Amerant Bancorp Inc. - Quarter Report: 2020 June (Form 10-Q)

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1.	Business, Basis of Presentation and Summary of Significant Accounting Policies

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3.	Securities

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4.	Loans

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(1)	Loans to borrowers in 12 other countries which do not individually exceed 1% of total assets (14 countries at December 31, 2019).

(2)	Corresponds to mortgage loans secured by single-family residential properties located in the U.S.

(3)

At December 31, 2019, Venezuela 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 to further strengthen its credit quality. During the first quarter of 2020, the remaining balances related to the credit card product were repaid, therefore, there are no outstanding credit card balances as of June 30, 2020.

(4)	Overdrafts to customers outside the United States were de minimis at June 30, 2020 and December 31, 2019.

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5.	Allowance for Loan Losses

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(1)	Average using trailing four quarter balances.

(1)	Average using trailing four quarter balances.

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6.	Time Deposits

7.	Advances from the Federal Home Loan Bank and Other Borrowings

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(1)	As of June 30, 2020 and December 31, 2019, includes $530 million (fixed interest rates raging from 0.62% to 0.97%) in advances from the FHLB that are callable prior to maturity.

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10.	Derivative Instruments

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11.	Stock-based Incentive Compensation Plan

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12.	Income Taxes

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17.	Earnings Per Share

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the COVID-19 pandemic has significantly impacted economic conditions globally and in the United States, could have a material adverse effect on our business, financial condition and results of operation, and the ultimate impact on our business, financial condition and results of operations, will depend on future developments and other factors that are highly uncertain and will be impacted by the scope, severity and duration of the pandemic and actions taken by governmental authorities in response;

•	as a participating lender in the U.S. Small Business Administration (“SBA”) PPP, the Company and the Bank are subject to additional risks of litigation from the Bank’s customers or other parties regarding the Bank’s processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties;

•	our strategic plan and growth strategy may not be achieved as quickly or as fully as we seek;

•	operational risks are inherent in our businesses;

•	market conditions and economic cyclicality may adversely affect our industry;

•	our profitability and liquidity may be affected by changes in interest rates and interest rate levels, the shape of the yield curve and economic conditions;

•	our cost of funds may increase as a result of general economic conditions, interest rates, inflation and competitive pressures;

•	many of our loans and our obligations for borrowed money are priced based on variable interest rates tied to the London Interbank Offering Rate, or LIBOR. We are subject to risks that LIBOR will no longer be available as a result of the United Kingdom’s Financial Conduct Authority ceasing to require the submission of LIBOR quotes after 2021;

•	our derivative instruments may expose us to certain risks;

•	our valuation of securities and investments and the determination of the amount of impairments taken on our investments are subjective and, if changed, could materially adversely affect our results of operations or financial condition;

•	our success depends on our ability to compete effectively in highly competitive markets;

•	our success depends on general and local economic conditions where we operate;

•	severe weather, natural disasters, global pandemics, acts of war or terrorism, theft, civil unrest, government expropriation or other external events could have significant effects on our business;

•	defaults by or deteriorating asset quality of other financial institutions could adversely affect us;

•	nonperforming and similar assets take significant time to resolve and may adversely affect our results of operations and financial condition;

•	changes in the real estate markets, including the secondary market for residential mortgage loans, may adversely affect us;

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•	our allowance for loan losses may prove inadequate or we may be negatively affected by credit risk exposures;

•	if our business does not perform well, we may be required to recognize an impairment of our goodwill or other long-lived assets or to establish a valuation allowance against the deferred income tax asset, which could adversely affect our results of operations or financial condition;

•	mortgage servicing rights, or MSRs, requirements may change and require us to incur additional costs and risks;

•	we may be contractually obligated to repurchase mortgage loans we sold to third-parties on terms unfavorable to us;

•	our concentration of CRE loans could result in further increased loan losses, and adversely affect our business, earnings, and financial condition;

