the greatercounties, and Houston, Texas, area where it haswe operate seven banking centers inthat serve the nearby areas of Harris, Montgomery, Fort Bend and Montgomery counties; and the New York City area where it hasWaller counties. In addition, we have a loan production office (“LPO”) in Midtown Manhattan.Tampa, Florida.
Emerging Growth Company Status
We reportare an “emerging growth company,” or EGC, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
In addition, Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. In 2019, the Federal bank regulators recognized or permitted public companies that are EGCs to delay the adoption of accounting pronouncements until those standards would otherwise apply to private companies. Since we became a publicly traded company, the Company has been taking advantage of the benefits of this extended transition period, and will continue to do so for as long as it is available and it is consistent with bank regulatory requirements.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act and (b) in which we have total annual gross revenue of at least $1.07 billion, (2) once we are deemed to be a large accelerated filer (determined as of the end of the fiscal year), which means the aggregate worldwide market value of the voting and non-voting common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, and (3) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. References herein to “emerging growth company” have the meaning provided in the JOBS Act.
Based on the aggregate worldwide market value of the voting and non-voting common stock that is held by the Company’s non-affiliates as of the last business day of the second quarter of 2022, the Company determined that it will be deemed a large accelerated filer effective as of December 31, 2022. Consequently, the Company will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, the Company will no longer be able to benefit from any extended transition period for complying with new or revised accounting standards, beginning as of December 31, 2022, and applied retroactively effective January 1, 2022.
See Note 1 to the Company’s unaudited interim consolidated financial statements in this Form 10-Q for more details on the adoption of the pending new accounting guidance on current estimated credit losses, or CECL.
Business Developments
For more information on the progress of these initiatives in 2021, see Item 1. Business section included in the Form 10-K.
Amerant Mortgage
On March 31, 2022, the Company contributed $1.5 million in cash to Amerant Mortgage, increasing its ownership interest to 57.4% as of March 31, 2022 from 51% as of December 31, 2021. This additional contribution had no material impact to the Company’s share of the results of operations through four segments: Personal and Commercial Banking (“PAC”of Amerant Mortgage for the three months ended March 31, 2022.
In the three months ended June 30, 2022, the Company increased its ownership interest in Amerant Mortgage to 80% from 57.4%. This change was the result of: (i) two former principals surrendering their interest in Amerant Mortgage to the Company, when they became full time employees of the Bank (the “Transfer of Subsidiary Shares From Noncontrolling Interest”), Corporate LATAM, Treasury and Institutional. PAC delivers(ii) an additional contribution made by the Bank’sCompany of $1 million, in cash, to Amerant Mortgage in the three months ended June 30, 2022. As a result of the Transfer of Subsidiary Shares From Noncontrolling Interest, the Company reduced its additional paid-in capital for a total of $1.9 million with a corresponding increase to the equity attributable to noncontrolling interests.
The Company reassessed staffing needs at Amerant Mortgage as a result of declining residential mortgage loan refinance demand activity attributable mainly to rising interest rates, along with other market factors. In the nine months ended September 30, 2022, FTEs at Amerant Mortgage declined 12 FTEs to 67 FTEs as of September 30, 2022 compared to 72 FTEs as of December 31, 2021. There were no changes to the total FTEs count at Amerant Mortgage during the three months ended September 30, 2022.
Employee Stock Purchase Plan
On June 8, 2022, the shareholders of the Company approved the Amerant Bancorp Inc. 2021 Employee Stock Purchase Plan (the “ESPP” or the “Plan”), which had been previously approved by the Compensation Committee and the Board of Directors on October 19 and 20, 2021, respectively. The Plan became effective on February 14, 2022, subject to obtaining shareholder approval. An aggregate of one million (1,000,000) shares of the Company’s Class A Common Stock (“Common Stock”) have been reserved for issuance under the Plan.
The purpose of the Plan is to provide eligible employees of the Company and its designated subsidiaries with the opportunity to acquire a stock ownership interest in the Company on favorable terms and to pay for such acquisitions through payroll deductions.
The first offering under the Plan for purposes of buying shares of Common Stock began on February 14, 2022 and ends on November 30, 2022 (the “First Offering Period”). Approximately 200 employees, including all named executive officers, and all other executive officers of the Company who were eligible as of the enrollment deadline for the First Offering Period, elected to participate in the Plan.
For further information, see the Company’s proxy statement for the annual meeting of shareholders held on June 8, 2022, filed with the SEC on April 28, 2022.
Amerant SPV, LLC
In May 2021, we incorporated a new wholly owned subsidiary, Amerant SPV. As we seek to innovate, address customer needs and compete in a fast changing and competitive environment, our Company is looking to partner with fintech and specialty finance companies that are developing cutting edge solutions and products and have the potential to improve our products and services to help our clients achieve their goals in a fast changing world. From time to time, the Company may evaluate select opportunities to invest and acquire non-controlling interests in companies it partners with, or may acquire non-controlling interests of fintech and specialty finance companies that the Company believes will be strategic or accretive.
In December 2021, Amerant became a strategic lead investor in the JAM FINTOP Blockchain fund, a fund that will initially focus its investments on the blockchain “infrastructure layer” that will help regulated financial institutions compliantly operate blockchain-powered applications in areas such as lending, payments and exchanges. More recently, the Company became a limited partner in the BankTech Venture Fund, a fund focused in investing in technology companies that are developing solutions aimed at supporting community banks and their end-customers. These funds also provide access to the Company to a network of banks and technology companies that are focused on developing solutions for community banks in the areas of deposit growth and customer acquisition, cyber security, digital platforms, process improvement, RegTech, data analytics and artificial intelligence, payment processing, and mortgage related technology.
USDF Consortium
In February 2022, the Company, through its Bank subsidiary, was admitted to the USDF Consortium, a membership-based association of FDIC-insured banks whose mission is to further the adoption and interoperability of a bank-minted tokenized deposit (USDF™), aimed at facilitating the compliant transfer of value on the blockchain, removing friction in the financial system and unlocking the financial opportunities that blockchain and digital transactions can provide to a greater network of users. Amerant is taking one step forward toward unlocking the financial opportunities that blockchain and digital transactions can provide to a greater network of users.
Amerant Florida Merger
On August 2, 2022, the Company completed an intercompany transaction of entities under common control, pursuant to which the Company’s wholly owned subsidiary, Amerant Florida Bancorp Inc. (“Amerant Florida”), merged with and into the Company, with the Company as sole survivor (the “Amerant Florida Merger”). See “-Capital Resources and Liquidity Management” for more details on the Amerant Florida Merger.
Progress on Near and Long-Term Initiatives
The Company is dedicated to finding new ways to increase efficiencies and profitable growth across the Company while simultaneously providing an enhanced banking experience for customers. Below is the detail of actions taken by the Company in the three and nine month periods of 2022 to achieve these goals:
Growing our core services and product offeringsdeposits. Seizing opportunities in the markets we serve to domestic personalincrease our share of consumer, small business, and commercial business customerscore deposits while reducing our reliance on brokered funds. We have identified a few ways to better target and international customers, which are primarily personal customers. Our Corporate LATAM segment serves financial institution clientsattract these core deposits, including implementing/enhancing a completely digital onboarding platform, building out our treasury management sales force and large companies in Latin America. Our Treasury segment managesadding additional treasury management capabilities, focusing our securities portfolio,marketing to drive additional digital and supports Company-wide initiatives for increasing the profitability of other financial assets and liabilities. Our Institutional segment is comprised of balances and results of Investment Services and the Trust Company,in-branch traffic, as well as general corporate, administrativetargeting other sources of deposits such as municipal accounts and wealth management.
We have continued working on implementing/enhancing a completely digital onboarding platform. In the first and second quarters of 2022, we made additions to the treasury management, retail and private banking teams which contributed to increasing deposit levels. In the third quarter of 2022, we continued with our efforts and added more FTE in the areas mentioned. We have also realigned compensation strategies across all business lines to appropriately reward increased deposit growth. We remain focused in three key measures; the average cost of total deposits increased to 0.83% from 0.41% in December 31, 2021; non-interest bearing deposits to total deposits ratio was 20.02% at September 30, 2022 compared to 21.01% at December 31, 2021, and the ratio of brokered deposits to total deposits increased slightly to 7.7% at September 30, 2022 compared to 6.9% at December 31, 2021.
Accelerating our digital transformation. Over the past several quarters we ramped up our digital efforts with the rollout of nCino and Salesforce and the introduction of Amerant Investments Mobile and are now focused on evaluating digital solutions in several key areas, including deposit account acquisition, small business lending and wealth management. FIS, Numerated, Marstone, and ClickSWITCH® implementations are all in progress. See details on all progress in Item 1. Business in the Form 10-K.
In July 2022, the Company appointed a new Chief Digital Office with extensive experience in bringing to life enterprise platforms that serve multi-faceted purposes within the financial services industry.
Improving Amerant's brand awareness. Since the beginning of 2021, we have been ramping up our efforts to build brand awareness in the communities we serve, including improved signage and promotions as well as developing affinity relationships and increasing our community involvement. In this area, many improvements have taken place or are underway, including the enhancement of our branch and ATM signage, rolling out new and improved branded items and significantly increasing public and media relations.
In July 2022, we announced a multi-year agreement to become the official bank of the NBA’s Miami Heat. Through this strategic partnership, we are redefining the meaning of our bank being an integral part of the community, which is one that supports and aligns with those businesses and organizations that are well-known and deeply rooted in South Florida.
Also in July 2022, we announced a new multi-year agreement as the official helmet branding partner of the NHL’s Florida Panthers. We continue to leverage our recently disclosed multi-year partnership with the University of Miami’s Department of Intercollegiate Athletics, making Amerant the official “Hometown Bank” of the Miami Hurricanes. We also continue to focus on raising brand awareness through impactful campaigns such as, out-of-home advertising and various campaigns via social media and public relations.
Rationalizing our lines of business and geographies. We continued to evaluate our go-to-market strategy and implemented a new business organizational model, focused on consumer and commercial banking to drive performance in the geographies we serve. Our branch strategy is currently in progress and we are also refreshing branches to update and standardize the look and feel across all branches. In the first quarter of 2022, we received approval from the Office of the Comptroller of the Currency (“OCC”) for a new location of one branch in Houston, and the relocation of an existing branch there is now slated to take place on October 31, 2022. In the second quarter of 2022, we have completed the build out of the team for the Tampa LPO. The syndication desk is in place actively seeking opportunities and the recently announced equipment financing business, which will provide an efficient white label solution to drive sales and provide underwriting capabilities, has launched with two out of the three planned business development representatives in place and generated $10 million in new originated loans in the second quarter of 2022. Lastly, in the third quarter of 2022, we launched a new white label, fintech-enabled program which generated $6.3 million in consumer loans.
In October 2022, we closed the branch in Pembroke Pines, Florida as the Company previously announced. We also received OCC approval to open a new full-service branch in Key Biscayne, Florida which is scheduled to open in the first quarter of 2023. The new branch in downtown Miami is now expected to open early 2023.
Evaluating new ways to achieve cost efficiencies across the business to improve our profitability. Among other items, we will be looking at the pricing of our products and offerings, balance sheet composition, as well as the categories and amounts of our spending. The Company continued to work on better aligning its operating structure and resources with its business activities.
The Company continued to work on better aligning its operating structure and resources with its business activities. Effective January 1, 2022, there were 80 employees who moved from the Company to FIS® as a result of the Company’s transition to our new technology provider. In addition, other HR efficiencies were also implemented during the first quarter of 2022.
With respect to our balance sheet composition, during the nine months ended September 30, 2022 the Company repaid $530 million, respectively, in FHLB callable advances, and borrowed $550 million, respectively in long-term fixed advances. These events effectively increased the duration of financial liabilities under a scenario of an imminent increase in interest rates. In addition, in the three and nine month periods ended September 30, 2022, the Company borrowed $150.0 million in fixed-rate FHLB advances to support loan growth.
Optimizing capital structure. On March 9, 2022, the Company completed a $30.0 million offering of subordinated notes with a 4.25% fixed-to-floating rate and due on March 15, 2032 (the “Subordinated Notes”). The Subordinated Notes will initially bear interest at a fixed rate of 4.25% per annum, from and including March 9, 2022, to but excluding March 15, 2027, with interest payable semi-annually in arrears. From and including March 15, 2027, to but excluding the stated maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to the then-current benchmark rate, which will initially be the three-month Secured Overnight Financing Rate (“SOFR”) plus 251 basis points, with interest during such period payable quarterly in arrears. If the three-month SOFR cannot be determined during the applicable floating rate period, a different index will be determined and used in accordance with the terms of the Subordinated Notes. The Subordinated Notes are presented net of direct issuance costs which are deferred and amortized over 10 years. The Subordinated Notes have been structured to qualify as Tier 2 capital of the Company for regulatory capital purposes, and rank equally in right of payment to all of our existing and future subordinated indebtedness.
The Subordinated Notes were offered and sold by the Company in a private placement offering in reliance on exemptions from the registration requirements of the Securities Act. In connection with the sale and issuance of the Subordinated Notes, the Company entered into a registration rights agreement, pursuant to which the Company agreed to take certain actions to provide for the exchange of the Subordinated Notes for subordinated notes that are registered under the Securities Act and will have substantially the same terms.
On June 21, 2022, the Company successfully completed the exchange of all of its outstanding Subordinated Notes for an equal principal amount of its registered 4.25% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “Registered Subordinated Notes”). The terms of the Registered Subordinated Notes are substantially identical to the terms of the Subordinated Notes, except that the Registered Subordinated Notes are not subject to the transfer restrictions, registration rights and additional interest provisions (under the circumstances described in the registration rights agreement relating to our fulfillment of our registration obligations) applicable to the Subordinated Notes.
In the first quarter of 2022, the Company repurchased an aggregate of 652,118 shares of Class A common stock at a weighted average price of $33.96 per share, under the 2021 Class A Common Stock Repurchase Program. The aggregate purchase price for these transactions was approximately $22.1 million, including transaction costs. On January 31, 2022, the Company announced the completion of the 2021 Class A Common Stock Repurchase Program. In addition, in the first quarter of 2022, the Company announced a new repurchase program pursuant to which the Company may purchase, from time to time, up to an aggregate amount of $50 million of its shares of Class A common stock (the “New Common Stock Repurchase Program”). In the first and second quarter of 2022, the Company repurchased an aggregate of 1,602,887 shares of Class A common stock at a weighted average price of $31.14 per share, under the New Common Stock Repurchase Program. The aggregate purchase price for these transactions was approximately $49.9 million, including transaction costs.
The Company did not repurchase any Class A common stock during the third quarter of 2022.
We will continue to evaluate our capital structure and ways to optimize it in the future.
Environmental, Social and Governance (“ESG”). In 2021 and throughout the first quarter of 2022, we focused on developing and furthering our sustainability strategy and approach to contribute meaningfully and support activitiesa more sustainable future for our stakeholders, including our investors, employees, customers, and communities where we operate. These efforts led to the Company’s publication of its first annual ESG report in April 2022, demonstrating our commitment towards being a sustainable institution. The Company is focused on defining and implementing the initiatives that would help drive the goals and targets that the Company is committed to achieving in accordance with our strategic objectives.
COVID-19 Pandemic
CARES Act
On March 11, 2020, the World Health Organization recognized an outbreak of a novel strain of the coronavirus, COVID-19, as a pandemic. For a more detailed discussion of the COVID-19 pandemic, see the Form 10-K and the footnotes to the unaudited interim consolidated financial statements in this Form 10-Q.
Loan Loss Reserve and Modification Programs
On March 26, 2020, the Company began offering loan payment relief options to customers impacted by the COVID-19 pandemic, including interest only and/or forbearance options. These programs continued throughout 2020 and in the first nine months of 2021. As of September 30, 2022, there were no loans under the deferral and/or forbearance options. At December 31, 2021, there were $37.1 million of loans under the deferral and/or forbearance options. In accordance with accounting and regulatory guidance, loans to borrowers benefiting from these measures are not considered troubled debt restructuring (“TDRs”). See Note 1 to the Company’s consolidated financial statements on the Form 10-K for more details on loan modification programs.
Hurricane Ian
In late September 2022, Hurricane Ian (the “Hurricane”) impacted several countries in the Caribbean, and the U.S., causing significant damage, and disrupting businesses in several regions, including several South and Central Florida counties in which the Company does business, including the Tampa Bay, Port Charlotte, Naples and Orlando markets and their surrounding areas. On September 28, 2022, the Hurricane made landfall near Cayo Costa in southwestern Florida, as a powerful Category 4 hurricane on the Saffir-Simpson scale, bringing intense winds and heavy rainfall and storm surges, causing catastrophic wind and water damage to infrastructure, homes and businesses in southwestern Florida, including the city of Tampa where we operate a loan production office. Based on information currently available, the Company has not identified any significant impacts to the loan portfolio of the Company deemed to be located in the areas that may have been meaningfully impacted by the Hurricane. As of September 30, 2022, the estimated outstanding loan balances in the areas impacted by the Hurricane totaled approximately $300 million. While the Company has recorded loan loss reserves of approximately $1.6 million as of September 30, 2022 to account for its initial estimate of probable credit losses pending to be identified in relation to the Hurricane, the Company has not currently identified any immediate significant impact to the collateral securing the loans in the exposed loan portfolio in the region. The Company is in contact with the impacted borrowers and has been performing site visits as well. In addition, the Company has been actively involved in efforts to support the recovery of the communities negatively impacted by the Hurricane. The Hurricane had no material negative impact to the Company’s operations in Tampa.
While it is too early to assess and quantify the full extent of the damage caused by the Hurricane, as well as its long-term impact on economic activity in the region, the damages are meaningful and have, at least in the short-term, had a material adverse impact on regional economic activity, as reflected by, among other things, the slow-down in sales and service activity, primarily in the hospitality and related industries. Regional employment levels are also expected to decrease at least in the short-term. The speed at which the State of Florida and other federal and local governments can restore power and other basic services throughout the impacted region, will be a critical variable in determining the extent of the impact on economic activity. Furthermore, the Hurricane severely damaged or destroyed buildings, homes and other infrastructure, impacting the value of such properties, some of which may serve as collateral to our loans. While our collateral is generally insured, the value of such insured structures, as well as other three segments.structures unaffected by the Hurricane, may be significantly impacted. Although some of the impact of the Hurricane, including its short-term impact on economic activity, may be offset by recovery and reconstruction activity and the influx of Federal emergency funds and private insurance proceeds, it is too early to know the amount of Federal and private insurance money to be received and whether such proceeds will significantly offset the negative economic, fiscal and demographic impact of the Hurricane.
Since there is significant uncertainty with respect to the full extent of the negative impacts due to the unprecedented nature of the Hurricane, the Company’s estimates with respect to the loan portfolio potentially impacted and the reserve for loan losses currently estimable, are based on judgment and subject to change as conditions evolve. The Company will continue to carefully assess and review the exposure of the portfolios to hurricane-related factors, economic trends and their effect on credit quality and that assessment and review could result in further loan loss provisions in future periods.
Primary Factors Used to Evaluate Our Business
Results of Operations. In addition to net income or loss, the primary factors we use to evaluate and manage our results of operations include net interest income, noninterest income and expense,expenses, and indicators of financial performance including return on assets (“ROA”) and return on equity.equity (“ ROE”).
Net Interest Income. Net interest income represents interest income less interest expense. We generate interest income from interest, dividends and fees received on interest-earning assets, including loans and investment securities we own. We incur interest expense from interest paid on interest-bearing liabilities, including interest-bearing deposits, and borrowings such as FHLB advances junior subordinatedand other borrowings such as repurchase agreements, notes, debentures and other forms of indebtedness.funding sources we may have from time to time. Net interest income typically is the most significant contributor to our revenues and net income. To evaluate net interest income, we measure and monitor: (i) yields on our loans and other interest-earning assets; (ii) the costs of our deposits and other funding sources; (iii) our net interest spread; (iv) our net interest margin;margin, or NIM; and (v) our provisions for loan losses. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest marginNIM is calculated by dividing net interest income for the period by average interest-earning assets.assets during that same period. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’stockholders’ equity, also fund interest-earning assets, net interest marginNIM includes the benefit of these noninterest-bearing sources of funds. Non-refundable loan origination fees, net of direct costs of originating loans, as well as premiums or discounts paid on loan purchases, are deferred and recognized over the life of the related loan as an adjustment to interest income in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
Changes in market interest rates and the interest we earn on interest-earning assets, or which we pay on interest-bearing liabilities, as well as the volumes and the types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’stockholders’ equity, usually have the largest impact on periodic changes in our net interest spread, net interest marginNIM and net interest income. We measure net interest income before and after the provision for loan losses.
Noninterest Income. Noninterest income consists of, among other things:revenue streams: (i) service fees on deposit and service fees;accounts; (ii) income from brokerage, advisory and fiduciary activities; (iii) benefits from and changes in cash surrender value of bank-owned life insurance, or BOLI, policies; (iv) card and trade finance servicing fees; (v) data processing, rental income and fees for other services provided to MSF and its affiliates; (vi) securities gains or losses; (vi) net gains and losses on early extinguishment of FHLB advances; (vii) income from derivative transaction with customers, (viii) derivatives gains or losses, (ix) gains or losses on the sale of properties, and (x) other noninterest income.
Our income from service fees on deposit accounts is affected primarily by the volume, growth and mix of deposits we hold.hold and volume of transactions initiated by customers (i.e. wire transfers). These are affected by prevailing market conditions, includingpricing of deposit services, interest rates, generally, and for deposit products, our marketing efforts and other factors.
Our income from brokerage, advisory and fiduciary activities consists of brokerage commissions related to theour customers’ trading volume, of our customers’ transactions, fiduciary and investment advisory fees generally based on a percentage of the average value of assets under management and custody (“AUM”), and account administrative services and ancillary fees during the contractual period. Our assets under management and custody accounts declined $42.4 million, or 2.42%, to $1.71 billion at June 30, 2018 from $1.75 billion at December 31, 2017, primarily due to our decision to close certain foreign customer accounts.
Income from changes in the cash surrender value of our BOLI policies represents the amountamounts that may be realized under the contracts with the insurance carriers, which are nontaxable.
Card servicing
Interchange fees, include credit card issuanceother fees and credit and debit cards interchange fees. Credit card issuance fees are generally recognized over the period in which the cardholders are entitled to use the cards. Interchange feesrevenue sharing are recognized when earned. Trade finance servicing fees, which primarily include commissions on letters of credit, are generally recognized over the service period on a straight line basis.
Card servicing fees include credit and debit card interchange fees and other fees. We have historically provided certain administrative servicesalso entered into referral arrangements with recognized U.S.-based card issuers, which permit us to MSF’s non-U.S. affiliates under certain service agreements with arms-length termsserve our customers and charges. Income from this source changes based on changesearn referral fees and share interchange revenue without exposure to the direct costs associated with providing the services and based on changes to the amount and scope of services provided which are reviewed periodically. Following the Spin-off, we will continue to provide these services for transition periods of 12-18 months, unless sooner terminated. All services are billed by us and paid by MSF in U.S. Dollars. For the six months ended June 30, 2018, we were paid approximately $1.2 million for these services. MSF does not currently provide any material services to us for which they are compensated.credit risk.
Our gains and losses on sales of securities is incomeare derived from the sale of securities withinsales from our securities portfolio and isare primarily dependent on changes in U.S. Treasury interest rates and asset liability management activities. Generally, as U.S. Treasury rates increase, our securities portfolio decreases in market value, and as U.S. Treasury rates decrease, our securities portfolio increases in value. We also recognize unrealized gains or losses on changes in the valuation of marketable equity securities not held for trading.
Our gains or losses on sales of property and equipment are recorded at the date of the sale and presented as other noninterest income or expense in the period they occur.
Our fee income generated on customer interest rate swaps and other loan level derivatives are primarily dependent on volume of transactions completed with customers and are included in noninterest income.
In the first, second and third quarters of 2022, derivatives unrealized net losses of $1.3 million, unrealized net gain of $0.9 million and unrealized net loss $0.1 million, respectively, were primarily derived from changes in market value of uncovered interest rate caps with clients.
Mortgage banking income related to Amerant Mortgage consists of gain on sale of loans, gain on loans market valuation, other fees and smaller sources of income, and is included as part of other noninterest income. Mortgage banking income was $0.1 million and $3.2 million in the three and nine month periods ended September 30, 2022, respectively ($0.7 million and $0.8 million in the three and nine month periods ended September 30, 2021, respectively). Amerant Mortgage commenced operations in May 2021.
Noninterest Expense. Noninterest expenses generally increase as our business grows and whenever necessary to implement or enhance policies and procedures for regulatory compliance, and other purposes.
Noninterest expense includes, among other things:consists of: (i) salaries and employee benefits; (ii) occupancy and equipment expenses; (iii) professional and other services fees; (iv) FDIC deposit and business insurance assessments and regulatory assessments;premiums; (v) telecommunication and data processing expenses; (vi) depreciation and amortization; (vii) advertising and (vii)marketing expenses, and (viii) other operating expenses.
Salaries and employee benefits include compensation (including severance expenses), employee benefits and employer tax expenses for our personnel. Salaries and employee benefits are partially offset by costs directly related to the origination of loans, which are deferred and amortized over the life of the related loans as adjustments to interest income in accordance with GAAP.
Occupancy expense includes lease expense on our leased properties and other occupancy-related expenses. Equipment expense includes furniture, fixtures and equipment related expenses. In the three and nine months ended September 30, 2022, rental income associated with the subleasing of portions of the Company’s headquarters building is included as a reduction to rent expense under lease agreements under occupancy and equipment cost. Prior to 2022, rental income in connection with the previously-owned headquarters building is included as part of other noninterest income.
Professional and other services fees include legal, accounting and consulting fees, card processing fees, director’s fees, regulatory agency fees, such as OCC examination fees, and other fees related to our business operations,operations. In the three and nine months ended September 30, 2022, professional fees include director’s feesexpenses associated with the outsourcing of our internal audit function which began in the second quarter of 2021.
Contract termination costs represent estimated expenses to terminate contracts before the end of their terms, and OCC fees.are recognized when the Company terminates a contract in accordance with its terms, generally considered the time when the Company gives written notice to the counterparty within the notification period contractually established. Contract termination costs also include expenses associated with the abandonment of existing capitalized projects which are no longer expected to be completed as a result of a contract termination. Changes to initial estimated expenses to terminate contracts resulting from revisions to timing or the amount of estimated cash flows are recognized in the period of the changes.
Insurance
Advertising expenses include the costs of promoting the Amerant brand, as well as the costs associated with promoting the Company’s products and regulatoryservices to create positive awareness, or consideration to buy the Company’s products and services. These costs include expenses to produce, deliver and communicate advertisements using available media and technologies, primarily streaming and other digital advertising platforms. Advertising expenses are expensed as incurred, except for media production costs which are expensed upon the first airing of the advertisement.
FDIC deposit and business insurance assessments and premiums include FDICdeposit insurance, net of any credits applied against these premiums, corporate liability and corporateother business insurance premiums.
Telecommunication and data processing expenses include expenses paid to our third-party data processing system providers and other telecommunication and data service providers.
Depreciation and amortization expense includes the value associated with the depletion of the value on our owned properties and equipment, including leasehold improvements made to our leased properties.
Other operating expenses will include community engagement and other operational expenses such as the incremental costcosts of derivative transactions. Other operating expenses are partially offset by other operating expenses directly related to the origination of loans, which are deferred and amortized over the life of the related loans as adjustments to interest income in accordance with GAAP.
Noninterest expenses in the three and nine months ended September 30, 2022 and 2021 include additional salaries and employee benefits, mortgage lending costs and professional and other service fees in connection with Amerant Mortgage’s ongoing business.
In the three and nine month periods ended September 30, 2022 noninterest expenses include: (i) $0.3 million and $7.1 million, respectively, of estimated contract termination costs associated with servicingthird party vendors resulting from the large numberCompany’s transition to our new technology provider, and (ii) $1.1 million and $2.4 million, respectively, of shareholders we have post-Spin-off, offsetconsulting and other professional fees primarily related to engagement of our new technology provider; (iii) non-routine charges of $0.2 million and $3.4 million, respectively, resulting from changes in the extent such shareholders consent to electronic deliveryestimated fair value and related estimated disposition costs of documents that weone OREO property in New York, and (iv) staff reduction costs of $0.4 million and $1.8 million, respectively, in connection with restructuring activities. In addition, noninterest expenses in the nine months ended September 30, 2022 include a lease impairment charge of $1.6 million in connection with the closure of a branch in Florida. There was no lease impairment charge recorded during the third quarter of 2022.
Restructuring expenses are required by SEC rules to send to shareholders. Noninterest expenses generally increase as our business grows and whenever necessarythose incurred for actions designed to implement or enhance policiesthe Company’s strategic initiatives. These actions include, but are not limited to, reductions in workforce, streamlining operational processes, promoting the Amerant brand, implementation of new technology system applications, enhanced sales tools and procedures for regulatory compliance.training, expanded product offerings and improved customer analytics to identify opportunities.
Primary Factors Used to Evaluate Our Financial Condition
The primary factors we use to evaluate and manage our financial condition include asset quality, capital and liquidity.
Asset Quality. We manage the diversification and quality of our assets based upon factors that include the level, distribution and severityrisks in each category of the deterioration in asset quality.assets. Problem assets may be categorized as classified, delinquent, nonaccrual, nonperforming and restructured assets. We also manage the adequacy of our allowance for loan losses or the allowance,(“ALL”), the diversification and quality of loan and investment portfolios, the extent of counterparty risks, credit risk concentrations and other factors.
We validate and update our ALL model annually or more frequently if needed, to better reflect our loan portfolio composition, and credit and economic conditions in our markets. The model may differ among our loan segments to reflect their different asset types, and includes qualitative factors, which are updated semi-annually, based on the type of loan.
The Company will no longer be deemed an EGC effective as of December 31, 2022. Therefore, adoption of the pending new accounting guidance on current expected credit losses, or CECL,will be required on the Company’s consolidated financial statements as of and for the reporting period ending that date, with retroactive application as of January 1, 2022, the beginning of the adoption period. See Note 1 to the Company’s unaudited interim consolidated financial statements in this Form 10-Q for more details on the pending adoption of CECL by the Company.
Capital. Financial institution regulators have established guidelines for minimum capital ratios for banks thrifts and bank holding companies. We manage capital based upon factors that include: (i) the level and quality of capital and our overall financial condition; (ii) the trend and volume of problem assets; (iii) the adequacy of reserves; (iv) the level and quality of earnings; (v) the risk exposures in our balance sheet under various scenarios, including stressed conditions; (vi) the Tier 1 capital ratio, the total capital ratio, the Tier 1 leverage ratio, and the Common Equity Tier 1CET1 capital ratio; (vii) the tangible common equity ratio, and (vii)(viii) other factors.factors, including market conditions.
Liquidity. Our deposit base consists primarily of personal and commercial accounts maintained by individuals and businesses in our primary markets.markets and select international core depositors. The Company is focused on relationship-driven core deposits. The Company may also use third party providers of domestic sources of deposits as part of its balance sheet management strategies. In recent years,2021, we have increasedchanged our accessdefinition of core deposits to fully-insuredbetter align its presentation with the Company’s internal monitoring and overall liquidity strategy. Under this new definition, core deposits consist of total deposits excluding all time deposits. In prior periods, the Company used the Federal Financial Institutions Examination Council’s (the “FFIEC”) Uniform Bank Performance Report (the “UBPR”) definition of “core deposits,” which exclude brokered time deposits under $250,000 brokered by third-party financial firms in the U.S. and retail time deposits of more than $250,000. See “Core Deposits” discussion for more details.
We manage liquidity based upon factors that include the amount of core deposit relationships as a percentage of total deposits, the level of diversification of our funding sources, the allocation and amount of our deposits among deposit types, the short-term funding sources used to fund assets, the amount of non-deposit funding used to fund assets, the availability of unused funding sources, off-balance sheet obligations, the amount of cash and liquid securities we hold, the availability of assets to be readily convertedconvertible into cash without undue loss, the re-pricing characteristics and maturities of our assets when compared to the re-pricing characteristics of our liabilities and other factors.
Performance Highlights
Performance highlights forSeasonality. Our loan production, generally, is subject to seasonality, with the three months ended June 30, 2018 included the following (See “—Financial Highlights” for an explanation of non-GAAP financial measures):
Net income rose 0.32% compared to the same quarter in 2017. Excluding $3.2 million in pretax expenses associated with Spin-off activities, net income for the quarter rose 36.11%lowest volume typically in the same period.
Net interest income for thefirst quarter rose 4.95% compared to the same quarter in 2017. Net interest margin for the quarter improved to 2.77% from 2.62% in the same quarter a year ago. The increasing amount of time deposits in our deposit base, and their higher cost, limited the increase in our net interest margin.
Annualized ROA and ROE reached 0.50% and 5.57% during the quarter, respectively, versus 0.49% and 5.63%, respectively, in the same quarter lasteach year. Excluding Spin-off expenses, annualized ROA and ROE during the quarter were 0.67% and 7.56%, respectively.
Annualized efficiency ratio of 76.31% compared to 73.22% in the same quarter in 2017. Excluding Spin-off expenses, the annualized efficiency ratio for the quarter was 71.68%.
Commercial real estate loans grew 5.61% compared to December 31, 2017. New loan production in our highly attractive and competitive loan markets exceeded repayments during the quarter. Strong capital ratios above regulatory minimums to be considered “well capitalized” supported our loan growth strategy.
Financial HighlightsSummary Results
The following table sets forth selected financial information derived from our interim unaudited consolidated financial statementssummary results for the three and sixnine month periods ended September 30, 2022 include the following:
•Net income attributable to the Company was $20.9 million in the third quarter of 2022, up 22.8%, from $17.0 million in the third quarter of 2021, and $44.5 million in the first nine months ended June 30, 2018of 2022, down 6.1%, from $47.5 million in the first nine months of 2021.
•Net interest income was $69.9 million in the third quarter of 2022, up $18.1 million, or 34.9%, from $51.8 million in the third quarter of 2021, and 2017$184.5 million in the first nine months of 2022, up $35.1 million, or 23.5%, from $149.4 million in the first nine months of 2021.
•Net interest margin was 3.61% in the third quarter of 2022, up 67 basis points from 2.94% in the third quarter of 2021, and as3.36% in the first nine months of June 30, 2018 and December 31, 2017. These interim unaudited consolidated financial statements are not necessarily indicative2022, up 55 basis points from 2.81% in the first nine months of our results2021.
•The Company recorded a provision for loan losses of operations for$3.0 million in the year ending December 31, 2018 or any interim or future period or our financial position at any future date.third quarter of 2022, compared to a release from the ALL of $5.0 million in the third quarter of 2021. The selected financial information should be readCompany released $7.0 million from the ALL in conjunction with this Management’s Discussion and Analysisthe first nine months of Financial Condition and Results2022, compared to $10.0 million in the first nine months of Operations and our interim unaudited consolidated financial statements and the corresponding notes included in this Form 10-Q.
|
| | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | (in thousands) |
| Consolidated Balance Sheets | | | |
| Total assets | $ | 8,530,464 |
| | $ | 8,436,767 |
|
| Total investment securities | 1,812,119 |
| | 1,846,951 |
|
Total loan portfolio (1) | 6,219,549 |
| | 6,066,225 |
|
| Allowance for loan losses | 69,931 |
| | 72,000 |
|
| Total deposits | 6,363,138 |
| | 6,322,973 |
|
| Junior subordinated debentures | 118,110 |
| | 118,110 |
|
| Advances from the FHLB and other borrowings | 1,258,000 |
| | 1,173,000 |
|
| Stockholders' equity | 719,382 |
| | 753,450 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in thousands, except per share amounts) |
| Consolidated Results of Operations | | | | | | | |
| Net interest income | $ | 53,989 |
| | $ | 51,441 |
| | $ | 106,622 |
| | $ | 99,792 |
|
| Provision for loan losses | 150 |
| | 3,646 |
| | 150 |
| | 7,743 |
|
| Noninterest income | 14,986 |
| | 17,759 |
| | 28,931 |
| | 31,976 |
|
| Noninterest expense | 52,638 |
| | 50,665 |
| | 108,283 |
| | 99,813 |
|
| Net income | 10,423 |
| | 10,390 |
| | 19,852 |
| | 16,897 |
|
Basic and diluted income per common share(2) | 0.08 |
| | 0.08 |
| | 0.16 |
| | 0.13 |
|
Cash dividend declared per common share (2) | — |
| | — |
| | 0.31 |
| | — |
|
|
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in thousands, except per share amounts and percentages) |
Other Financial and Operating Data(3) | | | | | | | |
| | | | | | | | |
| Profitability Indicators (%) | | | | | | | |
Net interest income / Average total interest earning assets (NIM)(4) | 2.77 | % | | 2.62 | % | | 2.72 | % | | 2.52 | % |
Net income / Average total assets (ROA) (5) | 0.50 | % | | 0.49 | % | | 0.47 | % | | 0.40 | % |
Net income / Average stockholders' equity (ROE) (6) | 5.57 | % | | 5.63 | % | | 5.31 | % | | 4.66 | % |
| | | | | | | | |
| Capital Adequacy Ratios (%) | | | | | | | |
Total capital ratio (7) | 12.61 | % | | 12.67 | % | | 12.61 | % | | 12.67 | % |
Tier I capital ratio (8) | 11.67 | % | | 11.51 | % | | 11.67 | % | | 11.51 | % |
Tier I leverage ratio (9) | 9.87 | % | | 9.79 | % | | 9.87 | % | | 9.79 | % |
Common equity tier I capital ratio (CET1)(10) | 10.13 | % | | 9.98 | % | | 10.13 | % | | 9.98 | % |
| | | | | | | | |
| Asset Quality (%) | | | | | | | |
Non-performing assets / Total assets(11) | 0.41 | % | | 0.65 | % | | 0.41 | % | | 0.65 | % |
Non-performing loans / Total loan portfolio (1) (12) | 0.56 | % | | 0.91 | % | | 0.56 | % | | 0.91 | % |
Allowance for loan losses / Total non-performing loans (12) (13) | 201.55 | % | | 149.91 | % | | 201.55 | % | | 149.91 | % |
Allowance for loan losses / Total loan portfolio (1) (13) | 1.12 | % | | 1.36 | % | | 1.12 | % | | 1.36 | % |
Net charge-offs / Average total loan portfolio (14) | 0.04 | % | | 0.01 | % | | 0.04 | % | | 0.12 | % |
| | | | | | | | |
| Efficiency Indicators | | | | | | | |
Noninterest expense / Average total assets (5) | 2.50 | % | | 2.41 | % | | 2.57 | % | | 2.36 | % |
Personnel expense / Average total assets (5) | 1.66 | % | | 1.50 | % | | 1.64 | % | | 1.51 | % |
Efficiency ratio (15) | 76.31 | % | | 73.22 | % | | 79.88 | % | | 75.75 | % |
| | | | | | | | |
Adjusted Selected Consolidated Results of Operations and Other Data (16) (17) | | | | | | | |
| Adjusted noninterest expense | $ | 49,438 |
| | | | $ | 102,245 |
| | |
| Adjusted net income before income tax | 19,387 |
| | | | 33,158 |
| | |
| Adjusted net income | 14,142 |
| | | | 25,831 |
| | |
| Adjusted basic and diluted earnings per share | $ | 0.11 |
| | | | $ | 0.21 |
| | |
Adjusted net income / Average total assets (ROA) (5) | 0.67 | % | | | | 0.61 | % | | |
Adjusted net income / Average stockholders' equity (ROE) (6) | 7.56 | % | | | | 6.91 | % | | |
Adjusted noninterest expense / Average total assets (5) | 2.35 | % | | | | 2.43 | % | | |
Adjusted efficiency ratio (18) | 71.68 | % | | | | 75.43 | % | | |
__________________
(1) Outstanding loans are net2021. The ratio of deferred loan fees and costs, excluding the allowance for loan losses.losses to total loans held for investment was 0.83% as of September 30, 2022, compared to 1.29% at December 31, 2021. The ratio of net charge-offs to average total loans held for investment was 0.09% in the third quarter of 2022, down from 1.16% in the third quarter of 2021, and 0.22% in the first nine months of 2022, down from 0.42% in the first nine months of 2021. The ALL coverage of non-performing loans increased to 2.9x at September 30, 2022, from 2.1x at December 31, 2021.
