Amerant Bancorp Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing; it also reports fourth-quarter results. Amerant is a Florida bank holding company operating mainly in South Florida and greater Houston, with loan production offices in Dallas and New York. It reported one operating segment and completed its acquisition of Cayman-based Elant Bank & Trust on November 15, 2019.
Financial performance and condition
| Metric | 2019 | 2018 |
|---|---|---|
| Net interest income | $213.1 million | $219.0 million |
| Noninterest income | $57.1 million | $53.9 million |
| Net income | $51.3 million | $45.8 million |
| Diluted earnings per share | $1.20 | $1.08 |
| Net interest margin | 2.85% | 2.78% |
| Efficiency ratio | 77.47% | 78.77% |
| Cash and cash equivalents at year-end | $121.3 million | $85.7 million |
- Fourth quarter: Net income was $13.5 million and diluted EPS was $0.31, versus $14.4 million and $0.34, respectively, in fourth-quarter 2018.
- Balance sheet: Assets were $8.0 billion, down 1.7%; gross loans held for investment were $5.74 billion, down 3.0%; deposits were $5.76 billion, down 4.6%. Shareholders’ equity rose 11.7% to $834.7 million.
- Profitability: Net income increased 12.0%, although net interest income declined 2.7%. Management attributed the NIM improvement to a better loan mix and higher asset yields, partly offset by higher deposit costs. Reported efficiency improved, but adjusted efficiency was 76.39%, compared with 73.99% in 2018.
- Credit: The company released $3.2 million from its loan-loss allowance, compared with a $0.4 million provision in 2018. Allowance coverage was 0.91% of loans, down from 1.04%; net charge-offs were 0.11% of average loans, versus 0.18%.
- Cash flows: Operating activities provided $78.4 million and investing activities provided $205.8 million; financing activities used $248.6 million. Cash increased $35.6 million during the year.
- Funding and capital: Year-end FHLB advances and other borrowings totaled $1.235 billion; junior subordinated debentures were $92.2 million. Company capital ratios included a 14.78% total capital ratio and 12.60% CET1 ratio. Management said the company and Bank exceeded well-capitalized requirements.
Material changes versus 2018
- Loan balances continued to contract as Amerant ran off foreign financial-institution loans and non-relationship syndicated credits. International loans fell 42.8%; domestic loans declined 0.85%, though domestic loans excluding syndicated-credit runoff grew 3.7%.
- Deposits declined as Venezuelan customer deposits fell $423.7 million, partly offset by growth in domestic deposits. Venezuelan deposits represented 39.4% of total deposits at year-end.
- Net interest income fell despite a higher NIM: higher deposit rates and a smaller average interest-earning asset balance offset improved yields. Average deposit cost rose to 1.36% from 1.03%.
- Noninterest income rose 6.0%, helped by a $2.8 million gain on vacant land, increased customer derivative fees, securities gains, and a $0.7 million accounting-standard benefit. Noninterest expense fell 2.6%, but included $5.0 million of restructuring costs; adjusted noninterest expense increased 1.2%.
- Nonperforming loans increased to $32.9 million, or 0.57% of loans, from $17.8 million, or 0.30%. The increase was substantially related to a troubled South Florida food-wholesale borrower.
Outlook, risks, contingencies and unusual items
- Management provided no specific earnings or revenue guidance. It said available liquidity, FHLB borrowing capacity, operating cash flow and Bank dividends were expected to meet liquidity needs for the next 12 months. The company planned to continue its domestic community-bank focus, core-deposit gathering, digital investment and cost-efficiency initiatives; it expected online deposit gathering to continue growing in 2020.
- Key exposures include real estate concentration: CRE loans were 51.7% of total loans and 353.3% of Bank risk-based capital. A borrower relationship totaling $11.9 million was nonperforming; the related restructured loans failed to perform to terms in fourth-quarter 2019.
- Venezuelan depositor concentration and related compliance requirements remain important risks. Brokered deposits were $682.4 million, or 11.9% of deposits; wholesale funding represented 27.4% of total funding.
- Interest-rate and benchmark-transition risks include an asset-sensitive balance sheet and $1.2 billion of loans with variable rates tied to LIBOR. The filing identifies LIBOR’s anticipated discontinuation after 2021 as a risk. Management reported that modeled net interest income would decline 10.0% under a 100-basis-point rate decrease.
- The filing discusses COVID-19 as a potential economic and operational risk; its effects were uncertain when the report was filed. It also identifies possible heightened regulatory requirements if assets exceed $10 billion.
- Unusual items include the Cayman Bank acquisition for approximately $15.0 million; 2019 restructuring costs of $5.0 million; the $2.8 million land-sale gain; and redemption of $25.0 million of higher-cost trust preferred securities. On January 30, 2020, Amerant redeemed a further $26.8 million of trust preferred securities. In February 2020, it repurchased 932,459 Class B shares for $14.9 million.
- A pending trust-related lawsuit seeks unspecified damages. The company said it could not reasonably estimate any possible loss; it was defending the matter and mediation discussions were ongoing. Management stated other pending matters were not expected to be material.
- After year-end, the company announced the CFO’s resignation and appointment of an interim CFO, effective March 16, 2020.
Most important facts for investors to verify
- Whether domestic deposit growth can offset ongoing Venezuelan deposit outflows, and the resulting effect on funding costs and liquidity.
- Developments in nonperforming and criticized loans, particularly the food-wholesale borrower, CRE concentrations, and allowance adequacy.
- Underlying earnings and expense trends excluding the land gain, restructuring charges, securities and equity-valuation effects, and other one-time items.
- Capital and liquidity effects of trust-preferred redemptions, share repurchases, callable FHLB advances, and the planned LIBOR transition.
- Progress and costs of the strategic, technology and deposit-gathering initiatives, including any implications of the CFO transition and COVID-19 risks.
- Updates on the pending lawsuit and any other material contingencies; the filing does not provide a clear estimate of potential loss for the specified case.