Amerant Bancorp Inc. (AMTB) FY 2023 MD&A

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Certain risks, uncertainties and other factors, including but not limited to those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this Form 10-K, may cause actual results to differ materially from those projected in the forward looking statements.

The emphasis of this discussion will be on changes in the year ended December 31, 2023 with respect to 2022. See our Annual Report on Form 10-K for the year ended December 31, 2022 for additional details on the Company’s financial condition and results of operations in 2022 and changes in the Company’s financial condition and results of operations from 2021 to 2022.

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 sixteen 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. See “Item1-Business” for recent developments.

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 FHLB advances 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”).

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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. See “Item 1- Business” for more details.

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 $4.5 million and $3.4 million in 2023 and 2022, respectively. Amerant Mortgage commenced operations in May 2021.

Noninterest Expense. Noninterest expenses generally increase as our business grows and whenever necessary to implement or enhance policies and procedures for regulatory compliance, and other purposes.

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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, (ix) losses on sale of assets, and (x) 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 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.

Contract termination costs represent estimated expenses to terminate contracts before the end of their terms, and are recognized when the Company terminates a contract in accordance with its terms, generally considered the time when the Company gives written notice to the counterparty within the notification period contractually established, or when Company determines that it no longer derives economic benefits from the contracts. Contract termination costs also include expenses associated with the abandonment of existing capitalized projects which are no longer expected to be completed as a result of a contract termination. Changes to initial estimated expenses to terminate contracts resulting from revisions to timing or the amount of estimated cash flows are recognized in the period of the changes.

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.

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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. In 2023, OREO and repossessed assets expense is presented separately in the Company’s consolidated statement of operations and comprehensive income (loss). In 2022, 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 (loss) income. We had no other repossessed assets in 2022.

Other operating expenses include community engagement, business development and other operational expenses. In addition, in 2023, other operating expense include an impairment charge of $2.0 million on an investment carried at cost and included as part of other assets, as well as other non-routine items. 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 2023 and 2022 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.

The table below shows a detail of non-routine noninterest expenses for the periods presented.

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(1)    Staff reduction costs consist of severance expenses related to organizational rationalization.

(2)    Contract termination and related costs associated with third party vendors resulting from the Company’s engagement of FIS.

(3) In 2023, includes an aggregate of $6.4 million of nonrecurrent expenses in connection with the engagement of FIS and, to a lesser extent, software expenses related to legacy applications running in parallel to new core banking applications. In 2022, includes: (i) $2.9 million resulting from the Company’s transition to our new technology provider; (ii) $0.2 million in connection with certain search and recruitment expenses; (iii) $0.1 million of costs associated with the subleasing of the New York office space, and (iv) an aggregate of $0.4 million in other non-routine expenses. In 2021, includes additional expenses of $1.5 million, including: (i) $0.8 million of expenses in connection with the “Clean-up Merger” and related transactions (See-Capital Resources for more information on the ‘Clean-up Merger”), and (ii) $0.7 million resulting from the Company’s transition to our new technology provider.

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(4) In 2023, includes expenses in connection with the disposition of fixed assets due to the write-off of in-development software.

(5) In 2023, includes expenses of $0.5 million ROU impairment in connection with the closure of a branch in Houston, Texas and $0.9 million of accelerated amortization of leasehold improvements and $0.6 million of right-of-use or “ROU” asset impairment associated with the closure of a branch in Miami, Florida. In 2022, includes $1.6 million of ROU asset impairment associated with the closure of a branch in Pembroke Pines, Florida in 2022. In 2021, includes $0.8 million of ROU asset impairment associated with the lease of the NY loan production office. In addition, In 2022 and 2021, includes lease termination expenses associated with the closure of a branch in Fort Lauderdale, Florida in 2021.

(6)    In 2023, includes: (i) a fair value adjustment of $35.5 million related to an aggregate of $401 million in Houston-based CRE loans held for sale which are carried at the lower of cost or fair value, and (ii) a loss on sale of $2.0 million related to a New York-based CRE loan previously carried at the lower of fair value or cost. In addition, in 2023, includes a fair value adjustment of $5.6 million related to a New York-based CRE loan held for sale carried at the lower of cost or fair value. In 2022, amount represents the fair value adjustment related to the New York loan portfolio held for sale carried at the lower of cost or fair value.

(7)    In 2023, amount represents the loss on sale of repossessed assets in connection with our equipment-financing activities. In 2022, amount represents the fair value adjustment related to one OREO property in New York.

(8)     In 2023, the Company completed a restructuring of its bank-owned life insurance (“BOLI”) program. This was executed through a combination of a 1035 exchange and a surrender and reinvestment into a higher-yielding general account with a new investment grade insurance carrier. This transaction allowed for higher team member participation through an enhanced split-dollar plan. Estimated improved yields resulting from the enhancement have an earn-back period of approximately 2 years. In 2023, we recorded total additional expenses and charges of $4.6 million in connection with this transaction, including: (i) a reduction of $0.7 million to the cash surrender value of BOLI; (ii) transaction costs of $1.1 million, and (iii) income tax expense of $2.8 million.

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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.

On January 1, 2022, the Company adopted ASC Topic 326 - Financial Instruments - Credit Losses, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. See Note 1 to the audited consolidated financial statements in this Form 10-K for more details on the adoption of CECL by the Company. We review and update our allowance for expected credit losses periodically to calibrate loss estimation models based on our loan volumes, and credit and economic conditions in our markets. The models may differ among our loan segments to reflect their different asset types, and includes qualitative factors, which are updated periodically based on the type of loan 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 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.

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Summary Results

Results for the year ended December 31, 2023 were as follows:

•Total assets were $9.7 billion at December 31, 2023, up $588.5 million, or 6.4%, compared to $9.1 billion at December 31, 2022.

•Total gross loans, which include loans held for sale, were $7.3 billion at December 31, 2023, up $345.3 million, or 5.0%, compared to $6.9 billion at December 31, 2022.

•Cash and cash equivalents were $321.9 million at December 31, 2023, up $31.3 million, or, 10.8%, compared to $290.6 million at December 31, 2022.

•Total deposits were $7.9 billion at December 31, 2023, up $850.7 million, or 12.1%, compared to December 31, 2022.

•Total advances from Federal Home Loan Bank (“FHLB”) were $645.0 million as of December 31, 2023, down $261.5 million, or 28.8%, compared to $906.5 million as of December 31, 2022.

•Average yield on loans in 2023 was 6.78%, up compared to 4.92% in 2022.

•Total non-performing assets were $54.6 million as of December 31, 2023, up $17.0 million, or 45%, compared to $37.6 million as of December 31, 2022.

•Allowance for credit losses (“ACL”) was $95.5 million as of December 31, 2023 up $12.0 million, or 14.4%, compared to $83.5 million as of December 31, 2022.

•Core deposits were $5.6 billion, at December 31, 2023, up $281.8 million, or 5.3%, compared to $5.3 billion at December 31, 2022.

•Average cost of total deposits in 2023 was 2.47% compared to 0.80% in 2022.

•Loan to deposit ratio was 92.0% as of December 31, 2023 compared to 98.2% as of December 31, 2022.

•Assets Under Management and custody (“AUM”) totaled $2.3 billion as of December 31, 2023 an increase of $293.5 million, or 14.7%, compared to $2.0 billion as of December 31, 2022.

•Pre-provision net revenue (“PPNR”)1 was $104.3 million in 2023, an increase of $10.4 million, or 11.1%, compared to $93.9 million in 2022. Core PPNR1 was $142.0 million in 2023, an increase of $36.5 million, or 34.6%, compared to $105.5 million in 2022.

•Net interest margin was 3.76% in 2023, up 23 basis points from 3.53% in 2022.

•Net interest income was $326.5 million in 2023, up $59.8 million, or 22.4%, from $266.7 million in 2022.