(2)
•Non-interest income was $16.0 million in the third quarter of 2022, up 18.8%, from $13.4 million in the third quarter of 2021, and $42.9 million in the first nine months of 2022, down 1.0%, from $43.3 million in the first nine months of 2021.
•Non-interest expense was $56.1 million in the third quarter of 2022, up 15.9%, from $48.4 million in the third quarter of 2021, and $179.2 million in the first nine months of 2022, up 25.2%, from $143.2 million in the first nine months of 2021.
•The earningsefficiency ratio was 65.4% in the third quarter of 2022 compared to 74.2% in the third quarter of 2021, and 78.8% in the first nine months of 2022, compared to 74.3% in the first nine months of 2021.
•Total gross loans, which include loans held for sale, were $6.50 billion at September 30, 2022, up $935.8 million, or 16.8%, compared to December 31, 2021. Total deposits were $6.59 billion at September 30, 2022, up $957.3 million, or 17.0%, compared to December 31, 2021.
•Stockholders’ book value per common share reflectattributable to the pre-spin-off Exchange that changedCompany was $20.60 at September 30, 2022, compared to $23.18 at December 31, 2021. Tangible stockholders’ equity book value per common share, which is a non-GAAP measure, was $19.92 as of September 30, 2022 compared to $22.55 at December 31, 2021. The decline in stockholders’ book value per common share reflects an accumulated after-tax unrealized loss of $86.2 million at September 30, 2022 compared to an accumulated after-tax unrealized gain of $15.2 million at December 31, 2021 primarily on the number of Company Shares held by MSF without changing its 100% ownershipvaluation of the Company. See Note 22 of our audited consolidated financial statements and Note 1 of our interim consolidated financial statements as of andCompany’s debt securities available for the six months ended June 30, 2018 for more details on the Exchange.
(3) Operating data for the three and six month periods ended June 30, 2018 and 2017 have been annualized.
(4) Net interest margin is defined as net interest income divided by average interest-earning assets, which are loans, investment securities, deposits with banks and other financial assets which yield interest or similar income.
(5) Calculated based upon the average daily balance of total assets, excluding assets under management and custody.
(6) Calculated based upon the average daily balance of stockholders’ equity.
(7) Total stockholders’ equity divided by total risk-weighted assets, calculated according to the standardized capital ratio calculations.
(8) Tier 1 capital divided by total risk-weighted assets.
(9) Tier 1 capital divided by quarter to date average assets. Tier 1 capital is composed of common equity tier 1 capital plus outstanding qualifying trust preferred securities of $114.1 million at June 30, 2018 and 2017.
(10)sale. See “Tangible Common Equity Tier 1 capital divided by total risk-weighted assets.
(11) Non-performing assets include all non-performing loansRatio and OREO properties acquired through or in lieuTangible Book Value Per Common Share” for a reconciliation of foreclosure. Non-performing assets were $35.3 million and $55.5 million as of June 30, 2018 and 2017, respectively.
(12) Non-performing loans include all accruing loans past due by more than 90 days, and all nonaccrual loans. Non-performing loans were $34.7 million and $55.2 million as of June 30, 2018 and 2017, respectively.
(13) Allowance for loan losses was $69.9 million and $82.7 million as of June 30, 2018 and 2017, respectively. See Note 5 to our audited consolidated financial statements and Note 5 to our unaudited interim consolidated financial statements for more details on our impairment models.
(14) Calculated based upon the average daily balance of outstanding loan principal balance net of deferred loan fees and costs, excluding the allowance for loan losses.
(15) Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and net interest income.
(16) This presentation contains adjusted financial information, including adjusted noninterest expenses, adjusted net income before income taxes, and the other adjusted items shown, determined by methods other than GAAP.
The adjusted numbers take out the costs incurred by the Company in 2018 related to the Spin-off which commenced in the last quarter of 2017 and continued past June 30, 2018, and which are not deductible for Federal and state income tax purposes. The Company believes these adjusted numbers are useful to understand the Company’s performance absent this event. The following table reconciles these non-GAAP financial measurements as of and for periods presented:measures.
|
| | | | | | | | |
| | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2018 |
| | (in thousands, except per share amounts and percentages) |
| | | | | |
| Total noninterest expenses | $ | 52,638 |
| | | $ | 108,283 |
|
| Less Spin-off costs: | | | | |
| Legal fees | 2,000 |
| | | 3,000 |
|
Estimated compensation to non-qualified deferred compensation plan participants due to unexpected early distribution (19) | 1,200 |
| | | 1,200 |
|
| Accounting and consulting fees | — |
| | | 1,294 |
|
| Other expenses | — |
| | | 544 |
|
| Total Spin-off costs | 3,200 |
| | | 6,038 |
|
| Adjusted noninterest expenses | $ | 49,438 |
| | | $ | 102,245 |
|
| | | | | |
|
| | | | | | | | |
| | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2018 |
| | (in thousands, except per share amounts and percentages) |
| | | | | |
| Total net income before income tax | $ | 16,187 |
| | | $ | 27,120 |
|
| Plus: Total Spin-off costs | 3,200 |
| | | 6,038 |
|
| Adjusted net income before income tax | $ | 19,387 |
| | | $ | 33,158 |
|
| | | | | |
| Total net income | $ | 10,423 |
| | | $ | 19,852 |
|
| Plus after-tax total Spin-off costs: | | | | |
| Total Spin-off costs before income tax effect | 3,200 |
| | | 6,038 |
|
Income tax effect (20) | 519 |
| | | (59 | ) |
| Total after-tax Spin-off costs | 3,719 |
| | | 5,979 |
|
| Adjusted net income | $ | 14,142 |
| | | $ | 25,831 |
|
| Basic and diluted income per common share | $ | 0.08 |
| | | $ | 0.16 |
|
| Plus: after tax impact of total Spin-off costs | 0.03 |
| | | 0.05 |
|
| Total adjusted basic and diluted income per common share | $ | 0.11 |
| | | $ | 0.21 |
|
| | | | | |
Net income / Average total assets (ROA) (5) | 0.50% |
| | | 0.47% |
|
| Plus: after tax impact of total Spin-off costs | 0.17% |
| | | 0.14% |
|
Adjusted net income / Average total assets (ROA) (5) | 0.67% |
| | | 0.61% |
|
| | | | | |
Net income / Average stockholders' equity (ROE) (6) | 5.57% |
| | | 5.31% |
|
| Plus: after tax impact of total Spin-off costs | 1.99% |
| | | 1.60% |
|
Adjusted net income / stockholders' equity (ROE) (6) | 7.56% |
| | | 6.91% |
|
| | | | | |
Noninterest expense / Average total assets (5) | 2.50% |
| | | 2.57% |
|
| Less: impact of total Spin-off costs | (0.15 | )% | | | (0.14 | )% |
Adjusted Noninterest expense / Average total assets (5) | 2.35% |
| | | 2.43% |
|
| | | | | |
Efficiency ratio (15) | 76.31% |
| | | 79.88% |
|
| Less: impact of total Spin-off costs | (4.63 | )% | | | (4.45 | )% |
Adjusted efficiency ratio (18) | 71.68% |
| | | 75.43% |
|
(17) Non-GAAP financial measures are not included as of and for the three and six month periods ended June 30, 2017 because no Spin-off costs were incurred for those periods.
(18) Adjusted efficiency ratio is the efficiency ratio less the effect of total Spin-off costs.
(19) The Spin-off caused an unexpected early distribution for U.S. federal income tax purposes from our deferred compensation plan. This distribution is taxable to plan participants as ordinary income during 2018. We are partially compensating plan participants, in the aggregate amount of $1.2 million, for the higher tax expense they will incur as a result of the distribution increasing the plan participants' estimated effective federal income tax rates by recording a contribution to the plan on behalf of its participants. The after tax net effect of this $1.2 million contribution for the period ended June 30, 2018, is approximately $952,000. As a result of the early taxable distribution to plan participants, we will expense and deduct for federal income tax purposes, previously deferred compensation of approximately $8.1 million, resulting in an estimated tax credit of $1.7 million, which exceeds the amount of the tax gross-up paid to plan participants.
(20) Calculated based upon the estimated annual effective tax rate of 22.10%, which excludes the tax effect of discrete items, and the amount that resulted from the difference between permanent Spin-off costs of $5.5 million and $5.8 million for the three and six month periods ended June 30, 2018 that are non-deductible for Federal and state income tax purposes and total Spin-off costs recognized in the consolidated financial statements.
Results of Operations - Comparison of Results of Operations for the Three and Six MonthsNine Month Periods Ended JuneSeptember 30, 20182022 and 20172021
Net income
The table below sets forth certain results of operations data for the three and six monthsnine month periods ended JuneSeptember 30, 20182022 and 2017:2021:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
| | 2018 | | 2017 | | 2018 vs 2017 | | 2018 | | 2017 | | 2018 vs 2017 |
| | (in thousands, except per share amounts and percentages) |
| Net interest income | $ | 53,989 |
| | $ | 51,441 |
| | $ | 2,548 |
| | 4.95 | % | | $ | 106,622 |
| | $ | 99,792 |
| | $ | 6,830 |
| | 6.84 | % |
| Provision for loan losses | 150 |
| | 3,646 |
| | (3,496 | ) | | (95.89 | )% | | 150 |
| | 7,743 |
| | (7,593 | ) | | (98.06 | )% |
| Net interest income after provision for loan losses | 53,839 |
| | 47,795 |
| | 6,044 |
| | 12.65 | % | | 106,472 |
| | 92,049 |
| | 14,423 |
| | 15.67 | % |
| Noninterest income | 14,986 |
| | 17,759 |
| | (2,773 | ) | | (15.61 | )% | | 28,931 |
| | 31,976 |
| | (3,045 | ) | | (9.52 | )% |
| Noninterest expense | 52,638 |
| | 50,665 |
| | 1,973 |
| | 3.89 | % | | 108,283 |
| | 99,813 |
| | 8,470 |
| | 8.49 | % |
| Net income before income tax | 16,187 |
| | 14,889 |
| | 1,298 |
| | 8.72 | % | | 27,120 |
| | 24,212 |
| | 2,908 |
| | 12.01 | % |
| Income tax | (5,764 | ) | | (4,499 | ) | | (1,265 | ) | | 28.12 | % | | (7,268 | ) | | (7,315 | ) | | 47 |
| | (0.64 | )% |
| Net income | $ | 10,423 |
| | $ | 10,390 |
| | $ | 33 |
| | 0.32 | % | | $ | 19,852 |
| | $ | 16,897 |
| | $ | 2,955 |
| | 17.49 | % |
Basic and diluted earnings per share(1) | $ | 0.08 |
| | $ | 0.08 |
| | $ | — |
| | | | $ | 0.16 |
| | $ | 0.13 |
| | $ | 0.03 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | Change | | | | |
| (in thousands, except per share amounts and percentages) | 2022 | | 2021 | | 2022 vs 2021 | | 2022 | | 2021 | 2022 vs 2021 | | | | | | |
| Net interest income | $ | 69,897 | | | $ | 51,821 | | | $ | 18,076 | | | 34.9 | % | | $ | 184,487 | | | $ | 149,361 | | $ | 35,126 | | | 23.5 | % | | | | | | | | |
| Provision for (reversal of) loan losses | 3,000 | | | (5,000) | | | 8,000 | | | (160.0) | | | (7,000) | | | (10,000) | | 3,000 | | | 30.0 | % | | | | | | | | |
| Net interest income after provision (reversal of) for loan losses | 66,897 | | | 56,821 | | | 10,076 | | | 17.7 | % | | 191,487 | | | 159,361 | | 32,126 | | | 20.2 | % | | | | | | | | |
| Noninterest income | 15,956 | | | 13,434 | | | 2,522 | | | 18.8 | % | | 42,912 | | | 43,331 | | (419) | | | (1.0) | % | | | | | | | | |
| Noninterest expense | 56,113 | | | 48,404 | | | 7,709 | | | 15.9 | % | | 179,172 | | | 143,154 | | 36,018 | | | 25.2 | % | | | | | | | | |
| Income before income tax expense | 26,740 | | | 21,851 | | | 4,889 | | | 22.4 | % | | 55,227 | | | 59,538 | | (4,311) | | | (7.2) | % | | | | | | | | |
| Income tax expense | (5,864) | | | (5,454) | | | (410) | | | (7.5) | % | | (11,875) | | | (13,537) | | 1,662 | | | 12.3 | % | | | | | | | | |
| Net income before attribution of noncontrolling interest | 20,876 | | | 16,397 | | | 4,479 | | | 27.3 | % | | 43,352 | | | 46,001 | | (2,649) | | | (5.8) | % | | | | | | | | |
| Less: noncontrolling interest | (44) | | | (634) | | | 590 | | | NM | | (1,192) | | | (1,451) | | 259 | | | 17.9 | % | | | | | | | | |
| Net income attributable to Amerant Bancorp Inc. | $ | 20,920 | | | $ | 17,031 | | | $ | 3,889 | | | 22.8 | % | | $ | 44,544 | | | $ | 47,452 | | $ | (2,908) | | | (6.1) | % | | | | | | | | |
| Basic earnings per common share | $ | 0.62 | | | $ | 0.46 | | | $ | 0.16 | | | 34.8 | % | | $ | 1.31 | | | $ | 1.27 | | $ | 0.04 | | | 3.2 | % | | | | | | | | |
| Diluted earnings per common share (1) | $ | 0.62 | | | $ | 0.45 | | | $ | 0.17 | | | 37.8 | % | | $ | 1.30 | | | $ | 1.26 | | $ | 0.04 | | | 3.2 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
__________________
| |
(1) | At June 30, 2018 and 2017, we had no outstanding dilutive instruments issued. Consequently, the basic and diluted earnings per share are equal in each of the periods presented. |
(1) In the three and nine month periods ended September 30, 2022, potential dilutive instruments consisted of unvested shares of restricted stock, restricted stock units and performance share units. See Note 19 to our unaudited interim consolidated financial statements in this Form 10-Q for details on the dilutive effects of the issuance of restricted stock, restricted stock units and performance share units on earnings per share for the three and nine month periods ended September 30, 2022 and 2021.
NM - means not meaningful
Three Months Ended JuneSeptember 30, 20182022 and 20172021
NetIn the three months ended September 30, 2022, net income attributable to the Company was $20.9 million, or $0.62 per diluted share, compared to net income attributable to the Company of $10.4$17.0 million, and $0.08 basic andor $0.45 per diluted earnings per share, in the same quarter of 2021. The increase of $3.9 million, or 22.8%, in the three months ended JuneSeptember 30, 2018 remained relatively unchanged when2022 was mainly due to higher net interest income and noninterest income. These results were partially offset by: (i) a $3.0 million provision for loan losses recorded in the third quarter of 2022, compared to a $5.0 million reversal of loan losses in the same quarter of 2017.
Duringperiod last year, and (ii) higher noninterest expenses. In the three months ended JuneSeptember 30, 2018, positive results driven by improved credit quality2022 and higher yields2021, net income excludes a loss of $44 thousand and $0.6 million, respectively, attributable to a noncontrolling interest in Amerant Mortgage which commenced operations in May 2021. In the three months ended September 30, 2022 and 2021, the Company attributed a net loss of $44 thousand and $0.6 million, respectively to the non-controlling interest. These losses were calculated on interest-earning assets, were offset by provisionsthe basis of a loss from operations for the costs associatedAmerant Mortgage (including transactions with the Spin-off totaling $3.2affiliates such as broker fees, interest expense and other operating expenses) of $0.2 million and lower noninterest income. Without Spin-off expenses, net income for$1.5 million in the three months ended September 30, 2022 and 2021, respectively. In the first quarter ended June 30, 2018 would have been $14.1 million, or $0.11 per basic and dilutedof 2022, the minority interest share 36.11% higher than the same quarter in 2017 when no such costs had been incurred.
Net interest income improvedAmerant Mortgage changed from $51.4 million49% to 42.6%. In addition, in the second quarter of 20172022, the minority interest share in Amerant Mortgage changed from 42.6% to $54.020%. See “Business Developments” in this Form 10-Q for more details on these changes with respect to our subsidiary Amerant Mortgage.
Net interest income was $69.9 million in the second quarterthree months ended September 30, 2022, an increase of 2018,$18.1 million, or 34.9%, from $51.8 million in the three months ended September 30, 2021. This was primarily the result of: (i) higher average yields on loans, debt securities available for sale and held to maturity and interest earning deposits with banks; (ii) higher average balance of loans and debt securities held to maturity, and (iii) lower average balances of total time deposits. These results were partially offset by: (i) higher cost of total deposits, mainly interest bearing demand and money market deposit accounts, and FHLB advances; (ii) lower average balance of debt securities available for sale, and (iii) the cost of the subordinated debt in March 2022. Short-term market interest rates increased 150 basis points during the three months ended September 30, 2022. See “Net interest Income” for more details.
Noninterest income was $16.0 million in the three months ended September 30, 2022, an increase of $2.5 million, or 4.95%18.8%, primarily due to higher average yields on interest-earning assets and changes in the mix of those assets. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information. As a result of improved credit trends in certain loan portfolio segments, we recorded a provision for loan losses of only $0.2 million in the second quarter of 2018, compared to a provision to the allowance of $3.6 million in the same quarter of 2017.
These positive results were partially offset by an increase in noninterest expense of $2.0 million, or 3.89%, primarily attributable to the Spin-off related expenses and higher salary and employee benefit costs and telecommunications and data processing expenses. In addition, there was a decline in noninterest income of $2.8 million, or 15.61%, mainly due to lower income from brokerage, advisory and fiduciary activities and other noninterest income.
Six Months Ended June 30, 2018 and 2017
Net income of $19.9 million and $0.16 basic and diluted earnings per share in the six months ended June 30, 2018 represents an improvement of $3.0 million, or 17.49% from net income of $16.9 million and $0.13 basic and diluted earnings per share reported in the same period of 2017.
This increase mainly resulted from improved credit quality and higher yields on interest-earning assets. Provisions for the costs associated with the Spin-off totaling $6.0 million and lower noninterest income in the six months ended June 30, 2018, negatively impacted the results. Without Spin-off expenses, net income for the six months ended June 30, 2018 would have been $25.8 million, or $0.21 per basic and diluted share, or 61.54% higher than the same period in 2017.
Net interest income improved from $99.8 million in the six months ended June 30, 2017 to $106.6 million in the six months ended June 30, 2018, an increase of $6.8 million or 6.84%, primarily due to higher average yields on interest-earning assets and changes in the mix of those assets. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information. As a result of improved credit trends in certain loan portfolio segments, we added provisions to the allowance for loan losses of only $0.2 million in the six months ended June 30, 2018, compared to a provision to the allowance of $7.7 million in the same period of 2017.
These positive results were partially offset by an increase in noninterest expense of $8.5 million, or 8.49%, primarily attributable to the Spin-off related expenses discussed above, higher salary and employee benefit costs and telecommunications and data processing expenses. In addition, there was a decline in noninterest income of $3.0 million, or 9.52%, mainly due to lower income from brokerage, advisory and fiduciary activities and other noninterest income.
Net interest income
Three Months Ended June 30, 2018 and 2017
In the second quarter of 2018, we earned $54.0 million of net interest income, an increase of $2.5 million, or 4.95%, from $51.4 million of net interest income earned in the same period of 2017. The increase in net interest income was due primarily to a 50 basis points improvement in the average yield on interest-earning assets, partially offset by a 0.40% decrease in the average balance of interest-earning assets. In addition, average interest-bearing liabilities showed a 3.44% increase accompanied by a 37 basis point increase in average rates paid. Net interest margin improved 15 basis points from 2.62% in the second quarter of 2017 to 2.77% in the same period of 2018.
Interest Income. Total interest income was $75.9 million in the second quarter of 2018 compared to $66.7 million for the same period of 2017. The $9.2 million, or 13.87%, increase in total interest income was primarily due to higher average balances in loans and securities held to maturity, as well as higher average yields earned on all interest-earning assets. These improvements were partially offset by a decrease in the average balance of available for sale securities during the second quarter of 2018 with respect to the same period of 2017, in part due to the use of these funds to produce higher yielding loans. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.
Interest income on loans in the second quarter of 2018 was $62.4 million compared to $53.8 million for the comparable period of 2017. The $8.7 million, or 16.10%, increase was primarily due to a 54 basis point increase in average yields and a 1.92% increase in the average balance of loans in the second quarter of 2018 over the same period in 2017, mainly the result of growth in the real estate loan portfolio. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.
Interest income on the available for sale securities portfolio decreased $507 thousand, or 4.31%, to $11.3 million in the second quarter of 2018 compared to $11.8 million in the comparable period of 2017. This decrease is primarily attributable to a decline of 14.09% in the average volume of securities available for sale, the proceeds of which were partially reallocated to fund loan production. Higher yields of securities available for sale, which increased an average of 29 basis points in the second quarter of 2018 with respect to the same quarter in 2017, partially compensated the effect of the lower amount of securities held.
Interest Expense. Interest expense on interest-bearing liabilities increased $6.7 million, or 43.99%, to $21.9 million in the second quarter of 2018 compared to $15.2 million in the comparable period of 2017, primarily due to higher average time deposits and advances from the FHLB balances, and higher average interest rates on all main funding sources.
Interest expense on deposits increased to $13.4 million in the second quarterthree months ended September 30, 2021. This increase was mainly due to: (i) higher loan-level derivative income, mainly driven by a higher volume of 2018 compared to $8.5interest rate swap transactions with clients; (ii) net unrealized gains on marketable equity securities of $1.5 million in the three months ended September 30, 2022, and (iii) higher deposit and service fees. The increase in noninterest income was partially offset by lower other noninterest income. See “Noninterest Income” for the comparable period of 2017. The $4.9more details.
Noninterest expense increased $7.7 million, or 58.19%, increase was primarily due to a 37 basis points increase in the average rate paid on total deposits. This resulted primarily from a 21.03% increase in average time deposit balance, and the lower average total checking and saving account balances which decreased 11.89%. The increase of $412.1 million, or 21.03%, in average total time deposit balances resulted from our promotions seeking longer-duration time deposits, in anticipation of higher interest rates in the future. The decrease of $414.8 million, or 11.89%, in average total checking and saving account balances is primarily the result of a decline of $584.4 million, or 18.18%15.9%, in the average balance of international accounts. This decline includes $281.0 million, or 40.98%, in commercial accounts and $303.3 million, or 12.00%, in personal accounts. The decline in the commercial accounts average resulted primarily from the closure of Venezuelan customer accounts exceeding the Company’s risk thresholds. The decline in the personal accounts average is primarily due to our Venezuelan customers’ inability to replenish the dollar savings they consume.
Interest expense on FHLB advances and other borrowings increased $2.2 million, or 49.85%, in the second quarter of 2018 with respect to the same period of 2017. This is the result of an increase of 29.93% in the average balance outstanding, along with an increase of 30 basis points in the average rate paid on of these borrowings. Advances from the FHLB are used to actively manage the Company’s funding profile, and bear fixed interest rates from 1.05% to 3.86%, and variable interest rates based on 3-month LIBOR which increased to 2.34% at June 30, 2018 from 1.30% at June 30, 2017. At June 30, 2018, $978.0 million (77.74%) of FHLB advances were fixed rate and $280.0 million (22.26%) were variable rate. The Company has designated certain interest rate swaps as cash flow hedges to manage this variable interest rate exposure.
Six Months Ended June 30, 2018 and 2017
In the sixthree months ended JuneSeptember 30, 2018, we earned $106.6 million of net interest income, an increase of $6.8 million, or 6.84%, from $99.8 million of net interest income earned in the same period of 2017. The increase in net interest income was due primarily to a 50 basis point improvement in the average yield on interest-earning assets, partially offset by a 0.90% decrease in the average balance of interest-earning assets. In addition, average interest-bearing liabilities showed a 2.61% increase accompanied by a 32 basis point increase in average rates paid. Net interest margin improved 20 basis points from 2.52% in the six months ended June 30, 2017 to 2.72% in the same period of 2018.
Interest Income. Total interest income was $147.8 million in the six months ended June 30, 2018 compared to $129.7 million for the same period of 2017. The $18.2 million, or 14.00%, increase in total interest income was primarily due to higher average balances in loans and securities held to maturity, as well as higher average yields earned on all interest-earning assets. These improvements were partially offset by a decrease in the average balance of available for sale securities during the six months ended June 30, 2018 with respect to the same period of 2017, in part due to the partial migration of funds from securities into loans.
Interest income on loans in the six months ended June 30, 2018 was $122.1 million compared to $103.9 million for the comparable period of 2017. The $18.2 million, or 17.57%, increase was primarily due to a 53 basis points increase in average yields and a 2.67% increase in the average balance of loans in the six months ended June 30, 2018 over the same period in 2017, mainly the result of growth in the real estate loan portfolio.
Interest income on the available for sale securities portfolio decreased $2.0 million, or 8.61%, to $21.5 million in the six months ended June 30, 2018 compared to $23.6 million in the comparable period of 2017. This decrease was primarily attributable to a decline of 16.12% in the average volume of securities available for sale, the proceeds of which were partially reallocated to funding higher yielding loan production. Higher yields on securities available for sale, which increased an average of 22 basis points in the six months ended June 30, 20182022 compared to the same period in 2017, offset the lower amount of securities held.
Interest Expense. Interest expense on interest-bearing liabilities increased $11.3 million, or 37.89%, to $41.2 million in the six months ended June 30, 2018 compared to $29.9 million in the comparable period of 2017, primarily2021, mainly due to higher average time depositsprofessional and FHLB advances,other service fees, occupancy and higher average interest rates on all main funding sources,equipment expenses, advertising expenses, salary and employee benefits and other operating expenses. In addition, in the third quarter of 2022, we incurred additional expenses of: (i) $0.3 million in connection with the termination of technology contracts resulting from the transition to FIS supported systems and applications, and (ii) $0.2 million in connection with changes in the estimated fair value and related estimated disposition costs of an OREO property in New York. These increases were partially offset by lower average total deposits.depreciation and amortization expense. See “Noninterest Expense” for more details.
Interest
In the three months ended September 30, 2022 and 2021, noninterest expense on deposits increased to $24.8included non-routine items of $2.0 million and $0.8 million, respectively. Non-routine items in noninterest expense include $1.7 million and $0.8 million of restructuring costs in the sixthree months ended JuneSeptember 30, 20182022 and 2021, respectively In addition, in the three months ended September 30, 2022, non-routine items in noninterest expense include a non-routine charge of $0.2 million resulting from changes in the estimated fair value and related estimated disposition costs of one OREO property in New York.
In the three months ended September 30, 2022 and 2021, the Company incurred noninterest expenses of $2.7 million and $2.1 million, respectively, related to Amerant Mortgage which consists of salaries and employee benefits expense, mortgage lending costs and professional and other services fees. Amerant Mortgage commenced operations in May 2021 and had 67 full time equivalent employees (“FTEs”) at September 30, 2022 compared to $16.4 million for52 at September 30, 2021.
Nine Months Ended September 30, 2022 and 2021
In the comparable period of 2017. The $8.3nine months ended September 30, 2022, net income was $44.5 million, or 50.82%, increase was primarily due$1.30 per diluted share, compared to a 31 basis point increase in the average rate paid on total deposits, reflecting a 19.82% increase in average time deposit balances, and lower average total checking and saving account balances which decreased 12.20%. The increasenet income of $384.3$47.5 million, or 19.82%,$1.26 per diluted share, in average total time deposit balances resulted primarily from our promotions seeking longer-duration time deposits, in anticipation of higher interest rates in the future. The decrease of $431.6 million, or 12.20%, in average total checking and saving account balances is primarily the result of a decline of $537.6 million, or 16.67%, in the average balance of international accounts. This decline includes $280.2 million, or 40.09%, in commercial accounts and $257.4 million, 10.19%, in personal accounts. The decline in the commercial accounts average resulted primarily from the closure of Venezuelan customer accounts exceeding the Company’s risk thresholds. The decline in the personal accounts average is primarily due to our Venezuelan customers’ inability to replenish the dollar savings they consume.
Interest expense on FHLB advances and other borrowings increased $3.9 million, or 45.46%, in the six months ended June 30, 2018 with respect to the same period of 2017. This is2021. The decrease of $2.9 million or 6.1%, was primarily due to: (i) higher noninterest expenses, and (ii) lower reversals from the resultallowance for loan losses. These results were partially offset by higher net interest income. In the nine months ended September 30, 2022 and 2021, net income excludes a loss of $1.2 million and $0.8 million, respectively, attributable to the non-controlling interest in Amerant Mortgage, which commenced operations in May 2021. In the nine months ended September 30, 2022 and 2021, the Company attributed a net loss of $1.2 million and $1.5 million, respectively, to the non-controlling interest. These losses were calculated on the basis of a loss from operations for Amerant Mortgage (including transactions with affiliates such as broker fees, interest expense and other operating expenses) of $2.5 million and $3.0 million in the nine months ended September 30, 2022 and 2021, respectively, primarily derived from salary and employee benefits which are included in our consolidated results of operations.
Net interest income was $184.5 million in the nine months ended September 30, 2022, an increase of 29.01%$35.1 million, or 23.5%, from $149.4 million in the nine months ended September 30, 2021. This was primarily the result of: (i) higher average yields on loans, debt securities available for sale and held to maturity and interest earning deposits with banks; (ii) higher average balance outstanding , along withof loans and debt securities held to maturity, and (iii) lower average balances of total interest bearing liabilities, mainly time deposits. These results were partially offset by: (i) higher cost of total deposits, mainly interest bearing demand and money market deposit accounts, and FHLB advances; (ii) lower average balance of debt securities available for sale, and (iii) the cost of the subordinated debt in March 2022. The increase in average yields on interest earning assets includes the effect of the Federal Reserve’s actions to manage inflation in 2022 which consisted of raising its benchmark rate by a total of 300 basis points year to date. See “-Net interest Income” for more details.
Noninterest income was $42.9 million in the nine months ended September 30, 2022, an increase of 24 basis points$0.4 million, or 1.0%, compared to $43.3 million in the averagenine months ended September 30, 2021. This decrease was primarily driven by: (i) lower net gains on securities of $4.2 million, primarily due to lower gains on sale of debt securities available for sale; (ii) the absence of a gain of $3.8 million on the sale of $95.1 million of PPP loans in the nine months ended September 30, 2021, and (iii) net unrealized losses on derivative valuation of $0.6 million in the nine months ended September 30, 2022 related to interest rate paidcaps with clients. The decrease in noninterest income was partially offset by: (i) higher loan-level derivative income, mainly driven by a higher volume of interest rate swap transactions with clients; (ii) higher mortgage banking income; (iii) lower losses on these borrowings. Advances from the FHLB are used to actively manage the Company’s funding profile, and bear fixed interest rates from 1.05% to 3.86%, and variable interest rates based on 3-month LIBOR which increased to 2.34% at June 30, 2018 from 1.30% at June 30, 2017. At June 30, 2018, $978.0 million (77.74%)early extinguishment of FHLB advances, which decreased $1.8 million in the period, and (iii) higher deposit and service fees. In the first nine months of 2022, the Company recorded a loss of $0.7 million on the early extinguishment of around $180.0 million of FHLB advances. In the first nine months of 2021, the Company recorded a loss of $2.5 million on the early extinguishment of around $235 million of FHLB advances. See “-Noninterest Income” for more details.
Noninterest expense was $179.2 million in the nine months ended September 30, 2022, an increase of $36.0 million, or 25.2%, from $143.2 million in the nine months ended September 30, 2021. This was primarily driven by higher professional and other services fees, occupancy and equipment costs, advertising expenses, salaries and employee benefits, and other operating expenses. Also, in the nine months ended September 30, 2022, the Company incurred additional expenses, including: (i) $7.1 million of estimated contract termination costs associated with third party vendors resulting from the Company’s transition to our new technology provider, and (ii) a non-routine charge of $3.4 million resulting from the changes in the estimated fair value and related disposition costs of an OREO property in New York. These increases were fixed ratepartially offset by lower depreciation and $280.0amortization expenses and FDIC assessments and insurance expenses. See “-Noninterest Expense” for more details.
In the nine months ended September 30, 2022 and 2021, noninterest expense included non-routine items of $16.5 million (22.26%and $5.2 million, respectively. Non-routine items in noninterest expense include $13.0 million and $5.2 million of restructuring costs in the nine months ended September 30, 2022 and 2021, respectively. In addition, in the nine months ended September 30, 2022, non-routine items in noninterest expense include: (i) a non-routine charge of $3.4 million resulting from the changes in the estimated fair value and related disposition costs of an OREO property in New York, and (ii) a valuation allowance of $0.2 million related to the change in fair value of New York loans held for sale.
In the nine months ended September 30, 2022 and 2021, the Company incurred noninterest expenses of $9.8 million and $3.7 million, respectively, related to Amerant Mortgage which consists of salaries and employee benefits expense, mortgage lending costs and professional and other services fees. Amerant Mortgage commenced commenced operations in May 2021 and had 67 full time equivalent employees (“FTEs”) were variable rate. The Company has designated certain interest rate swaps as cash flow hedges to manage this variable interest rate exposure.
at September 30, 2022.
