Skyline Bankshares, Inc. - Quarter Report: 2018 June (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

Or

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 333- 209052

 

 

PARKWAY ACQUISITION CORP.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Virginia		47-5486027
(State or Other Jurisdiction of Incorporation)		(I.R.S. Employer Identification Number)
101 Jacksonville Circle Floyd, Virginia		24091
(Address of Principal Executive Offices)		(Zip Code)

(540) 745-4191

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by checkmark whether the Registrant has submitted electronically any Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405) of this chapter during the preceding 12 months or for such shorter period that the Registrant was required to submit such files.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☐  (Do not check if a smaller reporting company)		Smaller reporting company		☒
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The registrant had 6,213,275 shares of Common Stock, no par value per share, outstanding as of August 14, 2018.

 

 

 

PART I FINANCIAL INFORMATION

 

Item 1.		Financial Statements
		Consolidated Balance Sheets—June 30, 2018 (Unaudited) and December 31, 2017 (Audited)			3
		Unaudited Consolidated Statements of Income—Six Months Ended June 30, 2018 and June 30, 2017			4
		Unaudited Consolidated Statements of Income—Three Months Ended June 30, 2018 and June 30, 2017			5
		Unaudited Consolidated Statements of Comprehensive Income—Six and Three Months Ended June 30, 2018 and June 30, 2017			6
		Unaudited Consolidated Statements of Changes in Stockholders’ Equity—Six Months Ended June 30, 2018 and June 30, 2017			7
		Unaudited Consolidated Statements of Cash Flows—Six Months Ended June 30, 2018 and June 30, 2017			8
		Notes to Consolidated Financial Statements			10
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			38
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			44
Item 4.		Controls and Procedures			45
PART II		OTHER INFORMATION
Item 1.		Legal Proceedings			46
Item 1A.		Risk Factors			46
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 3.		Defaults Upon Senior Securities			46
Item 4.		Mine Safety Disclosures			46
Item 5.		Other Information			46
Item 6.		Exhibits			46
Signatures					47

Part I. Financial Information

Item 1. Financial Statements

 

Parkway Acquisition Corp. and Subsidiary

Consolidated Balance Sheets

June 30, 2018 and December 31, 2017

 

 

		June 30, 2018				December 31, 2017
(dollars in thousands)		(Unaudited)				(Audited)
Assets
Cash and due from banks		$	6,855			$	6,367
Interest-bearing deposits with banks			7,889				8,739
Federal funds sold			19				7,769
Investment securities available for sale			46,478				50,675
Restricted equity securities			1,378				1,388
Loans, net of allowance for loan losses of $3,281 at June 30, 2018 and $3,453 at December 31, 2017			429,499				421,418
Cash value of life insurance			17,386				17,348
Foreclosed assets			410				—
Properties and equipment, net			17,861				17,646
Accrued interest receivable			1,813				1,737
Core deposit intangible			1,905				2,045
Deferred tax assets, net			2,515				2,965
Other assets			10,258				9,864
		$	544,266			$	547,961
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Noninterest-bearing		$	124,254			$	130,847
Interest-bearing			350,729				357,594
Total deposits			474,983				488,441
Federal funds purchased			8,906				—
Accrued interest payable			45				46
Other liabilities			2,310				2,292
			486,244				490,779
Commitments and contingencies (Note 7)
Stockholders’ Equity
Preferred stock, no par value; 5,000,000 shares authorized, none issued			—				—
Common stock, no par value; 25,000,000 shares authorized, 5,021,376 issued and outstanding			—				—
Surplus			26,166				26,166
Retained earnings			34,037				32,526
Accumulated other comprehensive loss			(2,181	)			(1,510	)
			58,022				57,182
		$	544,266			$	547,961

See Notes to Consolidated Financial Statements

 

3

 

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Income

For the Six Months ended June 30, 2018 and 2017

 

 

 

		Six Months Ended
		June 30,
		2018				2017
(dollars in thousands except share amounts)		(Unaudited)				(Unaudited)
Interest income
Loans and fees on loans		$	10,357			$	10,168
Interest-bearing deposits in banks			35				22
Federal funds sold			38				59
Interest on securities:
Taxable			597				674
Dividends			39				56
			11,066				10,979
Interest expense
Deposits			738				737
Interest on borrowings			27				—
			765				737
Net interest income			10,301				10,242
Provision for loan losses			145				158
Net interest income after provision for loan losses			10,156				10,084
Noninterest income
Service charges on deposit accounts			719				637
Other service charges and fees			850				770
Net realized gains on securities			5				113
Mortgage origination fees			144				112
Increase in cash value of life insurance			222				222
Life insurance income			229				—
Other income			55				56
			2,224				1,910
Noninterest expenses
Salaries and employee benefits			5,298				5,040
Occupancy and equipment			1,256				1,097
Foreclosed asset expense, net			(2	)			16
Data processing expense			602				579
FDIC Assessments			138				150
Advertising			276				333
Bank franchise tax			210				168
Director fees			130				138
Merger related expenses			497				642
Other expense			1,437				1,720
			9,842				9,883
Net income before income taxes			2,538				2,111
Income tax expense			525				627
Net income		$	2,013			$	1,484
Net income per share		$	0.40			$	0.30
Weighted average shares outstanding			5,021,376				5,021,376
Dividends declared per share		$	0.10			$	0.08