•The Company recorded a provision for credit losses of $61.3 million in 2023, compared to $13.9 million in 2022.

•Noninterest income was $87.5 million in 2023, up $20.2 million, or 30.1%, from $67.3 million in 2022.

•Noninterest expense was $311.4 million in 2023, up $69.9 million, or 29.0%, from $241.4 million in 2022.

•The efficiency ratio was 75.21% for the full-year 2023 compared to 72.29% for the full-year 2022.

•Return on average assets (“ROA”) was 0.34% for the full-year 2023 compared to 0.77% for the full-year 2022.

•Return on average equity (“ROE”) was 4.39% for the full-year 2023 compared to 8.45% for the full-year 2022.

•Accumulated Other Comprehensive Loss (“AOCL) was $70.8 million as of December 31, 2023, an improvement of $9.8 million, or 12.2%, compared to $80.6 million as of December 31, 2022.

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

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Results of Operations - Comparison of Results of Operations for the Years Ended December 31, 2023 and 2022

Net income

The table below sets forth certain results of operations data for the years ended December 31, 2023, 2022 and 2021:

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(1)    At December 31, 2023, 2022 and 2021, potential dilutive instruments consist of unvested shares of restricted stock, restricted stock units and performance stock units. See Note 23 to our audited annual consolidated financial statements in this Form 10-K for details on the dilutive effects of the issuance of restricted stock, restricted stock units and performance stock units on earnings per share in 2023, 2022 and 2021.

2023 compared to 2022

In 2023, net income attributable to the Company was $32.5 million, or $0.96 per diluted share, compared to net income of $63.3 million, or $1.85 per diluted share, in 2022. The decrease of $30.8 million, or 48.7% , in 2023 compared to 2022 was primarily due to higher non-interest expense and higher provision for credit losses. The decrease was partially offset by higher net interest income and higher noninterest income.

In 2023 and 2022, net income attributable to the Company excludes a net loss of $1.7 million and $1.3 million, respectively, attributable to the non-controlling interest of Amerant Mortgage. At December 31, 2022, the Company had an ownership interest of 80% in Amerant Mortgage which then increased to 100% in the fourth quarter of 2023. This increase in ownership had no material impact to the Company’s results of operations in the year ended December 31, 2023. In connection with the change in ownership interest, which brought the noncontrollling interest in the equity of Amerant Mortgage to zero, the Company derecognized the equity attributable to noncontrolling interest of $3.8 million at December 31, 2023, with a corresponding reduction to additional paid-in capital. See “Item 1 - Business Developments” in this Form 10-K for more details on these changes with respect to our subsidiary Amerant Mortgage.

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Net interest income was $326.5 million in 2023, an increase of $59.8 million, or 22.4%, from $266.7 million in 2022. This was primarily due to higher yields and higher average balances of earnings assets. These results were partially offset by higher cost and average balances of deposits and other interest-bearing liabilities. See “-Net interest Income” for more details.

Noninterest income was $87.5 million in 2023, an increase of $20.2 million, or 30.1%, compared to $67.3 million in 2022. These results were mainly due to: (i) higher net gains on the early extinguishment of advances from the FHLB; (ii) higher other noninterest income; (iii) higher cards and trade finance servicing fees; and (iv) higher deposits and services fees. These increases were partially offset by: (i) net losses on securities totaling $11.0 million in 2023, mainly driven by losses on the sale of certain debt securities available for sale and marketable equity securities not held for trading, compared to $3.7 million in 2022 (ii) lower loan-level derivative income, and (iii) lower brokerage, advisory and fiduciary fees. See “-Noninterest Income” for more details.

Noninterest expense was $311.4 million in 2023, an increase of $69.9 million, or 29.0%, from $241.4 million in 2022. These results were mainly due to: (i) higher losses on loans held for sale which include a valuation expense of $35.5 million related to the transfer of the Houston CRE loan portfolio from loans held for investment to loans held for sale, and a total loss of $7.6 million, including a $5.6 million valuation expense and a $2.0 million loss on sale, related to a New York-based CRE loan held for sale; (ii) higher professional and other service fees; (iii) higher other operating expenses; (iv) higher salary and employee benefits; (v) higher FDIC assessments and insurance expenses; (vi) higher advertising expenses; (vii) higher depreciation and amortization expense, and (viii) higher telecommunication and data processing expenses. These increases were partially offset by: (i) lower loan-level derivative expenses; (ii) lower contract termination costs; and (iii) other real estate owned and repossessed assets expense. See “-Noninterest Expense” for more details.

In 2023, noninterest expense included non-routine items of $66.2 million, compared to $19.0 million in 2022. Non-routine items in noninterest expense include restructuring costs of $15.6 million and $15.4 million in 2023 and 2022, respectively. Other non-routine items in noninterest expense in 2023 included: (i) losses on loans held for sale which includes a valuation expense of $35.5 million related to the transfer of the Houston CRE loan portfolio from loans held for investment to loans held for sale and a total loss of $7.6 million, including a $5.6 million valuation expense and a $2.0 million loss on sale, related to a New York-based CRE loan held for sale; (ii) a $2.6 million loss on sale of repossessed assets in connection with our equipment-financing activities; (iii) a $2.0 million impairment charge on an investment carried at cost and included as part of other assets; (iv) a $1.7 million goodwill and intangible impairment charge in 2023; and (iv) $1.1 million in expenses related to the enhancement of BOLI during the fourth quarter of 2023. In 2022, other non-routine items in noninterest expense include: (i) $3.4 million valuation expense related to the fair value adjustment of an OREO property in New York, and (ii) $0.2 million valuation expense related to the change in fair value of New York loans held for sale. See “Our Company - Primary Factors Used to Evaluate Our Business” for detailed information on non-routine items in noninterest expense.

In 2023 and 2022, we incurred $14.4 million and $12.5 million, respectively, in total noninterest expenses related to Amerant Mortgage. These expenses included: (i) $10.7 million and $8.9 million in 2023 and 2022, respectively, related to salaries and employee benefits expenses and (ii) $3.7 million and $3.6 million in 2023 and 2022, respectively, related to mortgage lending costs, professional fees and other noninterest expenses. In addition, we had a goodwill impairment charge of $1.0 million related to Amerant Mortgage. As of December 31, 2023, Amerant Mortgage had 67 FTEs compared to 68 FTEs at December 31, 2022.

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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 years ended December 31, 2023, 2022 and 2021. The average balances for loans include both performing and nonperforming 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.

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(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 $90.0 million, $57.5 million and $101.1 million in the years ended December 31, 2023, 2022 and 2021, respectively. The average balance of total loans held for sale was $77.8 million, $117.6 million and $72.7 million in the years ended December 31, 2023, 2022 and 2021, respectively.

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(2)    Includes average non-performing loans of $34.3 million, $30.7 million and $90.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. Interest income that would have been recognized on outstanding non-performing loans at December 31, 2023, 2022 and 2021, was $4.9 million, $0.8 million and $6.2 million, 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 $118.5 million and $62.3 million in 2023 and 2022, respectively, and average net unrealized gains of $26.6 million in 2021.

(4)    Includes nontaxable securities with average balances of $17.8 million, $18.4 million and $46.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. The tax equivalent yield for these nontaxable securities was 4.83%, 3.00% and 1.76% for the years ended December 31, 2023, 2022 and 2021, respectively. In 2023, 2022 and 2021, the tax equivalent yield was calculated by assuming a 21% tax rate and dividing the actual yield by 0.79.

(5)    Includes nontaxable securities with average balances of $49.8 million, $43.6 million and $50.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. The tax equivalent yield for these nontaxable securities was 4.22%, 3.46% and 2.58% for the years ended December 31, 2023, 2022 and 2021, respectively. In 2023, 2022 and 2021, the tax equivalent yield was calculated 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 advance agreement require the Bank to maintain certain investment securities or loans as collateral for these advances.

