10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020

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

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☑	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 6,060,775 shares of Common Stock, no par value per share, outstanding as of August 13, 2020.

PART I     FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets—June 30, 2020 (Unaudited) and December 31, 2019 (Audited)	3
	Unaudited Consolidated Statements of Income—Three and Six Months Ended June 30, 2020 and June 30, 2019	4
	Unaudited Consolidated Statements of Comprehensive Income—Six and Three Months Ended June 30, 2020 and June 30, 2019	5
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity—Six and Three Months Ended June 30, 2020 and June 30, 2019	6
	Unaudited Consolidated Statements of Cash Flows—Six Months Ended June 30, 2020 and June 30, 2019	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50
Item 4.	Controls and Procedures	51
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	53
Signatures		54

Part I.  Financial Information

Item 1.  Financial Statements

Parkway Acquisition Corp. and Subsidiary

Consolidated Balance Sheets

June 30, 2020 and December 31, 2019

(dollars in thousands)	June 30,			December 31,
	2020			2019
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	11,968		$	8,388
Interest-bearing deposits with banks		36,835			34,861
Federal funds sold		236			1,138
Investment securities available for sale		33,006			32,881
Restricted equity securities		2,416			2,394
Loans, net of allowance for loan losses of $4,654 at June 30, 2020 and $3,893 at December 31, 2019		645,945			566,460
Cash value of life insurance		18,071			17,855
Properties and equipment, net		26,074			23,437
Accrued interest receivable		2,576			2,072
Core deposit intangible		2,685			3,070
Goodwill		3,257			3,257
Deferred tax assets, net		1,588			985
Other assets		9,531			9,492
	$	794,188		$	706,290
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Noninterest-bearing	$	219,845		$	165,900
Interest-bearing		471,393			445,311
Total deposits		691,238			611,211
FHLB advances		10,000			10,000
Paycheck protection program liquidity facility advances		5,375			-
Accrued interest payable		126			132
Other liabilities		4,346			3,519
		711,085			624,862
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, 6,060,775 and 6,137,275 issued and outstanding at June 30, 2020 and December 31, 2019, respectively		-			-
Surplus		39,885			40,752
Retained earnings		43,579			41,600
Accumulated other comprehensive loss		(361	)		(924	)
		83,103			81,428
	$	794,188		$	706,290

See Notes to Consolidated Financial Statements

3

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Income

For the Three and Six Months ended June 30, 2020 and 2019

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(dollars in thousands except share amounts)	2020		2019		2020		2019
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Interest income
Loans and fees on loans	$	7,440	$	7,140	$	14,859	$	14,261
Interest-bearing deposits in banks		26		40		153		98
Federal funds sold		-		109		3		179
Interest on taxable securities		150		264		321		540
Interest on nontaxable securities		5		-		5		-
Dividends		50		47		68		61
		7,671		7,600		15,409		15,139
Interest expense
Deposits		827		680		1,660		1,270
Interest on borrowings		24		-		45		-
		851		680		1,705		1,270
Net interest income		6,820		6,920		13,704		13,869
Provision for loan losses		414		276		736		514
Net interest income after provision for loan losses		6,406		6,644		12,968		13,355
Noninterest income
Service charges on deposit accounts		269		376		690		736
Other service charges and fees		517		499		1,010		1,012
Net realized gains (losses) on securities		-		10		212		(4	)
Mortgage origination fees		252		126		381		210
Increase in cash value of life insurance		108		108		216		216
Other income		22		141		120		162
		1,168		1,260		2,629		2,332
Noninterest expenses
Salaries and employee benefits		3,592		3,262		7,061		6,419
Occupancy and equipment		775		714		1,558		1,439
Foreclosed asset expense, net		-		1		-		2
Data processing expense		467		362		883		731
FDIC Assessments		60		72		75		144
Advertising		184		158		290		293
Bank franchise tax		122		111		232		222
Director fees		61		88		131		148
Professional fees		105		180		247		362
Telephone expense		99		66		183		180
Core deposit intangible amortization		192		218		385		437
Other expense		562		526		1,103		1,082
		6,219		5,758		12,148		11,459
Net income before income taxes		1,355		2,146		3,449		4,228
Income tax expense		258		411		676		828
Net income	$	1,097	$	1,735	$	2,773	$	3,400
Net income per share	$	0.18	$	0.28	$	0.46	$	0.55
Weighted average shares outstanding		6,066,704		6,206,022		6,094,160		6,209,629
Dividends declared per share	$	0.00	$	0.00	$	0.13	$	0.12

See Notes to Consolidated Financial Statements

4

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Comprehensive Income

For the Six and Three Months ended June 30, 2020 and 2019

	Six Months Ended
	June 30,
(dollars in thousands)	2020			2019
	(Unaudited)			(Unaudited)
Net Income	$	2,773		$	3,400
Other comprehensive income
Unrealized gains on investment securities available for sale:
Unrealized gains arising during the period		924			1,261
Tax related to unrealized gains		(194	)		(264	)
Reclassification of net realized (gains) losses during the period		(212	)		4
Tax related to realized gains (losses)		45			(1	)
Total other comprehensive income		563			1,000
Total comprehensive income	$	3,336		$	4,400

	Three Months Ended
	June 30,
(dollars in thousands)	2020			2019
	(Unaudited)			(Unaudited)
Net Income	$	1,097		$	1,735
Other comprehensive income
Unrealized gains on investment securities available for sale:
Unrealized gains arising during the period		762			558
Tax related to unrealized gains		(160	)		(117	)
Reclassification of net realized gains during the period		-			(10	)
Tax related to realized gains		-			2
Total other comprehensive income		602			433
Total comprehensive income	$	1,699		$	2,168

See Notes to Consolidated Financial Statements

5

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

For the Six and Three Months ended June 30, 2020 and 2019 (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
Balance, December 31, 2019		6,137,275		$	-	$	40,752		$	41,600		$	(924	)	$	81,428
Net income		-			-		-			1,676			-			1,676
Other comprehensive loss		-			-		-			-			(39	)		(39	)
Dividends paid ($0.13 per share)		-			-		-			(794	)		-			(794	)
Common stock repurchased		(70,000	)		-		(800	)		-			-			(800	)
Balance, March 31, 2020		6,067,275		$	-	$	39,952		$	42,482		$	(963	)	$	81,471
Net income		-			-		-			1,097			-			1,097
Other comprehensive income		-			-		-			-			602			602
Common stock repurchased		(6,500	)		-		(67	)		-			-			(67	)
Balance, June 30, 2020		6,060,775		$	-	$	39,885		$	43,579		$	(361	)	$	83,103

See Notes to Consolidated Financial Statements

6

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Cash Flows

For the Six Months ended June 30, 2020 and 2019

	Six Months Ended
	June 30,
(dollars in thousands)	2020			2019
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income	$	2,773		$	3,400
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		667			597
Amortization of core deposit intangible		385			437
Accretion of loan discount and deposit premium, net		(813	)		(1,316	)
Provision for loan losses		736			514
Deferred income taxes		(751	)		442
Net realized (gains) losses on securities		(212	)		4
Accretion of discount on securities, net of amortization of premiums		141			239
Deferred compensation		(2	)		(10	)
Gains on sale of properties and equipment		-			(121	)
Changes in assets and liabilities:
Cash value of life insurance		(216	)		(216	)
Accrued interest receivable		(504	)		(128	)
Other assets		(20	)		468
Accrued interest payable		(6	)		22
Other liabilities		810			(226	)
Net cash provided by operating activities		2,988			4,106
Cash flows from investing activities
Activity in available for sale securities:
Purchases		(10,647	)		(1,037	)
Sales		7,798			3,950
Maturities/calls/paydowns		3,506			2,441
Purchases of restricted equity securities		(22	)		(1	)
Net increase in loans		(79,516	)		(12,625	)
Proceeds from sale of foreclosed assets		-			753
Purchases of property and equipment		(3,304	)		(781	)
Net cash used in investing activities		(82,185	)		(7,300	)
Cash flows from financing activities
Net increase (decrease) in deposits		80,135			(2,770	)
Net change in paycheck protection program liquidity facility advances		5,375			-
Common stock repurchased		(867	)		(235	)
Dividends paid		(794	)		(746	)
Net cash provided by (used in) financing activities		83,849			(3,751	)
Net increase (decrease) in cash and cash equivalents		4,652			(6,945	)
Cash and cash equivalents, beginning		44,387			40,007
Cash and cash equivalents, ending	$	49,039		$	33,062

See Notes to Consolidated Financial Statements

7

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Cash Flows, continued

For the Six Months ended June 30, 2020 and 2019

	Six Months Ended
	June 30,
(dollars in thousands)	2020		2019
	(Unaudited)		(Unaudited)
Supplemental disclosure of cash flow information
Interest paid	$	1,711	$	1,248
Taxes paid	$	253	$	50
Supplemental disclosure of noncash investing activities
Effect on equity of change in net unrealized gain on available for sale securities	$	563	$	1,000
Right-of-use assets obtained in exchange for new operating lease liabilities	$	68	$	-
Business combinations
Goodwill recorded	$	-	$	59

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, Davie, Watauga, Wilkes, and Yadkin, and the surrounding areas through twenty four full-service banking offices and one loan production office. 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.

The consolidated financial statements as of June 30, 2020 and for the six and three-month periods ended June 30, 2020 and 2019 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, 2019, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The results of operations for the six and three-months ended June 30, 2020 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, such as the recoverability of intangible assets and other-than-temporary impairment of investment securities, involve a higher degree of complexity and require management to make difficult and subjective judgements that 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 (“GAAP”) 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. The amortization of premiums and accretion of discounts are recognized in interest income using the effective interest method over the period to maturity for discounts and the earlier of call date or maturity for premiums.

