Amerant Bancorp Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; balance-sheet comparisons are with December 31, 2021. Amounts below are U.S. dollars unless noted.
Business context
Amerant is a bank holding company headquartered in Coral Gables, Florida. Its banking operations focus on South Florida and Houston, with mortgage, brokerage, investment and fiduciary businesses. Results reflect rapid loan and deposit growth, rising interest rates, restructuring and technology-transition costs, and market-driven losses in the securities portfolio.
Financial performance and position
| Metric | Q3 2022 / September 30, 2022 | Comparison |
|---|---|---|
| Net interest income | $69.9 million | Up 34.9% from Q3 2021 |
| Net interest margin | 3.61% | Up 67 basis points from 2.94% |
| Net income attributable to Amerant | $20.9 million; diluted EPS $0.62 | Up 22.8% from $17.0 million; diluted EPS was $0.45 |
| Noninterest income | $16.0 million | Up 18.8% |
| Noninterest expense | $56.1 million | Up 15.9%; efficiency ratio improved to 65.4% from 74.2% |
| Gross loans, including loans held for sale | $6.50 billion | Up $935.8 million, or 16.8%, since year-end 2021 |
| Total deposits | $6.59 billion | Up $957.3 million, or 17.0%, since year-end 2021 |
- Nine-month results: Net interest income was $184.5 million, up 23.5%; net income attributable to Amerant was $44.5 million, down 6.1%; diluted EPS was $1.30 versus $1.26. Noninterest income was $42.9 million, down 1.0%, while expenses rose 25.2% to $179.2 million. The efficiency ratio was 78.8% versus 74.3%.
- Cash flow: For the nine months, operating cash flow was negative $32.1 million, investing cash flow was negative $1.01 billion, and financing cash flow was positive $1.07 billion. Ending cash, cash equivalents and restricted cash were $302.1 million, including $46.1 million of restricted cash.
- Balance sheet and funding: Assets were $8.74 billion and total liabilities $8.04 billion. Stockholders’ equity was $695.7 million. Deposits were $6.59 billion; FHLB advances were $981.0 million. The company also had $59.1 million of senior notes, $29.2 million of subordinated notes and $64.2 million of junior subordinated debentures.
- Liquidity and capital: The company reported $1.5 billion of available FHLB borrowing capacity. At September 30, consolidated capital ratios were 12.49% total capital, 11.34% Tier 1 and 10.50% CET1; the Bank’s ratios exceeded the stated “well capitalized” thresholds. These ratios declined from year-end 2021.
- Credit quality: The allowance for loan losses was $53.7 million, or 0.83% of loans held for investment, versus $69.9 million, or 1.29%, at year-end. Nonperforming assets were $25.1 million, down 57.9%; third-quarter net charge-offs were 0.09% of average loans.
Material changes versus comparable periods
- Q3 earnings increased as higher loan yields and balances lifted net interest income; the benefit was partly offset by a $3.0 million loan-loss provision versus a $5.0 million release in Q3 2021 and higher expenses.
- Nine-month earnings declined despite higher net interest income, principally because expenses increased and loan-loss releases were smaller. Expenses included $7.1 million of technology contract termination costs, $3.4 million of OREO valuation expense, and other restructuring-related costs.
- Rising rates contributed to $135.6 million of nine-month unrealized losses on available-for-sale debt securities. Accumulated other comprehensive loss reached $86.2 million after tax, compared with accumulated other comprehensive income of $15.2 million at year-end 2021. Book value per common share fell to $20.60 from $21.82.
- Loan growth included indirect consumer lending, residential mortgage purchases, commercial lending and new white-label programs. Core deposits increased, but average deposit costs rose; brokered deposits were $504.4 million, or 7.7% of deposits.
Outlook, commentary and risks
- No formal earnings or revenue guidance is provided in the supplied filing text. Management described ongoing efforts to grow core deposits, expand digital capabilities, improve efficiency and optimize the balance sheet.
- Management expected CECL adoption in Q4 2022 and estimated a preliminary $15–$20 million increase in the allowance for credit losses at January 1, 2022, with an after-tax cumulative adjustment to retained earnings. The estimate remained subject to model validation, portfolio composition and economic forecasts.
- Hurricane Ian exposure was estimated at approximately $300 million of loans in affected areas. The company recorded an initial $1.6 million reserve for potential hurricane-related losses, reported no identified significant portfolio impact at the filing date, and cautioned that additional provisions could be needed as conditions develop.
- Interest-rate risk remains important. Management reported the balance sheet had become more asset-sensitive; modeled net interest income increased 6.0% under a 100-basis-point rate increase and 9.0% under a 200-basis-point increase. These are model scenarios, not forecasts.
- Other risks include CRE and commercial credit exposure, deposit funding costs and concentration, securities valuation and potential liquidity needs, reliance on third-party technology providers, severe weather in core markets, and regulatory and cybersecurity risks. The filing disclosed a vendor cybersecurity incident involving limited customer information; the company said nonpublic personally identifiable information was not disseminated and it knew of no misuse.
- The company repurchased approximately $72.1 million of Class A shares in the first nine months and paid three quarterly dividends of $0.09 per share; a further $0.09 dividend was declared for payment in November 2022. A $30 million subordinated note issuance in March qualified as Tier 2 capital.
Important facts for investors to verify
- Whether the estimated $15–$20 million CECL transition adjustment and year-end 2022 provision effects differed from the preliminary estimate.
- How Hurricane Ian affected borrower performance, collateral values and required reserves after September 30.
- Whether loan and deposit growth remained profitable as deposit costs rose and brokered funding increased.
- Whether expense growth, technology-transition costs and restructuring charges moderated as management expected.
- How unrealized securities losses, liquidity needs and regulatory capital ratios developed in subsequent periods.