8-K: Amerant Bancorp Adopts New Performance-Based Restricted Stock Unit Agreement

Amerant Bancorp Inc. has adopted a new form of performance-based restricted stock unit agreement for its executives, linking vesting to relative adjusted return on average total common equity and relative total shareholder return.

Summary

• Amerant Bancorp Inc.'s Compensation and Human Capital Committee adopted a new Form PSU Agreement on February 11, 2025.
• This agreement will be used in connection with the Long-Term Incentive Plan (LTI Plan) starting in February 2025.
• The Form PSU Agreement provides for the grant of performance-based restricted stock units (PSUs) to named executive officers and other members of the Company's Executive Management Committee.
• The PSUs generally vest at the end of a three-year performance period, contingent on continuous service.
• Issuance of shares depends on the Company achieving a specified threshold of Relative Adjusted Return on Average Total Common Equity relative to a peer group.
• The initial number of earned PSUs can range from 50% to 150% based on the achievement of the Relative Adjusted Return on Average Total Common Equity level.
• The actual number of PSUs earned will be determined by multiplying the Initially Earned PSUs by a Modifier Percentage ranging from -20% to +20%, based on the Company's achievement of specified levels of Relative Total Shareholder Return relative to a peer group.
• The performance-based restricted stock units will be settled in shares of Class A common stock of the Company following the satisfaction of the vesting conditions.
• Grantees will not have voting or other stockholder rights prior to the settlement of the award.
• The terms are substantially similar to the form approved in February 2023, but the performance goal has been modified to measure Relative Adjusted Return on Average Total Common Equity rather than Relative Total Shareholder Return.
• Dividend equivalents will be paid in cash at the same time of vesting of the PSUs, if any, rather than in shares of Class A common stock.

Sentiment

Score: 7

Explanation: The document is neutral to slightly positive. It outlines a standard update to executive compensation, aligning management incentives with shareholder value. The potential for increased payouts based on performance is a positive signal.

Positives

• The new agreement aligns executive compensation with company performance, specifically focusing on return on equity and shareholder return.
• The potential for increased payouts (up to 150%) incentivizes executives to exceed performance targets.
• The payment of dividend equivalents in cash provides immediate value to executives upon vesting.

Negatives

• The agreement includes performance metrics that are relative to peer groups, which can be influenced by external factors outside of the company's direct control.
• The potential for reduced payouts (down to 50%) if performance targets are not met could be demotivating.
• If the Company's Relative Total Shareholder Return for the Performance Period is negative, then the PSUs that vest will be capped at the Target opportunity level.

Risks

• The reliance on peer group comparisons introduces external market risk into the compensation structure.
• Changes in the peer group composition could impact the relative performance metrics.
• Economic downturns or industry-specific challenges could negatively affect the company's ability to achieve performance targets.
• The company's Relative Total Shareholder Return for the Performance Period is negative, then the PSUs that vest will be capped at the Target opportunity level.

Future Outlook

The Form PSU Agreement will be used going forward for grants to named executive officers and other members of the Company's Executive Management Committee.

Industry Context

The use of performance-based equity compensation is a common practice in the financial services industry to align executive incentives with shareholder value creation. Linking vesting to relative performance metrics encourages executives to outperform their peers.

Comparison to Industry Standards

• Many financial institutions use similar performance metrics, such as return on equity and total shareholder return, in their executive compensation plans.
• Peer groups are typically composed of companies of similar size and business focus.
• Companies like Bank of America, JP Morgan Chase, and Citigroup also utilize performance-based equity compensation with similar metrics.
• The specific weighting and target levels for these metrics can vary significantly across companies.

Stakeholder Impact

• Shareholders: The new agreement aims to align executive interests with shareholder value creation.
• Executives: The agreement provides incentives for executives to improve company performance.
• Employees: The agreement could indirectly impact employee morale and performance by aligning executive incentives with overall company success.

Next Steps

• The Committee will set the specific performance goals and peer groups for each performance period.
• The Company will monitor its performance against these goals and make adjustments to executive compensation accordingly.
• The PSUs will vest based on the performance achieved over the three-year performance period.

Key Dates