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.

Small Business Administration Paycheck Protection Program

The Small Business Administration Paycheck Protection Program (“SBA-PPP”) is one of the centerpieces of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”), which was passed on March 27, 2020 in response to the outbreak of coronavirus (“COVID-19”) and was supplemented with subsequent legislation.  Overseen by the United States (“U.S.”) Treasury Department, the SBA-PPP offers cash-flow assistance to nonprofit and small business employers through guaranteed loans for expenses incurred between February 15, 2020, and August 8, 2020.  Borrowers are eligible for forgiveness of principal and accrued interest on SBA-PPP loans to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period between eight and 24-weeks after the loan is made as long as the borrower retains its employees and their compensation levels.  The CARES Act authorized the SBA to temporarily guarantee these loans.

Due to the unique nature of these provisions, SBA-PPP loans have been disclosed as a separate loan class.  Origination fees received by the SBA are capitalized into the carrying amount of the loans.  The deferred fee income, net of origination costs, is recognized over the life of the loan as an adjustment to yield using the effective interest method. Loans outstanding as of June 30, 2020 totaled $77.1 million.

The allowance for loan losses for SBA-PPP loans originated during the second quarter of 2020 were separately evaluated given the explicit government guarantee.  This analysis, which incorporated historical experience with similar SBA guarantees and underwriting, concluded the likelihood of loss was remote and therefore these loans were assigned a zero expected credit loss in the allowance for loan losses.

13

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Troubled Debt Restructurings

Under GAAP, the Bank is required to account for certain loan modifications or restructurings as “troubled debt restructurings” or "troubled debt restructured loans."  In general, the modification or restructuring of a debt constitutes a troubled debt restructuring if the Bank for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that the Bank would not otherwise consider. Debt restructuring or loan modifications for a borrower do not necessarily always constitute a troubled debt restructuring, however, and troubled debt restructurings do not necessarily result in non-accrual loans.

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’s and Floyd’s 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.

14

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

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. 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. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts - Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, ATM fees, wire transfer fees and other deposit account related fees. The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Wire transfer fees, overdraft and nonsufficient funds fees, and other deposit account related fees are transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.

Other Service Charges and Fees - Other service charges include safety deposit box rental fees, check ordering charges, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Check ordering charges are transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.

15

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Revenue Recognition, continued

Credit and Debit Card Fees - Credit and debit card fees are primarily comprised of interchange fee income and merchant services income. Interchange fees are earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa or Mastercard. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. The Company’s performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Insurance and Investment - Insurance income primarily consists of commissions received on insurance product sales. The Company acts as an intermediary between the Company’s customer and the insurance carrier. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the insurance policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. Investment income consists of recurring revenue streams such as commissions from sales of mutual funds and other investments. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined.

Leases

In February 2016, the FASB amended the Leases topic of the ASC 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. There was not a material change to the timing of expense recognition. See additional discussion of leases in Note 7 to the consolidated financial statements.

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.

16

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

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. 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 are as follows:

	Unrealized Gains
	And (Losses)
(dollars in thousands)	On Available for			Defined Benefit
	Sale Securities			Pension Items			Total
Balance, December 31, 2018	$	(929	)	$	(1,038	)	$	(1,967	)
Other comprehensive income before reclassifications		997			-			997
Amounts reclassified from accumulated other comprehensive income, net of tax		3			-			3
Balance June 30, 2019	$	71		$	(1,038	)	$	(967	)
Balance, December 31, 2019	$	51		$	(975	)	$	(924	)
Other comprehensive income before reclassifications		731			-			731
Amounts reclassified from accumulated other comprehensive income, net of tax		(168	)		-			(168	)
Balance June 30, 2020	$	614		$	(975	)	$	(361	)

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.

17

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Recent Accounting Pronouncements

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

In 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 delayed the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods. On October 16, 2019 the proposed changes were approved by the FASB. As the Company is a smaller reporting company, the delay is applicable to the Company.

In November 2019, the FASB issued guidance that addresses issues raised by stakeholders during the implementation of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect a variety of Topics in the Accounting Standards Codification. For entities that have not yet adopted the amendments in ASU 2016-13, the amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal. Early adoption is permitted in any interim period as long as an entity has adopted the amendments in ASU 2016-13. The Company does not expect these amendments to have a material effect on its financial statements.

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, 2022. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017.

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, 2022. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2019, the FASB issued guidance to defer the effective dates for private companies, not-for-profit organizations, and certain smaller reporting companies applying standards on current expected credit losses (“CECL”). Since the Company is a smaller reporting company, the new effect date for CECL will be fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

In December 2019, the FASB issued guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. 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 January 2020, the FASB issued guidance to address accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2020, the FASB issued guidance to add and amend SEC paragraphs in the ASC to reflect the issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2020, the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument guidance, including the CECL guidance issued in 2016. Since the Company is a smaller reporting company, it should adopt the amendments in ASU 2016-13 during 2023. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its financial statements.

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

19

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 2. Investment Securities

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost of securities and their approximate fair values at June 30, 2020 and December 31, 2019 follow:

(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
June 30, 2020
Available for sale:
Mortgage-backed securities	$	17,993	$	597	$	-		$	18,590
Corporate securities		1,500		-		(62	)		1,438
State and municipal securities		12,737		243		(2	)		12,978
	$	32,230	$	840	$	(64	)	$	33,006
December 31, 2019
Available for sale:
Mortgage-backed securities	$	19,540	$	61	$	(97	)	$	19,504
Corporate securities		1,500		-		(67	)		1,433
State and municipal securities		11,777		168		(1	)		11,944
	$	32,817	$	229	$	(165	)	$	32,881

Restricted equity securities totaled $2.4 million at June 30, 2020 and December 31, 2019, 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 tables details unrealized losses and related fair values in the Company’s available for sale investment securities portfolios. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2020 and December 31, 2019.

	Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2020
Available for sale:
Mortgage-backed securities	$	-	$	-		$	-	$	-		$	-	$	-
Corporate securities		-		-			1,438		(62	)		1,438		(62	)
State and municipal securities		1,006		(2	)		-		-			1,006		(2	)
Total securities available for sale	$	1,006	$	(2	)	$	1,438	$	(62	)	$	2,444	$	(64	)
December 31, 2019
Available for sale:
Mortgage-backed securities	$	8,625	$	(97	)	$	-	$	-		$	8,625	$	(97	)
Corporate securities		-		-			1,433		(67	)		1,433		(67	)
State and municipal securities		1,010		(1	)		-		-			1,010		(1	)
Total securities available for sale	$	9,635	$	(98	)	$	1,433	$	(67	)	$	11,068	$	(165	)

20

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 2. Investment Securities, continued

At June 30, 2020, 2 debt securities with unrealized losses had depreciated 2.55 percent from their total amortized cost basis. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, and the financial condition and near-term prospects of the issuer. The relative significance of these and other factors will vary on a case by case basis. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition and the issuer’s anticipated ability to pay the contractual cash flows of the investments. Since the Company intends to hold all of its investment securities until maturity, and it is more likely than not that the Company will not have to sell any of its investment securities before unrealized losses have been recovered, and the Company expects to recover the entire amount of the amortized cost basis of all its securities, none of the securities are deemed other than temporarily impaired at June 30, 2020. 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 $7.80 million for the six-month period ended June 30, 2020 and $3.95 million for the six-month and three-month periods ended June 30, 2019. There were no proceeds from the sale of investment securities for the three-month period ended June 30, 2020. Gross proceeds from called securities totaled $1.27 million and $735 thousand for the six-month periods ended June 30, 2020 and 2019, 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 six-month and three-month periods ended June 30, 2020 and 2019 are as follows:

	Six Months Ended June 30					Three Months Ended June 30
(dollars in thousands)	2020		2019			2020		2019
Realized gains	$	212	$	32		$	-	$	32
Realized losses		-		(36	)		-		(22	)-
	$	212	$	(4	)	$	-	$	10

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

The scheduled maturities of securities available for sale at June 30, 2020, were as follows:

(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	620	$	626
Due after one year through five years		7,819		7,847
Due after five years through ten years		7,914		8,252
Due after ten years		15,877		16,281
	$	32,230	$	33,006

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 $14.7 million and $15.5 million at June 30, 2020 and December 31, 2019, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

21

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 3. Loans Receivable

The major components of loans in the consolidated balance sheets at June 30, 2020 and December 31, 2019 are as follows:

(dollars in thousands)	2020			2019
Construction & development	$	44,192		$	39,649
Farmland		34,629			34,166
Residential		260,565			253,674
Commercial mortgage		181,866			190,817
Commercial & agricultural		31,456			32,426
SBA-PPP		77,105			-
Consumer & other		20,786			19,621
Total loans		650,599			570,353
Allowance for loan losses		(4,654	)		(3,893	)
Loans, net of allowance for loan losses	$	645,945		$	566,460

As a qualified Small Business Administration (“SBA”) lender, we were automatically authorized to originate “SBA-PPP” loans and began taking applications on April 3, 2020. An eligible business can apply for a SBA- PPP loan up to the lesser of: (1) 2.5 times its average monthly “payroll costs;” or (2) $10.0 million. SBA-PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the SBA-PPP loans made to eligible borrowers. The entire principal amount of the borrower’s SBA-PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the SBA-PPP, subject to certain eligibility requirements and conditions. As of June 30, 2020, the Bank had 1,148 SBA-PPP loans outstanding with an outstanding principal balance of $79.9 million, less unearned net fees of $2.8 million.

