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EX-32.2 - EXHIBIT 32.2 - Amerant Bancorp Inc.ex32209302018.htm
EX-32.1 - EXHIBIT 32.1 - Amerant Bancorp Inc.ex32109302018.htm
EX-31.2 - EXHIBIT 31.2 - Amerant Bancorp Inc.ex31209302018.htm
EX-31.1 - EXHIBIT 31.1 - Amerant Bancorp Inc.ex31109302018.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period __________ to __________
Commission File Number: 001-38534
 
Mercantil Bank Holding Corporation
(Exact Name of Registrant as Specified in Its Charter)
 
Florida
(State or other jurisdiction of
incorporation or organization)
65-0032379
(I.R.S. Employer
Identification No.)
220 Alhambra Circle
Coral Gables, Florida
(305) 460-8728
33134
(Address and telephone number of principal executive offices)
(Zip Code)
 
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ¨                                         No ý
The registrant became subject to these requirements on August 8, 2018.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý                                         No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
 
Accelerated filer ¨
 
Smaller reporting company ¨
 
Emerging growth company ý
Non-accelerated filer ý (Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the company has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨       No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class
 
Outstanding as of November 13, 2018
Class A Common Stock, $0.10 par value per share
 
24,737,470 shares of Class A Common Stock
Class B Common Stock, $0.10 par value per share
 
17,751,053 shares of Class B Common Stock

1



MERCANTIL BANK HOLDING CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 2018
INDEX
Page
 
 
 
 
 
 
 


2



Part 1. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS
Mercantil Bank Holding Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
September 30,
2018
 
December 31, 2017
 

 
 
Assets
 
 
 
Cash and due from banks
$
37,507

 
$
44,531

Interest earning deposits with banks
66,072

 
108,914

Cash and cash equivalents
103,579

 
153,445

Securities
 
 
 
Available for sale
1,628,121

 
1,687,157

Held to maturity
86,324

 
89,860

Federal Reserve Bank and Federal Home Loan Bank stock
77,414

 
69,934

Loans held for sale

 
5,611

Loans, gross
6,159,279

 
6,066,225

Less: Allowance for loan losses
69,471

 
72,000

Loans, net
6,089,808

 
5,994,225

Bank owned life insurance
204,690

 
200,318

Premises and equipment, net
122,350

 
129,357

Deferred tax assets, net
22,787

 
14,583

Goodwill
19,193

 
19,193

Accrued interest receivable and other assets
81,536

 
73,084

Total assets
$
8,435,802

 
$
8,436,767

Liabilities and Stockholders' Equity
 
 
 
Deposits
 
 
 
Demand
 
 
 
Noninterest bearing
$
843,768

 
$
895,710

Interest bearing
1,348,967

 
1,496,749

Savings and money market
1,617,645

 
1,684,080

Time
2,379,123

 
2,246,434

Total deposits
6,189,503

 
6,322,973

Advances from the Federal Home Loan Bank and other borrowings
1,338,000

 
1,173,000

Junior subordinated debentures held by trust subsidiaries
118,110

 
118,110

Accounts payable, accrued liabilities and other liabilities
62,514

 
69,234

Total liabilities
7,708,127

 
7,683,317

Commitments and contingencies (Note 12)

 

 
 
 
 
Stockholders’ equity (Note 1)
 
 
 
Class A common stock, $0.10 par value, 400 million shares authorized; 24,737,470 shares issued and outstanding
2,474

 
2,474

Class B common stock, $0.10 par value, 100 million shares authorized; 17,751,053 shares issued and outstanding
1,775

 
1,775

Additional paid in capital
367,505

 
367,505

Retained earnings
379,232

 
387,829

Accumulated other comprehensive loss
(23,311
)
 
(6,133
)
Total stockholders' equity
727,675

 
753,450

Total liabilities and stockholders' equity
$
8,435,802

 
$
8,436,767


The accompanying notes are an integral part of these consolidated financial statements (unaudited).
3

Mercantil Bank Holding Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Unaudited)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands, except per share data)
2018
 
2017
 
2018
 
2017
Interest income
 
 
 
 
 
 
 
Loans
$
66,776

 
$
58,977

 
$
188,894

 
$
162,847

Investment securities
12,183

 
11,958

 
36,633

 
37,039

Interest earning deposits with banks
666

 
491

 
1,945

 
1,228

Total interest income
79,625

 
71,426

 
227,472

 
201,114

 
 
 
 
 
 
 
 
Interest expense
 
 
 
 
 
 
 
Interest bearing demand deposits
211

 
100

 
413

 
284

Savings and money market deposits
3,477

 
2,147

 
9,165

 
6,528

Time deposits
11,531

 
7,011

 
30,403

 
18,864

Advances from the Federal Home Loan Bank
6,716

 
4,765

 
19,217

 
13,359

Junior subordinated debentures
2,057

 
1,880

 
6,017

 
5,559

Securities sold under agreements to repurchase

 
457

 
2

 
1,662

Total interest expense
23,992

 
16,360

 
65,217

 
46,256

Net interest income
55,633

 
55,066

 
162,255

 
154,858

Provision for loan losses
1,600

 
1,155

 
1,750

 
8,898

Net interest income after provision for loan losses
54,033

 
53,911

 
160,505

 
145,960

 
 