•	liquidity risks could affect operations and jeopardize our financial condition;

•	certain funding sources may not be available to us and our funding sources may prove insufficient and/or costly to replace;

•	our Venezuelan deposit concentration may lead to conditions in Venezuela adversely affecting our operations;

•	our investment advisory and trust businesses could be adversely affected by conditions affecting our Venezuelan customers;

•	our brokered deposits and wholesale funding increases our liquidity risk, could increase our interest rate expense and potentially increase our deposit insurance costs;

•	technological changes affect our business including potentially impacting the revenue stream of traditional products and services, and we may have fewer resources than many competitors to invest in technological improvements;

•	potential gaps in our risk management policies and internal audit procedures may leave us exposed to unidentified or unanticipated risk, which could negatively affect our business;

•	we may determine that our internal controls and disclosure controls could have deficiencies or weaknesses;

•	any failure to protect the confidentiality of customer information could adversely affect our reputation and subject us to financial sanctions and other costs that could have a material adverse effect on our business, financial condition and results of operations;

•	our information systems may experience interruptions and security breaches, and are exposed to cybersecurity threats;

•	future acquisitions and expansion activities may disrupt our business, dilute shareholder value and adversely affect our operating results;

•	attractive acquisition opportunities may not be available to us in the future;

•	certain provisions of our amended and restated articles of incorporation and amended and restated bylaws, Florida law, and U.S. banking laws could have anti-takeover effects by delaying or preventing a change of control that you may favor;

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•	we may be unable to attract and retain key people to support our business;

•	our employees may take excessive risks which could negatively affect our financial condition and business;

•	we are subject to extensive regulation that could limit or restrict our activities and adversely affect our earnings;

•	litigation and regulatory investigations are increasingly common in our businesses and may result in significant financial losses and/or harm to our reputation;

•	we are subject to capital adequacy and liquidity standards, and if we fail to meet these standards our financial condition and operations would be adversely affected;

•	our operations are subject to risk of loss from unfavorable fiscal, monetary and political developments in the U.S. and other countries where we do business;

•	changes in accounting rules applicable to banks and financial institutions could adversely affect our financial condition and results of operations;

•	the Dodd-Frank Act currently restricts our future issuance of trust preferred securities and cumulative preferred securities as eligible Tier 1 risk-based capital for purposes of the regulatory capital guidelines for bank holding companies;

•	we may need to raise additional capital in the future, but that capital may not be available when it is needed or on favorable terms;

•	we will be subject to heightened regulatory requirements if our total assets grow in excess of $10 billion;

•	the Federal Reserve may require us to commit capital resources to support the Bank;

•	we may face higher risks of noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations than other financial institutions;

•	failures to comply with the fair lending laws, CFPB regulations or the Community Reinvestment Act could adversely affect us;

•	Fannie Mae and Freddie Mac restructuring may adversely affect the mortgage markets;

•	we adopted a new accounting principle that requires immediate recognition in the statement of income of unrealized changes in the fair value of equity securities, which includes mutual funds, increasing the volatility of our results of operations;

•	we changed our brand from “Mercantil” to “Amerant,” which could adversely affect our business and profitability;

•	we are incurring incremental costs as a separate, public company;

•	as a separate, public company, we spend additional time and resources to comply with rules and regulations that previously did not apply to us;

•	our historical consolidated financial data are not necessarily representative of the results we would have achieved as a separate company and may not be a reliable indicator of our future results;

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•	certain of our directors may have actual or potential conflicts of interest because of their equity ownership in Mercantil Servicios Financieros, C.A., or the Former Parent, or their positions with the Former Parent and us;

•	if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price of our common stock and trading volume could decline;

•	our stock price may fluctuate significantly;

•	a limited market exists for the Company’s shares of Class B common stock on the Nasdaq Global Select Market. An active trading market may not develop or continue for the Company’s shares of Class B common stock, which could adversely affect the market price and market volatility of those shares;