See Notes to Consolidated Financial Statements

 

4

 

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Income

For the Three Months ended June 30, 2018 and 2017

 

 

 

		Three Months Ended
		June 30,
		2018				2017
(dollars in thousands except share amounts)		(Unaudited)				(Unaudited)
Interest income
Loans and fees on loans		$	5,271			$	5,113
Interest-bearing deposits in banks			16				10
Federal funds sold			7				40
Interest on securities:
Taxable			294				331
Dividends			30				27
			5,618				5,521
Interest expense
Deposits			377				367
Interest on borrowings			27				—
			404				367
Net interest income			5,214				5,154
Provision for loan losses			91				50
Net interest income after provision for loan losses			5,123				5,104
Noninterest income
Service charges on deposit accounts			374				315
Other service charges and fees			438				392
Net realized gains on securities			9				113
Mortgage origination fees			67				67
Increase in cash value of life insurance			111				111
Life insurance income			229				—
Other income			33				24
			1,261				1,022
Noninterest expenses
Salaries and employee benefits			2,767				2,490
Occupancy and equipment			627				616
Foreclosed asset expense, net			1				11
Data processing expense			300				308
FDIC Assessments			69				75
Advertising			160				175
Bank franchise tax			105				86
Director fees			73				75
Merger related expenses			299				327
Other expense			740				813
			5,141				4,976
Net income before income taxes			1,243				1,150
Income tax expense			244				347
Net income		$	999			$	803
Net income per share		$	0.20			$	0.16
Weighted average shares outstanding			5,021,376				5,021,376
Dividends declared per share		$	0.00			$	0.00

See Notes to Consolidated Financial Statements

 

5

 

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Comprehensive Income

For the Six Months and Three Months ended June 30, 2018 and 2017

 

 

 

		Six Months Ended
		June 30,
		2018				2017
(dollars in thousands)		(Unaudited)				(Unaudited)
Net Income		$	2,013			$	1,484
Other comprehensive income (loss)
Unrealized gains (losses) on investment securities available for sale:
Unrealized gains (losses) arising during the period			(844	)			995
Tax related to unrealized (gains) losses			177				(338	)
Reclassification of net realized gains during the period			(5	)			(113	)
Tax related to realized gains			1				38
Total other comprehensive income (loss)			(671	)			582
Total comprehensive income		$	1,342			$	2,066

 

		Three Months Ended
		June 30,
		2018				2017
(dollars in thousands)		(Unaudited)				(Unaudited)
Net Income		$	999			$	803
Other comprehensive income (loss)
Unrealized gains (losses) on investment securities available for sale:
Unrealized gains (losses) arising during the period			(242	)			469
Tax related to unrealized (gains) losses			51				(159	)
Reclassification of net realized gains during the period			(9	)			(113	)
Tax related to realized gains			2				38
Total other comprehensive income (loss)			(198	)			235
Total comprehensive income		$	801			$	1,038

See Notes to Consolidated Financial Statements

 

6

 

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months ended June 30, 2018 and 2017 (unaudited)

 

 

																		Accumulated Other
		Common Stock												Retained				Comprehensive
(dollars in thousands except share amounts)		Shares				Amount				Surplus				Earnings				Loss				Total
Balance, December 31, 2016			5,021,376			$	—			$	26,166			$	30,654			$	(1,354	)		$	55,466
Net income			—				—				—				1,484				—				1,484
Other comprehensive income			—				—				—				—				582				582
Dividends paid ($0.08 per share)			—				—				—				(402	)			—				(402	)
Balance, June 30, 2017			5,021,376			$	—			$	26,166			$	31,736			$	(772	)		$	57,130
Balance, December 31, 2017			5,021,376			$	—			$	26,166			$	32,526			$	(1,510	)		$	57,182
Net income			—				—				—				2,013				—				2,013
Other comprehensive loss			—				—				—				—				(671	)			(671	)
Dividends paid ($0.10 per share)			—				—				—				(502	)			—				(502	)
Balance, June 30, 2018			5,021,376			$	—			$	26,166			$	34,037			$	(2,181	)		$	58,022

See Notes to Consolidated Financial Statements

 

7

 

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Cash Flows

For the Six Months ended June 30, 2018 and 2017

 

 