Average Balance Sheet, Interest and Yield/Rate Analysis
The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three and six monthsnine month periods ended JuneSeptember 30, 20182022 and 2017.2021. The average balances for loans include both performing and nonperformingnon-performing balances. Interest income on loans includes the effects of discount accretion and the amortization of non-refundable loan origination fees, net deferredof direct loan origination costs, accounted for as yield adjustments. Average balances represent the daily average balances for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2022 | | 2021 |
| (in thousands, except percentages) | Average
Balances | | Income/
Expense | | Yield/
Rates | | Average
Balances | | Income/
Expense | | Yield/
Rates |
| Interest-earning assets: | | | | | | | | | | | |
| Loan portfolio, net (1)(2) | $ | 6,021,294 | | | $ | 76,779 | | | 5.06 | % | | $ | 5,379,461 | | | $ | 53,193 | | | 3.92 | % |
| Debt securities available for sale (3) (4) | 1,110,153 | | | 8,379 | | | 2.99 | % | | 1,221,569 | | | 7,055 | | | 2.29 | % |
| Debt securities held to maturity (5) | 235,916 | | | 1,921 | | | 3.23 | % | | 102,574 | | | 508 | | | 1.96 | % |
| Debt securities held for trading | 65 | | | 1 | | | 6.10 | % | | 153 | | | 1 | | | 2.59 | % |
| Equity securities with readily determinable fair value not held for trading | 12,018 | | | — | | | — | % | | 24,017 | | | 66 | | | 1.09 | % |
| Federal Reserve Bank and FHLB stock | 49,398 | | | 605 | | | 4.86 | % | | 47,682 | | | 514 | | | 4.28 | % |
| Deposits with banks | 258,237 | | | 1,452 | | | 2.23 | % | | 207,504 | | | 76 | | | 0.15 | % |
| Total interest-earning assets | 7,687,081 | | | 89,137 | | | 4.60 | % | | 6,982,960 | | | 61,413 | | | 3.49 | % |
| Total non-interest-earning assets (6) | 639,118 | | | | | | | 553,505 | | | | | |
| Total assets | $ | 8,326,199 | | | | | | | $ | 7,536,465 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2018 | | 2017 |
| | Average
Balances | | Income/
Expense | | Yield/
Rates | | Average
Balances | | Income/
Expense | | Yield/
Rates |
| | (in thousands, except percentages) |
| Interest-earning assets: | | | | | | | | | | | |
Loan portfolio, net (1) | $ | 5,890,459 |
| | $ | 62,448 |
| | 4.31 | % | | $ | 5,779,708 |
| | $ | 53,790 |
| | 3.77 | % |
Securities available for sale (2) | 1,662,799 |
| | 11,257 |
| | 2.74 | % | | 1,935,557 |
| | 11,764 |
| | 2.45 | % |
Securities held to maturity (3) | 88,811 |
| | 346 |
| | 1.57 | % | | 2,720 |
| | 9 |
| | 1.33 | % |
| Federal Reserve Bank and FHLB stock | 70,243 |
| | 1,106 |
| | 6.45 | % | | 58,361 |
| | 742 |
| | 5.18 | % |
| Deposits with banks | 175,434 |
| | 759 |
| | 1.74 | % | | 143,044 |
| | 364 |
| | 1.02 | % |
| Total interest-earning assets | 7,887,746 |
| | 75,916 |
| | 3.91 | % | | 7,919,390 |
| | 66,669 |
| | 3.41 | % |
| Total non-interest-earning assets less allowance for loan losses | 531,294 |
| | | | | | 500,212 |
| | | | |
| Total assets | $ | 8,419,040 |
| | | | | | $ | 8,419,602 |
| | | | |
| | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Checking and saving accounts - | | | | | | | | | | | |
| Interest bearing DDA | $ | 1,417,230 |
| | $ | 113 |
| | 0.03 | % | | $ | 1,657,285 |
| | $ | 84 |
| | 0.02 | % |
| Money market | 1,225,452 |
| | 3,086 |
| | 1.01 | % | | 1,352,299 |
| | 2,168 |
| | 0.64 | % |
| Savings | 431,686 |
| | 18 |
| | 0.02 | % | | 479,613 |
| | 19 |
| | 0.02 | % |
| Total checking and saving accounts | 3,074,368 |
| | 3,217 |
| | 0.42 | % | | 3,489,197 |
| | 2,271 |
| | 0.26 | % |
| Time deposits | 2,371,147 |
| | 10,172 |
| | 1.73 | % | | 1,959,066 |
| | 6,193 |
| | 1.27 | % |
| Total deposits | 5,445,515 |
| | 13,389 |
| | 0.99 | % | | 5,448,263 |
| | 8,464 |
| | 0.62 | % |
| Securities sold under agreements to repurchase | 423 |
| | 2 |
| | 1.90 | % | | 43,845 |
| | 564 |
| | 5.25 | % |
Advances from the FHLB and other borrowings(4) | 1,173,000 |
| | 6,511 |
| | 2.24 | % | | 902,776 |
| | 4,345 |
| | 1.94 | % |
| Junior subordinated debentures | 118,110 |
| | 2,025 |
| | 7.04 | % | | 118,110 |
| | 1,855 |
| | 6.43 | % |
| Total interest-bearing liabilities | 6,737,048 |
| | 21,927 |
| | 1.31 | % | | 6,512,994 |
| | 15,228 |
| | 0.94 | % |
| Total non-interest-bearing liabilities | 933,968 |
| | | | | | 1,168,207 |
| | | | |
| Total liabilities | 7,671,016 |
| | | | | | 7,681,201 |
| | | | |
| Stockholders’ equity | 748,024 |
| | | | | | 738,401 |
| | | | |
| Total liabilities and stockholders' equity | $ | 8,419,040 |
| | | | | | $ | 8,419,602 |
| | | | |
| Excess of average interest-earning assets over average interest-bearing liabilities | $ | 1,150,698 |
| | | | | | $ | 1,406,396 |
| | | | |
| Net interest income | | | $ | 53,989 |
| | | | | | $ | 51,441 |
| | |
| Net interest rate spread | | | | | 2.60 | % | | | | | | 2.47 | % |
Net interest margin (5) | | | | | 2.77 | % | | | | | | 2.62 | % |
| Ratio of average interest-earning assets to average interest-bearing liabilities | 117.08 | % | | | | | | 121.59 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2022 | | 2021 |
| (in thousands, except percentages) | Average
Balances | | Income/
Expense | | Yield/
Rates | | Average
Balances | | Income/
Expense | | Yield/
Rates |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Checking and saving accounts | | | | | | | | | | | |
| Interest bearing DDA | $ | 2,077,321 | | | $ | 4,934 | | | 0.94 | % | | $ | 1,290,944 | | | $ | 147 | | | 0.05 | % |
| Money market | 1,363,799 | | | 3,555 | | | 1.03 | % | | 1,359,774 | | | 798 | | | 0.23 | % |
| Savings | 320,861 | | | 54 | | | 0.07 | % | | 329,456 | | | 11 | | | 0.01 | % |
| Total checking and saving accounts | 3,761,981 | | | 8,543 | | | 0.90 | % | | 2,980,174 | | | 956 | | | 0.13 | % |
| Time deposits | 1,247,084 | | | 4,717 | | | 1.50 | % | | 1,555,001 | | | 5,302 | | | 1.35 | % |
| Total deposits | 5,009,065 | | | 13,260 | | | 1.05 | % | | 4,535,175 | | | 6,258 | | | 0.55 | % |
| | | | | | | | | | | |
| Advances from the FHLB and other borrowings (7) | 866,639 | | | 3,977 | | | 1.82 | % | | 808,860 | | | 1,777 | | | 0.87 | % |
| Senior notes | 59,092 | | | 941 | | | 6.32 | % | | 58,776 | | | 942 | | | 6.36 | % |
| Subordinated notes | 29,220 | | | 362 | | | 4.92 | % | | — | | | — | | | — | % |
| Junior subordinated debentures | 64,178 | | | 700 | | | 4.33 | % | | 64,178 | | | 615 | | | 3.80 | % |
| Total interest-bearing liabilities | 6,028,194 | | | 19,240 | | | 1.27 | % | | 5,466,989 | | | 9,592 | | | 0.70 | % |
| Non-interest-bearing liabilities: | | | | | | | | | | | |
| Non-interest-bearing demand deposits | 1,316,988 | | | | | | | 1,110,353 | | | | | |
| Accounts payable, accrued liabilities and other liabilities | 245,425 | | | | | | | 152,528 | | | | | |
| Total non-interest-bearing liabilities | 1,562,413 | | | | | | | 1,262,881 | | | | | |
| Total liabilities | 7,590,607 | | | | | | | 6,729,870 | | | | | |
| Stockholders’ equity | 735,592 | | | | | | | 806,595 | | | | | |
| Total liabilities and stockholders' equity | $ | 8,326,199 | | | | | | | $ | 7,536,465 | | | | | |
| Excess of average interest-earning assets over average interest-bearing liabilities | $ | 1,658,887 | | | | | | | $ | 1,515,971 | | | | | |
| Net interest income | | | $ | 69,897 | | | | | | | $ | 51,821 | | | |
| Net interest rate spread | | | | | 3.33 | % | | | | | | 2.79 | % |
| Net interest margin (8) | | | | | 3.61 | % | | | | | | 2.94 | % |
| Cost of total deposits (9) | | | | | 0.83 | % | | | | | | 0.44 | % |
| Ratio of average interest-earning assets to average interest-bearing liabilities | 127.52 | % | | | | | | 127.73 | % | | | | |
| Average non-performing loans/ Average total loans | 0.42 | % | | | | | | 1.94 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2018 | | 2017 |
| | Average
Balances | | Income/
Expense | | Yield/
Rates | | Average
Balances | | Income/
Expense | | Yield/
Rates |
| | (in thousands, except percentages) |
| Interest-earning assets: | | | | | | | | | | | |
Loan portfolio, net (1) | $ | 5,902,893 |
| | $ | 122,118 |
| | 4.18 | % | | $ | 5,749,193 |
| | $ | 103,870 |
| | 3.65 | % |
Securities available for sale (2) | 1,669,607 |
| | 21,549 |
| | 2.60 | % | | 1,990,378 |
| | 23,580 |
| | 2.38 | % |
Securities held to maturity (3) | 89,165 |
| | 856 |
| | 1.93 | % | | 1,367 |
| | 9 |
| | 1.32 | % |
| Federal Reserve Bank and FHLB stock | 70,304 |
| | 2,045 |
| | 5.90 | % | | 58,814 |
| | 1,492 |
| | 5.14 | % |
| Deposits with banks | 157,391 |
| | 1,279 |
| | 1.63 | % | | 161,417 |
| | 737 |
| | 0.92 | % |
| Total interest-earning assets | 7,889,360 |
| | 147,847 |
| | 3.78 | % | | 7,961,169 |
| | 129,688 |
| | 3.28 | % |
| Total non-interest-earning assets less allowance for loan losses | 524,074 |
| | | | | | 496,791 |
| | | | |
| Total assets | $ | 8,413,434 |
| | | | | | $ | 8,457,960 |
| | | | |
| | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Checking and saving accounts - | | | | | | | | | | | |
| Interest bearing DDA | $ | 1,446,823 |
| | $ | 202 |
| | 0.03 | % | | $ | 1,679,350 |
| | $ | 184 |
| | 0.02 | % |
| Money market | 1,219,748 |
| | 5,652 |
| | 0.93 | % | | 1,374,015 |
| | 4,344 |
| | 0.63 | % |
| Savings | 438,668 |
| | 36 |
| | 0.02 | % | | 483,502 |
| | 37 |
| | 0.02 | % |
| Total checking and saving accounts | 3,105,239 |
| | 5,890 |
| | 0.38 | % | | 3,536,867 |
| | 4,565 |
| | 0.26 | % |
| Time deposits | 2,323,746 |
| | 18,872 |
| | 1.63 | % | | 1,939,414 |
| | 11,853 |
| | 1.23 | % |
| Total deposits | 5,428,985 |
| | 24,762 |
| | 0.91 | % | | 5,476,281 |
| | 16,418 |
| | 0.60 | % |
| Securities sold under agreements to repurchase | 213 |
| | 2 |
| | 1.89 | % | | 46,906 |
| | 1,205 |
| | 5.20 | % |
Advances from the FHLB and other borrowings (4) | 1,179,934 |
| | 12,501 |
| | 2.13 | % | | 914,572 |
| | 8,594 |
| | 1.89 | % |
| Junior subordinated debentures | 118,110 |
| | 3,960 |
| | 6.82 | % | | 118,110 |
| | 3,679 |
| | 6.33 | % |
| Total interest-bearing liabilities | 6,727,242 |
| | 41,225 |
| | 1.23 | % | | 6,555,869 |
| | 29,896 |
| | 0.91 | % |
| Total non-interest-bearing liabilities | 938,287 |
| | | | | | 1,176,969 |
| | | | |
| Total liabilities | 7,665,529 |
| | | | | | 7,732,838 |
| | | | |
| Stockholders' equity | 747,905 |
| | | | | | 725,122 |
| | | | |
| Total liabilities and stockholders' equity | $ | 8,413,434 |
| | | | | | $ | 8,457,960 |
| | | | |
| Excess of average interest-earning assets over average interest-bearing liabilities | $ | 1,162,118 |
| | | | | | $ | 1,405,300 |
| | | | |
| Net interest income | | | $ | 106,622 |
| | | | | | $ | 99,792 |
| | |
| Net interest rate spread | | | | | 2.55 | % | | | | | | 2.37 | % |
Net interest margin (5) | | | | | 2.72 | % | | | | | | 2.52 | % |
| Ratio of average interest-earning assets to average interest-bearing liabilities | 117.27 | % | | | | | | 121.44 | % | | | | |
__________________
| |
(1) | Average non-performing loans of $34.0 million and $57.4 million for the three months ended June 30, 2018 and 2017, respectively, and $32.7 million and $62.7 million for the six months ended June 30, 2018 and 2017, respectively, are included in the average loan portfolio, net balance. |
| |
(2) | Includes nontaxable securities with average balances of $174.1 million and $159.1 million for the three months ended June 30, 2018 and 2017, respectively, and $175.4 million and $158.9 million for the six months ended June 30, 2018 and 2017, respectively. The tax equivalent yield for these nontaxable securities for the three months ended June 30, 2018 and 2017 was 4.10% and 3.87%, respectively, and 3.83% and 3.88% for the six months ended June 30, 2018 and 2017, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended |
| September 30, 2022 | | September 30, 2021 |
| (in thousands, except percentages) | Average
Balances | | Income/
Expense | | Yield/
Rates | | Average Balances | | Income/ Expense | | Yield/ Rates |
| Interest-earning assets: | | | | | | | | | | | |
| Loan portfolio, net (1)(2) | $ | 5,718,264 | | | $ | 194,631 | | | 4.55 | % | | $ | 5,527,228 | | | $ | 159,576 | | | 3.86 | % |
| Debt securities available for sale (3)(4) | 1,130,231 | | | 23,371 | | | 2.76 | % | | 1,202,191 | | | 19,943 | | | 2.22 | % |
| Debt securities held to maturity (5) | 176,462 | | | 3,605 | | | 2.73 | % | | 89,298 | | | 1,291 | | | 1.93 | % |
| Debt securities held for trading | 67 | | | 3 | | | 5.99 | % | | 172 | | | 4 | | | 3.11 | % |
| Equity securities with readily determinable fair value not held for trading | 8,615 | | | — | | | — | % | | 24,084 | | | 225 | | | 1.25 | % |
| Federal Reserve Bank and FHLB stock | 50,118 | | | 1,690 | | | 4.51 | % | | 54,291 | | | 1,687 | | | 4.15 | % |
| Deposits with banks | 247,401 | | | 2,102 | | | 1.14 | % | | 217,611 | | | 189 | | | 0.12 | % |
| Total interest-earning assets | 7,331,158 | | | 225,402 | | | 4.11 | % | | 7,114,875 | | | 182,915 | | | 3.44 | % |
| Total non-interest-earning assets (6) | 592,087 | | | | | | | 538,137 | | | | | |
| Total assets | $ | 7,923,245 | | | | | | | $ | 7,653,012 | | | | | |
| | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Checking and saving accounts | | | | | | | | | | | |
| Interest bearing DDA | $ | 1,769,001 | | | $ | 6,258 | | | 0.47 | % | | $ | 1,298,674 | | | $ | 383 | | | 0.04 | % |
| Money market | 1,293,748 | | | 5,639 | | | 0.58 | % | | 1,302,431 | | | 2,695 | | | 0.28 | % |
| Savings | 321,634 | | | 80 | | | 0.03 | % | | 323,785 | | | 39 | | | 0.02 | % |
| Total checking and saving accounts | 3,384,383 | | | 11,977 | | | 0.47 | % | | 2,924,890 | | | 3,117 | | | 0.14 | % |
| Time deposits | 1,265,982 | | | 13,501 | | | 1.43 | % | | 1,765,555 | | | 18,989 | | | 1.44 | % |
| Total deposits | 4,650,365 | | | 25,478 | | | 0.73 | % | | 4,690,445 | | | 22,106 | | | 0.63 | % |
| Securities sold under agreements to repurchase | 20 | | | — | | | — | % | | 147 | | | 1 | | | 0.91 | % |
| Advances from the FHLB and other borrowings (7) | 883,566 | | | 9,799 | | | 1.48 | % | | 926,087 | | | 6,790 | | | 0.98 | % |
| Senior notes | 59,014 | | | 2,825 | | | 6.40 | % | | 58,697 | | | 2,826 | | | 6.44 | % |
| Subordinated notes | 22,030 | | | 811 | | | 4.92 | % | | — | | | — | | | — | % |
| Junior subordinated debentures | 64,178 | | | 2,002 | | | 4.17 | % | | 64,178 | | | 1,831 | | | 3.81 | % |
| Total interest-bearing liabilities | 5,679,173 | | | 40,915 | | | 0.96 | % | | 5,739,554 | | | 33,554 | | | 0.78 | % |
| Non-interest-bearing liabilities: | | | | | | | | | | | |
| Non-interest-bearing demand deposits | 1,275,689 | | | | | | | 991,635 | | | | | |
| Accounts payable, accrued liabilities and other liabilities | 209,123 | | | | | | | 129,407 | | | | | |
| Total non-interest-bearing liabilities | 1,484,812 | | | | | | | 1,121,042 | | | | | |
| Total liabilities | 7,163,985 | | | | | | | 6,860,596 | | | | | |
| Stockholders’ equity | 759,260 | | | | | | | 792,416 | | | | | |
| Total liabilities and stockholders' equity | $ | 7,923,245 | | | | | | | $ | 7,653,012 | | | | | |
| Excess of average interest-earning assets over average interest-bearing liabilities | $ | 1,651,985 | | | | | | | $ | 1,375,321 | | | | | |
| Net interest income | | | $ | 184,487 | | | | | | | $ | 149,361 | | | |
| Net interest rate spread | | | | | 3.15 | % | | | | | | 2.66 | % |
| Net interest margin (8) | | | | | 3.36 | % | | | | | | 2.81 | % |
| Cost of total deposits (9) | | | | | 0.57 | % | | | | | | 0.52 | % |
| Ratio of average interest-earning assets to average interest-bearing liabilities | 129.09 | % | | | | | | 123.96 | % | | | | |
| Average non-performing loans/ Average total loans | 0.56 | % | | | | | | 1.77 | % | | | | |
(1) Includes loans held for investment net of the allowance for loan losses, and loans held for sale. The average balance of the allowance for loan losses was $51.9 million and $100.7 million in the three months ended September 30, 2022 and 2021, respectively, and $58.4 million and $107.5 million in the nine months ended September 30, 2022 and 2021, respectively. The average balance of total loans held for sale was $142.5 million and $81.2 million in the three months ended September 30, 2022 and 2021, respectively, and $130.8 million and $27.5 million in the nine months ended September 30, 2022 and 2021, respectively.
| |
(3) | Includes nontaxable securities with average balances of $88.8 million and $2.7 million for the three months ended June 30, 2018 and 2017, respectively, and $88.9 million and $1.4 million for the six months ended June 30, 2018 and 2017,(2) Includes average non-performing loans of $25.3 million and $106.5 million for the three months ended September 30, 2022 and 2021, respectively, and $32.4 million and $99.8 million for the nine months ended September 30, 2022 and 2021, respectively. Interest income that would have been recognized on outstanding non-performing loans at September 30, 2022 and 2021was $9 thousand and $2.3 million in the three months ended September 30, 2022 and 2021, respectively, and $0.6 million and $4.0 million in the nine months ended September 30, 2022 and 2021, respectively. The tax equivalent yield for these nontaxable securities for the three months ended June 30, 2018 and 2017 was 2.00% and 2.15%, respectively, and 2.45% and 2.13% for the six months ended June 30, 2018 and 2017, respectively.
|
| |
(4) | The terms of the advance agreement require the Bank to maintain certain investment securities or loans as collateral for these advances. |
| |
(5) | Net interest margin is defined as net interest income divided by average interest-earning assets, which are loans, securities available for sale and held to maturity, deposits with banks and other financial assets, which yield interest or similar income. |
(3) Includes the average balance of net unrealized gains and losses in the fair value of debt securities available for sale. The average balance includes average net unrealized losses of $72.4 million and average net unrealized gains of $28.9 million in the three months ended September 30, 2022 and 2021, respectively, and includes an average net unrealized losses of $42.9 million and average net unrealized gains of $28.7 million in the nine months ended September 30, 2022 and 2021, respectively. Provision(4) Includes nontaxable securities with average balances of $17.1 million and $19.5 million for the three months ended September 30, 2022 and 2021, respectively, and $18.6 million and $46.8 million in the nine months ended September 30, 2022 and 2021, respectively. The tax equivalent yield for these nontaxable securities was 2.69% and 1.51% for the three months ended September 30, 2022 and 2021, respectively, and 3.67% and 2.09% for the nine months ended September 30, 2022 and 2021, respectively. In 2022 and 2021, the tax equivalent yields were calculated by assuming a 21% tax rate and dividing the actual yield by 0.79.
(5) Includes nontaxable securities with average balances of $41.9 million and $65.1 million for the three months ended September 30, 2022 and 2021, respectively, and $42.9 million and $58.0 million in the nine months ended September 30, 2022 and 2021, respectively. The tax equivalent yield for these nontaxable securities was 3.48% and 2.37% for the three months ended September 30, 2022 and 2021, respectively, and 3.31% and 2.32% in the nine months ended September 30, 2022 and 2021, respectively. In 2022 and 2021, the tax equivalent yields were calculated by assuming a 21% tax rate and dividing the actual yield by 0.79.
(6) Excludes the allowance for loan losses.
(7) The terms of the FHLB advance agreements require the Bank to maintain certain investment securities or loans as collateral for these advances.
(8) Net interest margin is defined as net interest income divided by average interest-earning assets, which are loans, securities, deposits with banks and other financial assets which yield interest or similar income.
(9) Calculated based upon the average balance of total noninterest bearing and interest bearing deposits.
Net interest income
Three Months Ended September 30, 2022 and 2021
In the three months ended September 30, 2022, net interest income was $69.9 million, an increase of $18.1 million, or 34.9%, from $51.8 million in the same period of 2021. This was mainly driven by: (i) an increase of 111 basis points in the yield on total interest earning assets, mainly loans, debt securities available for sale and held to maturity and interest earning deposits with banks; (ii) increases of $641.8 million, or 11.93%, and $133.3 million, or 130.0%, in the average balance of loans and debt securities held to maturity, respectively, and (iii) a decline of $307.9 million, or 19.8%, in the average balance of total time deposits. The increase in net interest income was partially offset by: (i) higher cost of total deposits, mainly interest bearing demand and money market deposit accounts, and FHLB advances, and (ii) the cost of the Subordinated Notes issued in March 2022. The increase in average yields on interest earning assets includes the effect of the Federal Reserve’s actions to manage inflation in 2022, which consisted of raising its benchmark rate by a total of 300 basis points year to date. Net interest margin was 3.61% in the three months ended September 30, 2022, an increase of 67 basis points from 2.94% in the three months ended September 30, 2021. See discussions further below for more details.
During the third quarter of 2022, the Company continued making efforts to increase its loan origination volumes. Also, in the third quarter of 2022, we continued seeking additional opportunities to improve NIM through: (i) purchases of single-family residential loans through Amerant Mortgage; (ii) continued purchases of consumer loans under indirect lending programs; (iii) originations of commercial loans and leases under a new white label equipment finance solution launched in the second quarter of 2022, and (iv) originations of consumer loans under a white-label program. In addition, during the third quarter of 2022, changes in deposit rates being managed on a case-by-case-basis curtailed increase in cost of deposits during the period.
The increase in the cost of FHLB advances in the three months ended September 30, 2022 is mainly attributable to changes in the composition of the Company’s outstanding FHLB advances beginning in the first quarter of 2022. In the first nine months of 2022, in light of the rising rate environment, the Company actively managed the duration of FHLB advances by: (i) repaying $530.0 million in callable FHLB advances, and (ii) borrowing $550.0 million in longer-term advances to extend the duration of this portfolio and lock-in fixed interest rates. In addition, in the three months ended September 30, 2022, the Company borrowed $150.0 million in fixed-rate FHLB advances to support loan growth during the period.
In the first quarter of 2022, we completed a private placement of $30 million of 4.25% fixed-to-floating rate subordinated notes due 2032. See discussions further below for more details on the subordinated notes.
Interest Income
Total interest income was $89.1 million in the three months ended September 30, 2022, an increase of $27.7 million, or 45.1%, compared to $61.4 million for the same period of 2021. This was primarily driven by a 111 basis points increase in the average yield on total interest earning assets, mainly driven by higher yields on loans, debt securities available for sale and held to maturity and interest earning deposits with banks. In addition, there were increases of $641.8 million, or 11.93%, and $133.3 million, or 130.0%, in the average balance of loans and debt securities held to maturity, respectively. These increases were partially offset by a decrease of $111.4 million, or 9.1%, in the average balance of debt securities available for sale.
Interest income on loans in the three months ended September 30, 2022 was $76.8 million, an increase of $23.6 million, or 44.3%, compared to $53.2 million in the same period last year, primarily due to: (i) a 114 basis points increase in average yields, mainly attributable to higher market rates, and (ii) an increase of $641.8 million, or 11.9%, in the average balance of loans. The increase in average yields and volumes also includes the effect of higher-yielding consumer loans purchased under indirect lending programs throughout 2021 and the first nine months of 2022. In addition, the increase in the average balance of loans includes higher average balances of single-family residential and commercial loans, and to a lesser extent, higher average balances of CRE loans. These results were partially offset by a decrease in prepayment penalties of $0.4 million in the third quarter of 2022 compared to the same period last year. See “-Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.
Interest income on debt securities available for sale was $8.4 million in the three months ended September 30, 2022, an increase of $1.3 million, or 18.8%, compared to $7.1 million in the same period of 2021. This was mainly due to an increase of 70 basis points in average yields, primarily driven by higher market rates. This was partially offset by a decrease of $111.4 million, or 9.1%, in the average balance of these securities. The decline in the average balance was primarily due to a decrease in carrying value due to market rates increasing throughout the first nine months of 2022. In the three months ended September 30, 2022, the average balance of accumulated net unrealized loss included in the carrying value of these securities was $72.4 million compared to accumulated net unrealized gain of $28.9 million in the same period last year. As of September 30, 2022, corporate debt securities comprised 29.7% of the available-for-sale portfolio, down from 29.5% at September 30, 2021. We continue with our strategy to insulate the investment portfolio from prepayment risk. As of September 30, 2022, floating rate investments represent 16.1% of our total investment portfolio compared to 11.1% at September 30, 2021. In addition, the overall duration increased to 5.0 years at September 30, 2022 from 3.7 years at September 30, 2021, which was mainly due to lower expected prepayment speeds recorded in our mortgage-backed securities portfolio in light of rising interest rates.
Interest income on debt securities held to maturity was $1.9 million in the three months ended September 30, 2022, an increase of $1.4 million, or 278.1%, compared to $0.5 million in the same period of 2021. This was mainly due to an increase of 127 basis points in average yields, primarily driven by higher market rates. In addition, there was an increase of $133.3 million, or 130.0% in the average balance of these securities.
Interest Expense
Interest expense was $19.2 million in the three months ended September 30, 2022, an increase of $9.6 million, or 100.6%, compared to $9.6 million in the same period of 2021. This was primarily due to: (i) higher cost of total deposits, mainly interest bearing demand and money market deposit accounts, and FHLB advances, and (ii) the cost of the subordinated notes issued in March 2022. In addition, there was an increase of $561.2 million, or 10.3%, in the average balance of total interest bearing liabilities, mainly interest bearing demand deposits. The increase in the average balance of total interest bearing liabilities was partially offset by a decline of $307.9 million, or 19.8%, in the average balance of total time deposits.
Interest expense on interest-bearing deposits was $13.3 million in the three months ended September 30, 2022, an increase of $7.0 million, or 111.9%, compared to $6.3 million for the same period of 2021. This was mainly driven by an increase of 50 basis points in the average rates paid on total deposits, and an increase of $473.9 million, or 10.4%, in their average balance. These results were partially offset by a decrease of $307.9 million, or 19.8%, in the average balance of total time deposits. See below for a detailed explanation of changes by major deposit category:
•Time deposits. Interest expense on total time deposits decreased $0.6 million, or 11.0%, in the three months ended September 30, 2022 compared to the same period in 2021. This was mainly due to: (i) a decline of $307.9 million, or 19.8%, in the average balance, including a decrease of $80.7 million in the average balance of international time deposits. This decline was partially offset by an increase of 15 basis points in the average cost of total time deposits. The decline in the average balance of total time deposits include decreases of $197.1 million, $61.5 million and $49.3 million, in customer certificate of deposits (“CDs”), brokered deposits and online deposits, respectively. The decline in customer CDs reflects the Company’s continued efforts to aggressively lower CD rates and focus on increasing core deposits and emphasizing multiproduct relationships versus single product higher-cost CDs.
•Interest bearing checking and savings accounts. Interest expense on checking and savings accounts increased $7.6 million, or 793.6%, in the three months ended September 30, 2022 compared to the same period one year ago, mainly due to an increase of 77 basis points in the average costs on these deposits. In addition, there was an increase of $781.8 million, or 26.2% in the average balance of total interest bearing checking and savings accounts in the three months ended September 30, 2022 compared to the same period in 2021, mainly driven by: (i) higher average domestic personal accounts; (ii) new domestic deposits from escrow accounts, municipalities, and from domestic individuals and businesses through large fund providers in the nine months ended September 30, 2022, and (iii) an increase of $41.3 million, or 2.0%, in the average balance of international accounts, including increases of $20.4 million, or 1.2%, and $20.9 million, or 5.5%, in personal and commercial accounts, respectively. These increases in average balances were partially offset by a decline of $79.5 million in the average balance of third-party interest-bearing domestic brokered deposits in the three months ended September 30, 2022 compared to the same period in 2021, as the Company continued to focus on reducing reliance on this source of funding.
Interest expense on FHLB advances increased $2.2 million, or 123.8%, in the three months ended September 30, 2022 compared to the same period of 2021, primarily driven by: (i) an increase of 95 basis points in the average rate paid on these borrowings, and (ii) an increase of $57.8 million, or 7.1%, in the average balance on this funding source. In May 2021, the Company completed the restructuring of $285 million of its fixed-rate FHLB advances and incurred an early termination and modification penalty of $6.6 million which was deferred and is being amortized over the term of the new advances, as an adjustment to the yields. In each of the three months ended September 30, 2022 and 2021, we recognized $0.5 million, included as part of interest expense resulting from this amortization. Also, in the first quarter of 2022, we repaid $180 million in callable FHLB advances and borrowed $350.0 million in longer-term FHLB advances. In addition, during the second quarter of 2022, the Company repaid $350.0 million in FHLB callable advances and borrowed $200.0 million in long-term fixed advances to extend duration of this portfolio and lock-in fixed interest rates.Furthermore, in the three months ended September 30, 2022, the Company borrowed $150.0 million in fixed-rate FHLB advances to support loan growth during the period. See “Item 7. Management’s Discussion and Analysis Of Financial Condition And Results Of Operations” included in the Form 10-K for more details on the $285 million FHLB advances restructuring completed in May 2021.
On March 9, 2022, the Company sold and issued $30.0 million aggregate principal amount of its 4.25% Fixed-to-Floating Rate Subordinated Notes due on March 15, 2032. The Subordinated Notes will initially bear interest at a fixed rate of 4.25% per annum, from and including March 9, 2022, to but excluding March 15, 2027, with interest payable semi-annually in arrears. In the three months ended September 30, 2022 interest expense on these
subordinated notes was $0.4 million. See “Capital Resources and Liquidity Management” in this Form 10-Q for more information on the Subordinated Notes.
Nine Months Ended September 30, 2022 and 2021
In the nine months ended September 30, 2022, net interest income was $184.5 million, an increase of $35.1 million, or 23.5%, from $149.4 million in the same period of 2021. This was mainly driven by: (i) an increase of 67 basis points in the yield on total interest earning assets, mainly loans, debt securities available for sale and held to maturity and interest earnings deposits with banks; (ii) higher average balance of loans and debt securities held to maturity, and (iii) a decline of $60.4 million, or 1.05%, in the average balance of total interest bearing liabilities, mainly time deposits. The increase in net interest income was partially offset by: (i) higher cost of total deposits, mainly interest bearing demand and money market deposit accounts, and FHLB advances, and (ii) a decrease of $72.0 million, or 6.0%, in the average balance of debt securities available for sale. In addition, the nine months ended September 30, 2022 include the additional interest expense associated with subordinated notes issued in March 2022. The increase in average yields on interest earning assets includes the effect of the aforementioned increase in the Federal reserve’s benchmark interest rate in 2022. Net interest margin was 3.36% in the nine months ended September 30, 2022, an increase of 55 basis points from 2.81% in the nine months ended September 30, 2021. See discussions further below for more details.
Interest Income
Total interest income was $225.4 million in the nine months ended September 30, 2022, an increase of $42.5 million, or 23.2%, compared to $182.9 million for the same period of 2021. This was primarily driven by a 67 basis points increase in the average yield on total interest earning assets, mainly driven by higher market rates on loans, debt securities available for sale and held to maturity and interest earning deposits with banks. In addition, there were increases of $191.0 million, or 3.5%, and $87.2 million, or 97.6%, in the average balance of loans and debt securities held to maturity, respectively. These increases were partially offset by a decrease of $72.0 million, or 6.0%, in the average balance of debt securities available for sale.
Interest income on loans in the nine months ended September 30, 2022 was $194.6 million, an increase of $35.1 million, or 22.0%, compared to $159.6 million for the comparable period of 2021. This result was primarily due to a 69 basis points increase in average yields, mainly attributable to higher market rates as well as higher-yielding consumer loans purchased throughout 2021 and the first nine months of 2022. In addition, the increase in average yields includes the effect of an increase in prepayment penalties of $0.3 million in the nine months ended September 30, 2022 compared to the same period last year. Also, in the first nine months of 2022, there was an increase of $191.0 million, or 3.5%, in the average balance of loans compared to the same period in 2021, mainly attributable to: (i) purchases of consumer loans under indirect lending programs as discussed above; (ii) higher volumes of single-family residential loans; (iii) higher volumes of commercial loans primarily driven by our loan origination and cross-sale efforts during the first nine months of 2022. The increase in the average balance of loans was partially offset by: (i) a lower average balance of CRE loans, mainly driven by prepayments during the period, and (ii) the sale of and forgiveness of PPP loans and the sale of New York real estate loans during the period. See “-Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.
Interest income on debt securities available for sale was $23.4 million in the nine months ended September 30, 2022, an increase of $3.4 million, or 17.2%, compared to $19.9 million in the same period of 2021. This was mainly due to an increase of 54 basis points in average yields, primarily on lower prepayments and higher market rates. This was partially offset by a decrease of $72.0 million, or 6.0%, in the average balance of these securities. The decline in the average balance was due to prepayments and a decrease in carrying value due to market rates increasing throughout the first nine months of 2022. In the nine months ended September 30, 2022, the average balance of accumulated net unrealized loss included in the carrying value of these securities was $42.9 million million compared to accumulated net unrealized gain of $28.7 million million in the same period last year.
Interest income on debt securities held to maturity was $3.6 million in the nine months ended September 30, 2022, an increase of $2.3 million, or 179.2%, compared to $1.3 million in the same period of 2021. This was mainly due to an increase of $87.2 million, or 97.6% in the average balance of these securities. In addition, there was an increase of 80 basis points in average yields, primarily driven by higher market rates.
Interest Expense
Interest expense was $40.9 million in the nine months ended September 30, 2022, an increase of $7.4 million, or 21.9%, compared to $33.6 million in the same period of 2021. This was primarily due to: (i) higher cost of total deposits, mainly interest bearing demand and money market deposit accounts, and FHLB advances, and (ii) the additional interest expense associated with the subordinated notes issued in March 2022. This was partially offset by: (i) a decrease of $60.4 million, or 1.05%, in the average balance of total interest bearing liabilities, mainly time deposits and FHLB advances, and (ii) a decline of 6 basis points in the average costs of customer time deposits.
Interest expense on interest-bearing deposits was $25.5 million in the nine months ended September 30, 2022, an increase of $3.4 million, or 15.3%, compared to $22.1 million for the same period of 2021. This increase was mainly driven by: (i) higher cost of total deposits, mainly interest bearing demand and money market deposit accounts, and (ii) an increase of $459.5 million, or 15.7%, in the average balance on interest bearing checking and savings accounts. This increase was partially offset by: (i) a decrease of $499.6 million, or 28.3%, in the average balance of total time deposits, and (ii) a decline of 6 basis points in the average cost of customer time deposits. See below for a detailed explanation of changes by major deposit category:
•Time deposits. Interest expense on total time deposits decreased $5.5 million, or 28.9%, in the nine months ended September 30, 2022 compared to the same period in 2021. This was mainly due to: (i) a decline of $499.6 million, or 28.3%, in the average balance, including a decrease of $120.9 million in the average balance of international time deposits, and (ii) decline of 6 basis points in the average cost on customer time deposits. These declines were partially offset by increases of 19 basis points and 18 basis points in the average cost on brokered time deposits and online deposits, respectively. The decline in the average balance of total time deposits include decreases of $290.9 million, $140.8 million and $67.9 million, in customer certificate of deposits (“CDs”), brokered deposits and online deposits, respectively. The decline in customer CDs reflects the Company’s continued efforts to aggressively lower CD rates and focus on increasing core deposits and emphasizing multiproduct relationships versus single product higher-cost CDs.
•Interest bearing checking and savings accounts. Interest expense on checking and savings accounts increased $8.9 million, or 284.2%, in the nine months ended September 30, 2022 compared to the same period one year ago, mainly due to an increase of 33 basis points in the average costs of these instruments. In addition, there was an increase of $459.5 million, or 15.7% in the average balance of total interest bearing checking and savings accounts in the nine months ended September 30, 2022 compared to the same period in 2021, mainly driven by: (i) higher average domestic personal accounts; (ii) new domestic deposits from escrow accounts, municipalities, and from domestic individuals and businesses through large fund providers in the nine months ended September 30, 2022, and (iii) an increase of $88.7 million, or 4.3%, in the average balance of international accounts, including increases of $56.8 million, or 3.3%, and $31.8 million, or 9.0%, in personal and commercial accounts, respectively. These increases in average balances were partially offset by a decline of $69.3 million in the average balance of third-party interest-bearing domestic brokered deposits in the nine months ended September 30, 2022 compared to the same period in 2021, as the Company continued to focus on reducing reliance on this source of funding.
Interest expense on FHLB advances increased $3.0 million, or 44.3%, in the nine months ended September 30, 2022 compared to the same period of 2021, mainly due to an increase of 50 basis points in the average rate paid on these borrowings. This increase was partially offset by a decline of $42.5 million, or 4.6%, in the average balance on this funding source which includes the effect of the repayment of $235.0 million of FHLB advances in the second quarter of 2021. In May 2021, the Company completed the restructuring of $285 million of its fixed-rate FHLB advances and incurred an early termination and modification penalty of $6.6 million which was deferred and is being amortized over the term of the new advances, as an adjustment to the yields. In the nine months ended September 30, 2022 and 2021, we recognized $1.4 million and $0.7 million, respectively, included as part of interest expense resulting from this amortization. Additionally, in the first quarter of 2022, we repaid $180 million in callable FHLB advances and borrowed $350.0 million in longer-term FHLB advances. Furthermore, during the second quarter of 2022, the Company repaid $350.0 million in FHLB callable advances and borrowed $200.0 million in long-term fixed advances to extend duration of this portfolio and lock-in fixed interest rates. Lastly, in the third quarter of 2022, we borrowed $150.0 million in fixed-rate FHLB advances to support loan growth. The Company did not add new FHLB borrowings during the third quarter of 2021. See “Item 7. Management’s Discussion and Analysis Of Financial Condition And Results Of Operations” included in the Form 10-K for more details on the $285 million FHLB advances restructuring completed in May 2021.
