Amerant Bancorp Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amerant is a Florida bank holding company operating primarily in South Florida and Houston, with mortgage, investment and trust businesses. Unless stated otherwise, amounts are U.S. dollars.
Financial performance and condition
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $78.6 million | $69.9 million | $244.8 million | $184.5 million |
| Noninterest income | $21.9 million | $16.0 million | $67.9 million | $42.9 million |
| Provision for credit losses | $8.0 million | $7.3 million | $48.8 million | $(2.9) million reversal |
| Noninterest expense | $64.4 million | $56.1 million | $201.7 million | $179.2 million |
| Net income attributable to Amerant | $22.1 million | $17.5 million | $49.6 million | $41.3 million |
| Diluted earnings per share | $0.66 | $0.52 | $1.47 | $1.21 |
Quarterly net interest margin was 3.57%, versus 3.61% a year earlier; the nine-month margin was 3.76%, versus 3.36%. The nine-month average cost of total deposits rose to 2.33% from 0.57%. The efficiency ratio was 64.1% for the quarter and 64.5% year to date, compared with 65.4% and 78.8%, respectively.
At September 30, 2023, assets were $9.35 billion, up 2.4% from year-end 2022; gross loans held for investment were $7.07 billion, up 3.2%; and deposits were $7.55 billion, up 7.1%. Cash and cash equivalents were $309.0 million. Stockholders’ equity was $719.8 million, including accumulated other comprehensive loss of $105.6 million. The allowance for credit losses was $98.8 million, or 1.40% of loans held for investment, compared with $83.5 million, or 1.22%, at year-end.
For the first nine months, operating activities provided $41.0 million of cash; investing activities used $232.0 million; and financing activities provided $209.4 million. These cash-flow figures include noncash items and should be considered alongside balance-sheet liquidity and funding disclosures.
FHLB advances fell to $595.0 million from $906.5 million at year-end. The company reported $2.3 billion of remaining FHLB credit availability. Core deposits were $5.24 billion, down 1.4%; time deposits increased $574.6 million. Brokered deposits were $736.0 million, and approximately 68% of deposits were FDIC insured. The loan-to-deposit ratio was 94.64%, compared with 98.23% at year-end. The company and bank exceeded regulatory “well-capitalized” thresholds; the company’s CET1 ratio was 10.30% and the bank’s was 11.46%.
Material changes and notable items
- Net income attributable to Amerant rose 26.2% in Q3 and 20.0% for the first nine months. Higher asset yields and loan growth lifted net interest income, while materially higher deposit and borrowing costs absorbed part of the benefit.
- Noninterest income included $7.0 million of Q3 and $33.6 million year-to-date gains from early repayment of FHLB advances. Nine-month results also included $11.0 million of net securities losses, including the sale of a Signature Bank bond, and a $5.6 million valuation expense on a New York CRE loan held for sale.
- Credit costs increased: nine-month provision was $48.8 million, versus a $2.9 million release in the comparable 2022 period. Net charge-offs were $32.9 million year to date, compared with $9.2 million. Nonperforming assets rose to $53.4 million from $37.6 million at year-end, including $20.2 million of OREO and other repossessed assets.
- Available-for-sale securities had $144.7 million of gross unrealized losses at quarter-end; the company attributed the declines primarily to interest rates and reported no credit-loss allowance on these securities. Accumulated other comprehensive loss increased to $105.6 million from $80.6 million at year-end.
- The company repaid $1.6 billion and borrowed $1.3 billion of FHLB advances during the nine months, recognizing $33.6 million in net early-extinguishment gains. It repurchased 259,853 shares for $4.9 million under its $25 million 2023 program; approximately $20.1 million remained available at September 30.
Outlook, risks and other disclosures
The filing provides no quantified earnings or financial guidance. Management said it expected the FIS technology-platform conversion in early November 2023 and anticipated opening new branches and regional offices; these are forward-looking plans, not guarantees. Management also said it did not expect significant further contract-termination costs related to the technology transition. An October 2023 restructuring of certain bank-owned life insurance policies was not expected to have a material impact on results.
Key disclosed risks include deposit competition and funding costs, liquidity and access to low-cost core deposits, interest-rate sensitivity, commercial real estate and other credit exposures, loan-loss estimation, securities valuation, economic conditions in the company’s markets, third-party technology and cybersecurity risks, and regulatory and capital requirements. The portfolio is concentrated in South Florida, Tampa Bay, Houston and the New York City area. The filing reports $1.27 billion of commitments to extend credit and letters of credit.
Disclosure controls and procedures were deemed ineffective at quarter-end because of a previously reported material weakness in internal control over financial reporting. Management stated that remediation was underway, but was not complete and might not be completed on its intended timeline. Management nevertheless said the interim financial statements fairly present the company’s position and results in all material respects. The filing states that there were no material changes to previously disclosed risk factors and that pending litigation was not expected to be material.
Important facts for investors to verify
- Whether deposit growth and mix remain stable, particularly given rising deposit costs, the decline in core deposits, and reliance on time, brokered and reciprocal deposits.
- Whether charge-offs, nonperforming assets and the allowance for credit losses stabilize or worsen, especially in CRE, commercial and indirect consumer lending.
- How much recurring earnings depend on asset-liability actions and other nonroutine items, including FHLB early-repayment gains and securities or loan valuation losses.
- Whether unrealized securities losses, interest-rate exposure and available liquidity or borrowing capacity change materially.
- Progress and testing of the internal-control remediation plan, and whether the FIS conversion and planned branch openings proceed as described.
Comparability note: 2022 interim credit-loss and earnings figures reflect CECL recasting described in the filing.