KBRA Affirms Ratings for Ameris Bancorp

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Atlanta, Georgia-based Ameris Bancorp (NASDAQ: ABCB) ("Ameris" or "the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for Ameris Bank, the main subsidiary. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by Ameris’ strong earnings capacity, highlighted by core ROA that has averaged just above 1.50% since 2018, which has been underpinned by a favorable NIM that is reinforced by the company’s more leveraged balance sheet from a loans to earning assets standpoint (89% as of 3Q23) and a higher level of noninterest income. ABCB’s profitability has remained solid in 2023 despite industry-wide NIM headwinds from the acceleration in deposit costs and the significant reserve build that has occurred due to deteriorating economic forecasts within CECL modeling. Moreover, with PPNR ROA above 2.00% as of 3Q23, the company’s earnings power remains in the top quartile in the rating group. Additionally, despite the higher amount of loans in the asset mix, which results in a higher level of RWAs, Ameris’ risk-adjusted returns have also remained suitable for the rating group. While noninterest income has been on the decline, ABCB continues to reflect solid revenue diversity, which accounted for 23% of revenues for 9M23, albeit we recognize this is largely concentrated in mortgage banking. KBRA also acknowledges the company’s quality core deposit franchise, which has been strengthened over the years through strategic acquisitions and continued organic growth. ABCB’s core deposit levels remain at a high level relative to total funding (83% as of 3Q23) despite the liquidity leaving the banking system as a part of the Fed’s tightening measures and stronger loan growth in recent years. Moreover, while betas have been rising, we view Ameris’ deposit base as appropriately priced relative to local peers (2.00% for 3Q23), which is supported by the granular nature and higher level of noninterest-bearing deposits (32% of total). Given ABCB’s position in some of the strongest growth markets in the U.S., the liquidity position has typically been managed a little more aggressively than similarly rated banks, including a HFI loan-to-deposit ratio of 98% as of 3Q23, which was managed in a similar fashion in pre-pandemic years. However, management plans to reduce that measure, with core deposit growth being the governor for loan growth prospectively. Moreover, we take solace in the higher level of cash on-balance sheet (6% of assets), which combined with unencumbered securities and contingency funding sources accounts for ~$10 billion and is considered adequate relative to uninsured/uncollateralized balances (161% coverage), deposit flows, and growth prospects. The company's credit quality metrics have been sound in recent years, though we recognize that Ameris' investor CRE exposure is modestly above average, notably within the investor office sector at 7% of total loans. However, the underlying metrics have remained solid given the minimal exposure to central business districts, and the fact a majority of the portfolio is considered Class A, essential-use, or medical office, which has been more resilient in recent periods. In addition, we will continue to monitor the C&D portfolio, which is also higher than peers at 11% of total loans, and the overall health of the Southeast U.S. markets that tend to reflect a higher-beta and have experienced susbtantial growth in recent years. With that said, we take comfort in management's conservative underwriting, knowledge of local markets/borrowers, and robust monitoring and review. With regard to capital management, ABCB has maintained a healthy TCE ratio (9.1% as of 3Q23) given the company's smaller sized securities portfolio, and in turn, minimal impact from negative AOCI. However, risk-based measures, given the higher RWAs, generally track slightly below peer averages, though have been improving in recent quarters.

Rating Sensitivities

Given the current uncertainties in the U.S. economy and banking industry, a rating upgrade is not expected, though better-than-peer credit metrics through a potential downturn, stronger risk-based capital ratios, maintenance of strong earnings, and a favorable funding base would be viewed positively. Conversely, a rating downgrade is not expected, though any unexpected significant deposit outflows or liquidity issues, or above peer credit problems through weakening economic conditions could potentially pressure the ratings.

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