(8)    Net interest margin is defined as net interest income divided by average interest-earning assets, which are loans, securities, deposits with banks and other financial assets, which yield interest or similar income.

(9) Calculated based upon the average balance of total noninterest bearing and interest bearing deposits.

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Interest Rates and Operating Interest Differential

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. In this table, we present for the periods indicated, the changes in interest income and the changes in interest expense attributable to the changes in interest rates and the changes in the volume of interest-earning assets and interest-bearing liabilities. For each category of assets and liabilities, information is provided on changes attributable to: (i) change in volume (change in volume multiplied by prior year rate); (ii) change in rate (change in rate multiplied by prior year volume); and (iii) change in both volume and rate which is allocated to rate. See “Risk Factors— Our profitability is subject to interest rate risk.”

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In March 2022, the Federal Reserve increased its benchmark interest rate by 25 basis points as a key tool to help reduce inflationary pressures. This first increase was followed by six additional increases in the Federal Reserve’s benchmark interest rates in 2022 (50 basis points in May 2022, 75 basis points in each June 2022, July 2022, September 2022 and November 2022, and 50 basis points in December 2022) which resulted in a total increase of 425 basis in 2022. In 2023, there were 4 additional increases in the Federal Reserve benchmark interest rate of 25 basis points each in February 2023, March 2023, May 2023 and July 2023, which resulted in a total increase of 100 basis points in 2023.The accumulated increase of 525 basis points in the Federal Reserve’s benchmark interest rates since the first quarter of 2022 contributed to the increase in net interest income the Company experienced in 2023.

In 2023, we had higher average balance of loans compared to the same period last year, which we attribute to our relationship-driven culture. In addition, our asset sensitive position enabled us to partially offset, via repricing of variable-rate loans, the incremental cost of deposits and other interest-bearing liabilities we recorded during 2023. See discussions further below for more details.

Net interest income

2023 compared to 2022

In 2023, net interest income was $326.5 million, an increase of $59.8 million, or 22.4%, from $266.7 million in 2022. This was mainly driven by: (i) an increase of 184 basis points in the yield on total interest earning assets; (ii) increases of $1.0 billion, or 17.5%, $91.5 million, or 39.5% and $41.8 million, or 21.7% in the average balance of loans, interest earnings deposit with banks, and debt securities held to maturity, respectively, and (iii) lower average balances of FHLB advances. The increase in net interest income was partially offset by: (i) higher cost of total deposits, FHLB advances and junior subordinated debentures; (ii) higher average balance of total deposits, primarily time and interest bearing demand deposits and; (iii) lower average balance of debt securities available for sale. The increase in average yields on interest earning assets includes the effect of the Federal Reserve’s actions to manage inflation in 2023, which consisted of raising its benchmark rate by a total of 100 basis points in 2023. Net interest margin was 3.76% in 2023, an increase of 23 basis points from 3.53% in 2022. See discussions further below for more details.

Interest Income. Total interest income was $548.6 million in 2023, an increase of $209.8 million, or 61.9% compared to $338.8 million in 2022. This was primarily driven by a 184 basis points increase in the average yield on total interest earning assets. In addition, there were increases of $1.0 billion, or 17.5%, $91.5 million, or 39.5% and $41.8 million, or 21.7% in the average balance of loans, interest earnings deposit with banks, and debt securities held to maturity, respectively. The increases were partially offset by a decrease of $59.6 million, or 5.4%, in the average balance of debt securities available for sale. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.

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Interest income on loans in 2023 was $475.4 million, an increase of $182.2 million, or 62.1%, compared to $293.2 million in 2022. This result was primarily due to (i) a 186 basis points increase in average yields, mainly attributable to higher market rates and $3.6 million additional interest income in connection with a loan recovery previously charged off; and (ii) an increase of $1.0 billion, or 17.5%, in the average balance of loans compared to 2022. The increase in the average balance of loans includes: (i) originations of CRE and owner-occupied loans, (ii) origination of commercial loans; (iii) originations and purchases of single-family residential and construction loans through Amerant Mortgage and; (iv) originations of consumer loans under a separate white label program. The increase in average balance of loans was partially offset by the decrease in higher yielding indirect consumer loans. See “-Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.

Interest income on debt securities available for sale was $43.1 million in 2023, an increase of $9.9 million, or 29.9%, compared to $33.2 million in 2022. This was mainly due to an increase of 111 basis points in average yields, primarily driven by higher market rates. This was partially offset by a decrease of $59.6 million, or 5.4%, in the average balance of these securities. The decline in the average balance was primarily due to decrease in carrying value due to market rates increasing throughout 2022 and 2023. In 2023, the average balance of accumulated net unrealized loss included in the carrying value of these securities was $118.5 million compared to $62.3 million in 2022. As of December 31, 2023, corporate debt securities comprised 21.4% of the available-for-sale portfolio, down from 26.5% at December 31, 2022. We continue with our strategy to insulate the investment portfolio from prepayment risk. As of December 31, 2023, floating rate investments represent 13.3% of our total investment portfolio compared to 13.2% at December 31, 2022. In addition, the overall duration slightly increased to 5.0 years at December 31, 2023 from 4.9 years at December 31, 2022, which was primarily due to lower than expected mortgage-backed securities prepayments. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.

Interest income on debt securities held to maturity was $8.0 million in 2023, an increase of $2.3 million, or 41.4%, compared to $5.7 million in 2022. This was mainly due to an increase of $41.8 million, or 21.7% in the average balance of these securities in 2023 compared to 2022. In addition, there was an increase of 48 basis points in average yields, primarily driven by higher market rates.

Interest Expense. Interest expense was $222.1 million in 2023, an increase of $150.0 million, or 208.0%, compared to $72.1 million in 2022. This was primarily due to: (i) higher cost of total deposits, FHLB advances and junior subordinated debentures. In addition, there was an increase of $1.1 billion, or 19.0% in the average balance of total interest bearing liabilities, mainly time deposits and interest bearing demand deposits, and subordinated notes as these were issued in March 2022.

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Interest expense on interest-bearing deposits was $183.7 million in 2023, an increase of $134.7 million or 274.6%, compared to $49.1 million in 2022. This increase was mainly driven by an increase of 202 basis points in the average rates paid on total interest-bearing deposits, and an increase of $1.2 billion, or 25.2%, 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 $56.7 million, or 256.3%, in 2023 compared to 2022. This was mainly driven by an increase of 214 basis points in the average cost of total time deposits. In addition, there was an increase of $739.9 million, or 55.4%, in the average balance of these deposits, including $437.7 million, and $313.5 million in customer certificate of deposits (“CDs”) and brokered time deposits, respectively. The increase in the average balance of time deposits was partially offset by a decline of $11.2 million in online CDs.

•Interest bearing checking and savings accounts. Interest expense on total interest bearing checking and savings accounts increased $78.0 million, or 289.6%, in 2023 compared to 2022, mainly due to an increase of 185 basis points in the average costs of these deposits. In addition, there was an increase of $481.7 million, or 13.7% in the average balance of total interest bearing checking and savings accounts in 2023 compared to 2022, mainly driven by: (i) higher average domestic personal accounts; (ii) new domestic deposits from escrow accounts, municipalities, and from domestic individuals and businesses; and (iii) increased reciprocal deposits in 2023. These increases in average balances were partially offset by a net decrease of $154.7 million, or 7.2%, in the average balance of international accounts, including a decrease of $217.5 million or 12.4% in international personal accounts, partially offset by an increase of $62.8 million, or 16.0%, in international commercial accounts.

