KBRA Affirms Ratings for Amerant Bancorp Inc.

KBRA affirms the senior unsecured debt rating of BBB- and the short-term debt rating of K3 for Coral Gables, Florida-based Amerant Bancorp Inc. (NYSE: AMTB) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB, the subordinated debt rating of BBB-, and the short-term deposit and debt ratings of K3 for its subsidiary, Amerant Bank, N.A. ("the bank"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

KBRA holds a favorable view of AMTB’s multiyear transformation strategy to de-risk the balance sheet that has included the exit of noncore markets and loan categories to focus on markets and loan categories that better contribute to the long-term franchise value of the company. The ratio of CRE loans to total risk-based capital is projected to decline to approximately 220%, a 100 bp reduction since its peak in 4Q20, upon the completion of the pending sale of its Texas-based operations (estimated 2H24 closing) that includes a projected $529 million in loans. The strategy also reflects investments in its core Florida markets directed to the retail branch-based deposit gathering network to improve the funding mix, namely, reducing its reliance on higher-cost time deposits (28.5% of total deposits) and wholesale funding (25% of total funding at 1Q24). KBRA expects the company's earnings performance to improve over time as NIM stabilizes from the adjustable-rate loans (53% of loan book) with over 58% repricing over the next twelve months coupled with the likelihood that funding costs plateau due to lower leverage following the balance sheet restructuring. Outsized loan growth has pressured capital levels in recent years, with the company's CET1 ratio falling below 10% in 4Q23, before modestly rebounding in 1Q24 (10.1%). The asset sales and noncore loan runoff are expected to measurably rebuild capital, raising CET1 to ~11%, which is more consistent with the rated peer average. Despite the significantly restructured loan portfolio, NPAs and NCOs remain elevated relative to peers, and KBRA expects NCOs to remain above peer levels over the next year from AMTB's unsecured consumer portfolio originated through SoFi and Upgrade. In addition, the economic impact from higher interest rates is expected to further pressure credit performance, although the company’s low LTVs and relatively solid DSCRs should help reduce overall loss content as the portfolio matures.

Rating Sensitivities

Positive rating momentum would require stabilization in credit quality and reduced NPAs and NCOs and a core funding profile that translates into core earnings that are more consistent with the next rating category higher while also building on its capital profile. Negative rating action could result from deterioration in credit quality creating elevated credit costs negatively affecting earnings performance and core capital.

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Methodologies