With these strong results, we are increasing our 2021 EPS by 7% to $1.24, up from our prior estimate of $1.16. We maintain our price target of $20.00, implying over 50% return potential. UBCP’s YTD earnings performance continues to be exceptional especially in light of the past Covid-19 recession, and the bank’s EPS growth currently is clearly outperforming almost all small and large banks in the USA and globally. UBCP continues to be focused on becoming a $1.0 billion bank in terms of total assets, which would imply 37% further growth.
Presently, UBCP’s stock is trading at 1.1x trailing tangible price/book, and 10.5x P/E with a high 4.5% dividend yield based on our 2021 estimates. Given that we are past the mid-point of this calendar year, and thus rolling forward to next year’s estimates, the stock is trading at an 8.7x P/E, 4.6% yield, and 1.0 price/book based on our 2022 estimates. Our $20.00 price target implies a forward P/E multiple of 13.4x on our forward 2022 estimate, which is a huge discount to the overall market. Our target price also suggests a 3.0% dividend yield and a 1.4x price/book on our 2022 dividend and year-end book value estimates.
UBCP’s asset quality has remained strong, thus enabling the bank to be in a comfortable and enviable position of being overprovisioned in the face of below-expectations nonaccrual levels, which is leading to strong earnings growth in 2021. It is remarkable in hindsight that despite Covid-19, UBCP experienced sequential declines in nonaccrual loans throughout 2020. Overall net charge-offs to average loans were just 0.04% annualized during Q2, which was down both QoQ from the 0.08% annualized level for Q1, and down YoY from the 0.08% level of last year’s Q2. Total allowance for loan losses to total loans remains at a very comfortable level of 0.99%, suggesting further room for low provisioning expense for the balance of 2021, and likely outright write-backs.
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