Interest expense on FHLB advances increased $13.7 million, or 90.9%, in 2023 compared to 2022, mainly due to an increase of 192 basis points in the average rate paid on these borrowings. The increase was offset by a decrease of $106.4 million or 11.7%, in the average balance on this funding source. In 2023, the Company borrowed $2.0 billion and repaid $2.2 billion of advances from the FHLB, including early repayments. See "Capital Resources and Liquidity Management” for more details on the early repayment of advances from the FHLB.

Interest expense on junior subordinated debentures increased $1.3 million, or 43.4%, in 2023 compared to 2022, mainly driven by an increase of 205 basis points in the average rate paid on these instruments.

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Analysis of the Allowance for Credit Losses

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

______________

(1) Amounts reflect impact of the adoption of CECL effective January 1, 2022. See Note 1 to our audited annual consolidated financial statements in this Form 10-K for details on the adoption of the new accounting standard on estimating expected credit losses on financial instruments (CECL).

(2)    Amounts include total charge-offs related to international loans for the years ended December 31, 2023, 2021, 2020, 20219 of $3 thousand, $8 thousand, $0.3 million, and $5.1 million, respectively. There were no charge-offs related to international loans in 2022. Total recoveries related to international loans in the years ended December 31, 2023, 2022, 2021, 2020, 2019 were $5.1 million, $1.0 million, $0.9 million, $0.4 million, and $0.8 million, respectively.

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2023 compared to 2022

The Company recorded a provision for credit losses of $60.2 million in 2023, compared to $13.9 million in 2022. The $60.2 million provision for credit losses on loans includes $48.4 million in additional reserve requirements for loan charge-offs and credit quality, $4.1 million to account for loan growth and composition changes during the period, and $12.2 million to reflect macroeconomic conditions and loss factor updates. This provisions were offset by a release of $4.5 million related to the classification of the Houston CRE multifamily portfolio as held-for-sale as of December 31, 2023.

In 2023, total charge-offs totaled $59.9 million, an increase of $37.8 million, or 170.8% compared to $22.1 million in 2022. Charge-offs in 2023 included (i) $28.1 million related to multiple consumer loans, primarily purchased indirect consumer loans; (ii) $10.3 million related to one CRE New York-based multifamily loan; (iii) $7.0 million related to a transportation industry commercial loan relationship that was transferred to other repossessed assets in the first quarter of 2023 and subsequently sold in the second quarter of 2023; (iv) $8.0 million related to four commercial loans ranging between $1 million to $3 million; and (v) $6.5 million in connection with multiple smaller commercial and real estate loans. Charge-offs in 2023, were partially offset primarily by: (i) $5.1 million recovery from a commodity trader charged-off in 2017; (ii) a $3.1 million recovery from a Miami-based U.S. coffee trader (“the Coffee Trader”) charged-off in the previous year; (iii) $1.4 million recovery from purchased consumer loans; and the remaining $2.1 million due to smaller multiple recoveries. In 2022, charge-offs included: (i) $6.1 million related to two commercial nonaccrual loans paid off during the period, including $3.6 million related to the Coffee Trader, and $2.5 million related to other loans; (ii) $3.9 million related to a New York based non-owner occupied loan; (iii) $3.0 million related to multiple commercial loans, and (iv) an aggregate $9.1 million related to multiple consumer loans. In 2022, the Company changed its policy for charging off unsecured consumer loans when balances are past-due 90 days or more. Previously, the Company charged-off these loan types when balances were 120 days past due. The Company believes this change is in line with prevalent practices in the marketplace. As a result of the change in policy, charge-offs in 2022 include $3.4 million from this policy change. The ratio of net charge-offs over the average total loan portfolio held for investment was 0.69% in 2023 compared to 0.32% in 2022.

We 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.

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Noninterest Income

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

__________________

(1)     Income from interest rate swaps and other derivative transactions with customers. The Company incurred expenses related to derivative transactions with customers of $1.9 million, $8.1 million and $0.8 million in 2023, 2022 and 2021, respectively, which are included in noninterest expenses.

(2)    Changes in cash surrender value of BOLI are not taxable. In 2023, includes a charge of $0.7 million in connection with the enhancement/restructuring of BOLI in the fourth quarter of 2023.

(3) The Company sold its Coral Gables headquarters for $135.0 million, with an approximate carrying value of $69.9 million at the time of sale and transaction costs of $2.6 million. The Company leased-back the property for an 18-year term.

(4) Includes: (i) net loss of $10.8 million and $2.4 million in 2023 and 2022, respectively, and net gains of $4.3 million in 2021, in connection with the sale of debt securities available for sale; (ii) unrealized gains of $33 thousand in 2023 and unrealized losses of $1.3 million and $0.6 million in 2022 and 2021, respectively, related to the change in fair value of marketable equity securities not held for trading which are recorded in results of the period. Also, in 2023, the Company sold equity securities with readily available fair value not held for 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. Lastly, includes realized losses of $42 thousand on the sale of a mutual fund with a fair value of $23.4 million at the time of the sale in 2021.

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

(6)    Includes: (i) mortgage banking income of $4.5 million, $3.4 million and $1.7 million in 2023, 2022 and 2021, 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; and (ii) a gain of $3.8 million on the sale of PPP loans in 2021. 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.

N/M Means not meaningful

2023 compared to 2022

Total noninterest income increased $20.2 million, or 30.1%, in 2023 compared to 2022. These results were mainly due to: (i) higher net gains on the early extinguishment of advances from the FHLB; (ii) higher other noninterest income; (iii) higher cards and trade finance servicing fees, and (iv) higher deposits and services fees. These increases were partially offset by: (i) net losses on securities totaling $11.0 million in 2023, mainly driven by losses on the sale of certain debt securities available for sale and marketable equity securities not held for trading compared to $3.7 million in 2022 ; (ii) lower loan-level derivative income, and (iii) lower brokerage, advisory and fiduciary fees.

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In 2023, the Company recorded total net gains of $40.1 million on the early extinguishment of approximately $1.7 billion of FHLB advances. In 2022, the Company recorded total net gains of $10.7 million on the early extinguishment of approximately $705 million of FHLB advances.

Other noninterest income increased $3.6 million, or 66.1%, in 2023 compared to 2022, primarily driven by: (i) an increase of $1.2 million or 34.7% in mortgage banking income compared to 2022; (ii) rental income from operating leases of approximately $0.9 million in 2023; and (iii) an increase of $1.5 million in income from foreign currency exchange transactions with customers and other smaller sources of income.

Cards and trade finance servicing fees increased $0.8 million, or 34.8%, in 2023 compared to 2022, mainly driven by higher debit cards interchange fee income.

Deposits and service fees increased $0.8 million, or 4.2%, in 2023 compared to 2022, mainly driven by higher service charge fee income and higher wire transfer fees.

In May 2023, the Company sold a portion of its investment in a corporate debt security held for sale issued by a financial institution, to reduce single point exposure. The Company received proceeds of $0.8 million and realized a pre-tax loss of $1.2 million in connection with this transaction. Additionally, on March 27, 2023, the Company sold one corporate debt security held for sale issued by Signature Bank, N.A in an open market transaction, and realized a pretax loss on sale of approximately $9.5 million in connection with this transaction. See “Securities” for additional information.

Loan-level derivative income decreased $5.8 million, or 55.8%, in 2023 compared to 2022, mainly driven by a lower volume of interest rate swap transactions with clients.

Brokerage, advisory and fiduciary activity fees decreased $0.7 million, or 3.7%, in 2023 compared to 2022, primarily driven by: (i) lower brokerage fees as a result of lower equity trading volumes/commissions and (ii) lower fiduciary fees.

Our AUM totaled $2.3 billion at December 31, 2023, an increase of $293.5 million, or 14.7%, from $2.0 billion at December 31, 2022, primarily driven by increased market valuations.

