Amerant Bancorp Inc.: Form 10-Q for the period ended Mar 31, 2024

The following discussion and analysis is designed to provide a better understanding of various factors related to Amerant Bancorp Inc.’s (the “Company,” “Amerant,” “our” or “we”) results of operations and financial condition and its subsidiaries, including its principal subsidiary, Amerant Bank, N.A. (the “Bank”) .The Bank has three operating subsidiaries: Amerant Investments, Inc., a securities broker-dealer (“Amerant Investments”), Amerant Mortgage, LLC, a mortgage lending company domiciled in Florida (“Amerant Mortgage”) and Elant Bank & Trust Ltd., a Grand-Cayman based trust company (the “Cayman Bank”).

This discussion is intended to supplement and highlight information contained in the accompanying unaudited interim consolidated financial statements and related footnotes included in this Quarterly Report on Form 10-Q (this “Form 10-Q”), as well as the information contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).

Cautionary Note Regarding Forward-Looking Statements

Various of the statements made in this 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”).

All statements other than statements of historical fact are statements that could be forward-looking statements. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and condition, including the Company’s strategic rationale for, and proposed benefits of, the Company’s sale of its Houston operations (the “Sale Transaction”), the Company’s ability to consummate the Sale Transaction on terms acceptable to the Company, if at all, the Company’s expected use of proceeds from the Sale Transaction, and the Company’s business strategy following the consummation of the Sale Transaction. Forward-looking statements 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, except as required by law. These forward-looking statements should be read together with the “Risk Factors” included in the 2023 Form 10-K, in the Form 10-Q for the quarter ended March 31, 2024, and in our other reports filed with the 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:

• Liquidity risks could affect our operations and jeopardize our financial condition and certain funding sources could increase our interest rate expense;
• We may not be able to develop and maintain a strong core deposit base or other low-cost funding sources;
• We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed or on acceptable terms;
• Our ability to receive dividends from our subsidiaries could affect our liquidity and our ability to pay dividends;
• Our profitability is subject to interest rate risk;
• Our allowance for credit losses may prove inadequate;
• Our concentration of CRE loans could result in increased loan losses;
• Many of our loans are to commercial borrowers, which have unique risks compared to other types of loans;
• Our valuation of securities and the determination of a credit loss allowance in our investment securities portfolio are subjective and, if changed, could materially adversely affect our results of operations or financial condition;
• Nonperforming and similar assets take significant time to resolve and may adversely affect our business, financial condition, results of operations, financial condition, or cash flows;
• The pending sale of our Houston banking operations may not be completed in accordance with expected plans or on the currently contemplated timeline, or at all, and the pending sale may be disruptive to the Company;
• We are subject to environmental liability risk associated with lending activities;
• Deterioration in the real estate markets, including the secondary market for residential mortgage loans, can adversely affect us;
• 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 services we provide to our customers;
• Our information systems are exposed to cybersecurity threats and may experience interruptions and security breaches that could adversely affect our business and reputation;
• Our strategic plan and growth strategy may not be achieved as quickly or as fully as we seek;
• Defaults by or deteriorating asset quality of other financial institutions could adversely affect us;
• New lines of business, new products and services, or strategic project initiatives may subject us to additional risks;
• We may not have the ability or resources to keep pace with rapid technological changes in the financial services industry or implement new technology effectively;
• Conditions in Venezuela could adversely affect our operations;
• Our ability to achieve our environmental, social and governance goals are subject to risks, many of which are outside of our control, and our reputation could be harmed if we fail to meet such goals;
• We may be unable to attract and retain key people to support our business;
• 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;
• Any failure to protect the confidentiality of customer information could adversely affect our reputation and subject us to financial sanctions and other costs that could have a material adverse effect on our business, financial condition, results of operations, or cash flows;
• We could be required to write down our goodwill or other intangible assets;
• We have a net deferred tax asset that may or may not be fully realized;
• 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;
• Potential gaps in our risk management policies and internal audit procedures may leave us exposed to unidentified or unanticipated risk, which could negatively affect our business;
• Any failure to maintain effective internal control over financial reporting could impair the reliability of our financial statements, which in turn could harm our business, impair investor confidence in the accuracy and completeness of our financial reports and our access to the capital markets and cause the price of our common stock to decline and subject us to regulatory penalties;
• Material and negative developments adversely impacting the financial services industry at large and causing volatility in financial markets and the economy may have materially adverse effects on our business, liquidity, financial condition and results of operations;
• Our business may be adversely affected by economic conditions in general and by conditions in the financial markets;
• We are subject to extensive regulation that could limit or restrict our activities and adversely affect our earnings;
• Changes in federal, state or local tax laws, or audits from tax authorities, could negatively affect our business, financial condition, results of operations or cash flows;
• 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 business, financial condition, results of operations, or cash flows would be adversely affected;
• Increases in FDIC deposit insurance premiums and assessments could adversely affect our financial condition;
• Federal banking agencies periodically conduct examinations of our business, including our compliance with laws and regulations, and our failure to comply with any regulatory actions, if any, could adversely impact us;
• The Federal Reserve may require us to commit capital resources to support the Bank;
• We may face higher risks of noncompliance 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 principal shareholders and management own a significant percentage of our shares of voting common stock and will be able to exert significant control over matters subject to shareholder approval;
• The rights of our common shareholders are subordinate to the holders of any debt securities that we have issued or may issue from time to time;
• The stock price of financial institutions, like Amerant, may fluctuate significantly;
• We can 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 may not be able to generate sufficient cash to service all of our debt, including the Senior Notes, the Subordinated Notes and the Debentures;
• We are a holding company with limited operations and depend on our subsidiaries for the funds required to make payments of principal and interest on the Senior Notes, Subordinated Notes and the Debentures;
• We may incur a substantial level of debt that could materially adversely affect our ability to generate sufficient cash to fulfill our obligations under the Senior Notes, the Subordinated Notes and the Debentures; and
• The other factors and information included in the 2023 Form 10-K and other filings that we make with the SEC under the Exchange Act and Securities Act. *See “*Risk Factors” in the 2023 Form 10-K, 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 2023 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, together with those risks and uncertainties described in “Risk Factors” in the 2023 Form 10-K, in this Form 10-Q, and in our other filings with the SEC, which are available at the SEC’s website www.sec.gov (http://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. We serve customers in our United States markets and select international customers. These services are offered through the Bank, which is also headquartered in Coral Gables, Florida, and its subsidiaries. Fiduciary, investment, wealth management and 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 we are headquartered and operate eighteen banking centers in Miami-Dade, Broward and Palm Beach counties; Houston, Texas, where we operate six banking centers that serve the nearby areas of Harris, Montgomery, Fort Bend and Waller counties and; Tampa, Florida where we operate one banking center.

Business Developments

For more information on the progress of our business strategy and strategic initiatives in 2023, see Item 1. Business section included in the 2023 Form 10-K.

Sale of Houston Banking Operations

On April 16, 2024, the Bank entered into a Purchase and Assumption Agreement (the “Purchase Agreement”) with MidFirst Bank (“MidFirst”) pursuant to which MidFirst will purchase certain assets and assume certain liabilities (the “Transaction”) of the banking operations and six branches in the Houston, Texas metropolitan statistical area (collectively, the “Branches”). Pursuant to the terms of the Purchase Agreement, MidFirst has agreed to assume certain deposit liabilities and to acquire certain loans, as well as cash, real property, personal property and other fixed assets associated with the Branches, as well as 45 team members. The completion of the Transaction is subject to regulatory approval required by the OCC, as well as customary closing conditions.

The purchase price for the purchased assets will be computed as the sum of: (a) $13.0 million (the “Deposit Premium”), provided that, if the balance of non-interest checking deposits included in deposits or the total balance of deposits (excluding insured cash sweep deposits) decrease by more than 15% between March 13, 2024 and the closing date, then the Deposit Premium shall be equal to the sum of (i) 9.50% of the average daily balance of non-interest checking deposits included in deposits, (ii) 1.85% of the average daily balance of deposits other than non-interest checking deposits, insured cash sweep deposits and time deposits included in deposits, (iii) 0.25% of the average daily balance of insured cash sweep deposits included in Deposits, and (iv) 0.50% of the average daily balance of time deposits included in deposits, with the average daily balance in each case being for the 30-day period ending on the fifth business day prior to closing, provided further, that the Deposit Premium shall in no event be lower than $9.25 million, (b) the aggregate amount of cash on hand as of the closing date, (c) the aggregate net book value of all assets being assumed (excluding cash on hand, real property and accrued interest with respect to the loans to be acquired), (d) the appraised value of the real property to be acquired, and (e) accrued interest with respect to the loans to be acquired. The purchase price is subject to a customary post-closing adjustment based on the delivery within thirty calendar days following the closing date of a final closing statement setting forth the purchase price and any necessary adjustment payment amount.

The Bank and MidFirst made customary representations, warranties, and covenants in the Purchase Agreement. The Bank and MidFirst also agreed to indemnify each other (subject to customary limitations) with respect to the Transaction, including for breaches of representations and warranties, breaches of covenants, liabilities not retained or assumed, and conduct of the business of the Branches and operation and use of the purchased assets during certain time periods.

