Amerant Bancorp Inc. — Q2 2021 Form 10-Q
Business context and period. Amerant is a Florida-based bank holding company serving South Florida, greater Houston and select international customers. This unaudited filing covers the quarter and six months ended June 30, 2021; balance-sheet comparisons are with December 31, 2020.
Financial highlights
| Metric | Q2 / June 30, 2021 | Comparable period / prior date |
|---|---|---|
| Net income attributable to Amerant | $16.0 million; diluted EPS $0.42 | Q2 2020 net loss $15.3 million; diluted loss per share $0.37 |
| Six-month net income attributable to Amerant | $30.4 million; diluted EPS $0.81 | Six-month 2020 net loss $11.9 million; diluted loss per share $0.28 |
| Net interest income | Q2 $50.0 million; six months $97.5 million | Q2 2020 $46.3 million; six months 2020 $95.6 million |
| Net interest margin | Q2 2.81%; six months 2.74% | Q2 2020 2.44%; six months 2020 2.55% |
| Noninterest income | Q2 $15.7 million; six months $29.9 million | Q2 2020 $19.8 million; six months 2020 $41.7 million |
| Noninterest expense | Q2 $51.1 million; six months $94.8 million | Q2 2020 $36.7 million; six months 2020 $81.6 million |
| Efficiency ratio | Q2 77.8%; six months 74.4% | Q2 2020 55.6%; six months 2020 59.5% |
| Assets, loans and deposits | Assets $7.53 billion; gross loans $5.61 billion; deposits $5.67 billion | At Dec. 31, 2020: assets $7.77 billion; loans $5.84 billion; deposits $5.73 billion |
| Cash and cash equivalents | $171.5 million | $214.4 million at Dec. 31, 2020 |
| Stockholders’ equity | $799.1 million; book value per share $21.27 and tangible book value per share $20.67 | Equity $783.4 million; book value per share $20.70 and tangible book value per share $20.13 at Dec. 31, 2020 |
Cash flow and funding. Six-month operating cash flow was $32.0 million, investing cash flow was positive $234.4 million, and financing cash flow was negative $309.3 million, resulting in a $42.9 million decrease in cash. Financing outflows included a $408.5 million decline in time deposits, net FHLB repayments of about $244.1 million, and $8.4 million of Class B share repurchases; demand, savings and money-market deposits increased $351.8 million.
FHLB advances totaled $808.6 million, down from $1.05 billion; senior notes were $58.7 million and junior subordinated debentures $64.2 million. The company reported $1.5 billion of additional FHLB borrowing capacity and $80 million available on uncommitted federal-funds lines. Company and Bank regulatory capital ratios exceeded the filing’s “well capitalized” thresholds; consolidated CET1 was 11.95% and the Bank’s was 13.06%.
Material changes and drivers
- Profitability improved sharply year over year, chiefly because the allowance for loan losses (ALL) had a $5.0 million reversal in Q2 2021 versus a $48.6 million provision in Q2 2020. Six-month figures were a $5.0 million reversal versus a $70.6 million provision. Net interest income also increased, supported by lower deposit and borrowing costs.
- Noninterest income declined, primarily reflecting lower securities gains and a $2.5 million loss on early repayment of FHLB advances. These effects were partly offset by a $3.8 million pretax gain on sale of approximately $95.1 million of PPP loans.
- Noninterest expense rose 39.2% in Q2. The filing cites severance and restructuring, higher operating costs, and the absence of prior-year PPP origination cost deferrals. Q2 included $4.2 million of restructuring costs, including approximately $3.3 million of severance and $0.8 million of lease-asset impairment.
- Gross loans fell 4.0% from year-end, reflecting prepayments, lower production, PPP forgiveness and the exit from New York originations. PPP loans outstanding declined to $23.6 million from $198.5 million. Deposits fell 1.0%, as lower time deposits were partly offset by growth in transaction, savings and money-market accounts. Core deposits, defined by the company as deposits excluding time deposits, rose to $4.0 billion, or 71.2% of total deposits.
- Credit indicators weakened in parts of the portfolio: nonperforming assets rose 37.9% to $121.5 million, and classified loans increased to $122.6 million from $88.5 million. The ALL was $104.2 million, or 1.86% of loans, versus $110.9 million, or 1.90%, at year-end.
Outlook, commentary, risks and unusual items
- No formal earnings or financial guidance is provided. Management described plans to grow core deposits, reduce brokered funding, expand digital and wealth-management capabilities, improve brand awareness, rationalize operations and pursue expense efficiencies.
- The May 2021 FHLB restructuring covered $285 million of advances and incurred a $6.6 million deferred termination/modification penalty. Together with repayment of $235 million of advances, management estimated annual savings of approximately $3.6 million. The repayment generated the separately reported $2.5 million loss.
- Management planned to close one Florida banking center in October 2021 and refresh or relocate nine others. It also planned a central procurement function and an operational improvement initiative. Amerant Mortgage began operations after acquiring First Mortgage Company; the purchase price was approximately $1.0 million.
- COVID-related modified loans totaled $1.1 billion; $54.4 million remained in deferral or forbearance, including $37.1 million in New York CRE retail loans. Management noted uncertainty around the pandemic’s future economic and credit effects. In July 2021, a New York property securing a $12.1 million loan was transferred to OREO at an estimated $9.4 million value, with a subsequent $2.7 million charge-off.
- Other risks highlighted include CRE and commercial borrower concentrations, loan-loss reserve adequacy, interest-rate and LIBOR transition risk, liquidity and funding costs, Venezuela-related conditions and deposits, cybersecurity, regulatory compliance, and risks associated with minority fintech investments. The company invested $2.5 million in fintech firm Marstone and disclosed related minority-investment risks.
- Management said ordinary-course legal matters were not expected to have a significant effect. Disclosure controls were considered effective, and no material change in internal control over financial reporting was reported. Adoption of lease accounting recognized about $54.5 million of right-of-use assets and $55.0 million of lease liabilities.
Most important facts for investors to verify
- Whether the $5.0 million ALL release and lower pandemic-related reserves are sustainable, given the rise in nonperforming assets and classified loans.
- Performance, collateral coverage and resolution timelines for the New York CRE exposures, remaining forbearance loans and the Coffee Trader relationship, which carried a $19.6 million balance and $12.3 million specific reserve.
- Whether core-deposit growth can continue while time deposits and brokered funding decline, and how concentrated deposits from Venezuelan customers remain; those deposits totaled approximately $2.1 billion.
- Whether expense reductions and management’s efficiency initiatives offset elevated expenses, restructuring costs and the higher efficiency ratio.
- Execution and financial returns from Amerant Mortgage, digital partnerships and minority fintech investments, as well as completion of planned branch changes and the $40 million repurchase authorization.
- FHLB refinancing savings, liquidity availability, capital ratios and the effect of interest-rate movements on the securities portfolio and net interest margin.