Amerant Bancorp Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021 unless noted. Amerant is a Florida-based bank holding company operating primarily in South Florida and Houston, with mortgage, brokerage, investment and trust businesses.
Financial performance and condition
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $55.6 million; up 17.0% | $47.6 million in Q1 2021 |
| Net interest margin | 3.18% | 2.66% in Q1 2021 |
| Net income attributable to Amerant | $16.0 million; diluted EPS $0.45 | $14.5 million; diluted EPS $0.38 in Q1 2021 |
| Noninterest income / expense | $14.0 million / $60.8 million | $14.2 million / $43.6 million in Q1 2021 |
| Efficiency ratio | 87.3% | 70.7% in Q1 2021 |
| Total assets | $7.81 billion | $7.64 billion |
| Gross loans, including held-for-sale | $5.72 billion | $5.57 billion |
| Total deposits | $5.69 billion | $5.63 billion |
| Allowance for loan losses | $56.1 million; 0.99% of loans held for investment | $69.9 million; 1.29% at year-end |
| Nonperforming assets | $56.7 million | $59.5 million |
| Cash and cash equivalents | $276.2 million | $274.2 million |
| Total stockholders’ equity | $749.4 million | $831.9 million |
Net income improvement reflected higher net interest income and a $10.0 million reversal of loan-loss provision, partly offset by higher operating expenses and slightly lower noninterest income. The reported net income attributable to Amerant includes the attribution of a $1.1 million loss to Amerant Mortgage’s noncontrolling interest.
Operating cash flow was negative $12.1 million, investing cash flow negative $186.2 million and financing cash flow positive $200.3 million. Cash increased by $2.0 million during the quarter. Investing outflows primarily reflected loan growth and securities purchases; financing inflows included net FHLB borrowing and growth in transaction deposits.
At March 31, total liabilities were $7.06 billion, including $980.0 million of FHLB advances, $59.0 million of senior notes, $29.2 million of subordinated notes and $64.2 million of junior subordinated debentures. The company reported $1.3 billion of additional FHLB borrowing capacity. Regulatory capital ratios remained above the stated “well-capitalized” thresholds: consolidated CET1 was 11.55% and the Bank’s CET1 was 12.58%.
Material changes and drivers
- Net interest margin rose 52 basis points year over year, supported by higher asset yields, lower average interest-bearing liabilities and lower deposit costs. Average total deposit cost was 0.38%, versus 0.60% in Q1 2021.
- Noninterest expense rose 39.4%, including $6.6 million of nonroutine items: $4.0 million of estimated technology-vendor contract termination costs, $1.2 million of legal and consulting costs, $0.8 million of severance and other restructuring costs, and a $0.5 million loan-sale valuation allowance.
- Noninterest income was broadly flat. Higher loan-level derivative income and deposit fees were largely offset by lower securities gains, $1.3 million of derivative losses on uncovered client interest-rate caps and a $0.7 million loss on early repayment of FHLB advances.
- Loans grew 2.8% from year-end, including approximately $124 million of indirect consumer loan purchases. Deposits increased 1.1%; core deposits rose 3.5%, while time deposits fell 6.7%. Brokered deposits declined to $347.3 million, or 6.1% of deposits.
- Stockholders’ equity declined 9.9%, principally due to $54.8 million of share repurchases, dividends and a $39.7 million after-tax securities-related other comprehensive loss. Tangible book value per share fell to $21.15 from $22.55.
Outlook, commentary, risks and unusual items
- No specific earnings or financial guidance was provided. Management said the company was asset-sensitive and expected to benefit if market rates continued to rise, while pursuing more noninterest-bearing deposits and loan spread growth. Interest-rate sensitivity models estimate a 13.0% increase in 12-month net interest income under an immediate 200-basis-point rate increase; this is a model scenario, not guidance.
- Management extended the duration of FHLB funding by repaying $180 million of short-term advances and borrowing $350 million in longer-term advances. It issued $30 million of subordinated notes, initially bearing fixed interest at 4.25% through March 2027 and then floating, structured to qualify as Tier 2 capital.
- Management cited improved macroeconomic conditions and loan upgrades as reasons for the allowance release, while noting supply-chain disruption, inflation and labor shortages. Net charge-offs were $3.8 million, or 0.29% of average loans, versus no net charge-offs in Q1 2021. New nonaccrual placements partly offset reductions in problem assets.
- Interest-rate risk is significant: available-for-sale securities had $40.6 million of gross unrealized losses at quarter-end, and the quarter’s securities mark-to-market loss reduced accumulated other comprehensive income. Management attributed the decline to higher market rates and said it did not intend, and was not likely required, to sell the affected debt securities before recovery.
- Credit and funding exposures to monitor include commercial real estate concentration, international lending and deposits, including $2.0 billion of deposits domiciled in Venezuela. Other stated risks include liquidity, rising funding costs, credit losses, technology and third-party vendor execution, cybersecurity, regulation and the ability of the holding company to receive dividends from the Bank to service debt.
- The multi-year technology-provider transition generated current-period termination costs; management expected additional contract termination costs but said the amount could not yet be reasonably determined. The company had no COVID-related loans in deferral or forbearance at March 31, 2022.
- Subsequent events included an additional $5.1 million of share repurchases through April 26 and repayment of $150 million of FHLB advances in April. The board declared a $0.09-per-share dividend payable in May.
Important facts for investors to verify
- Whether the improvement in earnings and margin can continue without further allowance releases, and how rising rates affect deposit pricing, asset yields and securities values.
- The quality and performance of loan growth, particularly indirect consumer lending, commercial real estate, new nonaccrual placements and the remaining allowance coverage.
- The recurring expense run rate after restructuring, technology-transition charges, increased advertising, mortgage-business costs and the leaseback of headquarters.
- Liquidity and deposit stability, including the concentration of foreign and Venezuela-domiciled deposits, brokered funding and reliance on FHLB advances.
- The effect of securities unrealized losses and share repurchases on tangible book value, capital and future flexibility; regulatory capital ratios remain above minimums but declined from year-end.
- Progress, costs and operational risks associated with the technology-provider transition, and the amount and timing of further contract termination charges.