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 September 30, 2019

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None

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 every 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 ☑	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 6,148,275 shares of Common Stock, no par value per share, outstanding as of November 13, 2019.

PART I     FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets—September 30, 2019 (Unaudited) and December 31, 2018 (Audited)	3
	Unaudited Consolidated Statements of Income—Three and Nine Months Ended September 30, 2019 and September 30, 2018	4
	Unaudited Consolidated Statements of Comprehensive Income—Nine and Three Months Ended September 30, 2019 and September 30, 2018	5
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity—Nine and Three Months Ended September 30, 2019 and September 30, 2018	6
	Unaudited Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2019 and September 30, 2018	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49
Item 4.	Controls and Procedures	50
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	51
Signatures		52

Part I.  Financial Information

Item 1.  Financial Statements

Parkway Acquisition Corp. and Subsidiary

Consolidated Balance Sheets

September 30, 2019 and December 31, 2018

(dollars in thousands)	September 30,			December 31,
	2019			2018
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	7,913		$	8,858
Interest-bearing deposits with banks		30,314			12,159
Federal funds sold		2,965			18,990
Investment securities available for sale		34,702			45,428
Restricted equity securities		2,394			2,053
Loans, net of allowance for loan losses of $3,972 at September 30, 2019 and $3,495 at December 31, 2018		558,238			532,970
Cash value of life insurance		17,737			17,413
Foreclosed assets		-			753
Properties and equipment, net		21,387			20,685
Accrued interest receivable		2,066			2,084
Core deposit intangible		3,262			3,892
Goodwill		3,257			3,198
Deferred tax assets, net		1,022			1,853
Other assets		9,923			9,948
	$	695,180		$	680,284
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Noninterest-bearing	$	164,673		$	160,166
Interest-bearing		437,287			441,702
Total deposits		601,960			601,868
FHLB Advances		10,000			-
Accrued interest payable		204			89
Other liabilities		3,157			2,705
		615,321			604,662
Commitments and contingencies (Note 8)
Stockholders’ Equity
Preferred stock, no par value; 5,000,000 shares authorized, none issued		-			-
Common stock, no par value; 25,000,000 shares authorized, 6,148,275 and 6,213,275 issued and outstanding at September 30, 2019 and December 31, 2018, respectively		-			-
Surplus		40,889			41,660
Retained earnings		39,879			35,929
Accumulated other comprehensive loss		(909	)		(1,967	)
		79,859			75,622
	$	695,180		$	680,284

See Notes to Consolidated Financial Statements

3

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Income

For the Three and Nine Months ended September 30, 2019 and 2018

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(dollars in thousands except share amounts)	2019			2018		2019		2018
	(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)
Interest income
Loans and fees on loans	$	7,451		$	7,063	$	21,712	$	17,420
Interest-bearing deposits in banks		47			27		145		62
Federal funds sold		62			89		241		127
Interest on taxable securities		229			301		769		898
Dividends		11			13		72		52
		7,800			7,493		22,939		18,559
Interest expense
Deposits		770			558		2,040		1,296
Interest on borrowings		3			6		3		33
		773			564		2,043		1,329
Net interest income		7,027			6,929		20,896		17,230
Provision for loan losses		151			113		665		258
Net interest income after provision for loan losses		6,876			6,816		20,231		16,972
Noninterest income
Service charges on deposit accounts		448			413		1,184		1,132
Other service charges and fees		512			473		1,524		1,323
Net realized gains on securities		49			-		45		5
Mortgage origination fees		89			137		299		281
Increase in cash value of life insurance		108			97		324		319
Life insurance income		-			74		-		303
Other income		67			32		229		87
		1,273			1,226		3,605		3,450
Noninterest expenses
Salaries and employee benefits		3,306			3,161		9,725		8,459
Occupancy and equipment		758			709		2,197		1,965
Foreclosed asset expense, net		-			18		2		16
Data processing expense		401			351		1,132		953
FDIC Assessments		(89	)		47		55		185
Advertising		148			148		441		424
Bank franchise tax		111			109		333		319
Director fees		57			69		205		199
Professional fees		118			120		480		340
Telephone expense		102			115		282		302
Core deposit intangible amortization		193			219		630		359
Merger related expenses		-			359		-		856
Other expense		499			482		1,581		1,372
		5,604			5,907		17,063		15,749
Net income before income taxes		2,545			2,135		6,773		4,673
Income tax expense		511			420		1,339		945
Net income	$	2,034		$	1,715	$	5,434	$	3,728
Net income per share	$	0.33		$	0.28	$	0.88	$	0.69
Weighted average shares outstanding		6,174,851			6,213,275		6,179,909		5,423,042
Dividends declared per share	$	0.12		$	0.10	$	0.24	$	0.21

See Notes to Consolidated Financial Statements

4

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Comprehensive Income

For the Nine and Three Months ended September 30, 2019 and 2018

	Nine Months Ended
	September 30,
(dollars in thousands)	2019			2018
	(Unaudited)			(Unaudited)
Net Income	$	5,434		$	3,728
Other comprehensive income (loss)
Unrealized gains (losses) on investment securities available for sale:
Unrealized gains (losses) arising during the period		1,385			(1,066	)
Tax related to unrealized (gains) losses		(292	)		224
Reclassification of net realized gains during the period		(45	)		(5	)
Tax related to realized gains		10			1
Total other comprehensive income (loss)		1,058			(846	)
Total comprehensive income	$	6,492		$	2,882

	Three Months Ended
	September 30,
(dollars in thousands)	2019			2018
	(Unaudited)			(Unaudited)
Net Income	$	2,034		$	1,715
Other comprehensive income (loss)
Unrealized gains (losses) on investment securities available for sale:
Unrealized gains (losses) arising during the period		123			(222	)
Tax related to unrealized (gains) losses		(27	)		47
Reclassification of net realized gains during the period		(49	)		-
Tax related to realized gains		11			-
Total other comprehensive income (loss)		58			(175	)
Total comprehensive income	$	2,092		$	1,540

See Notes to Consolidated Financial Statements

5

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

For the Nine and Three Months ended September 30, 2019 and 2018 (unaudited)

(dollars in thousands except share amounts)
												Accumulated
												Other
	Common Stock								Retained			Comprehensive
	Shares			Amount		Surplus			Earnings			Loss			Total
Balance, December 31, 2018		6,213,275		$	-	$	41,660		$	35,929		$	(1,967	)	$	75,622
Net income		-			-		-			1,665			-			1,665
Other comprehensive income		-			-		-			-			567			567
Dividends paid ($0.12 per share)		-			-		-			(746	)		-			(746	)
Balance, March 31, 2019		6,213,275		$	-	$	41,660		$	36,848		$	(1,400	)	$	77,108
Net income		-			-		-			1,735			-			1,735
Other comprehensive income		-			-		-			-			433			433
Common stock repurchased		(20,000	)		-		(235	)		-			-			(235	)
Balance, June 30, 2019		6,193,275		$	-	$	41,425		$	38,583		$	(967	)	$	79,041
Net income		-			-		-			2,034			-			2,034
Other comprehensive income		-			-		-			-			58			58
Dividends paid ($0.12 per share)		-			-		-			(738	)		-			(738	)
Common stock repurchased		(45,000	)		-		(536	)		-			-			(536	)
Balance, September 30, 2019		6,148,275		$	-	$	40,889		$	39,879		$	(909	)	$	79,859
Balance, December 31, 2017		5,021,376		$	-	$	26,166		$	32,526		$	(1,510	)	$	57,182
Net income		-			-		-			1,014			-			1,014
Other comprehensive loss		-			-		-			-			(473	)		(473	)
Dividends paid ($0.10 per share)		-			-		-			(502	)		-			(502	)
Balance, March 31, 2018		5,021,376		$	-	$	26,166		$	33,038		$	(1,983	)	$	57,221
Net income		-			-		-			999			-			999
Other comprehensive loss		-			-		-			-			(198	)		(198	)
Balance, June 30, 2018		5,021,376		$	-	$	26,166		$	34,037		$	(2,181	)	$	58,022
Net income		-			-		-			1,715			-			1,715
Other comprehensive loss		-			-		-			-			(175	)		(175	)
Issuance of common stock in connection with acquisition of Great State Bank		1,191,899			-		15,495			-			-			15,495
Redemption of fractional shares Issued in acquisition of Great State Bank		-			-		(1	)		-			-			(1	)
Dividends paid ($0.10 per share)		-			-		-			(621	)		-			(621	)
Balance, September 30, 2018		6,213,275		$	-	$	41,660		$	35,131		$	(2,356	)	$	74,435

See Notes to Consolidated Financial Statements

6

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Cash Flows

For the Nine Months ended September 30, 2019 and 2018

	Nine Months Ended
	September 30,
(dollars in thousands)	2019			2018
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income	$	5,434		$	3,728
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		900			916
Amortization of core deposit intangible		630			359
Accretion of loan discount and deposit premium, net		(1,661	)		(927	)
Provision for loan losses		665			258
Deferred income taxes		495			972
Net realized gains on securities		(45	)		(5	)
Accretion of discount on securities, net of amortization of premiums		335			396
Deferred compensation		(25	)		28
Gains on sale of properties and equipment		(122	)		-
Life insurance income		-			(303	)
Changes in assets and liabilities:
Cash value of life insurance		(324	)		(319	)
Accrued interest receivable		18			(59	)
Other assets		21			(112	)
Accrued interest payable		115			100
Other liabilities		477			(567	)
Net cash provided by operating activities		6,913			4,465
Cash flows from investing activities
Activity in available for sale securities:
Purchases		(1,037	)		-
Sales		8,914			18,366
Maturities/calls/paydowns		3,898			4,461
Purchases of restricted equity securities		(341	)		(142	)
Net increase in loans		(24,582	)		(17,492	)
Proceeds from life insurance contracts		-			672
Proceeds from sale of foreclosed assets		753			475
Purchases of property and equipment, net of sales		(1,480	)		(2,624	)
Cash received in business combination		-			25,761
Net cash (used in) provided by investing activities		(13,875	)		29,477
Cash flows from financing activities
Net increase (decrease) in deposits		402			(17,452	)
Net change in FHLB advances		10,000			(1,000	)
Cash paid for fractional shares		-			(1	)
Common stock repurchased		(771	)		-
Dividends paid		(1,484	)		(1,123	)
Net cash provided by (used in) financing activities		8,147			(19,576	)
Net increase in cash and cash equivalents		1,185			14,366
Cash and cash equivalents, beginning		40,007			22,875
Cash and cash equivalents, ending	$	41,192		$	37,241

See Notes to Consolidated Financial Statements

7

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Cash Flows, continued

For the Nine Months ended September 30, 2019 and 2018

Supplemental disclosure of cash flow information
Interest paid	$	1,928	$	1,189
Taxes paid	$	300	$	10
Supplemental disclosure of noncash investing activities
Effect on equity of change in net unrealized loss on available for sale securities	$	1,058	$	(846	)
Transfers of loans to foreclosed properties	$	-	$	410
Business combinations
Assets acquired (excluding goodwill)	$	-	$	145,480
Liabilities assumed	$	-	$	133,551
Net assets	$	-	$	11,929
Goodwill recorded	$	-	$	3,764
Stock issued to acquire Great State Bank	$	-	$	15,495

See Notes to Consolidated Financial Statements

8

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 pursuant to which Grayson and Cardinal merged 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. Effective March 13, 2017, the Bank changed its name to Skyline National Bank.     

On March 1, 2018, Parkway entered into a definitive agreement pursuant to which Parkway acquired Great State Bank (“Great State”), based in Wilkesboro, North Carolina. The agreement provided for the merger of Great State with and into the Bank, with the Bank as the surviving bank (the “Great State merger”). The transaction closed and the merger became effective on July 1, 2018. Each share of Great State common stock was converted into the right to receive 1.21 shares of Parkway common stock. The Company issued 1,191,899 shares and recognized $15.5 million in surplus in the Great State merger. Parkway was considered the acquiror and Great State was considered the acquiree in the transaction for accounting purposes.

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, Ashe, Burke, Caldwell, Catawba, Cleveland, Watauga, Wilkes, and Yadkin, and the surrounding areas through twenty full-service banking offices and four loan production offices. 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.

For purposes of this quarterly report on Form 10-Q, all information contained herein as of and for periods prior to July 1, 2018 reflects the operations of Parkway prior to the Great State merger. Unless this report otherwise indicates or the context otherwise requires, all references to “Parkway” or the “Company” as of and for periods subsequent to July 1, 2018 refer to the combined company and its subsidiary as a combined entity after the Great State merger, and all references to the “Company” as of and for periods prior to July 1, 2018 are references to Parkway and its subsidiary as a combined entity prior to the Great State merger.

The consolidated financial statements as of September 30, 2019 and for the nine-month and three-month periods ended September 30, 2019 and 2018 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, 2018, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The results of operations for the nine-month and three-month periods ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year.

9

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.

10

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.

11

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.

12

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 U.S. generally accepted accounting principles (“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.

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

13

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 the Bank 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 the Bank and Floyd plans were amended to freeze benefit accruals for all eligible employees prior to the effective date of the Cardinal merger. The Bank’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.

Goodwill and Other Intangible Assets

Goodwill arises from business combinations and is generally determined as the excess of fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquire, over the fair value of the nets assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently in events and circumstances exists that indicate that a goodwill impairment test should be performed.  The Company has selected July 1 as the date to perform the annual impairment test.  The annual impairment test was performed for July 1, 2019, with no impairment found on the goodwill.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.  Goodwill is the only intangible asset with an indefinite life on our balance sheet.

Other intangible assets consist of core deposit intangibles that 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.  The core deposit intangible as a result of the Cardinal merger, is amortized over an estimated useful life of twenty years on an accelerated basis.  For the core deposit intangible as a result of the Great State merger, we used an estimated useful life of seven years on an accelerated basis for the amortization.

14

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

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.

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.

15

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:

	Unrealized Gains
	And (Losses)
(dollars in thousands)	On Available for			Defined Benefit
	Sale Securities			Pension Items			Total
Balance, December 31, 2017	$	(523	)	$	(987	)	$	(1,510	)
Other comprehensive loss before reclassifications		(842	)		-			(842	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		(4	)		-			(4	)
Balance September 30, 2018	$	(1,369	)	$	(987	)	$	(2,356	)
Balance, December 31, 2018	$	(929	)	$	(1,038	)	$	(1,967	)
Other comprehensive gain before reclassifications		1,093			-			1,093
Amounts reclassified from accumulated other comprehensive gain, net of tax		(35	)		-			(35	)
Balance September 30, 2019	$	129		$	(1,038	)	$	(909	)

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 9. 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.

16

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 were effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Effective January 1, 2019, we adopted 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 performed an evaluation of our leasing contracts and activities. We have developed our methodology to estimate the right-of use assets and lease liabilities, which is based on the present value of lease payments.  At September 30, 2019 future minimum lease payments were approximately $681 thousand.  Based on our evaluation the adoption of the guidance was immaterial to our financial position, results of operations, and cash flows.  There will not be a material change to the timing of expense recognition.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13 to change the accounting for credit losses and modify the impairment model for certain debt securities. 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. We are currently 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 July 2019, the FASB proposed changes to the effective date of the ASU for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The proposal would delay the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods.  As the Company is a smaller reporting company, the proposed delay would be applicable to the Company, if it is approved by the FASB.  On October 16, 2019 the proposed changes were approved by the FASB.

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.

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, continued

In July 2018, the FASB amended the Leases Topic of the Accounting Standards Codification to give entities another option for transition and to provide lessors with a practical expedient.  The amendments were effective for the Company for reporting periods beginning after December 15, 2018 and did not have a material effect on its financial statements.

In August 2018, the FASB amended the Intangibles—Goodwill and Other Topic of the Accounting Standards Codification to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.  The amendments will be effective for the Company for fiscal years beginning after December 15, 2019.  Early adoption is permitted.  The Company does not expect these amendments to have a material effect on its financial statements.

In August 2018, the FASB amended the Fair Value Measurement Topic of the Accounting Standards Codification.  The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements.  The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early adoption is permitted.  An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date.  The Company does not expect these amendments to have a material effect on its financial statements.

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 March 2019, the FASB issued guidance to address concerns companies had raised about an accounting exception they would lose when assessing the fair value of underlying assets under the leases standard and clarify that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new standard. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In April 2019, the FASB issued guidance that clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the Company for reporting periods beginning after December 15, 2019. The amendments related to hedging will be effective for the Company for annual periods beginning after December 15, 2019, and interim periods within annual reporting periods beginning after December 15, 2020. The amendments related to recognition and measurement of financial instruments will be effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2019, the FASB issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company does not expect these amendments to have a material effect on its financial statements.

In July 2019, the FASB updated various Topics of the Accounting Standards Codification to align the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. 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.

Note 2.  Business Combinations

On July 1, 2018, Parkway completed its merger with Great State as discussed above in Note 1.  Parkway is considered the acquiring entity in this business combination for accounting purposes.  Under the terms of the merger agreement, each share of Great State common stock was converted to 1.21 shares of common stock of Parkway which resulted in the issuance of 1,191,899 shares of Parkway stock in the merger.  The Company engaged a third party to calculate fair values of all assets and liabilities acquired in the transaction.  These valuations are not final and may be refined for up to one year following the merger date.

19

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 2.  Business Combinations, continued

The following table presents the Great State assets acquired and liabilities assumed as of July 1, 2018 as well as the related fair value adjustments and determination of goodwill.

(dollars in thousands)	As Reported by			Fair Value					As Reported by
	Great State			Adjustments					Parkway
Assets
Cash and cash equivalents	$	25,761		$	-			-	$	25,761
Investment securities		19,630			(229	)	(a)			19,401
Restricted equity securities		523			-			-		523
Loans		97,549			(2,441	)	(b)			95,108
Allowance for loan losses		(1,436	)		1,436		(c)			-
Property and equipment		1,207			189		(d)			1,396
Intangible assets		-			2,425		(e)			2,425
Accrued interest receivable		334			-			-		334
Other assets		599			(151	)	(f)			448
Total assets acquired	$	144,167		$	1,229				$	145,396
Liabilities
Deposits	$	129,611		$	940		(g)		$	130,551
Borrowings		2,000			-			-		2,000
Accrued interest payable		40			-			-		40
Other liabilities		352			17		(h)			369
Total liabilities acquired	$	132,003		$	957				$	132,960
Net assets acquired										12,436
Elimination of Company’s existing investment in Great State										198
Stock consideration										15,495
Goodwill									$	3,257

Explanation of fair value adjustments:

(a) Reflects the opening fair value of securities portfolio, which was established as the new book basis of the portfolio.

(b) Reflects the fair value adjustment based on the Company’s third party valuation report.   

(c) Existing allowance for loan losses eliminated to reflect accounting guidance.

(d) Estimated adjustment to Great State’s real property based upon third-party appraisals and the Company’s evaluation of equipment and other fixed assets.

(e) Reflects the recording of the estimated core deposit intangible based on the Company’s third party valuation report.

(f) Recording of deferred tax asset generated by the net fair value adjustments (tax rate = 21%).

(g) Estimated fair value adjustment to time deposits based on the Company’s third party valuation report on deposits assumed.

(h) Reflects the fair value adjustment based on the Company’s evaluation of acquired other liabilities.

The merger was accounted for under the acquisition method of accounting.  The assets and liabilities of Great State have been recorded at their estimated fair values and added to those of Parkway for periods following the merger date.  Valuations of acquired Great State assets and liabilities may be refined for up to one year following the merger date.

20

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 2.  Business Combinations, continued

There are two methods to account for acquired loans as part of a business combination.  Acquired loans that contain evidence of credit deterioration on the date of purchase are carried at the net present value of expected future proceeds in accordance with FASB ASC 310-30.  All other acquired loans are recorded at their initial fair value, adjusted for subsequent advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-offs and any other adjustment to carrying value in accordance with ASC 310-20. 

In determining the fair values of acquired loans without evidence of credit deterioration at the date of acquisition, management includes (i) no carryover of any previously recorded allowance for loan losses and (ii) an adjustment of the unpaid principal balance to reflect an appropriate market rate of interest, given the risk profile and grade assigned to each loan.  This adjustment is then accreted into earnings as a yield adjustment, using the effective yield method, over the remaining life of each loan.

To the extent that current information indicates it is probable that the Company will collect all amounts according to the contractual terms thereof, such loan is not considered impaired and is not considered in the determination of the required allowance for loan losses.  To the extent that current information indicates it is probable that the Company will not be able to collect all amounts according to the contractual terms thereon, such loan is considered impaired and is considered in the determination of the required level of allowance for loan and lease losses.

Subsequent to the acquisition date, increases in cash flows expected to be received in excess of the Company’s initial estimates are reclassified from nonaccretable difference to accretable yield and are accreted into interest income on a level-yield basis over the remaining life of the loan.  Decreases in cash flows expected to be collected are recognized as impairment through the provision for loan losses.

21

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 2.  Business Combinations, continued

Supplemental Pro Forma Information (dollars in thousands except per share data)

The table below presents supplemental pro forma information as if the Great State acquisition had occurred at the beginning of the earliest period presented, which was January 1, 2018.  Pro forma results include adjustments for amortization and accretion of fair value adjustments and do not include any projected cost savings or other anticipated benefits of the merger.  Therefore, the pro forma financial information is not indicative of the results of operations that would have occurred had the transactions been effected on the assumed date.  Pre-tax merger-related costs of $856 thousand and $359 thousand included in the Company’s consolidated statements of operations for the nine months and three months ended September 30, 2018 and are not included in the pro forma statements below.

	Nine Months ended
	September 30,
	2019		2018
	(Unaudited)		(Unaudited)
Net interest income	$	20,566	$	17,393
Net income (a)	$	5,173	$	3,857
Basic and diluted weighted average shares outstanding (b)		6,213,275		6,213,275
Basic and diluted earnings per common share	$	0.83	$	0.62

	Three Months ended
	September 30,
	2019		2018
	(Unaudited)		(Unaudited)
Net interest income	$	6,925	$	6,774
Net income (a)	$	1,953	$	1,593
Basic and diluted weighted average shares outstanding (b)		6,213,275		6,213,275
Basic and diluted earnings per common share	$	0.31	$	0.26

(a) Supplemental pro forma net income includes the impact of certain fair value adjustments.  Supplemental pro forma net income does not include assumptions on cost savings or the impact of merger-related expenses.

(b) Weighted average shares outstanding includes the full effect of the common stock issued in connection with the Great State acquisition as of the earliest reporting date.

22

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 3. 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 September 30, 2019 and December 31, 2018 follow:

(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30, 2019
Available for sale:
U.S. Government Agencies	$	246	$	4	$	-		$	250
Mortgage-backed securities		20,201		89		(50	)		20,240
Corporate securities		1,500		-		(98	)		1,402
State and municipal securities		12,592		218		-			12,810
	$	34,539	$	311	$	(148	)	$	34,702
December 31, 2018
Available for sale:
U.S. Government Agencies	$	244	$	1	$	-		$	245
Mortgage-backed securities		25,627		1		(865	)		24,763
Corporate securities		2,970		-		(181	)		2,789
State and municipal securities		17,764		31		(164	)		17,631
	$	46,605	$	33	$	(1,210	)	$	45,428

Restricted equity securities were $2.4 million and $2.1 million at September 30, 2019 and December 31, 2018, respectively.  Restricted equity securities consist of investments in stock of the Federal Home Loan Bank of Atlanta (“FHLB”), CBB Financial Corp., 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 CBB Financial Corp. and Pacific Coast Bankers Bank is restricted only in the fact that the stock may only be repurchased by the respective banks.

The following table 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 September 30, 2019 and December 31, 2018.

	Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2019
Available for sale:
Mortgage-backed securities	$	11,791	$	(49	)	$	1,011	$	(1	)	$	12,802	$	(50	)
Corporate securities		-		-			1,402		(98	)		1,402		(98	)
State and municipal securities		-		-			-		-			-		-
Total securities available for sale	$	11,791	$	(49	)	$	2,413	$	(99	)	$	14,204	$	(148	)
December 31, 2018
Available for sale:
Mortgage-backed securities	$	450	$	(1	)	$	24,227	$	(864	)	$	24,677	$	(865	)
Corporate securities		-		-			2,789		(181	)		2,789		(181	)
State and municipal securities		5,518		(19	)		6,834		(145	)		12,352		(164	)
Total securities available for sale	$	5,968	$	(20	)	$	33,850	$	(1,190	)	$	39,818	$	(1,210	)

23

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 3. Investment Securities, continued

At September 30, 2019, 13 debt securities with unrealized losses had depreciated 1.03 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 September 30, 2019. 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 $8.9 million and $5.0 million for the nine-month and three-month periods ended September 30, 2019 and 2018, respectively. There were gross realized losses of $14 thousand and $4 thousand in the nine-month periods ended September 30, 2019 and 2018, respectively, that resulted from investment securities being called prior to their scheduled maturity. Gross proceeds from called securities totaled $1.15 million and $50 thousand for the nine-month periods ended September 30, 2019 and 2018, respectively. 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 nine-month and three-month periods ended September 30, 2019 and 2018 are as follows:

	Nine Months Ended September 30						Three Months Ended September 30
(dollars in thousands)	2019			2018			2019			2018
Realized gains	$	88		$	9		$	56		$	-
Realized losses		(43	)		(4	)		(7	)		-
	$	45		$	5		$	49		$	-

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 September 30, 2019, were as follows:

(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	513	$	515
Due after one year through five years		8,468		8,525
Due after five years through ten years		14,284		14,344
Due after ten years		11,274		11,318
	$	34,539	$	34,702

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 $14.4 million and $13.9 million at September 30, 2019 and December 31, 2018, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

24

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 4. Loans Receivable

The major components of loans in the consolidated balance sheets at September 30, 2019 and December 31, 2018 are as follows:

(dollars in thousands)	2019			2018
Construction & development	$	35,564		$	33,449
Farmland		34,953			33,291
Residential		251,091			235,689
Commercial mortgage		187,549			176,192
Commercial & agricultural		33,064			37,491
Consumer & other		19,989			20,353
Total loans		562,210			536,465
Allowance for loan losses		(3,972	)		(3,495	)
Loans, net of allowance for loan losses	$	558,238		$	532,970

As of September 30, 2019 and December 31, 2018, 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 5. 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 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.

25

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. 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 September 30, 2019 and December 31, 2018:

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 September 30, 2019
Allowance for loan losses:
Balance, June 30, 2019	$	285		$	540		$	1,730		$	852		$	292		$	119		$	3,818
Charge-offs		-			-			-			-			(14	)		(59	)		(73	)
Recoveries		-			-			-			41			2			33			76
Provision		13			(9	)		92			16			(10	)		49			151
Balance, September 30, 2019	$	298		$	531		$	1,822		$	909		$	270		$	142		$	3,972
For the Three Months Ended September 30, 2018
Allowance for loan losses:
Balance, June 30, 2018	$	256		$	339		$	1,695		$	619		$	283		$	89		$	3,281
Charge-offs		-			-			-			-			-			(30	)		(30	)
Recoveries		-			-			20			48			2			10			80
Provision		(2	)		(3	)		71			9			2			36			113
Balance, September 30, 2018	$	254		$	336		$	1,786		$	676		$	287		$	105		$	3,444
For the Nine Months Ended September 30, 2019
Allowance for loan losses:
Balance, December 31, 2018	$	246		$	385		$	1,807		$	682		$	281		$	94		$	3,495
Charge-offs		-			(14	)		(32	)		(41	)		(77	)		(154	)		(318	)
Recoveries		-			-			8			69			6			47			130
Provision		52			160			39			199			60			155			665
Balance, September 30, 2019	$	298		$	531		$	1,822		$	909		$	270		$	142		$	3,972
For the Nine Months Ended September 30, 2018
Allowance for loan losses:
Balance, December 31, 2017	$	239		$	358		$	1,875		$	619		$	282		$	80		$	3,453
Charge-offs		(20	)		-			(117	)		(142	)		-			(139	)		(418	)
Recoveries		-			34			39			48			6			24			151
Provision		35			(56	)		(11	)		151			(1	)		140			258
Balance, September 30, 2018	$	254		$	336		$	1,786		$	676		$	287		$	105		$	3,444
September 30, 2019
Allowance for loan losses:
Ending Balance	$	298		$	531		$	1,822		$	909		$	270		$	142		$	3,972
Ending balance: individually evaluated for impairment	$	-		$	36		$	-		$	-		$	-		$	-		$	36
Ending balance: collectively evaluated for impairment	$	298		$	495		$	1,822		$	909		$	270		$	142		$	3,936
Ending balance: purchased credit impaired loans	$	-		$	-		$	-		$	-		$	-		$	-		$	-
Loans outstanding:
Ending Balance	$	35,564		$	34,953		$	251,091		$	187,549		$	33,064		$	19,989		$	562,210
Ending balance: individually evaluated for impairment	$	-		$	4,113		$	915		$	-		$	-		$	-		$	5,028
Ending balance: collectively evaluated for impairment	$	35,564		$	30,840		$	250,023		$	187,220		$	32,868		$	19,989		$	556,504
Ending balance: purchased credit impaired loans	$	-		$	-		$	153		$	329		$	196		$	-		$	678

26

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Loan Losses and Impaired Loans, continued

Allowance for Loan Losses, continued

Allowance for Loan Losses and Recorded Investment in Loans

(dollars in thousands)	Construction & Development		Farmland		Residential		Commercial Mortgage		Commercial & Agricultural		Consumer & Other		Total
December 31, 2018
Allowance for loan losses:
Ending Balance	$	246	$	385	$	1,807	$	682	$	281	$	94	$	3,495
Ending balance: individually evaluated for impairment	$	-	$	29	$	12	$	-	$	-	$	-	$	41
Ending balance: collectively evaluated for impairment	$	246	$	356	$	1,795	$	682	$	281	$	94	$	3,454
Ending balance: purchased credit impaired loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans outstanding:
Ending Balance	$	33,449	$	33,291	$	235,689	$	176,192	$	37,491	$	20,353	$	536,465
Ending balance: individually evaluated for impairment	$	-	$	4,552	$	1,018	$	-	$	-	$	-	$	5,570
Ending balance: collectively evaluated for impairment	$	33,449	$	28,739	$	234,504	$	175,845	$	37,291	$	20,353	$	530,181
Ending balance: purchased credit impaired loans	$	-	$	-	$	167	$	347	$	200	$	-	$	714

As of September 30, 2019 and December 31, 2018, the Bank had no unallocated reserves included in the allowance for loan losses.

Management closely monitors the quality of the loan portfolio and has established a loan review process designed to help grade the quality of the Bank’s loan portfolio. The Bank’s loan ratings coincide with the “Substandard,” “Doubtful” and “Loss” classifications used by federal regulators in their examination of financial institutions. Generally, an asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. Substandard assets include those characterized by the distinct possibility that the insured financial institution will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in assets classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Assets classified as Loss are those considered uncollectible, and of such little value that its continuance on the books is not warranted. Assets that do not currently expose the insured financial institutions to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated “Special Mention.” Management also maintains a listing of loans designated “Watch”. These loans represent borrowers with declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average risk. As of September 30, 2019 and December 31, 2018, respectively, the Bank had no loans graded “Doubtful” or “Loss” included in the balance of total loans outstanding.

27

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Loan Losses and Impaired Loans, continued

Allowance for Loan Losses, continued

The following table lists the loan grades utilized by the Bank and the corresponding total of outstanding loans in each category as of September 30, 2019 and December 31, 2018:

Credit Risk Profile by Internally Assigned Grades

	Loan Grades
(dollars in thousands)	Pass		Watch		Special Mention		Substandard		Total
September 30, 2019
Real Estate Secured:
Construction & development	$	32,220	$	3,180	$	-	$	164	$	35,564
Farmland		23,843		4,374		177		6,559		34,953
Residential		228,940		19,636		999		1,516		251,091
Commercial mortgage		158,753		23,195		1,217		4,384		187,549
Non-Real Estate Secured:
Commercial & agricultural		28,968		3,169		118		809		33,064
Consumer & other		19,684		305		-		-		19,989
Total	$	492,408	$	53,859	$	2,511	$	13,432	$	562,210
December 31, 2018
Real Estate Secured:
Construction & development	$	31,237	$	2,044	$	147	$	21	$	33,449
Farmland		23,250		4,933		750		4,358		33,291
Residential		213,670		18,794		299		2,926		235,689
Commercial mortgage		148,179		23,468		1,212		3,333		176,192
Non-Real Estate Secured:
Commercial & agricultural		33,537		2,908		70		976		37,491
Consumer & other		18,975		1,364		-		14		20,353
Total	$	468,848	$	53,511	$	2,478	$	11,628	$	536,465

28

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Loan Losses and Impaired Loans, continued

Loans may be placed in nonaccrual status 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. Loans are removed from nonaccrual status when they are deemed a loss and charged to the allowance, transferred to foreclosed assets, or returned to accrual status based upon performance consistent with the original terms of the loan or a subsequent restructuring thereof.

The following table presents an age analysis of nonaccrual and past due loans by category as of September 30, 2019 and December 31, 2018:

Analysis of Past Due and Nonaccrual Loans

					90 Days								90+ Days Past Due
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		or More Past Due		Total Past Due		Current		Total Loans		and Still Accruing		Nonaccrual Loans
September 30, 2019
Real Estate Secured:
Construction & development	$	2	$	-	$	10	$	12	$	35,552	$	35,564	$	-	$	10
Farmland		-		-		1,303		1,303		33,650		34,953		-		3,993
Residential		384		49		355		788		250,303		251,091		-		366
Commercial mortgage		116		-		-		116		187,433		187,549		-		202
Non-Real Estate Secured:
Commercial & agricultural		52		-		241		293		32,771		33,064		-		245
Consumer & other		8		2		-		10		19,979		19,989		-		-
Total	$	562	$	51	$	1,909	$	2,522	$	559,688	$	562,210	$	-	$	4,816
December 31, 2018
Real Estate Secured:
Construction & development	$	29	$	-	$	-	$	29	$	33,420	$	33,449	$	-	$	-
Farmland		71		100		989		1,160		32,131		33,291		-		3,914
Residential		762		145		241		1,148		234,541		235,689		-		653
Commercial mortgage		-		-		604		604		175,588		176,192		-		740
Non-Real Estate Secured:
Commercial & agricultural		7		-		264		271		37,220		37,491		-		264
Consumer & other		12		18		8		38		20,315		20,353		-		8
Total	$	881	$	263	$	2,106	$	3,250	$	533,215	$	536,465	$	-	$	5,579

Impaired Loans

A loan is considered impaired when it is probable that the Bank will be unable to collect all contractual principal and interest payments due in accordance with the original or modified terms of the loan agreement. Smaller balance homogenous loans may be collectively evaluated for impairment. Non-homogenous impaired loans are either measured based on the estimated fair value of the collateral less estimated cost to sell if the loan is considered collateral dependent, or measured based on the present value of expected future cash flows if not collateral dependent. The valuation of real estate collateral is subjective in nature and may be adjusted in future periods because of changes in economic conditions. Management considers third-party appraisals, as well as independent fair market value assessments in determining the estimated fair value of particular properties. In addition, as certain of these third-party appraisals and independent fair market value assessments are only updated periodically, changes in the values of specific properties may have occurred subsequent to the most recent appraisals. Accordingly, the amounts of any such potential changes and any related adjustments are generally recorded at the time such information is received. When the measurement of the impaired loan is less than the recorded investment in the loan, impairment is recognized by creating or adjusting an allocation of the allowance for loan losses and uncollected accrued interest is reversed against interest income. If ultimate collection of the principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance.

29

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Loan Losses and Impaired Loans, continued

Impaired Loans, continued

As of September 30, 2019 and December 31, 2018, respectively, the recorded investment in impaired loans totaled $9.4 million and $10.3 million. The total amount of collateral-dependent impaired loans at September 30, 2019 and December 31, 2018, respectively, was $2.6 million and $2.8 million. As of September 30, 2019 and December 31, 2018, respectively, $2.9 million and $3.4 million of the recorded investment in impaired loans did not have a related allowance. The Bank had $6.9 million and $7.3 million in TDR loans included in impaired loans at September 30, 2019 and December 31, 2018, respectively.

The categories of non-accrual loans and impaired loans overlap, although they are not coextensive. The Bank considers all circumstances regarding the loan and borrower on an individual basis when determining whether an impaired loan should be placed on non-accrual status, such as the financial strength of the borrower, the estimated collateral value, reasons for the delay, payment record, the amount past due and the number of days past due.

In 2015, management began collectively evaluating performing TDRs with a loan balance of $250,000 or less for impairment. As of September 30, 2019 and December 31, 2018, respectively, $4.3 million and $4.7 million of TDRs included in the following table were evaluated collectively for impairment and were deemed to have $224 thousand and $259 thousand of related allowance.

The following table is a summary of information related to impaired loans as of September 30, 2019 and December 31, 2018:

Impaired Loans

							Nine months ended				Three months ended
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
(dollars in thousands)	Investment1		Balance		Allowance		Investment		Recognized		Investment		Recognized
September 30, 2019
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Farmland		2,882		2,882		-		3,017		14		2,952		5
Residential		-		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-		-
Subtotal		2,882		2,882		-		3,017		14		2,952		5
With an allowance recorded:
Construction & development		74		74		4		77		4		75		1
Farmland		1,540		1,540		46		1,558		53		1,547		17
Residential		4,716		4,866		198		5,099		197		4,804		62
Commercial mortgage		193		237		10		270		9		194		3
Commercial & agricultural		33		33		2		35		2		34		1
Consumer & other		3		3		-		4		-		3		-
Subtotal		6,559		6,753		260		7,043		265		6,657		84
Totals:
Construction & development		74		74		4		77		4		75		1
Farmland		4,422		4,422		46		4,575		67		4,499		22
Residential		4,716		4,866		198		5,099		197		4,804		62
Commercial mortgage		193		237		10		270		9		194		3
Commercial & agricultural		33		33		2		35		2		34		1
Consumer & other		3		3		-		4		-		3		-
Total	$	9,441	$	9,635	$	260	$	10,060	$	279	$	9,609	$	89

¹ Recorded investment is the loan balance, net of any charge-offs

30

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Loan Losses and Impaired Loans, continued

Impaired Loans, continued

(dollars in thousands)	Recorded Investment1		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2018
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-
Farmland		3,284		3,284		-		3,523		23
Residential		85		85		-		448		13
Commercial mortgage		-		-		-		-		-
Commercial & agricultural		-		24		-		-		-
Consumer & other		-		-		-		-		-
Subtotal		3,369		3,393		-		3,971		36
With an allowance recorded:
Construction & development		69		69		4		306		11
Farmland		1,539		1,539		38		1,568		86
Residential		5,005		5,162		241		5,348		266
Commercial mortgage		275		358		15		522		27
Commercial & agricultural		37		37		2		47		3
Consumer & other		4		4		-		4		-
Subtotal		6,929		7,169		300		7,795		393
Totals:
Construction & development		69		69		4		306		11
Farmland		4,823		4,823		38		5,091		109
Residential		5,090		5,247		241		5,796		279
Commercial mortgage		275		358		15		522		27
Commercial & agricultural		37		61		2		47		3
Consumer & other		4		4		-		4		-
Total	$	10,298	$	10,562	$	300	$	11,766	$	429

¹ Recorded investment is the loan balance, net of any charge-offs

Troubled Debt Restructuring

A TDR loan is a loan for which the Bank, for reasons related to the borrower’s financial difficulties, grants a concession to the borrower that the Bank would not otherwise consider.

The loan terms which have been modified or restructured due to a borrower’s financial difficulty, include but are not limited to: a reduction in the stated interest rate; an extension of the maturity at an interest rate below current market; a reduction in the face amount of the debt; a reduction in the accrued interest; or re-aging, extensions, deferrals and renewals. TDR loans are considered impaired loans.

31

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Loan Losses and Impaired Loans, continued

Troubled Debt Restructuring, continued

The following table sets forth information with respect to the Bank’s TDRs as of September 30, 2019 and September 30, 2018:

For the Nine Months Ended September 30, 2019

(dollars in thousands)	TDRs identified during the period						TDRs identified in the last twelve months that subsequently defaulted(1)
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction & development		1	$	9	$	11		-	$	-	$	-
Farmland		1		38		37		-		-		-
Residential		1		117		128		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		3	$	164	$	176		-	$	-	$	-

⁽¹⁾ Loans past due 30 days or more are considered to be in default.

During the nine months ended September 30, 2019, three loans were modified that were considered to be a TDRs. Term concessions were granted on all the loans and two loans had additional funds advanced for legal expenses and property taxes. No TDRs identified in the last twelve months subsequently defaulted in the nine months ended September 30, 2019.

For the Three Months Ended September 30, 2019

(dollars in thousands)	TDRs identified during the period						TDRs identified in the last twelve months that subsequently defaulted(1)
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction & development		1	$	9	$	11		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		1	$	9	$	11		-	$	-	$	-

⁽¹⁾ Loans past due 30 days or more are considered to be in default.

During the three months ended September 30, 2019, one loan was modified that was considered to be a TDR. Term concessions were granted on this loan and additional funds advance for legal expenses and property taxes. No TDRs identified in the last twelve months subsequently defaulted in the quarter ended September 30, 2019.

32

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Loan Losses and Impaired Loans, continued

Troubled Debt Restructuring, continued

For the Nine Months Ended September 30, 2018

(dollars in thousands)	TDRs identified during the period						TDRs identified in the last twelve months that subsequently defaulted(1)
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction & development		-	$	-	$	-		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		2		80		95		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		2	$	80	$	95		-	$	-	$	-

⁽¹⁾ Loans past due 30 days or more are considered to be in default.

During the nine months ended September 30, 2018, two loans were modified that were considered to be TDRs. Term concessions were granted and additional funds were advanced for legal expenses and property taxes. No TDRs identified in the last twelve months subsequently defaulted in the nine months ended September 30, 2018.

During the three months ended September 30, 2018, no loans were modified that were considered to be TDRs. No TDRs identified in the last twelve months subsequently defaulted in the quarter ended September 30, 2018.

33

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Allowance for Loan Losses and Impaired Loans, continued

Purchased Credit Impaired Loans

During 2018, the Company acquired loans as a result of the Great State merger, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans at September 30, 2019 and December 31, 2018 are as follows:

(dollars in thousands)	2019		2018
Residential	$	153	$	167
Commercial mortgage		329		347
Commercial & agricultural		196		200
Outstanding balance	$	678	$	714
Carrying amount	$	678	$	714

There was no accretable yield on purchased credit impaired loans for the period presented.

There were no purchased credit impaired loans acquired during the nine months ended September 30, 2019. Purchased credit impaired loans acquired during the year ended December 31, 2018 for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

	December 31,
(dollars in thousands)	2018
Contractually required payments receivable of loans purchased during the year:
Residential	$	233
Commercial mortgage		1,724
Commercial & agricultural		221
	$	2,178
Cash flows expected to be collected at acquisition	$	1,781
Fair value of acquired loans at acquisition	$	1,781

Income is not recognized on purchased credit impaired loans if the Company cannot reasonably estimate cash flows expected to be collected. The carrying amounts of such loans as of September 30, 2019 and December 31, 2018 are as follows:

	September 30,		December 31,
(dollars in thousands)	2019		2018
Loans at beginning of year	$	714	$	-
Loans purchased during the year	$	-	$	1,781
Loans at end of period	$	678	$	714

34

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 6. Employee Benefit Plan

The Bank has a qualified noncontributory defined benefit pension plan that covers substantially all of its employees. Effective December 31, 2012, the pension plan was amended to freeze benefit accruals for all eligible employees. The following is a summary of net periodic pension costs for the nine-month and three-month periods ended September 30, 2019 and 2018.

	Nine Months Ended September 30,						Three Months Ended September 30,
(dollars in thousands)	2019			2018			2019			2018
Service cost	$	-		$	-		$	-		$	-
Interest cost		138			129			46			43
Expected return on plan assets		(414	)		(432	)		(138	)		(144	)
Amortization of prior service cost		-			-			-			-
Recognized net loss due to settlement		36			-			36			-
Recognized net actuarial (gain)/loss		30			24			10			8
Net periodic benefit cost	$	(210	)	$	(279	)	$	(46	)	$	(93	)

It has been Company practice to contribute the maximum tax-deductible amount each year as determined by the plan administrator. As a result of prior year contributions exceeding the minimum requirements, a Prefunding Balance existed as of December 31, 2018 and there is no required contribution for 2019. Based on this we do not anticipate making a contribution to the plan in 2019.

Note 7. Goodwill and Intangible Assets

Goodwill

The change in goodwill during the nine-month period ended September 30, 2019 and for the year ended December 31, 2018 is as follows:

	September 30,		December 31,
(dollars in thousands)	2019		2018
Beginning of year	$	3,198	$	-
Acquired goodwill as result of Great State merger		-		3,198
Measurement period adjustment		59		-
Impairment		-		-
End of the period	$	3,257	$	3,198

Intangible Assets

The following table presents the activity for the Company’s core deposit intangible assets, which are the only identifiable intangible assets subject to amortization. Core deposit intangibles at September 30, 2019 and December 31, 2018 are as follows:

	September 30,			December 31,
(dollars in thousands)	2019			2018
Balance at beginning of year, net	$	3,892		$	2,045
Core deposit intangible as result of Great State merger		-			2,425
Amortization expense		(630	)		(578	)
Net book value	$	3,262		$	3,892

Aggregate amortization expense was $630 thousand and $359 thousand for the nine-month periods ended September 30, 2019 and 2018, respectively. Aggregate amortization expense was $193 thousand and $219 thousand for the three-month periods ended September 30, 2019 and 2018, respectively.

35

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 8. Commitments and Contingencies

Litigation

In the normal course of business the Bank is involved in various legal proceedings. After consultation with legal counsel, management believes that any liability resulting from such proceedings will not be material to the consolidated financial statements.

Financial Instruments with Off-Balance Sheet Risk

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the consolidated balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments. A summary of the Bank’s commitments at September 30, 2019 and December 31, 2018 is as follows:

	September 30,		December 31,
(dollars in thousands)	2019		2018
Commitments to extend credit	$	89,251	$	76,977
Standby letters of credit		1,163		1,227
	$	90,414	$	78,204

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Bank deems necessary.

Concentrations of Credit Risk

Substantially all of the Bank’s loans, commitments to extend credit, and standby letters of credit have been granted to customers in the Bank’s market area and such customers are generally depositors of the Bank. Investments in state and municipal securities involve governmental entities within and outside the Bank’s market area. The concentrations of credit by type of loan are set forth in Note 3. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit are granted primarily to commercial borrowers. The Bank’s primary focus is toward small business and consumer transactions, and accordingly, it does not have a significant number of credits to any single borrower or group of related borrowers in excess of $5,000,000. The Bank has cash and cash equivalents on deposit with financial institutions which exceed federally insured limits.

36

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 9. Financial Instruments

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments not recorded at fair value on a recurring basis as of September 30, 2019 and December 31, 2018. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For non-marketable equity securities such as Federal Home Loan Bank and Federal Reserve Bank stock, the carrying amount is a reasonable estimate of the fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government supported institution or to another member institution. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

For loans, the carrying amount is net of unearned income and the allowance for loan losses. In accordance with the prospective adoption of ASU No. 2016-01, the fair value of loans as of September 30, 2019 and December 31, 2018 was measured using an exit price notion.