 
 
 
 
 
 
Noninterest income
 
 
 
 
 
 
 
Deposits and service fees
4,269

 
4,841

 
13,322

 
14,615

Brokerage, advisory and fiduciary activities
4,148

 
5,052

 
12,989

 
15,210

Change in cash surrender value of bank owned life insurance
1,454

 
1,465

 
4,372

 
3,952

Cards and trade finance servicing fees
1,145

 
1,264

 
3,380

 
3,449

Gain on early extinguishment of advances from the Federal Home Loan Bank

 

 
882

 

Data processing, rental income and fees for other services to related parties
523

 
1,024

 
2,017

 
2,576

Securities (losses) gains, net
(15
)
 
(1,842
)
 
1

 
(1,687
)
Other noninterest income
1,426

 
12,286

 
4,918

 
17,951

Total noninterest income
12,950

 
24,090

 
41,881

 
56,066

 
 
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
 
 
Salaries and employee benefits
33,967

 
34,148

 
102,940

 
98,122

Occupancy and equipment
4,044

 
4,217

 
11,819

 
12,978

Professional and other services fees
4,268

 
3,273

 
16,099

 
8,674

FDIC assessments and insurance
1,578

 
1,611

 
4,493

 
5,754

Telecommunication and data processing
3,043

 
2,531

 
9,138

 
6,700

Depreciation and amortization
1,997

 
2,321

 
6,083

 
6,787

Other operating expenses
3,145

 
4,121

 
9,753

 
13,020

Total noninterest expenses
52,042

 
52,222

 
160,325

 
152,035

Net income before income tax
14,941

 
25,779

 
42,061

 
49,991

Income tax expense
(3,390
)
 
(8,437
)
 
(10,658
)
 
(15,752
)
Net income
$
11,551

 
$
17,342

 
$
31,403

 
$
34,239

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements (unaudited).
4

Mercantil Bank Holding Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Unaudited)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands, except per share data)
2018
 
2017
 
2018
 
2017
Other comprehensive (loss) income, net of tax
 
 
 
 
 
 
 
Net unrealized holding (losses) gains on securities available for sale arising during the period
$
(4,938
)
 
$
1,898

 
$
(25,369
)
 
$
9,450

Net unrealized holding gains (losses) on cash flow hedges arising during the period
1,840

 
(313
)
 
8,209

 
(2,292
)
Reclassification adjustment for net (gains) losses included in net income
(160
)
 
1,481

 
(18
)
 
2,118

Other comprehensive (loss) income
(3,258
)
 
3,066

 
(17,178
)
 
9,276

Comprehensive income
$
8,293

 
$
20,408

 
$
14,225

 
$
43,515

 
 
 
 
 
 
 
 
Basic and diluted earnings per share:
 
 
 
 
 
 
 
Net income available to common shareholders
$
11,551

 
$
17,342

 
$
31,403

 
$
34,239

Basic and diluted weighted average shares outstanding
42,489

 
42,489

 
42,489

 
42,489

Basic and diluted income per common share
$
0.27

 
$
0.41

 
$
0.74

 
$
0.81


The accompanying notes are an integral part of these consolidated financial statements (unaudited).
5

Mercantil Bank Holding Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
Nine Months Ended September 30, 2018 and 2017




 
Common Stock
 
Additional
Paid
in Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Loss
 
Total
Stockholders'
Equity
 
Class A
 
Class B
 
 
 
 
(in thousands, except share data)
Shares
Issued and
Outstanding
 
Par
value
 
Shares
Issued and
Outstanding
 
Par
value
 
 
 
 
Balance at
December 31, 2016
24,737,470

 
$
2,474

 
17,751,053

 
$
1,775

 
$
367,505

 
$
343,678

 
$
(10,695
)
 
$
704,737

Net income

 

 

 

 

 
34,239

 

 
34,239

Other comprehensive income

 

 

 

 

 

 
9,276

 
9,276

Balance at
September 30, 2017
24,737,470

 
$
2,474

 
17,751,053

 
$
1,775

 
$
367,505

 
$
377,917

 
$
(1,419
)
 
$
748,252

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at
December 31, 2017
24,737,470

 
$
2,474

 
17,751,053

 
$
1,775

 
$
367,505

 
$
387,829

 
$
(6,133
)
 
$
753,450

Net income

 

 

 

 

 
31,403

 

 
31,403

Dividends (Note 1)

 

 

 

 

 
(40,000
)
 

 
(40,000
)
Other comprehensive loss

 

 

 

 

 

 
(17,178
)
 
(17,178
)
Balance at
September 30, 2018
24,737,470

 
$
2,474

 
17,751,053

 
$
1,775

 
$
367,505

 
$
379,232

 
$
(23,311
)
 
$
727,675


The accompanying notes are an integral part of these consolidated financial statements (unaudited).
6

Mercantil Bank Holding Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)


 
Nine Months Ended September 30,
(in thousands)
2018
 
2017
Cash flows from operating activities
 
 
 
Net income
$
31,403

 
$
34,239

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Provision for loan losses
1,750