•	certain of our existing stockholders could exert significant control over the Company;

•	we have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common stock;

•	we expect to issue more Class A common stock in the future which may dilute holders of Class A common stock;

•	holders of Class B common stock have limited voting rights. As a result, holders of Class B common stock will have limited ability to influence shareholder decisions;

•	our dual classes of common stock may limit investments by investors using index-based strategies;

•	we are an “emerging growth company,” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors;

•	we do not currently intend to pay dividends on our common stock;

•	our ability to pay dividends to shareholders in the future is subject to profitability, capital, liquidity and regulatory requirements and these limitations may prevent us from paying dividends in the future;

•	we face strategic risks as an independent company and from our history as a part of the Former Parent;

•	the fair value of our investment securities can fluctuate due to market conditions out of our control;

•	we may not be able to generate sufficient cash to service all of our debt, including the Senior Notes;

•	we and Amerant Florida Bancorp Inc., the subsidiary guarantor, are each a holding company with limited operations and depend on our subsidiaries for the funds required to make payments of principal and interest on the Senior Notes;

•	we may incur a substantial level of debt that could materially adversely affect our ability to generate sufficient cash to fulfill our obligations under the Senior Notes; and

•	the other factors and information in our Form 10-K and in this Form 10-Q and other filings that we make with the SEC under the Exchange Act and Securities Act. See “Risk Factors” in our Form 10-K and this Form 10-Q.

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Net loss of $15.3 million, compared to net income of $12.9 million in the same period of 2019. The net loss compared to net income in the same quarter last year was primarily due to higher provision for loan losses in the second quarter of 2020 and lower net interest income, offset by higher non-interest income and lower non-interest expenses. Operating income, which excludes provision for income tax, provision for loan losses or reversals and net gains on securities, increased to $21.6 million, up 53.8% from $14.0 million in the same period of 2019.

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Net interest income (“NII”) was $46.3 million, down 13.9% from $53.8 million in the same period of 2019. Lower NII is attributed to a decline in average yields on interest-earning assets, partially offset by higher average interest-earning asset balances and lower deposit and professional funding costs. Net interest margin (“NIM”) was 2.44% in the second quarter of 2020, down from 2.92% in the second quarter 2019.

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Credit quality remained sound and reserve coverage is strong despite recent developments associated with one large loan relationship. The Company continues to closely monitor the performance of its loan portfolio estimated to be impacted by the decline in business activity associated with the COVID-19 pandemic, and continues refining its estimated probable loss assumptions. The Company recorded a provision for loan losses of $48.6 million during the second quarter of 2020, compared to a release of $1.4 million during the second quarter of 2019. The ratio of the ALL to total loans was 2.04% as of June 30, 2020, up from 0.99% in the same period last year. In the second quarter of 2020, the ratio of loan charge-offs to average total loans remained at a low level of 0.13%, up from 0.11% in the second quarter of 2019.

•	Noninterest income was $19.8 million, up 39.6% from $14.1 million in the same period of 2019. The increase over the same quarter of 2019 was primarily due to higher net gains on the sale of securities in the second quarter of 2020.

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Noninterest expense was $36.7 million, down 30.6% from $52.9 million in the second quarter of 2019. The year-over-year decline in noninterest expense was mainly driven by lower salaries and employee benefit expenses attributed to staff reductions completed in 2019 and 2018, lower stock compensation expense in the second quarter of 2020, and the deferral of direct origination costs associated with the Small Business Administration (“SBA”)’s Paycheck Protection Program ("PPP") loans funded during the second quarter of 2020. Non-refundable loan origination fees, net of direct costs of originating loans, are deferred and amortized over the term of the related loans as adjustments to interest income in accordance with generally accepted accounting principles (GAAP). Additionally, the Company had lower restructuring costs in the second quarter of 2020 related to Amerant’s transformation efforts. Adjusted noninterest expense was $35.4 million in the second quarter of 2020, down 29.4% from $50.2 million in the second quarter of 2019. Adjusted noninterest expense in the second quarter of 2020 excludes $1.3 million in restructuring expenses, compared $2.7 million in the same quarter last year.