Other Actions

In the first three months ended March 31, 2024, we hired 12 new team members and added them to our business development teams across South Florida in April 2024. We officially opened our new banking center in Ft. Lauderdale, FL as well as our new regional headquarters office for Broward County, located in Plantation, FL. We also entered into a multi-year partnership becoming the “Hometown Bank” of the Miami Marlins. In April 2024, we opened our new banking center in downtown Miami, Fl.

We believe these strategic actions will support our ongoing efforts in being the bank of choice in the markets we serve.

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 expenses, and indicators of financial performance including return on assets (“ROA”) and return on equity (“ROE”). We also use certain non-GAAP financial measures in the internal evaluation and management of our businesses.

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 advances from the Federal Home Loan Bank of Atlanta (“FHLB”) and other borrowings such as repurchase agreements, notes, debentures and other 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, or NIM; and (v) our provisions for credit losses. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. NIM is calculated by dividing net interest income for the period by average interest-earning assets during that same period. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and stockholders’ equity, also fund interest-earning assets, NIM 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 (“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 stockholders’ equity, usually have the largest impact on periodic changes in our net interest spread, NIM and net interest income. We measure net interest income before and after the provision for credit losses.

Noninterest Income. Noninterest income consists of, among other revenue streams: (i) service fees on deposit 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) securities gains or losses; (vi) net gains and losses on early extinguishment of FHLB advances which we may execute from time to time as part of asset/liability management activities; (vii) income from derivative transaction with customers; (viii) derivative gains or losses; (ix) gains or losses on the sale of properties; and (x) other noninterest income which includes mortgage banking revenue.

Our income from service fees on deposit accounts is affected primarily by the volume, growth and mix of deposits we hold and volume of transactions initiated by customers (i.e. wire transfers). These are affected by prevailing market pricing of deposit services, interest rates, our marketing efforts and other factors.

Our income from brokerage, advisory and fiduciary activities consists of brokerage commissions related to our customers’ trading volume, 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.

Income from changes in the cash surrender value of our BOLI policies represents the amounts that may be realized under the contracts with the insurance carriers, which are nontaxable. In the fourth quarter of 2023, the Company restructured certain of its BOLI contracts, by surrendering existing lower-yielding policies and reinvesting the proceeds in higher-yielding policies. This transaction is expected to increase income from this source prospectively.

Interchange fees, other fees and revenue 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 also entered into referral arrangements with recognized U.S.-based card issuers, which permit us to serve our customers and earn referral fees and share interchange revenue without exposure to credit risk.

Our gains and losses on sales of securities are derived from sales from our securities portfolio and are 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 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.

Derivatives unrealized net gains and derivatives unrealized net losses are primarily derived from changes in market value of uncovered interest rate caps with clients.

Other noninterest income includes mortgage banking income generated through our subsidiary, Amerant Mortgage, and consists of gain on sale of loans, gain on loans market valuation, other fees and smaller sources of income. Mortgage banking income was $1.1 million and $1.8 million in the three months ended March 31, 2024 and 2023, respectively.

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 consists of: (i) salaries and employee benefits; (ii) occupancy and equipment expenses; (iii) professional and other services fees; (iv) loan-level derivative expenses; (v) FDIC deposit and business insurance assessments and premiums; (vi) telecommunication and data processing expenses; (vii) depreciation and amortization; (viii) advertising and marketing expenses; (ix) other real estate and repossessed assets, net; (x) contract termination costs, (xi) losses on sale of assets, and (xii) other operating expenses.

Salaries and employee benefits include compensation (including severance expenses which we generally consider non-routine), 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 consists of lease expense on our leased properties, including right-of-use or ROU asset impairment charges, and other occupancy-related expenses. Equipment expense includes furniture, fixtures and equipment related expenses. Rental income associated with subleasing portions of the Company’s headquarters building and the subleasing of the New York office space, primarily, is included as a reduction to rent expense under lease agreements under occupancy and equipment cost.

Professional and other services fees include the cost of outsourced services, including technology infrastructure and banking processing services from our new technology provider, and other professional consulting fees associated with our transition to a new core banking platform, legal, accounting and related consulting fees, card processing fees, director’s fees, regulatory agency fees, such as OCC examination fees, and other fees related to our business operations.

Loan-level derivative expenses are incurred in back-to-back derivative transactions with commercial loan clients and with brokers. The Company pays a fee upon inception of the back-to-back derivative transactions, corresponding to the spread between a wholesale rate and a retail rate.

Advertising expenses include the costs of promoting the Amerant brand, as well as the costs associated with promoting the Company’s products and services 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 deposit insurance, net of any credits applied against these premiums, corporate liability and other 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, as well as expenses related to the disposition of fixed assets due to the write off of in-development software in 2023.

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.

OREO and repossessed assets expense includes expenses and revenue (rental income) from the operation of foreclosed property/assets as well as fair value adjustments and gains/losses from the sale of OREO and repossessed assets. Beginning in the second quarter of 2023, the Company presents separately its OREO and repossessed assets, net expense in the consolidated statement of operations and comprehensive income. Prior to that period, while OREO valuation expense was presented separately, all other OREO-related expenses were presented as part of other operating expenses in the Company’s consolidated statement of operations and comprehensive income.

Other operating expenses include community engagement and other operational expenses. 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 months ended March 31, 2024 and 2023 include salaries and employee benefits, mortgage lending costs and professional and other service fees in connection with Amerant Mortgage’s ongoing business.

Non-routine noninterest expense items include restructuring expenses and other non-routine noninterest expenses. Restructuring expenses are those incurred for actions designed to implement the Company’s business strategy. These actions include, but are not limited to reductions in workforce, streamlining operational processes, promoting the Amerant brand, decommissioning of legacy technologies, enhanced sales tools and training, expanded product offerings and improved customer analytics to identify opportunities. Other non-routine noninterest expenses include the effect of non-routine items such as the valuation of OREO and loans held for sale, the sale of repossessed assets, and impairment of investments. We had no significant non-routine expense items in the three months ended March 31, 2024. We had $3.4 million in total non-routine expense items in the three months ended March 31, 2023, primarily consulting and other professional fees and software expenses.

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 risks in each category of assets. Problem assets may be categorized as classified, delinquent, nonaccrual, nonperforming and restructured assets. We also manage the adequacy of our allowance for credit losses, or the allowance, the diversification and quality of loan and investment portfolios, the extent of counterparty risks, credit risk concentrations and other factors.

Capital. Financial institution regulators have established minimum capital ratios for banks 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 CET1 capital ratio; (vii) the tangible common equity ratio; and (viii) other factors, including market conditions.

Liquidity. Our deposit base consists primarily of personal and commercial accounts maintained by individuals and businesses in our primary 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. We define core deposits as total deposits excluding all time deposits. This definition of core deposits differs from the Federal Financial Institutions Examination Council’s (the “FFIEC”) Uniform Bank Performance Report (the “UBPR”) definition of “core deposits,” which exclude brokered time deposits 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 readily convertible into cash without undue loss, the characteristics and maturities of our assets when compared to the characteristics of our liabilities and other factors.

Seasonality. Our loan production, generally, is subject to seasonality, with the lowest volume typically in the first quarter of each year.

Summary Results

The summary results for the three months ended March 31, 2024 include the following:

• Total assets were $9.8 billion at March 31, 2024, up $101.4 million, or 1.0%, compared to $9.7 billion at December 31, 2023.
• Total gross loans, which includes loans held for sale at fair value, were $7.01 billion at March 31, 2024, down $258.5 million, or 3.6%, compared to $7.3 billion at December 31, 2023.
• Cash and cash equivalents were $659.7 million, up $337.8 million or 104.9%, compared to $321.9 million at December 31, 2023.
• Total deposits were $7.88 billion at March 31, 2024, down $16.6 million, or 0.2%, compared to $7.89 billion at December 31, 2023.
• Total advances from the FHLB were $715.0 million, up $70.0 million or 10.9%, compared to $645.0 million as of December 31, 2023. The Bank had an additional $2.2 billion remained available under credit facilities from FHLB as of March 31, 2024.
• Average yield on loans increased to 7.05% in the three months ended March 31, 2024 compared to 6.38% in the three months ended March 31, 2023.
• Total non-performing assets decreased to $50.5 million at March 31, 2024, down $4.1 million, or 7.5%, compared to $54.6 million at December 31, 2023.
• The Allowance for Credit Losses, or ACL, on loans as of March 31, 2024 was $96.1 million, up $0.5 million, or 0.6%, compared to $95.5 million as of December 31, 2023.
• Core deposits were $5.63 billion at March 31, 2024, up $35.4 million, or 0.6%, compared to $5.60 billion at December 31, 2023.
• Average cost of total deposits increased to 3.00% in the three months ended March 31, 2024 compared to 1.91% in the three months ended March 31, 2023.
• Loan to deposit ratio was 88.93% at March 31, 2024 compared to 92.02% at December 31, 2023.
• AUM totaled $2.36 billion, as of March 31, 2024, up $68.5 million, or 3.0%, from $2.29 billion as of December 31, 2023.
• Pre-provision net revenue (“PPNR”)(1) was $25.9 million in the three months ended March 31, 2024, a decrease of $11.3 million or 30.5%, compared to $37.2 million in the three months ended March 31, 2023.
• Net Interest Margin (“NIM”) was 3.51% in the three months ended March 31, 2024 compared to 3.90% in the three months ended March 31, 2023.
• Net Interest Income (“NII”) was $78.0 million in the three months ended March 31, 2024, down $4.4 million, or 5.3%, from $82.3 million in the three months ended March 31, 2023.
• Provision for credit losses was $12.4 million in the three months ended March 31, 2024, compared to $11.7 million in the three months ended March 31, 2023.
• Non-interest income was $14.5 million in the three months ended March 31, 2024, down $4.9 million or 25.1%, from $19.3 million in the three months ended March 31, 2023.
• Non-interest expense was $66.6 million in the three months ended March 31, 2024, up $1.9 million, or 2.9%, from $64.7 million in the three months ended March 31, 2023.
• The efficiency ratio was 72.0% in the three months ended March 31, 2024 compared to 63.7% in the three months ended March 31, 2023.
• Return on Assets (“ROA”) was 0.44% in the three months ended March 31, 2024, compared to 0.88% in the three months ended March 31, 2023.
• Return on average equity (“ROE”) was 5.69% in the three months ended March 31, 2024 compared to 11.15% in the three months ended March 31, 2023.