		Six Months Ended
		June 30,
		2018				2017
(dollars in thousands)		(Unaudited)				(Unaudited)
Cash flows from operating activities
Net income		$	2,013			$	1,484
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation and amortization			600				636
Amortization of core deposit intangible			140				142
Accretion of loan discount and deposit premium, net			(340	)			(724	)
Provision for loan losses			145				158
Deferred income taxes			628				612
Net realized gain on securities			(5	)			(113	)
Accretion of discount on securities, net of amortization of premiums			269				361
Deferred compensation			18				(43	)
Net realized loss on foreclosed assets			—				10
Life insurance income			(229	)			—
Changes in assets and liabilities:
Cash value of life insurance			(222	)			(276	)
Accrued interest receivable			(76	)			67
Other assets			(394	)			(659	)
Accrued interest payable			(1	)			(16	)
Other liabilities			—				(1,949	)
Net cash provided by (used in) operating activities			2,546				(310	)
Cash flows from investing activities
Activity in available for sale securities:
Purchases			—				—
Sales			525				662
Maturities/calls/paydowns			2,559				2,910
Sales (purchases) or restricted equity securities			10				(239	)
Net increase in loans			(8,349	)			(8,052	)
Proceeds from life insurance contracts			413				—
Purchases of property and equipment, net of sales			(815	)			(676	)
Net cash used in investing activities			(5,657	)			(5,395	)
Cash flows from financing activities
Net decrease in deposits			(13,405	)			(4,366	)
Net increase in borrowings			8,906				—
Dividends paid			(502	)			(402	)
Net cash used in financing activities			(5,001	)			(4,768	)
Net decrease in cash and cash equivalents			(8,112	)			(10,473	)
Cash and cash equivalents, beginning			22,875				35,908
Cash and cash equivalents, ending		$	14,763			$	25,435

See Notes to Consolidated Financial Statements

 

8

 

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Cash Flows, continued

For the Six Months ended June 30, 2018 and 2017

 

 

Supplemental disclosure of cash flow information
Interest paid		$	766			$	753
Taxes paid		$	10			$	—
Supplemental disclosure of noncash investing activities
Effect on equity of change in net unrealized loss on available for sale securities		$	(671	)		$	582
Transfers of loans to foreclosed properties		$	410			$	—

See Notes to Consolidated Financial Statements

 

9

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

Note 1. Organization and Summary of Significant Accounting Policies

Organization

Parkway Acquisition Corp. (“Parkway” or the “Company”) was incorporated as a Virginia corporation on November 2, 2015. Parkway was formed as a business combination shell company for the purpose of completing a business combination transaction between Grayson Bankshares, Inc. (“Grayson”) and Cardinal Bankshares Corporation (“Cardinal”). On November 6, 2015, Grayson, Cardinal and Parkway entered into an Agreement and Plan of Merger (the “merger agreement”), providing for the combination of the three companies. Terms of the merger agreement called for Grayson and Cardinal to merge with and into Parkway, with Parkway as the surviving corporation (the “Cardinal merger”). The merger agreement established exchange ratios under which each share of Grayson common stock was converted to the right to receive 1.76 shares of common stock of Parkway, while each share of Cardinal common stock was converted to the right to receive 1.30 shares of common stock of Parkway. The exchange ratios resulted in Grayson shareholders receiving approximately 60% of the newly issued Parkway shares and Cardinal shareholders receiving approximately 40% of the newly issued Parkway shares. The Cardinal merger was completed on July 1, 2016. Grayson was considered the acquiror and Cardinal was considered the acquiree in the transaction for accounting purposes.

Upon completion of the Cardinal merger, the Bank of Floyd, a wholly-owned subsidiary of Cardinal, was merged with and into Grayson National Bank (the “Bank’), a wholly-owned subsidiary of Grayson. The Bank was organized under the laws of the United States in 1900 and now serves the Virginia counties of Grayson, Floyd, Carroll, Wythe, Montgomery and Roanoke, and the North Carolina counties of Alleghany and Ashe, and the surrounding areas through seventeen full-service banking offices and one loan production office. Effective March 13, 2017, the Bank changed its name to Skyline National Bank. As an FDIC-insured national banking association, the Bank is subject to regulation by the Comptroller of the Currency and the FDIC. Parkway is regulated by the Board of Governors of the Federal Reserve System.

On March 1, 2018, Parkway entered into a definitive agreement pursuant to which Parkway acquired Great State Bank, based in Wilkesboro, North Carolina, in a stock merger valued at approximately $14.5 million at signing (the “Great State merger”). The agreement provided for the merger of Great State Bank with and into the Bank, with the Bank as the surviving bank. The transaction closed and the merger became effective on July 1, 2018. Each share of Great State Bank common stock was converted into the right to receive 1.21 shares of Parkway common stock.

