Amerant Bancorp (AMTB) Q1 2023: Deposit Growth Outpaces Loans by $43M as Margin Pressures Build

April 21, 2023 | By EarningsIQ Research

Amerant Bancorp delivered deposit growth that outpaced loans, prioritizing funding stability amid sector volatility. Despite resilient asset growth, the bank faces mounting margin compression and ongoing credit noise, with management signaling a deposits-first approach and operational streamlining as key levers for the remainder of 2023. Investors should watch for execution on international deposit gathering and cost discipline as competitive and macro headwinds intensify.

Summary

• Deposit Discipline Drives Funding Stability: Loan growth remains capped by deposits-first strategy, protecting liquidity and balance sheet quality.
• Margin Compression Accelerates: Repricing of time deposits and deposit competition will pressure net interest margin near-term.
• Operational Efficiency in Focus: Management targets cost offsets and digital investments to counter elevated expense run-rate.

Business Overview

Amerant Bancorp is a community-focused bank with a $9.5 billion asset base, operating primarily in South Florida, Houston, and Tampa. The bank generates revenue through a mix of net interest income (interest earned on loans and investments minus funding costs) and non-interest income (fees, mortgage banking, wealth management). Key segments include commercial banking, specialty finance, Amerant Mortgage (national mortgage origination), and wealth management. The funding model relies on a diversified deposit base split between domestic and international customers, with a growing emphasis on insured and core deposits.

Performance Analysis

Balance sheet expansion continued as total assets reached $9.5 billion, driven by nearly $200 million of loan growth and $242 million in new deposits. Deposit growth outpaced loan expansion, reflecting a deliberate deposits-first discipline that management emphasized as critical in the current environment. The bank’s loan-to-deposit ratio remains near its 95% target, underscoring a focus on sustainable, organic growth rather than stretch lending.

Net interest income was flat as higher deposit costs offset asset yield improvements. Net interest margin (NIM) compressed by 6 basis points to 3.9%, with management warning of another 10 basis point decline in Q2 due to time deposit repricing and competitive pressures. Non-interest income fell 21% sequentially, primarily from securities losses and lower derivative activity, but was partially offset by stronger mortgage banking and brokerage fees. Non-interest expenses rose 4% on higher personnel costs and one-time items, with core operating expenses guided near $60 million going forward.

• Asset Sensitivity Remains High: 52% of loans are floating rate, with 55% repricing within a year, but immediate margin benefit is muted by funding cost catch-up.
• Credit Quality Mixed: Net charge-offs rose, driven by a single transportation credit and legacy indirect consumer loans, but non-performing loans fell as a CRE property was moved to OREO.
• Deposit Mix Shifts: Time and brokered deposits drove growth, while international deposits were stable and core deposits edged higher by $41 million.

Capital and liquidity remain robust, with tangible common equity at 7.44% and a conservative stance on buybacks. The bank’s liquidity management was stress-tested during sector volatility, and management proactively increased cash at the Fed by $200 million, favoring insured deposit alternatives for large clients.

Executive Commentary

Strategic Positioning

1. Deposits-First Growth Model

Management is unwavering in its deposits-first strategy, explicitly linking loan growth to deposit inflows to maintain a sub-100% loan-to-deposit ratio. This approach is designed to preserve liquidity and capital strength amid sector-wide funding uncertainty. The bank is leveraging Intrafi ICS, an insured cash sweep program, to attract and retain large depositors, and is intensifying efforts in international deposit gathering, where cost of funds remains structurally lower.

2. Margin Management and Asset Sensitivity

Amerant’s balance sheet remains asset sensitive, with a large proportion of floating-rate loans and interest rate floors. However, the near-term margin benefit is offset by rapid repricing of funding costs, particularly in time and money market deposits. Management expects NIM to trough in Q2 as the majority of deposit repricing is completed, after which margin pressures may abate if deposit betas stabilize.

3. Credit Quality and Portfolio Rationalization

Credit performance is mixed, with periodic large charge-offs—notably a transportation credit this quarter—raising questions about portfolio seasoning. The discontinuation of indirect consumer lending reduces future risk, but legacy exposures will continue to run off. Commercial real estate, especially in New York, remains under close watch, though risk is mitigated by low loan-to-value and strong sponsor profiles.