1Non-GAAP measure, see “Non-GAAP Financial Measures” for more information and for a reconciliation to GAAP.

Results of Operations - Comparison of Results of Operations for the Three Months Ended March 31, 2024 and 2023

Net income

The table below sets forth certain results of operations data for the three month periods ended March 31, 2024 and 2023:

(in thousands, except per share amounts and percentages)

(1) In the three months ended March 31, 2024 and 2023, potential dilutive instruments consisted of unvested shares of restricted stock, restricted stock units and performance share units. See Note 13 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.

In the three months ended March 31, 2024, net income attributable to the Company was $10.6 million, or $0.31 per diluted share, compared to net income attributable to the Company of $20.2 million, or $0.60 per diluted share, in the same quarter of 2023. The decrease of $9.6 million, or 47.7%, in the three months ended March 31, 2024 was primarily driven by lower net interest income and noninterest income. These results were partially offset by lower income tax expenses.

In the three months ended March 31, 2023, net income excludes a loss of $0.2 million attributable to a non-controlling interest in Amerant Mortgage. There was no non-controlling interest as of and for the three months ended March 31, 2024. See the 2023 Form 10-K for more information on changes in non-controlling interest in Amerant Mortgage in 2023.

Net interest income was $78.0 million in the three months ended March 31, 2024, a decrease of $4.4 million, or 5.3%, from $82.3 million in the three months ended March 31, 2023. This was primarily driven by: (i) higher cost of total deposits mainly in interest bearing demand deposits and time deposits and (ii) higher average balance of deposits mainly checking and savings account. The decrease was partially offset by (i) an increase of 58 basis points in the yield on total interest earning assets, and (ii) increases of $180.9 million, or 17.1%; $120.1 million, or 39.6%; and $94.6 million, or 1.4%, in the average balance of debt securities held for sale, interest earnings deposits with banks and loans, respectively. *See “*Net Interest Income” for more details.

Noninterest income was $14.5 million in the three months ended March 31, 2024, a decrease of $4.9 million, or 25.1%, compared to $19.3 million in the three months ended March 31, 2023. This increase was mainly driven by: (i) absence of the gains on the early extinguishment of FHLB advances in the first quarter of 2023, (ii) lower loan-level derivative income, (iii) lower other noninterest income, (iv) lower deposit and service fees, and (v) higher derivative losses. These increases were partially offset by: (i) lower losses on securities, (ii) higher additional income stemming from the restructuring of BOLI policies that began in the fourth quarter of 2023, (iii) higher cards and trade finance servicing fees, and (iv) higher brokerage, advisory and fiduciary fees. *See “*Noninterest Income” for more details.

Noninterest expense was $66.6 million in the three months ended March 31, 2024, an increase of $1.9 million, or 2.9%, compared to $64.7 million in the same period in 2023. This increase was mainly due to: (i) higher professional and other service fees, (ii) higher other operating expenses, (iii) higher advertising expenses, (iv) higher telecommunications and data processing expenses, (v) higher FDIC assessments and insurance expenses, and (vi) higher depreciation and amortization. These increases were partially offset by: (i) lower salary and employee benefits, (ii) lower loan-level derivative expenses, (iii) lower other real estate owned and repossessed asset expenses, and (iv) lower occupancy and equipment expenses. *See “*Noninterest Expense” for more details.

There were no significant non-routine noninterest expense items in the three months ended March 31, 2024. In the three months ended March 31, 2023, noninterest expense included non-routine items of restructuring costs in the amount of $3.4 million. *See “*Our Company - Primary Factors Used to Evaluate Our Business” for detailed information on non-routine items in noninterest expense.

In the three months ended March 31, 2024 and 2023, the Company incurred noninterest expenses of $3.1 million and $3.9 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 had 65 full time equivalent employees (“FTEs”) at March 31, 2024 compared to 94 at March 31, 2023.

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 month periods ended March 31, 2024 and 2023. The average balances for loans include both performing and non-performing balances. Interest income on loans includes the effects of discount accretion and the amortization of non-refundable loan origination fees, net of direct loan origination costs as well as the amortization of net premiums/discounts on loan purchases, accounted for as yield adjustments. Average balances represent the daily average balances for the periods presented.

(in thousands, except percentages)

61

(in thousands, except percentages)

(1) Includes loans held for investment net of the allowance for credit losses, and loans held for sale. The average balance of the allowance for credit losses was $92.3 million and $81.4 million in the three months ended March 31, 2024 and 2023, respectively. The average balance of total loans held for sale was $180.5 million and $66.4 million in the three months ended March 31, 2024 and 2023, respectively.

(2) Includes average non-performing loans of $32.6 million and $31.8 million for the three months ended March 31, 2024 and 2023, respectively.

(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 $101.5 million and $104.9 million in the three months ended March 31, 2024 and 2023, respectively.

(4) Includes nontaxable securities with average balances of $18.3 million and $19.7 million for the three months ended March 31, 2024 and 2023, respectively. The tax equivalent yield for these nontaxable securities was 4.68% and 4.56% for the three months ended March 31, 2024 and 2023, respectively. In 2024 and 2023, 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 $48.5 million and $50.7 million for the three months ended March 31, 2024 and 2023, respectively. The tax equivalent yield for these nontaxable securities was 4.25% and 4.20% for the three months ended March 31, 2024 and 2023, respectively. In 2024 and 2023, 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 credit 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) NIM 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

In the three months ended March 31, 2024, net interest income was $78.0 million, a decrease of $4.4 million, or 5.3%, from $82.3 million in the same period of 2023. This was primarily driven by: (i) higher cost of total deposits mainly in interest bearing demand deposits and time deposits and (ii) higher average balance of deposits mainly checking and savings accounts. The decrease in net interest income was partially offset by (i) an increase of 58 basis points in the yield on total interest earning assets, (ii) an increase of $180.9 million, or 17.1% in the average balance of debt securities available for sale, and (iii) increases of $120.1 million, or 39.6% and $94.6 million, or 1.4% in the average balance of interest earnings deposits with banks and loans, respectively. Net interest margin was 3.51% in the three months ended March 31, 2024, a decrease of 39 basis points from 3.90% in the three months ended March 31, 2023. See discussions further below for more details.

During the first quarter of 2024 we had higher average balance of loans compared to the same period last year. In addition, our asset sensitive position enabled us to partially offset, via repricing of variable-rate loans, the incremental cost of deposits and borrowings we recorded during the first quarter of 2024. We also held higher average balances at the federal reserve, and invested in higher-yielding, fixed rate, debt securities available for sale. See discussions further below for more details.

Interest Income

Total interest income was $144.6 million in the three months ended March 31, 2024, an increase of $19.5 million, or 15.6%, compared to $125.1 million for the same period of 2023. This was primarily driven by a 58 basis points increase in the average yield on total interest earning assets. In addition, there were increases of $180.9 million, or 17.1%; $120.1 million, or 39.6%; and $94.6 million, or 1.4%, in the average balance of debt securities available for sale, interest earnings deposits with banks and loans, respectively. These increases were partially offset by a decrease of $15.8 million, or 6.5%, in the average balance of debt securities held to maturity.

Interest income on loans in the three months ended March 31, 2024 was $122.7 million, an increase of $14.2 million, or 13.1%, compared to $108.5 million in the same period last year, primarily due to: (i) a 67 basis points increase in average yields, mainly attributable to higher market rates, and (ii) an increase of $94.6 million, or 1.4%, in the average balance of loans. The increase in the average balance of loans includes: (i) originations of commercial loans and (ii) originations of single-family residential and constructions loans. See “-Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.

Interest income on debt securities available for sale was $13.2 million in the three months ended March 31, 2024, an increase of $3.0 million, or 29.6%, compared to $10.2 million in the same period of 2023. This was mainly due to an increase of $180.9 million, or 17.1% in the average balance of these securities as well as an increase of 38 basis points in average yields, primarily driven by higher market rates. In the three months ended March 31, 2024, the average balance of accumulated net unrealized loss included in the carrying value of these securities was $101.5 million compared to $104.9 million in the same period last year. As of March 31, 2024, corporate debt securities comprised 20.4% of the available-for-sale portfolio, down from 25.6% at March 31, 2023.

