Business context and reporting period
This Form 10-Q covers the quarter and six months ended June 30, 2018. The filing is for Mercantil Bank Holding Corporation, a Florida-based bank holding company with operations primarily in South Florida and Houston, plus international and wealth-management businesses. The request metadata names Amerant Bancorp Inc.; that name does not appear as the registrant in the supplied filing text.
After the reporting date, the company’s shares were distributed to MSF shareholders on August 10, 2018, completing its spin-off from MSF. The company became subject to SEC reporting on August 8, 2018.
Financial and operating highlights
Amounts below are in millions of dollars unless otherwise stated.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net interest income | $54.0 | $51.4 | $106.6 | $99.8 |
| Net income | $10.4 | $10.4 | $19.9 | $16.9 |
| Diluted earnings per share | $0.08 | $0.08 | $0.16 | $0.13 |
| Net interest margin | 2.77% | 2.62% | 2.72% | 2.52% |
| Noninterest income | $15.0 | $17.8 | $28.9 | $32.0 |
| Noninterest expense | $52.6 | $50.7 | $108.3 | $99.8 |
- Q2 pretax income was $16.2 million, up 8.7%; six-month pretax income was $27.1 million, up 12.0%. The six-month effective tax rate was 26.8%, versus 30.2% a year earlier.
- Reported Q2 net income was nearly unchanged year over year, while six-month net income rose 17.5%. Management attributed improvement mainly to higher asset yields and better credit trends.
- Management’s non-GAAP figures excluding spin-off costs were Q2 net income of $14.1 million and EPS of $0.11, and six-month net income of $25.8 million and EPS of $0.21. These adjustments exclude $3.2 million and $6.0 million of pretax spin-off costs, respectively.
- Reported annualized return on assets and return on equity were 0.50% and 5.57% for Q2, and 0.47% and 5.31% for the six-month period. The reported efficiency ratio was 76.31% for Q2 and 79.88% year to date; adjusted Q2 and year-to-date ratios were 71.68% and 75.43%.
Balance sheet, funding and cash flow
- Total assets were $8.53 billion at June 30, up $93.7 million from year-end 2017. Gross loans increased $153.3 million to $6.22 billion; net loans were $6.15 billion.
- Deposits increased $40.2 million to $6.36 billion. Time deposits grew $205.9 million, partly offset by declines in demand, interest-bearing demand, savings and money-market balances. FHLB advances and other borrowings increased $85.0 million to $1.26 billion; junior subordinated debentures were $118.1 million.
- Cash and cash equivalents were $117.2 million, down $36.2 million from December 31. Six-month operating cash flow was $26.2 million (versus $44.8 million in 2017); investing used $147.6 million and financing provided $85.2 million. Investing cash use included $174.2 million of net loan growth, partly offset by securities maturities/sales and loan-sale proceeds.
- Stockholders’ equity was $719.4 million, down $34.1 million from year-end, reflecting a $40.0 million special dividend paid to MSF, earnings, and a $13.9 million increase in accumulated other comprehensive loss, largely from lower securities valuations.
- Regulatory capital remained above “well-capitalized” thresholds: company total capital ratio was 12.61% and CET1 was 10.13%; bank ratios were 12.18% and 11.24%, respectively.
Credit quality and other key metrics
- The allowance for loan losses was $69.9 million, or 1.12% of gross loans, versus $72.0 million, or 1.19%, at year-end. Six-month provision was $0.15 million versus $7.7 million in 2017; net charge-offs were $2.2 million, compared with $6.8 million.
- Nonperforming assets rose to $35.3 million from $27.3 million at year-end, or 0.41% of assets. Nonperforming loans were $34.7 million, up from $26.9 million.
- Loans to Venezuela-based customers were $171.8 million; total international loans were $645.9 million, or 7.57% of assets. Separately, Venezuela-domiciled customer deposits declined $258.1 million to $2.9 billion during the half-year.
- Available-for-sale securities had $44.7 million of gross unrealized losses at June 30, compared with $21.9 million at year-end. Management attributed the losses primarily to interest-rate and market changes and said it did not intend, and was not more likely than not required, to sell the securities before recovery.
Material changes, outlook and risks
- Earnings drivers: Net interest income increased as loan yields and balances rose, while deposit and borrowing costs also increased. Higher interest expense on time deposits and FHLB advances constrained margin improvement.
- Revenue and expenses: Noninterest income declined, mainly from lower brokerage/advisory activity and reduced derivative, foreign-exchange and property-sale-related income. Expenses increased, including spin-off legal and consulting costs, higher salaries and data-processing costs. Management expected higher ongoing professional expenses as a standalone public company, but did not expect further material one-time spin-off costs after Q3 2018.
- Credit concentration and contingency: A restructured $10.4 million commercial real estate loan received a $3.9 million specific reserve after collateral value fell below the loan’s carrying value. A recent appraisal indicated further deterioration, and management was evaluating whether an additional write-down was needed. Potential problem loans increased to $71.5 million from $49.6 million at year-end.
- Funding and geographic risk: Management cited Venezuelan customer account closures and customer drawdowns, alongside rising funding costs and use of brokered deposits. Brokered deposits were $737.9 million, or 11.6% of deposits; core deposits were 61.46% of deposits, down from 64.47% at year-end.
- Capital and shareholder actions: The $40.0 million special dividend was paid before the spin-off. No quarterly dividend was declared; six-month dividends were $0.31 per share, reflecting the special dividend and share exchange accounting described in the filing.
- The filing provides no specific earnings or revenue guidance. It highlights sensitivity to interest rates, deposit mix, credit quality, real estate values, regulatory requirements, cybersecurity and economic or political conditions, including those affecting Venezuelan customers. Management said market-risk assumptions had not changed significantly since year-end. Litigation was described as ordinary-course and not expected to have a material effect, though outcomes remain uncertain.
- The company corrected immaterial loan-classification disclosures and a credit-card commitment disclosure; management said these changes did not affect the financial statements. It also reported no material change in internal control over financial reporting and concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the registrant and corporate-name relationship: the supplied 10-Q identifies Mercantil Bank Holding Corporation, while the request metadata identifies Amerant Bancorp Inc.
- Track the restructured CRE loan, collateral appraisal and any additional impairment or allowance requirement.
- Monitor deposit retention and pricing, especially Venezuelan-related balances, time-deposit growth and brokered-deposit reliance.
- Assess whether net interest margin gains can persist as funding costs rise and asset yields reprice.
- Separate recurring operating performance from spin-off costs and other unusual items, including the special dividend and $0.9 million FHLB early-extinguishment gain.
- Review subsequent standalone-company disclosures for capital, liquidity, operating costs and progress in managing international exposure.