To bolster to effectiveness of the SBA-PPP, the Federal Reserve provides liquidity to participating financial institutions through term financing backed by SBA-PPP loans to small businesses. The Paycheck Protection Program Liquidity Facility (“PPPLF”) extends credit on a non-recourse basis to eligible financial institutions that originate SBA- PPP loans, taking the loans as collateral at face value. As of June 30, 2020, the Bank had $5.4 million in PPPLF funding outstanding, that has a maturity date of April 15, 2022 and is secured by $5.4 million in SBA-PPP loans.

As of June 30, 2020 and December 31, 2019, substantially all of the Bank’s residential 1-4 family loans were pledged as collateral for borrowing lines at the Federal Home Loan Bank of Atlanta.

Note 4. Allowance for Loan Losses and Impaired Loans

Allowance for Loan Losses

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

22

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Allowance for Loan Losses, continued

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.

As noted in Note 1, the Company determined that SBA-PPP loans have zero expected credit losses and as such are excluded from the disclosures included in the following table. The following table presents activity in the allowance by loan category and information on the loans evaluated individually for impairment and collectively evaluated for impairment as of June 30, 2020 and December 31, 2019:

Allowance for Loan Losses and Recorded Investment in Loans

(dollars in thousands)	Construction & Development		Farmland			Residential			Commercial Mortgage			Commercial & Agricultural			Consumer & Other			Total
For the Three Months Ended June 30, 2020
Allowance for loan losses:
Balance, March 31, 2019	$	341	$	465		$	1,998		$	1,054		$	246		$	148		$	4,252
Charge-offs		-		-			-			-			-			(25	)		(25	)
Recoveries		-		-			3			-			-			10			13
Provision		74		7			125			(3	)		204			7			414
Balance, March 31, 2020	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
For the Three Months Ended June 30, 2019
Allowance for loan losses:
Balance, March 31, 2019	$	268	$	407		$	1,733		$	697		$	385		$	128		$	3,618
Charge-offs		-		-			(20	)		-			(19	)		(43	)		(82	)
Recoveries		-		-			1			-			2			3			6
Provision		17		133			16			155			(76	)		31			276
Balance, June 30, 2019	$	285	$	540		$	1,730		$	852		$	292		$	119		$	3,818
For the Six Months Ended June 30, 2020
Allowance for loan losses:
Balance, December 31, 2019	$	305	$	487		$	1,822		$	924		$	211		$	144		$	3,893
Charge-offs		-		-			-			-			-			(78	)		(78	)
Recoveries		4		-			11			65			2			21			103
Provision		106		(15	)		293			62			237			53			736
Balance, June 30, 2019	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
For the Six Months Ended June 30, 2019
Allowance for loan losses:
Balance, December 31, 2018	$	246	$	385		$	1,807		$	682		$	281		$	94		$	3,495
Charge-offs		-		(14	)		(32	)		(41	)		(63	)		(95	)		(245	)
Recoveries		-		-			8			28			4			14			54
Provision		39		169			(53	)		183			70			106			514
Balance, June 30, 2019	$	285	$	540		$	1,730		$	852		$	292		$	119		$	3,818
June 30, 2020
Allowance for loan losses:
Ending Balance	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
Ending balance: individually evaluated for impairment	$	-	$	-		$	-		$	-		$	-		$	-		$	-
Ending balance: collectively evaluated for impairment	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
Ending balance: purchased credit impaired loans	$	-	$	-		$	-		$	-		$	-		$	-		$	-
Loans outstanding:
Ending Balance	$	44,192	$	34,629		$	260,565		$	181,866		$	31,456		$	20,786		$	573,494
Ending balance: individually evaluated for impairment	$	-	$	2,836		$	-		$	-		$	-		$	-		$	2,836
Ending balance: collectively evaluated for impairment	$	44,192	$	31,793		$	260,422		$	181,554		$	31,310		$	20,786		$	570,057
Ending balance: purchased credit impaired loans	$	-	$	-		$	143		$	312		$	146		$	-		$	601

23

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Allowance for Loan Losses, continued

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, 2019
Allowance for loan losses:
Ending Balance	$	305	$	487	$	1,822	$	924	$	211	$	144	$	3,893
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment	$	305	$	487	$	1,822	$	924	$	211	$	144	$	3,893
Ending balance: purchased credit impaired loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans outstanding:
Ending Balance	$	39,649	$	34,166	$	253,674	$	190,817	$	32,426	$	19,621	$	570,353
Ending balance: individually evaluated for impairment	$	-	$	3,240	$	909	$	-	$	-	$	-	$	4,149
Ending balance: collectively evaluated for impairment	$	39,649	$	30,926	$	252,615	$	190,496	$	32,280	$	19,621	$	565,587
Ending balance: purchased credit impaired loans	$	-	$	-	$	150	$	321	$	146	$	-	$	617

As of June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019, respectively, the Bank had no loans graded “Doubtful” or “Loss” included in the balance of total loans outstanding.

24

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Allowance for Loan Losses, continued

During the first quarter of 2020, Management evaluated loan grades included in the “Watch” category and determined that loans associated with a certain grade should be classified as “Pass” credits. As a result of this reclassification, the loan grades previously reported as “Watch” & “Pass” of December 31, 2019 have been reclassified as follows:

	Loan Grades
(dollars in thousands)	Watch As Reported		Reclass			Watch Adjusted
December 31, 2019
Real Estate Secured:
Construction & development	$	4,801	$	(4,244	)	$	557
Farmland		4,059		(2,565	)		1,494
Residential		19,887		(19,349	)		538
Commercial mortgage		21,960		(19,557	)		2,403
Non-Real Estate Secured:
Commercial & agricultural		4,346		(3,805	)		541
Consumer & other		300		(300	)		-
Total	$	55,353	$	(49,820	)	$	5,533

	Loan Grades
(dollars in thousands)	Pass As Reported		Reclass		Pass Adjusted
December 31, 2019
Real Estate Secured:
Construction & development	$	34,701	$	4,244	$	38,945
Farmland		22,969		2,565		25,534
Residential		231,629		19,349		250,978
Commercial mortgage		163,584		19,557		183,141
Non-Real Estate Secured:
Commercial & agricultural		27,503		3,805		31,308
Consumer & other		19,314		300		19,614
Total	$	499,700	$	49,820	$	549,520

These reclassifications did not have an impact on our calculation of the allowance for loan losses or our provision expense.

25

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Allowance for Loan Losses, continued

The following table lists the loan grades utilized by the Bank and the corresponding total of outstanding loans in each category as of June 30, 2020 and December 31, 2019 (reclassified as noted above):

Credit Risk Profile by Internally Assigned Grades

	Loan Grades
(dollars in thousands)	Pass		Watch		Special Mention		Substandard		Total
June 30, 2020
Real Estate Secured:
Construction & development	$	43,581	$	-	$	-	$	611	$	44,192
Farmland		27,076		813		661		6,079		34,629
Residential		257,636		626		124		2,179		260,565
Commercial mortgage		175,459		2,260		826		3,321		181,866
Non-Real Estate Secured:
Commercial & agricultural		30,270		502		125		559		31,456
SBA-PPP		77,105								77,105
Consumer & other		20,786		-		-		-		20,786
Total	$	631,913	$	4,201	$	1,736	$	12,749	$	650,599
December 31, 2019
Real Estate Secured:
Construction & development	$	38,945	$	557	$	-	$	147	$	39,649
Farmland		25,534		1,494		673		6,465		34,166
Residential		250,978		538		176		1,982		253,674
Commercial mortgage		183,141		2,403		930		4,343		190,817
Non-Real Estate Secured:
Commercial & agricultural		31,308		541		103		474		32,426
Consumer & other		19,614		-		-		7		19,621
Total	$	549,520	$	5,533	$	1,882	$	13,418	$	570,353

26

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 4. 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 June 30, 2020 and December 31, 2019:

Analysis of Past Due and Nonaccrual Loans

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90+ Days Past Due and Still Accruing		Nonaccrual Loans
June 30, 2020
Real Estate Secured:
Construction & development	$	-	$	-	$	9	$	9	$	44,183	$	44,192	$	-	$	9
Farmland		-		669		257		926		33,703		34,629		-		3,630
Residential		456		-		357		813		259,752		260,565		-		460
Commercial mortgage		-		-		292		292		181,574		181,866		-		485
Non-Real Estate Secured:
Commercial & agricultural		121		16		146		283		31,173		31,456		-		182
SBA-PPP		-		-		-		-		77,105		77,105		-		-
Consumer & other		1		-		-		1		20,785		20,786		-		-
Total	$	578	$	685	$	1,061	$	2,324	$	648,275	$	650,599	$	-	$	4,766
December 31, 2019
Real Estate Secured:
Construction & development	$	-	$	-	$	10	$	10	$	39,639	$	39,649	$	-	$	10
Farmland		893		-		971		1,864		32,302		34,166		-		4,192
Residential		292		48		365		705		252,969		253,674		-		412
Commercial mortgage		185		-		-		185		190,632		190,817		-		198
Non-Real Estate Secured:
Commercial & agricultural		135		8		163		306		32,120		32,426		-		165
Consumer & other		2		6		2		10		19,611		19,621		-		2
Total	$	1,507	$	62	$	1,511	$	3,080	$	567,273	$	570,353	$	-	$	4,979

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 principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance.