Interest expense on subordinated notes was $0.8 million in the nine months ended September 30, 2022. We had no interest expense on subordinated notes in the nine months ended September 30, 2021. See “Capital Resources and Liquidity Management” in this Form 10-Q for more information on the Subordinated Notes.
Analysis of the Allowance for Loan Losses
Set forth in the table below are the changes in the allowance for loan losses for each of the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| |
| Balance at the beginning of the period | $ | 52,027 | | | $ | 104,185 | | | $ | 69,899 | | | $ | 110,902 | |
| | | | | | | |
| Charge-offs | | | | | | | |
| Domestic Loans: | | | | | | | |
| Real estate loans | | | | | | | |
| Commercial Real Estate (CRE) | | | | | | | |
| Non-owner occupied | — | | | (9,274) | | | — | | | (9,274) | |
| Single-family residential | — | | | — | | | (10) | | | (58) | |
| | | | | | | |
| | | | | | | |
| Commercial | (99) | | | (7,102) | | | (7,979) | | | (9,025) | |
| Consumer and others | (1,712) | | | (687) | | | (3,660) | | | (1,904) | |
| (1,811) | | | (17,063) | | | (11,649) | | | (20,261) | |
| | | | | | | |
| International Loans (1): | | | | | | | |
| Single-family residential | — | | | — | | | (4) | | | — | |
| | | | | | | |
| | | | | | | |
| Total Charge-offs | $ | (1,811) | | | $ | (17,063) | | | $ | (11,653) | | | $ | (20,261) | |
| | | | | | | |
| Recoveries | | | | | | | |
| Domestic Loans: | | | | | | | |
| Real estate loans | | | | | | | |
| Commercial Real Estate (CRE) | | | | | | | |
| | | | | | | |
| Land development and construction loans | $ | 12 | | | $ | 41 | | | $ | 26 | | | $ | 111 | |
| | | | | | | |
| Single-family residential | 36 | | | 43 | | | 146 | | | 122 | |
| | | | | | | |
| | | | | | | |
| Commercial | 301 | | | 893 | | | 1,560 | | | 1,643 | |
| Consumer and others | 2 | | | 59 | | | 134 | | | 211 | |
| 351 | | | 1,036 | | | 1,866 | | | 2,087 | |
| | | | | | | |
| | | | | | | |
| International Loans (2): | | | | | | | |
| | | | | | | |
| | | | | | | |
| Commercial | 142 | | | 281 | | | 579 | | | 653 | |
| Consumer and others | 2 | | | 3 | | | 20 | | | 61 | |
| 144 | | | 284 | | | 599 | | | 714 | |
| Total Recoveries | $ | 495 | | | $ | 1,320 | | | $ | 2,465 | | | $ | 2,801 | |
| | | | | | | |
| Net charge-offs | (1,316) | | | (15,743) | | | (9,188) | | | (17,460) | |
| Provision for (reversal of) loan losses | 3,000 | | | (5,000) | | | (7,000) | | | (10,000) | |
| Balance at the end of the period | $ | 53,711 | | | $ | 83,442 | | | $ | 53,711 | | | $ | 83,442 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in thousands) |
| Balance at the beginning of the period | $ | 72,118 |
| | $ | 79,363 |
| | $ | 72,000 |
| | $ | 81,751 |
|
| | | | | | | | |
| Charge-offs | | | | | | | |
| Domestic Loans: | | | | | | | |
| Real Estate | | | | | | | |
| Commercial Real Estate (CRE) | | | | | | | |
| Non-owner occupied | — |
| | — |
| | — |
| | (97 | ) |
| | — |
| | — |
| | — |
| | (97 | ) |
| Single-family residential | (27 | ) | | — |
| | (27 | ) | | (83 | ) |
| Owner occupied | — |
| | — |
| | — |
| | (25 | ) |
| | (27 | ) | | — |
| | (27 | ) | | (205 | ) |
| Commercial | (2,355 | ) | | (1,097 | ) | | (2,737 | ) | | (1,390 | ) |
| Consumer and others | (71 | ) | | (15 | ) | | (90 | ) | | (45 | ) |
| | (2,453 | ) | | (1,112 | ) | | (2,854 | ) | | (1,640 | ) |
| | | | | | | | |
| International Loans: | | | | | | | |
| Commercial | (52 | ) | | (143 | ) | | (52 | ) | | (6,042 | ) |
| Consumer and others | (230 | ) | | (258 | ) | | (630 | ) | | (477 | ) |
| | (282 | ) | | (401 | ) | | (682 | ) | | (6,519 | ) |
| Total Charge-offs | $ | (2,735 | ) | | $ | (1,513 | ) | | $ | (3,536 | ) | | $ | (8,159 | ) |
| | | | | | | | |
| Recoveries | | | | | | | |
| Domestic Loans: | | | | | | | |
| Real Estate Loans | | | | | | | |
| Commercial Real Estate (CRE) | | | | | | | |
| Non-Owner occupied | $ | 4 |
| | $ | 15 |
| | $ | 5 |
| | $ | 67 |
|
| Land development and construction loans | — |
| | 92 |
| | 33 |
| | 99 |
|
| | 4 |
| | 107 |
| | 38 |
| | 166 |
|
| Single-family residential | 60 |
| | 1,064 |
| | 64 |
| | 1,110 |
|
| Owner occupied | 95 |
| | 2 |
| | 883 |
| | 6 |
|
| | 159 |
| | 1,173 |
| | 985 |
| | 1,282 |
|
| Commercial | 174 |
| | 21 |
| | 218 |
| | 60 |
|
(1) Primarily from Venezuela customers.
(2) Includes transactions in which the debtor or the customer is domiciled outside the U.S., even when the collateral is located in the U.S.
Three Months Ended September 30, 2022 and 2021
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in thousands) |
| Consumer and others | 26 |
| | — |
| | 32 |
| | — |
|
| | 359 |
| | 1,194 |
| | 1,235 |
| | 1,342 |
|
| | | | | | | | |
| International Loans: | | | | | | | |
| Real Estate | | | | | | | |
| Commercial Real Estate (CRE) | | | | | | | |
| Non-owner occupied | — |
| | — |
| | — |
| | 2 |
|
| | — |
| | — |
| | — |
| | 2 |
|
| Single-family residential | — |
| | 1 |
| | — |
| | 3 |
|
| | — |
| | 1 |
| | — |
| | 5 |
|
| Consumer and others | 39 |
| | 15 |
| | 82 |
| | 24 |
|
| | 39 |
| | 16 |
| | 82 |
| | 29 |
|
| Total Recoveries | $ | 398 |
| | $ | 1,210 |
| | $ | 1,317 |
| | $ | 1,371 |
|
| | | | | | | | |
| Net charge-offs | (2,337 | ) | | (303 | ) | | (2,219 | ) | | (6,788 | ) |
| Provision for loan losses | 150 |
| | 3,646 |
| | 150 |
| | 7,743 |
|
| Balance at the end of the period | $ | 69,931 |
| | $ | 82,706 |
| | $ | 69,931 |
| | $ | 82,706 |
|
Set forthThe Company recorded a provision for loan losses of $3.0 million in the table below isthree months ended September 30, 2022, compared to a release from the compositionALL of international$5.0 million in the same period last year. During the third quarter of 2022, the provision for loan charge-offslosses included: (i) $4.0 million due to loan growth; (ii) $0.7 million in additional reserves requirements for charge-offs; and (iii) $0.2 million due to upgrades, payoffs and pay-downs of non-performing loans and special mention loans. This was partially offset by country$0.5 million due to recoveries, $0.3 million due to macroeconomic improvements, and a net of $1.1 million from other factors related to the COVID pandemic and the Hurricane further discussed below. The ALL release in the third of 2021 was primarily attributed to: (i) a release of approximately $2.0 million as a result of upgrades, payoffs and pay downs of non-performing loans and special mention loans, and (ii) a release of approximately $3.0 million due to the loan portfolio reduction and the decision to classify $219 million of New York CRE loans as available for eachsale in the third quarter of 2021.
In the three months ended September 30, 2022, we determined that we no longer needed the ALL associated with the COVID-19 pandemic, reflecting improved macro-economic conditions, partially offset by the impact of supply chain disruptions, inflationary pressures and labor shortages prevalent in the current economic environment. The ALL associated with the COVID pandemic was estimated at $2.7 million as of June 30, 2022. While most of the periods presented.measures and restrictions enacted during the COVID pandemic have been lifted, and many businesses reopened, the Company cannot predict when circumstances may change and whether restrictions that have been lifted will need to be imposed or tightened in the future if viewed as necessary due to public health concerns. Given the uncertainty regarding the spread and severity of the COVID-19 pandemic and its adverse effects on the U.S. and global economies, the impact to the Company’s loan portfolio cannot be accurately predicted at this time.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in thousands) |
| Commercial loans: | | | | | | | |
| Brazil | $ | 52 |
| | $ | 128 |
| | $ | 52 |
| | $ | 6,027 |
|
| Others | — |
| | 15 |
| | — |
| | 15 |
|
| Consumer loans and overdrafts: | | | | | | | |
| Venezuela | 230 |
| | 258 |
| | 630 |
| | 477 |
|
| Total charge offs | $ | 282 |
| | $ | 401 |
| | $ | 682 |
| | $ | 6,519 |
|
During the three months ended JuneSeptember 30, 2018,2022, charge-offs increaseddecreased $15.3 million, or 89.4%, compared to $2.7 million from $1.5 million during the same period of the prior year. The increase is primarily attributed to a $2.3In the three months ended September 30, 2022, charge-offs included: (i) $1.7 million charge-off in 2018 related to three domesticmultiple consumer loans, and (ii) $0.2 million in connection with two commercial loans. In the third quarter of 2021, charge-offs included: (i) $9.3 million related to two non-owner occupied loans, in the retail, wholesale and telecommunications industries. Additionally, recoveries decreased to $398 thousand in 2018, compared to $1.2including $6.1 million during the same period in 2017, mainly attributable to a $1.0 million recovery in 2017 related to a single-family residential real estate loan. Assingle-tenant loan in New York which is in process of foreclosure, and $3.2 million related to a result,loan in New York transferred to OREO in the third quarter of 2021, and (ii) $5.7 million in connection with a Miami-based U.S. coffee trader (“the Coffee Trader”). The ratio of net charge-offs over the average total loan portfolio duringheld for investment was 0.09% in the threethird quarter of 2022, compared to 1.16% in the third quarter of 2021.
As of December 31, 2021, the Coffee Trader had an outstanding balance of approximately $9.1 million. In the second quarter of 2022, the Company collected a partial principal payment of $5.5 million and charged off the remaining balance of $3.6 million against the allowance for loans losses. Therefore, as of September 30, 2022, there were no outstanding balances associated with this loan relationship. See “Item 7. Management’s Discussion and Analysis Of Financial Condition And Results Of Operations” included in the Form 10-K, for more details on the Coffee Trader.
During the third quarter of 2022, consistent with the Company’s applicable policy, the Company obtained independent third-party collateral valuations on all real estate securing non-performing loans with existing valuations older than 12-months, to support current ALL levels. No additional loan loss reserves were deemed necessary as a result of these valuations.
We continue to proactively and carefully monitor the Company’s credit quality practices, including examining and responding to patterns or trends that may arise across certain industries or regions.
Nine Months Ended September 30, 2022 and 2021
The Company released $7.0 million from the ALL in the nine months ended JuneSeptember 30, 2018 was 3 basis points higher than during2022, compared to $10.0 million in the same period last year. The ALL release in 2017.the first nine months of 2022 was primarily attributed to releases of: (i) $1.2 million as a result of improved macro-economic conditions; (ii) $4.2 million due to upgrades, payoffs and pay-downs of non-performing loans and special mention loans, (iii) $2.5 million due to recoveries, and iv) a net of $12.5 million from other factors related to the COVID pandemic and the Hurricane further discussed below. These releases from the ALL in the first nine months of 2022 were partially offset by $6.5 million in additional reserve requirements for charge-offs and $6.9 million in reserve requirements due to loan growth. The ALL release in the first nine months of 2021 was primarily attributable to: (i) a release of approximately $8.5 million due to improved macro-economic conditions and credit outlook, as the Florida and Texas economies continued to recover from the COVID-19 pandemic, and (ii) a release of approximately $7.3 million due to the loan portfolio reduction and the decision to classify $219 million of New York CRE loans as available for sale in the third quarter of 2021. These results were partially offset by a provision of approximately $5.8 million as a result of the net effect of upgrades and downgrades in the first nine months of 2021.
In the nine months ended September 30, 2022, we determined that we no longer needed the ALL associated with the COVID-19 pandemic, reflecting improved macro-economic conditions, partially offset by the impact of supply chain disruptions, inflationary pressures and labor shortages prevalent in the current economic environment. The ALL associated with the COVID pandemic was estimated at $14.1 million as of December 31, 2021. While most of the measures and restrictions enacted during the COVID pandemic have been lifted, and many businesses reopened, the Company cannot predict when circumstances may change and whether restrictions that have been lifted will need to be imposed or tightened in the future if viewed as necessary due to public health concerns. Given the uncertainty regarding the spread and severity of the COVID-19 pandemic and its adverse effects on the U.S. and global economies, the impact to the Company’s loan portfolio cannot be accurately predicted at this time.
Additionally, in late September 2022, the Hurricane impacted several countries in the Caribbean, and the U.S., causing significant damage, and disrupting businesses in several regions, including several South and Central Florida counties in which the Company does business, including the Tampa Bay, Port Charlotte, Naples and Orlando markets and their surrounding areas. See - “Hurricane Ian in Our Company” for more information about the Hurricane. As of September 30, 2022, the estimated outstanding loan balances in the areas impacted by the Hurricane totaled approximately $300 million. Based on information currently available, the Company has not identified any significant impacts to the loan portfolio of the Company deemed to be located in the areas that may have been meaningfully impacted by the Hurricane. While the Company has identified an ALL of approximately $1.6 million as of September 30, 2022 to account for its initial estimate of probable credit losses pending to be identified in relation to the Hurricane, the Company has not currently identified any immediate significant impact to the collateral securing the loans in the exposed loan portfolio in the region. The Company is in contact with the impacted borrowers and has been performing site visits as well. Since there is significant uncertainty with respect to the full extent of the negative impacts due to the unprecedented nature of the Hurricane, the Company’s estimates with respect to the loan portfolio potentially impacted and the ALL currently estimable, are based on judgment and subject to change as conditions evolve. The Company will continue to carefully assess and review the exposure of the portfolios to hurricane-related factors, economic trends and their effect on credit quality and that assessment and review could result in further loan loss provisions in future periods.
During the sixnine months ended JuneSeptember 30, 2018,2022, charge-offs decreased to $3.5$8.6 million, from $8.2 million duringor 42.5%, compared to the same period of the prior year. The decrease is primarily attributedIn the nine months ended September 30, 2022, charge-offs included: (i) $7.4 million related to a $6.0four commercial loans, including $3.6 million charge-off in 2017related to the Coffee Trader and $2.5 million related to a nonaccrual loan paid off during the period, (ii) an aggregate of $3.7 million in consumer loans, and (iii) an aggregate of $0.5 million related to a primary products companymultiple smaller loans. In the nine months ended September 30, 2021, charge-offs included: (i) $9.3 million related to two non-owner occupied loans as discussed above; (ii) $5.7 million in Brazil.connection with the loan relationship with the Coffee Trader, and (iv) an aggregate of $1.8 million of charge-offs related to consumer loans under indirect lending programs. The ratio of net charge-offs over the average total loan portfolio duringheld for investment was 0.22% in the sixnine months ended JuneSeptember 30, 2018 improved 8 basis points, from 0.12% to 0.04%2022, compared to 0.42% in the same period in 2017.
We added $150 thousand of provision for loan losses during the three and sixnine months ended JuneSeptember 30, 2018. This compares to $3.6 million and $7.7 million of provisions for loan losses recorded during the same periods last year. The decrease is primarily attributed to improvements in quantitative loan loss factors and positive adjustments to qualitative loan loss factors used for the portfolio segments of domestic commercial real estate and domestic commercial loans during the period. These positive adjustments were partially offset by a $3.9 million provision for loan loss required in June 30, 2018 associated with one CRE loan. This provision resulted from an evaluation of the net realizable market value of the property securing this CRE loan. A recent appraisal indicates that the collateral securing the TDR has deteriorated further, and we are evaluating whether a further write-down may be required. Positive loan loss factors resulted from improving trends in factors associated with our real estate and commercial portfolio segments.2021.
Noninterest Income
The table below sets forth a comparison for each of the categories of non-interestnoninterest income for the periods presented. |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Change |
| | 2018 | | 2017 | | 2018 over 2017 |
| | Amount | | % of non-interest income | | Amount | | % of non-interest income | | Amount | | % |
| | (in thousands, except percentages) |
| Deposits and service fees | $ | 4,471 |
| | 29.83 | % | | $ | 4,868 |
| | 27.41 | % | | $ | (397 | ) | | (8.16 | )% |
| Brokerage, advisory and fiduciary activities | 4,426 |
| | 29.53 | % | | 4,897 |
| | 27.57 | % | | (471 | ) | | (9.62 | )% |
Change in cash surrender value of bank owned life insurance(1) | 1,474 |
| | 9.84 | % | | 1,242 |
| | 6.99 | % | | 232 |
| | 18.68 | % |
| Cards and trade finance servicing fees | 1,173 |
| | 7.83 | % | | 1,114 |
| | 6.27 | % | | 59 |
| | 5.30 | % |
| Gain on early extinguishment of FHLB advances | 882 |
| | 5.89 | % | | — |
| | —% |
| | 882 |
| | N/M |
| Data processing, rental income and fees for other services to related parties | 613 |
| | 4.09 | % | | $ | 969 |
| | 5.46 | % | | (356 | ) | | (36.74 | )% |
| Securities gains, net | 16 |
| | 0.11 | % | | 177 |
| | 1.00 | % | | (161 | ) | | (90.96 | )% |
Other noninterest income (2) | 1,931 |
| | 12.88 | % | | 4,492 |
| | 25.30 | % | | (2,561 | ) | | (57.01 | )% |
| | $ | 14,986 |
| | 100.00 | % | | $ | 17,759 |
| | 100.00 | % | | $ | (2,773 | ) | | (15.61 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2022 | | 2021 | | 2022 vs 2021 |
| Amount | | % | | Amount | | % | | Amount | | % |
| (in thousands, except percentages) | |
| Deposits and service fees | $ | 4,629 | | | 29.0 | % | | $ | 4,303 | | | 32.0 | % | | $ | 326 | | | 7.6 | % |
| Brokerage, advisory and fiduciary activities | 4,619 | | | 29.0 | % | | 4,595 | | | 34.2 | % | | 24 | | | 0.5 | % |
| Loan-level derivative income (1) | 2,786 | | | 17.5 | % | | 454 | | | 3.4 | % | | 2,332 | | | 513.7 | % |
| Change in cash surrender value of bank owned life insurance (“BOLI”)(2) | 1,352 | | | 8.5 | % | | 1,369 | | | 10.2 | % | | (17) | | | (1.2) | % |
| Cards and trade finance servicing fees | 622 | | | 3.9 | % | | 541 | | | 4.0 | % | | 81 | | | 15.0 | % |
| | | | | | | | | | | |
| Securities (losses) gains, net (3) | 1,508 | | | 9.5 | % | | (54) | | | (0.4) | % | | 1,562 | | | (2,892.6) | % |
| Derivative (losses) gains, net (4) | (95) | | | (0.6) | % | | — | | | — | % | | $ | (95) | | | N/M |
| Other noninterest income (5) (6) | 535 | | | 3.2 | % | | 2,226 | | | 16.6 | % | | (1,691) | | | (76.0) | % |
| Total noninterest income | $ | 15,956 | | | 100.0 | % | | $ | 13,434 | | | 100.0 | % | | $ | 2,522 | | | 18.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2022 | | 2021 | | 2022 over 2021 |
| Amount | | % | | Amount | | % | | Amount | | % |
| (in thousands, except percentages) | |
| Deposits and service fees | $ | 13,826 | | | 32.2 | % | | $ | 12,693 | | | 29.3 | % | | $ | 1,133 | | | 8.9 | % |
| Brokerage, advisory and fiduciary activities | 13,654 | | | 31.8 | % | | 13,629 | | | 31.5 | % | | 25 | | | 0.2 | % |
| Loan-level Derivative income (1) | 6,947 | | | 16.2 | % | | 1,979 | | | 4.5 | % | | 4,968 | | | 251.0 | % |
| Change in cash surrender value of bank owned life insurance (“BOLI”)(2) | 4,028 | | | 9.4 | % | | 4,093 | | | 9.5 | % | | (65) | | | (1.6) | % |
| Cards and trade finance servicing fees | 1,720 | | | 4.0 | % | | 1,268 | | | 2.9 | % | | 452 | | | 35.7 | % |
| Loss on early extinguishment of FHLB advances, net | (712) | | | (1.7) | % | | (2,488) | | | (5.7) | % | | 1,776 | | | 71.4 | % |
| Securities (losses) gains, net (3) | (325) | | | (0.8) | % | | 3,857 | | | 8.9 | % | | (4,182) | | | (108.4) | % |
| Derivative losses, net (4) | (585) | | | (1.4) | % | | — | | | — | % | | (585) | | | NM |
| | | | | | | | | | | |
| Other noninterest income (5) (6) | 4,359 | | | 10.3 | % | | 8,300 | | | 19.1 | % | | (3,941) | | | (47.5) | % |
| Total noninterest income | $ | 42,912 | | | 100.0 | % | | $ | 43,331 | | | 100.0 | % | | $ | (419) | | | (1.0) | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | Change |
| | 2018 | | 2017 | | 2018 over 2017 |
| | Amount | | % of non-interest income | | Amount | | % of non-interest income | | Amount | | % |
| | (in thousands, except percentages) |
| Deposits and service fees | $ | 9,053 |
| | 31.29 | % | | $ | 9,774 |
| | 30.57 | % | | $ | (721 | ) | | (7.38 | )% |
| Brokerage, advisory and fiduciary activities | 8,841 |
| | 30.56 | % | | 10,158 |
| | 31.77 | % | | (1,317 | ) | | (12.97 | )% |
Change in cash surrender value of bank owned life insurance(1) | 2,918 |
| | 10.09 | % | | 2,487 |
| | 7.78 | % | | 431 |
| | 17.33 | % |
| Cards and trade finance servicing fees | 2,235 |
| | 7.73 | % | | 2,185 |
| | 6.83 | % | | 50 |
| | 2.29 | % |
| Gain on early extinguishment of FHLB advances | 882 |
| | 3.05 | % | | — |
| | —% |
| | 882 |
| | N/M |
| Data processing, rental income and fees for other services to related parties | 1,494 |
| | 5.16 | % | | 1,552 |
| | 4.85 | % | | (58 | ) | | (3.74 | )% |
| Securities gains, net | 16 |
| | 0.06 | % | | 155 |
| | 0.48 | % | | (139 | ) | | (89.68 | )% |
Other noninterest income (2) | 3,492 |
| | 12.06 | % | | 5,665 |
| | 17.72 | % | | (2,173 | ) | | (38.36 | )% |
| | $ | 28,931 |
| | 100.00 | % | | $ | 31,976 |
| | 100.00 | % | | $ | (3,045 | ) | | (9.52 | )% |
__________________(1) Income from interest rate swaps and other derivative transactions with customers. The Company incurred expenses related to derivative transactions with customers of $1.8 million in the three months ended September 30, 2022 and $4.9 million and $0.2 million in the nine months ended September 30, 2022 and 2021, respectively, which are included as part of noninterest expenses under professional and other services fees. We had no expenses associated with derivative transactions with customers in the three months ended September 30, 2021.
| |
(1) | Changes in cash surrender value are not taxable. |
(2) Changes in cash surrender value of BOLI are not taxable.
(3) Includes: (i) net gains on sale of debt securities of $22 thousand and $36 thousand in the three months ended September 30, 2021 and 2022, respectively, and $71 thousand and $4.2 million in the nine months ended September 30, 2022 and 2021, respectively, (ii) unrealized gains of $1.5 million and unrealized losses of $0.1 million in the three months ended September 30, 2022 and 2021, respectively, and unrealized losses of $0.4 million and $0.4 million in the nine months ended September 30, 2022 and 2021, respectively, related to the change in fair value of marketable equity securities not held for trading.
(4) Net unrealized gains and losses related to uncovered interest rate caps with clients.
(5) Includes rentalmortgage banking revenue related to Amerant Mortgage of $0.1 million and $0.7 million in the three months ended September 30, 2022 and 2021, respectively, and $3.2 million and $0.8 million in the nine months ended September 30, 2022 and 2021, respectively, primarily consisting of gain on sale of loans, gain on loans market valuation, other fees and smaller sources of income. Other sources of income in the periods shown include income from derivative and foreign currency exchange transactions with customers gains on the disposition of bank properties, and valuation income on the investment balances held in the non-qualified deferred compensation plan.
(6) Beginning in the three months ended March 31, 2022, rental income associated with the subleasing of portions of the Company’s headquarters building is presented as a reduction to rent expense under lease agreements under occupancy and equipment cost (included as part of other noninterest income in 2021 in connection with the previously-owned headquarters building). Rental income from subleases was $0.7 million and $1.0 million in the three months ended September 30, 2022 and 2021, respectively, and $2.2 million and $2.3 million, in the nine months ended September 30, 2022 and 2021, respectively.
N/M NotMeans not meaningful
Three Months Ended September 30, 2022 and 2021
Total noninterest income increased $2.5 million, or 18.8%, in the three months ended September 30, 2022, compared to the same period of 2021, mainly due to: (i) higher loan-level derivative income; (ii) net unrealized gains on marketable equity securities of $1.5 million in the three months ended September 30, 2022, and (iii) higher deposit and service fees. The decrease in noninterest income was partially offset by lower other noninterest income.
Loan-level derivative income increased $2.3 million, or 513.7%, in the three months ended September 30, 2022 compared to the same period in 2021, mainly driven by a higher volume of interest rate swap transactions with clients.
Deposits and service fees increased $0.3 million, or 7.6%, in the three months ended September 30, 2022 compared to the same period last year, primarily due to higher service charge fee income.
Other noninterest income decreased $1.7 million, or 76.0%, in the three months ended September 30, 2022 compared to the same period in 2021. Beginning in the three months ended March 31, 2022, rental income associated with the subleasing of portions of the Company’s headquarters building is presented as a reduction to rent expense under lease agreements under occupancy and equipment cost (included as part of other noninterest income in 2021 in connection with the previously-owned headquarters building). In the three months ended September 30, 2022 and 2021 rental income from subleases was $0.7 million and $1.0 million, respectively. In addition, in the third quarter of 2022 there was a decrease in mortgage banking income related to Amerant Mortgage of $0.6 million compared to the same period in 2021.
Amerant Mortgage continues to execute on its growth strategy. In the second quarter of 2022, the Company increased its ownership interest in Amerant Mortgage to 80% from 57.4% at March 31, 2022, due to two former principals surrendering their interest in Amerant Mortgage to the Company when they became full time employees of the Bank, and an additional $1 million capital contribution made by the Company to Amerant Mortgage in the second quarter of 2022. Total mortgage loans held for sale were $57.6 million as of September 30, 2022, compared to $14.9 million at December 31, 2021. The Company leveraged Amerant Mortgage’s business structure to originate and purchase single-family residential loans during the period. These actions contributed to higher loan volumes and NIM during the period.
Brokerage, advisory and fiduciary activities remained relatively flat in the three months ended September 30, 2022 compared to the same period last year, as an increase of $0.3 million in brokerage fees was partially offset by a decrease of $0.3 million in advisory and fiduciary fees. The increase in brokerage fees was mainly driven by higher fixed income trading revenues. The decrease in advisory fees is mainly the result of lower market valuations of AUM in our client’s advisory accounts.
Our AUM totaled $1.8 billion at September 30, 2022, a decrease of $409.8 million, or 18.5%, from $2.2 billion at December 31, 2021, primarily driven by lower market valuations, due to decreased valuations in equity and fixed income markets.
Nine Months Ended September 30, 2022 and 2021
Total noninterest income decreased $2.8$0.4 million, and $3.0 millionor 1.0%, in the three and sixnine months ended JuneSeptember 30, 2018, respectively,2022 compared to the same periodsperiod of 2017. During these periods, there were decreases2021, mainly due to: (i) lower net gains on securities of $4.2 million, primarily due to lower gains on sale of debt securities available for sale; (ii) lower other noninterest income, and (iii) net unrealized losses on derivative valuation of $0.6 million in brokerage,the nine months ended September 30, 2022 related to interest rate caps with clients. The decrease in noninterest income was partially offset by: (i) higher loan-level derivative income; (iii) lower losses on the early extinguishment of FHLB advances, which decreased $1.8 million in the period, and (iii) higher deposit and service fees. In the first nine months of 2022, the Company recorded a loss of $0.7 million on the early extinguishment of around $180.0 million of FHLB advances. In the first nine months of 2021, the Company recorded a loss of $2.5 million on the early extinguishment of around $235 million of FHLB advances.
Other noninterest income decreased $3.9 million, or 47.5%, in the nine months ended September 30, 2022 compared to the same period in 2021, mainly due to the absence of a gain of $3.8 million on the sale of $95.1 million of PPP loans in the nine months ended September 30, 2021. This was partially offset by an increase in mortgage banking income related to Amerant Mortgage of $2.4 million in the nine months ended September 30, 2022 compared to same period last year. Beginning in the three months ended March 31, 2022, rental income associated with the subleasing of portions of the Company’s headquarters building is presented as a reduction to rent expense under lease agreements under occupancy and equipment cost (included as part of other noninterest income in 2021 in connection with the previously-owned headquarters building). In the nine months ended September 30, 2022 and 2021 rental income from subleases was $2.2 million and $2.3 million, respectively.
Loan-level derivative income increased $5.0 million, or 251.0%, in the nine months ended September 30, 2022 compared to the same period in 2021, mainly driven by a higher volume of interest rate swap transactions with clients.
Deposits and service fees increased $1.1 million, or 8.9%, in the nine months ended September 30, 2022 compared to the same period last year, primarily due to higher service charge fee income. In addition, we received higher wire transfer fees from increased activity in the nine months ended September 30, 2022.
Brokerage, advisory and fiduciary activities as a result of lower volume of customer trading activities. Additionally, forremained relatively flat in the three and sixnine months ended JuneSeptember 30, 2018, there were decreases in other noninterest income primarily due to lower fee income on derivative and foreign currency exchange transactions with customers of $1.5 million and $1.6 million, respectively, and no gain on the disposition of bank properties compared to a gain of $0.9 million for the same periods a year ago. Also, included in other noninterest income and contributing to the decrease in the three and six months ended June 30 2018 was lower valuation income of $0.4 million and $0.1 million, respectively, on the investment balances held in the non-qualified deferred compensation plan,2022 compared to the same periodsperiod last year, as an increase of $0.3 million in 2017. Conversely, other noninterest expense for these periods includes smaller mirror debits to adjustbrokerage fees was offset by an decrease of $0.3 million in advisory and fiduciary fees. The increase in brokerage fees was mainly driven by higher fixed income trading revenues. The decrease in advisory fees is mainly the liability to the plan participants. Partially offsetting these results, we received $882 thousand in compensation as a result of the early terminationlower market valuations of certain advances from the FHLB during the second quarter of 2018, compared to noneAUM in the same period a year ago.
our client’s advisory accounts.
Noninterest Expense
The table below presents a comparison for each of the categories of noninterest expense for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2022 | | 2021 | | 2022 vs 2021 |
| Amount | | % | | Amount | | % | | Amount | | % |
| (in thousands, except percentages) | |
| Salaries and employee benefits (1) | $ | 30,109 | | | 53.7 | % | | $ | 29,053 | | | 60.0 | % | | $ | 1,056 | | | 3.6 | % |
| Occupancy and equipment (2) (3) | 6,559 | | | 11.7 | % | | 4,769 | | | 9.9 | % | | 1,790 | | | 37.5 | % |
| Professional and other services fees (4) (5) | 6,855 | | | 12.2 | % | | 4,184 | | | 8.6 | % | | 2,671 | | | 63.8 | % |
| Telecommunications and data processing | 3,861 | | | 6.9 | % | | 3,810 | | | 7.9 | % | | 51 | | | 1.3 | % |
| Advertising expenses | 2,066 | | | 3.7 | % | | 776 | | | 1.6 | % | | 1,290 | | | 166.2 | % |
| Depreciation and amortization (6) | 1,481 | | | 2.6 | % | | 2,091 | | | 4.3 | % | | (610) | | | (29.2) | % |
| FDIC assessments and insurance | 1,746 | | | 3.1 | % | | 1,626 | | | 3.4 | % | | 120 | | | 7.4 | % |
| Loans held for sale valuation reversal (7) | — | | | — | % | | | | | | — | | | NM |
| Other real estate owned valuation expense (8) | 234 | | | 0.42 | % | | — | | | — | % | | 234 | | | NM |
| Contract termination costs (9) | 289 | | | 0.5 | % | | — | | | — | % | | 289 | | | NM |
| Other operating expenses (10) | 2,913 | | | 5.2 | % | | 2,095 | | | 4.3 | % | | 818 | | | 39.1 | % |
| Total noninterest expenses (11) | $ | 56,113 | | | 100.0 | % | | $ | 48,404 | | | 100.0 | % | | $ | 7,709 | | | 15.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2022 | | 2021 | | 2022 vs 2021 |
| Amount | | % | | Amount | | % | | Amount | | % |
| (in thousands, except percentages) | |
| Salaries and employee benefits (1) | $ | 90,724 | | | 50.6 | % | | $ | 86,276 | | | 60.3 | % | | $ | 4,448 | | | 5.2 | % |
| Occupancy and equipment (2) (3) | 21,044 | | | 11.8 | % | | 14,599 | | | 10.2 | % | | 6,445 | | | 44.2 | % |
| Professional and other services fees (4) (5) | 20,783 | | | 11.6 | % | | 12,661 | | | 8.8 | % | | 8,122 | | | 64.2 | % |
| Telecommunications and data processing | 11,113 | | | 6.2 | % | | 11,052 | | | 7.7 | % | | 61 | | | 0.6 | % |
| Advertising Expenses | 8,291 | | | 4.6 | % | | 1,919 | | | 1.3 | % | | 6,372 | | | 332.1 | % |
| Depreciation and amortization (6) | 3,927 | | | 2.2 | % | | 5,749 | | | 4.0 | % | | (1,822) | | | (31.7) | % |
| FDIC assessments and insurance | 4,668 | | | 2.6 | % | | 5,083 | | | 3.6 | % | | (415) | | | (8.2) | % |
| Loans held for sale valuation allowance (7) | 159 | | | 0.1 | % | | — | | | — | % | | 159 | | | NM |
| Other real estate owned valuation expense (8) | 3,408 | | | 1.9 | % | | — | | | — | % | | 3,408 | | | NM |
| Contract Termination Costs (9) | 7,103 | | | 4.0 | % | | — | | | — | % | | 7,103 | | | NM |
| Other operating expenses (10) | 7,952 | | | 4.4 | % | | 5,815 | | | 4.1 | % | | 2,137 | | | 36.8 | % |
| Total noninterest expenses (11) | $ | 179,172 | | | 100.0 | % | | $ | 143,154 | | | 100.0 | % | | $ | 36,018 | | | 25.2 | % |
_______
(1) In the three and nine month periods ended September 30, 2022, includes $0.4 million and $1.8 million, respectively, of severance expenses, mainly in connection with the restructuring of business lines and the elimination of certain support functions. In the three and nine month periods ended September 30, 2021, includes $0.3 million and $3.6 million of severance expenses, respectively, mainly in connection with the elimination of various support function positions in the third quarter of 2021 and departure of our COO and other actions in the first nine months of 2021.
(2) In the nine months ended September 30, 2022 and 2021, includes ROU asset impairment charges of $1.6 million and $0.8 million, respectively, in connection with the closure of a branch in Pembroke Pines, Florida in 2022, and the close of our NY loan production office in 2021. In addition, in the nine months ended September 30, 2022, includes $47 thousand related to the lease termination of a branch in Fort Lauderdale, Florida in 2021.
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Change |
| | 2018 | | 2017 | | 2018 vs 2017 |
| | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total |
| | (in thousands, except percentages) |
| Salaries and employee benefits | $ | 34,932 |
| | 66.36 | % | | $ | 31,666 |
| | 62.50 | % | | $ | 3,266 |
| | 10.31 | % |
| Occupancy and equipment | 4,060 |
| | 7.71 | % | | 4,052 |
| | 8.00 | % | | 8 |
| | 0.20 | % |
| Professional and other services fees | 5,387 |
| | 10.23 | % | | 2,744 |
| | 5.42 | % | | 2,643 |
| | 96.32 | % |
| FDIC assessments and insurance | 1,468 |
| | 2.79 | % | | 2,180 |
| | 4.30 | % | | (712 | ) | | (32.66 | )% |
| Telecommunications and data processing | 3,011 |
| | 5.72 | % | | 2,417 |
| | 4.77 | % | | 594 |
| | 24.58 | % |
| Depreciation and amortization | 1,945 |
| | 3.70 | % | | 2,039 |
| | 4.02 | % | | (94 | ) | | (4.61 | )% |
Other operating expenses (1) | 1,835 |
| | 3.49 | % | | 5,567 |
| | 10.99 | % | | (3,732 | ) | | (67.04 | )% |
| | $ | 52,638 |
| | 100.00 | % | | $ | 50,665 |
| | 100.00 | % | | $ | 1,973 |
| | 3.89 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | Change |
| | 2018 | | 2017 | | 2018 vs 2017 |
| | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total |
| | (in thousands, except percentages) |
| Salaries and employee benefits | $ | 68,973 |
| | 63.70 | % | | $ | 63,974 |
| | 64.09 | % | | $ | 4,999 |
| | 7.81 | % |
| Occupancy and equipment | 7,775 |
| | 7.18 | % | | 8,761 |
| | 8.78 | % | | (986 | ) | | (11.25 | )% |
| Professional and other services fees | 11,831 |
| | 10.93 | % | | 5,401 |
| | 5.41 | % | | 6,430 |
| | 119.05 | % |
| FDIC assessments and insurance | 2,915 |
| | 2.69 | % | | 4,143 |
| | 4.15 | % | | (1,228 | ) | | (29.64 | )% |
| Telecommunications and data processing | 6,095 |
| | 5.63 | % | | 4,169 |
| | 4.18 | % | | 1,926 |
| | 46.20 | % |
| Depreciation and amortization | 4,086 |
| | 3.77 | % | | 4,466 |
| | 4.47 | % | | (380 | ) | | (8.51 | )% |
Other operating expenses (1) | 6,608 |
| | 6.10 | % | | 8,899 |
| | 8.92 | % | | (2,291 | ) | | (25.74 | )% |
| | $ | 108,283 |
| | 100.00 | % | | $ | 99,813 |
| | 100.00 | % | | $ | 8,470 |
| | 8.49 | % |
__________________(4) In the three months ended September 30, 2022, includes additional expenses of $1.0 million in connection with the Company’s transition to our new technology provider. In the nine months ended September 30, 2022, includes additional expenses of $2.4 million: including (i) $1.8 million resulting from the Company’s transition to our new technology provider; (ii) $0.2 million in connection with certain search and recruitment expenses; (iii) $0.1 million of costs associated with the subleasing of the New York office space, and (iv) an aggregate of $0.3 million in other expenses.
