I added more to my position in Community Bancorp (CMTV) today at $12.00. Community Bancorp is now my 4th largest holding.
The continued downward pressure on the banking sector makes for a good opportunity to add more or initiate a position to regional banks with conservative businesses. Similar to the 2007-2008 financial crisis, the banking sector was hit hard mainly due to issues with the larger banks and their riskier activities. Many regional banks were taken down with them in the stock market, but the underlying businesses were sound. Similar to Community Bancorp, I made significant investments in Merchant’s Bank at the time, which traded at really low book values and had very limited exposure to the crisis.
During the COVID-19 crisis, Community Bancorp has been able to participate in the PPP loans to small businesses. Banks can make 5% for loans of not more than $350,000; 3% percent for loans of more than $350,000 and less than $2 million; and 1% for loans of at least $2 million.
It appears that Community Bancorp did a great job reaching out to clients to apply early and secure loans for clients in need Here is a quote from a recent Burlington Free Press Article on PPP loans in Vermont:
“Community National Bank has saved thousands of Vermonters from total economic catastrophe through this program,” Heilenbach said. “You’re talking about people’s livelihoods.”
The price jumped a bit after I bought to 12.45/share. At this price the price/book is .95. I consider anything under 1.5 a good deal. Earnings yield is 13.57% and dividend yield is 6.10%.
I’m sure that there is some risk of loss of book value due some loans, but it appears that the government is intent on minimizing through the PPP loans to small business, unemployment benefits, low interest rates and continued stimulus. They don’t seem willing to let people and small business lose their homes or businesses due to the virus. I think the current price more than compensates for any losses they may see.