4. Operational Efficiency and Digital Investment

Cost discipline is a renewed focus, as elevated operating expenses from hiring and digital transformation weigh on efficiency ratios. Management plans to offset these costs through process efficiencies post-FIS system conversion, with the full benefit targeted for the second half of 2023. The digital upgrade is expected to enhance customer experience and support scalable growth in core markets.

5. Diversification of Fee Income Streams

Growth in non-interest income is a strategic priority, with momentum in wealth management and mortgage banking. New talent and expanded product offerings are expected to drive fee income higher, reducing reliance on traditional deposit service charges and broadening the bank’s revenue base.

Key Considerations

Amerant’s Q1 results reflect both resilience and evolving risk, as the bank balances growth ambitions with sector-wide funding and margin headwinds. The strategic context centers on defending balance sheet strength, accelerating cost discipline, and diversifying revenue sources.

Key Considerations:

• Deposit Franchise Strengthening: A deliberate shift to insured, core, and international deposits bolsters funding reliability and cost management.
• Loan Growth Tied to Funding: Management will not pursue loan growth at the expense of liquidity, capping expansion to available deposits.
• Expense Management Post-Hiring Wave: One-time costs and new hires have inflated expenses, but efficiency improvements are expected in H2 post-digital conversion.
• Credit Noise Remains: Recurring large charge-offs, though described as idiosyncratic, highlight the need for continued portfolio cleanup and vigilance, especially in legacy and CRE exposures.
• Non-Interest Income Upside: Fee income from mortgage and wealth management is set to rise, with management guiding to sequential improvement as new talent ramps up production.

Risks

Margin compression is likely to persist near-term as deposit repricing outpaces asset yield improvement, especially if competitive pressures for funding intensify. Credit risk remains a watchpoint, with the potential for further isolated charge-offs and lingering exposure in commercial real estate. Operational risk is elevated during the FIS conversion, and cost discipline must be delivered to avoid further erosion of efficiency ratios. Macro uncertainty and sector volatility could impact deposit flows, client sentiment, and loan demand.

Forward Outlook

For Q2, Amerant guided to:

• Loan growth capped at $200–$300 million, strictly limited by deposit inflows
• Net interest margin expected to decline by approximately 10 basis points from Q1
• Core non-interest expense run-rate targeted near $60 million, with efficiency gains to materialize in H2

For full-year 2023, management maintained its focus on deposit-driven growth, with potential for 10% loan growth if funding is available. Margin stabilization is expected in the second half as deposit repricing subsides. Non-interest income is projected to increase quarterly, led by mortgage and wealth management contributions.

• Deposit gathering, especially internationally, is prioritized for funding cost relief
• Expense offsets and digital investments are expected to improve efficiency ratios by year-end

Takeaways

Amerant’s Q1 underscores the primacy of funding discipline and operational flexibility in a volatile banking environment.

• Deposit-Led Growth Protects Balance Sheet: Management’s willingness to forgo loan growth in favor of funding stability is a clear differentiator and risk mitigant.
• Margin and Expense Headwinds Are Near-Term Realities: Investors should expect further NIM pressure in Q2, with relief contingent on deposit cost stabilization and cost discipline execution.
• Non-Interest Income and Efficiency Will Be Key Watchpoints: Delivery on fee income growth and post-conversion cost savings are critical for valuation and long-term profitability.

Conclusion

Amerant Bancorp’s first quarter results reflect prudent balance sheet management and a conservative approach to growth, with management prioritizing deposits and capital preservation over aggressive lending. The bank’s ability to execute on cost discipline and fee income diversification will determine its trajectory as margin and credit pressures persist.

Industry Read-Through

Amerant’s deposits-first discipline and focus on insured funding highlight a sector-wide pivot toward liquidity and risk management in the wake of recent banking volatility. The shift away from loan-led growth, the emphasis on core and international deposit gathering, and the operational focus on digital transformation are themes likely to resonate across regional and community banks. Margin compression and episodic credit noise remain industry-wide challenges, with banks that can deliver cost discipline and fee income diversification better positioned for resilience. Investors in peer banks should monitor similar signals around deposit mix, loan growth discipline, and post-digital conversion efficiency.

AMTB Financials Banking Deposits Margin Noninterest Income Credit Efficiency