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The efficiency ratio was 55.6% (53.6% adjusted for restructuring expenses), compared to 77.9% (73.8% adjusted for restructuring expenses) for the corresponding period of 2019. These improvements in the second quarter of 2020 are mainly attributed to the lower noninterest expenses driven by staff reductions, lower stock compensation expense, and the deferral of origination costs associated with PPP loans, as previously explained.

•	Stockholders’ book value per common share increased to $19.69, up 1.8%, from $19.35 at December 31, 2019. Tangible book value per common share increased to $19.18, up 1.8% from $18.84 at December 31, 2019.

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•	Completed the registered offering and sale of $60.0 million senior notes, which bear interest at an annual rate of 5.75% and are due in 2025 (the “Senior Notes”), significantly expanding the Company’s available funding sources.

•	Total loans were $5.9 billion, up $127.9 million , or 2.2%, from $5.7 billion as of December 31, 2019. Total deposits were $6.0 billion, up $267.6 million, or 4.6% from $5.8 billion as of December 31, 2019. These increases are mainly driven by the Company’s participation in the PPP.

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(1)	Total gross loans are net of deferred loan fees and costs.

(2)	During the second quarter of 2020, the Company completed a $60 million offering of Senior Notes with a coupon rate of 5.75%. Senior Notes are presented net of direct issuance cost which is deferred and amortized over 5 years.

(3)	During the six months ended June 30, 2020, the Company redeemed $26.8 million of its 8.90% trust preferred securities. The Company simultaneously redeemed the junior subordinated debentures associated with these trust preferred securities.

(4)	Assets held for clients in an agency or fiduciary capacity which are not assets of the Company and therefore are not included in the consolidated financial statements.

(5)	This presentation contains adjusted financial information determined by methods other than GAAP. This adjusted financial information is reconciled to GAAP in “Non-GAAP Financial Measures Reconciliation” herein.

(7)	Operating data for the periods presented have been annualized.

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

(9)	Calculated based upon the average daily balance of total assets.

(10)	Calculated based upon the average daily balance of stockholders’ equity.

(11)	Total stockholders’ equity divided by total risk-weighted assets, calculated according to the standardized regulatory capital ratio calculations.

(12)	Tier 1 capital divided by total risk-weighted assets.

(13)	Tier 1 capital divided by quarter to date average assets. Tier 1 capital is composed of Common Equity Tier 1 (CET 1) capital plus outstanding qualifying trust preferred securities of $62.3 million and $114.1 million at June 30, 2020 and 2019, respectively. See footnote 2 for more information about trust preferred securities redemption transactions in the first quarter of 2020.

(14)	Common Equity Tier 1 (CET 1) capital divided by total risk-weighted assets.

(15)	Tangible common equity is calculated as the ratio of common equity less goodwill and other intangibles divided by total assets less goodwill and other intangible assets. Other intangibles assets are included in other assets in the Company’s consolidated balance sheets.

(16)	Non-performing assets include all accruing loans past due 90 days or more, all nonaccrual loans, restructured loans that are considered “troubled debt restructurings” or “TDRs”, and OREO properties acquired through or in lieu of foreclosure. Non-performing assets were $77.3 million and $32.8 million as of June 30, 2020 and 2019, respectively.

(17)	Non-performing loans include all accruing loans 90 days or more past due, all nonaccrual loans and restructured loans that are considered TDRs. Non-performing loans were $77.3 million and $32.8 million as of June 30, 2020 and 2019, respectively.

(18)	Allowance for loan losses was $119.7 million and $57.4 million as of June 30, 2020 and 2019, respectively. See Note 5 to our audited consolidated financial statements in our Form 10-K and Note 5 to these unaudited interim consolidated financial statements for more details on our impairment models.

