2023-05-30 15:29:55 ET
Summary
- Ameris Bancorp's earnings estimate for 2023 has been reduced to $4.56 per share due to decreased margin estimates and increased provisioning expense estimates.
- The company's risk level appears manageable. Unrealized losses are low, uninsured deposits are well covered, and exposure to office properties is limited.
- A buy rating is maintained on Ameris Bancorp with a target price of $39.00, implying a 20.1% upside from the current market price and a total expected return of 22.0%.
I'm reducing my earnings estimate for Ameris Bancorp ( ABCB ) for 2023 as I've decided to decrease my margin estimate and increase the provisioning expense estimate. Overall, I'm expecting the company to report earnings of $4.56 per share for 2023, down 8.6% year-over-year. The year-end target price suggests a high upside from the current market price. Therefore, I'm maintaining a buy rating on Ameris Bancorp.
Loan Growth Likely to Slightly Improve After Dismal Performance
Ameris Bancorp's loan growth plunged to 0.5% in the first quarter of 2023 from 5.5% in the fourth quarter of 2022. The first quarter's growth rate is the lowest since the third quarter of 2021. Going forward, management expects loan growth to improve slightly from the first quarter's level. Management is targeting loan growth to be in the low-to-mid-single digit range, as mentioned in the conference call .
In my opinion, regional economies seem conducive to loan growth. The current economic activity in Ameris Bancorp's markets is satisfactory. The company mostly operates in the metropolitan areas of Greenville, SC, Charlotte, NC, Atlanta, GA, Moultrie, GA, Savannah, GA, Jacksonville, FL, and Gainesville, FL. Among these markets, most of the loans are concentrated in the Florida and Georgia markets. As can be seen from the slopes of the trendlines below, both states are currently doing quite well in terms of economic activity.
As a result, I'm expecting Ameris Bancorp to report loan growth of 3.6% in 2023. The following table shows my balance sheet estimates.
Financial Position | FY18 | FY19 | FY20 | FY21 | FY22 | FY23E |
Net Loans | 8,483 | 12,780 | 14,282 | 15,707 | 19,650 | 20,354 |
Growth of Net Loans | 40.9% | 50.7% | 11.7% | 10.0% | 25.1% | 3.6% |
Other Earning Assets | 1,836 | 3,503 | 4,093 | 5,731 | 2,972 | 3,986 |
Deposits | 9,649 | 14,027 | 16,958 | 19,666 | 19,463 | 20,500 |
Borrowings and Sub-Debt | 261 | 1,547 | 561 | 872 | 2,004 | 2,568 |
Common equity | 1,456 | 2,470 | 2,647 | 2,966 | 3,197 | 3,478 |
Book Value Per Share ($) | 33.7 | 42.1 | 38.1 | 42.5 | 46.1 | 50.2 |
Tangible BVPS ($) | 20.7 | 24.7 | 23.7 | 26.2 | 29.9 | 34.1 |
Source: SEC Filings, Earnings Releases, Author's Estimates (In USD million unless otherwise specified) |
Funding Mix Changes to Keep the Margin Under Pressure
Ameris Bancorp's borrowings surged in the first quarter of the year as the bank struggled to fund its assets with cheaper deposits. Further, the deposit mix shifted away from non-interest-bearing accounts during the quarter.
SEC Filings
As a result of the above changes in the funding mix, the net interest margin shrank by 27 basis points during the quarter, after growing by six basis points in the fourth quarter and 31 basis points in the third quarter of 2022. The full-quarter impact of the first quarter's changes will be felt in the second quarter of the year. Moreover, I'm expecting the deposit mix to further shift away from non-interest-bearing deposits due to consumer behavior. Therefore, the margin will likely continue to remain under pressure in the second quarter of the year.
Overall, I'm expecting the margin to dip by ten basis points in the second quarter and then rise by ten basis points in the second half of the year. Compared to my last report on the company, I've reduced my margin estimate because the changes in the funding mix have been worse than I previously anticipated.
Upwardly Revising the Provisioning Estimate and Reducing the Earnings Estimate
Ameris Bancorp surprised me by reporting a large provision expense of around $50 million for the first quarter, or 0.25% of total loans. Asset quality ratios have not worsened during the quarter; therefore, I'm expecting provisioning to remain near a normal level for the remaining nine months of the year. Overall, I'm expecting Ameris Bancorp to report a provision expense of $89 million for the full year, or 0.44% of total loans. Compared to my last report on the company, I haven't changed my provisioning estimates for the remainder of the year. However, my updated full-year estimate is much higher than my previous estimate because of the first quarter surprise.
Mostly because I've upwardly revised my provisioning estimate and reduced my margin estimate, I've decreased my earnings estimate for this year. I'm now expecting the company to report earnings of $4.56 per share for 2023, down from my previous estimate of $5.24 per share. The following table shows my income statement estimates.