(1)(5) Other services fees include expenses of $1.8 million in the three months ended September 30, 2022, and $4.9 million and $0.2 million in the nine months ended September 30, 2022 and 2021, respectively, in connection with our loan-level derivative income generation activities. We had no expenses in connection with our loan-level derivative income generation activities in the three months ended September 30, 2021. See “Noninterest income” for more details.
(6) In the three and nine month periods ended September 30, 2021, includes $0.5 million and $1.6 million, respectively, of depreciation expense associated with the Company’s previously owned headquarters building. No depreciation expense related to the headquarters building was recorded in the three and nine month periods ended September 30, 2022 as this property was sold and leased-back in the fourth quarter of 2021.
(7) Valuation allowance as a result of changes in the fair value of loans held for sale carried at the lower of cost or fair value.
(8) Fair value adjustment related to one OREO property in New York.
(9) Estimated contract terminations and related costs associated with third party vendors resulting from the Company’s transition to our new technology provider.
(10) Includes marketing expenses, charitable contributions, community engagement, postage and courier expenses, provisions for possible losses on contingent loans, and debits which mirror the valuation income on the investment balances held in the non-qualified deferred compensation plan in order to adjust theour liability to participants of the deferred compensation plan.
(11) Includes $2.7 million and $2.1 million in the three months ended September 30, 2022 and 2021, respectively, and $9.8 million and $3.7 million in the nine months ended September 30, 2022 and 2021, respectively, related to Amerant Mortgage, primarily consisting of salaries and employee benefits, mortgage lending costs and professional and other services fees.
Three Months Ended JuneSeptember 30, 20182022 and 20172021
Noninterest expense increased $2.0$7.7 million, or 3.89%15.9%, in the three months ended JuneSeptember 30, 20182022 compared to the same period in 2017. This was the result of2021, mainly due to higher professional and other service fees, along with higheroccupancy and equipment expenses, advertising expenses, salary and employmentemployee benefits and other operating expenses. In addition, in the third quarter of 2022, we incurred additional expenses of: (i) $0.3 million in connection with the termination of technology contracts resulting from the transition to FIS supported systems and applications, and (ii) $0.2 million in connection with changes in the estimated fair value and related disposition costs of an OREO property in New York. These increases were partially offset by lower FDIC assessmentsdepreciation and other operating expenses.amortization expense.
The increase of $2.6 million in professional
Professional and other services fees duringincreased $2.7 million, or 63.8%, in the quarterthree months ended JuneSeptember 30, 20182022 compared to the same period last year isyear. This increase was mainly the resultdriven by: (i) higher expenses in connection with our loan-level derivative income generation activities (derivative transactions with clients), and (ii) $1.0 million of a $2.0 million provision for legalconsulting fees associatedin connection with the Spin-off. The Company expectsCompany’s transition to incur higher professional expenses as a standalone public company but does not expect further material professional expenses related to one-time Spin-off activities afterour new technology provider.
Occupancy and equipment costs increased $1.8 million, or 37.5%, in the three months ended September 30, 2018.
The increase in salaries and employment benefits of $3.3 million, or 10.31%, during the quarter ended June 30, 2018 compared to the same period last year, reflects the impact of annual salary increases stemming from inflation and performance adjustments, higher insurance benefit expenses, and a $1.2 million provision for the estimated compensation to be paid to participants of the non-qualified deferred compensation plan to partially mitigate the effect of the unexpected early distribution for federal income tax purposes. The Spin-off caused an early distribution for U.S. federal income tax purposes from our deferred compensation plan. FTE Headcount as of June 30, 2018 was 940, up one person over the previous quarter.
Other operating expenses decreased $3.7 million, or 67.04%, during the quarter ended June 30, 20182022 compared to the same period last year, mainly due to a reversaldriven by additional rent expense of provisions for possible losses on credit commitments of $1.0$2.5 million in the second quarter of 2018, compared to an addition to provisions for possible losses on credit commitments of $0.7 million in the same quarter of 2017. The change in provisions is primarily attributed to improvements in quantitative and qualitative loss factors and positive adjustments to qualitative loan loss factors with respect to credit commitments in the portfolio segments of domestic commercial real estate and domestic commercial loans during the period. In addition, there were lower marketing expenses of $0.8 million incurred during the second quarter of 2018 compared to the same period of 2017 as there were fewer promotional campaigns in the second quarter of 2018 compared to the same period of 2017.
Six Months Ended June 30, 2018 and 2017
Noninterest expense increased $8.5 million, or 8.49%, in the six months ended June 30, 2018 compared to the same period in 2017, primarily as a result of higher professional fees, along with higher salary and employment benefits and other expenses. These increases were partially offset by a lower FDIC assessments as well as lower occupancy and equipment-related costs, and other operating expenses.
The increase of $6.4 million in professional and other services fees during the six months ended June 30, 2018 compared to the same period in 2017 was mainly the result of a $4.3 million provision for legal and consulting fees associated with the Spin-off. The Company expects to incur higher professional expensespreviously-owned headquarters building, as this property was sold and leased-back in the fourth quarter of 2021. Beginning in the three months ended March 31, 2022, rental income associated with the subleasing of portions of the Company’s headquarters building is presented as a standalone public company but does not expect further material professional expenses relatedreduction to one-time Spin-off activities afterrent expense under lease agreements under occupancy and equipment cost (included as part of other noninterest income in 2021 in connection with the previously-owned headquarters building). In the three months ended September 30, 2018.2022 and 2021, rental income from subleases was $0.7 million and $1.0 million, respectively.
The increase in salaries and employment benefits of $5.0
Advertising expenses increased $1.3 million, or 7.81%166.2%, in the sixthree months ended JuneSeptember 30, 2018 compared to the same period last year, reflects the impact of annual salary increases stemming from inflation and performance adjustments, higher insurance benefit expenses, and a $1.2 million provision for the estimated compensation to be paid to participants of the non-qualified deferred compensation plan to partially mitigate the effect of the unexpected early distribution for federal income tax purposes. The Spin-off caused an early distribution for U.S. federal income tax purposes from our deferred compensation plan. FTE headcount as of June 30, 2018 was 940, a decrease of four over the previous six months.
Other operating expenses decreased $2.3 million, or 25.74%, during the six months ended June 30, 20182022 compared to the same period last year, mainly dueas a result of the Company’s efforts to build brand awareness as well as account opening campaigns and different market efforts to drive or increase digital and branch traffic. These impactful campaigns include out-of-home advertising and various campaigns via social media and public relations. Additionally, in July 2022, we entered into a reversalnew multi-year agreement to become the official bank of provisionsthe NBA’s Miami Heat. We also entered into a new multi-year agreement as a proud partner of the NHL’s Florida Panthers. We also continue to leverage other local partnerships with the University of Miami Athletics, United Way, and Habitat for possible losses on credit commitments of $0.3Humanity.
Salaries and employee benefits increased $1.1 million, or 3.6%, in the sixthree months ended JuneSeptember 30, 2018,2022 compared to an addition to provisions for possible losses on credit commitments of $0.9 million in the same period of 2017. The changeone year ago, mainly by: (i) higher equity variable compensation in provisions is primarily attributed to improvementsconnection with the long term incentive program; (ii) higher bonus commissions; (iii) salary increases mainly in quantitativeconnection with new hires during the quarter, and qualitative loss factors and positive adjustments to qualitative loan loss factors with respect to credit commitmentslate in the portfolio segmentssecond quarter of domestic commercial real estate2022; (iv) higher non-equity variable compensation, and domestic commercial loans during(v) higher severance expenses.These results were partially offset by decreases in salaries and employee benefits related to staff reductions resulting from our ongoing transformation and efficiency improvement efforts. At September 30, 2022, our FTEs were 681, a net decrease of 52 FTEs, or 7.1% compared to 733 FTEs at September 30, 2021. The 681 FTEs at September 30, 2022 include the period.new staff associated with Amerant Mortgage, which had 67 FTEs at September 30, 2022, compared to 52 FTEs at September 30, 2021. In the second quarter of 2022, the company rebalanced its workforce in the mortgage banking business in light of current market conditions. In addition, as a result of the Company’s agreement with FIS, there were lower marketing80 FTEs who moved to FIS effective in January 2022.
Other operating expenses of $0.5increased $0.8 million, incurred duringor 39.1%, in the sixthree months ended JuneSeptember 30, 2018 in comparison2022 compared to the same period last year, as there were fewer promotional campaignsmainly driven by higher OREO real estate taxes and other smaller expenses.
Depreciation and amortization expenses decreased $0.6 million, or 29.2%, in the first sixthree months of 2018ended September 30, 2022 compared to the same period last year. This was mainly due to the absence of 2017.depreciation expense related to the Company’s previously-owned headquarters building, as this property was sold and leased-back in the fourth quarter of 2021. In the three months ended September 30, 2021, the Company recorded $0.5 million of depreciation expense associated with the headquarters building.
Nine Months Ended September 30, 2022 and 2021
Noninterest expense increased $36.0 million, or 25.2%, in the nine months ended September 30, 2022 compared to the same period in 2021, mainly driven by professional and other services fees, occupancy and equipment costs, advertising expenses, salaries and employee benefits, and other operating expenses. Also, in the nine months ended September 30, 2022, the Company incurred additional expenses, including: (i) $7.1 million of estimated contract termination costs associated with third party vendors resulting from the Company’s transition to our new technology provider, and (ii) a non-routine charge of $3.4 million resulting from changes in the estimated fair value and related disposition costs of one OREO property in New York. These increases were partially offset by lower depreciation and amortization expenses and FDIC assessments and insurance expenses.
Professional and other services fees increased $8.1 million, or 64.15%, in the nine months ended September 30, 2022 compared to the same period last year. This increase was mainly driven by: (i) higher expenses in connection with our loan-level derivative income generation activities (derivative transactions with clients); (ii) $1.7 million of consulting fees resulting from the Company’s transition to our new technology provider; (iii) higher expenses related to the onboarding of a new firm as a result of the outsourcing of the Company’s internal audit function late in the third quarter of 2021, and (iv) higher search and recruitment expenses.
Occupancy and equipment costs increased $6.4 million, or 44.2%, in the nine months ended September 30, 2022 compared to the same period last year, mainly driven by additional rent expense of $7.5 million associated with the previously-owned headquarters building, as this property was sold and leased-back in the fourth quarter of 2021. In addition, in the first nine months of 2022, the Company recorded a lease impairment charge of $1.6 million related to the closure of a branch, in Pembroke Pines, Florida. These increases were partially offset by the absence of a lease impairment of $0.8 million in the first nine months of 2021 in connection with the closing of the New York LPO. Additionally, beginning in the three months ended March 31, 2022, rental income associated with the subleasing of portions of the Company’s headquarters building is presented as a reduction to rent expense under lease agreements under occupancy and equipment cost (included as part of other noninterest income in 2021 in connection with the previously-owned headquarters building). In the nine months ended September 30, 2022 and 2021 rental income from subleases was $2.2 million and $2.3 million, respectively.
Advertising expenses increased $6.4 million, or 332.1%, in the nine months ended September 30, 2022 compared to the same period last year, mainly as a result of the Company’s efforts to build brand awareness as well as account opening campaigns and different market efforts to drive or increase digital and branch traffic. These impactful campaigns include out-of-home advertising and various campaigns via social media and public relations. In addition, in July 2022, we entered into a new multi-year agreement to become the official bank of the NBA’s Miami Heat and we also entered into a new multi-year agreement as a proud partner of the NHL’s Florida Panthers. We continue to leverage other local partnerships with the University of Miami Athletics, United Way and Habitat for Humanity.
Salaries and employee benefits increased $4.4 million, or 5.2%, in the nine months ended September 30, 2022 compared to the same period one year ago, mainly due to: (i) higher non-equity variable compensation; (ii) higher equity variable compensation in connection with the long term incentive program; (iii) commissions paid primarily related to loan origination efforts in the mortgage banking area, and (iv) higher salaries and employee benefits in connection with new hires. These results were partially offset by: (i) lower severance expenses, as the first nine months of 2021 included $3.6 million of expenses in connection with the departure of the Company’s Chief Operating Officer and elimination of various support functions; and (ii) decreases in salaries and employee benefits related to staff reductions resulting from our ongoing transformation and efficiency improvement efforts. At September 30, 2022, our FTEs were 681, a net decrease of 52 FTEs, or 7.1% compared to 733 FTEs at September 30, 2021. The 681 FTEs at September 30, 2022 include the new staff associated with Amerant Mortgage, which had 67 FTEs at September 30, 2022, compared to 52 FTEs at September 30, 2021. In addition, as a result of the Company’s agreement with FIS, there were 80 FTEs who moved to FIS effective in January 2022.
Other operating expenses increased $2.1 million, or 36.8%, in the nine months ended September 30, 2022 compared to the same period last year. This includes increases in public relations/sponsorships expenses, mortgage lending cost related to Amerant Mortgage, OREO real estate taxes, other smaller expenses.
Depreciation and amortization expenses decreased $1.8 million, or 31.7%, in the nine months ended September 30, 2022 compared to the same period last year. This was mainly due to the absence of depreciation expense related to the Company’s previously-owned headquarters building, as this property was sold and leased-back in the fourth quarter of 2021. In the nine months ended September 30, 2021, the Company recorded $1.6 million of depreciation expense associated with the headquarters building.
FDIC assessments and insurance expenses decreased $0.4 million, or 8.2%, in the nine months ended September 30, 2022 compared to the same period one year ago, mainly due to lower FDIC assessment rates.
Income Taxes
The table below sets forth information related to our income taxes for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | Change | | Nine Months Ended September 30, | Change |
| 2022 | | 2021 | | 2022 vs 2021 | | 2022 | | 2021 | | 2022 vs 2021 |
| (in thousands, except effective tax rates and percentages) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Income before income tax expense | $ | 26,740 | | | $ | 21,851 | | | $4,889 | | | 22.4 | % | | $ | 55,227 | | | $ | 59,538 | | | ($4,311) | | | (7.2) | % |
| Income tax expense | $ | 5,864 | | | $ | 5,454 | | | $410 | | | 7.5 | % | | $ | 11,875 | | | $ | 13,537 | | | ($1,662) | | | (12.3) | % |
| Effective income tax rate | 21.93 | % | | 24.96 | % | | (3.03) | % | | (12.1) | % | | 21.50 | % | | 22.74 | % | | (1.24) | % | | (5.5) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | Change | | Six Months Ended June 30, | Change |
| | 2018 | | 2017 | | 2018 vs 2017 | | 2018 | | 2017 | | 2018 vs 2017 |
| | (in thousands, except effective tax rates and percentages) |
| Income tax expense | $ | 5,764 |
| | $ | 4,499 |
| | $ | 1,265 |
| | 28.12 | % | | $ | 7,268 |
| | $ | 7,315 |
| | $ | (47 | ) | | (0.64 | )% |
| Effective income tax rate | 35.61 | % | | 30.22 | % | | 5.39 | % | | 17.84 | % | | 26.80 | % | | 30.21 | % | | (3.41 | )% | | (11.29 | )% |
TheIncome tax expense reflects the lower corporate federal income tax rate under the Tax Act of 2017 which, beginning January 1, 2018, decreased the corporate federal income tax rateincreased to 21% compared to 35% in the same period last year. However, higher taxable income during the three and six months ended June 30, 2018 compared to the same periods last year, partially offset the positive effects of the lower tax rate for the three and six months ended June 30, 2018. In addition, the effective tax rate for these periods is significantly affected by permanent non-deductible items totaling $5.8 million for the six months ended June 30, 2018 associated with the Spin-off. Those items have been recognized as discrete items in the period.
Segment Information
The following tables summarize certain financial information for our reportable segments as of and for the periods indicated.
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Personal and Commercial Banking ("PAC") | | Corporate LATAM | | Treasury | | Institutional | | Total |
| Three Months Ended June 30, 2018 |
|
| Income Statement: | | | | | | | | | |
| Net interest income | $ | 47,105 |
| | $ | 1,219 |
| | $ | 1,942 |
| | $ | 3,723 |
| | $ | 53,989 |
|
| Provision for (reversal of) loan losses | 824 |
| | 494 |
| | (329 | ) | | (839 | ) | | 150 |
|
| Net interest income after provision for (reversal of) loan losses | 46,281 |
| | 725 |
| | 2,271 |
| | 4,562 |
| | 53,839 |
|
| Noninterest income | 5,708 |
| | 89 |
| | 3,451 |
| | 5,738 |
| | 14,986 |
|
Noninterest expense (4) | 39,329 |
| | 1,468 |
| | 2,832 |
| | 9,009 |
| | 52,638 |
|
| Net income (loss) before income tax: | | | | | | | | | |
| Banking | 12,660 |
| | (654 | ) | | 2,890 |
| | 1,291 |
| | 16,187 |
|
Non-banking contribution(1) | 1,197 |
| | 11 |
| | — |
| | (1,208 | ) | | — |
|
| | 13,857 |
| | (643 | ) | | 2,890 |
| | 83 |
| | 16,187 |
|
| Income tax (expense) benefit | (4,486 | ) | | 58 |
| | 84 |
| | (1,420 | ) | | (5,764 | ) |
| Net income (loss) | $ | 9,371 |
| | $ | (585 | ) | | $ | 2,974 |
| | $ | (1,337 | ) | | $ | 10,423 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Personal and Commercial Banking ("PAC") | | Corporate LATAM | | Treasury | | Institutional | | Total |
| Six Months Ended June 30, 2018 |
|
| Income Statement: | | | | | | | | | |
| Net interest income | $ | 93,786 |
| | $ | 2,699 |
| | $ | 2,898 |
| | $ | 7,239 |
| | $ | 106,622 |
|
| (Reversal of) provision for loan losses | (1,315 | ) | | (225 | ) | | (446 | ) | | 2,136 |
| | 150 |
|
| Net interest income after (reversal of) provision for loan losses | 95,101 |
| | 2,924 |
| | 3,344 |
| | 5,103 |
| | 106,472 |
|
| Noninterest income | 11,416 |
| | 198 |
| | 5,401 |
| | 11,916 |
| | 28,931 |
|
Noninterest expense (4) | 79,343 |
| | 2,643 |
| | 5,794 |
| | 20,503 |
| | 108,283 |
|
| Net income (loss) before income tax: | | | | | | | | | |
| Banking | 27,174 |
| | 479 |
| | 2,951 |
| | (3,484 | ) | | 27,120 |
|
Non-banking contribution(1) | 1,247 |
| | — |
| | — |
| | (1,247 | ) | | — |
|
| | 28,421 |
| | 479 |
| | 2,951 |
| | (4,731 | ) | | 27,120 |
|
| Income tax (expense) benefit | (6,707 | ) | | (113 | ) | | 396 |
| | (844 | ) | | (7,268 | ) |
| Net income (loss) | $ | 21,714 |
| | $ | 366 |
| | $ | 3,347 |
| | $ | (5,575 | ) | | $ | 19,852 |
|
| | | | | | | | | | |
| As of June 30, 2018 | | | | | | | | | |
Loans, net(2) | $ | 5,826,731 |
| | $ | 394,572 |
| | $ | — |
| | $ | (71,685 | ) | | $ | 6,149,618 |
|
| Deposits | $ | 5,567,424 |
| | $ | 20,134 |
| | $ | 737,898 |
| | $ | 37,682 |
| | $ | 6,363,138 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Personal and Commercial Banking ("PAC") | | Corporate LATAM | | Treasury | | Institutional | | Total |
| Three Months Ended June 30, 2017 |
|
| Income Statement: | | | | | | | | | |
| Net interest income | $ | 43,776 |
| | $ | 2,339 |
| | $ | 2,268 |
| | $ | 3,058 |
| | $ | 51,441 |
|
| Provision for (reversal of) loan losses | 8,681 |
| | (1,845 | ) | | (819 | ) | | (2,371 | ) | | 3,646 |
|
| Net interest income after provision for (reversal of) loan losses | 35,095 |
| | 4,184 |
| | 3,087 |
| | 5,429 |
| | 47,795 |
|
| Noninterest income | 8,062 |
| | 148 |
| | 2,933 |
| | 6,616 |
| | 17,759 |
|
Noninterest expense (4) | 38,618 |
| | 1,135 |
| | 2,445 |
| | 8,467 |
| | 50,665 |
|
| Net income before income tax: | | | | | | | | | |
| Banking | 4,539 |
| | 3,197 |
| | 3,575 |
| | 3,578 |
| | 14,889 |
|
Non-banking contribution(1) | 1,263 |
| | 24 |
| | — |
| | (1,287 | ) | | — |
|
| | 5,802 |
| | 3,221 |
| | 3,575 |
| | 2,291 |
| | 14,889 |
|
| Income tax expense | (2,001 | ) | | (1,147 | ) | | (446 | ) | | (905 | ) | | (4,499 | ) |
| Net income | $ | 3,801 |
| | $ | 2,074 |
| | $ | 3,129 |
| | $ | 1,386 |
| | $ | 10,390 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Personal and Commercial Banking ("PAC") | | Corporate LATAM | | Treasury | | Institutional | | Total |
| Six Months Ended June 30, 2017 |
|
| Income Statement: | | | | | | | | | |
| Net interest income | $ | 85,164 |
| | $ | 4,903 |
| | $ | 4,593 |
| | $ | 5,132 |
| | $ | 99,792 |
|
| Provision for (reversal of) loan losses | 9,812 |
| | 358 |
| | (894 | ) | | (1,533 | ) | | 7,743 |
|
| Net interest income after provision for (reversal of) loan losses | 75,352 |
| | 4,545 |
| | 5,487 |
| | 6,665 |
| | 92,049 |
|
| Noninterest income | 14,145 |
| | 275 |
| | 4,113 |
| | 13,443 |
| | 31,976 |
|
Noninterest expense (4) | 78,495 |
| | 2,517 |
| | 5,194 |
| | 13,607 |
| | 99,813 |
|
| Net income before income tax: | | | | | | | | | |
| Banking | 11,002 |
| | 2,303 |
| | 4,406 |
| | 6,501 |
| | 24,212 |
|
Non-banking contribution(1) | 2,349 |
| | 22 |
| | — |
| | (2,371 | ) | | — |
|
| | 13,351 |
| | 2,325 |
| | 4,406 |
| | 4,130 |
| | 24,212 |
|
| Income tax expense | (4,730 | ) | | (823 | ) | | (59 | ) | | (1,703 | ) | | (7,315 | ) |
| Net income | $ | 8,621 |
| | $ | 1,502 |
| | $ | 4,347 |
| | $ | 2,427 |
| | $ | 16,897 |
|
|
| | | | | | | | | | | | | | | | | | | |
| As of December 31, 2017 | | | | | | | | | |
Loans, net(2)(3) | $ | 5,542,545 |
| | $ | 521,616 |
| | $ | — |
| | $ | (64,325 | ) | | $ | 5,999,836 |
|
| Deposits | $ | 5,454,216 |
| | $ | 18,670 |
| | $ | 779,969 |
| | $ | 70,118 |
| | $ | 6,322,973 |
|
_____________
| |
(1) | Non-banking contribution reflects allocations of the net results of the Trust Company and Investment Services subsidiaries to the customers’ primary business unit. |
| |
(2) | Provisions for the periods presented are allocated to each applicable reportable segment. The allowance for loan losses and unearned deferred loan costs and fees are reported entirely within Institutional. |
| |
(3) | Balances include loans held for sale of $5,611 thousand which are allocated to PAC. |
| |
(4) | Costs related to the Spin-off have been allocated to the Institutional reportable segment. |
Personal and Commercial Banking (PAC)
Three Months Ended June 30, 2018 and 2017
PAC reported net income of $9.4$5.9 million in the three months ended June 30, 2018, which represents a 146.54% increasethird quarter of 2022 from $3.8$5.5 million in the same period in 2017. This increase was primarily the resultthird quarter of 2021, mainly driven by higher net interest income together with a reduced provision for loan losses, partially offset by lower noninterest income.
Net interestbefore income increased $3.3 million, or 7.60%, to $47.1 million during the three months ended June 30, 2018 from $43.8 milliontaxes in the same period in 2017. This increase is mainly due to a $242.1 million increase in PAC’s average loan portfolio balance for the three months ended June 30, 2018third quarter of 2022 compared to the same period last year, primarily driven by increases in the commercial and commercial real estate loan portfolios.
For the three months ended June 30, 2018, PAC reflected a provision for loan losses of $0.8 million comparedyear. Income tax expense decreased to a provision for loan losses of $8.7$11.9 million in the same period in 2017. The decrease is primarily attributed to improvements in quantitative loan loss factors and positive adjustments to qualitative loan loss factors used for the portfolio segmentsfirst nine months of domestic commercial real estate and domestic commercial loans during the period. These positive adjustments were partially offset by a $3.9 million provision for loan loss required in June 30, 2018 associated with one CRE loan. This provision resulted2022 from an evaluation of the net realizable market value of the property securing this CRE loan. A recent appraisal indicates that the collateral securing the TDR has deteriorated further, and we are evaluating whether a further write-down may be required. Positive loan loss factors resulted from improving trends in factors associated with our real estate and commercial portfolio segments.
Noninterest income decreased $2.4 million, or 29.20% to $5.7$13.5 million in the threefirst nine months ended June 30, 2018 compared to $8.1 million in the same period in 2017. This decrease was mainly the result of lower fee income on derivative transactions with customers and lower other operating income from the disposition of bank property in South Florida during the three months ended June 30, 2018 compared to the corresponding period in 2017.
Six Months Ended June 30, 2018 and 2017
PAC reported net income of $21.7 million for the six months ended June 30, 2018, which represents an 151.87% increase from $8.6 million in the same period in 2017. This increase is mainly the result of higher net interest income combined with a reversal of the allowance for loan losses, partially offset by lower noninterest income, higher noninterest expense and reduced non-banking contribution from Trust and Investment Services attributable to PAC customers.
Net interest income increased 10.12% to $93.8 million in the six months ended June 30, 2018 from $85.2 million in the same period in 2017. This increase is2021, primarily due to a $276.1 millionhigher effective tax rate in the first nine months of 2021. The increase in PAC’s average loan portfolio balance and increased funds transfer pricing credit on PAC’s deposits foreffective tax rate in the sixfirst nine months ended June 30, 2018of 2021, compared to the same period a year ago. Higher average loan portfolio balances during the period werefirst nine months of 2022, was primarily driven by increases inhigher actual income before income taxes as well as a true-up of New York State and City tax expense.
As of September 30, 2022, the middle market and commercial real estate loan portfolios.
For the six months ended June 30, 2018, PAC reflected a $1.3Company’s net deferred tax assets were $45.8 million, reversal in the allowance for loan losses,an increase of $34.5 million, or 305.2%, compared to a provision for loan losses$11.3 million as of $9.8 million in the same period in 2017.December 31, 2021. This change is primarily attributed to improvements in quantitative loan loss factors and positive adjustments to qualitative loan loss factors used for the portfolio segments of domestic commercial real estate and domestic commercial loans during the period. These positive adjustments were partially offset by a $3.9 million provision for loan loss required in June 30, 2018 associated with one CRE loan. This provision resulted from an evaluation of the net realizable market value of the property securing this CRE loan. A recent appraisal indicates that the collateral securing the TDR has deteriorated further, and we are evaluating whether a further write-down may be required. Positive loan loss factors resulted from improving trends in factors associated with our real estate and commercial portfolio segments.
Noninterest income decreased 19.29% to $11.4 million in the six months ended June 30, 2018 from $14.1 million in the same period in 2017. This decrease was mainly the result of lower fee income on derivative transactions with customers and lower other operating income from the disposition of bank property in South Florida during the six months ended June 30, 2018. In addition, there was a decrease in the volume of wire transfer activity and related fees during this period compared to the corresponding period of 2017.
Noninterest expense increased 1.08% to $79.3 million in the six months ended June 30, 2018, from $78.5 million the same period in 2017. This increase is primarily the result of higher product support expense allocations supporting PAC’s loan portfolio growth and ongoing banking center infrastructure transformation efforts.
Non-banking contribution from Trust and Investment Services attributable to PAC customers decreased 46.91% to $1.2 million in the six months ended June 30, 2018, from $2.3 million in the same period in 2017. The decrease is mainly the result of lower volume of customer brokerage activity.
Corporate LATAM
Three Months Ended June 30, 2018 and 2017
Corporate LATAM had a net loss of $585 thousand in the three months ended June 30, 2018, compared to net income of $2.1 million recorded in the same period in 2017. The decrease in net income is mainly attributable to lower net interest income together with an increase in the provision for loan losses.
The 47.88%, or $1.1 million, decline in net interest income to $1.2 million from $2.3 million in the same period a year ago, was primarily the result of a $144.2 million lower average loan portfolio balance for the three months ended June 30, 2018 compared to the same period in 2017. The $494 thousand provision for loan losses in the three months ended June 30, 2018 was mainly due to required loan loss reserve on an impaired loan identified during the period. This compares to the $1.8 million reversal of the allowance for loan losses into the provision for loan losses in the same period of 2017, which was mainly driven by lower loan portfolio average balancesan increase of $34.5 million in connection with $135.6 million in net unrealized holding losses on debt securities available for sale during that period.
Six Months Ended June 30, 2018 and 2017
Corporate LATAM reported net income of $366 thousand for the sixnine months ended JuneSeptember 30, 2018. This was a decrease of $1.1 million, or 75.63%, from net income of $1.5 million in the same period in 2017. The lower net income during this period was primarily attributable to a lower net interest income which was partially mitigated by a reduction in the allowance for loan losses.
Net interest income decreased 44.95% to $2.7 million from $4.9 million in the six months ended June 30, 2018, mainly due to $132.9 million lower average loan portfolio balance during that period. The $225 thousand reversal of the allowance for loan losses during the six months ended June 30, 2018 was mainly attributed to a lower average loan portfolio balance, partially offset by a required loan loss reserve on an impaired loan identified during the three months ended June 30, 2018. This compares to a $358 thousand provision for loan loss in the same period of 2017 primarily related to charge offs of impaired loans during the first quarter of 2017.
Treasury
Three Months Ended June 30, 2018 and 2017
For the three months ended June 30, 2018, Treasury reported net income of $3.0 million, which represents a 4.95% decrease from $3.1 million for the same period in 2017. This decrease was primarily the result of lower net interest income together with higher noninterest expense, partially offset by an increase in noninterest income.
The 14.37% decrease in Treasury’s net interest income to $1.9 million in the three months ended June 30, 2018 from $2.3 million in the same period in 2017, was primarily attributable to higher interest expenses paid on longer duration FHLB advances as well as on brokered certificates of deposit. These results were partially offset by higher interest income from the investment securities portfolio and deposits with banks. In the three months ended June 30, 2018, the average balances of FHLB advances and other borrowings, and brokered certificates of deposit, were $270.2 million (29.93%) and $44.0 million (6.53%) higher than the same period in 2017.
Noninterest expense increased $387 thousand, or 15.83%, to $2.8 million in the three months ended June 30, 2018 from $2.4 million for the same period in 2017, primarily as a result of higher fees on derivative transactions.
Noninterest income increased $0.5 million, or 17.66%, to $3.5 million in the three months ended June 30, 2018 from $2.9 million in the same period in 2017. This increase is primarily due to higher income recorded in the change in cash surrender value of BOLI, and income from the early termination of short term FHLB advances.
2022.
Six Months Ended June 30, 2018 and 2017
Treasury generated net income of $3.3 million in the six months ended June 30, 2018, a $1.0 million, or 23.00%, reduction from $4.3 million in the same period in 2017. This reduction was mainly attributable to lower net interest income combined with higher noninterest expenses, partially offset by higher noninterest income.
The 36.90% reduction in net interest income to $2.9 million in the six months ended June 30, 2018 from $4.6 million in the same period in 2017 was primarily due to higher interest expenses paid on longer duration FHLB advances and brokered certificates of deposit. These changes were offset by higher interest income on the investment securities portfolio. In the six months ended June 30, 2018, the average balances of FHLB advances and other borrowings, and brokered certificates of deposit, were $265.4 million (29.01%) and $40.9 million (5.85% ) higher than the same period in 2017.
Noninterest expense increased 11.55% to $5.8 million for the six months ended June 30, 2018 from $5.2 million for the same period in 2017, primarily as a result of higher fees on derivative transactions.
Noninterest income increased 31.32% to $5.4 million for the six months ended June 30, 2018 from $4.1 million in the same period in 2017. This increase is primarily due to higher income recorded in the change in cash surrender value of BOLI, and income from the early termination of short term FHLB advances. In addition, there were higher management fees from services provided to an MSF non-US affiliate during the period.
Institutional
Three Months Ended June 30, 2018 and 2017
For the three months ended June 30, 2018, Institutional reported net loss of $1.3 million compared to net income of $1.4 million in the same period in 2017, mainly attributable to lower reversals of allowance for loan losses, lower noninterest income and higher noninterest expense, partially offset by higher net interest income.
Net interest income increased 21.75%, or $665 thousand, to $3.7 million in the three months ended June 30, 2018 from $3.1 million in the same period in 2017, primarily due to higher fund transfer pricing credit received for the Company’s capital.
For the three months ended June 30, 2018, Institutional had a credit in its provision for loan losses which was 64.61%, or $1.5 million, lower than in the same period in 2017. Any difference between the total provision for loan losses, or reversals recorded at the Company level versus the amounts allocated to reportable segments, is reflected under Institutional.
Noninterest income decreased 13.27% to $5.7 million in the three months ended June 30, 2018 from $6.6 million in the same period in 2017, primarily due to lower income from brokerage and advisory activities through our Investments Services subsidiary which is mainly the result of lower volume of customer brokerage activity. In addition, there was lower rental income recorded during the period as as result of the sale of G200 Leasing, LLC in the first quarter of 2018.
Noninterest expense increased $542 thousand, or 6.40%, to $9.0 million during the three months ended June 30, 2018, from $8.5 million in the same period in 2017. This increase is mainly the result of a $1.2 million provision for the estimated compensation to be paid to participants of the non-qualified deferred compensation plan to partially mitigate the effect of the unexpected early distribution for federal income tax purposes. The Spin-off caused an early distribution for U.S. federal income tax purposes from our deferred compensation plan. In addition, legal and consulting fees of $2.0 million associated with the Spin-off were allocated to the Institutional segment for the three months ended June 30, 2018.
Six Months Ended June 30, 2018 and 2017
Institutional had a net loss of $5.6 million in the six months ended June 30, 2018 versus net income of $2.4 million in the same period in 2017, mainly attributable to lower noninterest income, higher noninterest expense and higher provision for loan losses, partially offset by higher net interest income.
Net interest income increased 41.06%, or $2.1 million, to $7.2 million in the six months ended June 30, 2018 from $5.1 million in the same period in 2017, mainly due to the effect of lower funds transfer pricing charges for total other assets and higher fund transfer pricing credit received for the Company’s capital.
For the six months ended June 30, 2018, Institutional reported a provision for loan loss of $2.1 million compared to a credit to the provision for loan losses of $1.5 million for the same period in 2017. Any difference between the total provision for loan losses, or reversals recorded at the Company level versus the amounts allocated to reportable segments, is reflected under Institutional.
Noninterest income decreased 11.36% to $11.9 million for the six months ended June 30, 2018 from $13.4 million for the same period in 2017, primarily due to lower income from brokerage and advisory activities through our Investments Services subsidiary which is mainly the result of lower volume of customer brokerage activity. In addition, there was lower rental income recorded during the period as as result of the sale of G200 Leasing, LLC in the first quarter of 2018.
Noninterest expense increased 50.68% to $20.5 million for the six months ended June 30, 2018 from $13.6 million for the same period in 2017, primarily due to a $4.3 million provision for legal and consulting fees associated with the Spin-off, and higher operating expenses related to ongoing software services. In addition, there were higher salaries and benefits due to a $1.2 million provision for the estimated compensation to be paid to participants of the non-qualified deferred compensation plan to partially mitigate the effect of the unexpected early distribution for federal income tax purposes. The Spin-off caused an early distribution for U.S. federal income tax purposes from our deferred compensation plan.
Financial Condition - Comparison of Financial Condition as of JuneSeptember 30, 20182022 and December 31, 20172021
Assets. Total assets were $8.5$8.7 billion as of JuneSeptember 30, 2018,2022, an increase of $93.7 million from$1.1 billion, or 14.4%, compared to $7.6 billion at December 31, 2017.2021. This result was mainly attributable to an increase of $155.4primarily driven by increases of: (i) $952.0 million, or 17.3% in total loans held for investment, net of the allowance for loan losses. In addition, the compositionlosses, and loans held for sale; (ii) $116.1 million, or 98.3% in debt securities held to maturity, and (iii) $67.9 million, or 73.4%, in other assets. These increases were partially offset by a decrease of interest-earning assets changed with respect to the previous year. $123.0 million, or 10.5% in debt securities available for sale. See “—Average “-Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information. This isinformation, including changes in the composition of our interest-earning assets.
Other assets were $160.4 million as of September 30, 2022, an increase of $67.9 million, or 73.4%, compared to $92.5 million at December 31, 2021, primarily driven by changes in the estimated fair value of derivative instruments as a result of a strategic planchanges in market interest rates during the period. See Note 11 to improve our operating results by adjusting our mix of interest-earning assets and liabilities consistent with our expectations that a rising interest rate environment will continue.the Company’s unaudited interim consolidated financial statements in this Form 10-Q for more details on derivative instruments.