 
8,898

Net premium amortization on securities
12,855

 
14,505

Depreciation and amortization
6,083

 
6,787

Increase in cash surrender value of bank owned life insurance
(4,372
)
 
(3,952
)
Net gain on sale of premises and equipment

 
(11,321
)
Deferred taxes, securities net gains or losses and others
(3,143
)
 
2,151

Net changes in operating assets and liabilities
 
 
 
Accrued interest receivable and other assets
2,543

 
(17,056
)
Account payable, accrued liabilities and other liabilities
(6,430
)
 
54,343

Net cash provided by operating activities
40,689

 
88,594

 
 
 
 
Cash flows from investing activities
 
 
 
Purchases of investment securities:
 
 
 
Available for sale
(166,703
)
 
(183,943
)
Held to maturity securities

 
(42,770
)
Federal Reserve Bank and Federal Home Loan Bank stock
(24,055
)
 
(25,744
)
Maturities, sales and calls of investment securities:
 
 
 
Available for sale
178,981

 
596,006

Held to maturity
3,335

 
116

Federal Reserve Bank and Federal Home Loan Bank stock
16,576

 
22,950

Net increase in loans
(153,019
)
 
(413,788
)
Proceeds from loan portfolio sales
60,856

 
55,691

Purchase of bank owned life insurance

 
(30,000
)
Net (purchases) proceeds from sales of premises and equipment, and others
(5,556
)
 
26,457

Net proceeds from sale of subsidiary
7,500

 

Net cash (used in) provided by investing activities
(82,085
)
 
4,975

 
 
 
 
Cash flows from financing activities
 
 
 
Net decrease in demand, savings and money market accounts
(266,159
)
 
(403,547
)
Net increase in time deposits
132,689

 
324,429

Net decrease in securities sold under agreements to repurchase

 
(15,000
)
Proceeds from Advances from the Federal Home Loan Bank and other banks
941,000

 
1,089,500

Repayments of Advances from the Federal Home Loan Bank and other banks
(776,000
)
 
(1,027,500
)
Dividend paid
(40,000
)
 

Net cash used in financing activities
(8,470
)
 
(32,118
)
Net (decrease) increase in cash and cash equivalents
(49,866
)
 
61,451

 
 
 
 
Cash and cash equivalents
 
 
 
Beginning of period
153,445

 
134,989

End of period
$
103,579

 
$
196,440

 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
Cash paid:
 
 
 
Interest
$
63,987

 
$
44,405

Income taxes
18,649

 
7,931


The accompanying notes are an integral part of these consolidated financial statements (unaudited).
7

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)


1.
Basis of Presentation and Summary of Significant Accounting Policies
Mercantil Bank Holding Corporation (the “Company”), is a Florida corporation incorporated in 1985, which has operated since January 1987. The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as a result of its 100% indirect ownership of Amerant Bank, N.A. (the “Bank”). The Company’s principal office is in the City of Coral Gables, Florida. The Bank is a member of the Federal Reserve Bank of Atlanta (“Federal Reserve Bank”) and the Federal Home Loan Bank of Atlanta (“FHLB”). The Bank has two principal subsidiaries, Amerant Investments, Inc. a securities broker-dealer, and Amerant Trust, N.A.
As of December 31, 2017 the Company was a wholly owned subsidiary of Mercantil Servicios Financieros, C.A. (“MSF”). On March 15, 2018, MSF transferred ownership of 100% of the Company Shares to a non-discretionary common law, grantor trust governed by the laws of the State of Florida (the “Distribution Trust”). The Company and MSF are parties to an Amended and Restated Separation and Distribution Agreement dated as of June 12, 2018 that provided for the spin-off (the “Spin-off”) of the Company from MSF.
On February 6, 2018, the Company filed amended and restated articles of incorporation with the Secretary of State of the State of Florida. Pursuant to this action, the total number of Class A and Class B common shares (“Company Shares”), which the Company is authorized to issue is 400,000,000 and 100,000,000, respectively. In addition, effective on February 6, 2018, the Company exchanged 100% of the 298,570,328 Class A and 215,188,764 Class B Company Shares outstanding, for 74,212,408 Class A and 53,253,157 Class B Company Shares. This facilitated the distribution of one share of Class A and Class B Company Shares for each outstanding share of MSF Class A and Class B common stock, respectively. See Note 22 to the audited consolidated financial statements as of December 31, 2017, which are included in the Company’s definitive Information Statement filed with the Securities and Exchange Commission (“SEC”) as Exhibit 99.1 to its Current Report on Form 8-K on August 10, 2018 (the “Information Statement”), and within the Company’s preliminary Registration Statement on Form S-1 filed with the SEC on October 5, 2018 (the “Registration Statement”).
On March 13, 2018, the Company paid a special, one-time, cash dividend of $40.0 million to MSF, or $0.94 per common share.
The Distribution Trust was established by MSF and the Company pursuant to a Distribution Trust Agreement, as amended, with a Texas trust company, unaffiliated with MSF, as trustee. The Distribution Trust held 80.1% of the Company Shares (the “Distributed Shares”) for the benefit of MSF’s Class A and Class B common shareholders of record (“Record Holders”) on April 2, 2018 (“Record Date”). The remaining 19.9% of all Company Shares of each Class held in the Distribution Trust for the benefit of MSF and its subsidiaries are the “Retained Shares.”
The Distributed Shares were distributed to MSF shareholders on August 10, 2018 (the “Distribution”). As a result of the Distribution, the Company is a separate company whose common stock has been listed on the Nasdaq Stock Market under the symbols “MBNAA” (for the Company’s Class A common stock) and “MBNAB” (for the Company’s Class B common stock). The Distribution Trust continues to hold the Retained Shares pending their sale or disposition by MSF or, in certain circumstances where there is a change in control of MSF, their contribution by MSF to the Company.
MSF, the Company and various individuals as Voting Trustees, entered into a Voting Trust Agreement (the “Voting Trust”) in October 2008 to promote the interests of the Bank and expand its business in the United States, and to provide continued appropriate corporate governance of the Bank upon the occurrence of certain changes or threatened changes in control of MSF not approved by MSF’s board of directors.

