Amerant Bancorp Inc. Q3 FY2025 earnings call

Overall Comments

• Rescheduled earnings call, team will prepare each quarter end. Focus on asset quality over loan growth this quarter. Higher provision due to loan review impacted results. Core expenses rose $2 million from legal and consulting, not expected to continue at these levels.

Asset Quality

• Nonperforming assets increased, driven by downgrades in CRE and commercial loans. Special mention loans up, with mitigants in place. Proactive credit quality measures ongoing with third-party assistance.

Capital

• Strong capital levels, CET1 11.54%, declared quarterly cash dividend of $0.09 per share, resumed share buybacks.

Strategic Updates

• Expense reduction initiative with goal of $2M-$3M savings per quarter in 2026. Commercial banking leadership changes, including Mike Nursey and Angel Medina. Heightened focus on reducing nonperforming assets with realigned personnel and third-party reviews.

Total assets reached $10.4 billion as of the close of the third quarter. Total investment securities were $2.3 billion, up by $336.8 million. Total gross loans were down by $247.4 million. Core deposits increased while total deposits remained stable with brokered deposits reduced by $93.7 million. Net interest income was $94.2 million, up $3.7 million. Noninterest income was $17.3 million, noninterest expense was $77.84 million, core noninterest expense $75.9 million. Nonperforming assets increased to $140 million or 1.3% of total assets compared to $98 million or 0.9% in the prior quarter. Assets under management increased $104.49 million to $3.17 billion.

Fourth Quarter Guidance

• Net interest margin expected ~3.75%.
• Noninterest income projected $17.5M-$18M.
• Expenses expected $74M-$75M, efficiency ratio high 60s.
• Core ROA mid-80s to low 90s, possibly closer to 1% with recoveries.
• Loan growth: ~$350M organic, $150M syndications, net growth $125M-$175M.
• Deposit growth in line with loan growth.
• Buybacks: Utilizing remaining $13M in authorized program, plan to repurchase shares in 4Q.

• Nonperforming asset levels increasing requiring proactive resolution.
• Impact of interest rate changes on margin and loan growth.
• Dependence on third-party reviews and their effectiveness.
• Potential macroeconomic impact on asset quality.

Q: Maybe I'll just start off with the same question I feel like I've asked the past 2 quarters, just on kind of the lay of the land, where you guys think you are on credit.

A: Sure. Appreciate the question and totally understand where you're coming from. Look, I think the third quarter was the highest peak in terms of -- and I referenced that it was over $3.5 billion in the portfolio, right? So you're basically over half the portfolio was evaluated either for annual reviews, limited reviews or covenant tests in the quarter. It is substantially lower here in the fourth quarter. And as I said, Michael, earlier, I think we've got a very good line of sight. I did give a specific example of a very significant resolution. And I believe both in special mention and in substandard, we are well on our way working through these. Look, the most challenging part, Michael, is the timing of resolution on these items, right? That's the piece that has clearly less predictability. And you can see, look, you're just 3 weeks, almost 4 weeks after quarter end, we have a resolution of a material item. We've got a number of these with a good line of sight. I think with all the comments that I made around -- and I think Shary shares the same belief, the bench strength that we've done, the teamwork that across the areas that's being approached on this, we're heading into having a much better line of sight and a much better path to early identification and resolution rather than seeing the type of flow that's going through the stages that obviously we saw this quarter. And I do think, Michael, a couple of other things. The expense initiatives are critical. We will give more color on that in a couple of weeks at the upcoming investor conference. And as I said, I believe we are a very low baseline that we just wanted to let people know that all of that's identified, and we can apply those reductions in as we look at projections going forward. And we believe there is significant additional opportunity for us. And again, I think that's just realigning priorities that -- and I guess the other good thing to say is you also heard in terms of there's a rebirth on the credit side. We've already had some nice outstandings booked so far in the fourth quarter. And as Shary referenced, you're going to see the beginnings of not just organic growth coming back in, but also the launch of the syndication program, which is critical for us because, again, remember, we're not just looking to buy, we're looking to participate. And so given the size of exposures, we think that, that's smart for not only growth, but also prudent risk management.

Q: The margin guide for the fourth quarter implies a step down. I'm sorry if I missed this, it's a busy morning. But what's going to specifically drive that step down from this quarter's level?

A: Sure, Michael. So the guidance that we gave for the fourth quarter is close to the 3.75%. A couple of drivers into that number compared to 3Q is we're now going to see a full quarter's worth of repricing on the asset side on the floating rate loans. After the rate cut that occurred in September, we now will see the full quarter showing that impact. We're also including an update in terms of an additional rate cut happening now, which will impact 2 out of the 3 months of the quarter. And then that would be offset by the repricing of our deposits. We continue to see a beta close to [ 40 ] as we did in the past. So we definitely see the assets repricing faster than the deposits. The other thing, Michael, is that within the number that you see in 3Q, we have collections on some special assets, which created a higher level of the NIM. We do expect some of those things to happen in the fourth quarter as we continue to collect on those, but the guidance we're giving is more on the normalized NIM.