In 2023, the Company completed a restructuring of its BOLI program. This was executed through a combination of a 1035 exchange and a surrender and reinvestment into higher-yielding general account with a new investment grade insurance carrier. This transaction allowed for higher team member participation through an enhanced split-dollar plan. Estimated improved yields resulting from the enhancement have an earn-back period of approximately 2 years. In the fourth quarter of 2023, we recorded total additional expenses and charges of $4.6 million in connection with this transaction, including: (i) a reduction of $0.7 million to the cash surrender value of BOLI; (ii) transaction costs of $1.1 million, and (iii) income tax expense of $2.8 million.

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Noninterest Expense

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

____________

(1)    Include severance expense of $4.0 million, $3.0 million and $3.6 million in 2023, 2022 and 2021, respectively. Staff reduction costs in 2023, 2022 and 2021 consist of severance expenses primarily related to organizational rationalization.

(2)    In 2023, includes $0.3 million in connection with the closure of a branch in Houston, Texas as well as an aggregate of $1.1 million related to ROU asset impairments in connection with the closure of two branches in 2023 (one branch in Miami, Florida and another branch in Houston, Texas). In 2022 and 2021, includes ROU asset impairment charges of $1.6 million and $0.8 million, respectively, in connection with the closure of a branch in Pembroke Pines, Florida in 2022, and the closure of our NY loan production office in 2021. In addition, in 2022 and 2021, includes lease termination expenses associated with the closure of a branch in Fort Lauderdale, Florida in 2021.

(3) Beginning in 2022, rental income associated with the subleasing of portions of the Company’s headquarters building is presented as a reduction to rent expense under lease agreements under occupancy and equipment cost (included as part of other noninterest income in 2021 in connection with the previously-owned headquarters building). In addition, in 2022, we had additional rental income in connection with the sublease of the NYC office space. Total rental income from subleases was $3.3 million and $2.9 million in 2022 and 2021, respectively.

(4) In 2023 and 2022, includes additional, nonrecurrent expenses of $5.8 million and $2.9 million, respectively, related to the engagement of FIS. Also in 2022, includes $0.2 million in connection with certain search and recruitment expenses and $0.1 million of costs associated with the subleasing of the New York office space and an aggregate of $0.4 million in other non-routine expenses in 2022. In 2021, includes additional expenses of $1.5 million, including: (i) $0.8 million of expenses in connection with the Clean-up Merger and related transactions, and (ii) $0.7 million resulting from the Company’s transition to our new technology provider.

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

(6) In 2023, includes a charge of $0.9 million for the accelerated depreciation of leasehold improvements in connection with the closure of a branch in Miami, Florida in 2023. In 2021, includes $1.8 million of depreciation expense associated with the Company’s previously owned headquarters building. No depreciation expense related to the headquarters building was recorded in 2023 and 2022 as this property was sold and leased-back in the fourth quarter of 2021.

(7)    In 2023, consists of losses on loans held for sale carried at the lower of cost or fair value, including valuation allowance as a result of changes in their fair value and losses on the sale of these loans. In 2023, includes $41.1 million in total valuation allowance as a result of changes in their fair value, and $2.0 million in losses on the sale of these loans. In the year 2022, represents $0.2 million in valuation allowance as a result of changes in the fair value of loans held for sale carried at the lower of cost or fair value.

(8)    In 2023, includes a loss on sale of repossessed assets in connection with our equipment-financing activities of $2.6 million. In 2022, includes $3.4 million related to the fair value adjustments of one other real estate owned (“OREO”) property in New York. In addition, includes OREO rental income of $1.3 million in 2023. We had no OREO rental income in 2022.

(9) Beginning in 2023, OREO and repossessed assets expense is presented separately in the Company’s consolidated statement of operations and comprehensive (loss) income. In 2022, 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 (loss) income. We had no other repossessed assets in 2022.

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(10)    Contract terminations and related costs associated with third party vendors resulting from the Company’s transition to our new technology provider.

(11)    In 2023, includes goodwill and intangible assets impairments totaling $1.7 million related to two of our subsidiaries (Amerant Mortgage and the Cayman Bank). Also in 2023, includes additional costs of $1.1 million in connection with the restructuring of the Company’s BOLI as well as an impairment charge of $2.0 million related to an investment carried at cost and included in other assets. In all of the periods shown, includes mortgage loan origination and servicing expenses, charitable contributions, community engagement, postage and courier expenses, debits which mirror the valuation income on the investment balances held in the non-qualified deferred compensation plan in order to adjust our liability to participants of the deferred compensation plan and other smaller expenses.

(12)    Includes $14.4 million, $12.5 million and $7.1 million in 2023, 2022 and 2021, respectively, related to mortgage banking activities, primarily consisting of salaries and employee benefits, mortgage lending costs and professional and other services fees.

NM Means not meaningful

2023 compared to 2022

Noninterest expense increased $69.9 million, or 29.0%, in 2023 compared to 2022, mainly due to: (i) higher losses on loans held for sale which include a valuation expense of $35.5 million related to the transfer of the Houston CRE loan portfolio from loans held for investment to loans held for sale carried at the lower of cost or fair value, and a total loss of $7.6 million, including a $5.6 million valuation expense and a $2.0 million loss on sale, related to a New York-based CRE loan held for sale; (ii) higher professional and other service fees; (iii) higher other operating expenses; (iv) higher salary and employee benefits; (v) higher FDIC assessments and insurance expenses; (vi) higher advertising expenses; (vii) higher depreciation and amortization expense, and (viii) higher telecommunication and data processing expenses. These increases were partially offset by: (i) lower loan-level derivative expenses; (ii) lower contract termination costs; and (iii) lower other real estate owned and repossessed assets expense.

Professional and other services fees increased $12.4 million, or 56.1%, in 2023 compared to 2022, primarily driven by higher consulting and other professional fees in connection with the Company’s transition to our new technology provider, as well as other smaller consulting projects. In 2023, we incurred higher professional service fees in connection with the new outsourced technology services received from FIS. The Company completed the transition of its core data processing platform and other applications in the fourth quarter of 2023.

Other operating expenses increased $10.4 million, or 96.80%, in 2023 compared to 2022 , mainly driven by: (i) an impairment charge of $2.0 million related to an investment carried at cost in 2023; (ii) a $1.7 million goodwill and intangible impairment charge in 2023; (iii) $1.1 million in expenses related to the enhancement of BOLI during the fourth quarter of 2023 and; (iv) higher mortgage banking lending and servicing costs.

Salaries and employee benefits increased $10.0 million, or 8.1%, in 2023 compared to 2022 mainly driven by: (i) salary increases mainly in connection with new hires in 2023, primarily in business areas; (ii) higher stock-based compensation in connection with the long term incentive program, and new hires; (iii) higher insurance and benefit plans; (iv) severance expense; and (v) higher commissions. These results were partially offset by decreases in non-equity variable compensation associated with the Bank’s performance.

FDIC assessments and insurance increased $4.0 million, or 60.7%, in 2023 compared to 2022, primarily driven by higher FDIC assessment rates and higher average assets.

Advertising expenses increased $1.2 million, or 10.2%, in 2023 compared to 2022, mainly due to higher expenses resulting from advertising campaigns based on promotional agreements with professional sports teams as well as the naming rights to the Amerant Bank Arena in Sunrise, Florida.

Depreciation and amortization expense increased $1.0 million, or 16.3%, in 2023 compared to 2022. This was mainly driven by $1.0 million related to several branch closures that resulted in additional depreciation expenses.

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Telecommunication and data processing expenses increased $0.8 million, or 5.1%, in 2023 compared to 2022, primarily driven by a charge of $1.4 million in connection with the disposition of fixed assets due to the write off of in-development software in 2023. This increase was partially offset by lower computer software and technology support services.

Loan-level derivative expense decreased $6.2 million, or 76.6%, in 2023 compared to 2022, mainly driven by a lower volume of derivative transactions with clients.