27

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Impaired Loans, continued

As of June 30, 2020 and December 31, 2019, respectively, the recorded investment in impaired loans totaled $7.8 million and $7.8 million. The total amount of collateral-dependent impaired loans at June 30, 2020 and December 31, 2019, respectively, was $2.8 million and $2.9 million. As of June 30, 2020 and December 31, 2019, respectively, $2.8 million and $4.1 million of the recorded investment in impaired loans did not have a related allowance. The Bank had $5.3 million and $4.8 million in troubled debt restructured loans included in impaired loans at June 30, 2020 and December 31, 2019, 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.

Management collectively evaluates performing TDRs with a loan balance of $250,000 or less for impairment. As of June 30, 2020 and December 31, 2019, respectively, $5.0 million and $3.6 million of TDRs included in the following table were evaluated collectively for impairment and were deemed to have $246 thousand and $174 thousand of related allowance.

The following table is a summary of information related to impaired loans as of June 30, 2020 and December 31, 2019:

Impaired Loans

							Six 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
June 30, 2020
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Farmland		2,836		3,334		-		3,038		10		2,847		5
Residential		-		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-		-
Subtotal		2,836		3,334		-		3,038		10		2,847		5
With an allowance recorded:
Construction & development		538		538		27		545		16		539		10
Farmland		150		159		2		150		1		150		-
Residential		4,263		4,439		214		4,282		113		4,268		57
Commercial mortgage		10		54		1		10		1		10		-
Commercial & agricultural		49		49		2		50		2		50		2
Consumer & other		2		2		-		3		-		2		-
Subtotal		5,012		5,241		246		5,040		133		5,019		69
Totals:
Construction & development		538		538		27		545		16		539		10
Farmland		2,986		3,493		2		3,188		11		2,997		5
Residential		4,263		4,439		214		4,282		113		4,268		57
Commercial mortgage		10		54		1		10		1		10		-
Commercial & agricultural		49		49		2		50		2		50		2
Consumer & other		2		2		-		3		-		2		-
Total	$	7,848	$	8,575	$	246	$	8,078	$	143	$	7,866	$	74

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

28

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 4. 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, 2019
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-
Farmland		3,240		3,240		-		3,505		25
Residential		909		909		-		921		40
Commercial mortgage		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-
Consumer & other		-		-		-		-		-
Subtotal		4,149		4,149		-		4,426		65
With an allowance recorded:
Construction & development		72		72		3		76		6
Farmland		150		150		2		1,545		70
Residential		3,345		3,495		166		4,161		225
Commercial mortgage		11		56		1		268		11
Commercial & agricultural		31		31		1		34		2
Consumer & other		3		3		1		4		-
Subtotal		3,612		3,807		174		6,088		314
Totals:
Construction & development		72		72		3		76		6
Farmland		3,390		3,390		2		5,050		95
Residential		4,254		4,404		166		5,082		265
Commercial mortgage		11		56		1		268		11
Commercial & agricultural		31		31		1		34		2
Consumer & other		3		3		1		4		-
Total	$	7,761	$	7,956	$	174	$	10,514	$	379

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

Troubled Debt Restructuring

A troubled debt restructured 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. Troubled debt restructured loans are considered impaired loans.

29

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Troubled Debt Restructuring, continued

The following table sets forth information with respect to the Bank’s troubled debt restructurings as of June 30, 2020 and June 30, 2019:

For the Six Months Ended June 30, 2020

(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		2	$	459	$	459		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		1		46		50		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		1		20		20		-		-		-
Consumer & other		-		-		-		-		-		-
Total		4	$	525	$	529		-	$	-	$	-

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

During the six months ended June 30, 2020, four loans were modified that were considered to be a TDRs. Term concessions were granted on all the loans and one loan had additional funds advanced for property taxes. No TDRs identified in the last twelve months subsequently defaulted in the six months ended June 30, 2020.

For the Three Months Ended June 30, 2020

(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	$	114	$	114		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		1		46		50		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		1		20		20		-		-		-
Consumer & other		-		-		-		-		-		-
Total		3	$	180	$	184		-	$	-	$	-

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

During the three months ended June 30, 2020, three loans were modified that was considered to be a TDR. Term concessions were granted on all the loans and one loan had additional funds advanced for property taxes. No TDRs identified in the last twelve months subsequently defaulted in the quarter ended June 30, 2020.

30

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Troubled Debt Restructuring, continued

For the Six Months Ended June 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		-	$	-	$	-		-	$	-	$	-
Farmland		1		38		38		-		-		-
Residential		1		117		128		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		2	$	155	$	166		-	$	-	$	-

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

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

For the Three Months Ended June 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		-	$	-	$	-		-	$	-	$	-
Farmland		1		38		38		-		-		-
Residential		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		1	$	38	$	38		-	$	-	$	-

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

During the three months ended June 30, 2019, one loan was modified that was considered to be a TDR. Term concessions were granted on this loan. No TDRs identified in the last twelve months subsequently defaulted in the quarter ended June 30, 2019.

31

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 4. 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 June 30, 2020 and December 31, 2019 are as follows:

(dollars in thousands)	2020		2019
Residential	$	143	$	150
Commercial mortgage		312		321
Commercial & agricultural		146		146
Outstanding balance	$	601	$	617
Carrying amount	$	601	$	617

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

There were no purchased credit impaired loans acquired during the six months ended June 30, 2020 and during the year ended December 31, 2019.

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 June 30, 2020 and December 31, 2019 are as follows:

(dollars in thousands)	2020		2019
Loans at beginning of year	$	617	$	714
Loans purchased during the year		-		-
Loans at end of period	$	601	$	617

32

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 5. 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 six-month and three-month periods ended June 30, 2020 and 2019.

	Six Months Ended June 30,						Three Months Ended June 30,
(dollars in thousands)	2020			2019			2020			2019
Service cost	$	-		$	-		$	-		$	-
Interest cost		82			92			41			46
Expected return on plan assets		(314	)		(276	)		(157	)		(138	)
Amortization of prior service cost		-			-			-			-
Recognized net loss due to settlement		-			-			-			-
Recognized net actuarial (gain)/loss		14			20			7			10
Net periodic benefit cost	$	(218	)	$	(164	)	$	(109	)	$	(82	)

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, 2019 and there is no required contribution for 2020. Based on this we do not anticipate making a contribution to the plan in 2020.

Note 6. Goodwill and Intangible Assets

Goodwill

The change in goodwill during the six-month period ended June 30, 2020 and for the year ended December 31, 2019 is as follows:

	June 30,		December 31,
(dollars in thousands)	2020		2019
Beginning of year	$	3,257	$	3,198
Measurement period adjustment		-		59
End of the period	$	3,257	$	3,257

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 June 30, 2020 and December 31, 2019 are as follows:

	June 30,			December 31,
(dollars in thousands)	2020			2019
Balance at beginning of year, net	$	3070		$	3892
Amortization expense		(385	)		(822	)
Net book value	$	2685		$	3070

Aggregate amortization expense was $385 thousand and $437 thousand for the six-month periods ended June 30, 2020 and 2019, respectively. Aggregate amortization expense was $192 thousand and $218 thousand for the three-month periods ended June 30, 2020 and 2019, respectively.

33

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 7. Leases

On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. 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. Prior to adoption, all of the Company’s leases were classified as operating leases and remain operating leases at adoption.

Contracts that commence subsequent to adoption are evaluated to determine whether they are or contain a lease in accordance with Topic 842. The Company has elected the practical expedient provided by Topic 842 not to allocate consideration in a contract between lease and non-lease components. The Company also elected, as provided by the standard, not to recognize right-of-use assets and lease liabilities for short-term leases, defined by the standard as leases with terms of 12 months or less. Since adoption, the Company entered into a new operating lease during 2019 and a renewed an operating lease during 2020 and recognized right-of-use assets and lease liabilities.

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. For our incremental borrowing rate, we used the Federal Home Loan Bank available at the time of lease inception. The right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. The contracts in which the Company is lessee are with parties external to the Company and not related parties. The Company’s lease right-of-use assets are included in other assets and the lease liabilities are included in other liabilities. The following tables present information about leases:

	June 30,			December 31,
(dollars in thousands)	2020			2019
Lease liabilities	$	748		$	729
Right-of-use assets	$	748		$	729
Weighted average remaining lease term (years)		7.35			8.06
Weighted average discount rate		2.45	%		2.39	%

	Six Months Ended June 30,
(dollars in thousands)	2020		2019
Lease Expense
Operating lease expense	$	70	$	45
Short-term lease expense		18		53
Total lease expense	$	88	$	98
Cash paid for amounts included in lease liabilities	$	70	$	45

The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liabilities:

(dollars in thousands)
Six months ending December 31, 2020	$	77
Twelve months ending December 31, 2021		150
Twelve months ending December 31, 2022		119
Twelve months ending December 31, 2023		79
Twelve months ending December 31, 2024		68
Thereafter		330
Total undiscounted cash flows	$	823
Less discount		(75	)
Lease liabilities	$	748

34

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 June 30, 2020 and December 31, 2019 is as follows:

	June 30,		December 31,
(dollars in thousands)	2020		2019
Commitments to extend credit	$	107,134	$	95,190
Standby letters of credit		1,328		1,313
	$	108,462	$	96,503

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.

35

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 June 30, 2020 and December 31, 2019. 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 June 30, 2020 and December 31, 2019, 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)
June 30, 2020
Financial Instruments – Assets
Net Loans	$	645,945	$	642,553	$	-	$	642,352	$	201
Financial Instruments – Liabilities
Time Deposits		191,856		194,113		-		194,113		-
FHLB Advances		10,000		9,671		-		9,671		-
PPPLF Advances		5,375		5,375		-		5,375		-
December 31, 2019
Financial Instruments – Assets
Net Loans	$	566,460	$	557,054	$	-	$	556,851	$	203
Financial Instruments – Liabilities
Time Deposits		191,988		192,365		-		192,365		-
FHLB Advances		10,000		10,021		-		10,021		-

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.

