Amerant Bancorp Inc. — Q2 2023 Form 10-Q
Business context and reporting period
Amerant Bancorp is a Florida bank holding company whose principal subsidiary, Amerant Bank, operates primarily in South Florida and Houston, with additional mortgage, brokerage, investment and trust businesses. This unaudited filing covers the quarter and six months ended June 30, 2023; comparisons are to the corresponding 2022 periods unless otherwise noted. 2022 results reflect the company’s CECL accounting adoption.
Key financial metrics
| Metric | Q2 2023 | Six months 2023 |
|---|---|---|
| Net interest income | $83.9 million, up 42.3% | $166.2 million, up 45.1% |
| Net income attributable to Amerant | $7.3 million vs. $8.4 million | $27.5 million vs. $23.8 million |
| Diluted earnings per share | $0.22 vs. $0.25 | $0.81 vs. $0.69 |
| Net interest margin | 3.83% vs. 3.28% | 3.86% vs. 3.23% |
| Noninterest income | $26.6 million, up 105.9% | $46.0 million, up 70.5% |
| Noninterest expense | $72.5 million, up 16.5% | $137.2 million, up 11.5% |
| Provision for credit losses | $29.1 million vs. a $1.0 million reversal | $40.8 million vs. a $10.2 million reversal |
At June 30, 2023, total assets were $9.52 billion, loans held for investment were $7.17 billion gross, deposits were $7.58 billion, and stockholders’ equity was $721.0 million. Cash and cash equivalents, including restricted cash in the cash-flow reconciliation, were $445.1 million. For the first half, operating cash flow was negative $7.8 million, investing cash flow negative $253.5 million, and financing cash flow positive $415.8 million.
Average deposit cost rose to 2.40% in Q2 from 0.48% a year earlier; average loan yield rose to 6.79% from 4.38%. The loan-to-deposit ratio was 95.22%. The allowance for credit losses was $106.0 million, or 1.48% of loans held for investment, versus $83.5 million and 1.22% at year-end 2022. Nonperforming assets rose to $67.4 million from $37.6 million, including $20.2 million of OREO and other repossessed assets.
Regulatory capital ratios exceeded the filing’s “well capitalized” thresholds: the company reported a 12.39% total capital ratio and 10.00% CET1 ratio; the Bank reported 12.30% and 11.05%, respectively. These ratios and regulatory definitions should be distinguished from GAAP equity measures.
Material changes versus comparable periods
- Higher asset yields and loan balances drove substantial net interest income and margin growth, but sharply higher deposit and borrowing costs partly offset the benefit.
- Q2 net income fell 13.3%, principally because of the increased credit-loss provision and higher expenses. First-half net income increased 15.5%, despite the larger provision.
- Deposit balances grew 7.6% from year-end, but growth was led by time deposits. Core deposits increased 3.4%, while their share of total deposits declined from 75.5% to 72.5%; noninterest-bearing deposits fell from $1.37 billion to $1.29 billion.
- Gross loans increased about 4.3% from year-end. Nonaccrual loans rose to $46.8 million from $37.1 million; classified loans were $48.6 million versus $39.1 million.
- Available-for-sale securities had $120.2 million of gross unrealized losses at June 30; accumulated other comprehensive loss was $86.9 million, net of tax and including hedge effects.
Management commentary, outlook, risks and unusual items
- Management attributed Q2 credit provisioning to $15.7 million for charge-offs and credit quality, including $8.6 million tied to a downgraded New York multifamily CRE loan; $1.4 million for loan growth; and $12.0 million for updated macroeconomic factors. First-half net charge-offs were $18.3 million, versus $7.9 million in the prior-year period.
- Noninterest income benefited from $13.4 million of Q2 and $26.6 million of first-half gains on early repayment of FHLB advances. The company repaid approximately $920 million of advances early in the first half as part of asset/liability management. First-half securities losses were $11.0 million, including a $9.5 million loss on the sale of a Signature Bank bond and a $1.2 million loss on a partial corporate-securities sale.
- First-half nonroutine expenses totaled $16.8 million, including $12.1 million of restructuring costs, a $2.0 million investment impairment and a $2.6 million loss on repossessed equipment-financing assets. Management said it did not expect significant further contract-termination costs for the technology-provider transition. The FIS system conversion was delayed and then expected in early November 2023.
- Management described continued deposit-growth, operational-efficiency and branch-expansion initiatives, including planned 2023 locations. No quantified earnings or financial guidance is provided in the supplied filing text. Management stated it believed available liquidity sources would meet foreseeable needs; FHLB credit availability was reported at $2.1 billion.
- Key stated risks include liquidity and funding costs, dependence on core deposits, CRE and commercial credit exposure, interest-rate sensitivity, securities valuation, concentration in the company’s markets, vendor and cybersecurity risks, and regulatory and capital requirements. Deposits domiciled in Venezuela were $1.91 billion, about one-quarter of total deposits; approximately 71% of total deposits were FDIC insured.
- The company reported a previously identified material weakness in internal control over financial reporting; disclosure controls were therefore deemed ineffective at quarter-end. Management intended to complete remediation in 2023 but gave no assurance of meeting that timeline. Pending litigation was described as not likely to be material. Off-balance-sheet commitments to extend credit and letters of credit totaled $1.28 billion.
Important facts for investors to verify
- Whether subsequent credit performance, especially the New York multifamily CRE exposure and classified loans, supports the $106.0 million allowance and management’s loss assumptions.
- Deposit retention, mix, pricing and concentration—including large, brokered, reciprocal and Venezuela-domiciled balances—and the pace of deposit-cost repricing.
- Liquidity under stress, reliance on FHLB and other funding, and the effect of early advance repayments and their reported gains on recurring earnings.
- Interest-rate exposure and the potential for further changes in available-for-sale securities values, accumulated other comprehensive loss and tangible capital.
- Progress and testing of the internal-control remediation plan, the FIS conversion schedule, and whether restructuring and other nonroutine costs continue.
- Capital and liquidity measures, including regulatory ratios, should be reviewed alongside GAAP results and non-GAAP measures; reported PPNR and Core PPNR are not GAAP earnings measures.