Other real estate owned and repossessed assets expense decreased $1.3 million, or 38.6%, in 2023 compared to 2022, mainly driven by the absence in 2023 of a fair value adjustment of $3.4 million in connection with an OREO property in New York that took place in 2022. The decrease was partially offset by: (i) $2.6 million in loss on sale of repossesses assets and other real estate valuation expense in 2023 (none in 2022), and (ii) new OREO rental income in 2023.

Income Taxes

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

______________

NM - means not meaningful

2023 compared to 2022

We recorded an income tax expense of $10.5 million in 2023 compared to $16.6 million in 2022. The decrease in income tax expense in 2023 was mainly driven by lower income before income taxes in 2023 compared to 2022. However, there was a higher effective tax rate in 2023 compared 2022, primarily driven by an additional tax expense of $2.8 million in connection with the BOLI restructuring completed in 2023.

As of December 31, 2023, the Company’s net deferred tax asset was $55.6 million, an increase of $6.9 million, or 14.2% compared to $48.7 million as of December 31, 2022. This increase was mainly driven by the tax effects of: (i) an increase of $35.5 million in the valuation allowance of loans held for sale carried at the lower of cost or fair value, and; (ii) a net increase of $12.0 million in the allowance for credit losses. This was partially offset by the tax effect of: (i) a decrease of $14.9 million in net unrealized holding losses on debt securities available for sale in 2023 and; (ii) an increase in the deferred tax liability related to depreciation and amortization expense.

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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 2023, including the effect of non-routine items such as the sale of loans and securities and other repossessed assets, Ban Owned life insurance restructure the valuation of securities, derivatives, loans held for sale and other real estate owned and repossessed assets, impairment of investments, 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.

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

(1)     As previously disclosed, the Company adopted CECL in the fourth quarter of 2022, effective as of January 1, 2022. See Form 10-K for more details of the CECL adoption in 2022.

(2) In 2023, includes $60.2 million of provision for credit losses on loans and $1.1 million on unfunded commitments (contingencies). In 2022, provision for credit losses on loans was $13.9 million, while there was no provision on unfunded commitments (contingencies).

(3) In 2023, the Company completed a restructuring of its bank-owned life insurance (“BOLI”) program. This was executed through a combination of a 1035 exchange and a surrender and reinvestment into higher-yielding general account with a new investment grade insurance carrier. This transaction allowed for higher team member participation through an enhanced split-dollar plan. Estimated improved yields resulting from the enhancement have an earn-back period of approximately 2 years. In 2023, we recorded total additional expenses and charges of $4.6 million in connection with this transaction, including: (i) a reduction of $0.7 million to the cash surrender value of BOLI; (ii) transaction costs of $1.1 million, and (iii) income tax expense of $2.8 million.

(4)    Expenses incurred for actions designed to implement the Company’s 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, enhanced sales tools and training, expanded product offerings and improved customer analytics to identify opportunities.

(5)    Staff reduction costs consist of severance expenses related to organizational rationalization.

(6)    Contract termination and related costs associated with third party vendors resulting from the Company’s engagement of FIS.

(7)    In 2023, includes an aggregate of $6.4 million of nonrecurrent expenses in connection with the engagement of FIS and, to a lesser extent, software expenses related to legacy applications running in parallel to new core banking applications. In 2022, includes: (i) $2.9 million in connection with the engagement of FIS; (ii) $0.2 million in connection with certain search and recruitment expenses; (iii) $0.1 million of costs associated with the subleasing of the New York office space, and (iv) an aggregate of $0.4 million in other non-routine expenses.

(8)    In 2023, includes expenses in connection with the disposition of fixed assets due to the write-off of in-development software.

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(9) In 2023, includes expenses of $0.3 million and $0.5 million ROUA impairment in connection with the closure of a branch in Houston, Texas and $0.9 million of accelerated amortization of leasehold improvements and $0.6 million of right-of-use or “ROU” asset impairment associated with the closure of a branch in Miami, Florida. In 2022, includes $1.6 million of ROU asset impairment associated with the closure of a banking center in Pembroke Pines, Florida in 2022.

(10)    In 2023, includes: (i) a fair value adjustment of $35.5 million related to an aggregate of $401 million in Houston-based CRE loans held for sale which are carried at the lower of cost or fair value, and (ii) a loss on sale of $2.0 million related to a New York-based CRE loan previously carried at the lower of fair value or cost. In addition, in 2023, includes a fair value adjustment of $5.6 million related to a New York-based CRE loan held for sale carried at the lower of fair value or cost. In 2022, amount represents the fair value adjustment related to the New York loan portfolio held for sale carried at the lower of cost or fair value.

(11)    In 2023, amount represents the loss on sale of repossessed assets in connection with our equipment-financing activities. In 2022, amount represents the fair value adjustment related to one OREO property in New York.

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:

(1)     At December 31, 2023, other intangible assets primarily consist of naming rights of $2.5 million and mortgage servicing rights (“MSRs”) of $1.4 million. At December 31, 2022, other intangible assets primarily consist of MSRs of $1.3 million. Other intangible assets are included in other assets in the Company’s consolidated balance sheets.

(2) At December 31, 2023 and 2022, amounts were calculated based upon the fair value of debt securities held to maturity, and assuming a tax rate of 25.36% and 25.55%, respectively.

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Financial Condition - Comparison of Financial Condition as of December 31, 2023 and December 31, 2022

Assets. Total assets were $9.7 billion as of December 31, 2023, an increase of $0.6 billion, or 6.4%, compared to $9.1 billion at December 31, 2022. This result was primarily driven by: an increase of (i) $333.3 million, or 4.9% in total loans held for investment, net of the allowance for credit losses, and loans held for sale at the lower of cost or fair value and mortgage loans held for sale; (ii) an increase of $130.3 million or 9.5% in total securities, mainly debt securities available for sale; (iii) an increase of $100.2 million, or 64.2%, in accrued interest receivable and other assets primarily related to a receivable from insurance carrier for $62.5 million in connection with the restructuring of the Company’s BOLI in 2023, and new OREO balances in 2023; (iv) an increase of $31.3 million, or 10.8%, in cash and cash equivalents; (v) an increase in BOLI of $6.6 million mainly due to net increase in cash surrender value of the policies during 2023; and (iv) an increase of $6.9 million in deferred tax assets mainly due to the result of the tax effect of the valuation allowance on loans held for sale carried at the lower of cost or fair value recorded in 2023. These increases were partially offset by a decrease of $21.5 million, or 15.4% in operating lease right-of-use assets mainly the result of modification of a lease in the first 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

2023 compared to 2022

Cash and cash equivalents totaled $321.9 million at December 31, 2023, an increase of $31.3 million, or 10.8%, from $290.6 million at December 31, 2022. The increase was primarily due to higher non-interest earning cash balances which include cash and due from banks and higher cash balances at the Federal Reserve Bank (“FRB”). At December 31, 2023 and December 31, 2022, cash balances held at the FRB were $246 million and $234 million, respectively. In addition, at December 31, 2023 and December 31, 2022, the Company’s cash and cash equivalents included restricted cash of $25.8 million and $42.2 million, respectively, which were held primarily to cover margin calls on derivative transactions with certain brokers. Furthermore, at December 31, 2023, the Company’s cash and cash equivalents included other short-term investments of $6.1 million which consists of U.S. Treasury Bills that mature in 90 days or less.