As of March 31, 2024, floating rate investments represent 12.9% of our total investment portfolio compared to 14.7% at March 31, 2023. In addition, the overall duration increased to 5.2 years at March 31, 2024 from 4.9 years at March 31, 2023, as the model anticipates slower MBS principal prepayments due to higher market rates.

Interest Expense

Interest expense was $66.7 million in the three months ended March 31, 2024, an increase of $23.9 million, or 55.8%, compared to $42.8 million in the same period of 2023. This was primarily due to: (i) higher average cost of total deposits and advances from FHLB. In addition, there was an increase of $373.1 million, or 5.4%, in the average balance of total interest bearing liabilities, mainly time deposits and interest bearing demand deposits.

Interest expense on interest-bearing deposits was $58.7 million in the three months ended March 31, 2024, an increase of $25.1 million, or 74.7%, compared to $33.6 million for the same period of 2023. This was mainly driven by an increase of 130 basis points in the average rates paid on total deposits, and an increase of $687.2 million, or 12.0%, in their average balance. See below for a detailed explanation of changes by major deposit category:

• Time deposits. Interest expense on total time deposits increased $13.3 million, or 103.6%, in the three months ended March 31, 2024 compared to the same period in 2023. This was mainly due to an increase of 165 basis points in the average cost of total time deposits. In addition, there was an increase of $523.0 million, or 29.6%, in the average balance of these deposits, which includes $420.2 million and $102.8 million in the average balance of customer certificate of deposits (“CDs”) and brokered time deposits, respectively.
• Interest bearing checking and savings accounts. Interest expense on checking and savings accounts increased $11.8 million, or 56.9% in the three months ended March 31, 2024 compared to the same period one year ago, mainly due to an increase of 105 basis points in the average costs on these deposits. In addition, there was an increase of $164.3 million, or 4.1% in the average balance of total interest bearing checking and savings accounts in the three months ended March 31, 2024 compared to the same period in 2023. This was mainly driven by: (i) higher average balances of domestic personal accounts, (ii) higher average balances of new domestic deposits from domestic businesses through large fund providers, and (iii) an increase in the average balance of international commercial accounts. These increases were partially offset by a decrease of average balances in international personal accounts.

Interest expense on advances from the FHLB decreased $1.2 million, or 17.5%, in the three months ended March 31, 2024 compared to the same period of 2023, primarily driven by a decline of $314.6 million, or 32.8%, in the average balance on this funding source compared to the same period of 2023. This was partially offset by an increase of 62 basis points in the average rate paid on these borrowings. In the first three months of 2024, the Company borrowed $407.5 million, and repaid $337.5 million of advances from the FHLB. *See “*Capital Resources and Liquidity Management” for more details on the repayment of advances from the FHLB.

Analysis of the Allowance for Credit Losses

Set forth in the table below are the changes in the allowance for credit losses for each of the periods presented.

(in thousands)

65

The Company recorded a provision for credit losses on loans of $12.4 million in the three months ended March 31, 2024, compared to $11.7 million in the same period last year. During the first quarter of 2024, the provision for credit losses on loans included $11.7 million to cover charge-offs and $2.4 million due to loan composition and volume changes. These provision requirements were partially offset by a $1.6 million release due to credit quality and macroeconomic factor updates.

During the three months ended March 31, 2024, charge-offs increased $1.1 million, or 7.9%, compared to the same period of the prior year. In the three months ended March 31, 2024, charge-offs included $10.4 million related to multiple consumer loans, primarily purchased indirect consumer loans, $2.4 million related to multiple commercial loans, and $0.6 million related to the sale of a CRE loan in New York. Charge-offs in the first quarter of 2024, were partially offset by $1.3 million in recoveries, $0.7 million in consumer loans, primarily purchased indirect consumer loans and $0.6 million related to multiple commercial loans recoveries.

In the three months ended March 31, 2023, charge-offs included: (i) $6.5 million related to an equipment-financing commercial loan relationship that was transferred to other repossessed assets in the first quarter of 2023; (ii) $6.3 million related to multiple consumer loans, and (iii) $1.5 million in connection with multiple commercial and real estate loans.

The ratio of net charge-offs over the average total loan portfolio held for investment was 0.69% in the first quarter of 2024, compared to 0.64% in the first quarter of 2023. See the 2023 Form 10-K for more information on charge-offs for the year ended December 31, 2023.

During the three months ended March 31, 2024 and 2023, 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 and outstanding balances in excess of $1.0 million, to support current ACL levels. No additional provision for credit losses 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.

Noninterest Income

The table below sets forth a comparison for each of the categories of noninterest income for the periods presented.

(in thousands, except percentages)

(1) Changes in cash surrender value of BOLI are not taxable.

(2) Income from interest rate swaps and other derivative transactions with customers. The Company incurs expenses related to derivative transactions with customers which are included as part of noninterest expenses under loan-level derivative expense. See Noninterest Expense section for more details.

(3) Net unrealized gains and losses related to uncovered interest rate caps with clients.

(4) Includes net loss of $0.1 million in the three months ended March 31, 2023 in connection with the sale of debt securities available for sale. In addition, includes unrealized losses of $0.1 million in the three months ended March 31, 2024 related to the change in fair value of equity securities with readily available fair value not held for trading which are recorded in results of the period. Furthermore, in the three months ended March 31, 2023, the Company sold all of its equity securities with readily available fair value not held in trading with a total fair value of $11.2 million at the time of sale, and recognized a net loss of $0.2 million in connection with this transaction.

(5) Includes mortgage banking revenue of $1.1 million and $1.8 million in the three months ended March 31, 2024 and 2023, respectively, primarily consisting of net gains on sale, valuation and derivative transactions associated with mortgage loans held for sale activity, and other smaller sources of income related to the operations of Amerant Mortgage. Other sources of income in the periods shown include income from foreign currency exchange transactions with customers and valuation income on the investment balances held in the non-qualified deferred compensation plan.

Total noninterest income decreased $4.9 million, or 25.1%, in the three months ended March 31, 2024, compared to the same period of 2023, mainly due to: (i) absence of the gains on the early extinguishment of FHLB advances in the first quarter of 2023, (ii) lower loan-level derivative income, (iii) lower other noninterest income, (iv) lower deposit and service fees; and (v) derivative losses in the current quarter compared to gains in the same quarter of 2023. These decreases were partially offset by: (i) lower losses on securities, (ii) higher additional income stemming from the restructuring of BOLI policies that began in the fourth quarter of 2023, (iii) higher cards and trade finance servicing fees, and (iv) higher brokerage, advisory and fiduciary fees.

The Company had no gains or losses on repayment of advances from the FHLB in the three months ended March 31, 2024. In the three months ended March 31, 2023, the Company recorded a net gain of $13.2 million on the early repayment of approximately $565 million of advances from the FHLB.

Other noninterest income decreased $0.7 million, or 26.4%, in the three months ended March 31, 2024 compared to the same period in 2023, primarily driven by: (i) lower mortgage banking income and (ii) lower foreign currency exchange activity,

Deposits and service fees decreased $0.6 million, or 12.7%, in the three months ended March 31, 2024 compared to the same period last year, primarily due to lower service charge fee income as well as lower wire transfer fees.

Loan-level derivative income decreased $1.6 million, or 77.5%, in the three months ended March 31, 2024 compared to the same period in 2023, mainly driven by a lower volume of interest rate swap transactions with clients during the current quarter, compared to the same period of 2023.

Our AUMs totaled $2.36 billion at March 31, 2024, an increase of $68.5 million, or 3.0%, from $2.29 billion at December 31, 2023, primarily driven by increased market valuations as well as net new assets as we continue to execute on our relationship-focused strategy.

Noninterest Expense

The table below presents a comparison for each of the categories of noninterest expense for the periods presented.

(in thousands, except percentages)

(1) Includes staff reduction costs of $0.2 million in the three months March 31, 2023 which consists of severance costs primarily related to organizational rationalization.

(2) Includes additional nonrecurrent expenses of $2.6 million in the three months ended March 31, 2023 related to the engagement of FIS.

(3) Includes OREO rental income of $0.4 million, in the three months ended March 31, 2024. We had no OREO rental income in the three months ended March 31, 2023.

(4) Beginning in the three months ended June 30, 2023, OREO and repossessed assets expense is presented separately in the Company’s consolidated statement of operations and comprehensive (loss) income.

(5) Includes service fees in connection with our loan-level derivative income generation activities.

(6) In all of the periods shown, includes mortgage loan origination and servicing expenses, charitable contributions, community engagement, postage and courier expenses, and debits which mirror the valuation income on the investment balances held in the non-qualified deferred compensation plan in order to adjust the liability to participants of the deferred compensation plan and other small expenses.

(7) Includes $3.1 million and $3.9 million in the three months ended March 31, 2024 and 2023 related to Amerant Mortgage, primarily consisting of salaries and employee benefits, mortgage lending costs and professional and other services fees.

NM Not meaningful

Noninterest expense increased $1.9 million, or 2.9%, in the three months ended March 31, 2024 compared to the same period in 2023, mainly due to: (i) higher professional and other service fees, (ii) higher other operating expenses, (iii) higher advertising expenses, (iv) higher telecommunications and data processing expenses, (v) higher FDIC assessments and insurance expenses, and (vi) higher depreciation and amortization. These increases were partially offset by: (i) lower salary and employee benefits, (ii) lower loan-level derivative expenses, (iii) lower other real estate owned and repossessed asset net expenses, and (iv) lower occupancy and equipment expenses.