8

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)


On July 24, 2018, the Voting Trust was terminated. The Company is now the sole shareholder of Mercantil Florida Bancorp, Inc. and the indirect owner of 100% of the Bank.
On August 8, 2018, the Company became subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Securities Act”).
On October 23, 2018, the Company completed a 1-for-3 reverse stock split of the Company's issued and outstanding shares of its Class A and Class B common stock (the “Stock Split”). As a result of the Stock Split, every three shares of issued and outstanding Class A common stock were combined into one issued and outstanding share of Class A common stock, and every three shares of issued and outstanding Class B common stock were combined into one issued and outstanding share of Class B common stock, without any change in the par value per share. Fractional shares were issued and no cash was paid by the Company in respect of fractional shares or otherwise in the Stock Split. The Stock Split reduced the number of shares of Class A common stock issued and outstanding from 74,212,408 shares to approximately 24,737,470 shares, and reduced the number of shares of Class B common stock issued and outstanding from 53,253,157 shares to approximately 17,751,053 shares.
On October 24, 2018, the Company announced it will be rebranding as “Amerant.” The Company’s principal subsidiaries have adopted this name and logo. The Company will use the Amerant brand and will officially change its corporate name at its annual shareholders’ meeting in 2019. 
As a result of the rebranding and in connection with the Stock Split, the Company's Class A and Class B common stock began trading on a Stock Split-adjusted basis on October 24, 2018 under the symbols “AMTB” (for the Company’s Class A common stock) and “AMTBB” (for the Company’s Class B common stock). All references made to share or per share amounts in these unaudited interim consolidated financial statements for the periods presented and applicable disclosures have been retroactively adjusted to reflect the Stock Split.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required for a fair statement of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). These unaudited interim consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for a full year or any other period. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017 and the accompanying footnote disclosures for the Company, which are included in the Information Statement and within the Registration Statement.
The effects of significant subsequent events, if any, have been recognized or disclosed in these unaudited interim consolidated financial statements. Subsequent events have been evaluated through November 13, 2018, the date when these consolidated financial statements were available to be issued.
For a complete summary of our significant accounting policies, please see Note 1 to the audited consolidated financial statements as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017, which are included in the Information Statement and within the Registration Statement.



9

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)

Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Significant estimates made by management include: (i) the determination of the allowance for loan losses; (ii) the fair values of securities, bank owned life insurance and the reporting unit to which goodwill has been assigned during the annual goodwill impairment test; and (iii) the determination of whether the amount of deferred tax assets will more likely than not be realized. Management believes that these estimates are appropriate. Actual results could differ from these estimates.
2.
Recently Issued Accounting Pronouncements
Issued and Adopted
Removal of Outdated OCC Guidance
In May 2018, the Financial Accounting Standards Board (“FASB”) issued amendments which removed outdated guidance related to the Office of the Comptroller of the Currency (“OCC”)’s Banking Circular 202, Accounting for Net Deferred Tax Changes. This guidance, which limited the net deferred tax debits that can be carried on a bank’s statement of condition for regulatory purposes, has been rescinded by the OCC. These amendments became effective immediately upon issuance and had no impact to the Company’s unaudited interim consolidated financial statements.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued guidance that allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate. The amount of the reclassification is the difference between the historical corporate income tax rate and the newly enacted 21% corporate income tax rate pursuant to H.R. 1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal year 2018, known as the Tax Cuts and Jobs Act of 2017 (“the 2017 Tax Act”). This guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for (1) public business entities for reporting periods for which financial statements have not been issued, and (2) for other entities for reporting periods for which financial statements have not yet been made available for issuance. The Company early-adopted this guidance and reclassified the effect of remeasuring net deferred tax assets related to items within AOCI to retained earnings resulting in a $1.1 million increase in retained earnings in 2017.
Issued and Not Yet Adopted
Emerging Growth Company
Section 107 of the JOBS Act provides that, as an “emerging growth company” we can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period, for as long as it is available and consistent with bank regulatory requirements.

