Amerant Bancorp (AMTB) - 2020 Q1 - Quarterly Report

markdown [PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the three months ended March 31, 2020, reflecting a significant increase in the allowance for loan losses, a decrease in net income, and an increase in total assets Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 (in millions) | December 31, 2019 (in millions) | | :--- | :--- | :--- | | **Total Assets** | **$8.1B** | **$8.0B** | | Loans held for investment, net | $5.6B | $5.7B | | Allowance for loan losses | $72.9M | $52.2M | | **Total Deposits** | **$5.8B** | **$5.8B** | | Total liabilities | $7.3B | $7.2B | | **Total Stockholders' Equity** | **$841.1M** | **$834.7M** | Consolidated Statements of Operations Highlights (Unaudited) | Account | Three Months Ended March 31, 2020 (in millions) | Three Months Ended March 31, 2019 (in millions) | | :--- | :--- | :--- | | Net Interest Income | $49.2M | $55.4M | | **Provision for Loan Losses** | **$22.0M** | **$0** | | Noninterest Income | $21.9M | $13.2M | | Noninterest Expense | $44.9M | $51.9M | | **Net Income** | **$3.4M** | **$13.1M** | | Basic Earnings Per Share | $0.08 | $0.31 | | Diluted Earnings Per Share | $0.08 | $0.30 | [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%28Unaudited%29) The notes provide detailed information on accounting policies and specific financial statement items, including the significant impact of the COVID-19 pandemic, changes in loan loss allowance, and stockholders' equity transactions - The company activated its Business Continuity Plan on March 16, 2020, in response to the COVID-19 pandemic, enabling employees to work remotely and ensuring operational continuity[22](index=22&type=chunk) - The company began participating in the SBA's Paycheck Protection Program (PPP) on April 2, 2020. As of May 1, 2020, it had received approval for **1,493 loan applications** totaling **$197.8 million**[24](index=24&type=chunk) - Loan payment relief options were offered to customers impacted by COVID-19, with loans under these programs totaling **$1,119 million** as of May 1, 2020. These modifications are not considered Troubled Debt Restructurings (TDRs) per regulatory guidance[25](index=25&type=chunk)[69](index=69&type=chunk) - A provision for loan losses of **$22.0 million** was recorded in Q1 2020, primarily as a result of the estimated impact of the COVID-19 pandemic[30](index=30&type=chunk)[61](index=61&type=chunk) - In February 2020, the company repurchased **932,459 shares** of Class B common stock for approximately **$15.2 million**. In March 2020, the Board authorized the cancellation of all **4,464,916 shares** of Class B Common Stock held as treasury stock[96](index=96&type=chunk)[97](index=97&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance and condition, focusing on the impacts of the COVID-19 pandemic, including a decline in net income due to a large provision for loan losses and changes in the balance sheet [Overview](index=37&type=section&id=Overview) This section provides a high-level overview of the company's business and its response to the COVID-19 pandemic, including remote work arrangements, PPP participation, and loan relief programs - As of May 1, 2020, approximately **86%** of the Company's employees are working remotely under its Business Continuity Plan[128](index=128&type=chunk) - As of May 1, 2020, the Company had received approval for **1,493 PPP loan applications** totaling **$197.8 million** and had funded **$137.9 million**[131](index=131&type=chunk) - The company identified that approximately **30%** of its outstanding loan portfolio as of March 31, 2020, is in industries potentially more vulnerable to the financial impact of the pandemic[132](index=132&type=chunk) Loan Payment Relief Programs as of May 1, 2020 | Program Detail | Amount (in millions) | | :--- | :--- | | 90-day payment deferral | $451 | | 90-day interest payment deferral (no escrow) | $441 | | 90-day interest payment deferral (with escrow) | $197 | | 180-day interest payment deferral | $30 | | **Total** | **$1,119** | [Results of Operations](index=49&type=section&id=Results%20of%20Operations) The company's net income for Q1 2020 decreased significantly to $3.4 million, primarily due to a $22.0 million provision for loan losses, lower net interest income, and a decrease in noninterest expense Q1 2020 vs Q1 2019 Performance Summary | Metric | Q1 2020 | Q1 2019 | Change (%) | | :--- | :--- | :--- | :--- | | **Net Income** | **$3.4M** | **$13.1M** | **(74.1)%** | | Provision