Blue Chip Shares In Focus: Group Belief Bancorp Inc.

Revealed on July thirtieth, 2022 by Nikolaos Sismanis

If one thinks of their favourite blue chip shares, the primary names that come to thoughts are normally big firms that generate tens of billions of {dollars} in income per yr. Whereas it’s true that generally greater firms take pleasure in numerous aggressive benefits, together with an awesome moat and scaling economics, amongst others, the dimensions of an organization will not be essentially a important issue to its high quality.

On this article, we’re taking a look at Group Belief Bancorp, whose annual revenues are hardly over $225 million. For a inventory to be labeled as a blue chip one, our situation is that it numbers at the very least 10 years of consecutive annual dividend will increase. We consider that such a observe report displays an organization’s potential to generate regular progress and lift its dividend, even in a recession.

With 41 years of consecutive annual dividend will increase, Group Belief Bancorp has definitely confirmed its potential to develop its dividend by means of varied intervals of harsh financial situations. Thus, we contemplate it a real blue chip inventory regardless of its admittedly small market cap of simply $775 million.

To browse a whole lot of high quality firms, we created an inventory of 350+ blue-chip shares which you’ll obtain by clicking under:

Along with the Excel spreadsheet above, we’ll individually assessment the highest 50 blue chip shares at this time as ranked utilizing anticipated complete returns from the Certain Evaluation Analysis Database.

This installment of the 2022 Blue Chip Shares In Focus sequence will analyze Group Belief Bancorp, Inc. (CTBI).

Enterprise Overview

Group Belief Bancorp is a neighborhood financial institution, operating 84 department areas in 35 counties in Kentucky, Tennessee, and West Virginia. It’s the second-largest financial institution holding firm in Kentucky, with a market cap of simply $775 million presently.

The corporate engages in a broad vary of business and private banking and belief and wealth administration actions. These embrace accepting time and demand deposits, originating loans to companies and people, offering money administration companies, issuing letters of credit score, renting secure deposit packing containers, and offering funds switch companies, amongst others.

Group Belief Bancorp operates with a $5.4 billion stability sheet. As of June thirtieth, complete shareholders’ fairness stood at $653.3 million, and belief property underneath administration have been $3.6 billion, together with CTB’s funding portfolio totaling $1.5 billion.

Resulting from its small market cap, Group Belief Bancorp doesn’t belong to the S&P 500 index, and therefore, it’s not thought-about a Dividend Aristocrat although it has raised its dividend for 41 consecutive years.

Group Belief Bancorp’s newest outcomes demonstrated the financial institution’s potential to publish reslilent numbers even throughout a tricky buying and selling surroundings. Its Q2-2022 web curiosity earnings edged up 2.0%, due to mortgage progress. The financial institution’s non-interest earnings decreased -by 7% over the prior yr’s quarter, however the decline was principally resulting from adjustments within the valuation of mortgage servicing rights.

Furthermore, the financial institution elevated its provision for credit score losses by $0.1 million, whereas it had recovered provisions of $4.3 million within the prior yr’s quarter. Total, similar to within the earlier quarter, the financial institution confronted a tricky comparability over its blowout outcomes final yr, and thus, its earnings-per-share dipped by 15%, from $1.34 to $1.14. Nonetheless, it exceeded the analysts’ consensus by $0.04. It’s vital to notice that many of the progress final yr resulted from the reversion of provisions for mortgage losses, and therefore traders ought to anticipate decrease earnings in 2022. Accordingly, we anticipate EPS to land near $4.40 in fiscal 2022, implying a year-over-year decline of 10.9%.

This doesn’t translate to a deterioration within the firm’s efficiency, nonetheless.

Supply: SEC filings, Creator

Progress Prospects

Excluding the report yr 2021, by which Group Belief Bancorp posted blowout earnings due to the reversal of mortgage loss provisions recorded in 2020, the financial institution has grown its earnings-per-share at a 4.3% common annual fee over the previous decade and at a 4.7% common annual fee over the past 5 years.

The financial system has recovered from the pandemic, and the Fed has began to lift rates of interest aggressively this yr. This needs to be confirmed a tailwind to Group Belief Bancorp. Nevertheless, the non-recurring declines within the tax fee of the financial institution, which fueled an awesome portion of the underside line progress in 2018 and 2019, is not going to be significant progress drivers anymore.