10

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)


Changes to the Disclosure Requirements for Fair Value Measurements
In August 2018, the FASB issued amendments to the disclosure requirements for fair value measurements. The amendments modify the fair value measurements disclosures with the primary focus to improve effectiveness of disclosures in the notes to the financial statements that is most important to the users. The new guidance modifies the required disclosures related to the valuation techniques and inputs used, uncertainty in measurement, and changes in measurements applied. These amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact this new guidance may have on the Company’s consolidated financial statements and footnote disclosures.
Narrow Amendments to Pending New Guidance on Leases
In July 2018, the FASB issued amendments to narrow aspects of the new guidance issued in February 2016 for the recognition and measurement of all leases which is not yet effective. These amendments, and the related pending new guidance, are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, for private companies, and for fiscal periods beginning after December 15, 2018, and interim periods within those fiscal years, for public companies. Early adoption is permitted. The Company is in the process of determining whether these amendments and the related new pending guidance will have a material effect on its consolidated financial statements, when adopted.
Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued targeted amendments to the guidance for recognition, presentation and disclosure of hedging activities. These targeted amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments also simplify the application of hedge accounting guidance. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years for public business entities. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company is in the process of determining whether the adoption of this guidance will have a material impact on the Company’s consolidated financial statements and disclosures.
Statement of Cash Flows Classification of Certain Receipts and Payments
In August 2016 , the FASB issued specific guidance for the classification of a number of cash receipts and payments, including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, proceeds from the settlement of insurance claims and proceeds from the settlement of bank-owned life insurance policies. The new guidance is effective for years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, for private companies, and for years beginning after December 15, 2017 and interim periods within those fiscal years for public companies. Early adoption is permitted. The Company is in the process of understanding whether this new guidance will have a material impact on its consolidated statement of cash flows when adopted.

11

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)


Accounting for Credit Losses on Financial Instruments
In June 2016, the FASB issued new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The standard is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021, for private companies, and for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, for public companies. Early adoption is permitted for fiscal years beginning after December 15, 2018. The Company is in the process of determining whether these changes will have a material impact on its consolidated financial position or results of operations or disclosures.
Accounting for Leases
In February 2016, the FASB issued guidance for the recognition and measurement of all leases. The new guidance requires lessees to recognize a right-of-use asset and a lease liability for most leases within the scope of the guidance. There were no significant changes to the guidance for lessors. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, for private companies, and for fiscal periods beginning after December 15, 2018, and interim periods within those fiscal years, for public companies. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition at the beginning of the earliest comparative period presented, and provides for certain practical expedients. The Company is in the process of determining whether this new guidance will have a material impact on its consolidated financial position, results of operations and disclosures, when adopted.
Recognition and Measurement of Financial Instruments
In January 2016, the FASB issued changes to the guidance on the recognition and measurement of financial instruments. The changes include, among others, the removal of the available-for-sale category for equity securities and updates to certain disclosure requirements. This standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, for private companies, and for fiscal periods beginning December 15, 2017, and interim periods within those fiscal years, for public companies, with limited early adoption permitted. The Company is in the process of determining whether these changes will have a material impact on its consolidated financial position or results of operations or disclosures.
Revenue from Contracts with Customers
In May 2014, the FASB issued a common revenue standard for recognizing revenue from contracts with customers. This new standard establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amended effective date is annual reporting periods beginning after December 15, 2018, and interim periods beginning after December 15, 2019, for private companies, and for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period, for public companies. Earlier adoption continues to be permitted. The Company is in the process of determining whether the new guidance will have a material impact on its consolidated financial position or results of operations.


12

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)

3.
Securities
Amortized cost and approximate fair values of securities available for sale are summarized as follows:
 
September 30, 2018
 
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair Value
(in thousands)
 
Gains
 
Losses
 
U.S. government sponsored enterprise debt securities
$
837,796

 
$
1,008

 
$
(34,130
)
 
$
804,674

Corporate debt securities
369,496

 
2,332

 
(3,417
)
 
368,411

U.S. government agency debt securities
266,758

 
210

 
(6,197
)
 
260,771

Municipal bonds
176,825

 
10

 
(5,980
)
 
170,855

Mutual funds
24,265

 

 
(1,355
)
 
22,910

Commercial paper
500

 

 

 
500

 
$
1,675,640

 
$
3,560

 
$
(51,079
)
 
$
1,628,121

 
December 31, 2017
 
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair Value
(in thousands)
 
Gains
 
Losses
 
U.S. government sponsored enterprise debt securities
$
889,396

 
$
1,784

 
$
(15,514
)
 
$
875,666

Corporate debt securities
310,781

 
3,446

 
(835
)
 
313,392

U.S. government agency debt securities
293,908

 
870

 
(3,393
)
 
291,385

Municipal bonds
179,524

 
2,343

 
(1,471
)
 
180,396

Mutual funds
24,262

 

 
(645
)
 
23,617

U.S. treasury securities
2,700

 
2

 
(1
)
 
2,701

 
$
1,700,571

 
$
8,445

 
$
(21,859
)
 
$
1,687,157

At September 30, 2018 and December 31, 2017, the Company had no foreign sovereign debt securities.