Professional and other services fees increased $3.3 million, or 43.7%, in the three months ended March 31, 2024 compared to the same period last year. This was mainly driven by higher recurrent fees in connection with the current technology provider, and higher legal fees across various projects. These increases were partially offset by lower combined consulting fees.

Other operating expenses increased $1.3 million, or 31.3%, in the three months ended March 31, 2024 compared to the same period in 2023 , mainly driven by: (i) higher expenses associated with operating charge-offs, (ii) higher loan costs and loan servicing fees; and (iii) an aggregate increase in business development and other expenses. These increases were partially offset by lower loan origination expenses.

Advertising expenses increased $0.5 million, or 19.0%, in the three months ended March 31, 2024 compared to the same period last year, mainly due to higher expenses resulting from campaigns in connection with our partnerships with professional sports teams.

Telecommunication and data processing expenses increased $0.5 million, or 15.3%, in the three months ended March 31, 2024 compared to the same period last year, primarily driven by higher computer consulting expenses,

FDIC assessments and insurance increased $0.3 million, or 9.9%, in the three months ended March 31, 2024 compared to the same period last year, primarily driven by higher FDIC assessment rates and higher average assets.

Depreciation and amortization expenses increased $0.2 million, or 14.3%, in the three months ended March 31, 2024 compared to the same period last year. This was mainly driven by higher operating lease depreciation in the first quarter of 2024.

Salaries and employee benefits decreased $1.9 million, or 5.5%, in the three months ended March 31, 2024 compared to the same period one year ago, mainly driven by: (i) lower bonus accruals, and (ii) the absence of severance expenses in the first quarter of 2024. These results were partially offset by: (i) higher salaries of new hires and higher employment tax expenses. At March 31, 2024, our FTEs were 696, a net decrease of 26 FTEs, or 3.6% compared to 722 FTEs at March 31, 2023.

Occupancy and equipment expenses decreased $0.3 million, or 4.7%, in the three months ended March 31, 2024 compared to the same period one year ago partially due to lower software expenses.

Loan-level derivative expenses decreased $1.6 million, or 99.8%, in the three months ended March 31, 2024 compared to the same period last year, mainly driven by the absence in the current quarter of the additional expenses in the first quarter of 2023 that was a result of transitioning interest rate swap and cap contracts with clients from LIBOR to a new replacement index.

Income Taxes

The table below sets forth information related to our income taxes for the periods presented.

(in thousands, except effective tax rates and percentages)

In the first quarter of 2024, income tax expense decreased to $2.9 million from $5.3 million in the first quarter of 2023, mainly driven by lower income before income taxes in the first quarter of 2024 compared to the same period last year.

As of March 31, 2024, the Company’s net deferred tax assets were $48.3 million, a decrease of $7.3 million, or 13.2%, compared to $55.6 million as of December 31, 2023. This result was mainly driven by the realization of the tax benefit in the first quarter of 2024 related to the valuation allowance on loans held for sale recorded in the fourth quarter of 2023 of $35.5 million.

Non-GAAP Financial Measures

The Company supplements its financial results that are determined in accordance with Generally Accepted Accounting Principles (GAAP) with non-GAAP financial measures, such as “pre-provision net revenue (PPNR)”, “core pre-provision net revenue (Core PPNR)”, “tangible stockholders’ equity (book value) per common share”, “tangible common equity ratio, adjusted for unrealized losses on debt securities held to maturity”, and “tangible stockholders' equity (book value) per common share, adjusted for unrealized losses on debt securities held to maturity”. This supplemental information is not required by or is not presented in accordance with GAAP. The Company refers to these financial measures and ratios as “non-GAAP financial measures” and they should not be considered in isolation or as a substitute for the GAAP measures presented herein.

We use certain non-GAAP financial measures, including those mentioned above, both 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, especially in light of the additional costs we have incurred in connection with the Company’s restructuring activities that began in 2018 and continued in 2024, including the effect of non-routine items such as the sale of securities, the valuation of securities and derivatives, the early repayment of FHLB advances, and other non-routine actions intended to improve customer service and operating performance. While we believe that these non-GAAP financial measures are useful in evaluating our performance, this information should be considered as supplemental and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Additionally, these non-GAAP financial measures may differ from similar measures presented by other companies.

The following table is a reconciliation of the Company’s PPNR and Core PPNR, non-GAAP financial measures, as of the dates presented:

(in thousands)

(1) Includes provision for credit losses on loans in all periods shown. There was no provision for credit losses on unfunded commitments in the first quarter of 2024.

(2) Expenses incurred for actions designed to implement the Company’s business strategy. These actions include, but are not limited to reductions in workforce, streamlining operational processes, rolling out the Amerant brand, implementation of new technology system applications, decommissioning of legacy technologies, enhanced sales tools and training, expanded product offerings and improved customer analytics to identify opportunities.

(3) Staff reduction costs in the three months ended March 31 2023 consist of severance expenses related to organizational rationalization.

(4) In the three months ended March 31, 2023, includes nonrecurrent expenses of $2.6 million in connection with the engagement of FIS.

(5) In the three months ended March 31, 2023, includes $0.5 million of ROU asset impairment associated with the closure of a branch in Houston, Texas in 2023.

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)

(1) At March 31, 2024 and December 31, 2023, other intangible assets consist primarily of naming rights of $2.4 million and $2.5 million, respectively, and mortgage servicing rights (“MSRs”) both of $1.4 million.

(2) At March 31, 2024 and December 31, 2023, amounts were calculated based upon the fair value of debt securities held to maturity, and assuming a tax rate of 25.40% and 25.36%, respectively.

Financial Condition - Comparison of Financial Condition as of March 31, 2024 and December 31, 2023

Assets. Total assets were $9.8 billion as of March 31, 2024, an increase of $101.4 million, or 1.0%, compared to $9.7 billion at December 31, 2023. This result was primarily driven by increases of: (i) $337.8 million, or 104.9%, in cash and cash equivalents, and (ii) $81.6 million, or 5.5%, in total securities, mainly debt securities available for sale. These increases were partially offset by decreases of: (i) $259.1 million, or 3.6%, in total loans held for investment, net of the ACL, and loans held for sale; (ii) $53.8 million, or 21.0%, in accrued interest receivable and other assets primarily driven by collection of a receivable from insurance carrier for $62.5 million in connection with the restructuring of the Company’s BOLI in the fourth quarter of 2023. See “-Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information, including changes in the composition of our interest-earning assets.

Cash and Cash Equivalents. Cash and cash equivalents increased to $659.7 million at March 31, 2024 from $321.9 million at December 31, 2023, primarily as a result of the increase in interest earning deposits with the Federal Reserve and other U.S. banks.

At March 31, 2024 and December 31, 2023, cash balances held at the Federal Reserve Bank were $577 million and $246 million, respectively. In addition, at March 31, 2024 and December 31, 2023, the Company’s cash and cash equivalents included restricted cash of $33.9 million and $25.8 million, respectively, which was held primarily to cover margin calls on derivative transactions with certain brokers. Furthermore, at March 31, 2024 and December 31, 2023, the Company’s cash and cash equivalents included other short-term investments of $6.7 million and $6.1 million, respectively, which consist of US Treasury Bills that mature in 90 days or less.

Cash and cash equivalents provided by operating activities were $2.8 million in the three months ended March 31, 2024, mainly driven by net income of $10.6 million and a non-cash adjustment of $12.4 million for the provision for credit losses. This was partially offset by net originations of mortgage loans held for sale at fair value of $22.1 million.

Net cash provided by investing activities was $286.7 million during the three months ended March 31, 2024, mainly driven by: (i) proceeds of sale of loans carried at the lower of cost or fair value and held for investment totaling $429.6 million; (ii) $64 million collected from insurance carrier during the first quarter of 2024 in connection with the restructuring of BOLI in the previous quarter, and (iii) maturities, sales, calls and paydowns of investment securities totaling $26.9 million. These proceeds were partially offset by a net increase in loans originated for investment of $162.7 million and purchases of investment securities totaling $66.4 million. See the 2023 Form 10-K for more information on the restructuring of BOLI.

In the three months ended March 31, 2024, net cash provided by financing activities was $48.3 million. These activities included (i) net proceeds from advances from the FHLB of $70.0 million, and (ii) an increase in total demand, savings and money market deposit balances of $35.4 million. These proceeds were partially offset by: (i) a net decrease of $52.0 million in time deposits, and (ii) $3.0 million of dividends declared and paid by the Company in the first three months ended March 31, 2024. See “-Capital Resources and Liquidity Management” for more details on changes in FHLB advances in the first three months ended March 31, 2024.

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.

(in thousands, except percentages)

(1) Total loans, gross is the principal balance of outstanding loans, including loans held for investment, loans held for sale at the lower of cost or fair value, and mortgage loans held for sale, net of unamortized deferred nonrefundable loan origination fees and loan origination costs, and unamortized premiums paid on purchased loans, excluding the allowance credit loan losses. In the fourth quarter of 2023, the Company transferred an aggregate of $401 million in Houston-based CRE loans held for investment to the loans held for sale category, and recognized a valuation allowance of $35.5 million as a result of the fair value adjustment of these loans. At March 31, 2024 and December 31, 2023, there were $48.9 million and $62.4 million, respectively, in mortgage loans held for sale carried at fair value in connection with the Company’s mortgage banking activities.