The consolidated financial statements as of June 30, 2018 and for the periods ended June 30, 2018 and 2017 included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the information furnished in the interim consolidated financial statements reflects all adjustments necessary to present fairly the Company’s consolidated financial position, results of operations, changes in stockholders’ equity and cash flows for such interim periods. Management believes that all interim period adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto as of December 31, 2017, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The results of operations for the six-month period ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year.

 

10

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1. Organization and Summary of Significant Accounting Policies, continued

 

Critical Accounting Policies

Management believes the policies with respect to the methodology for the determination of the allowance for loan losses, and asset impairment judgments involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported results to differ materially. These critical policies and their application are periodically reviewed with the Audit Committee and the Board of Directors.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the Bank, which is wholly owned. All significant, intercompany transactions and balances have been eliminated in consolidation.

Business Segments

The Company reports its activities as a single business segment. In determining the appropriateness of segment definition, the Company considers components of the business about which financial information is available and regularly evaluated relative to resource allocation and performance assessment.

Business Combinations

Generally, acquisitions are accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. A business combination occurs when the Company acquires net assets that constitute a business, or acquires equity interests in one or more other entities that are businesses and obtains control over those entities. Business combinations are effected through the transfer of consideration consisting of cash and/or common stock and are accounted for using the acquisition method. Accordingly, the assets and liabilities of the acquired entity are recorded at their respective fair values as of the closing date of the acquisition. Determining the fair value of assets and liabilities, especially the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are subject to refinement for up to one year after the closing date of the acquisition as information relative to closing date fair values becomes available. The results of operations of an acquired entity are included in our consolidated results from the closing date of the merger, and prior periods are not restated. No allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding future credit losses. The fair value estimates associated with the acquired loans include estimates related to expected prepayments and the amount and timing of expected principal, interest and other cash flows.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan and foreclosed real estate losses, management obtains independent appraisals for significant properties.

 

11

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1. Organization and Summary of Significant Accounting Policies, continued

 

Use of Estimates, continued

 

Substantially all of the Bank’s loan portfolio consists of loans in its market area. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions. The regional economy is diverse, but influenced to an extent by the manufacturing and agricultural segments.

While management uses available information to recognize loan and foreclosed real estate losses, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as a part of their routine examination process, periodically review the Bank’s allowances for loan and foreclosed real estate losses. Such agencies may require the Bank to recognize additions to the allowances based on their judgments about information available to them at the time of their examinations. Because of these factors, it is reasonably possible that the allowances for loan and foreclosed real estate losses may change materially in the near term.

The Company seeks strategies that minimize the tax effect of implementing their business strategies. As such, judgments are made regarding the ultimate consequence of long-term tax planning strategies, including the likelihood of future recognition of deferred tax benefits. The Company’s tax returns are subject to examination by both Federal and State authorities. Such examinations may result in the assessment of additional taxes, interest and penalties. As a result, the ultimate outcome, and the corresponding financial statement impact, can be difficult to predict with accuracy.

Accounting for pension benefits, costs and related liabilities are developed using actuarial valuations. These valuations include key assumptions determined by management, including the discount rate and expected long-term rate of return on plan assets. Material changes in pension costs may occur in the future due to changes in these assumptions.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents includes cash and amounts due from banks (including cash items in process of collection), interest-bearing deposits with banks and federal funds sold.

Trading Securities

The Company does not hold securities for short-term resale and therefore does not maintain a trading securities portfolio.

Securities Held to Maturity

Bonds, notes, and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity. The Company does not currently hold any securities classified as held to maturity.

Securities Available for Sale

Available for sale securities are reported at fair value and consist of bonds, notes, debentures, and certain equity securities not classified as trading securities or as held to maturity securities.

Unrealized holding gains and losses, net of tax, on available for sale securities are reported as a net amount in a separate component of accumulated other comprehensive income. Realized gains and losses on the sale of available for sale securities are determined using the specific-identification method. Premiums and discounts are recognized in interest income using the interest method over the period to maturity.

 

12

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1. Organization and Summary of Significant Accounting Policies, continued

 

Securities Available for Sale, continued

 

Declines in the fair value of individual held to maturity and available for sale securities below cost that are other than temporary are reflected as write-downs of the individual securities to fair value. Related write-downs are included in earnings as realized losses.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal amount adjusted for any charge-offs and the allowance for loan losses. Loan origination costs are capitalized and recognized as an adjustment to yield over the life of the related loan.

Interest is accrued and credited to income based on the principal amount outstanding. The accrual of interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Payments received are first applied to principal, and any remaining funds are then applied to interest. When facts and circumstances indicate the borrower has regained the ability to meet the required payments, the loan is returned to accrual status. Past due status of loans is determined based on contractual terms.

