Amerant Bancorp Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY2021. Amerant is a Florida-based bank holding company operating Amerant Bank, N.A., with core markets in South Florida and Houston and additional mortgage, wealth-management and fiduciary businesses.
Financial performance and position
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Net interest income | $266.7 million | $205.1 million |
| Net interest margin | 3.53% | 2.90% |
| Noninterest income | $67.3 million | $120.6 million |
| Noninterest expense | $241.4 million | $198.2 million |
| Provision for (release of) credit losses | $13.9 million provision | $16.5 million release |
| Net income attributable to Amerant | $63.3 million; diluted EPS $1.85 | $112.9 million; diluted EPS $3.01 |
| Return on average assets / equity | 0.77% / 8.45% | 1.50% / 14.19% |
| Total assets | $9.13 billion | $7.64 billion |
| Gross loans | $6.92 billion | $5.57 billion |
| Total deposits | $7.04 billion | $5.63 billion |
| Shareholders’ equity | $705.7 million | $831.9 million |
- Earnings and margins: Net interest income rose 30.0%, reflecting higher asset yields and loan growth amid 425 basis points of Federal Reserve rate increases. Average loan yield was 4.92%, versus 3.92%; average total deposit cost rose to 0.80% from 0.49%. The loan-to-deposit ratio was 98.23%, compared with 98.88%.
- Drivers of lower net income: FY2021 included a $62.4 million pretax gain on the headquarters sale and a $3.8 million gain on PPP loan sales. FY2022 also had higher expenses and a credit-loss provision rather than a reserve release. FY2022 noninterest expense included $19.0 million of non-routine items, including $7.1 million of technology contract termination costs and a $3.4 million OREO valuation charge.
- Credit quality: Nonperforming loans were $37.6 million, or 0.54% of loans, versus $49.8 million, or 0.89%, a year earlier. The allowance for credit losses was $83.5 million, 1.22% of loans held for investment; net charge-offs were 0.32% of average loans. CRE loans were $2.71 billion, or 39.3% of loans held for investment.
- Cash flow and liquidity: Cash and cash equivalents were $290.6 million, including $42.2 million of restricted cash. Operating cash flow was negative $49.2 million, primarily reflecting mortgage-loan originations held for sale; investing cash flow was negative $1.40 billion, largely from loan growth and securities purchases; financing cash flow was positive $1.46 billion, chiefly from deposit growth. The Bank had $1.7 billion of additional FHLB borrowing capacity.
- Debt and capital: Year-end borrowings included $906.5 million of FHLB advances, $59.2 million of senior notes, $29.3 million of subordinated notes and $64.2 million of junior subordinated debentures. The Bank’s CET1 and total risk-based capital ratios were 10.99% and 12.10%, respectively, and it was classified as well capitalized.
- Market value and equity: AFS debt securities had $113.0 million of net unrealized losses at year-end, primarily associated with higher interest rates; the company reported no related credit-loss allowance. Total accumulated other comprehensive loss was $80.6 million. Book value per share was $20.87 and tangible book value per share was $20.19, down from $23.18 and $22.55. The company repurchased $72.1 million of stock and paid $12.2 million in dividends during 2022.
Material changes and notable items
- Assets grew 19.5%, loans 24.3%, and deposits 25.1%. Core deposits increased 23.8% to $5.32 billion, while brokered deposits rose to $629.3 million, or 8.9% of deposits, from $387.3 million, or 6.9%.
- Domestic deposits increased substantially, while deposits from Venezuelan residents declined 5.3% to $1.91 billion, still 27.1% of total deposits.
- Amerant adopted CECL in 2022, increasing the opening allowance by $18.7 million and reducing opening retained earnings by $13.9 million after tax. The fourth-quarter provision included $11.1 million related to the retroactive effect of CECL adoption on earlier 2022 quarters; the filing presents recast quarterly results.
- Stockholders’ equity declined 15.2%, reflecting AFS securities losses, repurchases, dividends and CECL adoption, partly offset by net income. The Bank’s regulatory capital ratios remained above the stated well-capitalized thresholds.
Outlook, management commentary and risks
- Outlook and strategy: The filing provides no specific earnings or margin guidance. Management emphasizes core-deposit growth, profitable lending, customer experience, operational efficiency and expansion in its markets. It expected assets could exceed $10 billion by the end of 2023, potentially triggering additional regulatory requirements, and planned new Florida branches in 2023.
- Technology and costs: The core-system transition and outsourcing arrangement with FIS was expected to be completed in the second quarter of 2023. Management anticipates annual savings and scalability but noted further termination costs could arise and the benefits may take time to realize.
- Interest-rate and securities exposure: The company describes itself as asset sensitive, with modeled net interest income increasing under rate-rise scenarios. However, higher rates increased deposit costs and reduced securities fair values; investment portfolio duration rose to 4.9 years from 3.6 years.
- Credit, funding and geographic risks: Key exposures include CRE concentration, commercial borrowers, deposit competition and reliance on large depositors, brokered funding and Venezuelan relationships. A downturn in real estate or local markets could raise losses. Hurricane Ian had no identified significant portfolio impact by year-end, but management said the ultimate effects remained uncertain.
- Controls and accounting: Management identified a material weakness in internal controls over financial reporting related to CECL model calculations and inputs, including purchased consumer and land loans, loan-to-value and prepayment assumptions, and qualitative adjustments. Management and the auditor concluded ICFR was ineffective as of year-end; the auditor issued an adverse ICFR opinion. The financial-statement audit opinion was unqualified, and management reported no identified financial-statement misstatements. Remediation was planned for 2023, with no assurance the timeline would be met.
- Other risks and contingencies: The company disclosed an August 2022 cybersecurity incident at a third-party vendor in which limited customer information was accessed; it reported no nonpublic personally identifiable information was disseminated and no known misuse. Ordinary-course litigation reserves were considered adequate, though outcomes remain uncertain. LIBOR-linked contracts, including junior subordinated debentures, were to transition under applicable fallback rules after June 30, 2023.
Important facts for investors to verify
- Track deposit mix, funding costs and concentration, including brokered deposits, large fund providers and Venezuelan depositor balances.
- Review CRE exposure, the new consumer-loan growth, criticized/nonperforming loans, charge-offs and ACL assumptions under CECL.
- Assess the effect of AFS unrealized losses and higher interest rates on equity, liquidity and capital, including any need to sell securities.
- Monitor completion, remaining costs and realized savings from the FIS conversion, as well as progress toward the $10 billion asset threshold and related regulatory changes.
- Follow remediation and independent testing of the CECL-related material weakness; the auditor’s adverse ICFR opinion is distinct from its unqualified opinion on the financial statements.
- Confirm subsequent-period developments, including the 2023 branch plans, the announced $25 million 2023 repurchase authorization, and the LIBOR transition.