KBRA Affirms Ratings for Amerant Bancorp Inc.

KBRA affirms the senior unsecured debt rating of BBB- and the short-term debt rating of K3 for Coral Gables, Florida-based Amerant Bancorp Inc. (NASDAQ: AMTB) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB, the subordinated debt rating of BBB-, and the short-term deposit and debt rat- ings of K3 for its subsidiary, Amerant Bank, N.A. ("the bank"). The Outlook for all long-term ratings is revised to Stable from Positive.

Key Credit Considerations

The change to a Stable Outlook reflects the 150 – 200 bps decline in capital over the last five quarters, driven by loan growth and stock buybacks, combined with a continuation of asset quality challenges above peer levels, specifically the more recent upward trend in NPAs and NCOs. KBRA expects the anticipated economic headwinds from higher interest rates to further challenge the credit performance of the loan portfolio, specifically in the indirect, high yield consumer book, office CRE, and equipment financing portfolios going forward. We view the loan loss reserve of 1.20% and LLR/NPLs of >400% to be adequate as of 1Q23, although additional provisioning could weigh on the company’s earnings profile. Additionally, growth experienced in 2022 within the earning asset base outstripped the core deposit base raising loans-to-core deposits to 118%, which places increased reliance on noncore funding and reducing levels will be challenging in the current deposit environment, pressuring NIM. AMTB’s liquidity profile with core deposit funding as a percentage of total funding of 71% as of 1Q23 is lower than many similarly positioned peers. Uninsured depos- its are manageable at 32% of total deposits with 142% coverage from primary and secondary liquidity sources to cover a reasonable level of potential deposit outflows as of 1Q23. Supporting the ratings is AMTB’s above peer noninterest income (as a percentage of total revenue) that includes over 75% from durable, fee income services that are derived from the wealth management ($2.1 billion in AUM/C at 1Q23) and brokerage services.

Rating Sensitivities

With the reversion to a Stable Outlook, a rating upgrade is not expected in the near term. Positive rating momentum would require continued progress with the company’s transformation plan that strengthens the funding profile, and boosts earnings and credit quality profile, to be more consistent with the next higher rated category while building on its capital profile. Additionally, a rating downgrade is unlikely in the near term, though deterioration in credit quality creating elevated credit costs negatively affecting earnings performance and capital rebuild over a longer time horizon could result in negative rating action.

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Methodologies

Financial Institutions: Bank & Bank Holding Company Global Rating Methodology

ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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