Amerant Bancorp Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a standalone Q4 filing; it also provides unaudited quarterly results. Amerant is a Florida-based bank holding company operating primarily in South Florida, greater Houston and the New York City area.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets at year-end | $7.77 billion | $7.99 billion |
| Loans held for investment, gross | $5.84 billion | $5.74 billion |
| Deposits | $5.73 billion | $5.76 billion |
| Net interest income | $189.6 million | $213.1 million |
| Net interest margin | 2.52% | 2.85% |
| Provision for (reversal of) loan losses | $88.6 million | $(3.2) million |
| Noninterest income | $73.5 million | $57.1 million |
| Noninterest expense | $178.7 million | $209.3 million |
| Net income (loss) | $(1.7) million | $51.3 million |
| Diluted earnings (loss) per share | $(0.04) | $1.20 |
| Cash and cash equivalents at year-end | $214.4 million | $121.3 million |
| Operating cash flow | $57.2 million | $78.4 million |
Q4 2020 net income was $8.5 million, or $0.20 diluted EPS, versus $13.5 million, or $0.31, in Q4 2019. Q4 net interest income was $48.7 million; there was no loan-loss provision in Q4 2020, compared with a $0.3 million reversal in Q4 2019.
Year-end shareholders’ equity was $783.4 million, down from $834.7 million, principally reflecting $69.4 million of Class B share repurchases and the annual net loss, partly offset by higher accumulated other comprehensive income. The allowance for loan losses was $110.9 million, or 1.90% of gross loans, versus $52.2 million, or 0.91%, in 2019. Nonperforming loans rose to $87.7 million, or 1.50% of loans, from $32.9 million, or 0.57%.
Cash flows were $286.3 million provided by investing activities and $250.5 million used in financing activities. Financing uses included deposit and FHLB repayments, redemption of subordinated debt and share repurchases; issuance of senior notes partly offset these uses. The filing does not provide a single, conventional free-cash-flow measure.
Material changes versus 2019
- Net interest income fell 11.0%, and NIM declined 33 basis points, mainly due to lower yields on earning assets following rate cuts; lower deposit and wholesale funding costs provided a partial offset.
- Credit costs increased sharply: the $88.6 million loan-loss provision followed a $3.2 million provision release in 2019. Net charge-offs rose to $29.9 million from $6.4 million.
- Noninterest income increased 28.6%, primarily reflecting $27.0 million in net securities gains, compared with $2.6 million in 2019, and higher advisory and fiduciary fees. Noninterest expense fell 14.6%, reflecting lower compensation and other costs, partly offset by restructuring and technology expenses.
- Domestic loans grew, including $198.5 million of PPP loans and purchases of higher-yielding consumer loans; total loans increased 1.7%. Deposits were nearly flat overall, with domestic deposits up and foreign deposits down.
- The Company issued $60 million of 5.75% senior notes due 2025. FHLB advances decreased to $1.05 billion from $1.24 billion; the Company also redeemed $26.8 million of trust preferred securities and related subordinated debt.
Outlook, management commentary and risks
Management stated that current capital resources were expected to meet requirements for the foreseeable future and that available liquidity sources were expected to fund obligations for the next 12 months. The filing gives no formal earnings, revenue or margin guidance. Management described the economic outlook as uncertain and did not expect significant near-term improvement in economic conditions.
- COVID-19 and credit: The Company recorded $38.3 million of provision related to estimated pandemic-driven deterioration, in addition to specific reserves. Loan payment relief modifications totaled $1.1 billion during 2020; $43.4 million remained in deferral or forbearance at year-end. Management reported 99.6% of loans that had exited forbearance had resumed regular payments.
- Concentrations: CRE loans were 48.6% of total loans and 325.0% of Bank risk-based capital. Venezuelan residents held $2.12 billion, or 37.0%, of deposits. These exposures make regional real estate conditions, borrower performance, deposit retention and compliance developments important.
- Specific credit exposure: A commercial borrower relationship identified as the Coffee Trader was charged down by $19.3 million; $19.6 million remained outstanding and a $12.2 million specific reserve was maintained at year-end. Management said it would continue monitoring the liquidation process.
- Funding and interest-rate risk: Brokered deposits were $634.5 million, or 11.1% of deposits; wholesale funding represented 24.8% of total funding. The Company had $530 million of callable FHLB advances. Management characterized the balance sheet as asset-sensitive; sustained low rates could pressure net interest income.
- Unusual items: A $17.0 million loss from restructuring $420 million of FHLB advances was incorporated into the new borrowing rates over the remaining maturities. The Company reported $26.99 million in net securities gains and a $1.73 million loss on sale of its operations center. Adjusted earnings and adjusted efficiency ratio are non-GAAP measures and exclude specified items.
- Capital and strategy: The Bank remained “well capitalized,” with a 12.65% CET1 ratio and 13.91% total capital ratio. Planned initiatives included digital investment, cost efficiencies, core deposit growth, and launching Amerant Mortgage, expected to be operational in Q2 2021. The Amerant Trust merger into the Bank was approved after year-end and was scheduled to take effect April 1, 2021.
- Other risks: The filing identifies LIBOR transition, cybersecurity and operational risks, regulatory compliance, litigation, CRE concentration, and dependence of the holding companies on subsidiary dividends. Management reported no material pending litigation and concluded internal control over financial reporting was effective; the external auditor did not provide an ICFR audit opinion.
Important facts for investors to verify
- Whether nonperforming loans and criticized credits stabilize, and whether the allowance remains adequate as pandemic-related relief ends.
- Borrower-level developments in the Coffee Trader relationship and other newly downgraded commercial, CRE and multifamily credits.
- Trends in Venezuelan and other foreign deposits, domestic core deposits, brokered funding and the maturity or repricing of time deposits.
- Recurring net interest income and fee generation apart from securities gains, PPP-related effects and other unusual items; compare GAAP results with management’s non-GAAP adjustments.
- Performance of the $60 million senior notes, callable FHLB funding and holding-company liquidity, including reliance on dividends from the Bank.
- Progress and costs for digital transformation, branch closures, staffing reductions, Amerant Mortgage and the approved Amerant Trust merger.