36

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.

Impaired 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 June 30, 2020, 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.

37

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 9. Financial Instruments, continued

Assets Recorded at Fair Value on a Recurring Basis

(dollars in thousands)	Total		Level 1		Level 2		Level 3
June 30, 2020
Investment securities available for sale
Mortgage-backed securities	$	18,590	$	-	$	18,590	$	-
Corporate securities		1,438		-		1,438		-
State and municipal securities		12,978		-		12,978		-
Total assets at fair value	$	33,006	$	-	$	33,006	$	-
December 31, 2019
Investment securities available for sale
Mortgage-backed securities	$	19,504	$	-	$	19,504	$	-
Corporate securities		1,433		-		1,433		-
State and municipal securities		11,944		-		11,944		-
Total assets at fair value	$	32,881	$	-	$	32,881	$	-

No liabilities were recorded at fair value on a recurring basis as of June 30, 2020 and December 31, 2019. There were no significant transfers between levels during the six-month and three-month periods ended June 30, 2020 and the year ended December 31, 2019.

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 June 30, 2020 and December 31, 2019. 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
June 30, 2020
Impaired loans	$	201	$	-	$	-	$	201
Total assets at fair value	$	201	$	-	$	-	$	201

(dollars in thousands)	Total		Level 1		Level 2		Level 3
December 31, 2019
Impaired loans	$	203	$	-	$	-	$	203
Total assets at fair value	$	203	$	-	$	-	$	203

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of June 30, 2020 and December 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair Value at June 30, 2020		Fair Value at December 31, 2019		Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Impaired Loans	$	201	$	203	Appraised Value/Discounted Cash Flows/Market Value of Note	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell	0	–	10%

38

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 10. Short-Term Debt

At June 30, 2020 and December 31, 2019, the Bank had no debt outstanding classified as short-term.

At June 30, 2020, the Bank had established unsecured lines of credit of approximately $50.0 million with correspondent banks to provide additional liquidity if, and as needed. In addition, the Bank has the ability to borrow up to approximately $169.0 million from the Federal Home Loan Bank, subject to the pledging of collateral.

Note 11. Long-Term Debt

At June 30, 2020, the Bank’s long-term debt consisted of a $10.0 million advance from FHLB and a $5.4 million PPPLF advance from the Federal Reserve Bank. At December 31, 2019, the Bank’s long-term debt consisted of the $10.0 million advance from FHLB.

The FHLB advance, which is secured by substantially all the Bank’s 1-4 family loans, is scheduled to mature on December 6, 2029. Interest on the advance was fixed at 0.819 percent and the advance is convertible by FHLB to a variable rate quarterly on September 8, 2020. The Bank has the option to repay the advance amount in whole or in part on the conversion date.

To bolster to effectiveness of the SBA-PPP, the Federal Reserve provides liquidity to participating financial institutions through term financing backed by SBA-PPP loans to small businesses. The PPPLF extends credit on a non-recourse basis to eligible financial institutions that originate SBA-PPP loans, taking the loans as collateral at face value. On April 20, 2020, the Bank borrowed $5.4 million in PPPLF funding, that has a maturity date of April 15, 2022 and is secured by $5.4 million in SBA-PPP loans. The interest rate on the PPPLF is 35 basis points. The Bank may request additional PPPLF funding through September 30, 2020.

39

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 12. 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 June 30, 2020 and December 31, 2019, 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
June 30, 2020
Total Capital (to risk weighted assets)	$	81,303		13.80	%	$	47,138		8.00	%	$	58,922		10.00	%
Tier 1 Capital (to risk weighted assets)	$	76,609		13.00	%	$	35,353		6.00	%	$	47,138		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	76,609		13.00	%	$	26,515		4.50	%	$	38,299		6.50	%
Tier 1 Capital (to average total assets)	$	76,609		10.10	%	$	30,341		4.00	%	$	37,926		5.00	%
December 31, 2019
Total Capital (to risk weighted assets)	$	78,652		13.53	%	$	46,499		8.00	%	$	58,124		10.00	%
Tier 1 Capital (to risk weighted assets)	$	74,726		12.86	%	$	34,874		6.00	%	$	46,499		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	74,726		12.86	%	$	26,156		4.50	%	$	37,780		6.50	%
Tier 1 Capital (to average total assets)	$	74,726		10.80	%	$	27,680		4.00	%	$	34,599		5.00	%

On September 17, 2019 the Federal Deposit Insurance Corporation finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR”) framework, as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.

In order to qualify for the CBLR framework, a community banking organization must have a Tier 1 leverage ratio of greater than 9.00%, less than $10.0 billion in total consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the prompt corrective action regulations and will not be required to report or calculated risk-based capital.

The CBLR framework was available for banks to use in their June 30, 2020, Call Report. At this time the Company has elected not to opt into the CBLR framework for the Bank, but may opt into the CBLR framework in the future.

Note 13. 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 reviewed the events occurring through the date the consolidated financial statements were issued and no subsequent events occurred requiring accrual or disclosure.

40

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, 2019.

Critical Accounting Policies

For a discussion of the Company’s critical accounting policies, including its allowance for loan losses and asset impairment judgments, see Note 1 in the Notes to Consolidated Financial Statements above, and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Executive Summary

● Net income was $1.1 million in the second quarter of 2020, compared to $1.7 million in the second quarter of 2019. Net income was $2.8 million for the six months ended June 30, 2020, compared to $3.4 million for the six months ended June 30, 2019.

● Earnings per share were $0.18 in the second quarter of 2020, compared to $0.28 in the second quarter of 2019. Earnings per share were $0.46 for the first six months of 2020, compared to $0.55 in the prior period comparison.

● Net interest margin (“NIM”) was 3.95% for the second quarter 2020, compared to 4.54% in the second quarter of 2019. The primary factor in the NIM compression in the second quarter of 2020 can be primarily attributed to the swift reduction in short term interest rates towards the end of the first quarter of 2020, as well as continual competitive pressure on loan rates.

● Total assets increased by $87.9 million, or 12.45%, to $794.2 million at June 30, 2020 from $706.3 million at December 31, 2019.  The increase in total assets during the first six months of 2020 mainly related to increases in loans and deposits from the SBA-PPP program.

● Total loans increased during the first six months of 2020 by $80.2 million, or 14.07%, to $650.6 million at June 30, 2020 compared to $570.4 million at December 31, 2019, primarily due to SBA-PPP loans.

● Total deposits increased by $80.0 million, or 13.09%, to $691.2 million at June 30, 2020 from $611.2 million at December 31, 2019, due to funds from the SBA-PPP loan program.

● Return on average assets decreased to 0.58% for the quarter ended June 30, 2020, from 1.03% for the quarter ended June 30, 2019.

● Return on average equity decreased to 5.36% for the quarter ended June 30, 2020, from 8.92% for the quarter ended June 30, 2019.

● Earnings for the first six months of 2020 represented a return on average assets 0.75% and a return on average equity of 6.78%, compared to 1.02% and 8.87%, respectively, for the first six months of 2019.

Coronavirus (“COVID-19”) Response

With the COVID-19 outbreak and declaration of a pandemic by the World Health Organization on March 11, 2020, the Company has remained focused on protecting the health and safety of its employees and customers, as well as the communities served, while continuing its business operations.

Operational Initiatives

● Pandemic response team meets on at least a weekly basis and actively monitors local and state case data, as well as guidance released by regulators and banking associations.

● All in-person meetings are closely managed and are held on an as needed basis.

● Employees are working remotely, temporarily relocated or are working alternate days to increase social distancing.

● Branch and operational offices are cleaned and sanitized regularly. Employees have access to masks, gloves and disinfectant.

41

Part I.  Financial Information

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

Coronavirus (“COVID-19”) Response, continued

Operational Initiatives, continued

● Several of our branch lobbies are open to the public with limitations. Masks are required for entry, sneeze guards have been placed in customer facing areas, and social distancing signs have been placed on the floors. The remaining facilities are utilizing drive through facilities and providing branch lobby services by appointment.

● Management provides updates to employees and directors on a regular basis.

● Call center hours have been increased to assist with customer inquiries.

Small Business Administration Paycheck Protection Program

As a qualified SBA lender, we were automatically authorized to originate SBA-PPP loans and began taking applications on April 3, 2020. Through July 31, 2020, the Bank had closed and funded approximately $81.1 million or 1,235 SBA-PPP loans.

The Bank had received approximately $3.1 million of processing fees from the SBA through June 30, 2020 and an additional $96 thousand during the month of July 2020. These fees, net of direct costs relating to the origination of these loans, have been deferred and are being amortized over the life of the loans. The amount of net deferred fees recorded to interest income through June 30, 2020 was approximately $278 thousand. Loan forgiveness payments will be treated as prepayments and recognized as they occur.  A summary of our SBA-PPP loans as of June 30, 2020 is as follows:

(dollars in thousands)
	# of SBA					Balance Less
SBA Tier	Approved		Mix			Unearned Fees		Mix
$2 million to $10 million		2		0.17	%	$	7,249		9.40	%
Over $350,000 to less than $2 million		40		3.49	%		26,763		34.71	%
Up to $350,000		1,106		96.34	%		43,093		55.89	%
Total		1,148		100.00	%	$	77,105		100.00	%

Loan Deferment Requests 

The Bank, like many other financial institutions, has received requests to defer principal and/or interest payments, and has agreed to such deferrals or is in the process of doing so on a case by case basis. The banking regulatory agencies, through an Interagency Statement dated April 7, 2020, are encouraging financial institutions to work prudently with borrowers who request loan modifications or deferrals as a result of COVID-19.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for purposes of COVID-19 related modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring (“TDR”), and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. These loans are accruing interest, but the Bank is reserving for these loans separately.