Purchased Performing Loans – The Company accounts for performing loans acquired in business combinations using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing loans. A provision for loan losses is recorded for any further deterioration in these loans subsequent to the acquisition

Purchased Credit-Impaired (“PCI”) Loans – Loans purchased with evidence of credit deterioration since origination, and for which it is probable that all contractually required payments will not be collected, are considered credit impaired. Evidence of credit quality deterioration as of the purchase date may include statistics such as internal risk grade and past due and nonaccrual status. Purchased impaired loans generally meet the Company’s definition for nonaccrual status. PCI loans are initially measured at fair value, which reflects estimated future credit losses expected to be incurred over the life of the loan. Accordingly, the associated allowance for credit losses related to these loans is not carried over at the acquisition date. Any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference, and is available to absorb credit losses on those loans. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent significant increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges, or a reclassification of the nonaccretable difference with a positive impact on future interest income.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance, or portion thereof, is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

13

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1. Organization and Summary of Significant Accounting Policies, continued

 

Allowance for Loan Losses, continued

 

The allowance consists of specific, general and unallocated components. The specific component is calculated on an individual basis for larger-balance, non-homogeneous loans, which are considered impaired. A specific allowance is established when the discounted cash flows, collateral value (less disposal costs), or observable market price of the impaired loan is lower than its carrying value. The specific component of the allowance for smaller- balance loans whose terms have been modified in a troubled debt restructuring (TDR) is calculated on a pooled basis considering historical experience adjusted for qualitative factors. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for all loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

Troubled Debt Restructurings

Under GAAP, the Bank is required to account for certain loan modifications or restructurings as “troubled debt restructurings” or “troubled debt restructured loans.” In general, the modification or restructuring of a debt constitutes a troubled debt restructuring if the Bank for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that the Bank would not otherwise consider. Debt restructuring or loan modifications for a borrower do not necessarily always constitute a troubled debt restructuring, however, and troubled debt restructurings do not necessarily result in non-accrual loans. Troubled debt restructured loans are maintained in nonaccrual status until they have been performing in accordance with modified terms for a period of at least six months.

Property and Equipment

Land is carried at cost. Bank premises, furniture and equipment are carried at cost, less accumulated depreciation and amortization computed principally by the straight-line method over the following estimated useful lives:

 

		Years
Buildings and improvements		10-40
Furniture and equipment		5-12

 

14

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1. Organization and Summary of Significant Accounting Policies, continued

 

Foreclosed Assets

Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value less anticipated cost to sell at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in foreclosure expense on the consolidated statements of income.

Pension Plan

Prior to the Cardinal merger, both Grayson National Bank (Grayson) and Bank of Floyd (Floyd) had qualified noncontributory defined benefit pension plans in place which covered substantially all of each bank’s employees. The benefits in each plan are primarily based on years of service and earnings. Both Grayson and Floyd plans were amended to freeze benefit accruals for all eligible employees prior to the effective date of the Cardinal merger. Grayson’s plan is a single-employer plan, the funded status of which is measured as the difference between the fair value of plan assets and the projected benefit obligation. Floyd’s plan is a multi-employer plan for accounting purposes and is a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank; (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Core Deposit Intangible

Core deposit intangibles represent the value of long-term deposit relationships acquired in a business combination. Core deposit intangibles are amortized over the estimated useful lives of the deposit accounts acquired (generally twenty years on an accelerated basis).

Revenue Recognition

On January 1, 2018, we adopted the requirements of Accounting Standards Update (“ASU”) 2014-9, Revenue from Contracts with Customers (“ASU Topic 606”). The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Based on this assessment, the Company concluded that ASU 2014-09 did not materially change the method in which the Company currently recognizes revenue for these revenue streams. The Company also completed its evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross vs. net). Based on its evaluation, the Company determined that ASU 2014-09 did not materially change the method in which the Company currently classifies certain costs associated with the related revenue streams. The Company adopted ASU 2014-09 and its related amendments on its required effective date of January 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary.

 

15

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1. Organization and Summary of Significant Accounting Policies, continued

 

Income Taxes

Provision for income taxes is based on amounts reported in the statements of income (after exclusion of non-taxable income such as interest on state and municipal securities) and consists of taxes currently due plus deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more likely than not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more likely than not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Advertising Expense

The Company expenses advertising costs as they are incurred. Advertising expense for the years presented is not material.

Basic Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock splits and dividends.