13

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)


The Company’s investment securities available for sale with unrealized losses that are deemed temporary, aggregated by length of time that individual securities have been in a continuous unrealized loss position, are summarized below:
 
September 30, 2018
 
Less Than 12 Months
 
12 Months or More
 
Total
(in thousands)
Estimated
Fair Value
 
Unrealized
Loss
 
Estimated
Fair Value
 
Unrealized
Loss
 
Estimated
Fair Value
 
Unrealized
Loss
U.S. government sponsored enterprise debt securities
$
257,674

 
$
(8,239
)
 
$
487,848

 
$
(25,891
)
 
$
745,522

 
$
(34,130
)
U.S. government agency debt securities
111,541

 
(2,144
)
 
129,299

 
(4,053
)
 
240,840

 
(6,197
)
Municipal bonds
88,908

 
(1,840
)
 
76,246

 
(4,140
)
 
165,154

 
(5,980
)
Corporate debt securities
179,134

 
(2,475
)
 
20,772

 
(942
)
 
199,906

 
(3,417
)
Mutual funds

 

 
22,665

 
(1,355
)
 
22,665

 
(1,355
)
 
$
637,257

 
$
(14,698
)
 
$
736,830

 
$
(36,381
)
 
$
1,374,087

 
$
(51,079
)
 
December 31, 2017
 
Less Than 12 Months
 
12 Months or More
 
Total
(in thousands)
Estimated
Fair Value
 
Unrealized
Loss
 
Estimated
Fair Value
 
Unrealized
Loss
 
Estimated
Fair Value
 
Unrealized
Loss
U.S. government sponsored enterprise debt securities
$
333,232

 
$
(2,956
)
 
$
485,555

 
$
(12,558
)
 
$
818,787

 
$
(15,514
)
U.S. government agency debt securities
92,138

 
(728
)
 
128,316

 
(2,665
)
 
220,454

 
(3,393
)
Municipal bonds
4,895

 
(8
)
 
76,003

 
(1,463
)
 
80,898

 
(1,471
)
Corporate debt securities
94,486

 
(751
)
 
3,694

 
(84
)
 
98,180

 
(835
)
Mutual funds

 

 
23,375

 
(645
)
 
23,375

 
(645
)
U.S. treasury securities

 

 
2,199

 
(1
)
 
2,199

 
(1
)
 
$
524,751

 
$
(4,443
)
 
$
719,142

 
$
(17,416
)
 
$
1,243,893

 
$
(21,859
)
At September 30, 2018 and December 31, 2017 debt securities issued by U.S. government-sponsored entities and agencies held by the Company were issued by institutions which the government has affirmed its commitment to support. The Company does not consider these securities to be other-than-temporarily impaired because the decline in fair value is attributable to changes in interest rates and investment securities markets, generally, and not credit quality. The Company does not have the intent to sell these debt securities and it is more likely than not that it will not be required to sell the securities before their anticipated recovery.
Unrealized losses on municipal and corporate debt securities, at September 30, 2018 and December 31, 2017, are attributable to changes in interest rates and investment securities markets, generally, and as a result, temporary in nature. The Company does not consider these securities to be other-than-temporarily impaired because the issuers of these debt securities are considered to be high quality, and management does not intend to sell these investments and it is more likely than not that it will not be required to sell these investments before their anticipated recovery.

14

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)

Amortized cost and approximate fair values of securities held to maturity, are summarized as follows:
 
September 30, 2018
 
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair Value
(in thousands)
 
Gains
 
Losses
 
Securities Held to Maturity -
 
 
 
 
 
 
 
   U.S. government sponsored enterprise debt securities
$
83,408

 
$

 
$
(4,204
)
 
$
79,204

   U.S. Government agency debt securities
2,916

 

 
(117
)
 
2,799

 
$
86,324

 
$

 
$
(4,321
)
 
$
82,003

 
December 31, 2017
 
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair Value
(in thousands)
 
Gains
 
Losses
 
Securities Held to Maturity -
 
 
 
 
 
 
 
   U.S. government sponsored enterprise debt securities
$
86,826

 
$
47

 
$
(441
)
 
$
86,432

   U.S. Government agency debt securities
3,034

 

 

 
3,034

 
$
89,860

 
$
47

 
$
(441
)
 
$
89,466

Contractual maturities of securities at September 30, 2018 are as follows:
 
Available for Sale
 
Held to Maturity
(in thousands)
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Within 1 year
$
44,543

 
$
44,234

 
$

 
$

After 1 year through 5 years
303,053

 
300,596

 

 

After 5 years through 10 years
239,839

 
235,495

 

 

After 10 years
1,063,940

 
1,024,886

 
86,324

 
82,003

No contractual maturities
24,265

 
22,910

 

 

 
$
1,675,640

 
$
1,628,121

 
$
86,324

 
$
82,003

At September 30, 2018 and December 31, 2017, securities available for sale with a fair value of approximately $243 million and $246 million, respectively, were pledged as collateral to secure securities sold under agreements to repurchase and advances from the FHLB.