42

Part I.  Financial Information

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

Loan Deferment Requests, continued

The Bank began receiving requests for loan deferments on March 23, 2020. The payment accommodation provided by the Bank is generally up to three months with the Bank retaining the sole option to extend the payment accommodation for an additional three months. Payments received upon the expiration of the payment accommodation period will generally be first applied to interest accrued, then towards escrow advances, and any remaining amount towards principal. As of July 31, 2020, the Bank had approved 242 requests for loan payment deferment of approximately $63.6 million in loans, or 9.78% of the loan portfolio under the CARES Act. Of these deferrals 146 totaling approximately $37.2 million had expired as of June 30, 2020. 17 of these deferments totaling approximately $8.8 million requested additional payment accommodations, which have been approved. 129 of these deferments totaling approximately $28.4 million had payments scheduled to resume no later than July 31 and had not requested another deferment.

Liquidity and Capital Resources

Parkway was well positioned with adequate levels of cash and liquid assets as of June 30, 2020, as well as borrowing capacity of over $219.0 million. At June 30, 2020, Parkway’s equity to asset ratio was 10.46% and the Bank’s capital was in excess of regulatory requirements. The Company will continue to monitor the effects of COVID-19 in determining future cash dividends and any requirements for additional capital each quarter. Parkway declared and paid dividends of $794 thousand, and had $867 thousand of stock repurchases for the first six months of 2020.

Results of Operations

Results of Operations for the Three Months ended June 30, 2020 and 2019

Parkway recorded net income of $1.1 million, or $0.18 per share, for the quarter ended June 30, 2020 compared to net income of $1.7 million, or $0.28 per share, for the same period in 2019. Income tax expense totaled $258 thousand for the second quarter of 2020 compared to $411 thousand for the second quarter of 2019. Net income before income taxes totaled $1.4 million, or $0.22 per share, for the quarter ended June 30, 2020 compared to $2.1 million, or $0.35 per share, for the same period in 2019. Second quarter earnings represented an annualized return on average assets (“ROAA”) of 0.58% and an annualized return on average equity (“ROAE”) of 5.36% for the quarter ended June 30, 2020, compared to 1.03% and 8.92%, respectively, for the quarter ended June 30, 2019.

Total interest income increased by $71 thousand for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019, while interest expense on deposits increased by $147 thousand over the same period. Interest income on loans increased by $300 thousand from the quarter ended June 30, 2019 compared to June 30, 2020. The increase in interest income was attributable primarily to the loan growth experienced in the second half of 2019 as well as an increase of $80.2 million in gross loans in the first half of 2020. The second quarter of 2020 included SBA-PPP loans originated, net fees of $278 thousand. Accretion of purchased loan discounts increased interest income by $259 thousand in the second quarter of 2020 compared to $395 thousand in the second quarter of 2019, representing a decrease of $136 thousand. Interest earnings from deposits with correspondents as well as federal funds sold decreased by $123 thousand for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019, due to the Fed rate reductions during the second half of 2019 and first quarter of 2020. Interest earned on investments decreased by $109 thousand for the second quarter of 2020 compared the same period last year, primarily as a result of the changes in the portfolio balances in the quarterly comparisons.

Interest expense on deposits increased by $147 thousand for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019, as a result of the increase in interest bearing deposit balances as discussed previously. Amortization of premiums on acquired time deposits, which reduces interest expense, totaled $48 thousand in the second quarter of 2020, compared to $103 thousand in the second quarter of 2019, representing a decrease of $55 thousand. Interest on borrowings increased $24 thousand for the second quarter of 2020 compared to the second quarter of 2019 as a result of $10.0 million in borrowings with the Federal Home Loan Bank during the second half of 2019 as well as borrowings of $5.4 million from the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) in the second quarter of 2020.    

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 June 30, 2020 and 2019, continued

The provision for loan losses was $414 thousand for the quarter ended June 30, 2020, compared to $276 thousand for the quarter ended June 30, 2019. The increase in the provision was due mainly to growth in the Bank’s loan portfolio as well as management’s assessment of the impact of the COVID-19 pandemic on certain qualitative and environmental factors. The reserve for loan losses at June 30, 2020 was approximately 0.72% of total loans, compared to 0.69% at June 30, 2019. Since SBA-PPP loans carry a 100% government guaranty, management does not anticipate any material credit losses attributable to these loans. 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 Bankshares Corporation (“Cardinal”). As of June 30, 2020, the remaining unaccreted discount on the acquired loan portfolios totaled $2.5 million.

Total noninterest income was $1.2 million in the second quarter of 2020 compared to $1.3 million in the second quarter of 2019. The decrease was primarily a result of a decrease in service charges on deposit accounts of $107 thousand, a decrease of $119 thousand in other income, offset by an increase in mortgage origination income of $126 thousand. Deposit account-based service charges and fees reflect the impact of waived deposit and transaction fees in the quarterly comparisons, as a result of the COVID-19 pandemic. Stimulus payments also led to a decrease in overdraft fees in the second quarter of 2020. The decrease of $119 thousand in other income was due to nonrecurring gains recognized from the sale of bank premises in the second quarter of 2019 totaling $121 thousand. Increased demand for mortgage products primarily driven by lowered interest rates resulted in mortgage origination fees of $252 thousand for the second quarter of 2020 compared to $126 thousand for the second quarter of 2019.

Total noninterest expenses increased by $461 thousand for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019. Salary and benefit costs increased by $330 thousand due to the increase in employees, primarily from the addition of staffing in our newly opened Mocksville, Lenoir, Hickory, and Hudson, North Carolina locations. In addition to branch staffing, the Bank added three commercial lenders to existing markets in the second half of 2019, whose salary and benefit costs therefore were not reflected in the 2019 second quarter numbers. Occupancy and equipment expenses increased by $61 thousand and data processing expenses increased by $105 thousand from the second quarter of 2019 to 2020, due to the addition of new branch facilities. Amortization of core deposit intangibles decreased by $26 thousand in the quarter to quarter comparison.

Income tax expense decreased by $153 thousand in the quarter to quarter comparison, totaling $258 thousand for the quarter ended June 30, 2020 compared to $411 thousand for the quarter ended June 30, 2019. The decrease was mainly due to the decrease in net income before taxes of $791 thousand in the quarterly comparison.

Results of Operations for the Six Months ended June 30, 2020 and 2019

For the six months ended June 30, 2020, total interest income increased by $270 thousand compared to the six-month period ended June 30, 2019. As noted in the above discussion, increases in interest income on loans due to loan growth and fees related to the SBA-PPP program was partially offset by decreases in interest rates and accretion of purchase discounts on acquired portfolios. Accretion of purchased loan discounts increased interest income by $705 thousand in the first six months of 2020 compared to $921 thousand in the first six months of 2019, representing a decrease of $216 thousand. Interest income on federal funds sold decreased by $176 thousand compared to the same period last year. Earnings for the first six months of 2020 represented an annualized ROAA of 0.75% and an annualized ROAE of 6.78%, compared to 1.02% and 8.87%, respectively, for the first six months of 2019.

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 Six Months ended June 30, 2020 and 2019, continued

Interest expense on deposits increased by $390 thousand for the six-months ended June 30, 2020 compared to the same period last year. Amortization of premiums on acquired time deposits, which reduces interest expense, totaled $108 thousand in the first six months of 2020, compared to $219 thousand in the first six months of 2019, representing a decrease of $111 thousand. Interest on borrowings increased by $45 thousand due to $10.0 million in borrowings from the Federal Home Loan Bank in September of 2019, and $5.4 million in borrowings through the PPPLF in the second quarter of 2020.

The provision for loan losses for the six-month period ended June 30, 2020 was $736 thousand, compared to $514 thousand for the six-month period ended June 30, 2019. During the first six months of 2020, Parkway recognized $25 thousand in net recoveries compared to $191 thousand in net charge-offs for the first six months of 2019. The increase in provision for the first half of 2020 was due primarily to the overall loan growth experienced in the second half of 2019 and first half of 2020 as well as management’s assessment of the potential impact from the COVID-19 pandemic.

Noninterest income increased by $297 thousand for the first six months of 2020, compared to the same period in 2019. The increase was mainly due to an increase in mortgage origination income of $171 thousand, and an increase in realized gains of $216 thousand, offset by a decrease in deposit account-based service charges and fees of $46 thousand, as previously discussed. As noted above nonrecurring gains from bank premise sales totaled $121 thousand in 2019, and nonrecurring gains realized on the sale of investments totaled $212 thousand in 2020. Excluding these nonrecurring transactions, noninterest income increased by $206 thousand for the six-month period ended June 30, 2020, compared to the same period last year.

Total noninterest expenses increased by $689 thousand for the six-month period ended June 30, 2020 compared to the same period in 2019. Salary and benefit cost increased by $642 thousand due to the increase in employees resulting from branch expansion into North Carolina markets as well as the addition of commercial lenders as discussed above. Occupancy and equipment expenses increased by $119 thousand and data processing expenses increased by $152 thousand from the first six months of 2019 to 2020, due to the addition of branch facilities. Amortization of core deposit intangibles decreased by $52 thousand for the first six months of 2020, compared to same period in 2019.