 

16

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1. Organization and Summary of Significant Accounting Policies, continued

 

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income includes unrealized gains and losses on securities available for sale and changes in the funded status of the pension plan which are also recognized as separate components of equity. The accumulated balances related to each component of other comprehensive income (loss) are as follows:

 

(dollars in thousands)		Unrealized Gains And (Losses) On Available for Sale Securities				Defined Benefit Pension Items				Total
Balance, December 31, 2016		$	(574	)		$	(780	)		$	(1,354	)
Other comprehensive gain before reclassifications			657				—				657
Amounts reclassified from accumulated other comprehensive gain			(75	)			—				(75	)
Balance June 30, 2017		$	8			$	(780	)		$	(772	)
Balance, December 31, 2017		$	(523	)		$	(987	)		$	(1,510	)
Other comprehensive loss before reclassifications			(667	)			—				(667	)
Amounts reclassified from accumulated other comprehensive loss			(4	)			—				(4	)
Balance June 30, 2018		$	(1,194	)		$	(987	)		$	(2,181	)

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under line of credit arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 8. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

Reclassification

Certain reclassifications have been made to the prior years’ financial statements to place them on a comparable basis with the current presentation. Net income and stockholders’ equity previously reported were not affected by these reclassifications.

 

17

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1. Organization and Summary of Significant Accounting Policies, continued

 

Recent Accounting Pronouncements

The following accounting standards may affect the future financial reporting by the Company:

In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

We expect to adopt the guidance using the modified retrospective method and practical expedients for transition. The practical expedients allow us to largely account for our existing leases consistent with current guidance except for the incremental balance sheet recognition for lessees. We have started an initial evaluation of our leasing contracts and activities. We have also started developing our methodology to estimate the right-of use assets and lease liabilities, which is based on the present value of lease payments. (the December 31, 2017 future minimum lease payments were approximately $135 thousand). We do not expect a material change to the timing of expense recognition, but we are early in the implementation process and will continue to evaluate the impact. We are evaluating our existing disclosures and may need to provide additional information as a result of adoption of the ASU.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for all organizations for periods beginning after December 15, 2018.

The Company will apply the amendments to the ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. While early adoption is permitted beginning in first quarter 2019, we do not expect to elect that option. We are evaluating the impact of the ASU on our consolidated financial statements. We expect the ASU will result in an increase in the recorded allowance for loan losses given the change to estimated losses over the contractual life of the loans adjusted for expected prepayments. The majority of the increase results from longer duration portfolios. In addition to our allowance for loan losses, we will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

In January 2017, the FASB updated the Accounting Changes and Error Corrections and the Investments—Equity Method and Joint Ventures Topics of the Accounting Standards Codification. The ASU incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. The ASU was effective upon issuance. The Company is currently evaluating the impact on additional disclosure requirements as each of the standards is adopted, however it does not expect these amendments to have a material effect on its financial position, results of operations or cash flows.

 

18

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1. Organization and Summary of Significant Accounting Policies, continued

 

Recent Accounting Pronouncements, continued

 

In January 2017, the FASB amended the Goodwill and Other Topic of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2017, the FASB amended the requirements in the Receivables—Nonrefundable Fees and Other Costs Topic of the Accounting Standards Codification related to the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2018, the FASB amended the Financial Instruments Topic of the Accounting Standards Codification. The amendments clarify certain aspects of the guidance issued in ASU 2016-01. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018 -public business entities. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted ASU 2016-01. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2018, the FASB updated the Debt Securities and the Regulated Operations Topics of the Accounting Standards Codification. The amendments incorporate into the Accounting Standards Codification recent SEC guidance which was issued in order to make the relevant interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2018, the FASB updated the Income Taxes Topic of the Accounting Standards Codification. The amendments incorporate into the Accounting Standards Codification recent SEC guidance related to the income tax accounting implications of the Tax Cuts and Jobs Act. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2018, the FASB amended the Financial Services—Depository and Lending Topic of the Accounting Standards Codification to remove outdated guidance related to Circular 202. The amendments were effective upon issuance and did not have a material effect on the financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

19

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 2. Investment Securities

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost of securities and their approximate fair values at June 30, 2018 and December 31, 2017 follow:

 

(dollars in thousands)		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
June 30, 2018
Available for sale:
Mortgage-backed securities		$	27,214			$	—			$	(1,179	)		$	26,035
Corporate securities			2,993				—				(135	)			2,858
State and municipal securities			17,783				30				(228	)			17,585
		$	47,990			$	30			$	(1,542	)		$	46,478
December 31, 2017
Available for sale:
Mortgage-backed securities		$	28,780			$	—			$	(626	)		$	28,154
Corporate securities			3,016				—				(80	)			2,936
State and municipal securities			19,542				155				(112	)			19,585
		$	51,338			$	155			$	(818	)		$	50,675

Restricted equity securities totaled $1.4 million at June 30, 2018 and December 31, 2017. Restricted equity securities consist of investments in stock of the Federal Home Loan Bank of Atlanta (FHLB), Community Bankers Bank, Pacific Coast Bankers Bank, and the Federal Reserve Bank of Richmond, all of which are carried at cost. All of these entities are upstream correspondents of the Bank. The FHLB requires financial institutions to make equity investments in the FHLB in order to borrow money. The Bank is required to hold that stock so long as it borrows from the FHLB. The Federal Reserve requires Banks to purchase stock as a condition for membership in the Federal Reserve System. The Bank’s stock in Community Bankers Bank and Pacific Coast Bankers Bank is restricted only in the fact that the stock may only be repurchased by the respective banks.

