Amerant Bancorp (AMTB) Q3 2023: Non-Interest Bearing Deposits Jump $77M as Funding Mix Shifts
Amerant Bancorp’s Q3 marked a decisive pivot toward balance sheet resilience, highlighted by a $77 million rise in non-interest-bearing deposits and a proactive reduction in high-cost institutional funding. Strategic execution centered on deposit granularity, expense discipline, and risk-weighted asset management, with technology transformation and market expansion positioned to drive next year’s operating leverage. Investors should watch for margin stabilization, credit normalization, and the impact of digital modernization on core profitability in 2024.
Summary
- Deposit Base Recomposition: Shift from rate-sensitive institutional to granular, non-interest-bearing and international deposits signals funding cost discipline.
- Technology Upgrade Underway: Core banking system conversion and branch refreshes set the stage for scalable growth and expense leverage.
- Margin Compression Mitigation: Leadership targets efficiency gains and asset mix optimization to offset NIM headwinds into 2024.
Business Overview
Amerant Bancorp (AMTB) is a regional bank headquartered in Florida, operating primarily through its commercial, residential, and consumer lending segments. The company generates revenue from net interest income (the spread between loan yields and funding costs), non-interest income (fees, mortgage banking, wealth management), and manages a diversified deposit base split between domestic and international clients. Major business lines include commercial real estate (CRE) lending, private banking, and Amerant Mortgage, with a focus on relationship-driven, core deposit funding and prudent credit underwriting.
Performance Analysis
Q3 2023 results reflected Amerant’s strategic shift toward funding stability and risk management, with overall loans and deposits relatively flat as the bank prioritized quality over volume. Non-interest-bearing deposits rose by $77 million, while high-cost institutional deposits fell, enabled by $208 million in organic deposit growth and a $175 million reduction in Federal Home Loan Bank advances. This move reduced rate sensitivity and flight risk, aligning with the bank’s goal of a 95% loan-to-deposit ratio.
Net interest margin (NIM) compressed as expected, pressured by higher funding costs and competitive deposit pricing, while non-interest income declined on lower mortgage banking and fewer one-time gains. Expense management was a standout, with core non-interest expense dropping $8 million quarter-over-quarter, though temporary elevation is expected as the bank runs legacy and new IT systems in parallel during its FIS core conversion. Credit costs normalized as legacy exposures were proactively addressed, including the sale of the largest New York CRE loan, and non-performing assets improved.
- Funding Mix Shift: Granular deposit base now 67% domestic, 33% international, with average account sizes supporting stability.
- Expense Decline: Core non-interest expense fell, but temporary tech overlap will lift costs through Q1 2024.
- Credit Cleanup: CRE exposure in New York reduced, and indirect consumer loan runoff continues, supporting future charge-off moderation.
Amerant’s quarter was less about growth and more about repositioning for sustainable profitability, with near-term NIM headwinds offset by foundational moves in technology, funding, and risk.
Executive Commentary
"During the third quarter, we focused on improving balance sheet composition, which included the continued prioritization of organic deposit growth, which enabled us to reduce higher cost institutional deposits, which are highly rate sensitive and therefore subject to flight risk."
Jerry Plush, Chairman and Chief Executive Officer
"Our efficiency ratio was 64.1% compared to 65.6% last quarter, and ROA and ROE were higher this quarter at 0.92% and 11.93% respectively, as a result of the lower provision and one-time charges during the period."
Charimar Calderon, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. Funding Cost Rationalization
Amerant is deliberately shifting its deposit mix away from rate-sensitive institutional funding toward core, relationship-driven accounts, with a focus on non-interest-bearing and international deposits. This strategy reduces funding volatility and positions the bank to better manage net interest margin risk as rate cycles evolve.
2. Technology and Operational Modernization
The FIS core banking system conversion in November is a cornerstone initiative, aimed at creating a modern, integrated technology stack. The transition is expected to drive long-term efficiency, enable scalable digital banking, and strengthen cybersecurity, even as it temporarily inflates tech expenses through early 2024.
3. Credit Risk Containment and Portfolio Rebalancing
Proactive credit risk reduction was evident in the sale of the largest New York CRE exposure and the continued runoff of indirect consumer loans. Enhanced underwriting and a focus on relationship-based lending are expected to stabilize charge-offs and reserve coverage, with legacy issues being actively worked out of the portfolio.
