Amerant Bancorp Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amerant is a Florida bank holding company operating primarily in South Florida and the Houston area, with banking, wealth management, brokerage, trust, and mortgage businesses.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net income (loss) attributable to Amerant | $17.0 million | $1.7 million | $47.5 million | ($10.2 million) |
| Diluted EPS | $0.45 | $0.04 | $1.26 | ($0.24) |
| Net interest income | $51.8 million | $45.3 million | $149.4 million | $140.9 million |
| Net interest margin | 2.94% | 2.39% | 2.81% | 2.49% |
| Noninterest income | $13.4 million | $20.3 million | $43.3 million | $62.0 million |
| Noninterest expense | $48.4 million | $45.5 million | $143.2 million | $127.1 million |
| Efficiency ratio | 74.2% | 69.3% | 74.3% | 62.7% |
Q3 and nine-month earnings improved substantially, driven principally by lower funding costs and reversals of loan-loss provisions, compared with significant provisions in 2020. The company released $5.0 million from the allowance in Q3 and $10.0 million over nine months; the comparable periods in 2020 included provisions of $18.0 million and $88.6 million. Lower securities gains and higher expenses partly offset the improvement. The nine-month 2021 results also included a $3.8 million gain on sale of PPP loans and a $2.5 million loss on early repayment of FHLB advances.
Balance sheet, liquidity and capital
- At September 30, 2021, total assets were $7.49 billion, down 3.6% from December 31, 2020. Gross loans, including loans held for sale, were $5.48 billion, down 6.2%; total deposits were $5.63 billion, down 1.8%.
- Cash and cash equivalents were $166.2 million, versus $214.4 million at year-end 2020. Nine-month cash flows were $40.2 million provided by operations, $270.9 million provided by investing activities, and $359.3 million used in financing activities.
- Deposits shifted toward lower-cost transaction accounts: core deposits increased to $4.2 billion, or 74.4% of deposits, from $3.7 billion, or 64.4%. Brokered deposits fell to $432.7 million, or 7.7% of deposits, from $634.5 million.
- FHLB advances were $809.1 million, down from $1.05 billion; senior notes were $58.8 million and junior subordinated debentures were $64.2 million. The company reported $1.4 billion of additional FHLB borrowing capacity and $80 million available under uncommitted federal funds lines.
- Total stockholders’ equity was $812.7 million. Tangible book value per share, a non-GAAP measure, was $21.08, versus $20.13 at year-end 2020. At the consolidated company, total capital, Tier 1, leverage, and CET1 ratios were 14.53%, 13.28%, 11.18%, and 12.31%, respectively; the Bank’s ratios also exceeded the reported “well-capitalized” thresholds.
- Available-for-sale securities were $1.22 billion; held-to-maturity securities were $130.5 million. The investment portfolio’s average duration increased to 3.7 years from 2.4 years at year-end 2020.
Material changes and credit quality
- Interest expense fell 42.1% in Q3 and 40.6% for the nine-month period year over year, reflecting lower deposit and FHLB funding costs and balances. Management estimated the 2021 FHLB restructuring and repayment actions would produce annual savings of approximately $3.6 million.
- Noninterest income fell 33.8% in Q3 and 30.1% for nine months, primarily because 2020 included larger securities-sale gains. Noninterest expense rose 6.4% and 12.6%, respectively, with higher compensation, technology, professional fees, and occupancy costs.
- The allowance for loan losses declined to $83.4 million, or 1.59% of loans held for investment, from $110.9 million, or 1.90%, at December 31, 2020. Nine-month net charge-offs were $17.5 million; the annualized net charge-off ratio was 0.42%.
- Nonperforming assets were $92.5 million, up from $88.1 million at year-end. Nonaccrual loans were $82.7 million and other real estate owned was $9.8 million. Q3 charge-offs included $9.3 million on two New York real estate loans and $5.7 million related to a commercial borrower (the Coffee Trader); the company continued to monitor recovery prospects on that relationship.
- Loans still in COVID-related deferral or forbearance totaled $37.1 million, or 0.7% of loans. These were two New York CRE retail loans maturing in Q1 2022, secured by real estate with average LTV of 74%. The company ceased offering customized temporary relief options in Q3.
Outlook, management commentary and notable items
- No formal earnings, revenue, or margin guidance is provided. Management described continued efforts to grow core deposits, expand treasury and wealth management, accelerate digital capabilities, and improve operating efficiency.
- The company closed its New York City loan production office and curtailed New York originations; it also reported a $0.8 million lease-asset impairment tied to that closure. It closed its Wellington, Florida branch after quarter-end and planned a new downtown Miami branch for late 2022.
- Amerant Mortgage began operations after acquiring First Mortgage Company in May 2021. The company also invested $2.5 million in Marstone, a digital wealth-management fintech; a further $2.5 million investment in Raistone was agreed after quarter-end.
- In September, the board proposed a shareholder-approved “clean-up” merger to convert each Class B share into 0.95 Class A share, subject to specified ownership limits and other terms. A potential $50 million Class A repurchase program would not begin before the shareholder meeting. The prior Class B repurchase program was terminated after $9.6 million of repurchases.
- After quarter-end, the company committed to a sale-and-leaseback plan for its Coral Gables headquarters, expected to close in Q4 2021. Management stated that no carrying-value adjustment was considered necessary.
- Principal stated risks include interest-rate and liquidity exposure, CRE and commercial credit concentration, adequacy of reserves and collateral, COVID-19 uncertainty, Venezuela-related exposures, cybersecurity and operational risks, and execution of the company’s growth and efficiency plans. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
- Legal proceedings arise in the ordinary course; management did not expect pending matters to have a material effect. Off-balance-sheet commitments to extend credit and letters of credit totaled $840.4 million.
Investor facts to verify
- Whether credit costs remain low and the allowance is adequate as loan mix changes, nonperforming assets evolve, and the Coffee Trader and New York CRE exposures are resolved.
- Whether deposit growth continues to favor relationship-based core funding and reduces reliance on brokered and time deposits.
- Whether improved net interest margin is sustainable amid interest-rate changes, asset repricing, securities duration, and funding competition.
- Whether expense growth moderates and efficiency initiatives deliver savings after restructuring, technology, and mortgage-business costs.
- The shareholder vote and final terms of the proposed merger and Class A repurchase program, and the completion and financial effects of the headquarters sale-leaseback.