for Loan Losses | $22.0M | $0 | N/A | | Net Interest Income | $49.2M | $55.4M | (11.2)% | | Noninterest Income | $21.9M | $13.2M | 66.5% | | Noninterest Expense | $44.9M | $51.9M | (13.6)% | - Net interest margin (NIM) decreased by **31 basis points** to **2.65%** in Q1 2020 from **2.96%** in Q1 2019, pressured by falling interest rates[192](index=192&type=chunk) - The efficiency ratio improved to **63.1%** in Q1 2020 from **75.7%** in Q1 2019, primarily due to lower noninterest expenses[168](index=168&type=chunk) [Financial Condition](index=60&type=section&id=Financial%20Condition) As of March 31, 2020, total assets increased by 1.4% to $8.1 billion, driven by higher cash, while total gross loans decreased, and the allowance for loan losses significantly increased to 1.29% of total loans Balance Sheet Comparison | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $8.1 billion | $8.0 billion | | Total Gross Loans | $5.7 billion | $5.7 billion | | Total Deposits | $5.84 billion | $5.76 billion | | Stockholders' Equity | $841.1 million | $834.7 million | - Non-performing assets increased slightly to **$33.4 million** (**0.41%** of total assets) at March 31, 2020, from **$33.0 million** (**0.41%** of total assets) at December 31, 2019[253](index=253&type=chunk)[255](index=255&type=chunk) - Domestic deposits increased by **$132.1 million** (**4.2%**), while foreign deposits, primarily from Venezuela, decreased by **$47.1 million** (**1.8%**) during Q1 2020[279](index=279&type=chunk) - The company redeemed **$26.8 million** of its **8.90%** trust preferred capital securities on January 30, 2020, which is expected to reduce annual pretax interest expense by **$2.4 million**[308](index=308&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=81&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies interest rate and price risks as its most significant market risks, with no material changes in exposure since December 31, 2019 - There have been no material changes in the company's market risk exposure since the year ended December 31, 2019[322](index=322&type=chunk) [Item 4. Controls and Procedures](index=81&type=section&id=Item%204%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting identified during the quarter - The CEO and Interim CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[323](index=323&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[324](index=324&type=chunk) [PART II. OTHER INFORMATION](index=82&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=82&type=section&id=Item%201%20Legal%20Proceedings) The company is engaged in ordinary course litigation, including a 2017 lawsuit against Amerant Trust alleging breaches of contract and fiduciary duty, which the company denies and is vigorously defending - A lawsuit filed in September 2017 against Amerant Trust alleges breaches of contract, fiduciary duty, and mismanagement, seeking unspecified damages. The company denies the claims and is defending the lawsuit[328](index=328&type=chunk)[329](index=329&type=chunk) [Item 1A. Risk Factors](index=82&type=section&id=Item%201A%20Risk%20Factors) This section introduces new risk factors primarily related to the COVID-19 pandemic and the company's participation in the SBA's Paycheck Protection Program (PPP), highlighting economic impacts and potential litigation risks - The COVID-19 pandemic has significantly impacted economic conditions and could have a material adverse effect on the company's business, financial condition, and results of operations. The ultimate impact is highly uncertain[331](index=331&type=chunk) - Potential adverse effects from the pandemic include declining credit quality of the loan portfolio, increased need for loan loss allowances, and operational risks from extended remote work arrangements[336](index=336&type=chunk)[337](index=337&type=chunk) - As a participating lender in the SBA's PPP, the company is subject to litigation risks from customers regarding loan processing and risks that the SBA may not fund some or all PPP loan guarantees if deficiencies are found in origination or servicing[342](index=342&type=chunk)[348](index=348&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=86&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In February 2020, the company repurchased 932,459 shares of its Class B Common Stock for approximately $15.2 million through two privately negotiated transactions Share Repurchases in Q1 2020 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | February 2020 | 932,459 | $16.00 |