ABCB - Ameris Bancorp: Topline Growth To Help Earnings Partly Recover Next Year
Summary
- Economic activity will drive consumer and commercial loan growth. However, the growth of residential mortgages will suffer due to high borrowing costs.
- The recent improvement in the deposit mix will help the margin expand further in upcoming quarters.
- The December 2023 target price suggests a high upside from the current market price. However, ABCB is offering a low dividend yield.
Earnings of Ameris Bancorp ( ABCB ) will partially recover next year on the back of moderate loan growth. Further, the recent improvement in the deposit mix and the up-rate cycle will let the margin expand in future quarters. Overall, I'm expecting Ameris Bancorp to report earnings of $5.11 per share for 2022, down 5.5%, and $5.24 per share for 2023, up 2.5% year-over-year. Compared to my last report on the company, I've increased my earnings estimates following the third quarter’s stronger-than-expected loan growth. The December 2023 target price suggests a high upside from the current market price. Therefore, I’m maintaining a buy rating on Ameris Bancorp.
Raising the Loan Balance Estimate
Ameris Bancorp's loan growth remained at a remarkably high level in the third quarter, which beat my expectations. The portfolio increased by 7.1% during the quarter, leading to a growth of 18.6% for the first nine months, or 25% annualized.
The outlook for loan growth is mixed. The company's loan portfolio is well diversified among loan segments, as shown below.
3Q 2022 10-Q Filing
With the exception of residential mortgages, the outlook is bright for all loan segments. Residential mortgages will suffer from higher borrowing costs. On the other hand, other loan segments will benefit from robust economic activity. Ameris Bancorp operates in southeastern markets, with a concentration in Atlanta GA, and Jacksonville FL. Both Georgia and Florida currently have lower unemployment rates than the national average, which bodes well for loan growth.
Moreover, the consumer confidence index rose to 108.3 in December from 101.4 in November 2022, according to The Conference Board's website . This is good news for not only consumer loans but also commercial loans as consumer spending and economic activity depend on consumer confidence.
Considering these factors, I'm expecting the loan portfolio to grow by 2.0% in the last quarter of 2022, leading to full-year loan growth of 21%. For 2023, I'm expecting the loan portfolio to grow by 8%. Compared to my last report on Ameris Bancorp, I haven't changed my loan growth estimates. However, my loan balance estimates are higher than before because of the third quarter’s above-expected performance. The quarter’s exceptional growth has raised the base for the percentage.
Meanwhile, I'm expecting deposits to grow in line with loans. The following table shows my balance sheet estimates.
| Financial Position |
| FY18 |
| FY19 |
| FY20 |
| FY21 |
| FY22E |
| FY23E |
| Net interest income |
| 343 |
| 505 |
| 638 |
| 655 |
| 799 |
| 937 |
| Provision for loan losses |
| 17 |
| 20 |
| 145 |
| (35) |
| 52 |
| 52 |
| Non-interest income |
| 118 |
| 198 |
| 447 |
| 366 |
| 299 |
| 254 |
| Non-interest expense |
| 294 |
| 472 |
| 599 |
| 560 |
| 579 |
| 662 |
| Net income - Common Sh. |
| 121 |
| 161 |
| 262 |
| 377 |
| 354 |
| 363 |
| EPS - Diluted ($) |
| 2.80 |
| 2.75 |
| 3.77 |
| 5.40 |
| 5.11 |
| 5.24 |
| Source: SEC Filings, Earnings Releases, Author's Estimates(In USD million unless otherwise specified) |
In my last report on Ameris Bancorp, I estimated earnings of $5.00 per share for 2022 and $5.19 per share for 2023. I've increased my earnings estimates because of the third quarter’s above-expected loan growth.
My estimates are based on certain macroeconomic assumptions that may not come to fruition. Therefore, actual earnings can differ materially from my estimates.
High Price Upside Warrants a Buy Rating
Ameris Bancorp is offering a dividend yield of 1.27% at the current quarterly dividend rate of $0.15 per share. The earnings and dividend estimates suggest a payout ratio of 11.5% for 2023, which is close to the five-year average of 15.9%. Therefore, I’m not expecting an increase in the dividend level next year.
I’m using the historical price-to-tangible book (“P/TB”) and price-to-earnings (“P/E”) multiples to value Ameris Bancorp. The stock has traded at an average P/TB ratio of 1.57 in the past, as shown below.
| FY19 |
| FY20 |
| FY21 |
| Average |
| TBVPS - Dec 2023 ($) |
| 33.6 |
| 33.6 |
| 33.6 |
| 33.6 |
| 33.6 |
| Target Price ($) |
| 45.8 |
| 49.2 |
| 52.5 |
| 55.9 |
| 59.2 |
| Market Price ($) |
| 47.1 |
| 47.1 |
| 47.1 |
| 47.1 |
| 47.1 |
| Upside/(Downside) |
| (2.8)% |
| 4.3% |
| 11.4% |
| 18.5% |
| 25.7% |
| Source: Author's Estimates |
The stock has traded at an average P/E ratio of around 10.3x in the past, as shown below.
| FY19 |
| FY20 |
| FY21 |
| Average |
| EPS 2023 ($) |
| 5.24 |
| 5.24 |
| 5.24 |
| 5.24 |
| 5.24 |
| Target Price ($) |
| 43.5 |
| 48.7 |
| 54.0 |
| 59.2 |
| 64.5 |
| Market Price ($) |
| 47.1 |
| 47.1 |
| 47.1 |
| 47.1 |
| 47.1 |
| Upside/(Downside) |
| (7.7)% |
| 3.4% |
| 14.5% |
| 25.6% |
| 36.8% |
| Source: Author's Estimates |
Equally weighting the target prices from the two valuation methods gives a combined target price of $53.2 , which implies a 13.0% upside from the current market price. Adding the forward dividend yield gives a total expected return of 14.3%. Hence, I’m maintaining a buy rating on Ameris Bancorp.
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Ameris Bancorp: Topline Growth To Help Earnings Partly Recover Next Year