15

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)

4.
Loans
The loan portfolio consists of the following loan classes:
(in thousands)
September 30,
2018
 
December 31,
2017
Real estate loans
 
 
 
Commercial real estate
 
 
 
Non-owner occupied
$
1,792,708

 
$
1,713,104

Multi-family residential
847,873

 
839,709

Land development and construction loans
401,339

 
406,940

 
3,041,920

 
2,959,753

Single-family residential
509,460

 
512,754

Owner-occupied
710,125

 
610,386

 
4,261,505

 
4,082,893

Commercial loans
1,470,222

 
1,354,755

Loans to financial institutions and acceptances
310,967

 
497,626

Consumer loans and overdrafts
116,585

 
130,951

 
$
6,159,279

 
$
6,066,225

The amounts above include loans under syndication facilities of approximately $971 million and $989 million at September 30, 2018 and December 31, 2017, respectively.
The following tables summarize international loans by country, net of loans fully collateralized with cash of approximately $23.7 million and $31.9 million at September 30, 2018 and December 31, 2017, respectively.
 
September 30, 2018
(in thousands)
Brazil
 
Venezuela
 
Others (1)
 
Total
Real estate loans
 
 
 
 
 
 
 
Single-family residential (2)
$
361

 
$
134,090

 
$
6,289

 
$
140,740

Loans to financial institutions and acceptances
130,866

 

 
163,750

 
294,616

Commercial loans
3,365

 

 
83,902

 
87,267

Consumer loans and overdrafts (3)
5,022

 
28,022

 
6,081

 
39,125

 
$
139,614

 
$
162,112

 
$
260,022

 
$
561,748

__________________
(1)
Loans to borrowers in 19 other countries; the total by country does not individually exceed 1% of total assets.
(2)
Mortgage loans secured by single-family residential properties located in the U.S.
(3)
Mostly comprised of credit card extensions of credit to customers with deposits with the Bank. Charging privileges are suspended, if the deposits decline below the authorized credit line.











16

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)


 
December 31, 2017
(in thousands)
Brazil
 
Venezuela
 
Chile
 
Others (1)
 
Total
Real estate loans
 
 
 
 
 
 
 
 
 
Single-family residential (2)
$
219

 
$
145,069

 
$
179

 
$
7,246

 
$
152,713

Loans to financial institutions and acceptances
129,372

 

 
93,000

 
258,811

 
481,183

Commercial loans
8,451

 

 

 
60,843

 
69,294

Consumer loans and overdrafts (3)
3,046

 
37,609

 
1,364

 
10,060

 
52,079

 
$
141,088

 
$
182,678

 
$
94,543

 
$
336,960

 
$
755,269

__________________
(1)
Loans to borrowers in 18 other countries; the total by country does not individually exceed 1% of total assets.
(2)
Mortgage loans secured by single-family residential properties located in the U.S.
(3)
Mostly comprised of credit card extensions of credit secured to customers with deposits with the Bank. Charging privileges are suspended, if the deposits decline below the authorized credit line.

The analysis of the loan portfolio delinquencies by class, including nonaccrual loans, as of September 30, 2018 and December 31, 2017 are summarized in the following tables:
 
September 30, 2018
 
Total Loans,
Net of
Unearned
Income
 
 
 
Past Due
 
Total Loans in
Nonaccrual
Status
 
Total Loans
90 Days or More
Past Due
and Accruing
(in thousands)
 
Current
 
30-59
Days
 
60-89
Days
 
Greater than
90 Days
 
Total Past
Due
 
 
Real estate loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-owner occupied
$
1,792,708

 
$
1,792,639

 
$
69

 
$

 
$

 
$
69

 
$
10,244

 
$

Multi-family residential
847,873

 
847,873

 

 

 

 

 

 

Land development and construction loans
401,339

 
401,339

 

 

 

 

 

 

 
3,041,920

 
3,041,851

 
69

 

 

 
69

 
10,244

 

Single-family residential
509,460

 
502,345

 
618

 
1,765

 
4,732

 
7,115

 
7,047

 
251

Owner-occupied
710,125

 
708,487

 
1,094

 
355

 
189

 
1,638

 
4,808

 

 
4,261,505

 
4,252,683

 
1,781

 
2,120

 
4,921

 
8,822

 
22,099

 
251

Commercial loans
1,470,222

 
1,468,777

 
371

 
422

 
652

 
1,445

 
6,461

 

Loans to financial institutions and acceptances
310,967

 
310,967

 

 

 

 

 

 

Consumer loans and overdrafts
116,585

 
115,066

 
402

 
269

 
848

 
1,519

 
57

 
834

 
$
6,159,279

 
$
6,147,493

 
$
2,554

 
$
2,811

 
$
6,421

 
$
11,786

 
$
28,617

 
$
1,085


17

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)

 
December 31, 2017
 
Total Loans,
Net of
Unearned
Income
 
 
 
Past Due
 
Total Loans in
Nonaccrual
Status
 
Total Loans
90 Days or More
Past Due
and Accruing
(in thousands)
 
Current
 
30-59
Days
 
60-89
Days
 
Greater than
90 Days
 
Total Past
Due
 
 
Real estate loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-owner occupied
$
1,713,104

 
$
1,712,624

 
$

 
$

 
$
480

 
$
480

 
$
489

 
$

Multi-family residential
839,709

 
839,709

 

 

 

 

 

 

Land development and construction loans
406,940

 
406,940

 

 

 

 

 

