The first superstock of the second half of the year is Community Bankers Trust Corp (ESXB). ESXB is the holding company for  Essex Bank , a...

Weekly Superstock Scan 17 Jul - 21 Jul: Community Bankers Trust Corp (ESXB)

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The first superstock of the second half of the year is Community Bankers Trust Corp (ESXB). ESXB is the holding company for Essex Bank, a Virginia state bank with 24 full-service offices, 18 of which are in Virginia and six of which are in Maryland. The Bank also operates one loan production office in Virginia. 



Essex Bank engages in a general commercial banking business and provides a wide range of financial services primarily to individuals and small businesses, including individual and commercial demand and time deposit accounts, commercial and industrial loans, consumer and small business loans, real estate and mortgage loans, investment services, on-line and mobile banking products, and safe deposit box facilities.


Technical


ESXB broke out from a long base in the $5.50 region in November 2016. Price continued to rise to the $8 region and consolidated in a box since February 2017.

Last week, price broke out of the box to reach $9 before closing at $8.90. The volume for the week is 1.6 times its average weekly trading volume. There was no catalyst for the increase in price but the next quarterly earnings release should be sometime at the end of this month.

The stock is also trading at an all time high so there is no overhead resistance for the stock.


Fundamental


Including the current quarter, ESXB reported 6 consecutive quarters of year on year EPS growth.

New Branches

In 2016, ESXB opened two new branch offices in Fairfax and Cumberland in Virginia. In 2017, ESXB has new offices committed in the Short Pump area of Richmond and one in Lynchburg, Virginia. The new branches allowed ESXB to change their deposit mix ad control their overall cost of funds.

On top of that, they are also open to acquiring some banks south of Baltimore around the Beltway into Northern Virginia.

Rate Increase 

ESXB has benefited from the Federal Reserve rate hikes. It managed to increase yield on earning asset while controlling the increase in cost of interest bearing liabilities. The interest spread thus increased from 3.72% to 3.76%.

Revamp of Mortgage Loans

ESXB discontinued a wholesale mortgage operation at the end of the third quarter of 2016 and has shifted to a platform that is less expensive but has equivalent or better net revenue potential. The revamped team is starting to gain traction and ESXB is putting in resources to rebuild that team.

Matrices
- High P/E - With a trailing twelve month EPS of $0.45 and a current price of $8.9, it is trading at a P/E of 19.8 times. This is a very high P/E ratio even among the financial sector.
o Low Float but low volume - ESXB has a small float of 15 million shares.  However, the average trading volume is only around 90 thousand shares. The float is thus 167 times its trading volume, making it hard for the stock to have explosive moves.

Risk Factors/ Things I do not like


  • Over-valuation - This is my main concern. With a P/E ratio of close to 20, the room for further price increase is limited. Considering that in the recent quarters the year-on-year growth in EPS is less than 5%, any higher P/E ratio is hard to justify.
  • Volatility in securities portfolio - As at 31 March 2017, the available-for-sale portfolio was $213.7 million. As the market continues to be volatile, ESXB may experience loss and recognize a charge to the earnings. The capital ratios may also be adversely affected as a result.






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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.