8-K: Amerant Bancorp Sells $401 Million Loan Portfolio, Restructures BOLI Program and FHLB Advances

Amerant Bancorp Inc. has agreed to sell a $401 million portfolio of commercial real estate loans, resulting in a $30 million pre-tax loss, as part of a broader strategy to optimize its balance sheet.

Summary

• Amerant Bancorp Inc. has entered into an agreement to sell a $401 million portfolio of non-relationship multifamily commercial real estate loans from its Houston, Texas portfolio to Prime for approximately $370 million.
• The sale is expected to close by the end of January 2024.
• This transaction will result in a pre-tax non-cash charge of approximately $30 million for the fourth quarter of 2023, or approximately $23 million after taxes.
• The company also completed the sale of a New York City commercial real estate credit facility, resulting in a $2 million loss in the fourth quarter of 2023.
• Amerant restructured its bank-owned life insurance (BOLI) program, leading to $4.6 million in income tax expenses and other charges, but expects improved yields with a 2-year earn-back period.
• The company also restructured its FHLB advances, resulting in a $6.5 million gain.
• Additionally, Amerant reduced 10 full-time employees, expecting annual savings of $1 million, and recorded $1 million in severance expenses.
• The company is dissolving its Cayman Islands subsidiary, writing off $0.7 million in goodwill and intangibles, and expects annual savings of $0.3 million starting the year after dissolution.
• Amerant Mortgage became a wholly-owned subsidiary, resulting in a $1 million goodwill write-off.

Sentiment

Score: 4

Explanation: The document contains both positive and negative elements. While the company is taking steps to improve its balance sheet and reduce costs, the immediate impact includes significant losses and expenses. The overall sentiment is cautiously negative due to the immediate financial impact of the transactions.

Positives

• The sale of variable-rate loans protects the company in a projected downward pricing scenario.
• The proceeds from the loan sale will be used to reduce higher-cost deposits and invest in fixed-rate earning assets.
• The BOLI restructuring is expected to improve yields with a 2-year earn-back period.
• The early repayment of FHLB advances resulted in a gain of $6.5 million.
• The reduction of 10 FTEs is expected to result in annual savings of $1 million.
• The dissolution of the Cayman Islands subsidiary is projected to result in annual savings of approximately $0.3 million starting the year after dissolution.

Negatives

• The sale of the loan portfolio will result in a pre-tax non-cash charge of approximately $30 million.
• The sale of the NYC CRE credit facility resulted in a loss of $2.0 million in 4Q23.
• The BOLI restructuring resulted in $4.6 million in income tax expenses and other charges.
• The company recorded $1.6 million in final conversion costs related to FIS and software expenses.
• The company recorded severance expense of $1.0 million.
• The dissolution of the Cayman Islands subsidiary resulted in a write-off of $0.7 million in goodwill and intangibles.
• Amerant Mortgage becoming a wholly-owned subsidiary resulted in a write off $1.0 million in goodwill.

Risks

• The loan sale is subject to customary closing conditions and may not close as expected.
• The projected benefits from the BOLI restructuring and FHLB advance restructuring may not materialize as expected.
• The company may face challenges in redeploying the proceeds from the loan sale into profitable fixed-rate earning assets.
• The company may face unexpected costs or challenges in dissolving its Cayman Islands subsidiary.
• The company may face unexpected costs or challenges in rationalizing the operations of Amerant Mortgage.

Future Outlook

The company expects to use the proceeds from the loan sale to reduce non-relationship institutional deposits and invest in fixed-rate earning assets. The company also expects improved yields from the BOLI restructuring and cost savings from the reduction in personnel and the dissolution of the Cayman Islands subsidiary.

Management Comments

• The company executed several transactions in the fourth quarter of 2023 to position its balance sheet and operations towards continued profitable growth and improved earnings.

Industry Context

The sale of the loan portfolio and restructuring of the BOLI program and FHLB advances are part of a broader trend among financial institutions to optimize their balance sheets in response to changing market conditions and interest rate environments. The move to reduce variable rate loans and non-relationship deposits is a common strategy to mitigate risk and improve profitability.

Comparison to Industry Standards

• The sale of a loan portfolio at a loss is not uncommon in the banking industry when institutions are looking to reduce risk or improve their capital ratios. For example, other banks have sold similar portfolios at discounts to book value to improve their balance sheets.
• The restructuring of BOLI programs is a common practice among banks to optimize their tax benefits and improve yields. Many banks have undertaken similar restructurings to enhance their returns.
• The reduction in personnel and streamlining of operations is a common strategy for banks to reduce costs and improve efficiency. Many banks have announced similar cost-cutting measures in recent years.
• The dissolution of a subsidiary in a tax haven is a common practice for banks to simplify their corporate structure and reduce compliance costs. Many banks have undertaken similar actions to streamline their operations.

Stakeholder Impact

• Shareholders will experience a reduction in tangible common equity due to the loss on the loan sale.
• Shareholders may benefit from improved earnings in the future due to the restructuring of the BOLI program and FHLB advances.
• Employees may be impacted by the reduction in personnel.
• Customers may not be directly impacted by these transactions.
• Creditors may be impacted by the reduction in non-relationship institutional deposits.

Next Steps

• The loan portfolio sale is expected to close by the end of January 2024.
• The company will use the proceeds from the loan sale to reduce non-relationship institutional deposits and invest in fixed-rate earning assets.
• The company will continue to decommission legacy software applications in 1Q24.
• The company expects to complete the dissolution of its Cayman Islands subsidiary by mid-2024.

Key Dates

Keywords

loan portfolio sale, commercial real estate, BOLI restructure, FHLB advances, non-routine items, tangible common equity, CET1, goodwill impairment, cost reduction, financial restructuring