(19)	Calculated based upon the average daily balance of outstanding loan principal balance net of deferred loan fees and costs, excluding the allowance for loan losses.

(20)	Other operating expenses is the result of total noninterest expense less salary and employee benefits.

(21)	Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and net interest income.

(22)	Adjusted efficiency ratio is the efficiency ratio less the effect of restructuring costs, described in “Non-GAAP Financial Measures Reconciliation” herein.

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(1)

At June 30, 2020 and 2019, potential dilutive instruments consisted of unvested shares of restricted stock and restricted stock units totaling 491,360 and 789,652, respectively, mainly related to the Company’s IPO in 2018. See Note 17 to our unaudited interim financial statements in this Form 10-Q for details on the dilutive effects of the issuance of restricted stock and restricted stock units on earnings per share for the three and six month periods ended June 30, 2020 and 2019.

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(1)	Average non-performing loans of $50.4 million and $24.5 million for the three months ended June 30, 2020 and 2019, respectively, and $41.6 million and $22.1 million for the six months ended June 30, 2020,and 2019, respectively, are included in the average loan portfolio, net.

(2)

Includes nontaxable securities with average balances of $62.2 million and $122.9 million for the three months ended June 30, 2020 and 2019, respectively, and $55.8 million and $140.4 million for the six months ended June 30, 2020, and 2019, respectively. The tax equivalent yield for these nontaxable securities for the three months ended June 30, 2020 and 2019 was 3.77% and 4.05%, respectively, and 3.82% and 4.03% for the six months ended June 30, 2020, and 2019, respectively. In 2020 and 2019, the tax equivalent yields were calculated by assuming a 21% tax rate and dividing the actual yield by 0.79.

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(3)

Includes nontaxable securities with average balances of $68.2 million and $82.7 million for the three months ended June 30, 2020 and 2019, respectively, and $70.4 million and $83.7 million for the six months ended June 30, 2020 and 2019, respectively. The tax equivalent yield for these nontaxable securities for the three months ended June 30, 2020 and 2019 was 2.30% and 3.10%, respectively, and 2.56% and 3.33% for the six months ended June 30, 2020, and 2019, respectively. In 2020 and 2019, the tax equivalent yields were calculated by assuming a 21% tax rate and dividing the actual yield by 0.79.

(4)	The terms of the advance agreements require the Bank to maintain certain investment securities or loans as collateral for these advances.

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

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(1)	Includes transactions in which the debtor or the customer is domiciled outside the U.S., even when the collateral is located in the U.S.

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

(2)	Includes net gain on sale of debt securities of $7.5 million and $16.8 million during the three and six month periods ended June 30, 2020, respectively, and unrealized gain on change in market value of mutual fund of $0.2 million and $0.6 million during the three and six month periods ended June 30, 2020, respectively.

(3)	Includes rental income, income from derivative and foreign currency exchange transactions with customers, and valuation income on the investment balances held in the non-qualified deferred compensation plan.

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(1)	Includes advertising, marketing, charitable contributions, community engagement, postage and courier expenses, provisions for possible losses on contingent loans, and debits which mirror the valuation income on the investment balances held in the non-qualified deferred compensation plan in order to adjust our liability to participants of the deferred compensation plan.

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(1)	Total loans, gross are outstanding loan principal balance net of unamortized deferred nonrefundable loan origination fees and loan origination costs, excluding the allowance for loan losses. There were no loans held for sale for the periods presented.

(2)	See Note 5 of our audited consolidated financial statements in the Form 10-K for the year ended December 31, 2019 and Note 5 of these unaudited interim consolidated financial statements for more details on our impairment models.

(3)	Total loans, net are outstanding loan principal balance net of unamortized deferred nonrefundable loan origination fees and loan origination costs, net of the allowance for loan losses.