Cash flows provided by operating activities was $26.7 million in the year ended December 31, 2023, primarily driven by the net income before attribution of non-controlling interest of $30.8 million recorded during the period

Net cash used in investing activities was $606.6 million during the year ended December 31, 2023, mainly driven by: (i) a net increase in loans of $509.7 million, (ii) purchases of investment securities totaling $349.7 million and (iii) purchases of premises and equipment of $10.9 million. In addition, in 2023, the Company disbursed $65.0 million in connection with the restructuring of our BOLI program in 2023. These disbursements were partially offset by: (i) maturities, sales, calls and paydowns of investment securities totaling $218.5 million, (ii) proceeds from sale of loans held for investment and loans held for sale at the lower of cost or fair value totaling $109.2 million, (iii) net proceeds from the sale of repossessed assets in connection with our equipment-financing activities of $2.5 million. See Note 1 of our audited consolidated financial statements in this Form-10-K for more information about the restructuring of our BOLI program in 2023.

In the year ended December 31, 2023, net cash provided by financing activities was $611.2 million. These activities included net increases of $568.8 million in time deposits and $281.8 million in total demand, savings, money market deposit balances. These proceeds were partially offset by: (i) net repayments of FHLB advances of $222.0 million; (iii) $12.1 million of dividends declared and paid by the Company in 2023, and (iv) an aggregate $4.9 million in connection with the repurchase of shares of Class A common stock under a stock repurchase program launched in the first quarter of 2023. See “-Capital Resources and Liquidity Management” for more details on changes in FHLB advances in 2023 and the stock repurchase programs.

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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 held for investment for the periods presented.

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(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. At December 31, 2021, the Company had $143.2 million in loans held for sale carried at the lower of cost or estimated fair value. In the third quarter of 2022, these loans held for sale were transferred to the loans held for investment category, therefore, there were no loans held for sale carried at the lower of cost or estimated fair value at December 31, 2022. 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. In addition, at December 31, 2023 and 2022, there were $26.2 million and $62.4 million, respectively, in loans held for sale carried at fair value in connection with the Company’s mortgage banking activities.

(2)    In 2022, the Company adopted a new accounting standard on estimating expected credit losses, or CECL. In 2022, the Company recorded an increase to its ACL of $18.7 million as of January 1, 2022, with a corresponding after-tax cumulative effect adjustment to retained earnings of $13.9 million. See Note 1 to our audited consolidated financial statements on this Form 10-K for more details on the adoption of this new accounting standard..

(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.

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The table below summarizes the composition of 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.

__________________

(1)     As of December 31, 2023 and 2022, includes approximately $251.8 million and $230.3 million, respectively, in single-family residential loans purchased by the Company through Amerant Mortgage.

(2)     As of December 31, 2023 and 2022, includes approximately $56.5 million and $45.3 million, respectively, in commercial loans and leases originated under a white-label equipment financing solution launched in the second quarter of 2022.

(3)     Mostly comprised of loans secured by cash or U.S. Government securities.

(4)    Includes customers’ overdraft balances totaling $2.6 million, $4.7 million, $0.6 million, $0.7 million and $1.3 million at each of the dates presented.

(5)    Includes indirect consumer lending loans purchased with an outstanding balance of $210.9 million and $433.0 million as of December 31, 2023 and 2022, respectively, net of unamortized premium paid of $2.7 million and $10.9 million as of December 31, 2023 and 2022, respectively. In addition, as of December 31, 2023, includes $52.9 million ($43.8 million in 2022) in consumer loans originated under a white-label program launched in the third quarter of 2022.

(6)    There were no outstanding credit card balances as of December 31, 2023, 2022, 2021 and 2020. At December 31, 2019, balances are mostly comprised of credit card extensions of credit to customers with deposits with the Bank. The Company phased out its legacy credit card products in the first quarter of 2020 to further strengthen its credit quality.

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

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

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The composition of our CRE loan portfolio held for investment by industry segment at December 31, 2023, 2022 and 2021 is depicted in the following table:

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(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. As of December 31, 2021 and 2020, these balances were revised to exclude the Specialty industry segment which is now disclosed separately.

(2)    Includes marinas, nursing and residential care facilities, and other specialty type CRE properties. There were no loans in the Specialty industry segment as of December 31, 2019.

(3)    Includes loans held for investment in the NY loan portfolio, which were $217.0 million at December 31, 2023 and $330 million at December 31, 2022. In 2023, the Company reclassified $43.3 million related to a New York-Based CRE loan that were previously recorded as held for investment to loans held for sale. In 2022, the Company reclassified all loans in the NY loans portfolio previously classified as loans held for sale at the lower of cost or fair value, to loans held for investment.

At December 31, 2023, our CRE loans held for investment based in South Florida, Houston, New York and other regions were $1.7 billion, $317 million, $217 million and $65 million, respectively.

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The table below summarizes the composition of our loans held for sale by type of loan as of the end of each period presented

______________

(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. In the third quarter of 2023, the Company transferred a New York-based CRE loan held for investment to the loans held for sale category, and recognized a valuation allowance of $5.6 million as a result of the fair value adjustment of this loan. In the fourth quarter of 2023, the Company sold this loan and there was no material impact to the Company’s results of operations as result of this transaction.

(2)     In 2023, the Company transferred approximately $13 million in land development and construction loans held for sale                              to the loans held for investment category.

(3) In 2023, the Company transferred approximately $98.9 million, respectively, in single-family residential loans held for sale to the loans held for investment category.

(4) Mortgage loans held for sale in connection with Amerant Mortgage’s ongoing business.

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

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As of December 31, 2023, total loans held for investment were $6.9 billion, up $16.3 million, or 0.2%, compared to $6.9 billion at December 31, 2022. Domestic loans held for investment increased $27.9 million, or 0.4%, as of December 31, 2023, compared to December 31, 2022. The increase in total domestic loans held for investment includes net increases of $373.7 million, or 35.6%, $128.9 million, or 12.3% and $123.1 million, or 9.2%, in domestic single-family residential loans, owner occupied loans and commercial loans, respectively. These increases were partially offset by decreases of: (i) $385.1 million, or 14.2% in domestic CRE loans mainly driven by the transfer of certain Houston-based CRE loans to held for sale carried at the lower of cost or fair value discussed further below, and (ii) $212.8 million, or 35.3%, 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.

The increase in our domestic loan portfolio held for investment in 2023 includes the effect of: (i) originations of commercial loans, including $29 million of loans originated through a new white label equipment financing solution launched in the second quarter of 2022 as well as other specialty finance loans; (ii) originations of single-family residential loans; (iii) originations of CRE and owner-occupied loans; (iv) approximately $26.5 million of single-family residential loans purchased by the Company through its subsidiary Amerant Mortgage, and (v) originations of consumer loans of approximately $27 million through a new white-label program launched in the third quarter of 2022. These results were partially offset primarily by loan pay downs and payoffs during the period.

Loans to international customers, primarily from Latin America, declined $11.6 million, or 11.7%, as of December 31, 2023, compared to December 31, 2022. This was mainly driven by payoffs, including $10 million in residential loans, $1.2 million in commercial loans and $0.5 million in consumer loans.

At December 31, 2023 and 2022, there were $26.2 million and $62.4 million, respectively, of mortgage loans held for sale carried at their estimated fair value. In 2023, in connection with mortgage loans held for sale, we originated and purchased approximately $343.5 million, and had proceeds of approximately $286.5 million, mainly from the sale of these loans.

In 2023, the Company added approximately $399.1 million in single-family residential and construction loans through Amerant Mortgage which includes loans originated and purchased from different channels.

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. In the third quarter of 2023, the Company transferred a New York-based CRE loan held for investment to the loans held for sale category, with an amortized cost of $48.8 million at the time of transfer, and recognized a valuation allowance of $5.6 million as a result of the fair value adjustment of this loan. The Company subsequently sold this loan and there was no material impact to the Company’s results of operations as result of this transaction.

As of December 31, 2023, substantially all CRE loans held for sale carried at the lower of cost or estimated fair value include loans in the multifamily segment.