The following tables details unrealized losses and related fair values in the Company’s held to maturity and available for sale investment securities portfolios. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2018 and December 31, 2017.

 

		Less Than 12 Months								12 Months or More								Total
(dollars in thousands)		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
June 30, 2018
Available for sale:
Mortgage-backed securities		$	8,423			$	(261	)		$	17,610			$	(918	)		$	26,033			$	(1,179	)
Corporate securities			1,460				(33	)			1,398				(102	)			2,858				(135	)
State and municipal securities			12,005				(127	)			2,714				(101	)			14,719				(228	)
Total securities available for sale		$	21,888			$	(421	)		$	21,722			$	(1,121	)		$	43,610			$	(1,542	)
December 31, 2017
Available for sale:
Mortgage-backed securities		$	15,791			$	(324	)		$	12,361			$	(302	)		$	28,152			$	(626	)
Corporate securities			1,506				(10	)			1,430				(70	)			2,936				(80	)
State and municipal securities			5,284				(44	)			2,758				(68	)			8,042				(112	)
Total securities available for sale		$	22,581			$	(378	)		$	16,549			$	(440	)		$	39,130			$	(818	)

 

20

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 2. Investment Securities, continued

 

At June 30, 2018, 46 debt securities with unrealized losses had depreciated 3.42 percent from their total amortized cost basis. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, and the financial condition and near-term prospects of the issuer. The relative significance of these and other factors will vary on a case by case basis. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition and the issuer’s anticipated ability to pay the contractual cash flows of the investments. Since the Company intends to hold all of its investment securities until maturity, and it is more likely than not that the Company will not have to sell any of its investment securities before unrealized losses have been recovered, and the Company expects to recover the entire amount of the amortized cost basis of all its securities, none of the securities are deemed other than temporarily impaired at June 30, 2018. Management continues to monitor all of these securities with a high degree of scrutiny. There can be no assurance that the Company will not conclude in future periods that conditions existing at that time indicate some or all of these securities are other than temporarily impaired, which could require a charge to earnings in such periods.

Proceeds from sales of investment securities available for sale were $525 thousand and $662 thousand for the six month and three month periods ended June 30, 2018 and 2017, respectively. There was a loss of $4 thousand in the six month period ended June 30, 2018 that resulted from of an investment security being called prior to its scheduled maturity. Gains and losses on the sale of investment securities are recorded on the trade date and are determined using the specific identification method. Gross realized gains and losses for the six-month and three-month periods ended June 30, 2018 and 2017 are as follows:

 

		Six Months Ended June 30								Three Months Ended June 30
(dollars in thousands)		2018				2017				2018				2017
Realized gains		$	9			$	113			$	9			$	113
Realized losses			(4	)			—				—				—
		$	5			$	113			$	9			$	113

There were no securities transferred between the available for sale and held to maturity portfolios or other sales of held to maturity securities during the periods presented. In the future management may elect to classify securities as held to maturity based upon such considerations as the nature of the security, the Bank’s ability to hold the security until maturity, and general economic conditions.

The scheduled maturities of securities available for sale at June 30, 2018, were as follows:

 

(dollars in thousands)		Amortized Cost				Fair Value
Due in one year or less		$	200			$	200
Due after one year through five years			10,515				10,323
Due after five years through ten years			18,860				18,029
Due after ten years			18,415				17,926
		$	47,990			$	46,478

Maturities of mortgage backed securities are based on contractual amounts. Actual maturity will vary as loans underlying the securities are prepaid.

Investment securities with amortized cost of approximately $10.6 million and $11.2 million at June 30, 2018 and December 31, 2017, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

 

21

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 3. Loans Receivable

The major components of loans in the consolidated balance sheets at June 30, 2018 and December 31, 2017 are as follows:

 

(dollars in thousands)		2018				2017
Construction & development		$	26,597			$	25,475
Farmland			34,190				33,353
Residential			198,967				199,120
Commercial mortgage			129,280				125,661
Commercial & agricultural			27,774				25,672
Consumer & other			15,972				15,590
Total loans			432,780				424,871
Allowance for loan losses			(3,281	)			(3,453	)
Loans, net of allowance for loan losses		$	429,499			$	421,418

As of June 30, 2018 and December 31, 2017, substantially all of the Bank’s residential 1-4 family loans were pledged as collateral for borrowing lines at the Federal Home Loan Bank of Atlanta.

