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
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