LCNB: 4.4% Dividend, 18% EPS Growth In Q3, Strong Internal Metrics

Oct. 21, 2021 12:15 PM ETLCNB Corp. (LCNB)2 Comments5 Likes

Summary

  • Solid 18% EPS growth in 3Q, strong internal metrics.
  • Asset quality improvement, lower NPAs, and provisioning expense.
  • Increase in wealth management assets.
  • 4.4% dividend yield, buybacks continue.
  • 0.9x P/B, 11x P/E, net income 12% CAGR past five years.

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4.0% YoY net interest income growth, EPS up 13.3% YoY in 3Q21

LCNB Corp. (NASDAQ:LCNB) reported a good set of 3Q21 results with a 4.0% YoY growth in NII and net income increase of 13.3% YoY. Reported EPS was up 18.2% YoY to $0.39/share. The NII figure was aided by income generated from the Paycheck Protection Program and average lower rates on deposits. LCNB's cost of funds was 0.23% for 3Q21 against 0.48% in 3Q20.

Sustained growth at LCNB Wealth also contributed positively to overall financials. Assets at LCNB Wealth increased 30.5% YoY to $1.03bn. Overall, net loans for LCNB have increased, asset quality remains robust too with non-performing loans down 37.2% YoY and charge-offs being marginal. Further, asset quality remained stable with non-accrual loans and loans past due 90 days or more and still accruing interest decreased to 0.20% of total loans (0.31% in September 2020). Moreover, non-performing assets to total assets dropped to 0.14% in 3Q21 from 0.24% in the same quarter last year. A dividend of $0.19/share has been announced for 3Q21. Share repurchases continued in 3Q21 and YTD buybacks have totaled 0.47mn at an average cost of $16.82 per share. This amounts to repurchases worth $7.9mn.

Commenting on the financial results, LCNB CEO Eric Meilstrup said:

LCNB achieved strong third quarter earnings, driven by sustained growth in LCNB Wealth assets, an increase in total earning assets, and sustained strong asset quality. Growing assets under management, actively controlling risk, and diversifying our revenue streams have positioned LCNB to effectively navigate the current low-rate environment.

0.9x P/B, 4% dividend yield, 11x P/E

LCNB is a financial holding company for the regional Ohio-focused LCNB Bank. Even as a small bank, the company has registered steady NII and net income CAGR of 7.4% and 11.8% respectively over the last five years. Management also has an impressive record of returning cash to shareholders through dividends, which has grown at a CAGR of 2.7% in the last five years, and share buybacks. Current dividend yield stands at 4.4%. Additionally, the company is well-capitalized and has robust asset quality. Despite COVID-19 related economic shutdowns in the last year, LCNB has maintained its asset quality and we expect lower provisioning in 2021 to aid profitability and growth. In addition, as the economy returns to “normalcy”, leaving behind the disruptions caused by COVID-19, LCNB will benefit from increased economic activity. These factors, along with inexpensive valuations of 11.3x P/E and 0.9x P/B on trailing 2020 financials, we believe, make LCNB an attractive pick from a short to medium-term perspective.

We value LCNB at 13x with our forward EPS estimate of $1.70. This brings us to a price target of $22.00, which implies 30% total return from the current stock price. At our target price, the implied book value for LCNB is 1.2x on 2020 BV.

Conclusion

With its growth track record, 4.4% dividend yield, and inexpensive valuations, we believe the risk-reward scenario for LCNB makes the stock an attractive pick from a short to medium-term perspective. We have a target price of $22.00 for the stock which implies 30% total return from the current stock price.

Catalysts

Lower loan loss provisioning to boost net income

As a prudent measure in the COVID-19 pandemic, LCNB management had provided for elevated loan loss provisioning. With asset quality remaining stable, loan loss provisioning for 2021 could trend lower and improve profitability.

4.4% dividend yield

LCNB has been increasing its dividend per share to shareholders for each of the last three years. A current dividend yield of 4.4%, and the scope to increase further on higher dividend payouts, provide a catalyst for the stock price.

Share buybacks

In 2020, LCNB announced a share buyback program for 645,000 shares [5% of current shares outstanding]. This replaced an earlier repurchase program. Returning cash to stockholders in the form of buybacks is another catalyst for the stock.

Risks

Deterioration in asset quality

Any deterioration in asset quality and NPLs will impact financials and capital adequacy for LCNB negatively.

Slowdown in NII

Economic slowdowns can cause a reduction in NII for the company and consequently affect profitability negatively.

Regulatory risks

Given LCNB’s concentration in Southwestern and South-Central Ohio, any regulatory changes could materially impact LCNB’s business.

This article was written by

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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