In total, income before taxes decreased by $779 thousand over the first six months of 2020 compared to the first six months of 2019. Income tax expense decreased by $152 thousand over the prior year, resulting in a decrease in net income of $627 thousand for the six months ended June 30, 2020, compared to the same period in 2019.    

Financial Condition

Total assets increased by $87.9 million, or 12.45%, to $794.2 million at June 30, 2020 from $706.3 million at December 31, 2019. The increase in total assets during the first six months of 2020 mainly related to increases in loans and deposits from the SBA-PPP program.

Total loans increased during the first six months of 2020 by $80.2 million, or 14.07%, to $650.6 million at June 30, 2020 compared to $570.4 million at December 31, 2019. Gross loans for the first six months of 2020 included $79.9 million in SBA-PPP loans, and deferred fees of $2.9 million originated during the second quarter of 2020.

Investment securities increased by $125 thousand to $33.0 million at June 30, 2020 from $32.9 million at December 31, 2019.

Total deposits increased by $80.0 million, or 13.09%, to $691.2 million at June 30, 2020 from $611.2 million at December 31, 2019. The increase during the first six months of 2020 can be primarily attributed to funds provided to depositors as a result of the SBA- PPP loan program, as well as the Bank’s branch expansion into new markets in the fourth quarter of 2019 and first half of 2020.

45

Part I.  Financial Information

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

Financial Condition, continued

Nonperforming assets, including nonaccrual loans, loans past due more than ninety days and foreclosed assets, decreased from $4.98 million at December 31, 2019 to $4.77 million at June 30, 2020. There were no foreclosed assets and no loans past due more than ninety days and still accruing interest at June 30, 2020 and December 31, 2019.

Nonaccrual loans decreased from $4.98 million at December 31, 2019 to $4.77 million at June 30, 2020. 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:

	June 30,			December 31,
(dollars in thousands)	2020			2019
Nonperforming Assets
Nonaccrual loans	$	4,766		$	4,979
Loans past due 90 days or more and still accruing interest		-			-
Total nonperforming loans		4,766			4,979
Foreclosed assets		-			-
Total nonperforming assets	$	4,766		$	4,979
Nonperforming assets to total assets		0.60	%		0.70	%
Nonperforming loans to total loans		0.73	%		0.87	%

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.

46

Part I.  Financial Information

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

Financial Condition, continued

At June 30, 2020, the allowance for loan losses included $246 thousand specifically reserved for impaired loans in the amount of $5.0 million.  Based on impairment analysis, loans totaling $2.8 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, 2019 totaled $7.8 million, of which $3.6 million required specific reserves of $174 thousand.

Summary of Loan Loss Experience	Six			Six
	months			months			Year
	ended			ended			ended
(dollars in thousands)	June 30,			June 30,			December 31,
	2020			2019			2019
Total loans outstanding at end of period	$	650,599		$	549,820		$	570,353
Allowance for loan losses, beginning of period	$	3,893		$	3,495		$	3,495
Charge offs:
Construction & development		-			-			-
Farmland		-			(14	)		(13	)
Residential		-			(32	)		(55	)
Commercial mortgage		-			(41	)		(41	)
Commercial & agricultural		-			(63	)		(77	)
Consumer & other		(78	)		(95	)		(212	)
Total charge-offs		(78	)		(245	)		(398	)
Recoveries:
Construction & development		4			-			-
Farmland		-			-			-
Residential		11			8			8
Commercial mortgage		65			28			69
Commercial & agricultural		2			4			10
Consumer & other		21			14			54
Total recoveries		103			54			141
Net charge-offs		25			(191	)		(257	)
Provision for allowance		736			514			655
Allowance for loan losses at end of period	$	4,654		$	3,818		$	3,893
Ratios:
Allowance for loan losses to loans at end of period		0.72	%		0.69	%		0.68	%
Net charge-offs to allowance for loan losses		0.54	%		5.00	%		6.60	%
Net charge-offs to provisions for loan losses		3.40	%		37.16	%		39.24	%

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 June 30, 2020 totaled $4.3 million, or 0.66% of total loans. Historical charge-off rates in this category have not varied significantly from other real estate secured loans.

Stockholders’ equity increased by $1.7 million, or 2.06%, to $83.1 million at June 30, 2020 from $81.4 million at December 31, 2019. The increase was due to earnings of $2.8 million, plus other comprehensive income of $563 thousand, less the payment of dividends of $794 thousand, less common stock repurchases of $867 thousand. Book value increased from $13.27 per share at December 31, 2019 to $13.71 per share at June 30, 2020.

47

Part I.  Financial Information

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

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 $50.0 million at June 30, 2020. The Bank had no balances outstanding on these lines as of June 30, 2020 and December 31, 2019, respectively. In addition, the Bank has the ability to borrow up to approximately $169.0 million from the Federal Home Loan Bank (“FHLB”), subject to the pledging of collateral. The Bank had long-term FHLB advances of $10.0 million outstanding at June 30, 2020 and December 31, 2019, respectively.

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. The liquidity ratio (the level of liquid assets divided by total deposits plus short-term liabilities) was 9.6% and 9.9% for the periods ended June 30, 2020 and December 31, 2019, respectively. These ratios are considered to be adequate by management.

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 June 30, 2020, the Bank exceeded minimum regulatory capital requirements and is considered to be “well capitalized.”

At June 30, 2020, Parkway’s equity to asset ratio was 10.46% and the Bank’s capital was in excess of regulatory requirements as discussed above. The Company will continue to monitor the effects of COVID-19 in determining future cash dividends and any requirements for additional capital each quarter. Parkway declared and paid dividends of $794 thousand, and had $867 thousand of stock repurchases for the first half of 2020.

48

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 effects of the COVID-19 pandemic, including the Company’s credit quality and business operations, as well as its impact on general economic and financial market 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 this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 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.

49

Part I.  Financial Information

Item 3.      Quantitative and Qualitative Disclosures about Market Risk

Not required.

50

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.

51

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, 2019 should be considered. These risks could materially and adversely affect our business, financial condition and results of operations. Other than as set forth below, there have been no material changes to the factors discussed in our Form 10-K.

The ongoing COVID-19 pandemic and measures intended to prevent its spread may adversely affect our business, financial condition and operations; the extent of such impacts are highly uncertain and difficult to predict.

Global health and economic concerns relating to the COVID-19 outbreak and government actions taken to reduce the spread of the virus have had a material adverse impact on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. The pandemic has resulted in federal, state and local authorities, including those who govern the markets in which we operate, implementing numerous measures to try to contain the virus.  These measures, including shelter in place orders and business limitations and shutdowns, have significantly contributed to rising unemployment and negatively impacted consumer and business spending.

The COVID-19 outbreak has adversely impacted and is likely to continue to adversely impact our workforce and operations and the operations of our customers and business partners. In particular, we may experience adverse effects due to a number of operational factors impacting us or our customers or business partners, including but not limited to:

● credit losses resulting from financial stress experienced by our borrowers, especially those operating in industries most hard hit by government measures to contain the spread of the virus;

● operational failures, disruptions or inefficiencies due to changes in our normal business practices necessitated by our internal measures to protect our employees and government-mandated measures intended to slow the spread of the virus;

● possible business disruptions experienced by our vendors and business partners in carrying out work that supports our operations;

● decreased demand for our products and services due to economic uncertainty, volatile market conditions and temporary business closures;

● any financial liability, credit losses, litigation costs or reputational damage resulting from our origination of SBA-PPP loans; and

● heightened levels of cyber and payment fraud, as cyber criminals try to take advantage of the disruption and increased online activity brought about by the pandemic.

The extent to which the pandemic impacts our business, liquidity, financial condition and operations will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, its duration and severity, the actions to contain it or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. In addition, the rapidly changing and unprecedented nature of COVID-19 heightens the inherent uncertainty of forecasting future economic conditions and their impact on our loan portfolio, thereby increasing the risk that the assumptions, judgments and estimates used to determine the allowance for loan losses and other estimates are incorrect. Further, our loan deferral program could delay or make it difficult to identify the extent of asset quality deterioration during the 90-day deferral period. As a result of these and other conditions, the ultimate impact of the pandemic is highly uncertain and subject to change, and we cannot predict the full extent of the impacts on our business, our operations or the global economy as a whole. To the extent any of the foregoing risks or other factors that develop as a result of COVID-19 materialize, it could exacerbate the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2019, or otherwise materially and adversely affect our business, liquidity, financial condition and results of operations.

52

Part II.  Other Information

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

The following table details the Company’s purchase of its common stock during the second quarter of 2020.

	Total number of shares purchased		Average price paid per Share		Total number of shares purchased as part of publicly announced program (1)		Maximum number of shares that may yet be purchased under the plan (1)
Purchased 4/1 through 4/30		-	$	-		-		54,000
Purchased 5/1 through 5/31		-	$	-		-		204,000
Purchased 6/1 through 6/30		6,500	$	10.25		6,500		197,500
Total during second quarter 2020		6,500	$	10.25		6,500

(1) In January 2019, the Company announced that the Board of Directors had authorized a 200,000 share common stock repurchase plan with an expiration date of January 2021. In May 2020, the Company announced that the Board of Director had authorized an additional 150,000 shares to the common stock repurchase plan, bringing the aggregate total to 350,000 shares of common stock. To date 152,500 shares of common stock have been repurchased under the plan, leaving 197,500 shares of common stock that may be repurchased from time to time until January 2021.

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 June 30, 2020, 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.