Cash and Cash Equivalents. Cash and cash equivalents decreasedincreased to $117.2$302.1 million at JuneSeptember 30, 20182022 from $153.4$274.2 million at December 31, 2017.2021. At September 30, 2022, the Company’ cash and cash equivalents included restricted cash of $46.1 million, which was held primarily to cover margin calls on derivative transactions with certain brokers. There were no restricted cash balances at December 31, 2021.
Cash flows provided byused in operating activities were $26.2$32.1 million in the sixnine months ended JuneSeptember 30, 2018. This was2022, primarily attributed to net income earned. driven by higher volume of originations of mortgage loans held for sale during the period.
Net cash used in investing activities was $147.6 million$1.0 billion during the sixnine months ended JuneSeptember 30, 2018, primarily due to2022, mainly driven by: (i) a net increase in loans of $174.2$927.5 million, and (ii) purchases of available for saleinvestment securities totaling $121.2$370.8 million. These disbursements were partially offset byby: (i) maturities, sales, calls and callspaydowns of investment securities available for sale totaling $122.8$216.4 million, and (ii) proceeds from loan sales totaling $23.8of $76.6 million.
In addition, cash flows from investing activities during the sixnine months ended JuneSeptember 30, 2018, include $7.5 million in net proceeds from the sale of our G200 Leasing, LLC subsidiary, which leased a corporate plane to MSF.
In the six months ended June 30, 2018,2022, net cash provided by financing activities was $85.2 million.$1.1 billion. These activities included $205.9included: (i) a net increase of $908.7 million higher time deposits and $85.0 million net additional advances borrowed from the FLHB, partially offset by $165.7 million net decrease in total demand, savings and money market deposit balancesbalances; (ii) net proceeds from FHLB advances of $169.3 million; (iii) a net increase of $48.6 million in time deposits, and (iv) net proceeds from the issuance of subordinated notes of $29.1 million. These proceeds were partially offset by: (i) an aggregate $72.1 million in connection with the repurchase of shares of Class A common stock under stock repurchase programs launched in 2021 and in 2022, and (ii) $9.2 million of dividends declared and paid by the Company in the first nine months of 2022. See “-Capital Resources and Liquidity Management” for more details on changes in FHLB advances, issuance of subordinated notes and the 2018 Special Dividend of $40.0 million paid on March 13, 2018 to MSF.
stock repurchase programs launched in 2021 and 2022.
Loans
Loans are our largest component of interest-earning assets. The table below depicts the trend of loans as a percentage of total assets and the allowance for loan losses as a percentage of total loans for the periods presented.
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (in thousands, except percentages) | |
| Total loans, gross (1) | $ | 6,503,359 | | | $ | 5,567,540 | |
| Total loans, gross / total assets | 74.4 | % | | 72.9 | % |
| | | |
| Allowance for loan losses | $ | 53,711 | | | $ | 69,899 | |
| Allowance for loan losses / total loans held for investment, gross (1) (2) | 0.83 | % | | 1.29 | % |
| | | |
| Total loans, net (3) | $ | 6,449,648 | | | $ | 5,497,641 | |
| Total loans, net / total assets | 73.8 | % | | 72.0 | % |
|
| | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | (in thousands, except percentages) |
| Total loans, gross | $ | 6,219,549 |
| | $ | 6,066,225 |
|
| Total loans, gross / total assets | 72.91 | % | | 71.90 | % |
| | | | |
| Allowance for loan losses | $ | 69,931 |
| | $ | 72,000 |
|
Allowance for loan losses / total loans, gross (1) (2) | 1.12 | % | | 1.19 | % |
_________________
| |
(1) | Outstanding loan principal balance net of deferred loan fees and costs, excluding the allowance for loan losses. |
| |
(2) | See Note 5 of our audited consolidated financial statements and Note 5 of our unaudited interim consolidated financial statements for more details on our impairment models.
|
(1) Total loans, gross are outstanding loans principal balance, net of unamortized deferred nonrefundable loan origination fees and loan origination costs, as well as unamortized premiums paid on purchased loans, excluding the allowance for loan losses. At December 31, 2021, the Company had $143.2 million in loans held for sale carried at the lower of cost or estimated fair value. In the third quarter of 2022, these loans held for sale were transferred to the loans held for investment category, therefore, there were no loans held for sale carried at the lower of cost or estimated fair value at September 30, 2022. In addition, at September 30, 2022 and December 31, 2021, there were $57.6 million and $14.9 million, respectively, in loans held for sale carried at fair value in connection with Amerant Mortgage’s ongoing business.
(2) See Note 5 of our audited consolidated financial statements included in the Form 10-K and our unaudited interim consolidated financial statements included in this Form 10-Q for more details on our impairment models.
(3) Total loans, net are outstanding loans principal balance, net of unamortized deferred nonrefundable loan origination fees and loan origination costs, as well as unamortized premiums paid on purchased loans and net of the allowance for loan losses.
The table below summarizes the composition of our loan portfolioloans held for investment by type of loan as of the end of each period presented. International loans include but are not limited to, transactions in which the debtor or customer is domiciled outside the U.S., even when the collateral is U.S. property. All international loans are denominated and payable in U.S. Dollars.
| | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | December 31, 2021 |
| Domestic Loans: | | | |
| Real Estate Loans | | | |
| Commercial real estate (CRE) | | | |
| Non-owner occupied | $ | 1,600,281 | | | $ | 1,540,590 | |
| Multi-family residential | 779,456 | | | 514,679 | |
| Land development and construction loans | 300,476 | | | 327,246 | |
| 2,680,213 | | | 2,382,515 | |
| Single-family residential (1) | 921,147 | | | 586,783 | |
| Owner occupied | 992,948 | | | 962,538 | |
| 4,594,308 | | | 3,931,836 | |
| Commercial loans (2) | 1,186,494 | | | 942,781 | |
| Loans to depository institutions and acceptances (3) | 13,271 | | | 13,710 | |
| Consumer loans and overdrafts (4) (5) | 574,975 | | | 421,471 | |
| Total Domestic Loans | 6,369,048 | | | 5,309,798 | |
| | | |
| International Loans: | | | |
| Real Estate Loans | | | |
| Single-family residential (6) | 57,527 | | | 74,556 | |
| Commercial loans | 17,282 | | | 22,892 | |
| | | |
| Consumer loans and overdrafts (7) | 1,911 | | | 2,194 | |
| Total International Loans | 76,720 | | | 99,642 | |
| Total Loans held for investment | $ | 6,445,768 | | | $ | 5,409,440 | |
__________________
(1) As of September 30, 2022 and December 31, 2021, includes around $150.6 million and $23.9 million, respectively, in single-family residential loans purchased by the Company through Amerant Mortgage.
(2) As of September 30, 2022, includes around $31.7 million in commercial loans and leases originated under a white-label equipment financing solution launched in the second quarter of 2022.
(3) Mostly comprised of loans secured by cash or U.S. Government securities.
(4) Includes customers’ overdraft balances totaling $2.0 million and $0.6 million as of September 30, 2022 and December 31, 2021, respectively.
(5) Includes indirect lending loans purchased with an outstanding balance of $496.6 million and $297.0 million at September 30, 2022 and December 31, 2021, respectively. In addition, as of September 30, 2022, includes $6.3 million in consumer loan originated under a white-label program. As of September 30, 2022 and December 31, 2021, the outstanding balance of indirect lending loans includes unamortized premiums paid of $16.2 million and $9.1 million, respectively.
(6) Secured by real estate properties located in the U.S.
(7) International customers’ overdraft balances were de minimis at each of the dates presented.
|
| | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | (in thousands) |
| Domestic Loans: | | | |
| Real Estate Loans | | | |
| Commercial real estate (CRE) | | | |
| Non-owner occupied | $ | 1,864,645 |
| | $ | 1,713,104 |
|
| Multi-family residential | 858,453 |
| | 839,709 |
|
| Land development and construction loans | 402,830 |
| | 406,940 |
|
| | 3,125,928 |
| | 2,959,753 |
|
| Single-family residential | 371,733 |
| | 360,041 |
|
| Owner occupied | 653,902 |
| | 610,386 |
|
| | 4,151,563 |
| | 3,930,180 |
|
| Commercial loans | 1,328,056 |
| | 1,285,461 |
|
| Loans to depository institutions and acceptances | 16,500 |
| | 16,443 |
|
| Consumer loans and overdrafts | 77,522 |
| | 78,872 |
|
| Total Domestic Loans | 5,573,641 |
| | 5,310,956 |
|
| | | | |
| International Loans: | | | |
| Real Estate Loans | | | |
Single-family residential (1) | 143,179 |
| | 152,713 |
|
| | 143,179 |
| | 152,713 |
|
| Commercial loans | 103,977 |
| | 69,294 |
|
| Loans to depository institutions and acceptances | 352,364 |
| | 481,183 |
|
| Consumer loans and overdrafts | 46,388 |
| | 52,079 |
|
| Total International Loans | 645,908 |
| | 755,269 |
|
| Total Loan Portfolio | $ | 6,219,549 |
| | $ | 6,066,225 |
|
97
__________________ | |
(1) | Secured by real estate properties located in the U.S. |
The composition of our CRE loan portfolio held for investment by industry segment at September 30, 2022 and December 31, 2021 is depicted in the following table:
| | | | | | | | | | | |
| | | |
| (in thousands) | September 30, 2022 | | December 31, 2021 |
| Retail (1) | $ | 747,065 | | | $ | 751,202 | |
| Multifamily | 779,456 | | | 514,679 | |
| Office space | 358,804 | | | 361,921 | |
| Land and construction | 300,476 | | | 327,246 | |
| Hospitality | 264,708 | | | 241,336 | |
| Industrial and warehouse | 126,600 | | | 100,001 | |
| Specialty (2) | 103,104 | | | 86,130 | |
| Total CRE (3) | $ | 2,680,213 | | | $ | 2,382,515 | |
_________
(1) Includes loans generally granted to finance the acquisition or operation of non-owner occupied properties such as retail shopping centers, free-standing single-tenant properties, and mixed-use properties with a primary retail component, where the primary source of repayment is derived from the rental income generated from the use of the property by its tenants. As of December 31, 2021, these balances were revised to exclude the Specialty industry segment which is now disclosed separately.
(2) Includes marinas, nursing and residential care facilities, and other specialty type CRE properties.
(3) Includes loans held for investment in the NY loan portfolio, which were $345 million at September 30, 2022 and $346.3 million at December 31, 2021. During the three months ended September 30, 2022, the Company reclassified all loans in the NY loans portfolio previously classified as loans held for sale at the lower of cost or fair value, to loans held for investment.
The table below summarizes the composition of our loans held for sale by type of loan as of the end of each period presented:
| | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | December 31,
2021 |
| Loans held for sale at the lower of cost or fair value | | | |
| Real estate loans | | | |
| Commercial real estate | | | |
| Non-owner occupied | $ | — | | | $ | 110,271 | |
| Multi-family residential | — | | | 31,606 | |
| | | |
| — | | | 141,877 | |
| | | |
| Owner occupied | — | | | 1,318 | |
| Total real estate loans | — | | | 143,195 | |
| | | |
| Total loans held for sale at the lower of cost or fair value | — | | | 143,195 | |
| | | |
| Loans held for sale at fair value (1) | | | |
| Land development and construction loans | 5,560 | | | — | |
| Single-family residential | 52,031 | | | 14,905 | |
| | | |
| Total loans held for sale at fair value | 57,591 | | | 14,905 | |
| | | |
| | | |
| | | |
| | | |
| Total loans held for sale (2) | $ | 57,591 | | | $ | 158,100 | |
_______________
(1)Loans held for sale in connection with Amerant Mortgage’s ongoing business.
(2)Remained current and in accrual status as of September 30, 2022 and December 31, 2021.
In 2021, in connection with the closing of our former NYC LPO, the Company elected to market and sell a portion of the loan portfolio held for investment to shorten duration and significantly reduce the number of loans being serviced. Therefore, in 2021, the Company classified certain New York real estate loans as held for sale carried at the lower of cost or estimated fair value. These loans had been previously carried at their original cost. During the first nine months of 2022, the Company sold $57.3 million of these loans at their par value, and collected approximately $20 million in full or partial satisfaction of these loans. In the third quarter of 2022, the Company transferred the remaining balance of these loans held for sale of around $66 million to the loans held for investment portfolio, as we now have the intent and ability to hold these loans until maturity or repayment. portfolio. Therefore, at September 30, 2022, there were no loans held for sale carried at the lower of cost or estimated fair value compared to $143.2 million at December 31, 2021.
There were no CRE loans carried at the lower of cost or estimated fair value at as of September 30, 2022. As of December 31, 2021, CRE loans held for sale carried at the lower of cost or estimated fair value include $85.4 million in the retail segment, $31.6 million in the multifamily segment, and $25.0 million in the office segment.
During May 2021, Amerant Mortgage started taking loan applications. It also acquired an Idaho-based mortgage operation which allows it to operate its mortgage business nationally with direct access to important federal housing agencies. At September 30, 2022 and December 31, 2021, there were $57.6 million and $14.9 million, respectively, of primarily single-family residential loans held for sale carried at their estimated fair value.
As of JuneSeptember 30, 2018, the loan portfolio increased $153.32022, total loans, including loans held for sale, were $6.5 billion, up $935.8 million, or 2.53%16.8%, to $6.2 billion, as compared to $6.1 billion at December 31, 2017. Following our strategy, loans to international customers declined by $109.4 million, or 14.48%, as of June 30, 2018, compared to December 31, 2017.2021. Domestic loans increased $958.7 million, or 17.5%, as of September 30, 2022, compared to December 31, 2021. The overallincrease in total domestic loans includes net increases of $371.5 million, or 61.7%, $243.7 million, or 25.9%, $161.4 million, or 6.4% and $153.5 million, or 36.4%, in domestic single-family residential loans, commercial loans, CRE loans, and consumer loans, respectively. The increase in our domestic loan portfolio in the first nine months of 2022 includes the effect of: (i) originations of CRE and single-family residential loans (ii) origination and cross-sale efforts of commercial loans; (ii) loan purchases of approximately $345 million under indirect consumer lending programs; (iii) around $132 million of single-family residential loans purchased by the Company through its subsidiary Amerant Mortgage; (iv) $31.5 million of commercial loans originations through a new white label equipment financing solution launched in the second quarter of 2022; and (v) originations of consumer loans of around $6.3 million through a new white-label program launched in the third quarter of 2022. These results were partially offset by loan prepayments during the period.
In the three and nine months ended September 30, 2022, the Company has added approximately $186.4 million and $297.9 million, respectively, in single-family residential loans through Amerant Mortgage, which includes loans originated and purchased from different channels.
As of September 30, 2022, loans under syndication facilities, including loans held for investment and held for sale, were $335.8 million, a decline of $53.2 million, or 13.7%, compared to $389.0 million at December 31, 2021. This decline was primarily driven by payoffs totaling $53.4 million in connection with two CRE construction loans. As of September 30, 2022, syndicated loans that financed highly leveraged transactions were $9.2 million, or 0.1%, of total loans, compared to $17.1 million, or 0.3%, of total loans as of December 31, 2021.
Loans to international customers, primarily from Venezuela and other customers in Latin America, was partially offsetdecreased $22.9 million, or 23.0%, in the nine months ended September 30, 2022, mainly driven by the addition of syndicateda $14.6 million in residential loan payoffs from Venezuelan borrowers, $5.6 million decrease in commercial loans, to large corporationsand $0.3 million in Europe and Canada with world-wide operations and which we believe had good credit quality. The domestic loan exposure increased $262.7 million, or 4.95%, as of June 30, 2018, compared to December 31, 2017. This increase is mainly attributed to $166.2 million net increase in commercial real estate loans, $11.7 million net increase in single family residential loans, $43.5 million net increase in owner-occupied commercial real estate loans and $42.6 million net increase in commercialconsumer loans.
Foreign Outstanding
The table below summarizes the composition of our international loan portfolio by country of risk for the periods presented. All of our foreign loans are denominated in U.S.
dollars,Dollars, and bear fixed or variable rates of interest based upon different market benchmarks plus a spread.
|
| | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | Net Exposure(1) | | % Total Assets | | Net Exposure(1) | | % Total Assets |
| | (in thousands, except percentages) |
| Brazil | $ | 140,705 |
| | 1.65 | % | | $ | 141,088 |
| | 1.67 | % |
Venezuela (2) | 171,818 |
| | 2.01 | % | | 182,678 |
| | 2.17 | % |
| Chile | 46,678 |
| | 0.55 | % | | 94,543 |
| | 1.12 | % |
| Colombia | 68,110 |
| | 0.8 | % | | 63,859 |
| | 0.76 | % |
| Panama | 31,139 |
| | 0.36 | % | | 51,557 |
| | 0.61 | % |
| Peru | 53,424 |
| | 0.63 | % | | 70,088 |
| | 0.83 | % |
| Mexico | 2,302 |
| | 0.03 | % | | 18,274 |
| | 0.22 | % |
| Costa Rica | 16,500 |
| | 0.19 | % | | 43,844 |
| | 0.52 | % |
Other (3) | 115,232 |
| | 1.35 | % | | 89,338 |
| | 1.06 | % |
| Total | $ | 645,908 |
| | 7.57 | % | | $ | 755,269 |
| | 8.95 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Net Exposure (1) | | % Total Assets | | Net Exposure (1) | | % Total Assets |
| (in thousands, except percentages) | |
| Venezuela (2) | $ | 50,012 | | | 0.6 | % | | $ | 64,636 | | | 0.9 | % |
| Other (3) | 26,708 | | | 0.3 | % | | 35,006 | | | 0.4 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total | $ | 76,720 | | | 0.9 | % | | $ | 99,642 | | | 1.3 | % |
_________________
| |
(1) | Outstanding principal amounts, net of collateral of cash, cash equivalents or other financial instruments totaling $28.0 million and $31.9 million as of June 30, 2018 and December 31, 2017, respectively. |
| |
(2) | Includes mortgage loans for single-family residential properties located in the U.S. totaling $136.7 million and $145.1 million as of June 30, 2018 and December 31, 2017, respectively. |
(1) Consists of outstanding principal amounts, net of collateral of cash, cash equivalents or other financial instruments totaling $7.9 million and $21.1 million as of September 30, 2022 and December 31, 2021, respectively.
(2) Includes mortgage loans for single-family residential properties located in the U.S. totaling $50.0 million and $64.6 million as of September 30, 2022 and December 31, 2021, respectively.
(3) Includes loans to borrowers in other countries which do not individually exceed one percent of total assets in any of the reported periods.
The maturities of our outstanding international loans were: |
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | Less than 1 year | | 1-3 Years | | More than 3 years | | Less than 1 year | | 1-3 Years | | More than 3 years |
| | (in thousands) |
| Brazil | $ | 134,877 |
| | $ | 5,616 |
| | $ | 212 |
| | $ | 137,850 |
| | $ | 3,019 |
| | $ | 219 |
|
Venezuela(1) | 27,319 |
| | 8,250 |
| | 136,249 |
| | 29,982 |
| | 8,460 |
| | 144,236 |
|
| Chile | 41,251 |
| | 5,500 |
| | 178 |
| | 88,174 |
| | 6,191 |
| | 179 |
|
| Colombia | 66,330 |
| | 87 |
| | 2,023 |
| | 60,000 |
| | 1,801 |
| | 2,057 |
|
| Panama | 10,218 |
| | 20,970 |
| | 171 |
| | 24,967 |
| | 26,590 |
| | — |
|
| Peru | 53,542 |
| | — |
| | — |
| | 70,088 |
| | — |
| | — |
|
| Mexico | 863 |
| | 1,050 |
| | 584 |
| | 16,737 |
| | 951 |
| | 586 |
|
| Costa Rica | 16,573 |
| | — |
| | — |
| | 43,844 |
| | — |
| | — |
|
Other(2) | 66,972 |
| | 582 |
| | 46,491 |
| | 83,990 |
| | 1,192 |
| | 4,156 |
|
Total (3) | $ | 417,945 |
| | $ | 42,055 |
| | $ | 185,908 |
| | $ | 555,632 |
| | $ | 48,204 |
| | $ | 151,433 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Less than 1 year | | 1-3 Years | | More than 3 years | | Total | | Less than 1 year | | 1-3 Years | | More than 3 years | | Total |
| (in thousands) | | | |
| Venezuela (1) | $ | 3,790 | | | $ | 1,017 | | | $ | 45,205 | | | $ | 50,012 | | | $ | 961 | | | $ | 4,987 | | | $ | 58,688 | | | $ | 64,636 | |
| Other (2) | 3,052 | | | 16,223 | | | 7,433 | | | 26,708 | | | 416 | | | 14,690 | | | 19,900 | | | 35,006 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total (3) | $ | 6,842 | | | $ | 17,240 | | | $ | 52,638 | | | $ | 76,720 | | | $ | 1,377 | | | $ | 19,677 | | | $ | 78,588 | | | $ | 99,642 | |
_________________
| |
(1) | Includes mortgage loans for single-family residential properties located in the U.S. totaling $136.7 million and $145.1 million as of June 30, 2018 and December 31, 2017, respectively. |
(1) Includes mortgage loans for single-family residential properties located in the U.S. totaling $50.0 million and $64.6 million as of September 30, 2022 and December 31, 2021, respectively.
(2) Includes loans to borrowers in other countries which do not individually exceed one percent of total assets in any of the reported periods.
| |
(3) | Outstanding principal amounts, net of collateral of cash, cash equivalents or other financial instruments totaling $28.0 million and $31.9 million as of June 30, 2018 and December 31, 2017,(3) Consists of outstanding principal amounts, net of cash collateral, cash equivalents or other financial instruments totaling $7.9 million and $21.1 million as of September 30, 2022 and December 31, 2021, respectively. |
Loan Quality
Allocation of Allowance for Loan Losses
In the following table, we present the allocation of the allowance for loan lossesALL by loan segment at the end of the periods presented. The amounts shown in this table should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or percentages. These amounts represent our best estimates of losses incurred, but not yet identified, at the reported dates, derived from the most current information available to us at those dates and, therefore, do not include the impact of future events that may or may not confirm the accuracy of those estimates at the dates reported. Our allowance for loan lossesALL is established using estimates and judgments, which consider the views of our regulators in their periodic examinations. We also show the percentage of each loan class, which includes loans in nonaccrual status.
| | | | | | | | | | | | September 30, 2022 | | December 31, 2021 |
| | June 30, 2018 | | December 31, 2017 | | Allowance | | % of Loans in Each Category to Total Loans Held for Investment | | Allowance | | % of Loans in Each Category to Total Loans Held for Investment |
| | Allowance | | % of Loans in Each Category to Total Loans | | Allowance | | % of Loans in Each Category to Total Loans | |
| | (in thousands, except percentages) | |
| (in thousands, except percentages) | | (in thousands, except percentages) | |
| Domestic Loans | | | | | | | | Domestic Loans | |
| Real estate | $ | 28,693 |
| | 49.67 | % | | $ | 31,290 |
| | 48.04 | % | Real estate | $ | 17,147 | | | 41.1 | % | | $ | 17,952 | | | 43.5 | % |
| Commercial | 27,068 |
| | 33.75 | % | | 30,782 |
| | 33.38 | % | Commercial | 29,124 | | | 37.3 | % | | 38,616 | | | 38.7 | % |
| Financial institutions | 31 |
| | 0.27 | % | | 31 |
| | 0.27 | % | Financial institutions | — | | | 0.2 | % | | 41 | | | 0.3 | % |
Consumer and others (1) | 2,015 |
| | 5.92 | % | | 60 |
| | 5.86 | % | Consumer and others (1) | 6,773 | | | 20.2 | % | | 11,762 | | | 15.7 | % |
| | 57,807 |
| | 89.61 | % | | 62,163 |
| | 87.55 | % | | 53,044 | | | 98.8 | % | | 68,371 | | | 98.2 | % |
| | | | | | | | | | | | | | | | |
International Loans (2) | | | | | | | | International Loans (2) | |
| Commercial | 2,716 |
| | 1.63 | % | | 1,905 |
| | 1.14 | % | Commercial | 246 | | | 0.3 | % | | 363 | | | 0.4 | % |
| Financial institutions | 3,286 |
| | 5.71 | % | | 4,331 |
| | 7.93 | % | Financial institutions | — | | | — | % | | 1 | | | — | % |
Consumer and others (1) | 6,122 |
| | 3.05 | % | | 3,601 |
| | 3.38 | % | Consumer and others (1) | 421 | | | 0.9 | % | | 1,164 | | | 1.4 | % |
| | 12,124 |
| | 10.39 | % | | 9,837 |
| | 12.45 | % | | 667 | | | 1.2 | % | | 1,528 | | | 1.8 | % |
| | | | | | | | | | | | | | | | |
| Total Allowance for Loan Losses | $ | 69,931 |
| | 100.00 | % | | $ | 72,000 |
| | 100.00 | % | Total Allowance for Loan Losses | $ | 53,711 | | | 100.0 | % | | $ | 69,899 | | | 100.0 | % |
| % Total Loans | 1.12 | % | | | | 1.19 | % | | | |
| % of Total Loans held for investment | | % of Total Loans held for investment | 0.83 | % | | | | 1.29 | % | | |
__________________
| |
(1) | Includes residential loans. |
| |
(2) | Includes transactions in which the debtor or customer is domiciled outside the U.S. and all collateral is located in the U.S. |
(1) Includes (i) unsecured indirect consumer loans (domestic) to qualified individuals purchased in 2022, 2021 and 2020; and (ii) mortgage loans for and secured by single-family residential properties located in the U.S.
(2) Includes transactions in which the debtor or customer is domiciled outside the U.S. and all collateral is located in the U.S.
In the nine months ended September 30, 2022, the changes in the allocation of the ALL were primarily attributed to improved macro-economic conditions, criticized loans upgrades, payoffs and pay-downs, sales of non-performing loans and recoveries. This was partially offset by additional reserve requirements for charge-offs, commercial, CRE and consumer loan growth and loans downgrades during the period.
In the nine months ended September 30, 2022, we determined that we no longer needed the ALL associated with the COVID-19 pandemic, reflecting improved macro-economic conditions, partially offset by the impact of supply chain disruptions, inflationary pressures and labor shortages prevalent in the current economic environment. The ALL associated with the COVID pandemic was estimated at $14.1 million as of December 31, 2021. While most of the measures and restrictions enacted during the COVID pandemic have been lifted, and many businesses reopened, the Company cannot predict when circumstances may change and whether restrictions that have been lifted will need to be imposed or tightened in the future if viewed as necessary due to public health concerns. Given the uncertainty regarding the spread and severity of the COVID-19 pandemic and its adverse effects on the U.S. and global economies, the impact to the Company’s loan portfolio cannot be accurately predicted at this time.
Additionally, in late September 2022, the Hurricane impacted several countries in the Caribbean, and the U.S., causing significant damage, and disrupting businesses in several regions, including several South and Central Florida counties in which the Company does business, including the Tampa Bay, Port Charlotte, Naples and Orlando markets and their surrounding areas. See - “Hurricane Ian in Our Company” for more information about the Hurricane. As of September 30, 2022, the estimated outstanding loan balances in the areas impacted by the Hurricane totaled approximately $300 million. Based on information currently available, the Company has not identified any significant impacts to the loan portfolio of the Company deemed to be located in the areas that may have been meaningfully impacted by the Hurricane. While the Company has identified an ALL of approximately $1.6 million as of September 30, 2022 to account for its initial estimate of probable credit losses pending to be identified in relation to the Hurricane, the Company has not currently identified any immediate significant impact to the collateral securing the loans in the exposed loan portfolio in the region. The Company is in contact with the impacted borrowers and has been performing site visits as well. Since there is significant uncertainty with respect to the full extent of the negative impacts due to the unprecedented nature of the Hurricane, the Company’s estimates with respect to the loan portfolio potentially impacted and the ALL currently estimable, are based on judgment and subject to change as conditions evolve. The Company will continue to carefully assess and review the exposure of the portfolios to hurricane-related factors, economic trends and their effect on credit quality and that assessment and review could result in further loan loss provisions in future periods.
Non-Performing Assets
In the following table, we present a summary of our non-performing assets by loan class, which includes non-performing loans by portfolio segment, both domestic and international, and other real estate owned, or OREO, at the dates presented. Non-performing loans consist ofof: (i) nonaccrual loans where the accrual of interest has been discontinued; (ii) accruing loans more than 90 days or more contractually past due as to interest or principal; and (iii) restructured loans that are considered “trouble debt restructurings”, or “TDRs”. |
| | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | (in thousands) |
Non-Accrual Loans(1) | | | |
| Domestic Loans: | | | |
| Real Estate Loans | | | |
| Commercial real estate (CRE) | | | |
| Non-owner occupied | $ | 10,510 |
| | $ | 489 |
|
| | 10,510 |
| | 489 |
|
| Single-family residential | 5,069 |
| | 4,277 |
|
| Owner occupied | 7,186 |
| | 12,227 |
|
| | 22,765 |
| | 16,993 |
|
| Commercial loans | 5,960 |
| | 2,500 |
|
| Consumer loans and overdrafts | 19 |
| | 9 |
|
| Total Domestic | 28,744 |
| | 19,502 |
|
| | | | |
International Loans: (2) | | | |
| Real Estate Loans | | | |
| Single-family residential | 1,265 |
| | 727 |
|
| | 1,265 |
| | 727 |
|
| Commercial loans | 3,974 |
| | 6,447 |
|
| Consumer loans and overdrafts | 23 |
| | 46 |
|
| Total International | 5,262 |
| | 7,220 |
|
| Total-Non-Accrual Loans | $ | 34,006 |
| | $ | 26,722 |
|
| | | | |
Past Due Accruing Loans(3) | | | |
| Domestic Loans: | | | |
| Real Estate Loans | | | |
| Single-family residential | $ | — |
| | $ | 112 |
|
| Commercial | 27 |
| | — |
|
| Total Domestic | 27 |
| | 112 |
|
| | | | |
| International Loans: | | | |
| Real Estate Loans | | | |
| Single-family residential | — |
| | 114 |
|
| Consumer loans and overdrafts | 663 |
| | — |
|
| Total International | 663 |
| | 114 |
|
| Total Past Due Accruing Loans | $ | 690 |
| | $ | 226 |
|
| | | | |
| Total Non-Performing Loans | 34,696 |
| | 26,948 |
|
| Other Real Estate Owned | 558 |
| | 319 |
|
| Total Non-Performing Assets | $ | 35,254 |
| | $ | 27,267 |
|
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (in thousands) | |
| Non-Accrual Loans (1) | | | |
| Domestic Loans: | | | |
| Real Estate Loans | | | |
| Commercial real estate (CRE) | | | |
| Non-owner occupied | $ | — | | | $ | 7,285 | |
| | | |
| | | |
| Single-family residential | 1,339 | | | 3,349 | |
| Owner occupied | 6,357 | | | 8,665 | |
| 7,696 | | | 19,299 | |
| Commercial loans (2) (3) | 9,715 | | | 28,440 | |
| Consumer loans and overdrafts | 940 | | | 251 | |
| Total Domestic | 18,351 | | | 47,990 | |
| | | |
| International Loans: (4) | | | |
| Real Estate Loans | | | |
| Single-family residential | 126 | | | 1,777 | |
| | | |
| | | |
| Consumer loans and overdrafts | 7 | | | 6 | |
| Total International | 133 | | | 1,783 | |
| Total Non-Accrual Loans | $ | 18,484 | | | $ | 49,773 | |
| | | |
| Past Due Accruing Loans (5) | | | |
| Domestic Loans: | | | |
| Real Estate Loans | | | |
| | | |
| | | |
| Single-family residential | $ | 4 | | | $ | — | |
| | | |
| Commercial | 245 | | | — | |
| Consumer loans and overdrafts | 7 | | | 8 | |
| Total Domestic | 256 | | | 8 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total Past Due Accruing Loans | 256 | | | 8 | |
| | | |
| Total Non-Performing Loans | $ | 18,740 | | | $ | 49,781 | |
| Other Real Estate Owned | 6,312 | | | 9,720 | |
| Total Non-Performing Assets | $ | 25,052 | | | $ | 59,501 | |
__________________
| |
(1) | Includes loan modifications that met the definition of trouble debt restructuring which may be performing in accordance with their modified loan terms. |
| |
(2) | Includes transactions in which the debtor or customer is domiciled outside the U.S., but where all collateral is located in the U.S. |
| |
(3) | Loans past due 90 days or more but still accruing. |
(1) Includes loan modifications that met the definition of TDRs which may be performing in accordance with their modified loan terms. As of June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, non-performing TDRs include $8.3 million, $8.6 million, $9.1 million and $9.3 million, respectively, in a multiple loan relationship to a South Florida borrower. In the third quarter of 2022, this loan relationship with upgraded and placed back in accrual status.
(2) As of December 31, 2021, includes $9.1 million in a commercial relationship placed in nonaccrual status during the second quarter of 2020. During the third quarters of 2021 and 2020, the Company charged off $5.7 million and $19.3 million, respectively, against the allowance for loan losses as result of the deterioration of this commercial relationship. In addition, in connection with this loan relationship, the Company collected a partial principal payment of $4.8 million in the fourth quarter of 2021. Furthermore, In the third quarter of 2022, the Company collected an additional partial principal payment of $5.5 million and charged off the remaining balance of $3.6 million against the allowance for loans losses. Therefore, as of September 30, 2022, there were no outstanding balances associated with this loan relationship.
(3) In the first quarter of 2022, the Company collected a partial payment of around $9.8 million on one commercial nonaccrual loan of $12.4 million. Also, in the first quarter of 2022, the Company charged-off the remaining balance of this loan of $2.5 million against its specific reserve at December 31, 2021.
(4) Includes transactions in which the debtor or customer is domiciled outside the U.S., but where all collateral is located in the U.S.
(5) Loans past due 90 days or more but still accruing.
At JuneSeptember 30, 2018,2022, non-performing assets increased $8.0decreased $34.4 million, or 29.29%57.9%, compared to December 31, 2017.2021. This increase is mainly attributedwas primarily driven by: (i) loan payoffs and net pay downs totaling $23.8 million, including $16.2 million related to three commercial loans, $2.4 million related to two owner occupied loans, $1.8 million related to two consumer loans included in a loan relationship with a South Florida borrower in the construction industry, $0.9 million related to one commercial real estate, or “CRE”,single-family residential loan and onea total of $2.5 million related to smaller loans; (ii) loans sales totaling $12.9 million, including $11.6 million related to two non-owner occupied loans and a total of $1.3 million related to multiple single-family residential loans; (iii) total charge-offs against the ALL of $11.3 million, including $6.1 million related to two commercial loan, with carrying values of $10.4 million and $4.5 million, respectively, which were placed in non-accrual statusnonaccrual loans paid off during the period. In addition, $651 thousandperiod, $1.8 million related to multiple commercial loans and an aggregate $3.4 million related to multiple consumer loans; (iv) loans placed back in credit card balances became 90 days past due duringaccrual status totaling $8.5 million, mainly related to a multiple loan relationship with a South Florida borrower, and (v) a decrease of $3.4 million resulting from the period.changes in the estimated fair value and related disposition of an OREO property in New York. These increasesdecreases were partially offset by the placement in non accrual status of loans totaling $25.4 million, including: (i) a commercial loan repaymentsrelationship with a South Florida borrower in the construction industry totaling $11.2 million, including a commercial loan of $3.2$5.0 million, two non-owner occupied loans totaling $2.4 million, an owner occupied loan of $2.1 million, and $5.1two consumer loans totaling $1.8 million on three owner-occupiedwhich were subsequently paid-off during the period; (ii) one non-owner occupied loan of $5.7 million which was among the loans sold during the period; (iii) one commercial real estate loans,loan of $2.9 million, and four commercial loans, respectively.(iv) an aggregate of $5.5 million in smaller loans.
We recognized no interest income on nonaccrualnon accrual loans during the sixnine months ended JuneSeptember 30, 20182022 and 2017. Additional interest income that we would have recognized2021.
In January 2022, the Company collected a partial payment of approximately $9.8 million on one commercial nonaccrual loan with a carrying value of $12.4 million and charged-off the remaining balance of this loan of $2.5 million against its allocated specific reserve at December 31, 2021.
In April 2022, the Company completed the sale of two non-owner occupied nonaccrual loan of around $11.6 million, at its par value. In addition in January 2022, the Company completed the sale of multiple single-family residential nonaccrual loans of around $1.3 million at its par value.
In the second quarter of 2022, in connection with the loan relationship with the Coffee Trader, the Company collected an additional partial principal payment of $5.5 million and charged off the remaining balance of $3.6 million against the allowance for loans losses. Therefore, as of September 30, 2022 there were no outstanding balances associated with this loan relationship.
There were $8.5 million in loans which were placed back in accrual status in 2022, mainly in connection with a multiple loan relationship with a South Florida borrower totaling $8.1 million at the time of transfer from nonaccrual to accrual status. As a result, the Company will recognize, as an adjustment to the yield, $1.5 million for the remaining average maturity of these loans of 8 years.
In October 2022, the Company sold an OREO property in New York at its carrying value of $6.1 million. This transaction had they been currentno impact on the Company’s consolidated result of operations. In the nine months ended September 30, 2022, we recorded an expense of $3.4 million in accordanceconnection with their original termschanges in the six month periods ended June 30, 2018estimated fair value and 2017 was $707 thousandrelated disposition costs of this property. See “Item 7. Management’s Discussion and $1.1 million, respectively.Analysis Of Financial Condition And Results Of Operations” included in the Form 10-K for more details on this OREO property.