					Fair Value Measurements
(dollars in thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2019
Financial Instruments – Assets
Net Loans	$	558,238	$	548,269	$	-	$	548,066	$	203
Financial Instruments – Liabilities
Time Deposits		190,166		190,241		-		190,241		-
FHLB Advances		10,000		9,973		9,973		-		-
December 31, 2018
Financial Instruments – Assets
Net Loans	$	532,970	$	529,155	$	-	$	528,784	$	371
Financial Instruments – Liabilities
Time Deposits		180,143		176,188		-		176,188		-

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans or foreclosed assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

37

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 9. Financial Instruments, continued

Fair Value Hierarchy

Under FASB ASC 820, “Fair Value Measurements and Disclosures”, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include the use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available for Sale

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. If a loan is identified as individually impaired, management measures impairment in accordance with applicable accounting guidance. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2019, a small percentage of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with accounting standards, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price the Company records the impaired loan as nonrecurring Level 2. When the fair value is based on either an external or internal appraisal and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

38

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 9. Financial Instruments, continued

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price the Company records the foreclosed asset as nonrecurring Level 2. When the fair value of the collateral is based on either an external or internal appraisal and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

Assets Recorded at Fair Value on a Recurring Basis

(dollars in thousands)	Total		Level 1		Level 2		Level 3
September 30, 2019
Investment securities available for sale
U.S. Government Agencies	$	250	$	-	$	250	$	-
Mortgage-backed securities		20,240		-		20,240		-
Corporate securities		1,402		-		1,402		-
State and municipal securities		12,810		-		12,810		-
Total assets at fair value	$	34,702	$	-	$	34,702	$	-
December 31, 2018
Investment securities available for sale
U.S. Government Agencies	$	245	$	-	$	245	$	-
Mortgage-backed securities		24,763		-		24,763		-
Corporate securities		2,789		-		2,789		-
State and municipal securities		17,631		-		17,631		-
Total assets at fair value	$	45,428	$	-	$	45,428	$	-

No liabilities were recorded at fair value on a recurring basis as of September 30, 2019 and December 31, 2018. There were no significant transfers between levels during the nine and three month periods ended September 30, 2019 and the year ended December 31, 2018.

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets and liabilities that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. No liabilities were recorded at fair value on a nonrecurring basis at September 30, 2019 and December 31, 2018. Assets measured at fair value on a nonrecurring basis are included in the table below.

(dollars in thousands)	Total		Level 1		Level 2		Level 3
September 30, 2019
Impaired loans	$	203	$	-	$	-	$	203
Foreclosed assets		-		-		-		-
Total assets at fair value	$	203	$	-	$	-	$	203

(dollars in thousands)	Total		Level 1		Level 2		Level 3
December 31, 2018
Impaired loans	$	371	$	-	$	-	$	371
Foreclosed assets		753		-		-		753
Total assets at fair value	$	1,124	$	-	$	-	$	1,124

39

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 9. Financial Instruments, continued

Assets Recorded at Fair Value on a Nonrecurring Basis

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of September 30, 2019 and December 31, 2018, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair Value at September 30, 2019		Fair Value at December 31, 2018		Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Impaired Loans	$	203	$	371	Appraised Value/Discounted Cash Flows/Market Value of Note	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell	0	–	10%
Other Real Estate Owned	$	-	$	753	Appraised Value/Comparable Sales/Other Estimates from Independent Sources	Discounts to reflect current market conditions and estimated costs to sell	0	–	10%

Note 10.  Borrowings

At December 31, 2018, the Bank had no debt outstanding classified as short-term or long-term.

At September 30, 2019, the Bank had established unsecured federal funds lines from correspondent banks totaling $52.5 million to provide additional liquidity if, and as needed.  The Bank had no balances outstanding on these lines as of September 30, 2019 and December 31, 2018, respectively.  In addition, the Bank has the ability to borrow up to approximately $160.0 million from the FHLB, subject to the pledging of collateral.     

At September 30, 2019, the Bank’s long-term debt consisted of a $10.0 million advance from FHLB.  The advance, which is secured by substantially all the Bank’s 1-4 family loans, is scheduled to mature on September 6, 2029.  Interest on the advance was fixed at 0.435 percent and the advance is convertible by FHLB to a variable rate quarterly beginning on December 6, 2019.  The Bank has the option to repay the advance amount in whole or in part on the conversion date.  

40

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 11. Capital Requirements

The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board’s Small Bank Holding Company Policy Statement, and is not obligated to report consolidated regulatory capital. The Bank’s actual capital amounts and ratios are presented in the following table as of September 30, 2019 and December 31, 2018, respectively.  These ratios comply with Federal Reserve rules to align with the Basel III Capital requirements effective January 1, 2015.

	Actual					For Capital Adequacy Purposes					To Be Well- Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2019
Total Capital (to risk weighted assets)	$	76,739		13.45	%	$	45,633		8.00	%	$	57,041		10.00	%
Tier 1 Capital (to risk weighted assets)	$	72,737		12.75	%	$	34,224		6.00	%	$	45,633		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	72,737		12.75	%	$	25,668		4.50	%	$	37,077		6.50	%
Tier 1 Capital (to average total assets)	$	72,737		10.80	%	$	26,928		4.00	%	$	33,660		5.00	%
December 31, 2018
Total Capital (to risk weighted assets)	$	71,424		13.00	%	$	43,943		8.00	%	$	54,929		10.00	%
Tier 1 Capital (to risk weighted assets)	$	67,899		12.36	%	$	32,958		6.00	%	$	43,943		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	67,899		12.36	%	$	24,718		4.50	%	$	35,704		6.50	%
Tier 1 Capital (to average total assets)	$	67,899		10.08	%	$	26,932		4.00	%	$	33,664		5.00	%

41

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Under Basel III Capital requirements, a capital conservation buffer of 0.625% became effective beginning on January 1, 2016.  The capital conservation buffer was gradually increased through January 1, 2019 to 2.50%.  Banks are now required to maintain levels that meet the required minimum plus the capital conservation buffer in order to make distributions, such as dividends, or discretionary bonus payments.  The Banks’s capital conservation buffer is 5.45% as of September 30, 2019.

Note 12. Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has evaluated events occurring subsequent to the balance sheet date through the date these financial statements were issued, determining no events require additional disclosure in these consolidated financial statements.

42

Part I.  Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion provides information about the major components of the results of operations and financial condition of the Company. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Critical Accounting Policies

For a discussion of the Company’s critical accounting policies, including its allowance for loan losses, see Note 1 in the Notes to Consolidated Financial Statements above, or the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Results of Operations

Results of Operations for the Three Months ended September 30, 2019 and 2018

Parkway recorded net income of $2.0 million, or $0.33 per share for the quarter ended September 30, 2019 compared to net income of $1.7 million, or $0.28 per share for the same period in 2018.  Income tax expense totaled $511 thousand for the third quarter of 2019 compared to $420 thousand for the third quarter of 2018.  Net income before income taxes totaled $2.5 million or $0.41 per share for the quarter ended September 30, 2019 compared to $2.1 million or $0.34 per share for the same period in 2018.  Third quarter earnings represented an annualized return on average assets (“ROAA”) of 1.19% and an annualized return on average equity (“ROAE”) of 10.16% for the quarter ended September 30, 2019, compared to 0.99% and 10.27%, respectively, for the quarter ended September 30, 2018.

Total interest income increased by $307 thousand for the quarter ended September 30, 2019 compared to the quarter ended September 30, 2018, while interest expense on deposits increased by $212 thousand over the same period.  The increase in interest income was attributable to the $388 thousand increase in interest income on loans, primarily as a result of the $24.7 million increase in loans from September 30, 2018 to September 30, 2019. Accretion of purchased loan discounts increased interest income by $430 thousand in the third quarter of 2019 compared to $443 thousand in the third quarter of 2018, representing a decrease of $13 thousand. 

Interest expense on deposits increased by $212 thousand for the quarter ended September 30, 2019 compared to the quarter ended September 30, 2018 due to increases in rates paid on deposits.  Amortization of premiums on acquired time deposits, which reduces interest expense, totaled $90 thousand in the third quarter of 2019, compared to $144 thousand in the third quarter of 2018, representing a decrease of $54 thousand. 

The provision for loan losses was $151 thousand for the quarter ended September 30, 2019, compared to $113 thousand for the quarter ended September 30, 2018. The increase in the provision was due mainly to growth in the Bank’s loan portfolio as total loans increased by $12.4 million in the third quarter of 2019. The reserve for loan losses at September 30, 2019 was approximately 0.71% of total loans, compared to 0.64% at September 30, 2018.

Management’s estimate of probable credit losses inherent in the acquired Great State loan portfolio was reflected as a purchase discount which will continue to be accreted into income over the remaining life of the acquired loans in addition to the previously acquired loan portfolio from the merger with Cardinal. As of September 30, 2019, the remaining unaccreted discount on the acquired loan portfolios totaled $3.6 million. This remaining unaccreted discount can be used for credit losses if a loss occurs on individual loans in the purchased portfolios. When combined with the allowance for loan losses of $4.0 million at September 30, 2019, we have a reserve of approximately 1.35% of total loans, a non-GAAP measure.

43

Part I.  Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations, continued

Results of Operations for the Three Months ended September 30, 2019 and 2018, continued

Total noninterest income was $1.3 million in the third quarter of 2019 compared to $1.2 million in the third quarter of 2018. Deposit account-based service charges and fees increased by $74 thousand due to a change in overdraft fees and increased usage during the quarter. There was $49 thousand in net realized gains on the sale of investment securities during the quarter that did not occur during the same quarter of 2018. These gains helped to offset a decrease of $48 thousand in mortgage origination fees in the quarter to quarter comparison.

Total noninterest expenses decreased by $303 thousand for the quarter ended September 30, 2019 compared to the quarter ended September 30, 2018. Salary and benefit costs increased by $145 thousand due to the increase in full time equivalent employees in the quarter to quarter comparison. Occupancy and equipment expenses increased by $49 thousand and data processing expenses increased by $50 thousand from the third quarter of 2018 to 2019. These increases were offset by a decrease of $359 thousand in merger related expenses as no merger related expenses occurred during the third quarter of 2019. Amortization of core deposit intangibles decreased by $26 thousand in the quarter to quarter comparison. The Bank received $49 thousand of its Small Bank Assessment Credits from the Federal Deposit Insurance Corporation (“FDIC”) during the quarter to offset its second quarter FDIC assessment payable during the third quarter. There remains $123 thousand in credits to reduce future FDIC assessments and therefore no additional expense is expected for the remainder of 2019. As a result, FDIC assessments decreased by $136 thousand in the quarter to quarter comparison due to a reversal of previously accrued assessments of $89 thousand.

Income tax expense increased by $91 thousand for the quarter ended September 30, 2019 compared to the quarter ended September 30, 2018, due mainly to the $410 thousand increase in net income before income taxes.

Results of Operations for the Nine Months ended September 30, 2019 and 2018

For the nine months ended September 30, 2019, total interest income increased by $4.4 million compared to the nine-month period ended September 30, 2018.  This increase was primarily the result of an increase of $4.3 million in interest income on loans due to the addition of $95.1 million in loans from the Great State merger, which was effective July 1, 2018, as well as the loan growth experienced in 2019 as previously discussed.  Accretion of purchased loan discounts increased interest income by $1.3 million in the first nine months of 2019 compared to just $730 thousand in the first nine months of 2018, representing an increase of $621 thousand.  Earnings for the first nine months of 2019 represented an annualized ROAA of 1.07% and an annualized ROAE of 9.33%, compared to 0.85% and 8.08%, respectively, for the first nine months of 2018. 

Interest expense on deposits increased by $744 thousand for the nine-months ended September 30, 2019 compared to the same period last year due to the addition of interest-bearing deposits from the Great State merger. Amortization of premiums on acquired time deposits, which reduces interest expense, totaled $310 thousand in the first nine months of 2019, compared to $197 thousand in the first nine months of 2018, representing an increase of $113 thousand. The increase was due to the Great State merger.

The provision for loan losses for the nine-month period ended September 30, 2019 was $665 thousand, compared to $258 thousand for the nine-month period ended September 30, 2018. The increase in 2019 was due primarily to overall growth in the loan portfolio.

Noninterest income increased by $155 thousand for the first nine months of 2019, compared to the same period in 2018. Deposit account-based service charges and fees increased by $253 thousand due to growth and expansion of fee-based products and a change in overdraft fees. Nonrecurring gains from sale of bank premises and equipment totaled $122 thousand in 2019, and nonrecurring proceeds from life insurance contracts totaled $303 thousand in 2018. Excluding these nonrecurring transactions, noninterest income increased by $336 thousand for the nine-month period ended September 30, 2019, compared to the same period last year.

44

Part I.  Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations, continued

Results of Operations for the Nine Months ended September 30, 2019 and 2018, continued

Total noninterest expenses increased by $1.3 million for the nine-month period ended September 30, 2019, compared to the same period in 2018. Salary and benefit cost increased by $1.3 million due to the increase in full time equivalent employees from September 30, 2018 to September 30, 2019. Occupancy and equipment expenses increased by $232 thousand and data processing expenses increased by $179 thousand from the first nine months of 2018 to 2019, due to the addition of three branch facilities and two loan production offices from the Great State merger. Amortization of core deposit intangibles increased by $271 thousand for the first nine months of 2019, compared to same period in 2018. This increase was offset by a decrease in merger related expenses of $856 thousand as no merger related expenses occurred during 2019. FDIC assessments decreased by $130 thousand due to the Small Bank Assessment Credits received from the FDIC discussed above.

In total, income before taxes increased by $2.1 million over the first nine months of 2019 compared to the first nine months of 2018. Income tax expense increased by $394 thousand over the prior year, resulting in an increase in net income of $1.7 million for the nine months ended September 30, 2019, compared to the same period in 2018.

Financial Condition

Total assets were $695.2 million at September 30, 2019, an increase of $14.9 million from $680.3 million at December 31, 2018.  Cash and cash equivalent balances increased by $1.2 million and investment securities decreased by $10.7 million.  Total deposits increased by $92 thousand.  Federal Home Loan Bank (“FHLB”) advances increased by $10.0 million.  The reduction in investments and the increase in FHLB advances was used to fund total loan growth of $25.7 million.  

Total deposits increased by $92 thousand from December 31, 2018 to September 30, 2019. Noninterest bearing deposits increased by $4.5 million from December 31, 2018 to September 30, 2019, while interest bearing deposits decreased by $4.4 million over the same time period.  Competition for deposits continues to increase in many of our markets; however, our liquidity and borrowing position has continued to allow us to fund our balance sheet without “paying up” for high rate, volatile deposits.  As a result, our net interest margin remains strong at a rate of 4.51% for the quarter ended September 30, 2019. 

Nonperforming assets, including nonaccrual loans, loans past due more than ninety days and foreclosed assets, decreased from $6.3 million at December 31, 2018 to $4.8 million at September 30, 2019.  Foreclosed assets consisted of one property totaling $753 thousand as of December 31, 2018, which was subsequently sold during the first quarter of 2019.  There were no loans past due more than ninety days and still accruing interest at September 30, 2019 or December 31, 2018.

Nonaccrual loans decreased from $5.6 million at December 31, 2018 to $4.8 million at September 30, 2019. Loans are generally placed in nonaccrual status when principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection. The following table summarizes nonperforming assets:

	September 30,			December 31,
(dollars in thousands)	2019			2018
Nonperforming Assets
Nonaccrual loans	$	4,816		$	5,579
Loans past due 90 days or more and still accruing interest		-			-
Total nonperforming loans		4,816			5,579
Foreclosed assets		-			753
Total nonperforming assets	$	4,816		$	6,332
Nonperforming assets to total assets		0.69	%		0.93	%
Nonperforming loans to total loans		0.86	%		1.04	%

45

Part I.  Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Condition, continued

Loans less than 90 days past due may be placed in nonaccrual status if management determines that payment in full of principal or interest is not expected. Loans are removed from nonaccrual status when they are deemed a loss and charged to the allowance, transferred to foreclosed assets, or returned to accrual status based upon performance consistent with the original terms of the loan or a subsequent restructuring thereof. Management continues to closely monitor nonperforming assets and their impact on earnings and loan loss reserves.

At September 30, 2019, the allowance for loan losses included $260 thousand specifically reserved for impaired loans in the amount of $6.6 million.  Based on impairment analysis, loans totaling $2.9 million were also considered to be impaired but did not require a specific reserve or the related reserve had previously been charged-off.  Impaired loans at December 31, 2018 totaled $10.3 million, of which $6.9 million required specific reserves of $300 thousand.

Summary of Loan Loss Experience	Nine			Nine
	months			months			Year
	ended			ended			ended
(dollars in thousands)	September 30,			September 30,			December 31,
	2019			2018			2018
Total loans outstanding at end of period	$	562,210		$	537,459		$	536,465
Allowance for loan losses, beginning of period	$	3,495		$	3,453		$	3,453
Charge offs:
Construction & development		-			(20	)		(20	)
Farmland		(14	)		-			-
Residential		(32	)		(117	)		(117	)
Commercial mortgage		(41	)		(142	)		(142	)
Commercial & agricultural		(77	)		-			(23	)
Consumer & other		(154	)		(139	)		(175	)
Total charge-offs		(318	)		(418	)		(477	)
Recoveries:
Construction & development		-			-			-
Farmland		-			34			34
Residential		8			39			44
Commercial mortgage		69			48			69
Commercial & agricultural		6			6			9
Consumer & other		47			24			38
Total recoveries		130			151			194
Net charge-offs		(188	)		(267	)		(283	)
Provision for allowance		665			258			325
Allowance for loan losses at end of period	$	3,972		$	3,444		$	3,495
Ratios:
Allowance for loan losses to loans at end of period		0.71	%		0.64	%		0.65	%
Net charge-offs to allowance for loan losses		4.73	%		7.75	%		8.10	%
Net charge-offs to provisions for loan losses		28.27	%		103.49	%		87.08	%

Certain types of loans, such as option ARM (adjustable rate mortgage) products, interest-only loans, subprime loans and loans with initial teaser rates, can have a greater risk of non-collection than other loans. The Bank has not offered these types of loans in the past and does not offer them currently. Junior-lien mortgages can also be considered higher risk loans. Our junior-lien portfolio at September 30, 2019 totaled $4.8 million, or 0.86% of total loans. Historical charge-off rates in this category have not varied significantly from other real estate secured loans.

46

Part I.  Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Condition, continued

Stockholders’ equity totaled $79.9 million at September 30, 2019 compared to $75.6 million at December 31, 2018.  The increase of $4.3 million was due to earnings of $5.4 million, plus other comprehensive income of $1.1 million, less the payment of dividends of $1.5 million, less common stock repurchases of $771 thousand.  Book value increased from $12.17 per share at December 31, 2018 to $12.99 per share at September 30, 2019.  The Bank remains well capitalized with Common equity tier 1 capital, Tier 1 risk-based capital, Total risk based capital, and Tier 1 leverage ratios of 12.75%, 12.75%, 13.45%, and 10.80%, respectively, as of September 30, 2019.

Liquidity

Liquidity is the ability to convert assets to cash to fund depositors’ withdrawals or borrowers’ loans without significant loss.  Unsecured federal fund lines available from correspondent banks totaled $52.5 million at September 30, 2019.  The Bank had no balances outstanding on these lines as of September 30, 2019 and December 31, 2018, respectively.  In addition, the Bank has the ability to borrow up to approximately $160.0 million from the FHLB, subject to the pledging of collateral.  The Bank had $10.0 million in FHLB Advances outstanding at September 30, 2019 and none outstanding at December 31, 2018. 

The Bank uses cash and federal funds sold to meet its daily funding needs. If funding needs are met through holdings of excess cash and federal funds, then profits might be sacrificed as higher-yielding investments are foregone in the interest of liquidity. Therefore management determines, based on such items as loan demand and deposit activity, an appropriate level of cash and federal funds and seeks to maintain that level.

The Bank’s investment security portfolio also serves as a source of liquidity. The primary goals of the investment portfolio are liquidity management and maturity gap management. As investment securities mature, the proceeds are reinvested in federal funds sold if the federal funds level needs to be increased; otherwise the proceeds are reinvested in similar investment securities. The majority of investment security transactions consist of replacing securities that have been called or matured. The Bank keeps a portion of its investment portfolio in unpledged assets with average lives or repricing terms of less than 60 months. These investments are a preferred source of funds because their market value is not as sensitive to changes in interest rates as investments with longer durations.

As a result of the steps described above, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.

Capital Resources

A significant measure of the strength of a financial institution is its capital base. Federal regulations have classified and defined capital into the following components: (1) Tier 1 capital, which includes common shareholders’ equity and qualifying preferred equity, and (2) Tier 2 capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt and preferred stock which does not qualify as Tier 1 capital. Financial institutions are also subject to the BASEL III requirements, which includes as part of the capital ratios profile the Common Equity Tier 1 risk-based ratio. Minimum capital levels are regulated by risk-based capital adequacy guidelines, which require a financial institution to maintain capital as a percentage of its assets, and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets).

Regulatory guidelines relating to capital adequacy provide minimum risk-based ratios at the Bank level which assess capital adequacy while encompassing all credit risks, including those related to off-balance sheet activities.  At September 30, 2019, the Bank exceeded minimum regulatory capital requirements and is considered to be “well capitalized” as previously discussed above.

47

Part I.  Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934 as amended. These include statements as to expectations future financial performance and any other statements regarding future results or expectations. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by the use of words such as "believe," "expect," "intend," "anticipate," "estimate," or "project" or similar expressions. Our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the combined company and its subsidiaries include, but are not limited to: changes in interest rates, general economic conditions; the effect of changes in banking, tax and other laws and regulations and interpretations or guidance thereunder; monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality and composition of the loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in the combined company’s market area; the implementation of new technologies; the ability to develop and maintain secure and reliable electronic systems; accounting principles, policies, and guidelines and other factors identified in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or clarify these forward‐looking statements, whether as a result of new information, future events or otherwise.

48

Part I.  Financial Information

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required.

49

Part I.  Financial Information

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

50

Part II.  Other Information

Item 1. Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which Parkway is a party or of which any of its property is subject.

Item 1A. Risk Factors

In connection with the information set forth in this Form 10-Q, the factors discussed under “Risk Factors” in our Form 10-K for the year ended December 31, 2018 should be considered. These risks could materially and adversely affect our business, financial condition and results of operations. There have been no material changes to the factors discussed in our Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None 

Item 6. Exhibits

31.1 Rule 15(d)-14(a) Certification of Chief Executive Officer.

31.2 Rule 15(d)-14(a) Certification of Chief Financial Officer.

32.1 Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

101 The following materials from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Unaudited Consolidated Financial Statements.

51

Part II.  Other Information

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Parkway Acquisition Corp.
Date: November 14, 2019	By:	/s/ Blake M. Edwards
		Blake M. Edwards
		President and Chief Executive Officer
	By:	/s/ Lori C. Vaught
		Lori C. Vaught
		Chief Financial Officer

52

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 15d-14(a)

UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Blake M. Edwards, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Parkway Acquisition Corp. for the period ended September 30, 2019;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2019	By:	/s/ Blake M. Edwards
		Blake M. Edwards
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 15d-14(a)

UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Lori C. Vaught, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Parkway Acquisition Corp. for the period ended September 30, 2019;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2019	By:	/s/ Lori C. Vaught
		Lori C. Vaught
		Chief Financial Officer

EX-32.1

Exhibit 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350

In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2019 (the “Form 10-Q”) of Parkway Acquisition Corp. (the “Company”), we, Blake M. Edwards, Chief Executive Officer of the Company, and Lori C. Vaught, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

(a) the Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(b) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Form 10-Q.

By:	/s/ Blake M. Edwards	Date:     November 14, 2019
	Blake M. Edwards
	Chief Executive Officer
By:	/s/ Lori C. Vaught	Date:     November 14, 2019
	Lori C. Vaught
	Chief Financial Officer

XML

Note 7 - Goodwill and Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Balance at beginning of year, net			$ 3,892
Amortization expense	$ (193)	$ (219)	(630)	$ (359)
Net book value	3,262		3,262		$ 3,892
Core Deposits [Member]
Balance at beginning of year, net			3,892	$ 2,045	2,045
Core deposit intangible as result of Great State merger					2,425
Amortization expense			(630)		(578)
Net book value	$ 3,262		$ 3,262		$ 3,892

XML

Note 1 - Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

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 pursuant to which Grayson and Cardinal merged 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. Effective

March 13, 2017,

the Bank changed its name to Skyline National Bank.     