4. Market Expansion and Brand Investment
Physical branch refreshes and new locations in key Florida and Texas markets, combined with targeted brand partnerships (e.g., University of Miami, Florida Panthers), are designed to boost regional visibility and customer acquisition without incremental marketing spend.
5. Capital Allocation Flexibility
Capital remains above regulatory minimums, allowing the bank to balance share buybacks (with $20 million remaining under authorization), dividends, and growth investments. Management is clear that growth will be “profitable growth,” not asset expansion for its own sake, and that capital deployment will remain opportunistic as valuation and market conditions dictate.
Key Considerations
Q3 was a transitional quarter for Amerant, with management emphasizing foundational moves over headline growth. The focus on granularity, technology, and risk is intended to set the stage for improved operating leverage and core profitability in 2024.
Key Considerations:
- Deposit Granularity and International Expansion: The bank’s ability to grow international and non-interest-bearing deposits will be critical for funding cost control and margin defense.
- Expense Trajectory Post-FIS Conversion: Parallel tech system costs will temporarily inflate expenses, but management expects a return to improvement mode by Q2 2024.
- Credit Normalization Pace: Runoff of indirect consumer loans and proactive CRE risk reduction should support a return to normalized charge-off levels, but legacy exposures still require monitoring.
- Growth Execution in a Competitive Market: New business development hires and branch investments must translate into quality loan and deposit growth, especially as many peers are pulling back.
Risks
Amerant faces ongoing net interest margin compression risk from deposit competition and funding cost pressures, with further downside possible if rate cycles persist or competitive intensity escalates. Credit normalization is underway, but legacy CRE and consumer exposures remain a watchpoint, especially if economic conditions deteriorate. The bank’s technology transition introduces short-term operational and expense risk, and successful execution will be key to realizing anticipated efficiency gains. Finally, regional economic volatility and potential regulatory changes could impact both growth and risk management targets.
Forward Outlook
For Q4 2023, Amerant guided to:
- Continued balance sheet growth of $250-300 million, with strong loan and deposit pipelines.
- Non-interest income expected to remain at Q3 levels, with operating expenses temporarily elevated due to parallel tech systems.
- Provision for credit losses in the $8-10 million range, reflecting asset growth and ongoing credit normalization.
For full-year 2024, management expects:
- Margin pressure to ease, with NIM leveling off as deposit repricing gap narrows and non-interest-bearing mix grows.
- Efficiency ratio improvement as FIS conversion costs subside and digital initiatives scale.
- Fee income uplift from BOLI restructure and expanded customer relationships.
Management highlighted several factors that will shape results:
- Deposit mix optimization and international growth remain top priorities for funding stability.
- Expense discipline and technology leverage are expected to drive positive operating leverage by mid-2024.
Takeaways
Amerant’s Q3 was about strategic repositioning, not top-line expansion, with management laying groundwork for improved profitability and growth in 2024.
- Funding and Credit Reset: Proactive moves to shed high-cost funding and legacy credit risk position the balance sheet for more stable growth and margin defense.
- Technology and Talent Investment: The FIS core conversion and new business development hires are designed to deliver cost leverage and scalable growth, but execution risk remains as systems transition.
- Margin and Expense Watch: Investors should monitor the pace of NIM stabilization and expense normalization post-conversion, as these will be critical to achieving management’s 1% ROA and 12% ROE targets.
Conclusion
Amerant Bancorp’s third quarter marked a disciplined pivot toward balance sheet resilience and operational modernization, with management taking deliberate steps to improve funding mix, reduce credit risk, and invest in scalable infrastructure. The next twelve months will test the bank’s ability to translate these foundational moves into sustainable margin and earnings power, especially as industry headwinds persist.
Industry Read-Through
Amerant’s results and strategy echo a broader regional banking trend: the shift from rate-sensitive, wholesale funding toward granular, relationship-driven deposits is an industry-wide imperative as NIMs compress. Technology modernization and digital core conversions are becoming table stakes for banks seeking to drive operating leverage and defend market share. Proactive credit risk management, particularly in CRE and consumer portfolios, is top of mind across the sector as legacy exposures are worked down and underwriting tightens. Investors should watch for similar moves at other regionals, with expense normalization and funding cost control as key differentiators heading into 2024.