The following table presents the recorded investment of potential problemCompany’s loans by loan category atcredit quality indicators are summarized in the dates indicated.following table. We have no purchased credit-impaired loans.purchased-credit-impaired loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (in thousands) | Special Mention | | Substandard | | Doubtful | | Total (1) | | Special Mention | | Substandard | | Doubtful | | Total (1) |
| Real Estate Loans | | | | | | | | | | | | | | | |
Commercial Real
Estate (CRE) | | | | | | | | | | | | | | | |
Non-owner
occupied | $ | 37,364 | | | $ | — | | | $ | — | | | $ | 37,364 | | | $ | 34,205 | | | $ | 5,890 | | | $ | 1,395 | | | $ | 41,490 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Single-family residential | — | | | 1,717 | | | — | | | 1,717 | | | — | | | 5,221 | | | — | | | 5,221 | |
| Owner occupied | — | | | 6,445 | | | — | | | 6,445 | | | 7,429 | | | 8,759 | | | — | | | 16,188 | |
| 37,364 | | | 8,162 | | | — | | | 45,526 | | | 41,634 | | | 19,870 | | | 1,395 | | | 62,899 | |
| Commercial loans (2) | 1,800 | | | 10,942 | | | 3 | | | 12,745 | | | 32,452 | | | 20,324 | | | 9,497 | | | 62,273 | |
| | | | | | | | | | | | | | | |
Consumer loans and
overdrafts | — | | | 947 | | | — | | | 947 | | | — | | | 270 | | | — | | | 270 | |
| $ | 39,164 | | | $ | 20,051 | | | $ | 3 | | | $ | 59,218 | | | $ | 74,086 | | | $ | 40,464 | | | $ | 10,892 | | | $ | 125,442 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2018 | | | December 31, 2017 | |
| (in thousands) | Special Mention | | Substandard | | Doubtful | | Total (1) | | Special Mention | | Substandard | | Doubtful | | Total (1) |
| Real Estate Loans | | | | | | | | | | | | | | | |
| Commercial real estate (CRE) | | | | | | | | | | | | | | | |
| Non-owner occupied | $ | 11,695 |
| | $ | 10,510 |
| | $ | — |
| | $ | 22,205 |
| | $ | 1,020 |
| | $ | 489 |
| | $ | — |
| | $ | 1,509 |
|
| Single-family residential | 42 |
| | 6,334 |
| | — |
| | 6,376 |
| | — |
| | 5,869 |
| | — |
| | 5,869 |
|
| Owner occupied | 10,987 |
| | 9,539 |
| | — |
| | 20,526 |
| | 4,051 |
| | 13,867 |
| | — |
| | 17,918 |
|
| | 22,724 |
| | 26,383 |
| | — |
| | 49,107 |
| | 5,071 |
| | 20,225 |
| | — |
| | 25,296 |
|
| Commercial loans | 5,759 |
| | 8,891 |
| | 2,020 |
| | 16,670 |
| | 6,100 |
| | 14,112 |
| | — |
| | 20,212 |
|
| Consumer loans and overdrafts | — |
| | 5,734 |
| | — |
| | 5,734 |
| | — |
| | 4,113 |
| | — |
| | 4,113 |
|
| | $ | 28,483 |
| | $ | 41,008 |
| | $ | 2,020 |
| | $ | 71,511 |
| | $ | 11,171 |
| | $ | 38,450 |
| | $ | — |
| | $ | 49,621 |
|
____________________________
(1) There are no loans categorized as a “Loss” as of the dates presented.
At(2) As of December 31, 2021, includes $9.1 million in a commercial relationship placed in nonaccrual status during the second quarter of 2020. During the third quarters of 2021 and 2020, the Company charged off $5.7 million and $19.3 million, respectively, against the allowance for loan losses as a result of the deterioration of this commercial relationship. In addition, in connection with this loan relationship, the Company collected a partial principal payment of $4.8 million in the fourth quarter of 2021. Furthermore, in the second quarter of 2022, the Company collected an additional partial principal payment of $5.5 million and charged off the remaining balance of $3.6 million against the allowance for loan losses. Therefore, as of June 30, 2018, total potential problem2022, there were no outstanding balances associated with this loan relationship.
Classified loans, increased $21.9which includes substandard and doubtful loans, totaled $20.1 million at September 30, 2022, compared to $51.4 million at December 31, 2021. This decrease of $31.3 million, or 44.11%61.0%, compared to December 31, 2017. This increase is attributed2021, was primarily driven by:(i) loan payoffs and net pay downs totaling $24.1 million, including $16.2 million related to three commercial loans, $2.4 million related to two owner occupied loans, $1.8 million related to two consumer loans included in a loan downgradesrelationship with a South Florida borrower in the construction industry, $0.9 million related to one single-family residential loan and a total of $2.8 million related to smaller loans; (ii) loans sales totaling $12.9 million, including $11.6 million related to two non-owner occupied loans and a total of $1.3 million related to multiple single-family residential loans; (iii) total charge-offs against the ALL of $11.3 million, including $6.1 million related to two commercial nonaccrual loans paid off during the period including three CRE, $1.8 million related to multiple commercial loans and an aggregate $3.4 million related to multiple consumer loans, and (iv) loans placed back in accrual status totaling $8.5 million, mainly related to a multiple loan relationship with a South Florida borrower, These decreases were partially offset by the placement in non accrual status of loans totaling $19.2$25.4 million, five owner-occupied real estateincluding: (i) a commercial loan relationship with a South Florida borrower in the construction industry totaling $11.2 million, including a commercial loan of $5.0 million, two non-owner occupied loans totaling $10.0$2.4 million, an owner occupied loan of $2.1 million, and two consumer loans totaling $1.8 million which were subsequently paid-off during the period; (ii) one non-owner occupied loan of $5.7 million which was among the loans sold during the period; (iii) one commercial loan of $2.9 million, and (iv) an aggregate of $5.5 million in smaller loans.
Special mention loans as of September 30, 2022 totaled $39.2 million, a decrease of $34.9 million, or 47.1%, from $74.1 million as of December 31, 2021.This decrease was primarily due to: (i) a total decrease of $42.2 million due to upgrades, including one non-owner occupied loan of $24.9 million and two commercial loans totaling $4.7$17.2 million; (ii) paydowns/payoffs totaling $24.2 million, including one commercial loan of $13.3 million, one owner-occupied loan of $7.4 million, and one non-owner occupied loan of $2.6 million.
One CRE loan with a carrying value of $10.4 million as of June 30, 2018 was In addition, there were loans further downgraded to substandard and placed in non-accrual status during the quarter ended March 31, 2018. Subsequently, the Company agreed to restructure thisclassified totaling $8.1 million, including: (i) an owner-occupied loan by extending its maturity date and adjusting the loan’s monthly payments. As a result of the modification in May 2018, the Company determined no additional impairment charges were necessary and deemed the modification a troubled debt restructuring. In June 2018, based on market information available, the Company estimated that the fair value of the collateral, after estimated selling costs, had dropped below the carrying value of the loan; therefore a $3.9$2.3 million, specific reserve was allocated to this loan. A recent appraisal indicates that the collateral securing the TDR has deteriorated further, and we are evaluating whether a further write-down may be required.
The remaining two CRE loans, the five owner-occupied real estate loans and the two commercial loans were downgraded toinitially classified as special mention during the period, and (ii) a non-owner occupied loan of $5.7 million which was subsequently sold during the period. These decreases were partially offset by downgrades to special mention totaling $31.3 million, including: (i) one non-owner occupied loan of $29.0 million, and (ii) the $2.3 million owner occupied loan mentioned above. Also, there was a non-owner occupied loan of $8.4 million that had been identified as a loan with potential weakness since 2021. This loan was previously presented as part of loans held for sale carried at the lower of cost or fair value. which was reclassified to loans held for investment during the third quarter ended Juneof 2022. All special mention loans remained current at September 30, 2018.2022.
On March 26, 2020, the Company began offering loan payment relief options to customers impacted by the COVID-19 pandemic, including interest only and/or forbearance options. These downgradedprograms continued throughout 2020 and in the first nine months of 2021. In the third quarter of 2021, the Company ceased to offer these loan payment relief options, including interest-only and/or forbearance options. As of March 31, 2022, there were no loans under the deferral and/or forbearance periods. At December 31, 2021, there were $37.1 million of loans under the deferral and/or forbearance periods consisting of two CRE retail loans in New York. During the first quarter of 2022, the renewal of those two CRE retail loans in New York was completed. All loans that have moved out of forbearance status have resumed regular payments, except for one CRE loan of $12.1 million that was transferred to OREO during the third quarter of 2021. In accordance with accounting and regulatory guidance, loans to borrowers benefiting from these measures are under close monitoringnot considered TDRs. See “Item 7. Management’s Discussion and did not generate any additional provisions.Analysis Of Financial Condition And Results Of Operations” included in the Form 10-K for more details on the $12.1 million loan transferred to OREO in 2021.
While it is difficult to estimate the extent of the impact of the COVID-19 pandemic on the Company’s credit quality, we continue to proactively and carefully monitor the Company’s credit quality practices, including examining and responding to patterns or trends that may arise across certain industries or regions.
Potential problem loans, which are accruing loans classified as substandard and are less than 90 days past due, at September 30, 2022 and December 31, 2021, are as follows:
| | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | December 31, 2021 |
| Real estate loans | | | |
| Commercial real estate (CRE) | | | |
| | | |
| | | |
| Land development and construction loans | $ | — | | | $ | 94 | |
| | | |
| Single-family residential | 249 | | | 95 | |
| Owner occupied | 88 | | | — | |
| 337 | | | 189 | |
| Commercial loans | 1,229 | | | 1,380 | |
| Loans to depository institutions and acceptances | | | — | |
| Consumer loans and overdrafts (1) | — | | | 13 | |
| $ | 1,566 | | | $ | 1,582 | |
__________
(1) Corresponds to international consumer loans.
At September 30, 2022, total potential problem loans remained relatively flat compared to December 31, 2021. This was mainly due to the paydown of one commercial loan of $0.2 million, offset by the addition of one single-family residential loan of $0.2 million.
The Company will no longer be deemed an EGC effective as of December 31, 2022. Therefore, adoption of the pending new accounting guidance on CECL, will be required on the Company’s consolidated financial statements as of and for the reporting period ending that date, with retroactive application as of January 1, 2022, the beginning of the adoption period. Under the new models under CECL, credit losses are calculated based on estimated assumptions over the estimated life of financial assets and will include the impact of forecasted economic conditions. Based on preliminary modeling results, upon adoption of CECL, the Company expects to recognize an increase in the allowance for credit losses (“ACL”) as of January 1, 2022, the beginning of the reporting period of adoption, which is currently estimated to range from $15 million to $20 million, with a corresponding after tax cumulative effect adjustment to retained earnings. Additionally, the Company will record the final impact of CECL in the Company’s previous credit loss estimates recorded during each of the quarters in the year ending December 31, 2022 as an adjustment to its ACL in the Company’s consolidated balance sheet as of December 31, 2022, and an addition to credit loss provision in the Company’s consolidated statement of income for the year then ended. The final impact of CECL is subject to further refinement based on continuing reviews of the model, testing and validation of credit loss estimation techniques; the composition of the Company’s loan and debt securities portfolios; and current and forecasted macroeconomic conditions. See Note 1 to the Company’s unaudited interim consolidated financial statements in this Form 10-Q for more details on the pending adoption of CECL by the Company.
Securities
The following table sets forth the book value and percentage of each category of securities at JuneSeptember 30, 20182022 and December 31, 2017.2021. The book value for debt securities classified as available for sale, equity securities and trading securities, represents fair value, and the book value for debt securities classified as held to maturity represents amortized cost.
|
| | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | Amount | | % | | Amount | | % |
| | (in thousands, except percentages) |
| Securities held to maturity | | | | | | | |
| U.S. Government agency debt | $ | 2,943 |
| | 0.16 | % | | $ | 3,034 |
| | 0.16 | % |
| U.S. Government sponsored enterprise debt | 85,497 |
| | 4.72 | % | | 86,826 |
| | 4.70 | % |
| | $ | 88,440 |
| | 4.88 | % | | $ | 89,860 |
| | 4.86 | % |
| Securities available for sale: | | | | | | | |
| U.S. Government agency debt | $ | 250,837 |
| | 13.84 | % | | $ | 291,385 |
| | 15.78 | % |
| U.S. Government sponsored enterprise debt | 827,484 |
| | 45.66 | % | | 875,666 |
| | 47.41 | % |
Corporate debt (1) | 374,929 |
| | 20.69 | % | | 313,392 |
| | 16.97 | % |
| US Treasury debt | — |
| | — | % | | 2,701 |
| | 0.15 | % |
| Mutual funds | 23,108 |
| | 1.28 | % | | 23,617 |
| | 1.28 | % |
| Municipal bonds | 173,307 |
| | 9.56 | % | | 180,396 |
| | 9.77 | % |
| | $ | 1,649,665 |
| | 91.03 | % | | $ | 1,687,157 |
| | 91.36 | % |
Other securities (2): | | | | | | | |
| Federal Reserve Bank stock | $ | 13,050 |
| | 0.72 | % | | $ | 13,010 |
| | 0.70 | % |
| FHLB stock | 60,964 |
| | 3.37 | % | | 56,924 |
| | 3.08 | % |
| | $ | 74,014 |
| | 4.09 | % | | $ | 69,934 |
| | 3.78 | % |
| | $ | 1,812,119 |
| | 100.00 | % | | $ | 1,846,951 |
| | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Amount | | % | | Amount | | % |
| (in thousands, except percentages) | |
| Debt securities available for sale: | | | | | | | |
| U.S. government-sponsored enterprise debt | $ | 395,439 | | | 29.3 | % | | $ | 450,773 | | | 33.6 | % |
| Corporate debt (1) (2) | 312,117 | | | 23.1 | % | | 357,790 | | | 26.7 | % |
| U.S. government agency debt | 337,288 | | | 24.9 | % | | 361,906 | | | 27.0 | % |
| Collateralized loan obligations | 4,790 | | | 0.4 | % | | — | | | — | % |
| U.S. Treasury debt | 995 | | | 0.1 | % | | 2,502 | | | 0.2 | % |
| Municipal bonds | 1,700 | | | 0.1 | % | | 2,348 | | | 0.2 | % |
| | | | | | | |
| $ | 1,052,329 | | | 77.9 | % | | $ | 1,175,319 | | | 87.7 | % |
| | | | | | | |
| Debt securities held to maturity (3) | $ | 234,317 | | | 17.3 | % | | $ | 118,175 | | | 8.8 | % |
| | | | | | | |
| Equity securities with readily determinable fair value not held for trading | $ | 12,232 | | | 0.9 | % | | $ | 252 | | | — | % |
| | | | | | | |
| Trading securities | $ | 112 | | | — | % | | — | | | — | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other securities (4): | $ | 53,792 | | | 3.9 | % | | $ | 47,495 | | | 3.5 | % |
| $ | 1,352,782 | | | 100.0 | % | | $ | 1,341,241 | | | 100.0 | % |
__________________
| |
(1) | June 30, 2018 includes $53.4 million in “investment grade” quality securities issued by corporate entities from Panama, Europe, and Japan in three different sectors. December 31, 2017, includes $24.3 million in obligations issued by corporate entities from Panama, Europe and others in three different sectors. The Company limits exposure to foreign investments based on cross border exposure by country, risk appetite and policy. All foreign investments are denominated in U.S. dollars.
|
| |
(2) | Amounts correspond to original cost at the date presented. Original cost approximates fair value because of the nature of these investments. |
Liabilities
Total liabilities increased $127.8(1) As of September 30, 2022 and December 31, 2021 corporate debt includes $9.4 million or 1.66%, to $7.8 billionand $12.5 million, respectively, in “investment-grade” quality debt securities issued by foreign corporate entities. The securities’ issuers were from Canada in two different sectors at JuneSeptember 30, 2018 compared to $7.7 billion2022, and from Canada and Japan in three different sectors at December 31, 2017.2021. The Company limits exposure to foreign investments based on cross border exposure by country, risk appetite and policy. All foreign investments are denominated in U.S. Dollars.
(2) As of September 30, 2022 and December 31, 2021, debt securities in the financial services sector issued by domestic corporate entities represent 2.7% and 3.1% of our total assets, respectively.
(3) Includes securities issued by U.S. government and U.S. government sponsored agencies.
(4) Includes investments in FHLB and Federal Reserve Bank stock. Amounts correspond to original cost at the date presented. Original cost approximates fair value because of the nature of these investments.
As of September 30, 2022, total securities increased by $11.5 million, or 0.9%, to $1.4 billion compared to December 31, 2021. The increase in the nine months ended September 30, 2022 was mainly driven by purchases of $370.8 million, primarily debt securities available for sale and held to maturity. This was partially offset by: (i) maturities, sales and calls totaling $216.4 million, primarily debt securities available for sale, and (ii) net unrealized holding losses on debt securities available for sale of $135.6 million attributable to increases in market interest rates during the period.
Debt securities available for sale had net unrealized holding losses of $120.1 million and net unrealized holding gains of $0.2 million at September 30, 2022 (December 31, 2021 - net unrealized holding losses $5.7 million and net unrealized holding gains of $21.5 million). During the nine months ended September 30, 2022, the Company recorded net unrealized holding losses of $135.6 million which are included in accumulated other comprehensive (loss) income for the period. This was attributable to increases in market interest rates during the period which translated into a decline in the estimated fair value of debt securities markets. The Company considers these securities are not other-than-temporarily impaired because the decline in their estimated fair value is attributable to changes in interest rates and investment securities markets, generally, and not credit quality. Additionally, the Company does not intend to sell these debt securities and it considers that it is more likely than not that it will not be required to sell the securities before their anticipated recovery. See Note 3 to the Company’s unaudited interim consolidated financial statements included in this Form 10-Q for more details on the composition of the Company’s investment portfolio.
The following tables set forth the book value, scheduled maturities and weighted average yields for our securities portfolio at September 30, 2022 and December 31, 2021. Similar to the table above, the book value for securities available for sale, equity securities and trading securities is equal to fair market value and the book value for debt securities held to maturity is equal to amortized cost.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| (in thousands, except percentages) | Total | | Less than a year | | One to five years | | Five to ten years | | Over ten years | | No maturity |
| Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| | | | | | | | | | | | | | | | | | | | | | | |
| Debt securities available for sale | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Government sponsored enterprise debt | $ | 395,439 | | | 3.03 | % | | $ | 35 | | | 6.58 | % | | $ | 11,127 | | | 2.47 | % | | $ | 38,151 | | | 3.05 | % | | $ | 346,126 | | | 3.05 | % | | $ | — | | | — | % |
| Corporate debt-domestic | 302,721 | | | 3.79 | % | | 9,091 | | | 3.46 | % | | 59,654 | | | 3.45 | % | | 214,986 | | | 3.86 | % | | 18,990 | | | 4.25 | % | | — | | | — | % |
| U.S. Government agency debt | 337,288 | | | 2.78 | % | | 75 | | | 3.96 | % | | 3,063 | | | 2.86 | % | | 8,864 | | | 3.33 | % | | 325,286 | | | 2.76 | % | | — | | | — | % |
| Municipal bonds | 1,700 | | | 2.61 | % | | — | | | — | % | | — | | | — | % | | 355 | | | 2.18 | % | | 1,345 | | | 2.72 | % | | — | | | — | % |
| Corporate debt-foreign | 9,396 | | | 3.64 | % | | — | | | — | % | | — | | | — | % | | 9,396 | | | 3.64 | % | | — | | | — | % | | — | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Collateralized loan obligations | 4,790 | | | 5.44 | % | | — | | | — | % | | — | | | — | % | | — | | | — | % | | 4,790 | | | 5.44 | % | | — | | | — | % |
| U.S. treasury securities | 995 | | | 1.33 | % | | 995 | | | 1.33 | % | | — | | | — | % | | — | | | — | % | | — | | | — | % | | — | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| $ | 1,052,329 | | | 3.16 | % | | $ | 10,196 | | | 3.27 | % | | $ | 73,844 | | | 3.28 | % | | $ | 271,752 | | | 3.72 | % | | $ | 696,537 | | | 2.93 | % | | $ | — | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Debt securities held to maturity | $ | 234,317 | | | 3.37 | % | | $ | 6,440 | | | 2.50 | % | | $ | 13,236 | | | 2.90 | % | | $ | 214,641 | | | 3.42 | % | | $ | — | | | — | % | | $ | — | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Equity securities with readily determinable fair value not held for trading | 12,232 | | | — | % | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 12,232 | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Trading securities | 112 | | | 5.91 | % | | — | | | — | | | 112 | | | 5.91 | | | — | | | — | % | | — | | | — | | | — | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Other securities | $ | 53,792 | | | 4.59 | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | 53,792 | | | 4.59 | % |
| $ | 1,352,782 | | | 3.23 | % | | $ | 16,636 | | | 2.97 | % | | $ | 87,192 | | | 3.22 | % | | $ | 486,393 | | | 3.59 | % | | $ | 696,537 | | | 2.93 | % | | $ | 66,024 | | | 3.74 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| (in thousands, except percentages) | Total | | Less than a year | | One to five years | | Five to ten years | | Over ten years | | No maturity |
| Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| | | | | | | | | | | | | | | | | | | | | | | |
| Debt securities available for sale | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Government sponsored enterprise debt | $ | 450,773 | | | 2.51 | % | | $ | 3,613 | | | 1.76 | % | | $ | 36,223 | | | 2.47 | % | | $ | 45,879 | | | 3.39 | % | | $ | 365,058 | | | 2.41 | % | | $ | — | | | — | % |
| Corporate debt-domestic | 345,262 | | | 3.40 | % | | 25,539 | | | 2.65 | % | | 76,052 | | | 2.59 | % | | 222,739 | | | 3.69 | % | | 20,932 | | | 4.11 | % | | — | | | — | % |
| U.S. Government agency debt | 361,906 | | | 2.41 | % | | 52 | | | 4.54 | % | | 4,700 | | | 2.41 | % | | 9,617 | | | 2.00 | % | | 347,537 | | | 2.42 | % | | — | | | — | % |
| Municipal bonds | 2,348 | | | 2.55 | % | | — | | | — | % | | — | | | — | % | | 486 | | | 2.08 | % | | 1,862 | | | 2.67 | % | | — | | | — | % |
| Corporate debt-foreign | 12,528 | | | 3.43 | % | | 1,000 | | | 1.06 | % | | — | | | — | % | | 11,528 | | | 3.64 | % | | — | | | — | % | | — | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. treasury securities | 2,502 | | | 0.34 | % | | 2,502 | | | 0.34 | % | | — | | | — | % | | — | | | — | % | | — | | | — | % | | — | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| $ | 1,175,319 | | | 2.75 | % | | $ | 32,706 | | | 2.33 | % | | $ | 116,975 | | | 2.55 | % | | $ | 290,249 | | | 3.58 | % | | $ | 735,389 | | | 2.46 | % | | $ | — | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Debt securities held to maturity | $ | 118,175 | | | 2.52 | % | | $ | — | | | — | % | | $ | 9,343 | | | 2.48 | % | | $ | 11,189 | | | 2.92 | % | | $ | 97,643 | | | 2.48 | % | | $ | — | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Equity securities with readily determinable fair value not held for trading | 252 | | | — | % | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 252 | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Other securities | $ | 47,495 | | | 4.17 | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | 47,495 | | | 4.17 | % |
| $ | 1,341,241 | | | 2.78 | % | | $ | 32,706 | | | 2.33 | % | | $ | 126,318 | | | 2.54 | % | | $ | 301,438 | | | 3.56 | % | | $ | 833,032 | | | 2.47 | % | | $ | 47,747 | | | 4.15 | % |
The investment portfolio’s weighted average effective duration was 5.0 years at September 30, 2022 and 3.6 years at December 31, 2021. The increase in duration was mainly due to actual and expected lower prepayments in our mortgage-backed securities portfolio related to the increase in interest rates in the nine months ended September 30, 2022.
Liabilities
Total liabilities were $8.0 billion at September 30, 2022, an increase of $1.2 billion, or 18.2%, compared to December 31, 2021. This was primarily driven by highernet increases of: (i) $957.3 million, or 17.0%, in total deposits, mainly due to an increase in interest bearing demand deposits; (ii) the issuance of $30 million of 4.25% fixed-to-floating subordinated notes due in 2032 in the first quarter of 2022, and (iii) a net increase of $171.4 million, or 21.2%, in FHLB advances, fromincluding the addition of $730.0 million of advances, primarily long-term fix-rate, which were partially offset by the repayment of $560.7 million of these borrowings in the first nine months of 2022. See “Capital Resources and Liquidity Management” and “Deposits” for more details on the changes of FHLB advances, total deposits and higher total deposits.subordinated notes.
Other liabilities were $181.7 million as of September 30, 2022, an increase of $75.3 million, or 70.7%, compared to $106.4 million at December 31, 2021, primarily driven by changes in the estimated fair value of derivative instruments. See Note 11 to the Company’s unaudited interim consolidated financial statements in this Form 10-Q for more details on these derivative instruments.
Deposits
Total deposits increased $40.2 million to $6.4were $6.6 billion at JuneSeptember 30, 20182022, an increase of $957.3 million, or 17.0%, compared to $6.3 billion at December 31, 2017. In 2018, an2021. The increase in time deposits in the nine months ended September 30, 2022 was mainly due to a net increase of $205.9$908.7 million, was partially offset by decreases of $35.0or 21.2%, in core deposits, including increases of: (i) $639.6 million, or 42.4%, in interest bearing transaction accounts, primarily due to new domestic deposits from escrow accounts, municipalities, and from domestic individuals and businesses through large fund providers during the period; (ii) $135.7 million, or 11.5%, in noninterest bearing transaction accounts, $93.1and (iii) $133.4 million, in interest bearing, and $37.7 millionor 8.3%, in savings and money market account deposits,as customers shifted their deposit preferences as interest rates increased and we promoted longer term time deposits. These changes in deposits and deposit mix were also affected by declines in deposits from Venezuela customers described below. Theaccounts. In addition, there was an increase of $205.9$48.6 million, or 3.6%, in time deposits, include $248.0primarily driven by an increase of $170.7 million, in retail time deposits, partially offset by a decrease of $42.1 millionor 58.9%, in brokered time deposits. The increase in retail time deposits reflectsin the impactfirst nine months of successful marketing campaigns launched2022 was partially offset by a reduction of $122.1 million, or 11.7%, in customer CDs as the Company continued to aggressively lower CD rates and focus on increasing core deposits and emphasizing multi-product relationships versus single product higher-cost CDs. The increased transaction account balances includes $962.3 million, or 22.9%, in higher customer account balances, partially offset by a total decrease of $53.6 million in brokered interest bearing and money market deposits. As of September 30, 2022 total brokered deposits were $504.4 million, an increase $117.1 million, or 30.2%, compared to $387.3 million at December 31, 2021, as the Company elected to increase brokered time deposits in order to lock lower interest rates in light of rising market rates.
We continue with our efforts in growing our deposits. Our efforts in the area of additions to Treasury Management, Retail and Private Banking teams contributed to increasing deposit levels in the three and nine months ended September 30, 2022. See “Our Company- Business Developments” for additional information on new digital platforms.
Deposits by Country of Domicile
The following table shows deposits by country of domicile of the depositor as of the dates presented and the changes during the periodperiod.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Change |
| | | | | |
| (in thousands, except percentages) | September 30, 2022 | | December 31, 2021 | | Amount | | % |
| Deposits | | | | | | | |
| Domestic (1) (2) | $ | 4,166,281 | | | $ | 3,137,258 | | | $ | 1,029,023 | | | 32.8 | % |
| Foreign: | | | | | | | |
| Venezuela (3) | 1,931,330 | | | 2,019,480 | | | (88,150) | | | (4.4) | % |
| Others (4) | 490,511 | | | 474,133 | | | 16,378 | | | 3.5 | % |
| Total foreign | 2,421,841 | | | 2,493,613 | | | (71,772) | | | (2.9) | % |
| Total deposits | $ | 6,588,122 | | | $ | 5,630,871 | | | $ | 957,251 | | | 17.0 | % |
_________________
(1) Includes brokered deposits of $504.4 million and $387.3 million at September 30, 2022 and December 31, 2021, respectively.
(2) Domestic deposits, excluding brokered, increased $911.9 million, or 33.2%, compared to December 31, 2021.
(3) Based upon the diligence we customarily perform to "know our customers" for anti-money laundering, OFAC and sanctions purposes, and a review of the Executive Order issued by the President of the United States on August 5, 2019 and the related Treasury Department Guidance, we do not believe that the U.S. economic embargo on certain Venezuelan persons will adversely affect our Venezuelan customer relationships, generally.
(4) As of September 30, 2022 and December 31, 2021, deposits from Spain represent 1.2% and 1.3% of our total assets, respectively. All other foreign deposits included here, excluding deposits from Venezuelan resident customers, did not exceed 1% of of our total Assets.
Our domestic deposits increased $1.0 billion, or 32.8%, in the nine months ended September 30, 2022, primarily driven by an increase in domestic core deposits which includes the effect of new domestic deposits from escrow accounts, municipalities, and from domestic individuals and businesses through large fund providers during the period. In addition, there was an increase of $170.7 million, or 58.9%, in domestic brokered time deposits as the Company elected to increase these deposits which are being offered at competitivein order to lock lower interest rates in light of rising market rates. These increases were partially offset by a decrease of $100.5 million, or 14.6%, in domestic customer CDs.
During the sixnine months ended JuneSeptember 30, 2018,2022, total foreign deposits decreased $71.8 million, or 2.9%, primarily driven by a decrease of $88.2 million, or 4.4%, in deposits from customers domiciled in Venezuela decreased by $258.1 million, or 8.20%, to $2.9 billion at June 30, 2018 from $3.1 billion at December 31, 2017.Venezuela. This decrease was partially offset by an increase of $289.7$16.4 million, or 10.26%3.5%, in balancesdeposits from domestic customercountries other than Venezuela, primarily driven by our efforts to grow deposits and a $8.6 million increasefrom customers in balances fromthose other countries. The trend of higher balances from U.S. customer deposits reflects the Company’s continued focus on increasing the number of U.S. domestic customers while preserving valued foreign customer relationships.markets.
The Bank uses the Federal Financial Institutions Examination Council’s, or FFIEC’s, Uniform Bank Performance Report or UBPR definition of
Core Deposits
Our core deposits which consists of all relationships under $250,000. Core deposits, which exclude brokered time deposits, were $3.9$5.2 billion and $4.1$4.3 billion as of JuneSeptember 30, 20182022 and December 31, 2017,2021, respectively. Core deposits represented 61.46%79.0% and 64.47%76.2% of our total deposits at those dates, respectively. The declineincrease of $908.7 million, or 21.2%, in core deposits since December 31, 2017 resulted primarily from a combinationin the nine months ended September 30, 2022 was mainly driven by the previously mentioned increase in interest bearing demand deposits. Core deposits consist of the Company closing certain foreign customer accounts and foreign customers drawing down their account balances.total deposits excluding all time deposits.
Brokered Deposits
We utilize brokered deposits and, as of JuneSeptember 30, 2018,2022, we had $737.9$504.4 million in brokered deposits, which represent 11.60%represented 7.7% of our total deposits at that date. As of September 30, 2022, brokered deposits increased $117.1 million, or 30.2%, compared to $387.3 million as of December 31, 2021, mainly due to an increase in brokered time deposits. As of September 30, 2022 and December 31, 2021, brokered deposits included time deposits of $460.5 million and $289.8 million, respectively, and third party interest bearing demand and money market deposits of $43.9 million and $97.5 million, respectively. The Company has not historically sold brokered CDs in denominations over $100,000.
Large Fund Providers
In the first quarter of 2022, the Company changed its definition of large fund providers to include only third party relationships with balances over $20 million. As of December 31, 2021 and in prior periods, large fund providers were defined as third party deposit relationships with balances over $10 million. At JuneSeptember 30, 20182022 and December 31, 2017 our large fund providers, defined as2021, third-party customer relationships with balances of over $10$20 million, included sevenfifteen and foureleven deposit relationships, respectively, with a total balancebalances of $99.3$908.5 million and $59.0$376.3 million, respectively. At JuneThe increase in large fund providers in the nine months ended September 30, 2018 and2022 compared to December 31, 20172021 was mainly driven by new domestic deposits from MSF or its non-U.S. affiliates totaled $18.2 millionescrow accounts, municipalities, and $49.5 million, respectively.from domestic individuals and businesses during the period.
Large Time Deposits by Maturity
The following table sets forth the maturities of our time deposits with individual balances equal to or greater than $100,000 as of JuneSeptember 30, 2018:2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (in thousands, except percentages) | | | |
| 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 | % |
|
| | | | | | |
| | June 30, 2018 |
| | (in thousands, except percentages) |
| Less than 3 months | $ | 242,399 |
| | 17.55 | % |
| 3 to 6 months | 220,788 |
| | 15.98 | % |
| 6 to 12 months | 508,117 |
| | 36.78 | % |
| 1 to 3 years | 235,377 |
| | 17.04 | % |
| Over 3 years | 174,686 |
| | 12.65 | % |
| Total | $ | 1,381,367 |
| | 100.00 | % |
Short-Term Borrowings
In addition to deposits, we use short-term borrowings from time to time, such as FHLB advances and advancesborrowings from other banks, as a source of funds to meet the daily liquidity needs of our customers and fund growth in earning assets. Short-term borrowings have maturities of 12 months or less as of the reported period-end. The majority of ourThere were no outstanding short-term borrowings at JuneSeptember 30, 20182022 and December 31, 2017 corresponded to FHLB advances and, to a lesser extent, included borrowings from other banks.2021.
The following table sets forth information about the outstanding amounts of our short-term borrowings at the close of, and for the sixnine months ended JuneSeptember 30, 20182022 and for the year ended December 31, 2017.2021. There were no repurchase agreements outstanding as of September 30, 2022 and December 31, 2021.
| | | | | | | | | | | | | | | |
| | | September 30,
2022 | | December 31,
2021 |
| (in thousands, except percentages) | | | | | |
| 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 | % |
| End of period | | | 1.88 | % | | — | % |
|
| | | | | | | |
| | June 30,
2018 | | December 31,
2017 |
| | (in thousands, except percentages) |
| Outstanding at period-end | $ | 597,000 |
| | $ | 567,000 |
|
| Average amount | 485,333 |
| | 460,708 |
|
| Maximum amount outstanding at any month-end | 597,000 |
| | 567,000 |
|
| Weighted average interest rate: | | | |
| During period | 1.92 | % | | 1.43 | % |
| End of period | 2.16 | % | | 1.43 | % |
Return on Equity and Assets
The following table shows annualized return on average assets, return on average equity, and average equity to average assets ratio for the periods presented:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in thousands, except percentages and per share data) |
| Net income | $ | 10,423 |
| | $ | 10,390 |
| | $ | 19,852 |
| | $ | 16,897 |
|
| Basic and diluted earnings per common share | 0.08 |
| | 0.08 |
| | 0.16 |
| | 0.13 |
|
| | | | | | | | |
| Average total assets | $ | 8,419,040 |
| | $ | 8,419,602 |
| | $ | 8,413,434 |
| | $ | 8,457,960 |
|
| Average stockholders' equity | 748,024 |
| | 738,401 |
| | 747,905 |
| | 725,122 |
|
| Net income / Average total assets (ROA) | 0.50 | % | | 0.49 | % | | 0.47 | % | | 0.40 | % |
| Net income / Average stockholders' equity (ROE) | 5.57 | % | | 5.63 | % | | 5.31 | % | | 4.66 | % |
| Average stockholders' equity / Average assets ratio | 8.88 | % | | 8.77 | % | | 8.89 | % | | 8.57 | % |
| | | | | | | | |
Adjusted net income (1) | $ | 14,142 |
| | $ | 10,390 |
| | $ | 25,831 |
| | $ | 16,897 |
|
Adjusted basic and diluted earnings per common share (1) | 0.11 |
| | 0.08 |
| | 0.21 |
| | 0.13 |
|
| | | | | | | | |
Adjusted net income / Average total assets (ROA) (1) | 0.67 | % | | 0.49 | % | | 0.61 | % | | 0.40 | % |
Adjusted net income / Average stockholders' equity (ROE) (1) | 7.56 | % | | 5.63 | % | | 6.91 | % | | 4.66 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands, except percentages and per share data) | |
| Net income attributable to the Company | $ | 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 (1) | 0.62 | | 0.45 | | 1.30 | | 1.26 |
| | | | | | | |
| Average total assets | $ | 8,326,199 | | | $ | 7,536,465 | | $ | 7,923,245 | | $ | 7,653,012 |
| Average stockholders' equity | 735,592 | | 806,595 | | 759,260 | | 792,416 |
| 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 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
__________________
| |
(1) | See “Financial Highlights” for an explanation of certain non-GAAP measures. |
None(1)In the three and nine month periods ended September 30, 2022 and 2021, potential dilutive instruments consisted of unvested shares of restricted stock, restricted stock units and performance share units. See Note 19 to our outstanding obligations are exchangeableunaudited interim consolidated financial statements in this Form 10-Q for or convertible into, equity securities. Consequently, our basicdetails on the dilutive effects of the issuance of restricted stock, restricted stock units and diluted incomeperformance share units on earnings per share are equal in each offor the three and nine month periods presented.ended September 30, 2022 and 2021.
During the three and six monthsnine month periods ended JuneSeptember 30, 2018 and 2017,2022, basic and diluted earnings per share increased compared to same periods one year ago, mainly due to: (i) higher net income earned, and (ii) lower weighted average number of basic and diluted shares primarily as a result of higher net income in 2018 compared to the same periods of 2017.our capital structure optimization efforts.
Capital Resources and Liquidity Management
Capital Resources.Resources
Stockholders’ equity is influenced primarily by earnings, dividends, if any, and changes in accumulated other comprehensive income or loss (AOCI/L)AOCL) caused primarily by fluctuations in unrealized holding gains or losses, net of taxes, on debt securities available for sale investment securities. AOCI/L isand derivative instruments. AOCI or AOCL are not included in stockholders’ equity for purposes of determining our capital for bank regulatory purposes.
Stockholders’Total stockholders’ equity decreased $34.1 million, or 4.52%, to $719.4was $695.7 million as of JuneSeptember 30, 2018 as2022, a decrease of $136.2 million, or 16.4%, compared to $831.9 million as of December 31, 2017, due2021. This decrease was primarily driven by: (i) after-tax net unrealized holding losses of $101.1 million from the change in the market value of debt securities available for sale as a result of the increase of approximately 300 basis points recorded in index market rates during the nine months ended September 30, 2022; (ii) an aggregate of $72.1 million of Class A common stock repurchased in the first nine months of 2022, under the Class A repurchase programs launched in 2021 and 2022, and (iii) $9.2 million of dividends declared and paid by the Company in the first nine months of 2022. These decreases were partially offset by net income of $44.5 million in the first nine months of 2022.