On

March 1, 2018,

Parkway entered into a definitive agreement pursuant to which Parkway acquired Great State Bank (“Great State”), based in Wilkesboro, North Carolina. The agreement provided for the merger of Great State with and into the Bank, with the Bank as the surviving bank (the “Great State merger”). The transaction closed and the merger became effective on

July 1, 2018.

Each share of Great State common stock was converted into the right to receive

1.21

shares of Parkway common stock. The Company issued

1,191,899

shares and recognized

$15.5

million in surplus in the Great State merger. Parkway was considered the acquiror and Great State was considered the acquiree in the transaction for accounting purposes.

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, Ashe, Burke, Caldwell, Catawba, Cleveland, Watauga, Wilkes, and Yadkin, and the surrounding areas through

twenty

full-service banking offices and

four

loan production offices. 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.

For purposes of this quarterly report on Form

10

-Q, all information contained herein as of and for periods prior to

July 1, 2018

reflects the operations of Parkway prior to the Great State merger. Unless this report otherwise indicates or the context otherwise requires, all references to “Parkway” or the “Company” as of and for periods subsequent to

July 1, 2018

refer to the combined company and its subsidiary as a combined entity after the Great State merger, and all references to the “Company” as of and for periods prior to

July 1, 2018

are references to Parkway and its subsidiary as a combined entity prior to the Great State merger.

The consolidated financial statements as of

September 30, 2019

and for the

nine

-month and

three

-month periods ended

September 30, 2019

and

2018

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, 2018,

included in the Company’s Annual Report on Form

10

-K for the fiscal year ended

December 31, 2018.

The results of operations for the

nine

-month and

three

-month periods ended

September 30, 2019

are

not

necessarily indicative of the results to be expected for the full year.

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.

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.

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.

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 U.S. generally accepted accounting principles (“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.

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

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 the Bank 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 the Bank and Floyd plans were amended to freeze benefit accruals for all eligible employees prior to the effective date of the Cardinal merger. The Bank’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.

Goodwill and Other Intangible

A

ssets

Goodwill arises from business combinations and is generally determined as the excess of fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquire, over the fair value of the nets assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are

not

amortized, but tested for impairment at least annually or more frequently in events and circumstances exists that indicate that a goodwill impairment test should be performed.  The Company has selected

July 1

as the date to perform the annual impairment test.  The annual impairment test was performed for

July 1, 2019,

with

no

impairment found on the goodwill.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.  Goodwill is the only intangible asset with an indefinite life on our balance sheet.

Other intangible assets consist of core deposit intangibles that 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.  The core deposit intangible as a result of the Cardinal merger, is amortized over an estimated useful life of

twenty

years on an accelerated basis.  For the core deposit intangible as a result of the Great State merger, we used an estimated useful life of

seven

years on an accelerated basis for the amortization.

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.

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.

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:

	Unrealized Gains
	And (Losses)
(dollars in thousands)	On Available for			Defined Benefit
	Sale Securities			Pension Items			Total
Balance, December 31, 2017	$	(523	)	$	(987	)	$	(1,510	)
Other comprehensive loss before reclassifications		(842	)		-			(842	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		(4	)		-			(4	)
Balance September 30, 2018	$	(1,369	)	$	(987	)	$	(2,356	)
Balance, December 31, 2018	$	(929	)	$	(1,038	)	$	(1,967	)
Other comprehensive gain before reclassifications		1,093			-			1,093
Amounts reclassified from accumulated other comprehensive gain, net of tax		(35	)		-			(35	)
Balance September 30, 2019	$	129		$	(1,038	)	$	(909	)

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

9.

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.

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 were effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years.

Effective

January 1, 2019,

we adopted 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 performed an evaluation of our leasing contracts and activities. We have developed our methodology to estimate the right-of use assets and lease liabilities, which is based on the present value of lease payments.  At

September 30, 2019

future minimum lease payments were approximately

$681

thousand.  Based on our evaluation the adoption of the guidance was immaterial to our financial position, results of operations, and cash flows.  There will

not

be a material change to the timing of expense recognition.

In

June 2016,

the FASB issued Accounting Standards Update (“ASU”)

No.

2016

-

13

to change the accounting for credit losses and modify the impairment model for certain debt securities. 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. We are currently 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

July 2019,

the FASB proposed changes to the effective date of the ASU for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The proposal would delay the effective date to fiscal years beginning after

December 31, 2022,

including interim periods within those fiscal periods.  As the Company is a smaller reporting company, the proposed delay would be applicable to the Company, if it is approved by the FASB.  On

October 16, 2019

the proposed changes were approved by the FASB.

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

July 2018,

the FASB amended the Leases Topic of the Accounting Standards Codification to give entities another option for transition and to provide lessors with a practical expedient.  The amendments were effective for the Company for reporting periods beginning after

December 15, 2018

and did

not

have a material effect on its financial statements.

In

August 2018,

the FASB amended the Intangibles—Goodwill and Other Topic of the Accounting Standards Codification to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.  The amendments will be effective for the Company for fiscal years beginning after

December 15, 2019. 

Early adoption is permitted.  The Company does

not

expect these amendments to have a material effect on its financial statements.

In

August 2018,

the FASB amended the Fair Value Measurement Topic of the Accounting Standards Codification.  The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement,

Conceptual Framework for Financial Reporting—Chapter

8:

Notes to Financial Statements

.  The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019. 

Early adoption is permitted.  An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date.  The Company does

not

expect these amendments to have a material effect on its financial statements.

In

March 2019,

the FASB issued guidance to address concerns companies had raised about an accounting exception they would lose when assessing the fair value of underlying assets under the leases standard and clarify that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new standard. The amendments will be effective for the Company for reporting periods beginning after

December 15, 2019

.

Early adoption is permitted. The Company does

not

expect these amendments to have a material effect on its financial statements.

In

April 2019,

the FASB issued guidance that clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the Company for reporting periods beginning after

December 15, 2019.

The amendments related to hedging will be effective for the Company for annual periods beginning after

December 15, 2019,

and interim periods within annual reporting periods beginning after

December 15, 2020.

The amendments related to recognition and measurement of financial instruments will be effective for the Company for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. The Company does

not

expect these amendments to have a material effect on its financial statements.

In

May 2019,

the FASB issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU

2016

-

13,

Measurement of Credit Losses on Financial Instruments. The amendments will be effective for the Company for reporting periods beginning after

December 15, 2019.

The Company does

not

expect these amendments to have a material effect on its financial statements.

In

July 2019,

the FASB updated various Topics of the Accounting Standards Codification to align the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. 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.

XML

Note 6 - Employee Benefit Plan (Details Textual) $ in Thousands	Sep. 30, 2019 USD ($)
Defined Benefit Plan, Expected Future Employer Contributions, Next Fiscal Year	$ 0

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net income	$ 2,034	$ 1,715	$ 5,434	$ 3,728
Unrealized gains (losses) on investment securities available for sale:
Unrealized gains (losses) arising during the period	123	(222)	1,385	(1,066)
Tax related to unrealized (gains) losses	(27)	47	(292)	224
Reclassification of net realized gains during the period	(49)		(45)	(5)
Tax related to realized gains	11		10	1
Total other comprehensive income (loss)	58	(175)	1,058	(846)
Total comprehensive income	2,092	1,540	6,492	2,882
Net income	$ 2,034	$ 1,715	$ 5,434	$ 3,728

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 13, 2019
Document Information [Line Items]
Entity Registrant Name	Parkway Acquisition Corp.
Entity Central Index Key	0001657642
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		6,148,275
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Note 1 - Organization and Summary of Significant Accounting Policies (Details Textual) $ in Thousands			3 Months Ended	9 Months Ended
	Jul. 01, 2018 USD ($) shares	Jul. 01, 2016	Sep. 30, 2018 USD ($)	Sep. 30, 2019	Dec. 31, 2018 USD ($)
Stock Issued During Period, Value, Acquisitions			$ 15,495
Operating Leases, Future Minimum Payments Due, Total					$ 681
Core Deposits [Member]
Finite-Lived Intangible Asset, Useful Life				7 years
Grayson Bankshares, Inc [Member]
Business Acquisition, Equity Interest Issued or Issuable, Exchange Ratio		1.76
Grayson Bankshares, Inc [Member] | Parkway Acquisition Corp. [Member]
Ownership Percentage in Newly Issued Shares		60.00%
Cardinal Bankshares Corporation [Member]
Business Acquisition, Equity Interest Issued or Issuable, Exchange Ratio		1.3
Cardinal Bankshares Corporation [Member] | Parkway Acquisition Corp. [Member]
Ownership Percentage in Newly Issued Shares		40.00%
Great State Bank [Member]
Business Acquisition, Equity Interest Issued or Issuable, Exchange Ratio	1.21
Stock Issued During Period, Shares, Acquisitions | shares	1,191,899
Stock Issued During Period, Value, Acquisitions	$ 15,500

XML

Note 2 - Business Combinations - Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands			9 Months Ended
		Jul. 01, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Dec. 31, 2017
Stock consideration				$ 15,495
Goodwill			$ 3,257		$ 3,198
Great State Bank [Member]
Cash and cash equivalents		$ 25,761
Investment securities		19,401
Restricted equity securities		523
Loans		95,108
Allowance for loan losses
Property and equipment	[1]	1,396
Intangible assets		2,425
Accrued interest receivable		334
Other assets		448
Total assets acquired		145,396
Deposits		130,551
Borrowings		2,000
Accrued interest payable		40
Other liabilities		369
Total liabilities acquired		132,960
Net assets acquired		12,436
Elimination of Company’s existing investment in Great State		198
Stock consideration		15,495
Goodwill		3,257
Great State Bank [Member] | Reported Value by Acquiree [Member]
Cash and cash equivalents		25,761
Investment securities		19,630
Restricted equity securities		523
Loans		97,549
Allowance for loan losses		(1,436)
Property and equipment	[1]	1,207
Intangible assets
Accrued interest receivable		334
Other assets		599
Total assets acquired		144,167
Deposits		129,611
Borrowings		2,000
Accrued interest payable		40
Other liabilities		352
Total liabilities acquired		132,003
Great State Bank [Member] | Fair Value Adjustments [Member]
Cash and cash equivalents
Investment securities	[2]	(229)
Restricted equity securities
Loans	[3]	(2,441)
Allowance for loan losses	[4]	1,436
Property and equipment	[1]	189
Intangible assets	[5]	2,425
Accrued interest receivable
Other assets	[6]	(151)
Total assets acquired		1,229
Deposits	[7]	940
Borrowings
Accrued interest payable
Other liabilities	[8]	17
Total liabilities acquired		$ 957

[1] Estimated adjustment to Great State's real property based upon third-party appraisals and the Company's evaluation of equipment and other fixed assets.

[2] Reflects the opening fair value of securities portfolio, which was established as the new book basis of the portfolio.

[3] Reflects the fair value adjustment based on the Company's third party valuation report.

[4] Existing allowance for loan losses eliminated to reflect accounting guidance.

[5] Reflects the recording of the estimated core deposit intangible based on the Company's third party valuation report.

[6] Recording of deferred tax asset generated by the net fair value adjustments (tax rate = 21%).

[7] Estimated fair value adjustment to time deposits based on the Company's third party valuation report on deposits assumed.

[8] Reflects the fair value adjustment based on the Company's evaluation of acquired other liabilities.

XML

Note 11 - Capital Requirements

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

Note

11

. Capital Requirements

The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board’s Small Bank Holding Company Policy Statement, and is

not

obligated to report consolidated regulatory capital. The Bank’s actual capital amounts and ratios are presented in the following table as of

September 30, 2019

and

December 31, 2018,

respectively.  These ratios comply with Federal Reserve rules to align with the Basel III Capital requirements effective

January 1, 2015.

	Actual					For Capital Adequacy Purposes					To Be Well- Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 20 1 9
Total Capital (to risk weighted assets)	$	76,739		13.45	%	$	45,633		8.00	%	$	57,041		10.00	%
Tier 1 Capital (to risk weighted assets)	$	72,737		12.75	%	$	34,224		6.00	%	$	45,633		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	72,737		12.75	%	$	25,668		4.50	%	$	37,077		6.50	%
Tier 1 Capital (to average total assets)	$	72,737		10.80	%	$	26,928		4.00	%	$	33,660		5.00	%
December 31, 201 8
Total Capital (to risk weighted assets)	$	71,424		13.00	%	$	43,943		8.00	%	$	54,929		10.00	%
Tier 1 Capital (to risk weighted assets)	$	67,899		12.36	%	$	32,958		6.00	%	$	43,943		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	67,899		12.36	%	$	24,718		4.50	%	$	35,704		6.50	%
Tier 1 Capital (to average total assets)	$	67,899		10.08	%	$	26,932		4.00	%	$	33,664		5.00	%

Under Basel III Capital requirements, a capital conservation buffer of

0.625%

became effective beginning on

January 1, 2016. 

The capital conservation buffer was gradually increased through

January 1, 2019

to

2.50%.

  Banks are now required to maintain levels that meet the required minimum plus the capital conservation buffer in order to make distributions, such as dividends, or discretionary bonus payments.  The Banks’s capital conservation buffer is

5.45%

as of

September 30, 2019.

XML

Note 7 - Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note

7.

Goodwill and Intangible Assets

Goodwill

The change in goodwill during the

nine

-month period ended

September 30, 2019

and for the year ended

December 31, 2018

is as follows:

	September 30,		December 31,
(dollars in thousands)	2019		2018
Beginning of year	$	3,198	$	-
Acquired goodwill as result of Great State merger		-		3,198
Measurement period adjustment		59		-
Impairment		-		-
End of the period	$	3,257	$	3,198

Intangible Assets

The following table presents the activity for the Company’s core deposit intangible assets, which are the only identifiable intangible assets subject to amortization. Core deposit intangibles at

September 30, 2019

and

December 31, 2018

are as follows:

	September 30,			December 31,
(dollars in thousands)	2019			2018
Balance at beginning of year, net	$	3,892		$	2,045
Core deposit intangible as result of Great State merger		-			2,425
Amortization expense		(630	)		(578	)
Net book value	$	3,262		$	3,892

Aggregate amortization expense was

$630

thousand and

$359

thousand for the

nine

-month periods ended

September 30, 2019

and

2018,

respectively. Aggregate amortization expense was

$193

thousand and

$219

thousand for the

three

-month periods ended

September 30, 2019

and

2018,

respectively.

XML

Note 3 - Investment Securities

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note

3

. 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

September 30, 2019

and

December 31, 2018

follow:

(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30 , 201 9
Available for sale:
U.S. Government Agencies	$	246	$	4	$	-		$	250
Mortgage-backed securities		20,201		89		(50	)		20,240
Corporate securities		1,500		-		(98	)		1,402
State and municipal securities		12,592		218		-			12,810
	$	34,539	$	311	$	(148	)	$	34,702
December 31, 201 8
Available for sale:
U.S. Government Agencies	$	244	$	1	$	-		$	245
Mortgage-backed securities		25,627		1		(865	)		24,763
Corporate securities		2,970		-		(181	)		2,789
State and municipal securities		17,764		31		(164	)		17,631
	$	46,605	$	33	$	(1,210	)	$	45,428

Restricted equity securities were

$2.4

million and

$2.1

million at

September 30, 2019

and

December 31, 2018,

respectively.  Restricted equity securities consist of investments in stock of the Federal Home Loan Bank of Atlanta (“FHLB”), CBB Financial Corp., 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 CBB Financial Corp. and Pacific Coast Bankers Bank is restricted only in the fact that the stock

may

only be repurchased by the respective banks.

The following table 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

September 30, 2019

and

December 31, 2018.

	Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30 , 201 9
Available for sale:
Mortgage-backed securities	$	11,791	$	(49	)	$	1,011	$	(1	)	$	12,802	$	(50	)
Corporate securities		-		-			1,402		(98	)		1,402		(98	)
State and municipal securities		-		-			-		-			-		-
Total securities available for sale	$	11,791	$	(49	)	$	2,413	$	(99	)	$	14,204	$	(148	)
December 31, 201 8
Available for sale:
Mortgage-backed securities	$	450	$	(1	)	$	24,227	$	(864	)	$	24,677	$	(865	)
Corporate securities		-		-			2,789		(181	)		2,789		(181	)
State and municipal securities		5,518		(19	)		6,834		(145	)		12,352		(164	)
Total securities available for sale	$	5,968	$	(20	)	$	33,850	$	(1,190	)	$	39,818	$	(1,210	)

At

September 30, 2019,

13

debt securities with unrealized losses had depreciated

1.03

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

September 30, 2019.

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

$8.9

million and

$5.0

million for the

nine

-month and

three

-month periods ended

September 30, 2019

and

2018,

respectively. There were gross realized losses of

$14

thousand and

$4

thousand in the

nine

-month periods ended

September 30, 2019

and

2018,

respectively, that resulted from investment securities being called prior to their scheduled maturity. Gross proceeds from called securities totaled

$1.15

million and

$50

thousand for the

nine

-month periods ended

September 30, 2019

and

2018,

respectively. 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

nine

-month and

three

-month periods ended

September 30, 2019

and

2018

are as follows:

	Nine Months Ended September 30						Three Months Ended September 30
(dollars in thousands)	2019			2018			2019			2018
Realized gains	$	88		$	9		$	56		$	-
Realized losses		(43	)		(4	)		(7	)		-
	$	45		$	5		$	49		$	-

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

September 30, 2019,

were as follows:

(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	513	$	515
Due after one year through five years		8,468		8,525
Due after five years through ten years		14,284		14,344
Due after ten years		11,274		11,318
	$	34,539	$	34,702

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

$14.4

million and

$13.9

million at

September 30, 2019

and

December 31, 2018,

were pledged as collateral on public deposits and for other purposes as required or permitted by law.

XML

Note 6 - Employee Benefit Plan (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

	Nine Months Ended September 30,						Three Months Ended September 30,
(dollars in thousands)	2019			2018			2019			2018
Service cost	$	-		$	-		$	-		$	-
Interest cost		138			129			46			43
Expected return on plan assets		(414	)		(432	)		(138	)		(144	)
Amortization of prior service cost		-			-			-			-
Recognized net loss due to settlement		36			-			36			-
Recognized net actuarial (gain)/loss		30			24			10			8
Net periodic benefit cost	$	(210	)	$	(279	)	$	(46	)	$	(93	)

XML

Note 2 - Business Combinations (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

(dollars in thousands)	As Reported by			Fair Value					As Reported by
	Great State			Adjustments					Parkway
Assets
Cash and cash equivalents	$	25,761		$	-			-	$	25,761
Investment securities		19,630			(229	)	(a)			19,401
Restricted equity securities		523			-			-		523
Loans		97,549			(2,441	)	(b)			95,108
Allowance for loan losses		(1,436	)		1,436		(c)			-
Property and equipment		1,207			189		(d)			1,396
Intangible assets		-			2,425		(e)			2,425
Accrued interest receivable		334			-			-		334
Other assets		599			(151	)	(f)			448
Total assets acquired	$	144,167		$	1,229				$	145,396
Liabilities
Deposits	$	129,611		$	940		(g)		$	130,551
Borrowings		2,000			-			-		2,000
Accrued interest payable		40			-			-		40
Other liabilities		352			17		(h)			369
Total liabilities acquired	$	132,003		$	957				$	132,960
Net assets acquired										12,436
Elimination of Company’s existing investment in Great State										198
Stock consideration										15,495
Goodwill									$	3,257

Business Acquisition, Pro Forma Information [Table Text Block]

	Nine Months ended
	September 30,
	2019		2018
	(Unaudited)		(Unaudited)
Net interest income	$	20,566	$	17,393
Net income (a)	$	5,173	$	3,857
Basic and diluted weighted average shares outstanding (b)		6,213,275		6,213,275
Basic and diluted earnings per common share	$	0.83	$	0.62

	Three Months ended
	September 30,
	2019		2018
	(Unaudited)		(Unaudited)
Net interest income	$	6,925	$	6,774
Net income (a)	$	1,953	$	1,593
Basic and diluted weighted average shares outstanding (b)		6,213,275		6,213,275
Basic and diluted earnings per common share	$	0.31	$	0.26

XML

Note 10 - Borrowings (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Long-term Debt, Total		$ 0
Federal Home Loan Bank, Advances, General Debt Obligations, Maximum Amount Available	$ 160,000
Long-term Federal Home Loan Bank Advances, Total	$ 10,000
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End	0.435%
Short-term Debt, Total		0
Federal Funds Lines [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 52,500
Long-term Line of Credit, Total	$ 0	$ 0

XML

Note 9 - Financial Instruments - Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Reported Value Measurement [Member]
Net Loans	$ 558,238	$ 532,970
Time Deposits	190,166	180,143
FHLB Advances	10,000
Estimate of Fair Value Measurement [Member]
Net Loans	548,269	529,155
Time Deposits	190,241	176,188
FHLB Advances	9,973
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Net Loans
Time Deposits
FHLB Advances	9,973
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Net Loans	548,066	528,784
Time Deposits	190,241	176,188
FHLB Advances
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Net Loans	203	371
Time Deposits
FHLB Advances

XML

Note 3 - Investment Securities - Maturities of Securities Available for Sale (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Due in one year or less, amortized cost	$ 513
Due in one year or less, fair value	515
Due after one year through five years, amortized cost	8,468
Due after one year through five years, fair value	8,525
Due after five years through ten years, amortized cost	14,284
Due after five years through ten years, fair value	14,344
Due after ten years, amortized cost	11,274
Due after ten years, fair value	11,318
Amortized cost	34,539
Fair value	$ 34,702

XML

Note 5 - Allowance for Loan Losses and Impaired Loans - Credit Quality Indicators (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Loans receivable	$ 562,210	$ 536,465
Construction and Development Loan [Member]
Loans receivable	35,564	33,449
Farmland Loan [Member]
Loans receivable	34,953	33,291
Residential Loan [Member]
Loans receivable	251,091	235,689
Commercial Mortgage Loan [Member]
Loans receivable	187,549	176,192
Commercial and Agricultural Loan [Member]
Loans receivable	33,064	37,491
Consumer and Other Loan [Member]
Loans receivable	19,989	20,353
Pass [Member]
Loans receivable	492,408	468,848
Pass [Member] | Construction and Development Loan [Member]
Loans receivable	32,220	31,237
Pass [Member] | Farmland Loan [Member]
Loans receivable	23,843	23,250
Pass [Member] | Residential Loan [Member]
Loans receivable	228,940	213,670
Pass [Member] | Commercial Mortgage Loan [Member]
Loans receivable	158,753	148,179
Pass [Member] | Commercial and Agricultural Loan [Member]
Loans receivable	28,968	33,537
Pass [Member] | Consumer and Other Loan [Member]
Loans receivable	19,684	18,975
Watch [Member]
Loans receivable	53,859	53,511
Watch [Member] | Construction and Development Loan [Member]
Loans receivable	3,180	2,044
Watch [Member] | Farmland Loan [Member]
Loans receivable	4,374	4,933
Watch [Member] | Residential Loan [Member]
Loans receivable	19,636	18,794
Watch [Member] | Commercial Mortgage Loan [Member]
Loans receivable	23,195	23,468
Watch [Member] | Commercial and Agricultural Loan [Member]
Loans receivable	3,169	2,908
Watch [Member] | Consumer and Other Loan [Member]
Loans receivable	305	1,364
Special Mention [Member]
Loans receivable	2,511	2,478
Special Mention [Member] | Construction and Development Loan [Member]
Loans receivable		147
Special Mention [Member] | Farmland Loan [Member]
Loans receivable	177	750
Special Mention [Member] | Residential Loan [Member]
Loans receivable	999	299
Special Mention [Member] | Commercial Mortgage Loan [Member]
Loans receivable	1,217	1,212
Special Mention [Member] | Commercial and Agricultural Loan [Member]
Loans receivable	118	70
Special Mention [Member] | Consumer and Other Loan [Member]
Loans receivable
Substandard [Member]
Loans receivable	13,432	11,628
Substandard [Member] | Construction and Development Loan [Member]
Loans receivable	164	21
Substandard [Member] | Farmland Loan [Member]
Loans receivable	6,559	4,358
Substandard [Member] | Residential Loan [Member]
Loans receivable	1,516	2,926
Substandard [Member] | Commercial Mortgage Loan [Member]
Loans receivable	4,384	3,333
Substandard [Member] | Commercial and Agricultural Loan [Member]
Loans receivable	809	976
Substandard [Member] | Consumer and Other Loan [Member]
Loans receivable		$ 14