 

 
2,959,753

 
2,959,273

 

 

 
480

 
480

 
489

 

Single-family residential
512,754

 
501,393

 
6,609

 
2,750

 
2,002

 
11,361

 
5,004

 
226

Owner-occupied
610,386

 
602,643

 
3,000

 
174

 
4,569

 
7,743

 
12,227

 

 
4,082,893

 
4,063,309

 
9,609

 
2,924

 
7,051

 
19,584

 
17,720

 
226

Commercial loans
1,354,755

 
1,350,667

 
385

 
5

 
3,698

 
4,088

 
8,947

 

Loans to financial institutions and acceptances
497,626

 
497,626

 

 

 

 

 

 

Consumer loans and overdrafts
130,951

 
130,846

 
57

 
29

 
19

 
105

 
55

 

 
$
6,066,225

 
$
6,042,448

 
$
10,051

 
$
2,958

 
$
10,768

 
$
23,777

 
$
26,722

 
$
226

At September 30, 2018 and December 31, 2017, loans with an outstanding principal balance of $1,675 million and $1,476 million, respectively, were pledged as collateral to secure advances from the FHLB.
5.
Allowance for Loan Losses
The analyses by loan segment of the changes in the allowance for loan losses for the three and nine months periods ended September 30, 2018 and 2017, and its allocation by impairment methodology and the related investment in loans, net as of September 30, 2018 and 2017 are summarized in the following tables:
 
Three Months Ended September 30, 2018
(in thousands)
Real Estate
 
Commercial
 
Financial
Institutions
 
Consumer
and Others
 
Total
Balances at beginning of the period
$
28,693

 
$
29,784

 
$
3,317

 
$
8,137

 
$
69,931

Provision for (reversal of) loan losses
386

 
1,016

 
(482
)
 
680

 
1,600

Loans charged-off
 
 
 
 
 
 
 
 
 
Domestic

 
(526
)
 

 
(66
)
 
(592
)
International

 
(1,421
)
 

 
(283
)
 
(1,704
)
Recoveries

 
187

 

 
49

 
236

Balances at end of the period
$
29,079

 
$
29,040

 
$
2,835

 
$
8,517

 
$
69,471


18

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)

 
Nine Months Ended September 30, 2018
(in thousands)
Real Estate
 
Commercial
 
Financial
Institutions
 
Consumer
and Others
 
Total
Balances at beginning of the period
$
31,290

 
$
32,687

 
$
4,362

 
$
3,661

 
$
72,000

(Reversal of) provision for loan losses
(2,249
)
 
(199
)
 
(1,527
)
 
5,725

 
1,750

Loans charged-off
 
 
 
 
 
 
 
 


Domestic

 
(3,263
)
 

 
(183
)
 
(3,446
)
International

 
(1,473
)
 

 
(913
)
 
(2,386
)
Recoveries
38

 
1,288

 

 
227

 
1,553

Balances at end of the period
$
29,079

 
$
29,040

 
$
2,835

 
$
8,517

 
$
69,471

 
September 30, 2018
(in thousands)
Real Estate
 
Commercial
 
Financial
Institutions
 
Consumer
and Others
 
Total
Allowance for loan losses by impairment methodology
 
 
 
 
 
 
 
 
 
Individually evaluated
$
5,783

 
$
969

 
$

 
$
1,620

 
$
8,372

Collectively evaluated
23,296

 
28,071

 
2,835

 
6,897

 
61,099

 
$
29,079

 
$
29,040

 
$
2,835

 
$
8,517

 
$
69,471

Investment in loans, net of unearned income
 
 
 
 
 
 
 
 
 
Individually evaluated
$
10,965

 
$
11,887

 
$

 
$
4,538

 
$
27,390

Collectively evaluated
2,991,808

 
2,288,635

 
311,324

 
540,122

 
6,131,889

 
$
3,002,773

 
$
2,300,522

 
$
311,324

 
$
544,660

 
$
6,159,279

 
Three Months Ended September 30, 2017
(in thousands)
Real Estate
 
Commercial
 
Financial
Institutions
 
Consumer
and Others
 
Total
Balances at beginning of the period
$
34,840

 
$
40,201

 
$
3,976

 
$
3,689

 
$
82,706

 Provision for (reversal of) loan losses
2,074

 
(2,872
)
 
414

 
1,539

 
1,155

Loans charged-off
 
 
 
 
 
 
 
 

Domestic

 
(30
)
 

 
(9
)
 
(39
)
International

 
(125
)
 

 
(280
)
 
(405
)
Recoveries
693

 
425

 

 
99

 
1,217

Balances at end of the period
$
37,607

 
$
37,599

 
$
4,390

 
$
5,038

 
$
84,634





19

Mercantil Bank Holding Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)

 
Nine Months Ended September 30, 2017
(in thousands)
 Real Estate
 
 Commercial
 
 Financial
Institutions
 
 Consumer
and Others
 
 Total
Balances at beginning of the period
$
30,713

 
$
40,897

 
$
5,304

 
$
4,837

 
$
81,751

Provision for (reversal of) loan losses
6,130

 
3,823

 
(914
)
 
(141
)
 
8,898

Loans charged-off