Income Statement | FY18 | FY19 | FY20 | FY21 | FY22 | FY23E |
Net interest income | 343 | 505 | 638 | 655 | 801 | 861 |
Provision for loan losses | 17 | 20 | 145 | (35) | 72 | 89 |
Non-interest income | 118 | 198 | 447 | 366 | 284 | 226 |
Non-interest expense | 294 | 472 | 599 | 560 | 561 | 583 |
Net income - Common Sh. | 121 | 161 | 262 | 377 | 347 | 316 |
EPS - Diluted ($) | 2.80 | 2.75 | 3.77 | 5.40 | 4.99 | 4.56 |
Source: SEC Filings, Earnings Releases, Author's Estimates (In USD million unless otherwise specified) |
Risk Level Appears Under Control
Despite the ongoing panic in the banking sector, Ameris Bancorp's risk level appears manageable due to the following reasons.
- Uninsured and uncollateralized deposits represent 29.5% of total deposits and a total of $5.91 billion, as mentioned in the May presentation . In case of a deposit run, these deposits can be easily covered by available sources of liquidity, whose capacity totals around $9.4 billion.
- Due to the hybrid work and work-from-home culture, loans for office properties pose the risk of default. Further, there is a risk that the value of office properties will dip. Fortunately, Ameris Bancorp's exposure to the office segment is limited. Office loans totaled $1.4 billion at the end of March 2023, representing 7% of total loans.
- Unrealized loss on the Available-for-Sale ("AFS") securities portfolio totaled just $44.2 million at the end of March 2023, which represents less than 3% of book value, according to details given in the latest earnings presentation .
Maintaining a Buy Rating
Ameris Bancorp is offering a dividend yield of 1.8% at the current quarterly dividend rate of $0.15 per share. The earnings and dividend estimates suggest a payout ratio of 13% for 2023, which is in line with the five-year average of 14%. Therefore, my earnings outlook does not present any threat to the dividend payout.
I'm using the peer average price-to-tangible book ("P/TB") and price-to-earnings ("P/E") multiples to value Ameris Bancorp. Peers are trading at an average P/TB ratio of 1.27 and an average P/E ratio of 7.65, as shown below.
ABCB | CATY | SFBS | ASB | SFNC | FHB | Peer Average | |
P/E ("ttm") | 6.93 | 5.98 | 9.15 | 6.15 | 9.16 | 7.82 | 7.65 |
P/E ("fwd") | 7.44 | 6.46 | 10.98 | 6.40 | 10.32 | 8.20 | 8.47 |
P/B ("ttm") | 0.69 | 0.88 | 1.71 | 0.59 | 0.65 | 0.92 | 0.95 |
P/TB ("ttm") | 1.05 | 1.03 | 1.73 | 0.83 | 1.14 | 1.61 | 1.27 |
Source: Seeking Alpha | |||||||
Multiplying the average P/TB multiple with the forecast tangible book value per share of $34.10 gives a target price of $43.20 for the end of 2023. This price target implies a 32.8% upside from the May 29 closing price. The following table shows the sensitivity of the target price to the P/TB ratio.
P/TB Multiple | 1.07x | 1.17x | 1.27x | 1.37x | 1.47x |
TBVPS - Dec 2023 ($) | 34.1 | 34.1 | 34.1 | 34.1 | 34.1 |
Target Price ($) | 36.4 | 39.8 | 43.2 | 46.6 | 50.0 |
Market Price ($) | 32.5 | 32.5 | 32.5 | 32.5 | 32.5 |
Upside/(Downside) | 11.9% | 22.3% | 32.8% | 43.3% | 53.8% |
Source: Author's Estimates |
Multiplying the average P/E multiple with the forecast earnings per share of $4.56 gives a target price of $34.90 for the end of 2023. This price target implies a 7.4% upside from the May 29 closing price. The following table shows the sensitivity of the target price to the P/E ratio.
P/E Multiple | 5.7x | 6.7x | 7.7x | 8.7x | 9.7x |
EPS 2023 ($) | 4.56 | 4.56 | 4.56 | 4.56 | 4.56 |
Target Price ($) | 25.8 | 30.4 | 34.9 | 39.5 | 44.0 |
Market Price ($) | 32.5 | 32.5 | 32.5 | 32.5 | 32.5 |
Upside/(Downside) | (20.7)% | (6.6)% | 7.4% | 21.4% | 35.5% |
Source: Author's Estimates |
Equally weighting the target prices from the two valuation methods gives a combined target price of $39.00 , which implies a 20.1% upside from the current market price. Adding the forward dividend yield gives a total expected return of 22.0%. Hence, I'm maintaining a buy rating on Ameris Bancorp.
For further details see:
Ameris Bancorp: Reducing The Earnings Estimate But Maintaining A Buy