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 (NYSE: 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 performance over the years, which has been reinforced by the company’s durable banking model and diversified business lines that help provide solid revenue generation throughout various economic and interest rate cycles. More importantly, this has been demonstrated through the volatile interest rate environment in recent years, with core ROA tracking between 1.2%-1.5% since the start of 2022 (core ROA of 1.3% for 9M24). The solid returns continue to be reinforced by a healthy NIM due to its higher level of loans in the earning asset mix, which helps facilitate above-peer earning asset yields and a reasonably priced core deposit base. Additionally, profitability benefits from favorable noninterest income levels that have generally comprised 25% or more of total revenues, albeit somewhat concentrated in mortgage banking activity, where the company has a well-established direct origination channel, notably in the purchase money space given its deep-rooted relationships with builders and realtors in its footprint. Moving forward, assuming well-contained credit costs, which appear likely given Ameris’ healthy reserve coverage (1.6% of total loans) and sound credit quality outlook, we believe that the company’s profitability should likely remain at the upper quartile of the rating category. This is primarily due to management’s expectation of a fairly flat NIM in the 3.5% range, as well as the potential for an uplift in mortgage banking activity if the longer-end of the yield curve moves lower in tandem with the Fed’s expected target rate cuts.

With respect to asset quality, ABCB has experienced minimal credit issues in recent years, currently reflects a manageable NPA ratio, and has reported well-contained NCOs during 2024. Moreover, risk rating migration and delinquency trends have been fairly benign. We remain cautious around the higher interest rate environment and the impact to borrowers, though Ameris has completed a thorough analysis, and it appears that a majority of borrowers with loan maturities during 2024/2025 can endure a higher renewal rate while maintaining a solid debt service coverage position. With the potential headwinds facing the CRE sector, we acknowledge that Ameris' investor CRE exposure is modestly above average, notably within the investor office sector at 6% of total loans. However, the underlying metrics have remained solid given the minimal exposure to central business districts, and the fact that 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 substantial 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. Moreover, absorption trends in the C&D portfolio have continued to be encouraging in recent periods.

KBRA also recognizes the quality of Ameris' core deposit franchise, which constitutes the majority of total funding and remains above peer levels (86%). The deposit composition is favorable, featuring a higher proportion of NIB accounts (31%). This, combined with the overall granularity and leading deposit market share among local banks, supports a respectable deposit beta (2.39% average cost during 3Q24). Moreover, the liquidity position is considered adequate despite a higher loan-to-deposit ratio, which is supported by a healthy cash position and lower level of unrealized losses in the bond portfolio compared to peers. Capital levels have grown significantly in recent years due to slower growth and a minimal dividend payout and currently compare favorably to the peer group (CET1 ratio of 12.1% as of 3Q24).

Rating Sensitivities

A rating upgrade is not currently expected, though establishing a consistent track record of maintaining stronger capital (relatively in line with current levels), alongside the continuance of peer-leading profitability could support positive momentum over time. Conversely, a rating downgrade is not anticipated, though any unexpected credit issues, a more aggressive stance with capital or liquidity, or any unforeseen profitability problems could potentially pressure the ratings.

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