Consequently, we don’t anticipate the corporate to speed up its progress sample within the upcoming years. By taking a prudent strategy, we anticipate Group Belief Bancorp to develop its earnings per share at a 2.0% common annual fee over the following 5 years.

Relating to its dividend, Group Belief Bancorp has grown its dividend-per-share for 41 consecutive years because of prudent capital administration and of constant deal with shareholder returns. The ten-year dividend-per-share compound annual progress fee stands at 2.61%. This isn’t a passable progress fee, and albeit, it barely counterbalances the long-term inflation common. Nevertheless, traders can discover consolation within the rising payouts and anticipate that the dividend can continue to grow for many years to return if the financial institution retains its present prudent administration.

Supply: SEC filings, Creator

It’s additionally price noting that the dearth of extra aggressive dividend progress doesn’t imply that shareholder worth creation will not be maximized. With the corporate retaining a considerable portion of earnings, it has been capable of develop shareholders’ fairness (e-book worth) at a momentous fee through the years.

Supply: Investor Presentation

Aggressive Benefits & Recession Efficiency

Group Belief Bancorp proved that it was effectively managed within the Nice Recession. Within the worst monetary disaster of the final 80 years, when most banks minimize their dividends, this financial institution remained worthwhile and continued elevating its dividend. The COVID-19 pandemic in 2020 brought about an -8% lower within the earnings-per-share of Group Belief Bancorp. Nonetheless, this enterprise efficiency is superior to that of most different banks, due to the conservative mortgage portfolio. To offer a perspective, the financial institution has reported common web mortgage charge-offs of solely 0.02% within the final 4 quarters, additional demonstrating its general qualities.

You’ll be able to see a rundown of Group Belief Bancorp’s earnings-per-share from 2007 to 2011 under:

• 2007 earnings-per-share of $2.20
• 2008 earnings-per-share of $1.40
• 2009 earnings-per-share of $1.51
• 2010 earnings-per-share of $1.97
• 2011 earnings-per-share of $2.31

Whereas earnings-per-share fell by 36.4% in 2008, the corporate shortly recovered. By 2011, earnings-per-share have been effectively above the 2007 degree.

Total, we consider that Group Belief Bancorp’s dividend ought to stay secure even throughout a protracted recession. Throughout the previous 5 years, the corporate’s dividend payout ratio has averaged near 40%.

Based mostly on our anticipated earnings-per-share for fiscal 2022 and the present dividend-per-share run-rate, the payout ratio stands at exactly 40% as effectively. Regardless of the ample room to develop the dividend at a a lot quicker tempo, we consider that the financial institution will keep the payout ratio near the present ranges as a part of its prudent technique, nonetheless.

Valuation & Anticipated Returns

Group Belief Bancorp is presently buying and selling at a price-to-earnings ratio of 9.5, which is decrease than its 10-year common price-to-earnings ratio of 12.6. Regardless of its constant profitability and general qualities, the market possible expects minimal progress within the coming years, which explains the low cost. Nonetheless, we consider that income-oriented traders are prone to admire the corporate’s 4.0%, particularly through the present shaky macroeconomic surroundings. Together with the truth that rising charges ought to profit the corporate, we consider that the inventory might expertise valuation tailwinds to a P/E of 12.

If the price-to-earnings a number of expands from 9.5 to 12, future returns can be boosted by4.7% per yr over the following 5 years. Mixed with our EPS & DPS progress charges, in addition to the present dividend yield, we undertaking annualized returns might quantity to 9.8% by means of 2027.

Accordingly, we fee Group Belief Bancorp a purchase.

Ultimate Ideas

Group Belief Bancorp is a well-managed financial institution. It accelerated its progress sample in 2018 and 2019 due to greater rates of interest and its diminished tax fee. It additionally posted report earnings final yr due to the reversion of provisions for mortgage losses because the financial system recovered from the pandemic. Whereas web earnings will decelerate this yr as a result of absence of final yr’s progress driver, fiscal 2022 ought to mark one other yr of fantastic backside line numbers.

The corporate additionally includes a wholesome payout ratio, which ought to maintain dividend funds and presumably dividend progress even when earnings have been to be materially affected. Group Belief Bancorp thus qualifies as a blue chip inventory to depend on for income-oriented traders, notably given its distinctive dividend progress report.

The Blue Chips checklist will not be the one approach to shortly display screen for shares that often pay rising dividends.