(2) See Note 5 of our audited consolidated financial statements included in the 2023 Form 10-K and our unaudited interim consolidated financial statements included in this Form 10-Q for more details on our credit loss estimates.

(3) Total loans, net is the principal balance of outstanding loans, including loans held for investment, loans held for sale carried at the lower of cost or fair value, and mortgage loans held for sale, net of unamortized deferred nonrefundable loan origination fees and loan origination costs, and unamortized premiums paid on purchased loans, excluding the allowance for credit losses.

The table below summarizes the composition of our loans held for investment by type of loan as of the end of each period presented. International loans include 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)

(1) As of March 31, 2024 and December 31, 2023, includes $57.4 million and $56.5 million, respectively, in commercial loans and leases originated under a white-label equipment financing solution launched in the second quarter of 2022.

(2) Includes customers’ overdraft balances totaling $1.8 million and $2.6 million as of March 31, 2024 and December 31, 2023, respectively.

(3) Includes indirect lending loans purchased with an outstanding balance of $163.3 million and $210.9 million at March 31, 2024 and December 31, 2023, respectively.

(4) Secured by real estate properties located in the U.S.

(5) International customers’ overdraft balances were de minimis at each of the dates presented.

The composition of our CRE loan portfolio held for investment by industry segment at March 31, 2024 and December 31, 2023 is depicted in the following table:

(in thousands)

(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 primarily dedicated to retail, where the primary source of repayment is derived from the rental income generated from the use of the property by its tenants.

(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 $223 million at March 31, 2024 and $217.0 million at December 31, 2023.

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)

(1) In the fourth quarter of 2023, the Company transferred an aggregate of $401 million in Houston-based CRE loans held for investment to the loans held for sale category, and recognized a valuation allowance of $35.5 million as a result of the fair value adjustment of these loans. The Company subsequently sold these loans in the first quarter of 2024 and there was no material impact to the Company’s results of operations as a result of this transaction.

(2) In the first quarter of 2024, there were no significant transfers of single-family residential loans from the loans held for sale to the loans held for investment category. See 2023 Form 10-K on transfer activities in 2023.

(3) Loans held for sale in connection with Amerant Mortgage’s ongoing business.

(4) Remained current and in accrual status at each of the periods shown.

At March 31, 2024 and December 31, 2023, there were $48.9 million and $26.2 million, respectively, of mortgage loans held for sale carried at their estimated fair value.

As of December 31, 2023, the Company had $365.2 million in loans held for sale carried at the lower of cost or fair value, which were previously recorded as loans held for investment. In the fourth quarter of 2023, the Company transferred an aggregate of $401 million in Houston-based CRE loans held for investment to the loans held for sale category, and recognized a valuation allowance of $35.5 million as a result of the fair value adjustment of these loans. The Company sold these loans in the first quarter of 2024 and there was no material impact to the Company’s results of operations as result of this transaction.

As of March 31, 2024, total loans held for investment were $7.0 billion, up $84.0 million, or 1.2%, compared to $6.9 billion at December 31, 2023. Domestic loans held for investment increased $126.4 million, or 1.9%, as of March 31, 2024, compared to December 31, 2023. The increase in total domestic loans held for investment includes net increases of $88.7 million, or 6.1%, $24.7 million, or 1.7%, and $18.6 million, or 1.6%, and in commercial loans, domestic single-family residential loans and owner occupied loans, respectively. The increase in domestic loans held for investment in the first quarter of 2024, includes $41.7 million in connection with a commercial loan relationship formerly domiciled outside the US. These increases were partially offset by a decrease of $53.5 million, or 13.7%, in domestic consumer loans as the Company discontinued the purchases of indirect consumer loans in 2023 and such indirect lending portfolio is set to runoff over time.

In the three months ended March 31, 2024, the Company has added approximately $62 million in single-family residential and construction loans through Amerant Mortgage, which includes loans originated and purchased from different channels.

Loans to international customers, primarily from Venezuela and other customers in Latin America decreased $42.4 million, or 48.4%, in the three months ended March 31, 2024, mainly driven by $41.7 million in connection with a commercial loan relationship formerly domiciled outside the US, and paydowns totaling $0.6 million to existing single family residential loans.

As of March 31, 2024, loans under syndication facilities, included in loans held for investment, were $261.0 million, a decrease of $10.8 million, or 4.0%, compared to $271.8 million at December 31, 2023. This decrease was mainly driven by $35.7 million payoffs of Shared National Credit Facilities (“SNC”) partially offset by a net increase of $25.4 million in club deals. At March 31, 2024 and December 31, 2023, loans under SNC facilities held for investment were $51 million and $87 million, respectively. As of March 31, 2024, syndicated loans that financed highly leveraged transactions were $0.7 million, or 0.01%, of total loans, compared to $5.5 million, or 0.1%, of total loans as of December 31, 2023.

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, and bear fixed or variable rates of interest based upon different market benchmarks plus a spread.

(in thousands, except percentages)

(1) Consists of outstanding principal amounts, net of collateral of cash, cash equivalents or other financial instruments totaling $7.4 million and $7.2 million as of March 31, 2024 and December 31, 2023, respectively.

(2) Includes mortgage loans for single-family residential properties located in the U.S. totaling $37.1 million and $37.7 million as of March 31, 2024 and December 31, 2023, respectively.

The maturities of our outstanding international loans were:

(in thousands)

79

Loan Quality

Allocation of Allowance for Credit Losses

In the following table, we present the allocation of the ACL 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 expected credit losses to be collected throughout the life of the loans, at the reported dates, derived from historical events, current conditions and reasonable and supportable forecasts at the dates reported. Our allowance for credit losses is established using estimates and judgments, which consider the views of our regulators in their periodic examinations. Re-evaluation of the ACL estimate in future periods, in light of changes in composition and characteristics of the loan portfolio, changes in the reasonable and supportable forecast and other factors then prevailing may result in material changes in the amount of the ACL and credit loss expense in those future periods. We also show the percentage of each loan class, which includes loans in nonaccrual status.

(in thousands, except percentages)

(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.

The ACL was determined utilizing a reasonable and supportable forecast period. The ACL was determined using a weighted-average of various macroeconomic scenarios provided by a third-party, and incorporated qualitative components. There have been no material changes in our policies and methodology to estimate the ACL in the three months ended March 31, 2024.

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 and other repossessed assets, at the dates presented. Non-performing loans consist of: (i) nonaccrual loans where the accrual of interest has been discontinued, and (ii) accruing loans 90 days or more contractually past due as to interest or principal.

(in thousands)

(1) Loans past due 90 days or more but still accruing.

The following table presents the activity of non-performing assets by type of loan in the three months ended March 31, 2024:

(in thousands)

We recognized no interest income on non accrual loans during the three months ended March 31, 2024 and 2023.

The Company’s loans by credit quality indicators are summarized in the following table. We have no purchased-credit-impaired loans.

(in thousands)

(1) There are no loans categorized as a “Loss” as of the dates presented.

Classified Loans. Classified loans includes substandard and doubtful loans. For more information on the activity of Classified loans in the first quarter of 2024, please refer to non-performing assets discussion above. All nonaccrual loans are classified as Substandard.

Special Mention Loans. Special mention loans as of March 31, 2024 totaled $103.8 million, an increase of $57.9 million, or 125.8%, from $46.0 million as of December 31, 2023. This increase was primarily driven by an aggregate of $60.6 million in downgrades, including: (i) one commercial relationship in Florida totaling $32.4 million in the healthcare industry, and (ii) $28.4 million in Texas consisting of a $15.4 million relationship in the healthcare industry, an $8.2 million relationship in the car dealer industry, and $4.7 million to a borrower in the machinery manufacturing industry. These increases were offset by $2.9 million in payoffs to existing special mention loans including $2.6 million paid down to a borrowing relationship in the seafood wholesale industry. All special mention loans remained current at March 31, 2024, with the exception of $8.2 million being less than sixty days past due.

Potential problem loans, which are accruing loans classified as substandard and are less than 90 days past due, at March 31, 2024 and December 31, 2023, are as follows:

(in thousands)

(1) Corresponds to both domestic and international single-family residential loans.

Securities

The following table sets forth the book value and percentage of each category of securities at March 31, 2024 and December 31, 2023. The book value for debt securities classified as available for sale and equity securities with readily determinable fair value not held for trading represents fair value. The book value for debt securities classified as held to maturity represents amortized cost less ACL if required. The Company determined that an ACL on its debt securities available for sale as of March 31, 2024 and December 31, 2023 was not required.

(in thousands, except percentages)

(1) As of March 31, 2024 and December 31, 2023 corporate debt includes $10.4 million and $10.5 million, respectively, of debt securities issued by foreign corporate entities. The securities’ issuers were from Canada in two different sectors at March 31, 2024, and at December 31, 2023. 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 March 31, 2024 and December 31, 2023, debt securities in the financial services sector issued by domestic corporate entities both represent 1.9% of our total assets.

