Amerant Bancorp Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022. Amerant is a Florida-based bank holding company operating primarily in South Florida and Houston, with mortgage, investment, and trust businesses.
Financial performance
- Profit: Net income attributable to Amerant was $20.2 million, up 31.3% from $15.4 million in Q1 2022. Diluted EPS was $0.60 versus $0.44. Results reflect the retrospective CECL adjustment to the 2022 comparison.
- Net interest: Net interest income rose 48.0% to $82.3 million; net interest margin increased to 3.90% from 3.18%. Higher asset yields and loan balances helped, while sharply higher deposit and borrowing costs were a partial offset. Average total deposit cost increased to 1.91% from 0.38%.
- Other income and expenses: Noninterest income was $19.3 million, up 37.9%, including a $13.2 million gain from early FHLB advance repayment, partly offset by $9.7 million of net securities losses. Noninterest expense rose 6.4% to $64.7 million. The efficiency ratio was 63.7%, compared with 87.29%.
- Credit costs: The company recorded an $11.7 million credit-loss provision, versus a $9.3 million reversal in Q1 2022. Net charge-offs were $10.8 million; the ACL was $84.4 million, or 1.20% of loans held for investment.
- Cash flow: Operating cash flow was negative $18.8 million and investing cash flow negative $182.1 million; financing provided $396.1 million. Cash and cash equivalents ended at $485.8 million, up from $290.6 million at year-end.
Financial position and material changes
- Total assets were $9.50 billion, up 4.0%; gross loans were $7.12 billion, up 2.8%; deposits were $7.29 billion, up 3.4% from year-end.
- FHLB advances totaled $1.05 billion, up $145.5 million. The company reported $1.7 billion of additional FHLB borrowing capacity. Stockholders’ equity was $729.1 million; tangible common equity ratio was 7.44% (non-GAAP).
- Core deposits increased 0.8% to $5.36 billion, but were 73.5% of deposits versus 75.5% at year-end. Brokered deposits rose to $737.6 million, or 10.1% of deposits. Approximately 69% of deposits were FDIC-insured.
- Nonperforming assets increased to $48.7 million from $37.6 million, including $26.5 million of OREO and repossessed assets. Special-mention loans rose to $35.9 million from $10.1 million; the company said these loans remained current.
- Available-for-sale securities had $104.4 million of gross unrealized losses at quarter-end. Management attributed declines primarily to interest rates and said it did not expect to be required to sell the securities before recovery. Accumulated other comprehensive loss was $74.3 million.
Outlook, commentary, and risks
- Management said liquidity resources, including cash, FHLB capacity, and expected earnings, should cover requirements for at least the next 12 months. No quantified earnings or margin guidance was provided.
- The company is pursuing core-deposit growth, efficiency initiatives, technology transformation, and new branches. Planned openings include Key Biscayne in Q2 2023 and Tampa, downtown Miami, and Fort Lauderdale later in 2023; a Houston branch closure was planned for Q2.
- In April 2023, the company recorded a $4.0 million pretax gain on early repayment of $175 million of FHLB advances. The board also declared a $0.09-per-share dividend payable May 31, 2023.
- Key risks include funding and deposit competition, rising funding costs, commercial real estate and commercial-loan concentrations, credit deterioration, interest-rate exposure, and volatility or contagion in the banking sector. Foreign deposits, including $1.90 billion domiciled in Venezuela, are also a concentration to monitor.
- Disclosure controls were deemed ineffective because of a previously reported material weakness in internal control over financial reporting. Management said remediation was underway, targeted for 2023, but not assured. Management nevertheless stated the interim financial statements fairly present the company’s financial position and results.
- Other unusual items include the $9.5 million pretax loss on sale of a Signature Bank security following that bank’s failure, $3.4 million of restructuring costs, and $14.3 million of loan charge-offs. The F&B mortgage-business acquisition included preliminary goodwill of $1.0 million; purchase-price allocation remained incomplete.
Important facts for investors to verify
- Deposit stability and mix, including brokered and uninsured balances, large fund providers, and Venezuela-domiciled deposits.
- Whether loan delinquencies, classified and special-mention loans, nonperforming assets, and charge-offs continue to rise; and whether the ACL remains adequate.
- Trends in deposit pricing, net interest margin, and reliance on FHLB funding and available borrowing capacity.
- Unrealized securities losses, interest-rate sensitivity, and management’s ability to avoid forced securities sales.
- Progress and testing of internal-control remediation, plus technology-conversion execution and related costs.
- Final purchase accounting for the F&B acquisition and the effects of branch expansion, restructuring, and other non-routine gains or losses.