Non-controlling Interest
The Company records net loss attributable to non-controlling interests in its condensed consolidated statement of operations equal to the percentage of the economic or ownership interest retained in the interest of Amerant Mortgage, and presents non-controlling interests as a component of stockholders’ equity on the consolidated balance sheets. Equity attributable to the non-controlling interest was a net loss of $1.9 million as of September 30, 2022, compared to a special dividendnet loss of $40.0$2.6 million paid on March 13, 2018 to MSF prioras of December 31, 2021. In the three and nine month periods ended September 30, 2022, net loss attributable to the record datenon-controlling interest was approximately $44 thousand and $1.2 million, respectively ($0.6 million and $1.5 million in the three and nine month periods ended September 30, 2021, respectively).
Non-controlling interests on the consolidated financial statements included a 49% non-controlling interest of Amerant Mortgage since May 2021, when this subsidiary commenced its operations, through March 30, 2022. Beginning March 31, 2022, the minority interest share changed from 49% to 42.6%. This change had no material impact to the Company’s financial condition or results of operations as of and for the Spin-off, $19.9 million net incomethree months ended March 31, 2022. In addition, in the sixthree months ended June 30, 2018 and a $13.9 million increase2022, the Company increased its ownership interest in AOCL mainlyAmerant Mortgage to 80% from 57.4%. This change was the result of: (i) two former principals of lower securities availableAmerant Mortgage surrendering their interest in Amerant Mortgage to the Company, when they became full time employees of the Bank (the “Transfer of Subsidiary Shares From Non-controlling Interest”), and (ii) an additional contribution made by the Company of $1 million, in cash, to Amerant Mortgage in the three months ended June 30, 2022. As a result of the Transfer of Subsidiary Shares From Non-controlling Interest, the Company reduced its additional paid-in capital by a total of $1.9 million with a corresponding increase to the equity attributable to non-controlling Interest.
Common Stock Transactions
Class A Common Stock Repurchases and Cancellation of Treasury Shares. In January 2022, the Company repurchased an aggregate of 652,118 shares of Class A common stock at a weighted average price of $33.96 per share, under the Class A Common Stock Repurchase Program. The aggregate purchase price for sale valuationsthese transactions was approximately $22.1 million, including transaction costs. On January 31, 2022, the Company announced the completion of the Class A Common Stock Repurchase Program.
Also, on January 31, 2022, the Company announced the New Common Stock Repurchase Program pursuant to which the Company may purchase, from time to time, up to an aggregate amount of $50 million of its shares of Class A common stock. In the first nine months of 2022, the Company repurchased an aggregate of 1,602,887 shares of Class A common stock at a weighted average price of $31.14 per share, under the New Common Stock Repurchase Program. The aggregate purchase price for these transactions was approximately $49.9 million, including transaction costs. On May 19, 2022, the Company announced the completion of the New Class Common Stock Repurchase Program.
The Company did not repurchase any Class A common stock in the third quarter of 2022.
For more information about these repurchase programs, see Note 17 to the Company’s consolidated financial statements on Form 10-K for the year ended December 31, 2021.
In the first nine months of 2022, the Company’s Board of Directors authorized the cancellation of all shares of Class A common stock repurchased in the first nine months of 2022. As of September 30, 2022 and December 31, 2021, there were no shares of Class A common stock held as treasury stock.
Dividends. On January 19, 2022, the Company’s Board of Directors declared a cash dividend of $0.09 per share of the Company’s Class A common stock. The dividend was paid on or before February 28, 2022 to shareholders of record at the close of business on February 11, 2022. The aggregate amount in connection with this dividend was $3.2 million.
On April 14, 2022, the Company’s Board of Directors declared a cash dividend of $0.09 per share of the Company’s Class A common stock. The dividend was paid on May 31, 2022 to shareholders of record at the close of business on May 13, 2022. The aggregate amount in connection with this dividend was $3.0 million.
On July 20, 2022, the Company’s Board of Directors declared a cash dividend of $0.09 per share of the Company’s Class A common stock. The dividend was paid on August 31, 2022 to shareholders of record at the close of business on August 17, 2022. The aggregate amount in connection with this dividend was $3.0 million.
Liquidity Management
The Company’s liquidity position includes cash and cash equivalents of $302.1 million at September 30, 2022, compared to $274.2 million at December 31, 2017. The lower securities valuations were due primarily to increases in market interest rates.
Liquidity Management. 2021.
At JuneSeptember 30, 20182022 and December 31, 2021, the Company had $1.3 billion$981.0 million and $830.5 million, respectively, of outstanding advances from the FHLB. At September 30, 2022 and December 31, 2021, we had an additional $1.5 billion and $1.4 billion, respectively, of available borrowing capacity under FHLB facilities. In the nine months ended September 30, 2022, the Company repaid $530.0 million in callable FHLB advances, and borrowed $550.0 million in longer-term advances, to extend the duration of this portfolio and lock-in fixed interest rates. In addition, in three months ended September 30, 2022, the Company borrowed $150 million in fixed-rate FHLB advances to support loan growth during the period.
There were no other borrowings compared to $1.2 billionas of September 30, 2022 and December 31, 2021.
We also have available uncommitted federal funds lines with several banks, and had $105.0 million of availability under these lines at December 31, 2017. During2021. At September 30, 2022, we had no outstanding uncommitted federal funds lines with banks.
On March 9, 2022, the sixCompany entered into a Subordinated Note Purchase Agreement (the “Purchase Agreement”) with the Company’s wholly-owned subsidiary Amerant Florida Bancorp Inc. (Amerant Florida Bancorp Inc. was merged with and into the Company during the three months ended JuneSeptember 30, 2018,2022), and qualified institutional buyers pursuant to which the Company repaid $571sold and issued $30.0 million aggregate principal amount of outstanding advancesits 4.25% Fixed-to-Floating Rate Subordinated Notes due March 15, 2032. Net proceeds were $29.1 million, after estimated direct issuance costs of approximately $0.9 million. Unamortized direct issuance cost are deferred and other borrowings,amortized over the term of the Subordinated Notes of 10 years. These Subordinated Notes are unsecured, subordinated obligations of the Company and obtained new borrowing proceedsrank junior in right of $656 million from these sources. Other borrowingspayment to all of the Company’s current and future senior indebtedness. The Subordinated Notes have been structured to qualify as Tier 2 capital of June 30, 2018 consistedthe Company for regulatory capital purposes, and rank equally in right of $2.0 million of short-term Fed Funds purchased from other banks which matured in July 2018. The following table summarizes the compositionpayment to all of our FHLB advancesexisting and other borrowings by type of interest rate:
|
| | | | | | | |
| | June 30
2018 | | December 31, 2017 |
| | (in thousands) |
| Advances from the FHLB and other borrowings: | | | |
| Fixed rate ranging from 1.05% to 3.86% (December 31, 2017 - 0.90% to 3.86%) | $ | 978,000 |
| | $ | 918,000 |
|
Floating rate based on 3-month LIBOR ranging from 2.26% to 2.38% (December 31, 2017 - 1.23% to 1.71%) (1) | 280,000 |
| | 255,000 |
|
| | $ | 1,258,000 |
| | $ | 1,173,000 |
|
__________________ | |
(1) | We have designated certain interest rate swaps as cash flow hedges to manage this variable interest rate exposure. |
At June 30, 2018, advances fromfuture subordinated indebtedness. See Note 9 “Subordinated Notes” in the FHLB and other borrowings had maturities through 2022 with interest rates ranging from 1.05% to 3.86%.Company’s unaudited interim consolidated financial statements in this Form 10-Q for more details.
We are a corporation separate and apart from the Bank and, therefore, must provide for our own liquidity. OurHistorically, our main source of funding ishas been dividends declared and paid to us by the Bank. Additionally,In addition, we issued the Senior Notes in 2020 and Subordinated notes in 2022. Also, as a result of the Amerant Florida Merger, the Company is now the obligor and guarantor on our junior subordinated debt and the guarantor of the Senior Notes and Subordinated Notes. The Company held cash and cash equivalents of $71.7 million as of September 30, 2022 and $23.8 million as of December 31, 2021, in funds available to service its Senior Notes, Subordinated Notes and junior subordinated debt and for general corporate purposes, as a separate stand-alone entity. Our former subsidiary, Mercantil Florida Bancorp Inc., or MercantilAmerant Florida, which iswas an intermediate bank holding company and the former obligor on our junior subordinated debt and the former guarantor of the Senior Notes and Subordinated Notes, held cash and cash equivalents of $36.0$6.3 million as of June 30, 2018 and $39.1 million at December 31, 20172021, in funds available to service thisits junior subordinated debt.
debt and for general corporate purposes, as a separate stand-alone entity.See discussion below for more details on the Amerant Florida Merger.
We have not provided summarized financial information for the Company as of September 30, 2022 and December 31, 2021. and for Amerant Florida as of December 31, 2021, as we do not believe it would be material information since the assets, liabilities and results of operations of the Company and Amerant Florida are not materially different from the amounts reflected in the consolidated financial statements of the Company.
Amerant Florida Merger
On August 2, 2022, the Company completed an intercompany transaction of entities under common control, pursuant to which the Company’s wholly owned subsidiary, Amerant Florida Bancorp Inc. (“Amerant Florida”), merged with and into the Company, with the Company as sole survivor. In connection with the Amerant Florida Merger, the Company assumed all assets and liabilities of Amerant Florida, including its direct ownership of the Bank, the common capital securities issued by the 5 trust subsidiaries, and the junior subordinated debentures issued by Amerant Florida and related agreements. The Amerant Florida Merger had no impact to the Company’s consolidated financial condition and results of operations. See Note 10 to the Company’s consolidated financial statements on the Form 10-K, for additional information on the common capital securities issued by the 5 trust subsidiaries, and the junior subordinated debentures.
Subsidiary Dividends
There are statutory and regulatory limitations that affect the ability of the Bank to pay dividends to the Company. These limitations exclude the effects of AOCI/L.AOCI. Management believes that these limitations will not affect ourthe Company’s ability, and MercantilAmerant Florida’s ability, to meet ourtheir ongoing short-term cash obligations. See ‘Supervision “Supervision and Regulation” in the Information Statement.Form 10-K.
In January and April 2022, the Boards of Directors of the Bank and Amerant Florida approved the payment of cash dividends of $40 million and $34 million, respectively on each date, by the Bank to Amerant Florida and in the same amounts by Amerant Florida to Amerant Bancorp. Based on our current outlook, we believe that net income, advances from the FHLB, available other borrowings and any dividends paid to us and Amerant Florida by the Bank will be sufficient to fund liquidity requirements for at least the next twelve months.
Regulatory Capital Requirements
OurThe Company’s consolidated regulatory capital amounts and ratios are presented in the following table:
|
| | | | | | | | | | | | | | | | | | | | |
| | Actual | | Required for Capital Adequacy Purposes | | Regulatory Minimums To be Well Capitalized |
| (in thousands, except percentages) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| June 30, 2018 | | | | | | | | | | | |
| Total capital ratio | $ | 899,709 |
| | 12.61 | % | | $ | 570,819 |
| | 8.00 | % | | $ | 713,524 |
| | 10.00 | % |
| Tier I capital ratio | 832,765 |
| | 11.67 | % | | 428,114 |
| | 6.00 | % | | 570,819 |
| | 8.00 | % |
| Tier I leverage ratio | 832,765 |
| | 9.87 | % | | 337,598 |
| | 4.00 | % | | 421,998 |
| | 5.00 | % |
| Common Equity Tier I | 723,053 |
| | 10.13 | % | | 321,086 |
| | 4.50 | % | | 463,790 |
| | 6.50 | % |
| | | | | | | | | | | | |
| December 31, 2017 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Total capital ratio | $ | 926,049 |
| | 13.30 | % | | $ | 556,578 |
| | 8.00 | % | | $ | 695,722 |
| | 10.00 | % |
| Tier I capital ratio | 852,825 |
| | 12.30 | % | | 417,433 |
| | 6.00 | % | | 556,578 |
| | 8.00 | % |
| Tier I leverage ratio | 852,825 |
| | 10.20 | % | | 335,647 |
| | 4.00 | % | | 419,559 |
| | 5.00 | % |
| Common Equity Tier I | 753,545 |
| | 10.70 | % | | 313,075 |
| | 4.50 | % | | 452,220 |
| | 6.50 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Required for Capital Adequacy Purposes | | Regulatory Minimums To be Well Capitalized |
| (in thousands, except percentages) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| September 30, 2022 | | | | | | | | | | | |
| Total capital ratio | $ | 913,147 | | | 12.49 | % | | $ | 584,722 | | | 8.00 | % | | $ | 730,903 | | | 10.00 | % |
| Tier 1 capital ratio | 828,534 | | | 11.34 | % | | 438,542 | | | 6.00 | % | | 584,722 | | | 8.00 | % |
| Tier 1 leverage ratio | 828,534 | | | 9.88 | % | | 335,367 | | | 4.00 | % | | 419,209 | | | 5.00 | % |
| Common Equity Tier 1 (CET1) | 767,529 | | | 10.50 | % | | 328,906 | | | 4.50 | % | | 475,087 | | | 6.50 | % |
| | | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | | |
| Total capital ratio | $ | 934,512 | | | 14.56 | % | | $ | 513,394 | | | 8.00 | % | | $ | 641,742 | | | 10.00 | % |
| Tier 1 capital ratio | 862,962 | | | 13.45 | % | | 385,045 | | | 6.00 | % | | 513,394 | | | 8.00 | % |
| Tier 1 leverage ratio | 862,962 | | | 11.52 | % | | 299,746 | | | 4.00 | % | | 374,683 | | | 5.00 | % |
| Common Equity Tier 1 (CET1) | 801,907 | | | 12.50 | % | | 288,784 | | | 4.50 | % | | 417,133 | | | 6.50 | % |
The Bank’s consolidated regulatory capital amounts and ratios are presented in the following table:
|
| | | | | | | | | | | | | | | | | | | | |
| | Actual | | Required for Capital Adequacy Purposes | | Regulatory Minimums to be Well Capitalized |
| (in thousands, except percentages) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| June 30, 2018 | | | | | | | | | | | |
| Total capital ratio | $ | 868,917 |
| | 12.18 | % | | $ | 570,704 |
| | 8.00 | % | | $ | 713,380 |
| | 10.00 | % |
| Tier I capital ratio | 801,973 |
| | 11.24 | % | | 428,028 |
| | 6.00 | % | | 570,704 |
| | 8.00 | % |
| Tier I leverage ratio | 801,973 |
| | 9.55 | % | | 335,941 |
| | 4.00 | % | | 419,926 |
| | 5.00 | % |
| Common Equity Tier I | 801,973 |
| | 11.24 | % | | 321,021 |
| | 4.50 | % | | 463,697 |
| | 6.50 | % |
| | | | | | | | | | | | |
| December 31, 2017 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Total capital ratio | $ | 885,855 |
| | 12.70 | % | | $ | 556,446 |
| | 8.00 | % | | $ | 695,557 |
| | 10.00 | % |
| Tier I capital ratio | 812,631 |
| | 11.70 | % | | 417,334 |
| | 6.00 | % | | 556,446 |
| | 8.00 | % |
| Tier I leverage ratio | 812,631 |
| | 9.70 | % | | 335,600 |
| | 4.00 | % | | 419,500 |
| | 5.00 | % |
| Common Equity Tier I | 812,631 |
| | 11.70 | % | | 313,001 |
| | 4.50 | % | | 452,112 |
| | 6.50 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Required for Capital Adequacy Purposes | | Regulatory Minimums to be Well Capitalized |
| (in thousands, except percentages) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| September 30, 2022 | | | | | | | | | | | |
| Total capital ratio | $ | 882,294 | | | 12.11 | % | | $ | 583,077 | | | 8.00 | % | | $ | 728,847 | | | 10.00 | % |
| Tier 1 capital ratio | 826,922 | | | 11.35 | % | | 437,308 | | | 6.00 | % | | 583,077 | | | 8.00 | % |
| Tier 1 leverage ratio | 826,922 | | | 9.88 | % | | 334,690 | | | 4.00 | % | | 418,363 | | | 5.00 | % |
| Common Equity Tier 1 (CET1) | 826,922 | | | 11.35 | % | | 327,981 | | | 4.50 | % | | 473,750 | | | 6.50 | % |
| | | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | | |
| Total capital ratio | $ | 957,852 | | | 14.94 | % | | $ | 512,780 | | | 8.00 | % | | $ | 640,976 | | | 10.00 | % |
| Tier 1 capital ratio | 886,301 | | | 13.83 | % | | 384,585 | | | 6.00 | % | | 512,780 | | | 8.00 | % |
| Tier 1 leverage ratio | 886,301 | | | 11.84 | % | | 299,466 | | | 4.00 | % | | 374,332 | | | 5.00 | % |
| Common Equity Tier 1 (CET1) | 886,301 | | | 13.83 | % | | 288,439 | | | 4.50 | % | | 416,634 | | | 6.50 | % |
Tangible Common Equity Ratio and Tangible Book Value Per Common Share
Tangible common equity ratio and tangible book value per common share are non-GAAP financial measures, used to explain our results to shareholders and the investment community, and in the internal evaluation and management of our businesses. Our management believes that these non-GAAP financial measures and the information they provide are useful to investors since these measures permit investors to view our performance using the same tools that our management uses to evaluate our past performance and prospects for future performance. Tangible common equity is calculated as the ratio of common equity less goodwill and other intangibles divided by total assets less goodwill and other intangible assets. Other intangible assets consist of, among other things, mortgage servicing rights and are included in other assets in the Company’s consolidated balance sheets.
The following table is a reconciliation of the Company’s tangible common equity and tangible assets, non GAAP financial measures, to total equity and total assets, respectively, as of the dates presented:
| | | | | | | | | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (in thousands, except percentages, share data and per share amounts) | September 30, 2022 | | December 31, 2021 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Stockholders' equity | $ | 695,698 | | | $ | 749,396 | |
Less: goodwill and other intangibles (1) | (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 (1) | (22,814) | | | (22,795) | |
| Tangible assets | $ | 8,717,165 | | | $ | 7,783,041 | |
| Common shares outstanding | 33,773,249 | | | 34,350,822 | |
| Tangible common equity ratio | 7.72 | % | | 9.34 | % |
| Stockholders' book value per common share | $ | 20.60 | | | $ | 21.82 | |
| Tangible stockholders' book value per common share | $ | 19.92 | | | $ | 21.15 | |
_________________
(1) Other intangible assets include mortgage servicing rights of $1.0 million and $0.6 million at September 30, 2022 and December 31, 2021, respectively, which are included in other assets in the Company’s consolidated balance sheets.
Off-Balance Sheet Arrangements
The following table shows the outstanding balance of our off-balance sheet arrangements as of the end of the periods presented. Except as disclosed below, we are not involved in any other off-balance sheet contractual relationships that are reasonably likely to have a current or future material effect on our financial condition, a change in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. For more details on the Company’s off-balance sheet arrangements, see Note 18 to our audited consolidated financial statements included in the Form 10-K.
| | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | December 31, 2021 |
| Commitments to extend credit | $ | 1,115,817 | | | $ | 899,016 | |
| | | |
| Letters of credit | 21,518 | | | 32,107 | |
| $ | 1,137,335 | | | $ | 931,123 | |
|
| | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | (in thousands) |
| Commitments to extend credit | $ | 750,440 |
| | $ | 762,437 |
|
| Credit card facilities | 200,912 |
| | 200,229 |
|
| Letters of credit | 23,989 |
| | 18,350 |
|
| | $ | 975,341 |
| | $ | 981,016 |
|
In the normal course of business, we and our subsidiaries enter into various contractual obligations that may require future cash payments. Significant commitments for future cash obligations include capital expenditures related to operating leases, and other borrowing arrangements. Set forth below are significant changes to our existing contractual obligations previously disclosed in the Form 10-K. Other than the changes discussed herein, there have been no material changes to the contractual obligations previously disclosed in the Form 10-K. In the three and nine month periods ended September 30, 2022 the Company borrowed $150 million in fixed-rate FHLB advances to support loan growth. In addition, in the nine month periods ended September 30, 2022, the Company repaid $530.0 million in callable FHLB advances, and borrowed $550.0 million in longer-term advances to extend the duration of this portfolio and lock-in fixed rates.
In the nine months ended September 30, 2022, total time deposits increased by $48.6 million, or 3.6%, mainly as a result of an increase of $170.7 million in brokered time deposits partially offset by a decrease of $122.1 million in customer time deposits. See “Deposits” for additional information
In the three months ended September 30, 2022, we completed a private placement of $30.0 million of 4.25% fixed-to-floating rate subordinated notes due 2032. See “Capital Resources and Liquidity Management” for more details.
Critical Accounting Policies and Estimates
For our critical accounting policies and estimates disclosure, see the Information StatementForm 10-K where such matters are disclosed for the Company’s latest fiscal year ended December 31, 2017.2021.
Recently Issued Accounting Pronouncements. Refer to Note 2 to our unaudited interim consolidated financial statements included in this Form 10-Q, for a discussion of There are no recently issued accounting pronouncements that have recently been adopted by us. For a description of accounting standards issued that are pending adoption, including the Company’s plan for the adoption of the Current Expected Credit Losses on financial instruments (“CECL”) guidance, see Note 1 “Business, Basis of Presentation and Summary of Significant Accounting Policies” in the Company’s unaudited interim consolidated financial statements in this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe interest rate and price risks are the most significant market risks impacting us. We monitor and evaluate these risks using sensitivity analyses to measure the impact toeffects on earnings, equity and the available for sale portfolio mark-to-market exposure, of changes in market interest rates. Exposures are managed to a set of limits previously approved by our boardBoard of directorsDirectors and monitored by management.
For a disclosure of the quantitative and qualitative information regarding See discussions below for material changes in our market risk exposure as of December 31, 2017 see the section titledcompared to those discussed in our Form 10-K, Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” and our Form 10-Q for the period ended March 31, 2022, Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk”,
Earnings Sensitivity
The following table shows the sensitivity of our net interest income as a function of modeled interest rate changes:
| | | | | | | | | | | | | | | | | | | | | | | |
| Change in earnings (1) |
| September 30, | | December 31, |
| (in thousands, except percentages) | 2022 | | 2021 |
| Change in Interest Rates (Basis points) | | | | | | | |
| Increase of 200 | $ | 29,222 | | | 9.0 | % | | $ | 14,442 | | | 6.7 | % |
| Increase of 100 | 19,443 | | | 6.0 | % | | 9,441 | | | 4.4 | % |
| Decrease of 25 (2) | — | | | — | % | | (2,971) | | | (1.4) | % |
| Decrease of 50 | (8,509) | | | (2.6) | % | | (6,025) | | | (2.8) | % |
| Decrease of 100 (3) | (20,759) | | | (6.4) | % | | — | | | — | % |
__________________
(1) Represents the change in net interest income, and the percentage that change represents of the Information Statement. There have been no significantbase scenario net interest income. The base scenario assumes (i) flat interest rates over the next 12 months, (ii) that total financial instrument balances are kept constant over time and (iii) that interest rate shocks are instant and parallel to the yield curve, for the various interest rates and indices that affect our net interest income.
(2) We discontinued this scenario due to its low probability in 2022 in light of rising interest rates in 2022.
(3) We resumed modeling this scenario in 2022 due to its higher probability in light of rising interest rates in 2022.
Net interest income in the base scenario, increased to approximately $325 million in September 30, 2022 compared to $217.0 million in December 31, 2021. This increase is mainly due to: (i) higher floating loan rates on existing loans due to higher short term market rates repricing higher through the quarter; (ii) the growth in the indirect lending portfolio that has average net fixed yields close to 7%, and (iii) the growth in the size of the balance sheet as total assets increased $1.1 billion, or 14.4%, in the first nine months of 2022 compared to December 31. 2021. These increases were partially offset by higher cost of total deposits.
The Company periodically reviews the scenarios used for earnings sensitivity to reflect market conditions.
Economic Value of Equity (EVE) Analysis
The following table shows the sensitivity of our EVE as a function of interest rate changes as of the periods presented:
| | | | | | | | | | | |
| Change in equity (1) |
| September 30, | | December 31, |
| 2022 | | 2021 |
| Change in Interest Rates (Basis points) | | | |
| Increase of 200 | (9.75) | % | | (9.60) | % |
| Increase of 100 | (3.78) | % | | (3.23) | % |
Decrease of 25 (2) | — | % | | 0.16 | % |
Decrease of 50 (3) | 1.89 | % | | — | % |
Decrease of 100 (3) | 3.17 | % | | — | % |
__________________
(1) Represents the percentage of equity change in a static balance sheet analysis assuming interest rate shocks are instant and parallel to the yield curves for the various interest rates and indices that affect our net interest income.
(2) We discontinued this scenario due to its low probability in 2022 in light of rising interest rates in 2022.
(3) We resumed modeling this scenario in 2022 due to its higher probability in light of rising interest rates in 2022.
The improvements in the sensitivity of EVE from changes in the assumptions used in monitoring market riskinterest rates as of JuneSeptember 30, 2018. 2022 for the 200 and 100 basis point increase buckets are principally attributed to the balance sheet becoming more asset sensitive compared to December 31, 2021. During the periods reported, the modeled effects on the EVE remained within established Company risk limits.
Available for Sale Portfolio mark-to-market exposure
The impactCompany measures the potential change in the market price of its investment portfolio, and the resulting potential change on its equity for different interest rate scenarios. This table shows the result of this test as of September 30, 2022 and December 31, 2021:
| | | | | | | | | | | |
| Change in market value (1) |
| September 30, | | December 31, |
| (in thousands) | 2022 | | 2021 |
| Change in Interest Rates | | | |
| (Basis points) | | | |
| Increase of 200 | $ | (114,140) | | | $ | (108,280) | |
| Increase of 100 | (59,144) | | | (50,320) | |
Decrease of 25 (2) | — | | | 10,811 | |
| Decrease of 50 | 30,445 | | | 21,439 | |
Decrease of 100 (3) | 61,081 | | | — | |
__________________
(1) Represents the amounts by which the investment portfolio mark-to-market would change assuming rate shocks that are instant and parallel to the yield curves for the various interest rates and indices that affect our net interest income.
(2) We discontinued this scenario in 2022 due to its low probability in light of rising interest rates in 2022.
(3) We resumed modeling this scenario in 2022 due to its higher probability in light of rising interest rates in 2022.
The average duration of our investment portfolio increased to 5.0 years at September 30, 2022 compared to 3.6 years at December 31, 2021.The increase in duration was mainly due to expected and actual lower mortgage-backed securities prepayments resulting from increase in market interest rates. Additionally, the floating rate portfolio increased to 16.1% at September 30, 2022 from 10.6% at December 31, 2021.
Limits Approval Process
The following table sets forth information regarding our interest rate sensitivity due to the maturities of our interest bearing assets and liabilities as of September 30, 2022. This information may not be indicative of our interest rate sensitivity position at other typespoints in time.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| (in thousands except percentages) | Total | | Less than one year | | One to three years | | Four to Five Years | | More than five years | | Non-rate |
| Earning Assets | | | | | | | | | | | |
| Cash and cash equivalents | $ | 302,133 | | | $ | 226,673 | | | $ | — | | | $ | — | | | $ | — | | | $ | 75,460 | |
| Securities: | | | | | | | | | | | |
| Debt available for sale | 1,052,329 | | | 273,164 | | | 244,677 | | | 178,240 | | | 356,248 | | | — | |
| Debt held to maturity | 234,317 | | | — | | | — | | | — | | | 234,317 | | | — | |
| Equity securities with readily determinable fair value not held for trading | 12,232 | | | — | | | — | | | — | | | — | | | 12,232 | |
| Federal Reserve and FHLB stock | 53,792 | | | 36,029 | | | — | | | — | | | — | | | 17,763 | |
| Trading securities | 112 | | | 112 | | | — | | | — | | | — | | | — | |
Loan portfolio-performing (1) | 6,484,619 | | | 4,371,003 | | | 934,976 | | | 615,071 | | | 563,569 | | | — | |
| Earning Assets | $ | 8,139,534 | | | $ | 4,906,981 | | | $ | 1,179,653 | | | $ | 793,311 | | | $ | 1,154,134 | | | $ | 105,455 | |
| Liabilities | | | | | | | | | | | |
| Interest bearing demand deposits | $ | 2,147,008 | | | $ | 2,147,008 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Saving and money market | 1,735,713 | | | 1,735,713 | | | — | | | — | | | — | | | — | |
| Time deposits | 1,386,441 | | | 1,038,938 | | | 275,674 | | | 62,669 | | | 9,160 | | | — | |
| FHLB advances | 981,005 | | | 205,000 | | | 576,005 | | | 200,000 | | | — | | | — | |
| Senior Notes | 59,131 | | | — | | | — | | | — | | | 59,131 | | | — | |
| Subordinated Notes | 29,241 | | | — | | | — | | | — | | | 29,241 | | | — | |
| Junior subordinated debentures | 64,178 | | | 64,178 | | | — | | | — | | | — | | | — | |
| Interest bearing liabilities | $ | 6,402,717 | | | $ | 5,190,837 | | | $ | 851,679 | | | $ | 262,669 | | | $ | 97,532 | | | $ | — | |
| Interest rate sensitivity gap | | | (283,856) | | | 327,974 | | | 530,642 | | | 1,056,602 | | | 105,455 | |
| Cumulative interest rate sensitivity gap | | | (283,856) | | | 44,118 | | | 574,760 | | | 1,631,362 | | | 1,736,817 | |
| Earnings assets to interest bearing liabilities (%) | | | 94.5 | % | | 138.5 | % | | 302.0 | % | | 1,183.3 | % | | N/M |
__________________
(1) “Loan portfolio-performing” excludes $18.7 million of market risks, such as foreign currency exchange risk, is deemed immaterial.non-performing loans (non-accrual loans and loans 90 days or more past-due and still accruing).
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company with the participationmaintains a set of its management, including its Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act) designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our management, with the participation of 1934, as amended)our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective as of the end of the period covered by this report. Based uponquarterly report on Form 10-Q to ensure that evaluationinformation we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and asreported within the time periods specified in the rules and forms of the end of the period covered by this report, the Company’sSEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effectiveas appropriate, to allow timely decisions regarding required disclosures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in its reports thatevaluating the Company files or submitsbenefits of possible controls and procedures relative to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. their costs.
Changes in Internal Control Over Financial Reporting
There have beenwere no changes in the Company’sour internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this reportForm 10-Q that havehas materially affected, or areis reasonably likely to materially affect, the Company’sour internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are, from time to time, in the ordinary course, engaged in litigation, and we have a small number of unresolved claims pending. In addition, as part of the ordinary course of business, we are parties to litigation involving claims to the ownership of funds in particular accounts, the collection of delinquent accounts, credit relationships, challenges to security interests in collateral and foreclosure interests, that are incidental to our regular business activities. While the ultimate liability with respect to these other litigation matters and claims cannot be determined at this time, we believe that potential liabilities relating to pending matters are not likely to be material to our financial position, results of operations or cash flows. Where appropriate, reserves for these various matters of litigation are established, under FASB ASC Topic 450, Contingencies, based in part upon management’s judgment and the advice of legal counsel.
At least quarterly, we assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. For those matters where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments based on our quarterly reviews. For other matters, where a loss is not probable or the amount of the loss is not estimable, we have not accrued legal reserves, consistent with applicable accounting guidance. Based on information currently available to us, advice of counsel, and available insurance coverage, we believe that our established reserves are adequate and the liabilities arising from the legal proceedings will not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution will not exceed established reserves. As a result, the outcome of a particular matter or a combination of matters, if unfavorable, may be material to our financial position, results of operations or cash flows for a particular period, depending upon the size of the loss or our income for that particular period.
ITEM 1A. RISK FACTORS
In addition to the otherFor detailed information set forth in this report, you should carefully consider theabout certain risk factors discussed in “Risk Factors” in the Information Statement, whichthat could materially affect our business, financial condition or future results. The risks describedresults see "Risk Factors" in Part I, Item 1A of the Form 10-K and the Form 10-Qs for the quarters ended March 31, 2022 and June 30, 2022. Set forth below are material changes to our existing risk factors previously disclosed in the Information StatementForm 10-K and the Form 10-Qs for the quarters ended March 31, 2022 and June 30, 2022. Other than the risk factors set forth below, there have been no material changes to the risk factors previously disclosed in the Form 10-K and the Form 10-Qs for the quarters ended March 31, 2022 and June 30, 2022.
Our information systems may experience interruptions and security breaches, and are exposed to cybersecurity threats.
We rely heavily on communications and information systems, including those provided by third-party service providers, to conduct our business. Any failure, interruption, or security breach of these systems could result in failures or disruptions which could impact our ability to serve our customers, operate our business and affect our customers’ privacy and could damage our reputation, generally. Our systems and networks, as well as those of our third-party service providers, are subject to security risks and could be susceptible to cyberattacks. Financial institutions and their service providers are regularly attacked, some of which have involved sophisticated and targeted attack methods, including use of stolen access credentials, malware, ransomware, phishing, structured query language injection attacks, and distributed denial-of-service attacks, among others. Such cyberattacks may also be directed at disrupting the operations of public companies or their business partners, which are intended to effect unauthorized fund transfers, obtain unauthorized access to confidential information, destroy data, disable or degrade service, sabotage systems, and/or cause serious reputational harm often through the introduction of computer viruses or malware, cyberattacks and other means. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss. These risks may increase in the future as the use of mobile banking and other internet-based products and services continues to grow.
For example, in August 2022 we were notified by a third-party vendor that it experienced a potential cybersecurity incident. After conducting a forensic analysis, the vendor notified us in September 2022 that limited information from some of the Bank's customers was accessed and exfiltrated in an unauthorized manner. The cybersecurity incident was limited to the systems and networks of the vendor only, did not involve the dissemination of nonpublic personally identifiable information, and the vendor has not discovered any evidence of misuse of the information. Although we determined that there was no requirement to provide notice to any state agencies, regulators or customers under applicable breach notification laws, we concluded that it was appropriate and prudent to have the vendor provide notice to our affected customers. We are not aware of any continuing cybersecurity threats or breaches involving this vendor, but we continue to monitor the only risks facingsituation carefully.
Despite our Company. Additional riskscybersecurity policies and uncertaintiesprocedures and our efforts to monitor and ensure the integrity of our and our service providers’ systems, we may not currently knownbe able to anticipate all types of security threats, nor may we be able to implement preventive measures effective against all such security threats. In addition, the impact and severity of a particular cyberattack may not be immediately clear, and it may take a significant amount of time before such determination can be made. While the investigation of a cyberattack is ongoing, we may not be fully aware of the extent of the harm caused by the cyberattack and it may not be clear how to contain and remediate such harm and any damage may continue to spread.
Security breaches or failures may have serious adverse financial and other consequences, including significant legal and remediation costs, disruption of operations, misappropriation of confidential information, damage to systems operated by us or our third-party service providers, as well as damaging our customers and our counterparties. Such losses and claims may not be covered by our insurance. In addition to the immediate costs of any failure, interruption or security breach, including those at our third-party service providers, these events could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
Severe weather, natural disasters, global pandemics, acts of war or terrorism, theft, civil unrest, government expropriation or other external events could have significant effects on our business.
Severe weather and natural disasters, including hurricanes, tornados, earthquakes, fires, droughts and floods, acts of war or terrorism (such as the recent escalation in regional conflicts exemplified by Russia’s invasion of Ukraine), epidemics and global pandemics (such as the outbreak of the novel coronavirus COVID-19), theft, civil unrest, government expropriation, condemnation or other external events in the markets where we operate or where our customers live (including Venezuela) could have a significant effect on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, impair employee productivity, result in loss of revenue and/or cause us to incur additional expenses. Although management has established disaster recovery and business continuity policies and procedures, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.
Our business is mainly concentrated in two markets—South Florida, and the Houston, Texas area, which may increase our risks from extreme weather. These two market areas are susceptible to hurricanes, tropical storms and other similar severe weather events which can bring about significant flooding and wind damage that may negatively affect the local economies of the markets we currently deemoperate in and destroy and damage properties. Although we cannot predict whether or to be immaterial alsowhat extent future weather events may materiallyimpact our operations or the economies in our current or future markets, such events could result in a destruction or impairment of the value of properties guaranteeing our loans, increase delinquencies, foreclosures, or loan losses as well as result in a decline in loan originations, negatively impacting our business and results of operations. The potential for such weather events has and may continue to cause our customers to incur higher property and casualty insurance premiums which may adversely affect our business, financial condition, and/or operating resultsthe value and sales of real estate in the future.markets we operate.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
None.
ITEM 6. EXHIBITS
|
| | | | |
Exhibit Number | Description |
3.131.1 | |
3.2 | |
10.1 | Amendment No. 1, dated as of June 12, 2018, to the Distribution Trust Agreement by and among Mercantil Servicios Financieros, C.A., the Company and TMI Trust Company, dated as of March 12, 2018 (incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on Form 10, filed with the Securities and Exchange Commission on June 15, 2018, File No. 001-38534). |
31.1 | |
| 31.2 | |
| 32.1 | |
32.2 | |
| 32.2 | |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 104 | Cover Page Interactive Data (embedded within XBRL documents) |
*Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | |
| | | AMERANT BANCORP INC. (Registrant) |
| | | | |
| Date: | October 28, 2022 | | By: | MERCANTIL BANK HOLDING CORPORATION
(Registrant)/s/ Gerald P. Plush
|
| | | | Gerald P. Plush |
Date: | September 21, 2018 | | By: | /s/ Millar Wilson
|
| | | | Millar Wilson |
| | | | Chairman, President and Chief Executive Officer and Vice-Chairman of the Board
(Principal Executive Officer) |
| | | | |
| Date: | September 21, 2018October 28, 2022 | | By: | /s/ Alberto PerazaCarlos Iafigliola |
| | | | Alberto PerazaCarlos Iafigliola |
| | | | Co-PresidentExecutive Vice-President and Chief Financial Officer
(Principal Financial Officer) |
| | | | |
