Amerant Bancorp Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Amerant is a Florida-based bank holding company operating primarily in South Florida, Texas and the New York City area, with trust, brokerage and Cayman banking subsidiaries. Financial amounts below are in U.S. dollars.
Key financial results
| Metric | Q3 2020 | Prior comparable period |
|---|---|---|
| Net income | $1.7 million; diluted EPS $0.04 | $11.9 million; diluted EPS $0.28 |
| Net interest income | $45.3 million | $52.6 million |
| Net interest margin | 2.39% | 2.80% |
| Provision for loan losses | $18.0 million | $1.5 million reversal |
| Noninterest income | $20.3 million | $13.8 million |
| Noninterest expense | $45.5 million | $52.7 million |
| Efficiency ratio | 69.3%; 66.5% adjusted for restructuring costs | 79.4%; 77.5% adjusted |
For the first nine months, Amerant reported a net loss of $10.2 million, or $0.24 per share, compared with net income of $37.9 million in 2019. Net interest income fell 12.9% to $140.9 million; provision for loan losses was $88.6 million versus a $2.9 million reversal in 2019. Noninterest income rose 50.6% to $62.0 million, substantially reflecting $25.4 million of net securities gains. Noninterest expense declined 19.3% to $127.1 million. Management’s non-GAAP adjusted net loss was $7.4 million; adjusted figures exclude restructuring costs.
Financial condition, cash flow and capital
- At September 30, total assets were $8.0 billion, broadly unchanged from year-end 2019. Gross loans were $5.92 billion, up 3.1%; deposits were $5.88 billion, up 2.1%.
- Cash and cash equivalents were $227.2 million, up from $121.3 million at December 31, 2019. Nine-month cash flow: $50.3 million provided by operating activities, $105.1 million provided by investing activities and $49.6 million used in financing activities.
- Outstanding FHLB advances and other borrowings were $1.05 billion, down from $1.24 billion; senior notes were $58.5 million and junior subordinated debentures were $64.2 million. The company issued $60 million of 5.75% senior notes due 2025, receiving $58.4 million net of issuance costs.
- Stockholders’ equity was $829.5 million. Company regulatory capital ratios included 14.56% total capital, 13.30% Tier 1 capital and 12.34% CET1. The Bank’s total capital ratio was 13.62%.
Material changes and credit quality
- Lower asset yields—following market-rate cuts—drove weaker net interest income and margin, partly offset by reduced deposit and wholesale funding costs. The quarterly average yield on interest-earning assets declined 91 basis points year over year; funding costs declined 57 basis points.
- The allowance for loan losses rose to $116.8 million, or 1.97% of loans, from $52.2 million, or 0.91%, at year-end 2019. Nonperforming assets were $86.5 million (1.08% of assets), versus $33.0 million at year-end; nonperforming loans were 1.46% of loans versus 0.57% a year earlier. Quarterly net charge-offs were 1.41% of average loans, compared with 0.16%.
- A Miami-based coffee-trader relationship was placed on nonaccrual; $19.3 million was charged off during Q3. The remaining balance was approximately $19.6 million, with a $6.5 million specific reserve at quarter-end. Management said the reserve could change as liquidation information develops.
- COVID-related loan modifications totaled $1.1 billion cumulatively; $101.2 million remained in an active deferral or forbearance period at September 30. The filing reports that 99.9% of loans out of forbearance had resumed regular payments. PPP loans totaled $223.5 million.
- Deposits from Venezuelan residents were $2.17 billion, down 4.5% from year-end, and brokered deposits were $508.3 million, or 8.6% of deposits. Management identified possible continued runoff of foreign deposits as a funding and margin risk.
Outlook, management commentary and risks
The filing provides no formal earnings or full-year financial guidance. Management said it expected to reprice approximately $884 million of time deposits maturing over the next six months at lower market rates, potentially reducing the average CD cost by about 50 basis points. It also described continued deposit repricing, loan floor-rate implementation and portfolio adjustments to address margin pressure.
Management characterized Q3’s loan-loss provision as the lowest quarterly provision of 2020 to date, citing a lower estimated COVID-related allowance and reduced specific reserve requirements. It cautioned that the pandemic’s duration and economic effects remain uncertain and could affect credit losses, collateral values, liquidity, earnings and goodwill. Other cited risks include CRE concentration, PPP processing and guarantee uncertainty, LIBOR transition, securities valuation, and reliance on deposits and wholesale funding.
Subsequent to quarter-end, the company announced a voluntary early retirement plan and an involuntary severance plan affecting about 37 employees. The involuntary plan was expected to incur approximately $1.9 million of one-time Q4 costs and produce estimated annual savings of $5.8 million beginning in 2021; voluntary-plan costs and savings were not yet determined. Two banking centers closed October 30, 2020. The company also disclosed $777.1 million of commitments to extend credit and letters of credit. Management did not expect pending ordinary-course litigation to have a material effect.
Important facts for investors to verify
- Whether loan performance, nonperforming assets and reserve adequacy improve as pandemic relief periods expire, particularly for vulnerable industries and the coffee-trader exposure.
- Whether lower rates, deposit repricing and potential Venezuelan deposit runoff materially affect net interest income, margin and liquidity.
- How much of the reported noninterest-income growth depended on securities sales, and whether that source is repeatable.
- Whether the announced workforce and branch changes deliver the estimated savings, and how actual costs compare with estimates.
- Whether PPP loans are forgiven or repaid as expected, including any exposure to SBA funding or litigation risk.