Amerant Bancorp Inc. quarterly report, Q2 FY2022

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Amerant Bancorp Inc. — Q2 2022 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2022. Amerant is a Florida bank holding company operating primarily in South Florida and Houston, with mortgage, brokerage, and trust businesses. Unless noted otherwise, amounts are in U.S. dollars.

Financial performance

  • Q2 revenue: Net interest income plus noninterest income was $71.9 million, up from $65.7 million in Q2 2021. Net interest income rose 18.0% to $58.9 million, while noninterest income fell 17.8% to $12.9 million.
  • Profit: Net income attributable to Amerant was $7.7 million, or $0.23 per diluted share, versus $16.0 million, or $0.42, a year earlier. For the first half, net income was $23.6 million, down 22.3%; diluted EPS was $0.68 versus $0.81.
  • Net interest margin: 3.28% in Q2, up 47 basis points year over year; 3.23% for the first half, up 49 basis points. Management attributed the increase mainly to higher asset yields and changes in funding balances and costs.
  • Expenses and efficiency: Q2 noninterest expense increased 21.7% to $62.2 million; the efficiency ratio rose to 86.6% from 77.8%. First-half expense increased 29.9% to $123.1 million, and the efficiency ratio was 86.9% versus 74.4%.
  • Credit costs: No loan-loss provision or release in Q2, compared with a $5.0 million release in Q2 2021. First-half loan-loss reserve releases totaled $10.0 million. The allowance was $52.0 million, or 0.91% of loans held for investment, versus $69.9 million, or 1.29%, at year-end 2021. First-half net charge-offs were $7.9 million.
  • Balance sheet and liquidity: Total assets were $8.15 billion, up 6.7% from December 31, 2021. Loans held for investment were $5.73 billion; total deposits were $6.20 billion, up 10.2%. Cash and cash equivalents were $354.1 million, including $21.8 million of restricted cash.
  • Cash flow, first half: Operating activities used $48.7 million; investing activities used $412.6 million; financing activities provided $541.2 million. Cash, cash equivalents, and restricted cash increased $79.8 million to $354.1 million.
  • Debt and capital: FHLB advances totaled $830.5 million; senior notes, subordinated notes, and junior subordinated debentures totaled approximately $152.4 million. The company issued $30 million of 4.25% fixed-to-floating subordinated notes, qualifying as Tier 2 capital. At June 30, the company’s total capital ratio was 13.21%, CET1 ratio 11.08%, and tangible common equity ratio 8.47%.

Material changes versus comparable periods

  • Higher net interest income was outweighed in Q2 by higher operating expenses, lower noninterest income, and the absence of the prior-year $5.0 million loan-loss reserve release.
  • Q2 noninterest expense included $2.8 million of technology-provider contract termination costs, a $3.2 million write-down on a New York other-real-estate-owned property, and a $1.6 million branch lease impairment. First-half restructuring and non-routine items totaled $14.6 million.
  • First-half deposits increased $572.0 million, chiefly from domestic transaction accounts. Core deposits reached $4.9 billion, or 79.8% of deposits; brokered deposits were $365.8 million, or 5.9% of deposits.
  • Rising rates reduced the fair value of available-for-sale debt securities: accumulated other comprehensive income moved from a $15.2 million gain at year-end to a $51.0 million after-tax loss. Book value per share fell to $21.07 from $23.18.
  • Nonperforming assets declined to $31.7 million from $59.5 million at year-end. However, net charge-offs rose year over year, including a $3.6 million charge-off on a commercial borrower relationship.
  • The company repurchased approximately $72.1 million of Class A shares in the first half and paid $6.2 million in dividends. Both announced repurchase programs were completed.

Outlook, management commentary, and risks

  • No specific earnings or revenue guidance was provided. Management stated that available liquidity sources and expected bank dividends should meet liquidity needs for at least the next 12 months.
  • Management expects the January 1, 2022 CECL adoption adjustment to increase the allowance for credit losses by approximately $12 million to $25 million; this preliminary estimate remained subject to model validation and economic assumptions.
  • Management is pursuing core-deposit growth, digital transformation, cost efficiencies, and business and geographic realignment. It reported that Amerant Mortgage reached standalone breakeven in Q2; higher rates and lower refinancing demand prompted staffing reductions.
  • Key exposures include interest-rate and securities valuation risk, commercial real-estate and commercial-credit concentrations, liquidity and deposit-funding risk, third-party technology and cybersecurity risks, and economic uncertainty. The filing also identifies Venezuela-related, regulatory, and capital risks.
  • Available-for-sale securities had $73.9 million of gross unrealized losses at quarter-end, which management attributed primarily to interest-rate and market changes and said it did not expect to sell before recovery. The investment portfolio’s effective duration increased to 4.9 years from 3.6 years at year-end.
  • Subsequent events: The board approved a merger of wholly owned Amerant Florida Bancorp into Amerant Bancorp, expected in Q3 2022, with no expected consolidated financial-statement impact. A $0.09-per-share dividend was declared in July, payable August 31, 2022.

Most important facts for investors to verify

  • Whether net interest margin gains persist as deposit costs respond to higher rates and competition for funding.
  • How the CECL model is finalized and whether the estimated $12 million–$25 million allowance increase changes.
  • Credit performance, charge-offs, and concentrations in commercial real estate, commercial borrowers, and purchased indirect consumer loans.
  • The durability and composition of deposit growth, including large fund providers, brokered funding, and foreign deposits.
  • Whether securities-related accumulated losses, capital ratios, and book value recover or face further pressure from interest rates.
  • Whether restructuring and technology-transition costs subside as management expects, and whether expense growth improves the efficiency ratio.