As of December 31, 2023, loans under syndication facilities were $271.8 million, a decline of $95.2 million, or 25.9%, compared to $367.0 million at December 31, 2022. This was primarily driven by a decrease of $46.0 million in commercial real estate loans, $13.3 million in loans to depository institutions, and $12.1 million in land loans. This decrease was partially offset by an increase of $24.9 million in commercial loans. In addition, in the third quarter of 2023, the Company transferred a syndicated CRE loan in New York of $48.8 million to the held for sale category. This loan was subsequently sold in the fourth quarter of 2023. As of December 31, 2023, syndicated loans that financed “highly leveraged transactions”, or HLT, were $5.5 million, or 0.1% of total loans, compared to $8.5 million, or 0.1% of total loans, as of December 31, 2022. At December 31, 2023 and December 31, 2022, loans under syndication facilities held for investment include Shared National Credit facilities of $86.7 million and $143 million, respectively.

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The following is a brief description of the composition of our loan classes:

Commercial Real Estate (CRE) loans. We provide a mix of variable and fixed rate CRE loans. These are loans secured by non-owner occupied real estate properties and land development and construction loans.

Loans secured by non-owner occupied real estate properties are generally granted to finance the acquisition or operation of CRE properties. The main source of repayment of these real estate loans is derived from cash flows or conversion of productive assets and not from the income generated by the disposition of the property held as collateral. These mainly include rental apartment (multifamily) properties, office, retail, warehouses and industrial facilities, and hospitality (hotels and motels) properties mainly in South Florida, the greater Houston, Texas area and the greater New York City area, especially the five New York City boroughs. Concentrations in these non-owner occupied CRE loans are subject to heightened regulatory scrutiny. See “Risk Factors— Our concentration of CRE loans could result in further increased loan losses, and adversely affect our business, earnings, and financial condition.”

Land development and construction loans includes loans for land acquisition, land development, and construction (single or multiple-phase development) of single residential or commercial buildings, loans to reposition or rehabilitate commercial properties, and bridge loans mainly in the South Florida, the greater Houston, Texas area and the greater New York City area, especially the five New York City boroughs. Typically, construction lines of credit are funded based on construction progress and generally have a maturity of three years or less.

Owner-occupied. Loans secured by owner-occupied properties are typically working capital loans made to businesses in the South Florida and the greater Houston, Texas markets. The source of repayment of these commercial owner-occupied loans primarily comes from the cash flow generated by the occupying business and the real estate collateral serves as an additional source of repayment. These loans are assessed, analyzed, and structured essentially in the same manner as commercial loans.

Single-Family Residential. These loans include loans to domestic and foreign individuals primarily secured by their personal residence in the U.S., including first mortgages on properties mainly located in Florida, home equity and home improvement loans, mainly in South Florida and the greater Houston, Texas markets. These loans have terms common in the industry. However, loans to foreign clients have more conservative underwriting criteria and terms.

Commercial loans. We provide a mix of variable and fixed rate C&I loans. These loans are made to a diverse range of business sizes, from the small-to-medium-sized to middle market and large companies. These businesses cover a diverse range of economic sectors, including manufacturing, wholesale, retail, primary products and services. We provide loans and lines of credit for working capital needs, business expansions and for international trade financing. These loans include working capital loans, asset-based lending, participations in Shared National Credit facilities, or SNCs (loans of $100 million or more that are shared by two or more institutions), purchased receivables and SBA loans, among others. The tenors may be either short term (one year or less) or long term, and they may be secured, unsecured, or partially secured. Typically, lines of credit have a maturity of one year or less, and term loans have maturities of five years or less. In 2021 and 2020, the Company participated in the SBA’s PPP, by providing loans to businesses to cover payroll, rent, mortgage, healthcare, and utilities costs, among other essential expenses. In addition, the Company originates equipment loan and leases through a white-label equipment financing solution launched in the second quarter of 2022.

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Commercial loans to borrowers in similar businesses or products with similar characteristics or specific credit requirements are generally evaluated under a standardized commercial credit program. Commercial loans outside the scope of those programs are evaluated on a case-by-case basis, with consideration of any exposure under an existing commercial credit program. The Bank maintains several commercial credit programs designed to standardize underwriting guidelines, and risk acceptance criteria, in order to streamline the granting of credits to businesses with similar characteristics and common needs. Some programs also allow loans that deviate from credit policy underwriting requirements and allocate maximum exposure buckets to those loans. Loans originated through a program are monitored regularly for performance over time and to address any necessary modifications.

Loans to financial institutions and acceptances. These loans primarily include trade financing facilities through letters of credits, bankers’ acceptances, pre and post-export financing, and working capital loans, among others. These loans are generally granted for terms not exceeding one year. Since 2019, we have substantially reduced this activity.

Consumer loans and overdrafts. These loans include open and closed-end loans extended to domestic and foreign individuals for household, family and other personal expenditures. These loans include automobile loans, personal loans, or loans secured by cash or securities and revolving credit card agreements. These loans have terms common in the industry for these types of loans, except that loans to foreign clients have more conservative underwriting criteria and terms. Beginning in 2020, consumer loans include indirect unsecured personal loans to well qualified individuals we purchased from recognized third parties personal loan originators. However, we are focusing on organic growth and have not been purchasing any new indirect consumer loan production since the end of 2022. All consumer loans are denominated and payable in U.S. Dollars. In 2020, we wound down our credit card program to further strengthen the Company’s credit quality and, as a result, there are no credit card receivables outstanding after December 31, 2019.

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The tables below set forth the unpaid principal balance of loans held for investment by type, by interest rate type (fixed-rate and variable-rate) and by original contractual loan maturities as of December 31, 2023:

__________________

(1)    Includes a total of $713.2 million of fixed-rate loans (mainly comprised of 87% single-family residential and 9% owner occupied), and $647.6 million of variable-rate loans (mainly comprised of 95% single-family residential and 3% owner occupied), maturing in 10 years or more. Fixed-rate and variable-rate loans maturing in 15 years or more represent 86% of total fixed-rate and 87% of total variable-rate loans maturing in 10 years or more, respectively, and correspond primarily to single-family residential loans.

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As of December 31, 2022, total loans held for investment include approximately $1.1 billion, or 15.5% of total loans held for investment, of loans that were priced based on variable interest rates tied to the LIBOR. In December of 2019, the Company appointed a management team charged with the responsibility of monitoring developments related to the proposed alternative reference interest rates to replace LIBOR, and guide the Company through the potential discontinuation of LIBOR. In 2020, the Company launched the LIBOR cessation project to identify and quantify LIBOR exposure in all product categories and lines of business, both on- and off-balance-sheet. During 2021, the Company completed its assessment of all third party-provided products, services, and systems that would be affected by any changes to references to LIBOR, including changes to all relevant systems. Beginning in January 2022, the Company started referencing new loans and other products, including loan-level derivatives, to the Secured Overnight Financing Rate (“SOFR”). In 2023, the Company completed the migration of all variable rate loans and derivative contracts from LIBOR to SOFR.

The tables below set forth the unpaid principal balance of total loans held for sale by type, by interest rate type (fixed-rate and variable-rate) and by original contractual loan maturities as of December 31, 2023:

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(1)    Loans held for sale carried at their estimated fair value.

(2) Remained current and in accrual status as of December 31, 2023.

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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.

_________________

(1)    Collateralized with cash, cash equivalents or other financial instruments totaling $7.2 million, $6.3 million and $21.1 million as of December 31, 2023, 2022 and 2021 respectively.

(2)    Includes mortgage loans for single-family residential properties located in the U.S. totaling 37.7 million, $47.0 million and $64.6 million as of December 31, 2023, 2022 and 2021, respectively.

(3) There were no outstanding credit card balances as of December 31, 2023, 2022 and 2021.

(4) Includes loans to borrowers in other countries which do not individually exceed one percent of total assets in 2023, 2022 and 2021.

As of December 31, 2023, the maturities of our outstanding international loans were as follows: