UPDATE: Parkway Acquisition Corp, Floyd, VA (PKKW)

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.

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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 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)
Financial Snapshot †as of 12/31/2018	Total assets: $680M† Tangible book value per share:    $11.03† NPAs to assets: 1.7%† Price to book: 90% Market cap: $68.3M Dividend yield: 2.2% Trailing 12-month ROA: 0.8%† Trailing 12-month ROE: 7.0%†
The Crew	Thomas M. Jackson, Jr., Chairman Blake M. Edwards Jr., President and CEO Laurie J. Vaught, Executive VP and CFO
The Skinny	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.
Sources	Skyline National Bank website March 2019 Earnings Release March 2019 Amendment to Earnings Release 2018 Form 10-K 2017 Annual Report S&P Global Market Intelligence Confidential interviews with shareholders and analysts

Highlands Bankshares, Abingdon, VA (HLND)

A Case of Time's Up

My shot clock expired for Highlands Bankshares.

This team has failed to perform under the auspicious conditions of the most recent banking cycle, so I don't see them improving enough to justify remaining independent.

If Highlands Union Bank steps up its game, HLND could earn 60 cents per share, have a book value of $7, and trade at $10 in three years. If the team sells sooner, they should be able to get close to that now and spare us the wasted time.

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

Prospective Buyers	Three banks have a small presence in HLND’s markets that would grow to a meaningful size with the acquisition of Highlands Union Bank. Carter Bank & Trust, Martinsville, VA (CARE) First Citizens BancShares, Raleigh, NC (FCNCA) United Community Banks, Blairsville, GA (UCBI) Since mergers of equals are sporty now, I should add: an MOE between Highlands Bankshares and New Peoples Bankshares (NWPP) could cut costs and produce an even more attractive $1.3 billion bank earning a decent return.
Financial Snapshot †as of 12/31/2018	Total assets: $592M† Tangible book value per share:    $6.02† NPAs to assets: 2.9%† Price to book: 95.5% Market cap: $47.4M Dividend yield: 0% Trailing 12-month ROA: 0.6%† Trailing 12-month ROE: 6.6%†
The Crew	Robert W Moser Jr, Chairman Timothy K Schools, President and CEO Samuel L Neese Jr, Director, Consultant, and Former CEO
The Skinny	Highlands Union Bank has had ample time to perform. It's been nearly five years since Highlands Bankshares raised capital to shore up its balance sheet and grow. TNH Financial Fund alone put up $8.7M for that purpose, and holds a 24.4% stake. Their representative serves on the bank's board and waives his board fees. As of today, the bank's assets are down, loans and deposits have barely moved, and profitability remains inadequate. In fact, deposits in Highlands' home town of Abingdon are $30M lower than before the recap, while neighboring First Bank & Trust's have grown by $40M. Highlands Bankshares' ROE in the 6% range and ROA in the 0.6% range are simply not enough to justify giving this team a new shot clock. Typically, funds like TNH Financial are looking for a liquidity event within five years, so I have to presume I'm not alone in thinking along these lines.
Sources	Highlands Union Bank website Q3 2018 Quarterly Report May 2018 Annual Shareholders Meeting April 2018 Proxy Statement S&P Global Market Intelligence

CBM Bancorp, Baltimore, MD (CBMB)

A Case of a Safe Harbor

Stormy market conditions always get me scanning the horizon for safer investment opportunities. CBM Bancorp looks like one to me.

Chesapeake Bank of Maryland may be just a small, newly converted thrift, but the banker steering it has successfully converted and sold two others like it over the past 20 years.

When the bank's three-year moratorium on selling expires in 2021, I expect Captain Solomon will sell CBM for over $17 per share, landing a not-spectacular but low-risk-and-fairly-certain 35% return on today's price for shareholders.

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

Prospective Buyers	It's hard to predict the landscape in three years when CBM likely will come up for sale, but it makes sense for these three banks today. Arundel Federal Savings Bank, Glen Burnie, MD (private) BV Financial, Baltimore, MD (BVFL) First Citizens BancShares, Raleigh, NC (FCNCA)
Financial Snapshot †as of 09/30/2018	Total assets: $217M† Tangible book value per share:   $14.23† NPAs to assets: 0.9%† Price to book: 89% Market cap: $53.4M Dividend yield: 0% Trailing 12-month ROA: 0.4%† Trailing 12-month ROE: 3.0%†
The Team	William J Bocek Jr, Chairman Joseph M Solomon Jr, President and "Managing Officer" Philip E Logan, COO
The Skinny	Eight Reasons I Believe Chesapeake is a Safe Harbor Chesapeake Bank's CEO has done this before! (Solomon successfully grew and sold two banks already) Chesapeake's officers and directors are vested in getting this ship to shore. Seven of them purchased the maximum 17,500 shares in the conversion. Solomon runs a tight ship — Cost of Funds at Chesapeake Bank is only 0.6%. CBM Bancorp can grow book value simply by buying back stock, and it has the "excess capital" available to do it. Risk of loans "going bad" on this ship is low wherever the economy may toss us. (Soloman’s banks have always had strong credit profiles, and half of CBM's loans are in the 1-4 Family Mortgage category deemed to be less risky) Chesapeake Bank commands enough market share to garner a good price in a sale. In fact, it's the only community bank in Halethorpe and Parkville. Two bank stock investors I admire have significant holdings in CBM Bancorp — Seidman Associates and Stilwell Group. The bank's leaders don't have time to dilly dally if they plan to retire "on time." When the moratorium on selling CBM expires, CEO Solomon will be 71, COO Logan will be 67, and Chairman Bocek will be 65.
Sources	Chesapeake Bank website September 2018 Form 10-Q April 2015 Baltimore Business Journal article S&P Global Market Intelligence 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.

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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	Skyline National Bank website May 2017 Form 10-Q April 2017 Earnings Release May 2016 Investor Presentation 2016 Form 10-K SNL Financial Confidential interviews with shareholders and analysts

Greer Bancshares, Inc, Greer, SC (GRBS)

The Case of a Greedy Grip on Greer

Grrrrrr! The guys at Greer Bancshares have me growling.

Even if they stopped their money grubbing today and all else goes well, I have trouble seeing how the market price of GRBS could reach much over $15 — not a terrible return, but also not optimal, especially considering the risks involved. In a sale, GRBS shares could garner $17, more than 40% above today's stock price.

I agree with C Don Wall, a former Director and Greer's largest shareholder: the Board has a fiduciary responsibility to loosen its grip on the bank and let shareholders sell it if they wish.

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

Prospective Buyers	BNC Bancorp, High Point, NC (BNCN) First Citizens BancShares, Inc, Raleigh, NC (FCNCA) United Community Banks, Inc, Blairsville, GA (UCBI)
Financial Snapshot †as of 6/30/2016	Total assets: $378M† Tangible book value per share: $10.89† NPAs to assets: 1.7%† Price to book: 105% Market cap: $28M Dividend yield: 1.7% Trailing 12-month return on assets: 0.74%† Trailing 12-month return on equity: 11.3%† TARP: $0M* *Redeemed $10M 7/23/2014
Scoundrels	Gary M. Griffin, Chairman J Richard Medlock Jr, Secretary, President, and CEO
Red Flags	The Greed. These greedy guys (and gals)... paid shareholders a paltry $248,669 in dividends over the past eight years (2007-2015) while they stuffed 8x that into their own pockets, reporting $2,007,693 in Board fees have been paying themselves 10% interest for deferred Directors compensation (right up until last year), 20x the 0.5% rate they pay customers for 1-year CDs  recently cut their deferred compensation interest rate by half, but it's still 10x the rate they pay their customers  [No wonder that a full third of Greer's directors don't even own an amount of stock equal to a year's worth of board fees!] The Grip. These same greedy guys are... misusing an outdated requirement that 70% of the Board agree to a change of control, when the norm is 50%* refusing to hand over corporate records shareholders have requested to inspect, in open defiance of their obligations under South Carolina law persisting on a self-serving path of independence at the expense of the bank's core shareholder base *Until this is changed, that aforementioned third of the Board that owns next to no GRBS stock can effectively block the interests of shareholders who own 99% of it. Other Gripes. While their hands are busy grabbing profits and maintaining their grip on the bank, these guys are dropping the ball: From 2011 to 2015 both loans and deposits declined. (Deposits have meagerly improved over the past few months.) Instead of taking in deposits and lending them out, Greer is borrowing money from the FHLB and taking on debt to invest in the bond market — a risky wager given that interest rates are at record lows. (A 2% interest rate increase could wipe out more than half of the bank's equity.) The bank's efficiency ratio increased from 69.9% in 2011 to 72.5% in 2015, in a game where the target is a healthy 60% or less. - - - - - - - - - - - - - -  My Gratitude to fellow shareholders C Don Wall, Dennis Hennett, and Paula Lawrence — who launched a proxy fight last year — for their shareholder advocacy and stand for right behavior.
Sources	Greer State Bank website Q2 2016 Quarterly Report 2014 Annual Report SNL Financial Confidential interviews with shareholders and analysts

Southeastern Bank Financial, Augusta, GA (SBFC)

The Case of a Juicy Bank Stock in the Peachtree State

If I were limited to owning stock in just one bank in this country, I'd probably put my money into Augusta, Georgia's Southeastern Bank Financial.

It's really rare to find a bank doing this well trading this cheaply. It could easily fetch twice book value in a sale, but given the bank's rate of earnings growth and return on equity, I see no reason why SBFC's stellar team shouldn't keep running the bank themselves. At the end of the day, it's reasonable to expect that owners of SBFC stock will wake up sometime in the next 10 years with shares trading at a multiple of today's price.

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

Prospective Buyers	By acquiring SBFC's 12 branches and $1.4B in deposits, any of these deposit-hungry banks could expect to scale regional operations manyfold: First Citizens Bancorp, Columbia, SC (FCNCA) has seven nearby branches holding collectively less than $300M in deposits. SunTrust Banks, Atlanta, GA (STI) has four local branches with $165M in deposits.  Toronto Dominion Bank, Toronto, Canada (TD) has just two branches in the area and $88M in deposits.
Financial Snapshot (as of 3/31/2012)	Total assets: $1.6B Tangible book value per share: $18 NPAs to assets: 2.9% Price to book: 70% Market cap: $85M Dividend yield: 0% Trailing 12-month return on assets: 0.8% Trailing 12-month return on equity: 10.7%
Luminaries	Robert W. Pollard, Jr., Chairman Daniel Blanton, President and CEO Ronald Thigpen, Executive VP and COO
Gold Stars	Four traits about Southeastern Bank Financial that I find especially peachy include: Top Five Performance.  According to an SNL Article, for the one-year period ending September 30, 2011 only three banks in the entire US grew their tangible book value by a greater percentage than SBFC. In fact, since the start of the Great Recession in 2007, SBFC's book value rose over 20% while most of our nation's banks saw their book value dive. High Insider Ownership. Insiders own over 30% and have been steady buyers in the open market over the years. The largest individual shareholders include Founder Pollard, Sr. (15.2%), Current Chairman Pollard, Jr., (8.7%), and Current President and CEO Blanton (8%). Superior Asset Quality. SBFC's NPAs are a manageable 2.9% of assets and never got to be more than 3.2%, well below national averages. Reserves are a healthy 69% of non-performing loans. (In my experience, bank regulators like to see reserves above 30%.) Good Old-Fashioned Self-Reliance. While other banks were taking TARP funding from the government (that is, from taxpayers), Southeastern Bank Financial raised $12M from friends and family.
Sources	Georgia Bank & Trust website SNL Corporate Profile 2011 Annual Report 2011 Proxy Statement SNL Article (Members Only) SNL Financial

Carter Bank & Trust, Martinsville, VA (CARE)

A Case of Gray Hairs Proving Their Worth in 123 Bank Branches

I wonder how this little gem of a bank has gone so long undiscovered by investors? Only two institutions own shares in Carter Bank & Trust (and less than 1/2 of 1% at that). And no brokerage firm appears to have written anything about it, despite six fine years of earnings when the rest of the industry was mired in the Great Recession. Trading at only 62% of book value and 6.8 times earnings, CARE clearly offers investors a Worthy opportunity.

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

Prospective Buyers	CARE would present an easy in-market transaction for any of the following acquisition-hungry banks: BB&T Corporation, Winston-Salem, NC (BBT) First Citizens BancShares, Raleigh, NC (FCNCA) SunTrust Banks, Atlanta, GA (STI)
Financial Snapshot (as of 3/31/2012)	Total assets: $4.3B Tangible book value per share: $9.99 NPAs to assets: 2.5% Price to book: 82% Market cap: $216M Dividend yield: 4.9% Trailing 12-month return on assets: 0.8% Trailing 12-month return on equity: 9.5%
Luminaries	Worth Harris Carter, Jr., Founder, Chairman, and President Jane Davis, Senior VP and CFO
Gold Stars	Combined with Carter Bank & Trust's low price to book value and low price to earnings, five Key Performance Indicators (KPIs) give me tremendous confidence in the bank's ability to deliver outsized returns for investors: No annual losses during the Great Recession Strong return on assets of .8%, just shy of the Industry Gold Standard target of 1% before the Great Recession, in a current economic environment where negative returns have not been uncommon Stellar return on tangible common equity of 14.8%, versus industry trends closer to 7% Consistent growth in both deposits and core deposits Healthy and growing insider ownership, currently over 28% of the stock, a whopping 7.5M shares (Since January 1st, there have already been 14 open market purchases of stock by directors at prices ranging from $8.00 to $8.80 per share) Kudos to an experienced team for showing the banking industry how it's done. Mr. Carter, at 74, has built a bank worthy of his name, and shows no signs of slowing down. His board doesn't have a single director under the age of 70. Clearly many of nation's bankers could learn a thing or two from these graybeards.
Sources	Carter Bank & Trust filings and documents SNL Financial

Cardinal Bankshares, Floyd, VA (CDBK)

The Case of an Unmotivated Straggler in Floyd

Don't you think it's time Leon Moore got his spine back and took another shot at selling Cardinal Bankshares? I have no doubt shareholders would support selling the bank, given how far its performance has fallen behind other community banks since they voted down Moore's proposed sale in 2002 to Mountain Bank.

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

Prospective Buyers	CDBK would make a nice "fill-in" for any of these three franchises: Carter Bank & Trust, Martinsville,VA (CARE) First Citizens BancShares, Raleigh, NC (FCNCA) National Bancshares, Blacksburg,VA (NKSH)
Financial Snapshot (as of 12/31/2011)	Total assets: $266,160 Tangible book value per share: $21.51 NPAs to assets: 7.6% Price to book: 67% Market cap: $22.7M Dividend yield: 1.1% Trailing 12-month return on assets: 0.44% Trailing 12-month return on equity: 3.4%
Scoundrels	Leon Moore, Chairman Leon Moore, President Leon Moore, CEO
Red Flags	In June, 2002 Cardinal agreed to sell to Mountain Bank for $24 per share. Ten years of executive salaries and board fees later, the stock is barely half that price. Triple-threat executive Leon Moore only owns 3,086 shares directly. A sale of Cardinal at $24 per share would net Moore a mere $21,000—not even 10% of the $224,701 he pulled down in compensation last year. Rarely does one see such a brazen case of a CEO lying about the true state of affairs of a company in the Annual Report: Leon's Lie #1: The "Fortress balance sheet." Since 2007, NPL's have leapt from .69% of loans and REO to the current 15.2%. Hardly a fortress. The moat around it perhaps.   Leon's Lie #2: "Solid results" in 2011. According to the Notes to the Financial Statements, bad loans nearly doubled from $10.5M to over $19M, while the provision for the year dropped from $661K in the prior year to $592K and the allowance also dropped below $3M, one of the lowest allowances to NPAs in the entire industry. By comparison, National Bancshares (NKSH) has an allowance of over $8M versus NPL's of $5.2M. Had Cardinal provided for just half the increase in bad loans, pre-tax income would have gone from $1.1M to a loss of $3.2M Leon's Lie #3: "We don't make bad loans, but loans do occasionally go bad." An additional 7% ($8.5M) in loans going bad in one year out of only $130M hardly qualifies as an "occasional" experience. Why are Cardinal's loans suddenly going bad so fast, now that the economy is showing signs of life and other banks are recovering? Has Cardinal been hiding bad loans? Are Directors burying their heads in the sand and not admitting just how much the bank stands to lose on these loans?
Sources	Cardinal Bankshares website 2011 Cardinal Bankshares Form 10-K 2011 Annual Report 2012 Proxy Statement 2011 National Bancshares 10-K * NOTE: Although public companies usually readily post their annual reports and proxy statements on their websites, Cardinal chooses not to. If you'd like your own copy, you'll apparently need to contact J. Alan Dickerson, CFO or call 1-888-562-4130.