XML

Note 5 - Allowance for Loan Losses and Impaired Loans (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Financing Receivable, Allowance for Credit Loss [Table Text Block]

(dollars in thousands)	Construction & Development			Farmland			Residential			Commercial Mortgage			Commercial & Agricultural			Consumer & Other			Total
For the Three Months Ended September 30, 2019
Allowance for loan losses:
Balance, June 30, 2019	$	285		$	540		$	1,730		$	852		$	292		$	119		$	3,818
Charge-offs		-			-			-			-			(14	)		(59	)		(73	)
Recoveries		-			-			-			41			2			33			76
Provision		13			(9	)		92			16			(10	)		49			151
Balance, September 30, 2019	$	298		$	531		$	1,822		$	909		$	270		$	142		$	3,972
For the Three Months Ended September 30, 2018
Allowance for loan losses:
Balance, June 30, 2018	$	256		$	339		$	1,695		$	619		$	283		$	89		$	3,281
Charge-offs		-			-			-			-			-			(30	)		(30	)
Recoveries		-			-			20			48			2			10			80
Provision		(2	)		(3	)		71			9			2			36			113
Balance, September 30, 2018	$	254		$	336		$	1,786		$	676		$	287		$	105		$	3,444
For the Nine Months Ended September 30, 2019
Allowance for loan losses:
Balance, December 31, 2018	$	246		$	385		$	1,807		$	682		$	281		$	94		$	3,495
Charge-offs		-			(14	)		(32	)		(41	)		(77	)		(154	)		(318	)
Recoveries		-			-			8			69			6			47			130
Provision		52			160			39			199			60			155			665
Balance, September 30, 2019	$	298		$	531		$	1,822		$	909		$	270		$	142		$	3,972
For the Nine Months Ended September 30, 2018
Allowance for loan losses:
Balance, December 31, 2017	$	239		$	358		$	1,875		$	619		$	282		$	80		$	3,453
Charge-offs		(20	)		-			(117	)		(142	)		-			(139	)		(418	)
Recoveries		-			34			39			48			6			24			151
Provision		35			(56	)		(11	)		151			(1	)		140			258
Balance, September 30, 2018	$	254		$	336		$	1,786		$	676		$	287		$	105		$	3,444
September 30, 2019
Allowance for loan losses:
Ending Balance	$	298		$	531		$	1,822		$	909		$	270		$	142		$	3,972
Ending balance: individually evaluated for impairment	$	-		$	36		$	-		$	-		$	-		$	-		$	36
Ending balance: collectively evaluated for impairment	$	298		$	495		$	1,822		$	909		$	270		$	142		$	3,936
Ending balance: purchased credit impaired loans	$	-		$	-		$	-		$	-		$	-		$	-		$	-
Loans outstanding:
Ending Balance	$	35,564		$	34,953		$	251,091		$	187,549		$	33,064		$	19,989		$	562,210
Ending balance: individually evaluated for impairment	$	-		$	4,113		$	915		$	-		$	-		$	-		$	5,028
Ending balance: collectively evaluated for impairment	$	35,564		$	30,840		$	250,023		$	187,220		$	32,868		$	19,989		$	556,504
Ending balance: purchased credit impaired loans	$	-		$	-		$	153		$	329		$	196		$	-		$	678

(dollars in thousands)	Construction & Development		Farmland		Residential		Commercial Mortgage		Commercial & Agricultural		Consumer & Other		Total
December 31, 2018
Allowance for loan losses:
Ending Balance	$	246	$	385	$	1,807	$	682	$	281	$	94	$	3,495
Ending balance: individually evaluated for impairment	$	-	$	29	$	12	$	-	$	-	$	-	$	41
Ending balance: collectively evaluated for impairment	$	246	$	356	$	1,795	$	682	$	281	$	94	$	3,454
Ending balance: purchased credit impaired loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans outstanding:
Ending Balance	$	33,449	$	33,291	$	235,689	$	176,192	$	37,491	$	20,353	$	536,465
Ending balance: individually evaluated for impairment	$	-	$	4,552	$	1,018	$	-	$	-	$	-	$	5,570
Ending balance: collectively evaluated for impairment	$	33,449	$	28,739	$	234,504	$	175,845	$	37,291	$	20,353	$	530,181
Ending balance: purchased credit impaired loans	$	-	$	-	$	167	$	347	$	200	$	-	$	714

Financing Receivable Credit Quality Indicators [Table Text Block]

	Loan Grades
(dollars in thousands)	Pass		Watch		Special Mention		Substandard		Total
September 3 0 , 2019
Real Estate Secured:
Construction & development	$	32,220	$	3,180	$	-	$	164	$	35,564
Farmland		23,843		4,374		177		6,559		34,953
Residential		228,940		19,636		999		1,516		251,091
Commercial mortgage		158,753		23,195		1,217		4,384		187,549
Non-Real Estate Secured:
Commercial & agricultural		28,968		3,169		118		809		33,064
Consumer & other		19,684		305		-		-		19,989
Total	$	492,408	$	53,859	$	2,511	$	13,432	$	562,210
December 31, 2018
Real Estate Secured:
Construction & development	$	31,237	$	2,044	$	147	$	21	$	33,449
Farmland		23,250		4,933		750		4,358		33,291
Residential		213,670		18,794		299		2,926		235,689
Commercial mortgage		148,179		23,468		1,212		3,333		176,192
Non-Real Estate Secured:
Commercial & agricultural		33,537		2,908		70		976		37,491
Consumer & other		18,975		1,364		-		14		20,353
Total	$	468,848	$	53,511	$	2,478	$	11,628	$	536,465

Financing Receivable, Past Due [Table Text Block]

					90 Days								90+ Days Past Due
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		or More Past Due		Total Past Due		Current		Total Loans		and Still Accruing		Nonaccrual Loans
September 30 , 201 9
Real Estate Secured:
Construction & development	$	2	$	-	$	10	$	12	$	35,552	$	35,564	$	-	$	10
Farmland		-		-		1,303		1,303		33,650		34,953		-		3,993
Residential		384		49		355		788		250,303		251,091		-		366
Commercial mortgage		116		-		-		116		187,433		187,549		-		202
Non-Real Estate Secured:
Commercial & agricultural		52		-		241		293		32,771		33,064		-		245
Consumer & other		8		2		-		10		19,979		19,989		-		-
Total	$	562	$	51	$	1,909	$	2,522	$	559,688	$	562,210	$	-	$	4,816
December 31, 2018
Real Estate Secured:
Construction & development	$	29	$	-	$	-	$	29	$	33,420	$	33,449	$	-	$	-
Farmland		71		100		989		1,160		32,131		33,291		-		3,914
Residential		762		145		241		1,148		234,541		235,689		-		653
Commercial mortgage		-		-		604		604		175,588		176,192		-		740
Non-Real Estate Secured:
Commercial & agricultural		7		-		264		271		37,220		37,491		-		264
Consumer & other		12		18		8		38		20,315		20,353		-		8
Total	$	881	$	263	$	2,106	$	3,250	$	533,215	$	536,465	$	-	$	5,579

Impaired Financing Receivables [Table Text Block]

							Nine months ended				Three months ended
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
(dollars in thousands)	Investment 1		Balance		Allowance		Investment		Recognized		Investment		Recognized
September 30, 2019
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Farmland		2,882		2,882		-		3,017		14		2,952		5
Residential		-		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-		-
Subtotal		2,882		2,882		-		3,017		14		2,952		5
With an allowance recorded:
Construction & development		74		74		4		77		4		75		1
Farmland		1,540		1,540		46		1,558		53		1,547		17
Residential		4,716		4,866		198		5,099		197		4,804		62
Commercial mortgage		193		237		10		270		9		194		3
Commercial & agricultural		33		33		2		35		2		34		1
Consumer & other		3		3		-		4		-		3		-
Subtotal		6,559		6,753		260		7,043		265		6,657		84
Totals:
Construction & development		74		74		4		77		4		75		1
Farmland		4,422		4,422		46		4,575		67		4,499		22
Residential		4,716		4,866		198		5,099		197		4,804		62
Commercial mortgage		193		237		10		270		9		194		3
Commercial & agricultural		33		33		2		35		2		34		1
Consumer & other		3		3		-		4		-		3		-
Total	$	9,441	$	9,635	$	260	$	10,060	$	279	$	9,609	$	89

(dollars in thousands)	Recorded Investment 1		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 201 8
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-
Farmland		3,284		3,284		-		3,523		23
Residential		85		85		-		448		13
Commercial mortgage		-		-		-		-		-
Commercial & agricultural		-		24		-		-		-
Consumer & other		-		-		-		-		-
Subtotal		3,369		3,393		-		3,971		36
With an allowance recorded:
Construction & development		69		69		4		306		11
Farmland		1,539		1,539		38		1,568		86
Residential		5,005		5,162		241		5,348		266
Commercial mortgage		275		358		15		522		27
Commercial & agricultural		37		37		2		47		3
Consumer & other		4		4		-		4		-
Subtotal		6,929		7,169		300		7,795		393
Totals:
Construction & development		69		69		4		306		11
Farmland		4,823		4,823		38		5,091		109
Residential		5,090		5,247		241		5,796		279
Commercial mortgage		275		358		15		522		27
Commercial & agricultural		37		61		2		47		3
Consumer & other		4		4		-		4		-
Total	$	10,298	$	10,562	$	300	$	11,766	$	429

Financing Receivable, Troubled Debt Restructuring [Table Text Block]

(dollars in thousands)	TDRs identified during the period						TDRs identified in the last twelve months that subsequently defaulte d (1)
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction & development		1	$	9	$	11		-	$	-	$	-
Farmland		1		38		37		-		-		-
Residential		1		117		128		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		3	$	164	$	176		-	$	-	$	-

(dollars in thousands)	TDRs identified during the period						TDRs identified in the last twelve months that subsequently defaulte d (1)
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction & development		1	$	9	$	11		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		1	$	9	$	11		-	$	-	$	-

(dollars in thousands)	TDRs identified during the period						TDRs identified in the last twelve months that subsequently defaulte d (1)
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction & development		-	$	-	$	-		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		2		80		95		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		2	$	80	$	95		-	$	-	$	-

Schedule of Business Acquisition, Carrying Amount of Acquired Loans [Table Text Block]

(dollars in thousands)	2019		2018
Residential	$	153	$	167
Commercial mortgage		329		347
Commercial & agricultural		196		200
Outstanding balance	$	678	$	714
Carrying amount	$	678	$	714

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Table Text Block]

	December 31,
(dollars in thousands)	2018
Contractually required payments receivable of loans purchased during the year:
Residential	$	233
Commercial mortgage		1,724
Commercial & agricultural		221
	$	2,178
Cash flows expected to be collected at acquisition	$	1,781
Fair value of acquired loans at acquisition	$	1,781

Carrying Amount of Purchased Credit Impaired Loans [Table Text Block]

	September 30,		December 31,
(dollars in thousands)	2019		2018
Loans at beginning of year	$	714	$	-
Loans purchased during the year	$	-	$	1,781
Loans at end of period	$	678	$	714

XML

Note 1 - Organization and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Property, Plant and Equipment [Table Text Block]

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

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

	Unrealized Gains
	And (Losses)
(dollars in thousands)	On Available for			Defined Benefit
	Sale Securities			Pension Items			Total
Balance, December 31, 2017	$	(523	)	$	(987	)	$	(1,510	)
Other comprehensive loss before reclassifications		(842	)		-			(842	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		(4	)		-			(4	)
Balance September 30, 2018	$	(1,369	)	$	(987	)	$	(2,356	)
Balance, December 31, 2018	$	(929	)	$	(1,038	)	$	(1,967	)
Other comprehensive gain before reclassifications		1,093			-			1,093
Amounts reclassified from accumulated other comprehensive gain, net of tax		(35	)		-			(35	)
Balance September 30, 2019	$	129		$	(1,038	)	$	(909	)

XML

Note 9 - Financial Instruments - Significant Unobservable Inputs Used Fair Value Measurements (Details) $ in Thousands	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Minimum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, significant unobservable inputs	0
Other real estate owned, significant unobservable inputs	0
Maximum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, significant unobservable inputs	0.1
Other real estate owned, significant unobservable inputs	0.1
Impaired Loans [Member]
Assets at fair value	$ 203	$ 371
Other Real Estate Owned [Member]
Assets at fair value		$ 753

XML

Note 9 - Financial Instruments (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Fair Value, Recurring [Member]
Financial and Nonfinancial Liabilities, Fair Value Disclosure	$ 0	$ 0
Fair Value, Nonrecurring [Member]
Financial and Nonfinancial Liabilities, Fair Value Disclosure	$ 0	$ 0

XML

Note 4 - Loans Receivable - Components of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Loans receivable	$ 562,210		$ 536,465
Allowance for loan losses	(3,972)	$ (3,818)	(3,495)	$ (3,444)	$ (3,281)	$ (3,453)
Loans, net of allowance for loan losses	558,238		532,970
Construction and Development Loan [Member]
Loans receivable	35,564		33,449
Allowance for loan losses	(298)	(285)	(246)	(254)	(256)	(239)
Farmland Loan [Member]
Loans receivable	34,953		33,291
Allowance for loan losses	(531)	(540)	(385)	(336)	(339)	(358)
Residential Loan [Member]
Loans receivable	251,091		235,689
Allowance for loan losses	(1,822)	(1,730)	(1,807)	(1,786)	(1,695)	(1,875)
Commercial Mortgage Loan [Member]
Loans receivable	187,549		176,192
Allowance for loan losses	(909)	(852)	(682)	(676)	(619)	(619)
Commercial and Agricultural Loan [Member]
Loans receivable	33,064		37,491
Allowance for loan losses	(270)	(292)	(281)	(287)	(283)	(282)
Consumer and Other Loan [Member]
Loans receivable	19,989		20,353
Allowance for loan losses	$ (142)	$ (119)	$ (94)	$ (105)	$ (89)	$ (80)

XML

Note 5 - Allowance for Loan Losses and Impaired Loans - Analysis of Past Due and Nonaccrual Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Past due	$ 2,522	$ 3,250
Current	559,688	533,215
Loans receivable	562,210	536,465
Past due and still accruing
Nonaccrual loans	4,816	5,579
Construction and Development Loan [Member]
Past due	12	29
Current	35,552	33,420
Loans receivable	35,564	33,449
Past due and still accruing
Nonaccrual loans	10
Farmland Loan [Member]
Past due	1,303	1,160
Current	33,650	32,131
Loans receivable	34,953	33,291
Past due and still accruing
Nonaccrual loans	3,993	3,914
Residential Loan [Member]
Past due	788	1,148
Current	250,303	234,541
Loans receivable	251,091	235,689
Past due and still accruing
Nonaccrual loans	366	653
Commercial Mortgage Loan [Member]
Past due	116	604
Current	187,433	175,588
Loans receivable	187,549	176,192
Past due and still accruing
Nonaccrual loans	202	740
Commercial and Agricultural Loan [Member]
Past due	293	271
Current	32,771	37,220
Loans receivable	33,064	37,491
Past due and still accruing
Nonaccrual loans	245	264
Consumer and Other Loan [Member]
Past due	10	38
Current	19,979	20,315
Loans receivable	19,989	20,353
Past due and still accruing
Nonaccrual loans		8
Financial Asset, 30 to 59 Days Past Due [Member]
Past due	562	881
Financial Asset, 30 to 59 Days Past Due [Member] | Construction and Development Loan [Member]
Past due	2	29
Financial Asset, 30 to 59 Days Past Due [Member] | Farmland Loan [Member]
Past due		71
Financial Asset, 30 to 59 Days Past Due [Member] | Residential Loan [Member]
Past due	384	762
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Mortgage Loan [Member]
Past due	116
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial and Agricultural Loan [Member]
Past due	52	7
Financial Asset, 30 to 59 Days Past Due [Member] | Consumer and Other Loan [Member]
Past due	8	12
Financial Asset, 60 to 89 Days Past Due [Member]
Past due	51	263
Financial Asset, 60 to 89 Days Past Due [Member] | Construction and Development Loan [Member]
Past due
Financial Asset, 60 to 89 Days Past Due [Member] | Farmland Loan [Member]
Past due		100
Financial Asset, 60 to 89 Days Past Due [Member] | Residential Loan [Member]
Past due	49	145
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Mortgage Loan [Member]
Past due
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial and Agricultural Loan [Member]
Past due
Financial Asset, 60 to 89 Days Past Due [Member] | Consumer and Other Loan [Member]
Past due	2	18
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due	1,909	2,106
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Construction and Development Loan [Member]
Past due	10
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Farmland Loan [Member]
Past due	1,303	989
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Residential Loan [Member]
Past due	355	241
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Mortgage Loan [Member]
Past due		604
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial and Agricultural Loan [Member]
Past due	241	264
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Consumer and Other Loan [Member]
Past due		$ 8

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Interest income
Loans and fees on loans	$ 7,451	$ 7,063	$ 21,712	$ 17,420
Interest-bearing deposits in banks	47	27	145	62
Federal funds sold	62	89	241	127
Interest on taxable securities	229	301	769	898
Dividends	11	13	72	52
	7,800	7,493	22,939	18,559
Interest expense
Deposits	770	558	2,040	1,296
Interest on borrowings	3	6	3	33
	773	564	2,043	1,329
Net interest income	7,027	6,929	20,896	17,230
Provision for loan losses	151	113	665	258
Net interest income after provision for loan losses	6,876	6,816	20,231	16,972
Noninterest income
Net realized gains on securities	49		45	5
Increase in cash value of life insurance	108	97	324	319
Life insurance income		74		303
Other income	67	32	229	87
	1,273	1,226	3,605	3,450
Noninterest expenses
Salaries and employee benefits	3,306	3,161	9,725	8,459
Occupancy and equipment	758	709	2,197	1,965
Foreclosed asset expense, net		18	2	16
Data processing expense	401	351	1,132	953
FDIC Assessments	(89)	47	55	185
Advertising	148	148	441	424
Bank franchise tax	111	109	333	319
Director fees	57	69	205	199
Professional fees	118	120	480	340
Telephone expense	102	115	282	302
Core deposit intangible amortization	193	219	630	359
Merger related expenses		359		856
Other expense	499	482	1,581	1,372
	5,604	5,907	17,063	15,749
Net income before income taxes	2,545	2,135	6,773	4,673
Income tax expense	511	420	1,339	945
Net income	$ 2,034	$ 1,715	$ 5,434	$ 3,728
Net income per share (in dollars per share)	$ 0.33	$ 0.28	$ 0.88	$ 0.69
Weighted average shares outstanding (in shares)	6,174,851	6,213,275	6,179,909	5,423,042
Dividends declared per share (in dollars per share)	$ 0.12	$ 0.10	$ 0.24	$ 0.21
Deposit Account [Member]
Noninterest income
Noninterest income	$ 448	$ 413	$ 1,184	$ 1,132
Financial Service, Other [Member]
Noninterest income
Noninterest income	512	473	1,524	1,323
Mortgage Banking [Member]
Noninterest income
Noninterest income	$ 89	$ 137	$ 299	$ 281

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended				9 Months Ended		12 Months Ended
	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Cash flows from operating activities
Net income	$ 2,034	$ 1,665	$ 1,715	$ 1,014	$ 5,434	$ 3,728
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization					900	916
Amortization of core deposit intangible	193		219		630	359
Accretion of loan discount and deposit premium, net					(1,661)	(927)
Provision for loan losses	151		113		665	258
Deferred income taxes					495	972
Net realized gains on securities	(49)				(45)	(5)
Accretion of discount on securities, net of amortization of premiums					335	396
Deferred compensation					(25)	28
Gains on sale of properties and equipment					(122)	0
Life insurance income			(74)			(303)
Changes in assets and liabilities:
Cash value of life insurance					(324)	(319)
Accrued interest receivable					18	(59)
Other assets					21	(112)
Accrued interest payable					115	100
Other liabilities					477	(567)
Net cash provided by operating activities					6,913	4,465
Cash flows from investing activities
Purchases					(1,037)
Sales					8,914	18,366
Maturities/calls/paydowns					3,898	4,461
Purchases of restricted equity securities					(341)	(142)
Net increase in loans					(24,582)	(17,492)
Proceeds from life insurance contracts						672
Proceeds from sale of foreclosed assets					753	475
Purchases of property and equipment, net of sales					(1,480)	(2,624)
Cash received in business combination						25,761
Net cash (used in) provided by investing activities					(13,875)	29,477
Cash flows from financing activities
Net increase (decrease) in deposits					402	(17,452)
Net change in FHLB advances					10,000	(1,000)
Cash paid for fractional shares						(1)
Common stock repurchased					(771)
Dividends paid					(1,484)	(1,123)
Net cash provided by (used in) financing activities					8,147	(19,576)
Net increase in cash and cash equivalents					1,185	14,366
Cash and cash equivalents, beginning		$ 40,007		$ 22,875	40,007	22,875	$ 22,875
Cash and cash equivalents, ending	$ 41,192		$ 37,241		41,192	37,241	40,007
Supplemental disclosure of cash flow information
Interest paid					1,928	1,189
Taxes paid					300	10
Supplemental disclosure of noncash investing activities
Effect on equity of change in net unrealized loss on available for sale securities					1,058	(846)
Transfers of loans to foreclosed properties						410
Business combinations
Assets acquired (excluding goodwill)						145,480
Liabilities assumed						133,551
Net assets						11,929
Acquired goodwill as result of Great State merger						3,764	$ 3,198
Stock issued to acquire Great State Bank						$ 15,495

XML

Note 7 - Goodwill and Intangible Assets - Change in Goodwill (Details) - USD ($) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Beginning of year	$ 3,198
Acquired goodwill as result of Great State merger		$ 3,764	3,198
Measurement period adjustment	59
Impairment
End of the period	$ 3,257		$ 3,198

XML

Note 5 - Allowance for Loan Losses and Impaired Loans - Summary of Carrying Amount of Loans (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Loans at beginning of year	$ 714
Loans at end of period	678	$ 714
Financial Asset Acquired with Credit Deterioration [Member]
Loans at beginning of year	714
Loans purchased during the year		1,781
Loans at end of period	$ 678	$ 714

XML

Note 1 - Organization and Summary of Significant Accounting Policies - Property and Equipment Useful Lives (Details)	9 Months Ended
	Sep. 30, 2019
Building and Building Improvements [Member] | Minimum [Member]
Property and equipment useful life (Year)	10 years
Building and Building Improvements [Member] | Maximum [Member]
Property and equipment useful life (Year)	40 years
Furniture and Equipment [Member] | Minimum [Member]
Property and equipment useful life (Year)	5 years
Furniture and Equipment [Member] | Maximum [Member]
Property and equipment useful life (Year)	12 years

XML

Note 2 - Business Combinations - Pro Forma Information (Details) - Great State Bank [Member] - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net interest income		$ 6,925	$ 6,774	$ 20,566	$ 17,393
Net income (a)	[1]	$ 1,953	$ 1,593	$ 5,173	$ 3,857
Basic and diluted weighted average shares outstanding (b) (in shares)	[2]	6,213,275	6,213,275	6,213,275	6,213,275
Basic and diluted earnings per common share (in dollars per share)		$ 0.31	$ 0.26	$ 0.83	$ 0.62

[1] Supplemental pro forma net income includes the impact of certain fair value adjustments. Supplemental pro forma net income does not include assumptions on cost savings or the impact of merger-related expenses.

[2] Weighted average shares outstanding includes the full effect of the common stock issued in connection with the Great State acquisition as of the earliest reporting date.