(1)	Includes loans generally granted to finance the acquisition or operation of non-owner occupied properties such as retail shopping centers, free-standing single-tenant properties, and mixed-use properties with a primary retail component, where the primary source of repayment is derived from the rental income generated from the use of the property by its tenants.

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(1)	Mostly comprised of cash or U.S. Government securities.

(2)	Includes customers’ overdraft balances totaling $0.2 million and $1.3 million as of June 30, 2020 and December 31, 2019, respectively.

(3)	There were no outstanding credit card balances as of June 30, 2020. At December 31, 2019, balances were mostly comprised of credit card extensions of credit to customers with deposits with the Bank. The Company phased out its legacy credit card products to further strengthen its credit quality.

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

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

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(1)	Consists of outstanding principal amounts, net of collateral of cash, cash equivalents or other financial instruments totaling $11.9 million and $15.2 million as of June 30, 2020 and December 31, 2019, respectively.

(2)	Includes mortgage loans for single-family residential properties located in the U.S. totaling $93.4 million and $104.0 million as of June 30, 2020 and December 31, 2019, respectively.

(3)	Includes loans to borrowers in other countries which do not individually exceed one percent of total assets in any of the reported periods.

(1)	Includes mortgage loans for single-family residential properties located in the U.S. totaling $93.4 million and $104.0 million as of June 30, 2020 and December 31, 2019, respectively.

(2)	Includes loans to borrowers in other countries which do not individually exceed one percent of total assets in any of the reported periods.

(3)	Consists of outstanding principal amounts, net of cash collateral, cash equivalents or other financial instruments totaling $11.9 million and $15.2 million as of June 30, 2020 and December 31, 2019, respectively.

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(1)

Includes: (i) credit card receivables to cardholders for whom charge privileges have been stopped as of December 31, 2019; and (ii) mortgage loans for and secured by single-family residential properties located in the U.S. The total allowance for loan losses, after the charge-offs, for credit card receivables totaled $1.8 million at December 31, 2019. Outstanding credit card balances were repaid during the first quarter of 2020, therefore, there is no allowance for the credit card product as of June 30, 2020.

(2)	Includes transactions in which the debtor or customer is domiciled outside the U.S. and all collateral is located in the U.S.

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(1)	Includes loan modifications that met the definition of TDRs that may be performing in accordance with their modified loan terms. As of June 30, 2020 and December 31, 2019, non-performing TDRs include $7.3 million and $9.8 million, respectively, in a multiple loan relationship to a South Florida borrower.

(2)	As of June 30, 2020, includes a $39.8 million commercial relationship placed in nonaccrual status during the second quarter of 2020.

(3)	Includes transactions in which the debtor or customer is domiciled outside the U.S., but where all collateral is located in the U.S.

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

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(1)

June 30, 2020 and December 31, 2019 include $16.3 million and $5.2 million, respectively, in “investment-grade” quality debt securities issued by foreign corporate entities. The securities issuers were from Canada and Japan in three different sectors at June 30, 2020, and from Japan in the financial services sector at December 31, 2019. The Company limits exposure to foreign investments based on cross border exposure by country, risk appetite and policy. All foreign investments are denominated in U.S. Dollars.

(2)	As of June 30, 2020 and December 31, 2019, debt securities in the financial services sector issued by domestic corporate entities represent 2.4% and 1.3% of our total assets, respectively.

(3)	Includes securities issued by U.S. government and U.S. government sponsored agencies.

(4)	Includes an open-end fund incorporated in the U.S. The Fund's objective is to provide a high level of current income consistent with the preservation of capital and investments deemed to be qualified under the Community Reinvestment Act of 1977.

(5)	Includes investments in FHLB and Federal Reserve Bank stock. Amounts correspond to original cost at the date presented. Original cost approximates fair value because of the nature of these investments.

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(1)	Includes brokered deposits of $587.9 million and $682.4 million at June 30, 2020 and December 31, 2019, respectively.

