Enterprise Financial Services Group, Allison Park, PA (EFSG)

A Case of an Enterprising Enterprise


Enterprise Bank is true to its name in ways that make EFSG one of the top "feel-good" stocks in my portfolio.

Unlike other banks I have seen, Enterprise is structured and staffed to be a true, full-service partner for the most enterprising members of its community — including startup businesses and businesses in distress, which most banks consider too risky to serve.

I anticipate that within three years, EFSG will have a book value of $30 per share, be earning $2.25 per share, and be paying an 80 cent dividend. To me, those numbers easily support a $22.50 stock price, more than double today's $10.30.

Disclosure: As of this posting, I own shares of EFSG and may subsequently either dispose of them or purchase more.

Prospective Buyers Enterprise Financial Services Group has designed a truly unique, niche business outside of the focus of the average bank, so it's hard to imagine it being very attractive to acquisitive neighbors. I don't think bigger banks would appreciate what's most valuable about it.

Financial Snapshot
Estimates based on 06/30/2017 Call Report and 9/2016 Annual Report

Total assets:
$268M
Tangible book value per share:   
$25.92
NPAs to assets:
6.7%
Price to book:
39%
Market cap:
$9.1M
Dividend yield:
0%
Trailing 12-month ROA:
0.65%
Trailing 12-month ROE:
7.43%
TARP:
$0M*

*Redeemed $4M 08/25/2011 into $5M SBLF

The Crew

Charles H. Leyh, Chairman, President and CEO
Bradley J. Ryniawec, Senior VP, Assistant Treasurer and CFO
Douglas W. Lockard,  Vice Chairman

The Skinny

The main reason EFSG is at the top of my "feel good" list is this:

Where other banks have wealth management groups to help those who already have a surplus of money to make even more, Enterprise has a business consulting practice, insurance services group, and even a real estate subsidiary to help small and struggling business customers with everything from bookkeeping and website design to property management.

I'm more bullish on Enterprise than my friend Nate Tobik, who has also written about Enterprise. (See "Is this bank a quadruple or a zero?" for example.)

My logic for having faith in EFSG as an investment is pretty well expressed by these excerpts from the bank's recently released 2016 Annual Report:

"This last fiscal year has seen pretax earnings improve approximately 40% over the prior year."

"Growth continues to occur."

"Legal collection and OREO holding costs continue to drop."

"[Our] plan will include resuming dividend payments"


Sources

  • Confidential interviews with shareholders and analysts

UPDATE: Franklin Financial Services, Chambersburg, PA (FRAF)

I'd like to plant a new seed for this money tree.

Since my August 2012 review, Franklin Financial has grown in value just as I had predicted.

Although not the screaming bargain it was back then, given another three years, FRAF should trade at 150% of its estimated book value of $31 or $47 per share.

Were Management to list FRAF on the NASDAQ, the stock would be eligible for inclusion in the Russell Index and trade more in line with its peers. (The average NASDAQ bank stock trades for 186% of book value and 21x earnings.)


Disclosure: As of this posting, I own shares of FRAF and may subsequently either dispose of them or purchase more.


Prospective Buyers

F&M Trust's low 23 bps of funding costs, #1 marketshare position in Franklin County, and #2 position in Fulton County make the bank a very attractive franchise for acquisitive neighbors like these:

F.N.B. Corporation, Pittsburgh, PA (FNB)
Fulton Financial Corporation, Lancaster, PA (FULT)
Northwest Bancshares Inc., Warren, PA (NWBI)

Financial Snapshot
as of 03/31/2017

Total assets:
$1.13B
Tangible book value per share:   
$25.47
NPAs to assets:
1.6%
Price to book:
113.4%
Market cap:
$135.2M
Dividend yield:
3.1%
Trailing 12-month ROA:
0.8%
Trailing 12-month ROE:
7.2%

The Crew

G. Warren Elliott, Chairman
Timothy G. Henry, President and CEO
Mark R. Hollar,  Senior VP, Treasurer and CFO

The Skinny

If the crew at Franklin Financial Services takes me up on my suggestion to list FRAF on NASDAQ, and FRAF starts to trade in line with its peers, the stock could trade for $44 pretty quickly.

Improvements at Franklin Financial since my 2012 review
  • Transaction accounts now make up 43% of F&M Trust's deposits, versus 29% five years ago
  • NPAs are down to 1.6% and still declining 
  • Dividend yield is pretty high at 3.1%, and now rising
Other things to like about this deeply rooted Pennsylvania money tree
  • The bank's markets have grown, and its share of those markets has, too
  • Merger activity has lessened the competition making FRAF more valuable
  • FRAF does not get the credit it deserves for its solid and growing trust business, which has $725M in assets
  • Going forward I expect FRAF will consistently earn over 1% on assets and 10% on equity

Sources

  • Confidential interviews with shareholders and analysts

Parkway Acquisition Corp, Floyd, VA (PKKW)

A Case of Better Than Before


If you're looking for a relatively safe place to park a few dollars, PKKW might be it.

Parkway Acquisition Corp and its wholly owned subsidiary Skyline National Bank are the product of a 2016 merger of Grayson Bankshares, Inc. (GSON), Cardinal Bankshares Corporation (CDBK), and their respective subsidiaries, Grayson National Bank and the Bank of Floyd.

I would have preferred to see Grayson and Cardinal sell rather than merge, but now that they've kicked the scoundrels* to the curb, I'm content to focus on the blue sky ahead.

Management predicts PKKW will earn $1.01 per share in 2018. If they're right, book value should grow to $12.50 and the stock could trade at $14, providing investors who buy PKKW today a decent 37% return.

*See my April 2012 review of Cardinal Bankshares for the backstory.


Disclosure: As of this posting, I own shares of PKKW and may subsequently either dispose of them or purchase more.


Prospective Buyers

Skyline National Bank may be landlocked in the mountains and short on options for organic growth, but it's holding upwards of 50% of the deposits in five Virginia towns.

First Citizens BancShares, Raleigh, NC (FCNCA)
National Bankshares, Blacksburg, VA (NKSH)
Union Bankshares, Richmond, VA (UBSH)

Financial Snapshot
as of 03/31/2017

Total assets:
$558M
Tangible book value per share:   
$10.72
NPAs to assets:
2.1%
Price to book:
91.3%
Market cap:
$51.2M
Dividend yield:
1.6%
Trailing 12-month ROA:
0.49%
Trailing 12-month ROE:
5.0%

The Crew

Thomas M. Jackson, Jr., Chairman
J. Allan Funk, President and CEO
Blake Edwards, Jr.,  Executive VP and CFO

The Skinny

Although I'm bullish on PKKW in general, I don't expect miracles from this new combination.
  • Floyd County is a low-growth market that has struggled to attract business, which is why 7 out of the 16 branches Parkway now owns are smaller today than they were five years ago.
  • With 188 employees, Skyline National Bank has less than $3M in assets per employee. Neighboring National Bankshares operates with $6.2M in assets per employee.
  • Five Directors from Cardinal's board are now on Parkway's board, including third generation Director Dr. Condruff, under whose watch Cardinal's Bank of Floyd was grossly mismanaged.
    Why I'm not worried the sky's going to fall for investors:
    • At 92% of book value, PKKW is cheap, and there aren't many $500M banks with relatively clean asset quality left that are trading this low.
    • Skyline National Bank is the only bank in four towns and enjoys over 50% market share in two other towns.
    • In its recent investor presentation, Parkway's Management team overtly acknowledges it must perform or forfeit control of the bank.

      Sources

      • Confidential interviews with shareholders and analysts