Q: Maybe I'll just start on the loan growth discussion. I appreciate all the color there. Jerry, maybe as you think about what the kind of go-forward organic opportunity is and the sustainability of that kind of $125 million to $175 million net loan growth guidance. And then maybe just more specifically on the syndication activity. I know you gave us some color as to what we would expect from a growth perspective in 4Q. How should we think about sort of the ebbs and flows participating in versus participating out?

A: Yes. Great question. I think it depends on, Russell, the opportunities that the business development, the RMs generate. Our Head of Syndication is working closely on a lot of different opportunities already with the team. Clearly, we demonstrated -- we've participated in our first big deal. I'm sure you saw the participation in the raise acquisition financing where we were also a syndication agent. I think that was a great way to announce that we're willing and able to look at deals like that and be an active participant and also actually participate in helping get the deal syndicated. And I think that's one of the reasons why when we brought Jack on board, we were so excited to be able to attract someone with his contacts and experience. As I look at it on a go forward, I think it is -- again, it's a great tool for 2 ways, right? We did stay upfront that the volume was going to be more purchased than us actively participating away. But my expectation in '26 is you'll see that become a bigger piece because part of what we're trying to do is start to get hold sizes back into the sub-$30 million range on deals. And we are seeing much larger opportunities. And so we think this, again, is a great way for us to not only help assist on the growth side, but I think prudent risk management and maintaining lower hold sizes on a go-forward basis.

Q: How should we think about the size of the investment portfolio kind of alongside the net loan growth guide you guys are expecting?

A: Yes. Look, Russell, I think -- and again, we gave previous guidance that in the absence of loan growth or I should say to supplement the balance sheet, we elected to expand growth in the portfolio. I think on a go-forward basis, it's pretty clear we would much rather be deploying those funds into loan growth than any continued growth in investments. So if you do see some additional growth this would be the, in my opinion, the last period. And frankly, there probably could be some contraction in this period. One of the scenarios we're actually looking at along the way is how much of that do we still even want to maintain here in the fourth quarter. So more to come as we continue to do analysis there. But I think with the reemergence of the pipeline, the launch of the syndication program here in this quarter with something already done and under our belt, I think you'll start to see that it will be back to the growth coming on the loan side, certainly not on the security side.

Q: Just had another follow-up on credit. I was just interested, have you all used third-party reviews in the past? Or is this really the first quarter that you've used the third party?

A: In the third quarter of last year, we had a limited review. This year, it was a more considerable effort. And our view is that it is designed to give some comfort on accuracy of risk rating and timeliness of risk rating. And so Woody, a lot of this is the scrutiny that you get by being in the regional bracket. This is all part of the build that we wanted to ensure. But frankly, there is a lot of opportunity for -- internally for the teamwork that I've referenced between the line, between credit, between credit review and being in a very proactive way about it. And this was -- I do want to reference again, this was the highest quarter, right, for annual reviews, limited reviews and covenant testing to be done. It's basically over half the portfolio. So it's much less significant in the other 3 quarters of the year.

Q: So I think just about 50% was reviewed in the third quarter. How much of the loan portfolio do you expect to be reviewed in the fourth quarter?

A: Yes. I want to say it's in the [ $1.3 billion to $1.5 billion ] range. And remember, a lot of that is quarterly covenant testing, right? You've probably gone through the bulk of annual reviews at this stage.

Q: When you look at -- I think it was [ 12 ] credits downgraded to NPA in the broader industry, we see some weakness in the subprime consumer and especially auto. When you look at your downgrades, are you seeing any overlying trends that's impacting these borrowers? Or do they seem unconnected?

A: Yes. I don't think you see the exposure in a material way that others have. Again, we're not someone that had the exposure that others did to NDFIs. We didn't have any impact from some of the big issues that others have reported on this quarter. We were not involved. I think when you look at ours, particularly, I think, on the commercial real estate side and just where there's probably construction underway, it's whether there's -- are they still on track timing-wise and that sometimes because of delays creates issues. We also -- and I already referenced, do we anticipate there could be some refinancing risk over the next 12 to 24 months. And so we've done early identification of those as well. So just examples on the commercial real estate side.

Q: Do you feel like -- this is my last follow-up. Do you feel like you're being more aggressive with some of the downgrades than you have been in the past? Or has the strategy been pretty consistent?

A: Yes. Yes, I think we are. And the -- what we're seeing here is that timeliness and being proactive makes a difference. The earlier we get in front of a customer and try to get to a resolution, the better outcome that we expect to have. So that's what's driving this level of reviews and the timeliness of these things that we're doing.