(2)	Domestic deposits, excluding brokered, were up $405.6 million or 16.6%, compared to December 31, 2019.

(3)

Based upon the diligence we customarily perform to "know our customers" for anti-money laundering, OFAC and sanctions purposes, and a review of the Executive Order issued by the President of the United States on August 5, 2019 and the related Treasury Department Guidance, we do not believe that the U.S. economic embargo on certain Venezuelan persons will adversely affect our Venezuelan customer relationships, generally.

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(1)

As of June 30, 2020 and 2019 potential dilutive instruments consisted of unvested shares of restricted stock and restricted stock units mainly related to the Company’s IPO in 2018, totaling 491,360 and 789,652, respectively. As of June 30, 2020, potential dilutive instruments were not included in the diluted earnings per share computation because the Company reported a net loss and their inclusion would have an antidilutive effect. As of June 30, 2019, potential dilutive instruments were included in the diluted earnings per share computation because, when the unamortized deferred compensation cost related to these shares was divided by the average market price per share at that date, fewer shares would have been purchased than restricted shares assumed issued. Therefore, at that date, such awards resulted in higher diluted weighted average shares outstanding than basic weighted average shares outstanding, and had a dilutive effect in per share earnings.

(2)	See “Selected Financial Information” for an explanation of certain non-GAAP financial measures and see “Non-GAAP Financial Measures Reconciliation” for a reconciliation of the non-GAAP financial measures to their GAAP counterparts.

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(1)	As of June 30, 2020 and December 31, 2019, includes $530 million (fixed interest rate raging from 0.62% to 0.97%) in advances from the FHLB that are callable prior to maturity.

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(1)	“Loan portfolio-performing” excludes $77.3 million of non-performing loans.

N/M	Not meaningful

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•	the reduced economic activity may severely impact our customers' businesses, financial condition and liquidity and may prevent one or more of our customers from meeting their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;

•	a decline in the credit quality of our loan portfolio leading to a need to increase our allowance for loan losses;

•	a decline in the credit quality of loans used as collateral to obtain advances from the Federal Home Loan Bank may trigger a request to replace the loans used as collateral with securities and may negatively impact our liquidity ratio;

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•	a significant decline in the value of the collateral used to secure loans that have a related interest rate swap agreement may limit our ability to realize enough value from the collateral to cover the outstanding balance of the loan and the related swap liability;

•	any impairment in value of our tangible and/or intangible assets which could be recorded as a result of weaker economic conditions;

•	the reduced economic activity could develop into a local and/or global economic recession, which could adversely affect the demand for our products and services;

•	increased unemployment and decreased consumer confidence, which could adversely affect account openings and result in decreased deposit activity and increased withdrawal activity;

•	the recent action of the Federal Reserve’s Federal Open Market Committee (‘‘FOMC’’) to lower the target federal funds rate, and any future action of the FOMC to lower the target federal funds rate further, may negatively affect our net interest income;

•	the potential volatility in the fair value and yields of our investment portfolio;

•	a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our ability to access the debt and/or equity markets in the future on attractive terms, or at all, or negatively impact our credit ratings;

•	any reduction/impairment in value of the collateral used by our customers to secure their obligations with us that could be recorded as a result of weaker economic conditions; and

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the potential negative impact of a pandemic, including any preventative or protective actions that governments implement to contain it, or the occurrence of cases of COVID-19 at any of our banking centers or offices, may interfere with the ability of our employees and vendors to perform their respective responsibilities and obligations relative to the conduct of our business and, if a significant number of them are impacted, could result in a deterioration of our ability to ensure business continuity during a disruption.

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•	making it more difficult for us to satisfy our obligations with respect to our debt, including the Senior Notes;

•	requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for other purposes;

•	increasing our vulnerability to adverse economic and industry conditions, which could place us at a disadvantage relative to our competitors that have less debt;

•	limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; and

•	limiting our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions and other corporate purposes.

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