XML

Note 6 - Employee Benefit Plan

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

Note

6

. Employee Benefit Plan

The Bank has a qualified noncontributory defined benefit pension plan that covers substantially all of its employees. Effective

December 31, 2012,

the pension plan was amended to freeze benefit accruals for all eligible employees. The following is a summary of net periodic pension costs for the

nine

-month and

three

-month periods ended

September 30, 2019

and

2018.

	Nine Months Ended September 30,						Three Months Ended September 30,
(dollars in thousands)	2019			2018			2019			2018
Service cost	$	-		$	-		$	-		$	-
Interest cost		138			129			46			43
Expected return on plan assets		(414	)		(432	)		(138	)		(144	)
Amortization of prior service cost		-			-			-			-
Recognized net loss due to settlement		36			-			36			-
Recognized net actuarial (gain)/loss		30			24			10			8
Net periodic benefit cost	$	(210	)	$	(279	)	$	(46	)	$	(93	)

It has been Company practice to contribute the maximum tax-deductible amount each year as determined by the plan administrator. As a result of prior year contributions exceeding the minimum requirements, a Prefunding Balance existed as of

December 31, 2018

and there is

no

required contribution for

2019.

Based on this we do

not

anticipate making a contribution to the plan in

2019.

XML

Note 2 - Business Combinations

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note

2.

  Business Combinations

On

July 1, 2018,

Parkway completed its merger with Great State as discussed above in Note

1.

  Parkway is considered the acquiring entity in this business combination for accounting purposes.  Under the terms of the merger agreement, each share of Great State common stock was converted to

1.21

shares of common stock of Parkway which resulted in the issuance of

1,191,899

shares of Parkway stock in the merger.  The Company engaged a

third

party to calculate fair values of all assets and liabilities acquired in the transaction.  These valuations are

not

final and

may

be refined for up to

one

year following the merger date.

The following table presents the Great State assets acquired and liabilities assumed as of

July 1, 2018

as well as the related fair value adjustments and determination of goodwill.

(dollars in thousands)	As Reported by			Fair Value					As Reported by
	Great State			Adjustments					Parkway
Assets
Cash and cash equivalents	$	25,761		$	-			-	$	25,761
Investment securities		19,630			(229	)	(a)			19,401
Restricted equity securities		523			-			-		523
Loans		97,549			(2,441	)	(b)			95,108
Allowance for loan losses		(1,436	)		1,436		(c)			-
Property and equipment		1,207			189		(d)			1,396
Intangible assets		-			2,425		(e)			2,425
Accrued interest receivable		334			-			-		334
Other assets		599			(151	)	(f)			448
Total assets acquired	$	144,167		$	1,229				$	145,396
Liabilities
Deposits	$	129,611		$	940		(g)		$	130,551
Borrowings		2,000			-			-		2,000
Accrued interest payable		40			-			-		40
Other liabilities		352			17		(h)			369
Total liabilities acquired	$	132,003		$	957				$	132,960
Net assets acquired										12,436
Elimination of Company’s existing investment in Great State										198
Stock consideration										15,495
Goodwill									$	3,257

Explanation of fair value adjustments:

(a) Reflects the opening fair value of securities portfolio, which was established as the new book basis of the portfolio.

(b) Reflects the fair value adjustment based on the Company’s third party valuation report.   

(c) Existing allowance for loan losses eliminated to reflect accounting guidance.

(d) Estimated adjustment to Great State’s real property based upon third -party appraisals and the Company’s evaluation of equipment and other fixed assets.

(e) Reflects the recording of the estimated core deposit intangible based on the Company’s third party valuation report.

(f) Recording of deferred tax asset generated by the net fair value adjustments (tax rate = 21% ).

(g) Estimated fair value adjustment to time deposits based on the Company’s third party valuation report on deposits assumed.

(h) Reflects the fair value adjustment based on the Company’s evaluation of acquired other liabilities.

The merger was accounted for under the acquisition method of accounting.  The assets and liabilities of Great State have been recorded at their estimated fair values and added to those of Parkway for periods following the merger date.  Valuations of acquired Great State assets and liabilities

may

be refined for up to

one

year following the merger date.

There are

two

methods to account for acquired loans as part of a business combination.  Acquired loans that contain evidence of credit deterioration on the date of purchase are carried at the net present value of expected future proceeds in accordance with FASB ASC

310

-

30.

  All other acquired loans are recorded at their initial fair value, adjusted for subsequent advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-offs and any other adjustment to carrying value in accordance with ASC

310

-

20.

 

In determining the fair values of acquired loans without evidence of credit deterioration at the date of acquisition, management includes (i)

no

carryover of any previously recorded allowance for loan losses and (ii) an adjustment of the unpaid principal balance to reflect an appropriate market rate of interest, given the risk profile and grade assigned to each loan.  This adjustment is then accreted into earnings as a yield adjustment, using the effective yield method, over the remaining life of each loan.

To the extent that current information indicates it is probable that the Company will collect all amounts according to the contractual terms thereof, such loan is

not

considered impaired and is

not

considered in the determination of the required allowance for loan losses.  To the extent that current information indicates it is probable that the Company will

not

be able to collect all amounts according to the contractual terms thereon, such loan is considered impaired and is considered in the determination of the required level of allowance for loan and lease losses.

Subsequent to the acquisition date, increases in cash flows expected to be received in excess of the Company’s initial estimates are reclassified from nonaccretable difference to accretable yield and are accreted into interest income on a level-yield basis over the remaining life of the loan.  Decreases in cash flows expected to be collected are recognized as impairment through the provision for loan losses.

Supplemental Pro Forma Information (dollars in thousands except per share data)

The table below presents supplemental pro forma information as if the Great State acquisition had occurred at the beginning of the earliest period presented, which was

January 1, 2018. 

Pro forma results include adjustments for amortization and accretion of fair value adjustments and do

not

include any projected cost savings or other anticipated benefits of the merger.  Therefore, the pro forma financial information is

not

indicative of the results of operations that would have occurred had the transactions been effected on the assumed date.  Pre-tax merger-related costs of

$856

thousand and

$359

thousand included in the Company’s consolidated statements of operations for the

nine

months and

three

months ended

September 30, 2018

and are

not

included in the pro forma statements below.

	Nine Months ended
	September 30,
	2019		2018
	(Unaudited)		(Unaudited)
Net interest income	$	20,566	$	17,393
Net income (a)	$	5,173	$	3,857
Basic and diluted weighted average shares outstanding (b)		6,213,275		6,213,275
Basic and diluted earnings per common share	$	0.83	$	0.62

	Three Months ended
	September 30,
	2019		2018
	(Unaudited)		(Unaudited)
Net interest income	$	6,925	$	6,774
Net income (a)	$	1,953	$	1,593
Basic and diluted weighted average shares outstanding (b)		6,213,275		6,213,275
Basic and diluted earnings per common share	$	0.31	$	0.26

(a) Supplemental pro forma net income includes the impact of certain fair value adjustments.  Supplemental pro forma net income does not include assumptions on cost savings or the impact of merger-related expenses.

(b) Weighted average shares outstanding includes the full effect of the common stock issued in connection with the Great State acquisition as of the earliest reporting date.

XML

Note 10 - Borrowings

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

10.

  Borrowings

At

December 31, 2018,

the Bank had

no

debt outstanding classified as short-term or long-term.

At

September 30, 2019,

the Bank had established unsecured federal funds lines from correspondent banks totaling

$52.5

million to provide additional liquidity if, and as needed.  The Bank had

no

balances outstanding on these lines as of

September 30, 2019

and

December 31, 2018,

respectively.  In addition, the Bank has the ability to borrow up to approximately

$160.0

million from the FHLB, subject to the pledging of collateral.     

At

September 30, 2019,

the Bank’s long-term debt consisted of a

$10.0

million advance from FHLB.  The advance, which is secured by substantially all the Bank’s

1

-

4

family loans, is scheduled to mature on

September 6, 2029. 

Interest on the advance was fixed at

0.435

percent and the advance is convertible by FHLB to a variable rate quarterly beginning on

December 6, 2019. 

The Bank has the option to repay the advance amount in whole or in part on the conversion date.  

XML

Note 7 - Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Goodwill [Table Text Block]

	September 30,		December 31,
(dollars in thousands)	2019		2018
Beginning of year	$	3,198	$	-
Acquired goodwill as result of Great State merger		-		3,198
Measurement period adjustment		59		-
Impairment		-		-
End of the period	$	3,257	$	3,198

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	September 30,			December 31,
(dollars in thousands)	2019			2018
Balance at beginning of year, net	$	3,892		$	2,045
Core deposit intangible as result of Great State merger		-			2,425
Amortization expense		(630	)		(578	)
Net book value	$	3,262		$	3,892

XML

Note 3 - Investment Securities (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30 , 201 9
Available for sale:
U.S. Government Agencies	$	246	$	4	$	-		$	250
Mortgage-backed securities		20,201		89		(50	)		20,240
Corporate securities		1,500		-		(98	)		1,402
State and municipal securities		12,592		218		-			12,810
	$	34,539	$	311	$	(148	)	$	34,702
December 31, 201 8
Available for sale:
U.S. Government Agencies	$	244	$	1	$	-		$	245
Mortgage-backed securities		25,627		1		(865	)		24,763
Corporate securities		2,970		-		(181	)		2,789
State and municipal securities		17,764		31		(164	)		17,631
	$	46,605	$	33	$	(1,210	)	$	45,428

Schedule of Unrealized Loss on Investments [Table Text Block]

	Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30 , 201 9
Available for sale:
Mortgage-backed securities	$	11,791	$	(49	)	$	1,011	$	(1	)	$	12,802	$	(50	)
Corporate securities		-		-			1,402		(98	)		1,402		(98	)
State and municipal securities		-		-			-		-			-		-
Total securities available for sale	$	11,791	$	(49	)	$	2,413	$	(99	)	$	14,204	$	(148	)
December 31, 201 8
Available for sale:
Mortgage-backed securities	$	450	$	(1	)	$	24,227	$	(864	)	$	24,677	$	(865	)
Corporate securities		-		-			2,789		(181	)		2,789		(181	)
State and municipal securities		5,518		(19	)		6,834		(145	)		12,352		(164	)
Total securities available for sale	$	5,968	$	(20	)	$	33,850	$	(1,190	)	$	39,818	$	(1,210	)

Schedule of Realized Gain (Loss) [Table Text Block]

	Nine Months Ended September 30						Three Months Ended September 30
(dollars in thousands)	2019			2018			2019			2018
Realized gains	$	88		$	9		$	56		$	-
Realized losses		(43	)		(4	)		(7	)		-
	$	45		$	5		$	49		$	-

Investments Classified by Contractual Maturity Date [Table Text Block]

(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	513	$	515
Due after one year through five years		8,468		8,525
Due after five years through ten years		14,284		14,344
Due after ten years		11,274		11,318
	$	34,539	$	34,702

XML

Note 12 - Subsequent Events

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Subsequent Events [Text Block]

Note

1

2

. Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did

not

exist at the date of the balance sheet but arose after that date. Management has evaluated events occurring subsequent to the balance sheet date through the date these financial statements were issued, determining

no

events require additional disclosure in these consolidated financial statements.

XML

Note 3 - Investment Securities - Realized Gains and Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Realized gains	$ 56		$ 88	$ 9
Realized losses	(7)		(43)	(4)
	$ 49		$ 45	$ 5

XML

Note 5 - Allowance for Loan Losses and Impaired Loans - Allowance for Loan Losses and Recorded Investment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Dec. 31, 2018
Balance	$ 3,818	$ 3,281	$ 3,495	$ 3,453
Charge-offs	(73)	(30)	(318)	(418)
Recoveries	76	80	130	151
Provision	151	113	665	258
Balance	3,972	3,444	3,972	3,444
Ending balance: individually evaluated for impairment					$ 36	$ 41
Ending balance: collectively evaluated for impairment					3,936	3,454
Allowance for loan losses	3,972	3,281	3,972	3,444	3,972	3,495
Ending Balance					562,210	536,465
Ending balance: individually evaluated for impairment					5,028	5,570
Ending balance: collectively evaluated for impairment					556,504	530,181
Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Allowance for loan losses
Ending Balance					678	714
Construction and Development Loan [Member]
Balance	285	256	246	239
Charge-offs				(20)
Recoveries
Provision	13	(2)	52	35
Balance	298	254	298	254
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment					298	246
Allowance for loan losses	285	256	298	254	298	246
Ending Balance					35,564	33,449
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment					35,564	33,449
Construction and Development Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Allowance for loan losses
Ending Balance
Farmland Loan [Member]
Balance	540	339	385	358
Charge-offs			(14)
Recoveries				34
Provision	(9)	(3)	160	(56)
Balance	531	336	531	336
Ending balance: individually evaluated for impairment					36	29
Ending balance: collectively evaluated for impairment					495	356
Allowance for loan losses	540	339	531	336	531	385
Ending Balance					34,953	33,291
Ending balance: individually evaluated for impairment					4,113	4,552
Ending balance: collectively evaluated for impairment					30,840	28,739
Farmland Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Allowance for loan losses
Ending Balance
Residential Loan [Member]
Balance	1,730	1,695	1,807	1,875
Charge-offs			(32)	(117)
Recoveries		20	8	39
Provision	92	71	39	(11)
Balance	1,822	1,786	1,822	1,786
Ending balance: individually evaluated for impairment						12
Ending balance: collectively evaluated for impairment					1,822	1,795
Allowance for loan losses	1,730	1,695	1,822	1,786	1,822	1,807
Ending Balance					251,091	235,689
Ending balance: individually evaluated for impairment					915	1,018
Ending balance: collectively evaluated for impairment					250,023	234,504
Residential Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Allowance for loan losses
Ending Balance					153	167
Commercial Mortgage Loan [Member]
Balance	852	619	682	619
Charge-offs			(41)	(142)
Recoveries	41	48	69	48
Provision	16	9	199	151
Balance	909	676	909	676
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment					909	682
Allowance for loan losses	852	619	909	676	909	682
Ending Balance					187,549	176,192
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment					187,220	175,845
Commercial Mortgage Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Allowance for loan losses
Ending Balance					329	347
Commercial and Agricultural Loan [Member]
Balance	292	283	281	282
Charge-offs	(14)		(77)
Recoveries	2	2	6	6
Provision	(10)	2	60	(1)
Balance	270	287	270	287
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment					270	281
Allowance for loan losses	292	283	270	287	270	281
Ending Balance					33,064	37,491
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment					32,868	37,291
Commercial and Agricultural Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Allowance for loan losses
Ending Balance					196	200
Consumer and Other Loan [Member]
Balance	119	89	94	80
Charge-offs	(59)	(30)	(154)	(139)
Recoveries	33	10	47	24
Provision	49	36	155	140
Balance	142	105	142	105
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment					142	94
Allowance for loan losses	119	$ 89	142	$ 105	142	94
Ending Balance					19,989	20,353
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment					19,989	20,353
Consumer and Other Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Allowance for loan losses
Ending Balance

XML

Note 5 - Allowance for Loan Losses and Impaired Loans - Troubled Debt Restructuring (Details) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2019 USD ($)	Sep. 30, 2018	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)
Number of contracts		1	0	3	2
Premodification		$ 9		$ 164	$ 80
Postmodification		$ 11		$ 176	$ 95
Number of contracts, subsequently defaulted		0	0	0	0
Premodification, subsequently defaulted	[1]
Postmodification, subsequently defaulted	[1]
Construction and Development Loan [Member]
Number of contracts		1		1
Premodification		$ 9		$ 9
Postmodification		$ 11		$ 11
Number of contracts, subsequently defaulted	[1]
Premodification, subsequently defaulted	[1]
Postmodification, subsequently defaulted	[1]
Farmland Loan [Member]
Number of contracts				1
Premodification				$ 38
Postmodification				$ 37
Number of contracts, subsequently defaulted	[1]
Premodification, subsequently defaulted	[1]
Postmodification, subsequently defaulted	[1]
Residential Loan [Member]
Number of contracts				1	2
Premodification				$ 117	$ 80
Postmodification				$ 128	$ 95
Number of contracts, subsequently defaulted	[1]
Premodification, subsequently defaulted	[1]
Postmodification, subsequently defaulted	[1]
Commercial Mortgage Loan [Member]
Number of contracts
Premodification
Postmodification
Number of contracts, subsequently defaulted	[1]
Premodification, subsequently defaulted	[1]
Postmodification, subsequently defaulted	[1]
Commercial and Agricultural Loan [Member]
Number of contracts
Premodification
Postmodification
Number of contracts, subsequently defaulted	[1]
Premodification, subsequently defaulted	[1]
Postmodification, subsequently defaulted	[1]
Consumer and Other Loan [Member]
Number of contracts
Premodification
Postmodification
Number of contracts, subsequently defaulted	[1]
Premodification, subsequently defaulted	[1]
Postmodification, subsequently defaulted	[1]

[1] Loans past due 30 days or more are considered to be in default.

XML

Note 11 - Capital Requirements (Details Textual)	Sep. 30, 2019
Capital Conservation Buffer	5.45%

XML

Note 9 - Financial Instruments - Assets Recorded at Fair Value on a Recurring Basis (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Investment securities available for sale	$ 34,702	$ 45,428
Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale
Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale	34,702	45,428
Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale
US Government Agencies Debt Securities [Member]
Investment securities available for sale	250	245
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale	250	245
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale
Collateralized Mortgage Backed Securities [Member]
Investment securities available for sale	20,240	24,763
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale	20,240	24,763
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale
Corporate Debt Securities [Member]
Investment securities available for sale	1,402	2,789
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale	1,402	2,789
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale
US States and Political Subdivisions Debt Securities [Member]
Investment securities available for sale	12,810	17,631
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale	12,810	17,631
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2017	5,021,376
Balance at Dec. 31, 2017		$ 26,166	$ 32,526	$ (1,510)	$ 57,182
Net income			1,014		1,014
Other comprehensive income (loss)				(473)	(473)
Dividends paid			(502)		(502)
Balance (in shares) at Mar. 31, 2018	5,021,376
Balance at Mar. 31, 2018		26,166	33,038	(1,983)	57,221
Balance (in shares) at Dec. 31, 2017	5,021,376
Balance at Dec. 31, 2017		26,166	32,526	(1,510)	57,182
Net income					3,728
Other comprehensive income (loss)					(846)
Balance (in shares) at Sep. 30, 2018	6,213,275
Balance at Sep. 30, 2018		41,660	35,131	(2,356)	74,435
Balance (in shares) at Mar. 31, 2018	5,021,376
Balance at Mar. 31, 2018		26,166	33,038	(1,983)	57,221
Net income			999		999
Other comprehensive income (loss)				(198)	(198)
Balance (in shares) at Jun. 30, 2018	5,021,376
Balance at Jun. 30, 2018		26,166	34,037	(2,181)	58,022
Net income			1,715		1,715
Other comprehensive income (loss)				(175)	(175)
Dividends paid			(621)		(621)
Issuance of common stock in connection with acquisition of Great State Bank (in shares)	1,191,899
Issuance of common stock in connection with acquisition of Great State Bank		15,495			15,495
Redemption of fractional shares Issued in acquisition of Great State Bank		(1)			(1)
Balance (in shares) at Sep. 30, 2018	6,213,275
Balance at Sep. 30, 2018		41,660	35,131	(2,356)	$ 74,435
Balance (in shares) at Dec. 31, 2018	6,213,275				6,213,275
Balance at Dec. 31, 2018		41,660	35,929	(1,967)	$ 75,622
Net income			1,665		1,665
Other comprehensive income (loss)				567	567
Dividends paid			(746)		(746)
Balance (in shares) at Mar. 31, 2019	6,213,275
Balance at Mar. 31, 2019		41,660	36,848	(1,400)	$ 77,108
Balance (in shares) at Dec. 31, 2018	6,213,275				6,213,275
Balance at Dec. 31, 2018		41,660	35,929	(1,967)	$ 75,622
Net income					5,434
Other comprehensive income (loss)					$ 1,058
Balance (in shares) at Sep. 30, 2019	6,148,275				6,148,275
Balance at Sep. 30, 2019		40,889	39,879	(909)	$ 79,859
Balance (in shares) at Mar. 31, 2019	6,213,275
Balance at Mar. 31, 2019		41,660	36,848	(1,400)	77,108
Net income			1,735		1,735
Other comprehensive income (loss)				433	433
Common stock repurchased (in shares)	(20,000)
Common stock repurchased		(235)			(235)
Balance (in shares) at Jun. 30, 2019	6,193,275
Balance at Jun. 30, 2019		41,425	38,583	(967)	79,041
Net income			2,034		2,034
Other comprehensive income (loss)				58	58
Dividends paid			(738)		(738)
Common stock repurchased		(536)			$ (536)
Balance (in shares) at Sep. 30, 2019	6,148,275				6,148,275
Balance at Sep. 30, 2019		$ 40,889	$ 39,879	$ (909)	$ 79,859

XML

Note 8 - Commitments and Contingencies (Details Textual)	9 Months Ended
	Sep. 30, 2019 USD ($)
Concentration Risk, Credit Risk, Financial Instrument, Maximum Exposure	$ 5,000,000

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 7,913	$ 8,858
Interest-bearing deposits with banks	30,314	12,159
Federal funds sold	2,965	18,990
Investment securities available for sale	34,702	45,428
Restricted equity securities	2,394	2,053
Loans, net of allowance for loan losses of $3,972 at September 30, 2019 and $3,495 at December 31, 2018	558,238	532,970
Cash value of life insurance	17,737	17,413
Foreclosed assets		753
Properties and equipment, net	21,387	20,685
Accrued interest receivable	2,066	2,084
Core deposit intangible	3,262	3,892
Goodwill	3,257	3,198
Deferred tax assets, net	1,022	1,853
Other assets	9,923	9,948
	695,180	680,284
Liabilities
Noninterest-bearing	164,673	160,166
Interest-bearing	437,287	441,702
Total deposits	601,960	601,868
FHLB Advances	10,000
Accrued interest payable	204	89
Other liabilities	3,157	2,705
	615,321	604,662
Commitments and contingencies (Note 8)
Stockholders’ Equity
Preferred stock, no par value; 5,000,000 shares authorized, none issued
Common stock, no par value; 25,000,000 shares authorized, 6,148,275 and 6,213,275 issued and outstanding at September 30, 2019 and December 31, 2018, respectively
Surplus	40,889	41,660
Retained earnings	39,879	35,929
Accumulated other comprehensive loss	(909)	(1,967)
	79,859	75,622
	$ 695,180	$ 680,284

XML

Note 6 - Employee Benefit Plan - Net Periodic Pension Costs (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Service cost
Interest cost	46	43	138	129
Expected return on plan assets	(138)	(144)	(414)	(432)
Amortization of prior service cost
Recognized net loss due to settlement	36		36
Recognized net actuarial (gain)/loss	10	8	30	24
Net periodic benefit cost	$ (46)	$ (93)	$ (210)	$ (279)

XML

Note 5 - Allowance for Loan Losses and Impaired Loans - Carrying Amount of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Outstanding balance	$ 678	$ 714
Carrying amount	678	714
Residential Loan [Member]
Outstanding balance	153	167
Commercial Mortgage Loan [Member]
Outstanding balance	329	347
Commercial and Agricultural Loan [Member]
Outstanding balance	$ 196	$ 200

XML

Note 8 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

8.

Commitments and Contingencies

Litigation

In the normal course of business the Bank is involved in various legal proceedings. After consultation with legal counsel, management believes that any liability resulting from such proceedings will

not

be material to the consolidated financial statements.

Financial Instruments with Off-Balance Sheet Risk

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the consolidated balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments. A summary of the Bank’s commitments at

September 30, 2019

and

December 31, 2018

is as follows:

	September 30,		December 31,
(dollars in thousands)	2019		2018
Commitments to extend credit	$	89,251	$	76,977
Standby letters of credit		1,163		1,227
	$	90,414	$	78,204

Commitments to extend credit are agreements to lend to a customer as long as there is

no

violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and

may

require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do

not

necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but

may

include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a

third

party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Bank deems necessary.

Concentrations of Credit Risk

Substantially all of the Bank’s loans, commitments to extend credit, and standby letters of credit have been granted to customers in the Bank’s market area and such customers are generally depositors of the Bank. Investments in state and municipal securities involve governmental entities within and outside the Bank’s market area. The concentrations of credit by type of loan are set forth in Note

3.

The distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit are granted primarily to commercial borrowers. The Bank’s primary focus is toward small business and consumer transactions, and accordingly, it does

not

have a significant number of credits to any single borrower or group of related borrowers in excess of

$5,000,000.

The Bank has cash and cash equivalents on deposit with financial institutions which exceed federally insured limits.

XML

Note 4 - Loans Receivable

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note

4

. Loans Receivable

The major components of loans in the consolidated balance sheets at

September 30, 2019

and

December 31, 2018

are as follows:

(dollars in thousands)	201 9			201 8
Construction & development	$	35,564		$	33,449
Farmland		34,953			33,291
Residential		251,091			235,689
Commercial mortgage		187,549			176,192
Commercial & agricultural		33,064			37,491
Consumer & other		19,989			20,353
Total loans		562,210			536,465
Allowance for loan losses		(3,972	)		(3,495	)
Loans, net of allowance for loan losses	$	558,238		$	532,970

As of

September 30, 2019

and

December 31, 2018,

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.

XML

Note 11 - Capital Requirements (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

	Actual					For Capital Adequacy Purposes					To Be Well- Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 20 1 9
Total Capital (to risk weighted assets)	$	76,739		13.45	%	$	45,633		8.00	%	$	57,041		10.00	%
Tier 1 Capital (to risk weighted assets)	$	72,737		12.75	%	$	34,224		6.00	%	$	45,633		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	72,737		12.75	%	$	25,668		4.50	%	$	37,077		6.50	%
Tier 1 Capital (to average total assets)	$	72,737		10.80	%	$	26,928		4.00	%	$	33,660		5.00	%
December 31, 201 8
Total Capital (to risk weighted assets)	$	71,424		13.00	%	$	43,943		8.00	%	$	54,929		10.00	%
Tier 1 Capital (to risk weighted assets)	$	67,899		12.36	%	$	32,958		6.00	%	$	43,943		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	67,899		12.36	%	$	24,718		4.50	%	$	35,704		6.50	%
Tier 1 Capital (to average total assets)	$	67,899		10.08	%	$	26,932		4.00	%	$	33,664		5.00	%

XML

Note 2 - Business Combinations (Details Textual) $ in Thousands		3 Months Ended		9 Months Ended
	Jul. 01, 2018 shares	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)
Business Combination, Acquisition Related Costs | $			$ 359		$ 856
Great State Bank [Member]
Business Acquisition, Equity Interest Issued or Issuable, Exchange Ratio	1.21
Stock Issued During Period, Shares, Acquisitions | shares	1,191,899

XML

Note 3 - Investment Securities - Amortized Cost and Fair Value (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Amortized cost	$ 34,539	$ 46,605
Unrealized gains	311	33
Unrealized losses	(148)	(1,210)
Investment securities available for sale	34,702	45,428
US Government Agencies Debt Securities [Member]
Amortized cost	246	244
Unrealized gains	4	1
Unrealized losses
Investment securities available for sale	250	245
Collateralized Mortgage Backed Securities [Member]
Amortized cost	20,201	25,627
Unrealized gains	89	1
Unrealized losses	(50)	(865)
Investment securities available for sale	20,240	24,763
Corporate Debt Securities [Member]
Amortized cost	1,500	2,970
Unrealized gains
Unrealized losses	(98)	(181)
Investment securities available for sale	1,402	2,789
US States and Political Subdivisions Debt Securities [Member]
Amortized cost	12,592	17,764
Unrealized gains	218	31
Unrealized losses		(164)
Investment securities available for sale	$ 12,810	$ 17,631

XML

Note 7 - Goodwill and Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Amortization of Intangible Assets, Total	$ 193	$ 219	$ 630	$ 359

XML

Note 5 - Allowance for Loan Losses and Impaired Loans - Purchased Credit Impaired Loans (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Contractually required payments receivable of loans	$ 2,178
Cash flows expected to be collected at acquisition	1,781
Fair value of acquired loans at acquisition	1,781
Residential Loan [Member]
Contractually required payments receivable of loans	233
Commercial Mortgage Loan [Member]
Contractually required payments receivable of loans	1,724
Commercial and Agricultural Loan [Member]
Contractually required payments receivable of loans	$ 221

XML

Note 8 - Commitments and Contingencies - Summary of Bank's Commitments (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financial instruments with off balance sheet risk	$ 90,414	$ 78,204
Commitments to Extend Credit [Member]
Financial instruments with off balance sheet risk	89,251	76,977
Standby Letters of Credit [Member]
Financial instruments with off balance sheet risk	$ 1,163	$ 1,227

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Mar. 31, 2018
Retained Earnings [Member]
Dividends paid per share (in dollars per share)	$ 0.12	$ 0.12
Dividends paid per share (in dollars per share)			$ 0.10	$ 0.10

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ / shares in Thousands, $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Allowance for loan losses	$ 3,972	$ 3,495
Preferred stock, no par value (in dollars per share)	$ 0	$ 0
Preferred stock, authorized (in shares)	5,000,000	5,000,000
Preferred stock, issued (in shares)	0	0
Common stock, no par value (in dollars per share)	$ 0	$ 0
Common stock, authorized (in shares)	25,000,000	25,000,000
Common stock, issued (in shares)	6,148,275	6,213,275
Common stock, outstanding (in shares)	6,148,275	6,213,275

XML

Note 9 - Financial Instruments

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Financial Instruments Disclosure [Text Block]

Note

9

. Financial Instruments

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments

not

recorded at fair value on a recurring basis as of

September 30, 2019

and

December 31, 2018.

This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For non-marketable equity securities such as Federal Home Loan Bank and Federal Reserve Bank stock, the carrying amount is a reasonable estimate of the fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government supported institution or to another member institution. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having

no

stated maturity.

For loans, the carrying amount is net of unearned income and the allowance for loan losses. In accordance with the prospective adoption of ASU

No.

2016

-

01,

the fair value of loans as of

September 30, 2019

and

December 31, 2018

was measured using an exit price notion.

					Fair Value Measurements
(dollars in thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30 , 201 9
Financial Instruments – Assets
Net Loans	$	558,238	$	548,269	$	-	$	548,066	$	203
Financial Instruments – Liabilities
Time Deposits		190,166		190,241		-		190,241		-
FHLB Advances		10,000		9,973		9,973		-		-
December 31, 201 8
Financial Instruments – Assets
Net Loans	$	532,970	$	529,155	$	-	$	528,784	$	371
Financial Instruments – Liabilities
Time Deposits		180,143		176,188		-		176,188		-

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company

may

be required to record at fair value other assets on a nonrecurring basis, such as loans or foreclosed assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under FASB ASC

820,

“Fair Value Measurements and Disclosures”, the Company groups assets and liabilities at fair value in

three

levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level

1

– Valuation is based upon quoted prices for identical instruments traded in active markets.

Level

2

– Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are

not

active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level

3

– Valuation is generated from model-based techniques that use at least

one

significant assumption

not

observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques

may

include the use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available for Sale

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are

not

available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level

1

securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level

2

securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level

3

include asset-backed securities in less liquid markets.

Loans

The Company does

not

record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will

not

be made in accordance with the contractual terms of the loan agreement are considered impaired. If a loan is identified as individually impaired, management measures impairment in accordance with applicable accounting guidance. The fair value of impaired loans is estimated using

one

of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. Those impaired loans

not

requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At

September 30, 2019,

a small percentage of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with accounting standards, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price the Company records the impaired loan as nonrecurring Level

2.

When the fair value is based on either an external or internal appraisal and there is

no

observable market price, the Company records the impaired loan as nonrecurring Level

3.

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price the Company records the foreclosed asset as nonrecurring Level

2.

When the fair value of the collateral is based on either an external or internal appraisal and there is

no

observable market price, the Company records the foreclosed asset as nonrecurring Level

3.

Assets Recorded at Fair Value on a Recurring Basis

(dollars in thousands)	Total		Level 1		Level 2		Level 3
September 3 0 , 2019
Investment securities available for sale
U.S. Government Agencies	$	250	$	-	$	250	$	-
Mortgage-backed securities		20,240		-		20,240		-
Corporate securities		1,402		-		1,402		-
State and municipal securities		12,810		-		12,810		-
Total assets at fair value	$	34,702	$	-	$	34,702	$	-
December 31, 201 8
Investment securities available for sale
U.S. Government Agencies	$	245	$	-	$	245	$	-
Mortgage-backed securities		24,763		-		24,763		-
Corporate securities		2,789		-		2,789		-
State and municipal securities		17,631		-		17,631		-
Total assets at fair value	$	45,428	$	-	$	45,428	$	-

No

liabilities were recorded at fair value on a recurring basis as of

September 30, 2019

and

December 31, 2018.

There were

no

significant transfers between levels during the

nine

and

three

month periods ended

September 30, 2019

and the year ended

December 31, 2018.

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company

may

be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets and liabilities that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period.

No

liabilities were recorded at fair value on a nonrecurring basis at

September 30, 2019

and

December 31, 2018.

Assets measured at fair value on a nonrecurring basis are included in the table below.

(dollars in thousands)	Total		Level 1		Level 2		Level 3
September 30 , 201 9
Impaired loans	$	203	$	-	$	-	$	203
Foreclosed assets		-		-		-		-
Total assets at fair value	$	203	$	-	$	-	$	203

(dollars in thousands)	Total		Level 1		Level 2		Level 3
December 31, 201 8
Impaired loans	$	371	$	-	$	-	$	371
Foreclosed assets		753		-		-		753
Total assets at fair value	$	1,124	$	-	$	-	$	1,124

Assets Recorded at Fair Value on a Nonrecurring Basis

For Level

3

assets measured at fair value on a recurring or non-recurring basis as of

September 30, 2019

and

December 31, 2018,

the significant unobservable inputs used in the fair value measurements were as follows:

	Fair Value at September 30, 2019		Fair Value at December 31, 2018		Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Impaired Loans	$	203	$	371	Appraised Value/Discounted Cash Flows/Market Value of Note	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell	0	–	10%
Other Real Estate Owned	$	-	$	753	Appraised Value/Comparable Sales/Other Estimates from Independent Sources	Discounts to reflect current market conditions and estimated costs to sell	0	–	10%

XML

Note 5 - Allowance for Loan Losses and Impaired Loans

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note

5

. 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 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.

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

September 30, 2019

and

December 31, 2018:

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 September 30, 2019
Allowance for loan losses:
Balance, June 30, 2019	$	285		$	540		$	1,730		$	852		$	292		$	119		$	3,818
Charge-offs		-			-			-			-			(14	)		(59	)		(73	)
Recoveries		-			-			-			41			2			33			76
Provision		13			(9	)		92			16			(10	)		49			151
Balance, September 30, 2019	$	298		$	531		$	1,822		$	909		$	270		$	142		$	3,972
For the Three Months Ended September 30, 2018
Allowance for loan losses:
Balance, June 30, 2018	$	256		$	339		$	1,695		$	619		$	283		$	89		$	3,281
Charge-offs		-			-			-			-			-			(30	)		(30	)
Recoveries		-			-			20			48			2			10			80
Provision		(2	)		(3	)		71			9			2			36			113
Balance, September 30, 2018	$	254		$	336		$	1,786		$	676		$	287		$	105		$	3,444
For the Nine Months Ended September 30, 2019
Allowance for loan losses:
Balance, December 31, 2018	$	246		$	385		$	1,807		$	682		$	281		$	94		$	3,495
Charge-offs		-			(14	)		(32	)		(41	)		(77	)		(154	)		(318	)
Recoveries		-			-			8			69			6			47			130
Provision		52			160			39			199			60			155			665
Balance, September 30, 2019	$	298		$	531		$	1,822		$	909		$	270		$	142		$	3,972
For the Nine Months Ended September 30, 2018
Allowance for loan losses:
Balance, December 31, 2017	$	239		$	358		$	1,875		$	619		$	282		$	80		$	3,453
Charge-offs		(20	)		-			(117	)		(142	)		-			(139	)		(418	)
Recoveries		-			34			39			48			6			24			151
Provision		35			(56	)		(11	)		151			(1	)		140			258
Balance, September 30, 2018	$	254		$	336		$	1,786		$	676		$	287		$	105		$	3,444
September 30, 2019
Allowance for loan losses:
Ending Balance	$	298		$	531		$	1,822		$	909		$	270		$	142		$	3,972
Ending balance: individually evaluated for impairment	$	-		$	36		$	-		$	-		$	-		$	-		$	36
Ending balance: collectively evaluated for impairment	$	298		$	495		$	1,822		$	909		$	270		$	142		$	3,936
Ending balance: purchased credit impaired loans	$	-		$	-		$	-		$	-		$	-		$	-		$	-
Loans outstanding:
Ending Balance	$	35,564		$	34,953		$	251,091		$	187,549		$	33,064		$	19,989		$	562,210
Ending balance: individually evaluated for impairment	$	-		$	4,113		$	915		$	-		$	-		$	-		$	5,028
Ending balance: collectively evaluated for impairment	$	35,564		$	30,840		$	250,023		$	187,220		$	32,868		$	19,989		$	556,504
Ending balance: purchased credit impaired loans	$	-		$	-		$	153		$	329		$	196		$	-		$	678

Allowance for Loan Losses and Recorded Investment in Loans

(dollars in thousands)	Construction & Development		Farmland		Residential		Commercial Mortgage		Commercial & Agricultural		Consumer & Other		Total
December 31, 2018
Allowance for loan losses:
Ending Balance	$	246	$	385	$	1,807	$	682	$	281	$	94	$	3,495
Ending balance: individually evaluated for impairment	$	-	$	29	$	12	$	-	$	-	$	-	$	41
Ending balance: collectively evaluated for impairment	$	246	$	356	$	1,795	$	682	$	281	$	94	$	3,454
Ending balance: purchased credit impaired loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans outstanding:
Ending Balance	$	33,449	$	33,291	$	235,689	$	176,192	$	37,491	$	20,353	$	536,465
Ending balance: individually evaluated for impairment	$	-	$	4,552	$	1,018	$	-	$	-	$	-	$	5,570
Ending balance: collectively evaluated for impairment	$	33,449	$	28,739	$	234,504	$	175,845	$	37,291	$	20,353	$	530,181
Ending balance: purchased credit impaired loans	$	-	$	-	$	167	$	347	$	200	$	-	$	714

As of

September 30, 2019

and

December 31, 2018,

the Bank had

no

unallocated reserves included in the allowance for loan losses.

Management closely monitors the quality of the loan portfolio and has established a loan review process designed to help grade the quality of the Bank’s loan portfolio. The Bank’s loan ratings coincide with the “Substandard,” “Doubtful” and “Loss” classifications used by federal regulators in their examination of financial institutions. Generally, an asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. Substandard assets include those characterized by the distinct possibility that the insured financial institution will sustain some loss if the deficiencies are

not

corrected. Assets classified as Doubtful have all the weaknesses inherent in assets classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Assets classified as Loss are those considered uncollectible, and of such little value that its continuance on the books is

not

warranted. Assets that do

not

currently expose the insured financial institutions to sufficient risk to warrant classification in

one

of the aforementioned categories but otherwise possess weaknesses are designated “Special Mention.” Management also maintains a listing of loans designated “Watch”. These loans represent borrowers with declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average risk. As of

September 30, 2019

and

December 31, 2018,

respectively, the Bank had

no

loans graded “Doubtful” or “Loss” included in the balance of total loans outstanding.

The following table lists the loan grades utilized by the Bank and the corresponding total of outstanding loans in each category as of

September 30, 2019

and

December 31, 2018:

Credit Risk Profile by Internally Assigned Grades

	Loan Grades
(dollars in thousands)	Pass		Watch		Special Mention		Substandard		Total
September 3 0 , 2019
Real Estate Secured:
Construction & development	$	32,220	$	3,180	$	-	$	164	$	35,564
Farmland		23,843		4,374		177		6,559		34,953
Residential		228,940		19,636		999		1,516		251,091
Commercial mortgage		158,753		23,195		1,217		4,384		187,549
Non-Real Estate Secured:
Commercial & agricultural		28,968		3,169		118		809		33,064
Consumer & other		19,684		305		-		-		19,989
Total	$	492,408	$	53,859	$	2,511	$	13,432	$	562,210
December 31, 2018
Real Estate Secured:
Construction & development	$	31,237	$	2,044	$	147	$	21	$	33,449
Farmland		23,250		4,933		750		4,358		33,291
Residential		213,670		18,794		299		2,926		235,689
Commercial mortgage		148,179		23,468		1,212		3,333		176,192
Non-Real Estate Secured:
Commercial & agricultural		33,537		2,908		70		976		37,491
Consumer & other		18,975		1,364		-		14		20,353
Total	$	468,848	$	53,511	$	2,478	$	11,628	$	536,465

Loans

may

be placed in nonaccrual status 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. Loans are removed from nonaccrual status when they are deemed a loss and charged to the allowance, transferred to foreclosed assets, or returned to accrual status based upon performance consistent with the original terms of the loan or a subsequent restructuring thereof.

The following table presents an age analysis of nonaccrual and past due loans by category as of

September 30, 2019

and

December 31, 2018:

Analysis of Past Due and Nonaccrual Loans

					90 Days								90+ Days Past Due
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		or More Past Due		Total Past Due		Current		Total Loans		and Still Accruing		Nonaccrual Loans
September 30 , 201 9
Real Estate Secured:
Construction & development	$	2	$	-	$	10	$	12	$	35,552	$	35,564	$	-	$	10
Farmland		-		-		1,303		1,303		33,650		34,953		-		3,993
Residential		384		49		355		788		250,303		251,091		-		366
Commercial mortgage		116		-		-		116		187,433		187,549		-		202
Non-Real Estate Secured:
Commercial & agricultural		52		-		241		293		32,771		33,064		-		245
Consumer & other		8		2		-		10		19,979		19,989		-		-
Total	$	562	$	51	$	1,909	$	2,522	$	559,688	$	562,210	$	-	$	4,816
December 31, 2018
Real Estate Secured:
Construction & development	$	29	$	-	$	-	$	29	$	33,420	$	33,449	$	-	$	-
Farmland		71		100		989		1,160		32,131		33,291		-		3,914
Residential		762		145		241		1,148		234,541		235,689		-		653
Commercial mortgage		-		-		604		604		175,588		176,192		-		740
Non-Real Estate Secured:
Commercial & agricultural		7		-		264		271		37,220		37,491		-		264
Consumer & other		12		18		8		38		20,315		20,353		-		8
Total	$	881	$	263	$	2,106	$	3,250	$	533,215	$	536,465	$	-	$	5,579

Impaired Loans

A loan is considered impaired when it is probable that the Bank will be unable to collect all contractual principal and interest payments due in accordance with the original or modified terms of the loan agreement. Smaller balance homogenous loans

may

be collectively evaluated for impairment. Non-homogenous impaired loans are either measured based on the estimated fair value of the collateral less estimated cost to sell if the loan is considered collateral dependent, or measured based on the present value of expected future cash flows if

not

collateral dependent. The valuation of real estate collateral is subjective in nature and

may

be adjusted in future periods because of changes in economic conditions. Management considers

third

-party appraisals, as well as independent fair market value assessments in determining the estimated fair value of particular properties. In addition, as certain of these

third

-party appraisals and independent fair market value assessments are only updated periodically, changes in the values of specific properties

may

have occurred subsequent to the most recent appraisals. Accordingly, the amounts of any such potential changes and any related adjustments are generally recorded at the time such information is received. When the measurement of the impaired loan is less than the recorded investment in the loan, impairment is recognized by creating or adjusting an allocation of the allowance for loan losses and uncollected accrued interest is reversed against interest income. If ultimate collection of the principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance.

As of

September 30, 2019

and

December 31, 2018,

respectively, the recorded investment in impaired loans totaled

$9.4

million and

$10.3

million. The total amount of collateral-dependent impaired loans at

September 30, 2019

and

December 31, 2018,

respectively, was

$2.6

million and

$2.8

million. As of

September 30, 2019

and

December 31, 2018,

respectively,

$2.9

million and

$3.4

million of the recorded investment in impaired loans did

not

have a related allowance. The Bank had

$6.9

million and

$7.3

million in TDR loans included in impaired loans at

September 30, 2019

and

December 31, 2018,

respectively.

The categories of non-accrual loans and impaired loans overlap, although they are

not

coextensive. The Bank considers all circumstances regarding the loan and borrower on an individual basis when determining whether an impaired loan should be placed on non-accrual status, such as the financial strength of the borrower, the estimated collateral value, reasons for the delay, payment record, the amount past due and the number of days past due.

In

2015,

management began collectively evaluating performing TDRs with a loan balance of

$250,000

or less for impairment. As of

September 30, 2019

and

December 31, 2018,

respectively,

$4.3

million and

$4.7

million of TDRs included in the following table were evaluated collectively for impairment and were deemed to have

$224

thousand and

$259

thousand of related allowance.

The following table is a summary of information related to impaired loans as of

September 30, 2019

and

December 31, 2018:

Impaired Loans

							Nine months ended				Three months ended
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
(dollars in thousands)	Investment 1		Balance		Allowance		Investment		Recognized		Investment		Recognized
September 30, 2019
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Farmland		2,882		2,882		-		3,017		14		2,952		5
Residential		-		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-		-
Subtotal		2,882		2,882		-		3,017		14		2,952		5
With an allowance recorded:
Construction & development		74		74		4		77		4		75		1
Farmland		1,540		1,540		46		1,558		53		1,547		17
Residential		4,716		4,866		198		5,099		197		4,804		62
Commercial mortgage		193		237		10		270		9		194		3
Commercial & agricultural		33		33		2		35		2		34		1
Consumer & other		3		3		-		4		-		3		-
Subtotal		6,559		6,753		260		7,043		265		6,657		84
Totals:
Construction & development		74		74		4		77		4		75		1
Farmland		4,422		4,422		46		4,575		67		4,499		22
Residential		4,716		4,866		198		5,099		197		4,804		62
Commercial mortgage		193		237		10		270		9		194		3
Commercial & agricultural		33		33		2		35		2		34		1
Consumer & other		3		3		-		4		-		3		-
Total	$	9,441	$	9,635	$	260	$	10,060	$	279	$	9,609	$	89

1 Recorded investment is the loan balance, net of any charge-offs

(dollars in thousands)	Recorded Investment 1		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 201 8
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-
Farmland		3,284		3,284		-		3,523		23
Residential		85		85		-		448		13
Commercial mortgage		-		-		-		-		-
Commercial & agricultural		-		24		-		-		-
Consumer & other		-		-		-		-		-
Subtotal		3,369		3,393		-		3,971		36
With an allowance recorded:
Construction & development		69		69		4		306		11
Farmland		1,539		1,539		38		1,568		86
Residential		5,005		5,162		241		5,348		266
Commercial mortgage		275		358		15		522		27
Commercial & agricultural		37		37		2		47		3
Consumer & other		4		4		-		4		-
Subtotal		6,929		7,169		300		7,795		393
Totals:
Construction & development		69		69		4		306		11
Farmland		4,823		4,823		38		5,091		109
Residential		5,090		5,247		241		5,796		279
Commercial mortgage		275		358		15		522		27
Commercial & agricultural		37		61		2		47		3
Consumer & other		4		4		-		4		-
Total	$	10,298	$	10,562	$	300	$	11,766	$	429

1 Recorded investment is the loan balance, net of any charge-offs

Troubled Debt Restructuring

A TDR loan is a loan for which the Bank, for reasons related to the borrower’s financial difficulties, grants a concession to the borrower that the Bank would

not

otherwise consider.

The loan terms which have been modified or restructured due to a borrower’s financial difficulty, include but are

not

limited to: a reduction in the stated interest rate; an extension of the maturity at an interest rate below current market; a reduction in the face amount of the debt; a reduction in the accrued interest; or re-aging, extensions, deferrals and renewals. TDR loans are considered impaired loans.

