When
I first reviewed Parkway Acquisition Corp in July 2017, I was hoping they'd reach their own projected earnings of $1.01 per share and get the stock trading at $14 by year end 2018.
Instead, Parkway paid $14.1 million in stock to incorporate the assets of Great State Bank of Wilkesboro, NC into Skyline National Bank. They missed their projections, and CEO Alan Funk retired shortly after the acquisition.
Happily, Parkway is still A Case of Better Than Before. PKKW has outperformed the BKX Index by 10% over the past two years. If Parkway's progress pattern holds through 2020, PKKW should earn over $1.30, have a book value over $14, and trade over $15.
Disclosure: As of this posting, I own shares of PKKW and may subsequently either dispose of them or purchase more.
Prospective Buyers
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Skyline National Bank has the same prospects for sale as it did in 2017.
First Citizens BancShares, Raleigh, NC (FCNCA)
National Bankshares, Blacksburg, VA (NKSH)
Union Bankshares, Richmond, VA (UBSH)
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Financial Snapshot
†as of 12/31/2018 |
Total assets:
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$680M†
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Tangible book value per share:
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$11.03†
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NPAs to assets:
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1.7%†
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Price to book:
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90%
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Market cap:
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$68.3M
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Dividend yield:
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2.2%
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Trailing 12-month ROA:
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0.8%†
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Trailing 12-month ROE:
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7.0%†
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The Crew
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Thomas M. Jackson, Jr., Chairman
Blake M. Edwards Jr., President and CEO
Laurie J. Vaught, Executive VP and CFO |
The Skinny
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It's too soon to say whether Parkway's acquisition of Great State Bancorp has added to the value of the combined franchise, but I'm still bullish on this stock.
I see two new reasons to have high hopes for PKKW:
- The bank recently authorized a buyback which should make book value and earnings accrete even faster.
- Skyline National Bank could attract some strong talent and customers disrupted by the upcoming BB&T/SunTrust merger.
As in 2017, I don't expect miracles from this latest acquisition.
- Floyd County is a low-growth market that has struggled to attract business, which is why 8 out of the 20 branches Parkway now owns are smaller today than they were in 2013.
- With 206 employees, Skyline National Bank now has $3.3M in assets per employee, but neighboring National Bankshares — which has $5.4M in assets per employee — is still doing more with less.
- Five Directors from Cardinal's board are still 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 90% of book value, PKKW is cheap, and there aren't many $700M 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.
- If the bank underperforms, I believe shareholders will hold management to its 2016 Investor Presentation promise that it would either perform or sell.
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Sources
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- Confidential interviews with shareholders and analysts
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