(3) As of March 31, 2024 and December 31, 2023, includes $130.5 million and $127.2 million, respectively, in subordinated debt securities issued by financial institutions. Additionally, as of March 31, 2024 and December 31, 2023, there were $60.1 million and $59.6 million in unsecured senior notes issued by financial institutions.

(4) Includes securities issued by the U.S. government or U.S. government sponsored agencies.

(5) In 2023, the Company purchased an investment in an open-end fund incorporated in the U.S with an original cost of $2.5 million. The Fund's objective is to provide a high level of current income consistent with the preservation of capital and investments deemed to be qualified under the Community Reinvestment Act.

(6) 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 March 31, 2024, total securities increased $81.6 million, or 5.5%, to $1.58 billion compared to $1.50 billion at December 31, 2023. The increase in the three months ended March 31, 2024 was mainly driven by purchases of debt securities held for sale of $66.4 million. This increase was partially offset by: (i) maturities, sales, calls and pay downs, totaling $26.9 million, and (ii) net pre-tax unrealized holding losses, on debt securities available for sale of $6.9 million primarily attributable to changes in market interest rates during the period.

Debt securities available for sale had net unrealized holding losses of $105.8 million and net unrealized holding gains of $1.8 million at March 31, 2024, compared to December 31, 2023 when net unrealized holding losses were $100.3 million and net unrealized holding gains were $3.2 million. During the three months ended March 31, 2024, the Company recorded net after-tax unrealized holding losses of $5.1 million which are included in accumulated other comprehensive loss for the period. This was attributable to changes in market interest rates during the period. The Company does not intend to sell these debt securities and it is more likely than not that it will not be required to sell the securities before their anticipated recovery. The Company believes these securities are not credit-impaired because the change in fair value is attributable to changes in interest rates and investment securities markets, generally, and not credit quality. As a result, the Company did not record an ACL on these securities as of March 31, 2024 and December 31, 2023.

The Company considers that all debt securities held to maturity issued or sponsored by the U.S. government are considered to be risk-free as they have the backing of the U.S. government. The Company considers there are not current expected credit losses on these securities and, therefore, did not record an ACL on any of its debt securities held to maturity as of March 31, 2024 nor as of December 31, 2023. The Company monitors the credit quality of held to maturity securities through the use of credit ratings. Credit ratings are monitored by the Company on at least a quarterly basis. As of March 31, 2024 and December 31, 2023, all held to maturity securities held by the Company were rated investment grade.

The following tables set forth the book value, scheduled maturities and weighted average yields for our securities portfolio at March 31, 2024 and December 31, 2023. Similar to the table above, the book value for securities available for sale and equity securities with readily determinable fair value not held for trading is equal to fair market value and the book value for debt securities held to maturity is equal to amortized cost less an ACL if required.

(in thousands, except percentages)

86

(in thousands, except percentages)

The investment portfolio’s weighted average effective duration increased to 5.2 years at March 31, 2024 compared to 5.0 years at December 31, 2023, as the model anticipates slower MBS principal prepayments due to higher market rates.

Liabilities

Total liabilities were $9.08 billion at March 31, 2024, an increase of $99.4 million, or 1.1%, compared to $9.0 billion at December 31, 2023. This was primarily driven by an increase of (i) $70.0 million, or 10.9%, in advances from the FHLB and, (ii) $46.8 million or 28.5% in accounts payable, accrued liabilities and other liabilities which includes an increase of $50.4 million in securities purchased pending settlement at the end of the quarter. These increases were partially offset by a net decrease of $16.6 million, or 0.2%, in total deposits, mainly due to a decrease in time deposits and noninterest bearing demand deposits. *See “*Capital Resources and Liquidity Management” and “Deposits” for more details on the changes in advances from the FHLB and total deposits.

Deposits

We continue with our efforts in growing our deposits. Our efforts include the additions of new team members to our business development teams across South Florida, and the opening of new banking centers in various locations in Florida in the first three months of 2024, and in April 2024 as well. *See “*Our Company- Business Developments” for additional information.

Total deposits were $7.88 billion at March 31, 2024, a decrease of $16.6 million, or 0.2%, compared to December 31, 2023. The decrease in deposits in the three months ended March 31, 2024 was mainly due to: (i) a net decrease of $52.0 million, or 2.3%, in time deposits and (ii) $29.6 million or 2.1% in noninterest bearing demand deposits. The decreases were partially offset mainly by an increase of $58.5 million or 2.3% in interest bearing deposits. Organic deposit growth during the quarter ended March 31, 2024 compared to December 31, 2023 was $331.8 million, partially offsetting a reduction in institutional deposits of $262 million, as well as a decrease of $86.4 million in brokered deposits.

The $52.0 million, or 2.3%, net decrease in time deposits includes a decrease of $69.3 million, or 9.6% in brokered time deposits, partially offset by an increase of $17.2 million, or 1.1%, in customer CDs.

The $58.5 million, or 2.3% increase in interest bearing demand deposits was primarily due to an increase in international deposits from businesses during the period.

As of March 31, 2024 total brokered deposits were $650.4 million, a decrease of $86.4 million, or 11.7%, compared to $736.9 million at December 31, 2023.

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 period.

(in thousands, except percentages)

(1) Includes brokered deposits of $650.4 million and $736.9 million at March 31, 2024 and December 31, 2023, respectively.

(2) Based upon the diligence we customarily perform to "know our customers" for anti-money laundering, OFAC and sanctions purposes, we believe that the U.S. economic embargo on certain Venezuelan persons will not adversely affect our Venezuelan customer relationships, generally.

(3) Our other foreign deposits do not include deposits from Venezuelan resident customers.

Our domestic deposits decreased $141.4 million, or 2.6%, in the three months ended March 31, 2024, primarily driven by decreases of: (i) $69.3 million in domestic brokered time deposits; (ii) $56.6 million in domestic noninterest bearing deposits; (iii) $18.9 million in domestic interest bearing demand transaction accounts, and (iv) $14.4 million in customer time deposits. These decreases were partially offset by an increase of $17.8 million in domestic savings and money market transaction accounts.

During the three months ended March 31, 2024, total foreign deposits increased $124.7 million, or 5.1%, primarily driven by an increase of $117.5 million, or 6.3% in deposits from customers domiciled in Venezuela, mostly in interest-bearing accounts and time deposits. There was also an increase of $7.2 million, or 1.2%, in deposits from countries other than Venezuela.

Core Deposits

Our core deposits were $5.63 billion and $5.60 billion as of March 31, 2024 and December 31, 2023, respectively. Core deposits represented 71.5% and 70.9% of our total deposits at those dates, respectively. The increase of $35.4 million, or 0.6%, in core deposits in the three months ended March 31, 2024 was mainly driven by increases in interest bearing demand deposits and savings and money market deposits. We define “core deposits” as total deposits excluding all time deposits.

Brokered Deposits

We utilize brokered deposits primarily as an asset/liability management tool. As of March 31, 2024, we had $650.4 million in brokered deposits, which represented 8.3% of our total deposits at that date (9.3% as of December 31, 2023). As of March 31, 2024, brokered deposits decreased $86.4 million, or 11.7%, compared to $736.9 million as of December 31, 2023, mainly due to maturities of brokered time deposits. As of March 31, 2024 and December 31, 2023, brokered deposits included time deposits of $650.3 million and $719.5 million, respectively, and brokered interest bearing demand and money market deposits of $0.2 million and $17.4 million, respectively. The Company has not historically sold brokered CDs in individual denominations over $100,000.

Large Fund Providers

Large fund providers consists of third party relationships with balances over $20 million. At March 31, 2024 and December 31, 2023, our large fund providers, included 17 and 19 deposit relationships, respectively, with total balances of $1.2 billion and $1.1 billion, respectively. The increase in balances from large fund providers in the three months ended March 31, 2024 was mainly driven by the Company’s continued focus on depository relationships.

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 March 31, 2024 and December 31, 2023:

(in thousands, except percentages)

90

Short-Term Borrowings

In addition to deposits, we use short-term borrowings from time to time, such as advances from the FHLB and borrowings 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.

There were no outstanding short-term borrowings as of March 31, 2024. Short-term borrowings outstanding at December 31, 2023 matured in January 2024. There were no other short-term borrowings outstanding in the three months ended March 31, 2024. All of our outstanding short-term borrowings at December 31, 2023 corresponded to advances from the FHLB. There were no other borrowings or repurchase agreements outstanding at March 31, 2024 and December 31, 2023.

The following table sets forth information about the outstanding amounts of our short-term borrowings at the close of, and for the year ended December 31, 2023.

(in thousands, except percentages)

91

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:

(in thousands, except percentages and per share data)

(1) In the three month periods ended March 31, 2024 and 2023, potential dilutive instruments consisted of unvested shares of restricted stock, restricted stock units and performance share units. See Note 13 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 months ended March 31, 2024 and 2023.

During the three months ended March 31, 2024, basic and diluted earnings per share decreased compared to same period one year ago, primarily driven by lower net income earned.

Capital Resources and Liquidity Management

Capital Resources

Stockholders’ equity is influenced primarily by earnings, dividends, if any, and changes in accumulated other comprehensive income or loss (AOCI/AOCL) caused primarily by fluctuations in unrealized holding gains or losses, net of taxes, on debt securities available for sale and derivative instruments. AOCI or AOCL are not included in stockholders’ equity for purposes of determining our capital for bank regulatory purposes.