Note 4. Allowance for Loan Losses and Impaired Loans

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed to be sufficient to provide for estimated loan losses based on evaluating known and inherent risks in the loan portfolio. The allowance is provided based upon management’s comprehensive analysis of the pertinent factors underlying the quality of the loan portfolio. These factors include changes in the amount and composition of the loan portfolio, delinquency levels, actual loss experience, current economic conditions, and detailed analysis of individual loans for which the full collectability may not be assured. The detailed analysis includes methods to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment. The allowance consists of specific and general components. The specific component is calculated on an individual basis for larger-balance, non-homogeneous loans, which are considered impaired. A specific allowance is established when the discounted cash flows, collateral value (less disposal costs), or observable market price of the impaired loan is lower than its carrying value. The specific component of the allowance for smaller-balance loans whose terms have been modified in a troubled debt restructuring (TDR) is calculated on a pooled basis considering historical experience adjusted for qualitative factors. These smaller-balance TDRs were collectively evaluated for impairment. The general component covers the remaining loan portfolio, and is based on historical loss experience adjusted for qualitative factors. The appropriateness of the allowance for loan losses on loans is estimated based upon these factors and trends identified by management at the time financial statements are prepared.

A provision for loan losses is charged against operations and is added to the allowance for loan losses based on quarterly comprehensive analyses of the loan portfolio. The allowance for loan losses is allocated to certain loan categories based on the relative risk characteristics, asset classifications and actual loss experience of the loan portfolio. While management has allocated the allowance for loan losses to various loan portfolio segments, the allowance is general in nature and is available for the loan portfolio in its entirety.

 

22

 

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 4. Allowance for Loan Losses and Impaired Loans, continued

 

Allowance for Loan Losses, continued

 

The following table presents activity in the allowance by loan category and information on the loans evaluated individually for impairment and collectively evaluated for impairment as of June 30, 2018 and December 31, 2017:

Allowance for Loan Losses and Recorded Investment in Loans

 

(dollars in thousands)		Construction & Development				Farmland				Residential				Commercial Mortgage				Commercial & Agricultural				Consumer & Other				Total
For the Three Months Ended June 30, 2018
Allowance for loan losses:
Balance, March 31, 2018		$	247			$	322			$	1,896			$	609			$	267			$	74			$	3,415
Charge-offs			(8	)			—				—				(142	)			—				(90	)			(240	)
Recoveries			—				—				9				—				2				4				15
Provision			17				17				(210	)			152				14				101				91
Balance, June 30, 2018		$	256			$	339			$	1,695			$	619			$	283			$	89			$	3,281
For the Three Months Ended June 30, 2017
Allowance for loan losses:
Balance, March 31, 2017		$	230			$	644			$	349			$	401			$	1,880			$	72			$	3,576
Charge-offs			(27	)			—				—				—				(13	)			(23	)			(63	)
Recoveries			2				—				—				—				—				3				5
Provision			9				(24	)			(20	)			(8	)			71				22				50
Balance, June 30, 2017		$	214			$	620			$	329			$	393			$	1,938			$	74			$	3,568
For the Six Months Ended June 30, 2018
Allowance for loan losses:
Balance, December 31, 2017		$	239			$	358			$	1,875			$	619			$	282			$	80			$	3,453
Charge-offs			(20	)			—				(117	)			(142	)			—				(109	)			(388	)
Recoveries			—				34				19				—				4				14				71
Provision			37				(53	)			(82	)			142				(3	)			104				145
Balance, June 30, 2018		$	256			$	339			$	1,695			$	619			$	283			$	89			$	3,281
For the Six Months Ended June 30, 2017
Allowance for loan losses:
Balance, December 31, 2016		$	210			$	600			$	319			$	342			$	1,841			$	108			$	3,420
Charge-offs			(27	)			(42	)			—				—				(13	)			(38	)			(120	)
Recoveries			29				—				56				—				15				10				110
Provision			2				62				(46	)			51				95				(6	)			158
Balance, June 30, 2017		$	214			$	620			$	329			$	393			$	1,938			$	74			$	3,568
June 30, 2018
Allowance for loan losses:
Ending Balance		$	256			$	339			$	1,695			$	619			$	283			$	89			$	3,281
Ending balance: individually evaluated for impairment		$	—			$	35			$	25			$	—			$	—			$	—			$	60
Ending balance: collectively evaluated for impairment		$	256			$	304			$	1,670			$	619			$	283			$	89			$	3,221
Loans outstanding:
Ending Balance		$	26,597			$	34,190			$	198,967			$	129,280			$	27,774			$	15,972			$	432,780
Ending balance: individually evaluated for impairment		$	—			$	4,736			$	1,232			$	—			$	—			$	—			$	5,968
Ending balance: collectively evaluated for impairment		$	26,597			$	29,454			$	197,735			$	129,280			$	27,774			$	15,972			$	426,812

 

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