The following table sets forth information with respect to the Bank’s TDRs as of

September 30, 2019

and

September 30, 2018:

For the

Nine

Months Ended

September

30

,

201

9

(dollars in thousands)	TDRs identified during the period						TDRs identified in the last twelve months that subsequently defaulte d (1)
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction & development		1	$	9	$	11		-	$	-	$	-
Farmland		1		38		37		-		-		-
Residential		1		117		128		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		3	$	164	$	176		-	$	-	$	-

(

1

)

Loans past due

30

days or more are considered to be in default.

During the

nine

months ended

September 30, 2019,

three

loans were modified that were considered to be a TDRs. Term concessions were granted on all the loans and

two

loans had additional funds advanced for legal expenses and property taxes.

No

TDRs identified in the last

twelve

months subsequently defaulted in the

nine

months ended

September 30, 2019.

For the

Three

Months Ended

September

30

,

201

9

(dollars in thousands)	TDRs identified during the period						TDRs identified in the last twelve months that subsequently defaulte d (1)
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction & development		1	$	9	$	11		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		1	$	9	$	11		-	$	-	$	-

(

1

)

Loans past due

30

days or more are considered to be in default.

During the

three

months ended

September 30, 2019,

one

loan was modified that was considered to be a TDR. Term concessions were granted on this loan and additional funds advance for legal expenses and property taxes.

No

TDRs identified in the last

twelve

months subsequently defaulted in the quarter ended

September 30, 2019.

For the

Nine

Months Ended

September

30,

2018

(dollars in thousands)	TDRs identified during the period						TDRs identified in the last twelve months that subsequently defaulte d (1)
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction & development		-	$	-	$	-		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		2		80		95		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		2	$	80	$	95		-	$	-	$	-

(

1

)

Loans past due

30

days or more are considered to be in default.

During the

nine

months ended

September 30, 2018,

two

loans were modified that were considered to be TDRs. Term concessions were granted and additional funds were advanced for legal expenses and property taxes.

No

TDRs identified in the last

twelve

months subsequently defaulted in the

nine

months ended

September 30, 2018.

During the

three

months ended

September 30, 2018,

no

loans were modified that were considered to be TDRs.

No

TDRs identified in the last

twelve

months subsequently defaulted in the quarter ended

September 30, 2018.

Purchased Credit Impaired Loans

During

2018,

the Company acquired loans as a result of the Great State merger, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would

not

be collected. The carrying amount of those loans at

September 30, 2019

and

December 31, 2018

are as follows:

(dollars in thousands)	2019		2018
Residential	$	153	$	167
Commercial mortgage		329		347
Commercial & agricultural		196		200
Outstanding balance	$	678	$	714
Carrying amount	$	678	$	714

There was

no

accretable yield on purchased credit impaired loans for the period presented.

There were

no

purchased credit impaired loans acquired during the

nine

months ended

September 30, 2019.

Purchased credit impaired loans acquired during the year ended

December 31, 2018

for which it was probable at acquisition that all contractually required payments would

not

be collected are as follows:

	December 31,
(dollars in thousands)	2018
Contractually required payments receivable of loans purchased during the year:
Residential	$	233
Commercial mortgage		1,724
Commercial & agricultural		221
	$	2,178
Cash flows expected to be collected at acquisition	$	1,781
Fair value of acquired loans at acquisition	$	1,781

Income is

not

recognized on purchased credit impaired loans if the Company cannot reasonably estimate cash flows expected to be collected. The carrying amounts of such loans as of

September 30, 2019

and

December 31, 2018

are as follows:

	September 30,		December 31,
(dollars in thousands)	2019		2018
Loans at beginning of year	$	714	$	-
Loans purchased during the year	$	-	$	1,781
Loans at end of period	$	678	$	714

XML

Note 3 - Investment Securities (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Restricted Investments	$ 2,394		$ 2,394		$ 2,053
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	13		13
Percentage of Debt Securities with Unrealized Losses Depreciated	1.03%		1.03%
Proceeds from Sale of Available-for-sale Securities, Equity	$ 8,900	$ 5,000
Available for Sale Securities Called, Gross Realized Losses			$ 14	$ 4
Proceeds from Sale and Maturity of Debt Securities, Available-for-sale, Total			1,150	$ 50
Deposit Liabilities, Collateral Issued, Financial Instruments	$ 14,400		$ 14,400		$ 13,900

XML

Note 9 - Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

					Fair Value Measurements
(dollars in thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30 , 201 9
Financial Instruments – Assets
Net Loans	$	558,238	$	548,269	$	-	$	548,066	$	203
Financial Instruments – Liabilities
Time Deposits		190,166		190,241		-		190,241		-
FHLB Advances		10,000		9,973		9,973		-		-
December 31, 201 8
Financial Instruments – Assets
Net Loans	$	532,970	$	529,155	$	-	$	528,784	$	371
Financial Instruments – Liabilities
Time Deposits		180,143		176,188		-		176,188		-

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

(dollars in thousands)	Total		Level 1		Level 2		Level 3
September 3 0 , 2019
Investment securities available for sale
U.S. Government Agencies	$	250	$	-	$	250	$	-
Mortgage-backed securities		20,240		-		20,240		-
Corporate securities		1,402		-		1,402		-
State and municipal securities		12,810		-		12,810		-
Total assets at fair value	$	34,702	$	-	$	34,702	$	-
December 31, 201 8
Investment securities available for sale
U.S. Government Agencies	$	245	$	-	$	245	$	-
Mortgage-backed securities		24,763		-		24,763		-
Corporate securities		2,789		-		2,789		-
State and municipal securities		17,631		-		17,631		-
Total assets at fair value	$	45,428	$	-	$	45,428	$	-

Fair Value Measurements, Nonrecurring [Table Text Block]

(dollars in thousands)	Total		Level 1		Level 2		Level 3
September 30 , 201 9
Impaired loans	$	203	$	-	$	-	$	203
Foreclosed assets		-		-		-		-
Total assets at fair value	$	203	$	-	$	-	$	203

(dollars in thousands)	Total		Level 1		Level 2		Level 3
December 31, 201 8
Impaired loans	$	371	$	-	$	-	$	371
Foreclosed assets		753		-		-		753
Total assets at fair value	$	1,124	$	-	$	-	$	1,124

Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]

	Fair Value at September 30, 2019		Fair Value at December 31, 2018		Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Impaired Loans	$	203	$	371	Appraised Value/Discounted Cash Flows/Market Value of Note	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell	0	–	10%
Other Real Estate Owned	$	-	$	753	Appraised Value/Comparable Sales/Other Estimates from Independent Sources	Discounts to reflect current market conditions and estimated costs to sell	0	–	10%

XML

Note 1 - Organization and Summary of Significant Accounting Policies - Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Balance	$ 75,622	$ 57,182
Balance	79,859	74,435
AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent [Member]
Balance	(929)	(523)
Other comprehensive loss before reclassifications	1,093	(842)
Amounts reclassified from accumulated other comprehensive loss, net of tax	(35)	(4)
Balance	129	(1,369)
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Balance	(1,038)	(987)
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss, net of tax
Balance	(1,038)	(987)
AOCI Attributable to Parent [Member]
Balance	(1,967)	(1,510)
Other comprehensive loss before reclassifications	1,093	(842)
Amounts reclassified from accumulated other comprehensive loss, net of tax	(35)	(4)
Balance	$ (909)	$ (2,356)

XML

Note 4 - Loans Receivable (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

(dollars in thousands)	201 9			201 8
Construction & development	$	35,564		$	33,449
Farmland		34,953			33,291
Residential		251,091			235,689
Commercial mortgage		187,549			176,192
Commercial & agricultural		33,064			37,491
Consumer & other		19,989			20,353
Total loans		562,210			536,465
Allowance for loan losses		(3,972	)		(3,495	)
Loans, net of allowance for loan losses	$	558,238		$	532,970

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

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.

Consolidation, Policy [Policy Text Block]

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.

Segment Reporting, Policy [Policy Text Block]

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 Policy [Policy Text Block]

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, Policy [Policy Text Block]

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.

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, Policy [Policy Text Block]

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.

Marketable Securities, Trading Securities [Policy Text Block]

Trading Securities

The Company does

not

hold securities for short-term resale and therefore does

not

maintain a trading securities portfolio.

Marketable Securities, Held-to-maturity Securities [Policy Text Block]

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.

Marketable Securities, Available-for-sale Securities [Policy Text Block]

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.

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.

Policy Loans Receivable, Policy [Policy Text Block]

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.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

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.

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 Restructuring [Policy Text Block]

Troubled Debt Restructurings

Under U.S. generally accepted accounting principles (“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.

Property, Plant and Equipment, Policy [Policy Text Block]

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

Financing Receivable, Held-for-investment, Foreclosed Asset [Policy Text Block]

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 and Other Postretirement Plans, Pensions, Policy [Policy Text Block]

Pension Plan

Prior to the Cardinal merger, both the Bank 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 the Bank and Floyd plans were amended to freeze benefit accruals for all eligible employees prior to the effective date of the Cardinal merger. The Bank’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 and Servicing of Financial Assets, Transfers of Financial Assets, Policy [Policy Text Block]

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.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Other Intangible

A

ssets

Goodwill arises from business combinations and is generally determined as the excess of fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquire, over the fair value of the nets assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are

not

amortized, but tested for impairment at least annually or more frequently in events and circumstances exists that indicate that a goodwill impairment test should be performed.  The Company has selected

July 1

as the date to perform the annual impairment test.  The annual impairment test was performed for

July 1, 2019,

with

no

impairment found on the goodwill.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.  Goodwill is the only intangible asset with an indefinite life on our balance sheet.

Other intangible assets consist of core deposit intangibles that 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.  The core deposit intangible as a result of the Cardinal merger, is amortized over an estimated useful life of

twenty

years on an accelerated basis.  For the core deposit intangible as a result of the Great State merger, we used an estimated useful life of

seven

years on an accelerated basis for the amortization.

Revenue [Policy Text Block]

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.

Income Tax, Policy [Policy Text Block]

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 Cost [Policy Text Block]

Advertising Expense

The Company expenses advertising costs as they are incurred. Advertising expense for the years presented is

not

material.

Earnings Per Share, Policy [Policy Text Block]

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.

Comprehensive Income, Policy [Policy Text Block]

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:

	Unrealized Gains
	And (Losses)
(dollars in thousands)	On Available for			Defined Benefit
	Sale Securities			Pension Items			Total
Balance, December 31, 2017	$	(523	)	$	(987	)	$	(1,510	)
Other comprehensive loss before reclassifications		(842	)		-			(842	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		(4	)		-			(4	)
Balance September 30, 2018	$	(1,369	)	$	(987	)	$	(2,356	)
Balance, December 31, 2018	$	(929	)	$	(1,038	)	$	(1,967	)
Other comprehensive gain before reclassifications		1,093			-			1,093
Amounts reclassified from accumulated other comprehensive gain, net of tax		(35	)		-			(35	)
Balance September 30, 2019	$	129		$	(1,038	)	$	(909	)

Off-Balance-Sheet Credit Exposure, Policy [Policy Text Block]

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, Policy [Policy Text Block]

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

9.

Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

Reclassification, Policy [Policy Text Block]

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.

New Accounting Pronouncements, Policy [Policy Text Block]

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 were effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years.

Effective

January 1, 2019,

we adopted 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 performed an evaluation of our leasing contracts and activities. We have developed our methodology to estimate the right-of use assets and lease liabilities, which is based on the present value of lease payments.  At

September 30, 2019

future minimum lease payments were approximately

$681

thousand.  Based on our evaluation the adoption of the guidance was immaterial to our financial position, results of operations, and cash flows.  There will

not

be a material change to the timing of expense recognition.

In

June 2016,

the FASB issued Accounting Standards Update (“ASU”)

No.

2016

-

13

to change the accounting for credit losses and modify the impairment model for certain debt securities. 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. We are currently 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

July 2019,

the FASB proposed changes to the effective date of the ASU for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The proposal would delay the effective date to fiscal years beginning after

December 31, 2022,

including interim periods within those fiscal periods.  As the Company is a smaller reporting company, the proposed delay would be applicable to the Company, if it is approved by the FASB.  On

October 16, 2019

the proposed changes were approved by the FASB.

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

July 2018,

the FASB amended the Leases Topic of the Accounting Standards Codification to give entities another option for transition and to provide lessors with a practical expedient.  The amendments were effective for the Company for reporting periods beginning after

December 15, 2018

and did

not

have a material effect on its financial statements.

In

August 2018,

the FASB amended the Intangibles—Goodwill and Other Topic of the Accounting Standards Codification to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.  The amendments will be effective for the Company for fiscal years beginning after

December 15, 2019. 

Early adoption is permitted.  The Company does

not

expect these amendments to have a material effect on its financial statements.

In

August 2018,

the FASB amended the Fair Value Measurement Topic of the Accounting Standards Codification.  The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement,

Conceptual Framework for Financial Reporting—Chapter

8:

Notes to Financial Statements

.  The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019. 

Early adoption is permitted.  An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date.  The Company does

not

expect these amendments to have a material effect on its financial statements.

In

March 2019,

the FASB issued guidance to address concerns companies had raised about an accounting exception they would lose when assessing the fair value of underlying assets under the leases standard and clarify that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new standard. The amendments will be effective for the Company for reporting periods beginning after

December 15, 2019

.

Early adoption is permitted. The Company does

not

expect these amendments to have a material effect on its financial statements.

In

April 2019,

the FASB issued guidance that clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the Company for reporting periods beginning after

December 15, 2019.

The amendments related to hedging will be effective for the Company for annual periods beginning after

December 15, 2019,

and interim periods within annual reporting periods beginning after

December 15, 2020.

The amendments related to recognition and measurement of financial instruments will be effective for the Company for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. The Company does

not

expect these amendments to have a material effect on its financial statements.

In

May 2019,

the FASB issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU

2016

-

13,

Measurement of Credit Losses on Financial Instruments. The amendments will be effective for the Company for reporting periods beginning after

December 15, 2019.

The Company does

not

expect these amendments to have a material effect on its financial statements.

In

July 2019,

the FASB updated various Topics of the Accounting Standards Codification to align the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. 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.

XML

Note 8 - Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]

	September 30,		December 31,
(dollars in thousands)	2019		2018
Commitments to extend credit	$	89,251	$	76,977
Standby letters of credit		1,163		1,227
	$	90,414	$	78,204

XML

Note 5 - Allowance for Loan Losses and Impaired Loans - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Dec. 31, 2018
Recorded investment with no related allowance	$ 2,882	$ 2,882	$ 3,369
Unpaid principal balance with no related allowance	2,882	2,882	3,393
Average recorded investment with no related allowance	2,952	3,017	3,971
Interest income recognized with no related allowance	5	14	36
Recorded investment with related allowance	6,559	6,559	6,929
Unpaid principal balance with related allowance	6,753	6,753	7,169
Related allowance	260	260	300
Average recorded investment with related allowance	6,657	7,043	7,795
Interest income recognized with related allowance	84	265	393
Recorded investment	9,441	9,441	10,298
Unpaid principal balance	9,635	9,635	10,562
Average recorded investment	9,609	10,060	11,766
Interest income recognized	89	279	429
Construction and Development Loan [Member]
Recorded investment with no related allowance
Unpaid principal balance with no related allowance
Average recorded investment with no related allowance
Interest income recognized with no related allowance
Recorded investment with related allowance	74	74	69
Unpaid principal balance with related allowance	74	74	69
Related allowance	4	4	4
Average recorded investment with related allowance	75	77	306
Interest income recognized with related allowance	1	4	11
Recorded investment	74	74	69
Unpaid principal balance	74	74	69
Average recorded investment	75	77	306
Interest income recognized	1	4	11
Farmland Loan [Member]
Recorded investment with no related allowance	2,882	2,882	3,284
Unpaid principal balance with no related allowance	2,882	2,882	3,284
Average recorded investment with no related allowance	2,952	3,017	3,523
Interest income recognized with no related allowance	5	14	23
Recorded investment with related allowance	1,540	1,540	1,539
Unpaid principal balance with related allowance	1,540	1,540	1,539
Related allowance	46	46	38
Average recorded investment with related allowance	1,547	1,558	1,568
Interest income recognized with related allowance	17	53	86
Recorded investment	4,422	4,422	4,823
Unpaid principal balance	4,422	4,422	4,823
Average recorded investment	4,499	4,575	5,091
Interest income recognized	22	67	109
Residential Loan [Member]
Recorded investment with no related allowance			85
Unpaid principal balance with no related allowance			85
Average recorded investment with no related allowance			448
Interest income recognized with no related allowance			13
Recorded investment with related allowance	4,716	4,716	5,005
Unpaid principal balance with related allowance	4,866	4,866	5,162
Related allowance	198	198	241
Average recorded investment with related allowance	4,804	5,099	5,348
Interest income recognized with related allowance	62	197	266
Recorded investment	4,716	4,716	5,090
Unpaid principal balance	4,866	4,866	5,247
Average recorded investment	4,804	5,099	5,796
Interest income recognized	62	197	279
Commercial Mortgage Loan [Member]
Recorded investment with no related allowance
Unpaid principal balance with no related allowance
Average recorded investment with no related allowance
Interest income recognized with no related allowance
Recorded investment with related allowance	193	193	275
Unpaid principal balance with related allowance	237	237	358
Related allowance	10	10	15
Average recorded investment with related allowance	194	270	522
Interest income recognized with related allowance	3	9	27
Recorded investment	193	193	275
Unpaid principal balance	237	237	358
Average recorded investment	194	270	522
Interest income recognized	3	9	27
Commercial and Agricultural Loan [Member]
Recorded investment with no related allowance
Unpaid principal balance with no related allowance			24
Average recorded investment with no related allowance
Interest income recognized with no related allowance
Recorded investment with related allowance	33	33	37
Unpaid principal balance with related allowance	33	33	37
Related allowance	2	2	2
Average recorded investment with related allowance	34	35	47
Interest income recognized with related allowance	1	2	3
Recorded investment	33	33	37
Unpaid principal balance	33	33	61
Average recorded investment	34	35	47
Interest income recognized	1	2	3
Consumer and Other Loan [Member]
Recorded investment with no related allowance
Unpaid principal balance with no related allowance
Average recorded investment with no related allowance
Interest income recognized with no related allowance
Recorded investment with related allowance	3	3	4
Unpaid principal balance with related allowance	3	3	4
Related allowance
Average recorded investment with related allowance	3	4	4
Interest income recognized with related allowance
Recorded investment	3	3	4
Unpaid principal balance	3	3	4
Average recorded investment	3	4	4
Interest income recognized

XML

Note 3 - Investment Securities - Continuous Unrealized Loss Positions (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Less than 12 months, fair value	$ 11,791	$ 5,968
Less than 12 months, unrealized losses	(49)	(20)
12 months or more, fair value	2,413	33,850
12 months or more, unrealized losses	(99)	(1,190)
Fair value	14,204	39,818
Unrealized losses	(148)	(1,210)
Collateralized Mortgage Backed Securities [Member]
Less than 12 months, fair value	11,791	450
Less than 12 months, unrealized losses	(49)	(1)
12 months or more, fair value	1,011	24,227
12 months or more, unrealized losses	(1)	(864)
Fair value	12,802	24,677
Unrealized losses	(50)	(865)
Corporate Debt Securities [Member]
Less than 12 months, fair value
Less than 12 months, unrealized losses
12 months or more, fair value	1,402	2,789
12 months or more, unrealized losses	(98)	(181)
Fair value	1,402	2,789
Unrealized losses	(98)	(181)
US States and Political Subdivisions Debt Securities [Member]
Less than 12 months, fair value		5,518
Less than 12 months, unrealized losses		(19)
12 months or more, fair value		6,834
12 months or more, unrealized losses		(145)
Fair value		12,352
Unrealized losses		$ (164)

XML

Note 5 - Allowance for Loan Losses and Impaired Loans (Details Textual)	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018	Sep. 30, 2019 USD ($)	Sep. 30, 2018	Dec. 31, 2018 USD ($)	Dec. 31, 2015 USD ($)
Loans and Leases Receivable, Gross, Total	$ 562,210,000		$ 562,210,000		$ 536,465,000
Impaired Financing Receivable, Recorded Investment, Total	9,441,000		9,441,000		10,298,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,882,000		2,882,000		3,369,000
Financing Receivable, Troubled Debt Restructuring	6,900,000		6,900,000		7,300,000
Financing Receivable, Troubled Debt Restructuring, Collectively Evaluated for impairment	4,300,000		4,300,000		4,700,000
Financing Receivable, Troubled Debt Restructuring, Related Allowance	$ 224,000		$ 224,000		259,000
Financing Receivable, Modifications, Number of Contracts	1	0	3	2
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts	0	0	0	0
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield, Ending Balance	$ 0		$ 0
Purchase Credit Impaired Loans			0
Maximum [Member]
Financing Receivable, Troubled Debt Restructuring						$ 250,000
Collateral Pledged [Member]
Impaired Financing Receivable, Recorded Investment, Total	2,600,000		2,600,000		2,800,000
Doubtful [Member]
Loans and Leases Receivable, Gross, Total	0		0		0
Unlikely to be Collected Financing Receivable [Member]
Loans and Leases Receivable, Gross, Total	$ 0		$ 0		$ 0

XML

Note 11 - Capital Requirements - Capital Amounts and Ratios (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Capital	$ 76,739	$ 71,424
Capital, ratio	13.45%	13.00%
Capital required for capital adequacy	$ 45,633	$ 43,943
Capital required for capital adequacy, ratio	8.00%	8.00%
Capital required to be well capitalized	$ 57,041	$ 54,929
Capital required to be well capitalized, ratio	10.00%	10.00%
Tier 1 capital risk	$ 72,737	$ 67,899
Tier 1 capital risk, raio	12.75%	12.36%
Tier 1 Capital risk required for capital adequacy	$ 34,224	$ 32,958
Tier 1 Capital risk required for capital adequacy, ratio	6.00%	6.00%
Tier 1 Capital risk required to be well capitalized	$ 45,633	$ 43,943
Tier 1 Capital risk required to be well capitalized, ratio	8.00%	8.00%
Common equity Tier 1	$ 72,737	$ 67,899
Common equity Tier 1, raio	12.75%	12.36%
Common equity Tier 1 required for capital adequacy	$ 25,668	$ 24,718
Common equity Tier 1 required for capital adequacy, raio	4.50%	4.50%
Common equity Tier 1 required to be well capitalized	$ 37,077	$ 35,704
Common equity Tier 1 required to be well capitalized, ratio	6.50%	6.50%
Tier 1 capital average	$ 72,737	$ 67,899
Tier 1 capital average, ratio	10.80%	10.08%
Tier 1 capital average required for capital adequacy	$ 26,928	$ 26,932
Tier 1 capital average required for capital adequacy, ratio	4.00%	4.00%
Tier 1 capital average required to be well capitalized	$ 33,660	$ 33,664
Tier 1 capital average required to be well capitalized, ratio	5.00%	5.00%

XML

Note 9 - Financial Instruments - Assets Recorded at Fair Value on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Impaired Loans [Member]
Assets at fair value	$ 203	$ 371
Fair Value, Nonrecurring [Member]
Assets at fair value	203	1,124
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Assets at fair value
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Assets at fair value
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Assets at fair value	203	1,124
Fair Value, Nonrecurring [Member] | Impaired Loans [Member]
Assets at fair value	203	371
Fair Value, Nonrecurring [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member]
Assets at fair value
Fair Value, Nonrecurring [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member]
Assets at fair value
Fair Value, Nonrecurring [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member]
Assets at fair value	203	371
Fair Value, Nonrecurring [Member] | Foreclosed Assets [Member]
Assets at fair value		753
Fair Value, Nonrecurring [Member] | Foreclosed Assets [Member] | Fair Value, Inputs, Level 1 [Member]
Assets at fair value
Fair Value, Nonrecurring [Member] | Foreclosed Assets [Member] | Fair Value, Inputs, Level 2 [Member]
Assets at fair value
Fair Value, Nonrecurring [Member] | Foreclosed Assets [Member] | Fair Value, Inputs, Level 3 [Member]
Assets at fair value		$ 753