Total stockholders’ equity was $738.1 million as of March 31, 2024, an increase of $2.0 million, or 0.3%, compared to $736.1 million as of December 31, 2023. This increase was primarily driven by a net income of $10.6 million in the first three months of 2024. This increase was partially offset by: (i) after-tax net unrealized holding losses of $5.1 million primarily from the change in the market value of debt securities available for sale and (ii) $3.0 million of dividends declared and paid by the Company in the three months of 2024.

Common Stock Transactions

There were no repurchases of the Company’s Class A common stock in the first quarter of 2024. For more information about the Company’s repurchase programs, see Note 18 to the Company’s consolidated financial statements on the 2023 Form 10-K.

Dividends.

Set forth below are the details of dividends declared and paid by the Company for the first three months ended March 31, 2024:

Liquidity Management

We manage our liquidity based on several 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 readily convertible into cash without undue loss, the characteristics and maturities of our assets when compared to the characteristics of our liabilities and other factors.

Liquidity risk management is a relevant element of our asset/liability management. Our contingency funding plan is constantly monitored by our Assets and Liabilities Committee and serves as the basis to identify our liquidity needs. The contingency funding plan models several liquidity stress scenarios to evaluate different potential liquidity outflows or funding gaps resulting from economic disruptions and volatility in the financial markets, among other factors.

Customer deposits have been our principal source of funding, supplemented by our investment securities portfolio, our shot-term and long-term borrowings as well as loan repayments and amortizations. The Company’s liquidity position includes cash and cash equivalents of $659.7 million at March 31, 2024, compared to $321.9 million at December 31, 2023.

At March 31, 2024 and December 31, 2023, the Company had $715.0 million and $645.0 million, respectively, of outstanding advances from the FHLB. At March 31, 2024 and December 31, 2023, we had an additional $2.2 billion of remaining credit availability with the FHLB, and $1.9 billion of FHLB borrowing capacity. This additional borrowing capacity is determined by the FHLB. In the three months ended March 31, 2024, the Company repaid $337.5 million in advances from the FHLB, and borrowed $407.5 million from this source. In the three months ended March 31, 2024, the Company had no gains or losses on the repayments of the advances from the FHLB. These repayments are part of the Company’s asset/liability management strategies.

There were no other borrowings as of March 31, 2024 and December 31, 2023.

We also have available uncommitted federal funds lines with several banks.We had no outstanding borrowings under uncommitted federal funds lines with banks at March 31, 2024 and December 31, 2023.

Holding Company

We are a corporation separate and apart from the Bank and, therefore, must provide for our own liquidity. Historically, our main source of funding has been dividends declared and paid to us by the Bank. The Company is 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 mainly at the Bank of $58.3 million as of March 31, 2024 and $46.8 million as of December 31, 2023, 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.

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/AOCL. Management believes that these limitations will not affect the Company’s ability to meet its ongoing short-term cash obligations. *See “*Supervision and Regulation” in the 2023 Form 10-K.

In December 2023, the Board of Directors of the Bank approved the payment of cash dividend of $20 million by the Bank to the Company. The Company received this dividend from the Bank in the first quarter of 2024.

Based on our current outlook, we believe that net income, advances from the FHLB, available other borrowings and any dividends paid to us by the Bank will be sufficient to fund liquidity requirements for the foreseeable future.

Regulatory Capital Requirements

The Company’s consolidated regulatory capital amounts and ratios are presented in the following table:

(in thousands, except percentages)

94

The Bank’s consolidated regulatory capital amounts and ratios are presented in the following table:

(in thousands, except percentages)

95

Off-Balance Sheet Arrangements

The following table shows the outstanding balance of financial instruments whose contracts represent off-balance sheet credit risk 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 19 to our audited consolidated financial statements included in the 2023 Form 10-K.

(in thousands)

96

Contractual Obligations

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, certain binding agreements we have entered into for services including outsourcing of technology services, advertising and other services, and other borrowing arrangements which are not material to our liquidity needs. We currently anticipate that our available funds, credit facilities, and cash flows from operations will be sufficient to meet our operational cash needs for the foreseeable future. Other than the changes discussed herein, there have been no material changes to the contractual obligations previously disclosed in the 2023 Form 10-K.

In the three months ended March 31, 2024, the Company borrowed $0.4 billion in advances from the FHLB and repaid $0.3 billion of these borrowings.

In the three months ended March 31, 2024, total time deposits decreased $52.0 million, or 2.3%. *See “*Deposits” for additional information.

Critical Accounting Policies and Estimates

For our critical accounting policies and estimates disclosure, see the 2023 Form 10-K where such matters are disclosed for the Company’s latest fiscal year ended December 31, 2023.

Recently Issued Accounting Pronouncements. For a description of recently issued accounting pronouncements, see Note 1 to the Company’s audited consolidated financial statements in the 2023 Form 10-K.

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 effects 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 Board of Directors and monitored by management. See discussions below for material changes in our market risk exposure as compared to those discussed in our 2023 Form 10-K, Part II, Item 7A, “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:

(in thousands, except percentages)

(1) Represents the change in net interest income, and the percentage that change represents of the base 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.

Net interest income in the base scenario, decreased to approximately $350 million in the three months ended March 31, 2024 compared to $336.0 million as of December 31, 2023. This decrease is mainly due to higher cost of total deposits and borrowings. This was partially offset by: (i) loan production at higher rates; and (ii) the growth in the size of the balance sheet as total assets increased $101.4 million, or 1.0%, in the first three months of 2024 compared to December 31, 2023.

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:

(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.

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 Company 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 March 31, 2024 and December 31, 2023:

(in thousands)

(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.

The average duration of our investment portfolio increased to 5.2 years at March 31, 2024 compared to 5.0 years at December 31, 2023, as the model anticipates slower MBS principal prepayments due to the higher market rates. Additionally, the floating rate portfolio decreased to 12.9% at March 31, 2024 from 13.3% at December 31, 2023.

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 March 31, 2024. This information may not be indicative of our interest rate sensitivity position at other points in time.

(in thousands except percentages)

(1) “Loan held for investment-performing” excludes $30.3 million of non-performing loans (non-accrual loans and loans 90 days or more past-due and still accruing).

N/M Not meaningful

Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange 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 the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. The CEO and the CFO, with assistance from other members of management, have evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024, and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

Other than the changes described below in connection with the completed transition of our core data processing platform, our general ledger and transactional applications in the fourth quarter of 2023, there were no changes in the Company's 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 Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On November 4, 2021, we announced a new multi-year outsourcing agreement with Fidelity National Information Services (FIS) which includes the transition of our core data processing platform, other applications and in-house technology services to FIS. This transition to FIS was completed on November 6, 2023. During the quarter ended March 31, 2024, we updated our internal controls to incorporate third party vendor controls related to the core data processing platform, transactional applications and technology services into our framework.

For detailed information about certain risk factors that could materially affect our business, financial condition or future results see "Risk Factors" in Part I, Item 1A of the 2023 Form 10-K. Set forth below are material changes to our existing risk factors previously disclosed in the 2023 Form 10-K. Other than the risk factor set forth below, there have been no material changes to the risk factors previously disclosed in the 2023 Form 10-K.

The pending sale of our Houston banking operations may not be completed in accordance with expected plans or on the currently contemplated timeline, or at all, and the pending sale may be disruptive to the Company.

On April 16, 2024, the Bank, a wholly-owned subsidiary of the Company, entered into a Purchase and Assumption Agreement (the “Purchase Agreement”) with MidFirst Bank, a federally chartered savings association, based in Oklahoma City, Oklahoma (“MidFirst”) pursuant to which MidFirst will purchase certain assets and assume certain liabilities of the banking operations and six branches in the Houston, Texas metropolitan statistical area (the “Sale Transaction”).

The Sale Transaction is currently expected to close in the second half of 2024, subject to regulatory approval required by the Office of the Comptroller of the Currency and the timely satisfaction of customary closing conditions. If regulatory approval is not obtained or the conditions to the closing of the Sale Transaction are not timely satisfied or, where permissible, waived on a timely basis or at all, we may be unable to complete the Sale Transaction, or such completion may be delayed beyond our expected timeline.

Whether or not the Sale Transaction is completed, the announcement and pendency of the Sale Transaction may be disruptive to the Company and the Bank and may adversely affect the Company’s and the Bank’s business and may adversely affect current or prospective relationships with customers, employees, and vendor relationships, particularly in the Houston, Texas metropolitan statistical area. Uncertainties related to the Sale Transaction could divert the attention of management and other employees from the day-to-day operations in preparation for and during the completion of the Sale Transaction. If we are unable to effectively manage these risks, our business, financial condition, results of operations or prospects could be adversely affected.

If the Sale Transaction is delayed or not completed for any reason, including due to the inability to satisfy the closing conditions or due to the inability to obtain the necessary regulatory approval, investor confidence could decline, and we could face negative publicity and possible litigation. In addition, in the event of a failed transaction, we will have expended significant management resources in an effort to complete the Sale Transaction and will have incurred significant transaction costs. Accordingly, if the Sale Transaction is not completed on the terms set forth in the Purchase Agreement or at all, our business, results of operations, financial condition, cash flows and stock price may be adversely affected.