Amerant Bancorp Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are primarily with December 31, 2020. Amerant is a Florida-based bank holding company operating mainly in South Florida, Houston and select other markets.
Financial performance and condition
- Profitability: Net income was $14.5 million, or $0.38 per diluted share, versus $3.4 million, or $0.08, in Q1 2020. The increase primarily reflects the absence of the prior-year $22.0 million loan-loss provision. Return on average assets was 0.76%; return on average equity was 7.47%.
- Revenue and margins: Net interest income declined 3.4% to $47.6 million year over year; net interest margin was 2.66%, versus 2.65%. Noninterest income fell 35.4% to $14.2 million, largely because securities gains declined by $7.0 million. Noninterest expense decreased 2.8% to $43.6 million. The efficiency ratio increased to 70.7% from 63.1%.
- Credit costs and quality: No loan-loss provision was recorded in Q1 2021, compared with $22.0 million in Q1 2020. The allowance was $110.9 million, or 1.93% of gross loans. Nonperforming assets were $89.9 million (1.16% of assets), compared with $88.1 million at year-end; nonperforming loans were 1.56% of total loans, versus 0.59% a year earlier.
- Balance sheet: Total assets were $7.75 billion. Gross loans were $5.75 billion, down 1.5% from year-end, and deposits were $5.68 billion, down 0.9%. Cash and cash equivalents increased to $233.5 million from $214.4 million. Stockholders’ equity was $785.0 million.
- Cash flow: Operating activities generated $7.0 million and investing activities generated $67.5 million; financing activities used $55.4 million. Cash and cash equivalents increased $19.1 million during the quarter.
- Debt and capital: Outstanding FHLB advances were $1.05 billion; senior notes were $58.7 million and junior subordinated debentures were $64.2 million. The Company’s total capital ratio was 14.12%, CET1 ratio 11.90%, and tangible common equity ratio 9.88%.
Material changes and notable items
- Interest income declined 15.4% year over year, mainly from lower asset yields and a smaller average securities balance. Lower deposit and borrowing costs partly offset this, while interest expense included the senior notes issued in 2020.
- Loans declined during the quarter amid prepayments and subdued production; domestic consumer loans increased, including $61.7 million of high-yield indirect consumer loans purchased. PPP loans outstanding were $164.8 million at quarter-end, versus $198.5 million at year-end.
- Core deposits, defined by the Company as deposits excluding all time deposits, were $3.8 billion, or 66.9% of deposits, versus $3.7 billion, or 64.4%, at year-end. Brokered deposits fell to $552.6 million, or 9.7% of deposits.
- Unrealized losses on available-for-sale securities reduced accumulated other comprehensive income by $11.8 million during the quarter. Total securities were nearly flat at $1.38 billion.
- The Company adopted lease accounting in January, recognizing approximately $54.5 million of right-of-use assets and $55.0 million of lease liabilities. Amerant Trust merged into the Bank effective April 1, 2021.
Outlook, management commentary and risks
Management described plans to grow core deposits and reduce reliance on brokered funding, expand digital capabilities and fee businesses, pursue cost efficiencies, and focus growth on core and contiguous markets while curtailing future New York loan originations. No quantitative earnings or financial guidance is provided in the filing.
Management cited COVID-19-related economic uncertainty and continued monitoring of modified loans. Loans modified under COVID relief programs totaled $1.1 billion; $62.1 million remained in deferral or forbearance at quarter-end, up from $43.4 million at year-end. Separately, on May 4, 2021, the Company agreed to sell approximately $95.1 million of PPP loans and expected a pretax gain of approximately $3.8 million.
Key exposures include commercial real estate and commercial lending, potentially changing credit conditions and allowance estimates, interest-rate and securities valuation risk, deposit and liquidity pressures, international/Venezuelan exposure, and risks associated with PPP loans. The Company reported $771.7 million of commitments to extend credit and letters of credit. It stated that pending legal matters were not expected to have a material effect and that disclosure controls were effective.
Important facts for investors to verify
- Whether credit performance, nonperforming loans and the $62.1 million of loans still in relief programs improve or deteriorate.
- Whether the absence of a Q1 provision is sustainable and whether the $110.9 million allowance remains adequate under changing economic conditions.
- Deposit mix and funding costs, particularly time-deposit maturities, brokered-funding reliance and the large Venezuelan depositor base.
- The realized outcome of the announced PPP loan sale and the expected gain, which was disclosed after quarter-end.
- The effect of securities valuation changes and interest-rate movements on earnings, accumulated other comprehensive income and capital.
- Execution and costs of the stated digital, deposit-growth and efficiency initiatives, alongside the $40 million Class B repurchase authorization; $1.9 million had been spent by quarter-end.