53

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: August 14, 2020	By:	/s/ Blake M. Edwards
		Blake M. Edwards
		President and Chief Executive Officer
	By:	/s/ Lori C. Vaught
		Lori C. Vaught
		Chief Financial Officer

54

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 June 30, 2020;

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: August 14, 2020	By:	/s/ Blake M. Edwards
		Blake M. Edwards
		President and 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 June 30, 2020;

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: August 14, 2020	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 June 30, 2020 (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:     August 14, 2020
	Blake M. Edwards
	President and Chief Executive Officer
By:	/s/ Lori C. Vaught	Date:     August 14, 2020
	Lori C. Vaught
	Chief Financial Officer

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Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2020	Aug. 13, 2020
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 Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		6,060,775
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Jun. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false

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Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Assets
Cash and due from banks	$ 11,968	$ 8,388
Interest-bearing deposits with banks	36,835	34,861
Federal funds sold	236	1,138
Investment securities available for sale	33,006	32,881
Restricted equity securities	2,416	2,394
Loans, net of allowance for loan losses of $4,654 at June 30, 2020 and $3,893 at December 31, 2019	645,945	566,460
Cash value of life insurance	18,071	17,855
Properties and equipment, net	26,074	23,437
Accrued interest receivable	2,576	2,072
Core deposit intangible	2,685	3,070
Goodwill	3,257	3,257
Deferred tax assets, net	1,588	985
Other assets	9,531	9,492
Assets, Total	794,188	706,290
Liabilities
Noninterest-bearing	219,845	165,900
Interest-bearing	471,393	445,311
Total deposits	691,238	611,211
FHLB advances	10,000	10,000
Paycheck protection program liquidity facility advances	5,375
Accrued interest payable	126	132
Other liabilities	4,346	3,519
Liabilities, Total	711,085	624,862
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, 6,060,775 and 6,137,275 issued and outstanding at June 30, 2020 and December 31, 2019, respectively
Surplus	39,885	40,752
Retained earnings	43,579	41,600
Accumulated other comprehensive loss	(361)	(924)
Stockholders' Equity Attributable to Parent, Ending Balance	83,103	81,428
Liabilities and Equity, Total	$ 794,188	$ 706,290

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ / shares in Thousands, $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Allowance for loan losses	$ 4,654	$ 3,893
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)	6,060,775	6,137,275
Common stock, outstanding (in shares)	6,060,775	6,137,275

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Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Interest income
Loans and fees on loans	$ 7,440	$ 7,140	$ 14,859	$ 14,261
Interest-bearing deposits in banks	26	40	153	98
Federal funds sold		109	3	179
Interest on taxable securities	150	264	321	540
Interest on nontaxable securities	5		5
Dividends	50	47	68	61
Interest and Dividend Income, Operating, Total	7,671	7,600	15,409	15,139
Interest expense
Deposits	827	680	1,660	1,270
Interest on borrowings	24		45
Interest Expense, Total	851	680	1,705	1,270
Net interest income	6,820	6,920	13,704	13,869
Provision	414	276	736	514
Net interest income after provision for loan losses	6,406	6,644	12,968	13,355
Noninterest income
Net realized gains (losses) on securities		10	212	(4)
Increase in cash value of life insurance	108	108	216	216
Other income	22	141	120	162
Noninterest Income, Total	1,168	1,260	2,629	2,332
Noninterest expenses
Salaries and employee benefits	3,592	3,262	7,061	6,419
Occupancy and equipment	775	714	1,558	1,439
Foreclosed asset expense, net		1		2
Data processing expense	467	362	883	731
FDIC Assessments	60	72	75	144
Advertising	184	158	290	293
Bank franchise tax	122	111	232	222
Director fees	61	88	131	148
Professional fees	105	180	247	362
Telephone expense	99	66	183	180
Core deposit intangible amortization	192	218	385	437
Other expense	562	526	1,103	1,082
Noninterest Expense, Total	6,219	5,758	12,148	11,459
Net income before income taxes	1,355	2,146	3,449	4,228
Income tax expense	258	411	676	828
Net income	$ 1,097	$ 1,735	$ 2,773	$ 3,400
Net income per share (in dollars per share)	$ 0.18	$ 0.28	$ 0.46	$ 0.55
Weighted average shares outstanding (in shares)	6,066,704	6,206,022	6,094,160	6,209,629
Dividends declared per share (in dollars per share)	$ 0	$ 0	$ 0.13	$ 0.12
Deposit Account [Member]
Noninterest income
Noninterest income	$ 269	$ 376	$ 690	$ 736
Financial Service, Other [Member]
Noninterest income
Noninterest income	517	499	1,010	1,012
Mortgage Banking [Member]
Noninterest income
Noninterest income	$ 252	$ 126	$ 381	$ 210

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Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Net income	$ 1,097	$ 1,735	$ 2,773	$ 3,400
Unrealized gains on investment securities available for sale:
Unrealized gains arising during the period	762	558	924	1,261
Tax related to unrealized gains	(160)	(117)	(194)	(264)
Reclassification of net realized (gains) losses during the period		(10)	(212)	4
Tax related to realized gains (losses)		2	45	(1)
Total other comprehensive income	602	433	563	1,000
Total comprehensive income	1,699	2,168	3,336	4,400
Net income	$ 1,097	$ 1,735	$ 2,773	$ 3,400

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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, 2018	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
Balance at Dec. 31, 2018		41,660	35,929	(1,967)	75,622
Net income					3,400
Other comprehensive income (loss)					1,000
Balance (in shares) at Jun. 30, 2019	6,193,275
Balance at Jun. 30, 2019		41,425	38,583	(967)	79,041
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
Balance (in shares) at Dec. 31, 2019	6,137,275				6,137,275
Balance at Dec. 31, 2019		40,752	41,600	(924)	$ 81,428
Net income			1,676		1,676
Other comprehensive income (loss)				(39)	(39)
Dividends paid			(794)		(794)
Common stock repurchased (in shares)	(70,000)
Common stock repurchased		(800)			(800)
Balance (in shares) at Mar. 31, 2020	6,067,275
Balance at Mar. 31, 2020		39,952	42,482	(963)	$ 81,471
Balance (in shares) at Dec. 31, 2019	6,137,275				6,137,275
Balance at Dec. 31, 2019		40,752	41,600	(924)	$ 81,428
Net income					2,773
Other comprehensive income (loss)					$ 563
Balance (in shares) at Jun. 30, 2020	6,060,775				6,060,775
Balance at Jun. 30, 2020		39,885	43,579	(361)	$ 83,103
Balance (in shares) at Mar. 31, 2020	6,067,275
Balance at Mar. 31, 2020		39,952	42,482	(963)	81,471
Net income			1,097		1,097
Other comprehensive income (loss)				602	602
Common stock repurchased (in shares)	(6,500)
Common stock repurchased		(67)			$ (67)
Balance (in shares) at Jun. 30, 2020	6,060,775				6,060,775
Balance at Jun. 30, 2020		$ 39,885	$ 43,579	$ (361)	$ 83,103

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Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Dividends paid per share (in dollars per share)	$ 0.13	$ 0.12

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended		12 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Cash flows from operating activities
Net income	$ 1,097	$ 1,676	$ 1,735	$ 1,665	$ 2,773	$ 3,400
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization					667	597
Amortization of core deposit intangible	192		218		385	437
Accretion of loan discount and deposit premium, net					(813)	(1,316)
Provision for Loan and Lease Losses, Total	414		276		736	514
Deferred income taxes					(751)	442
Net realized (gains) losses on securities			(10)		(212)	4
Accretion of discount on securities, net of amortization of premiums					141	239
Deferred compensation					(2)	(10)
Gains on sale of properties and equipment						(121)
Changes in assets and liabilities:
Cash value of life insurance					(216)	(216)
Accrued interest receivable					(504)	(128)
Other assets					(20)	468
Accrued interest payable					(6)	22
Other liabilities					810	(226)
Net cash provided by operating activities					2,988	4,106
Cash flows from investing activities
Purchases					(10,647)	(1,037)
Sales					7,798	3,950
Maturities/calls/paydowns					3,506	2,441
Purchases of restricted equity securities					(22)	(1)
Net increase in loans					(79,516)	(12,625)
Proceeds from sale of foreclosed assets						753
Purchases of property and equipment					(3,304)	(781)
Net cash used in investing activities					(82,185)	(7,300)
Cash flows from financing activities
Net increase (decrease) in deposits					80,135	(2,770)
Net change in paycheck protection program liquidity facility advances					5,375
Common stock repurchased					(867)	(235)
Dividends paid					(794)	(746)
Net cash provided by (used in) financing activities					83,849	(3,751)
Net increase (decrease) in cash and cash equivalents					4,652	(6,945)
Cash and cash equivalents, beginning		$ 44,387		$ 40,007	44,387	40,007	$ 40,007
Cash and cash equivalents, ending	$ 49,039		$ 33,062		49,039	33,062	$ 44,387
Supplemental disclosure of cash flow information
Interest paid					1,711	1,248
Taxes paid					253	50
Supplemental disclosure of noncash investing activities
Effect on equity of change in net unrealized gain on available for sale securities					563	1,000
Right-of-use assets obtained in exchange for new operating lease liabilities					68
Business combinations
Goodwill recorded						$ 59

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Note 1 - Organization and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

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, Davie, Watauga, Wilkes, and Yadkin, and the surrounding areas through

twenty four

full-service banking offices and

one

loan production office. 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.

The consolidated financial statements as of

June 30, 2020

and for the

six

and

three

-month periods ended

June 30, 2020

and

2019

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, 2019,

included in the Company's Annual Report on Form

10

-K for the fiscal year ended

December 31, 2019.

The results of operations for the

six

and

three

-months ended

June 30, 2020

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, such as the recoverability of intangible assets and other-than-temporary impairment of investment securities, involve a higher degree of complexity and require management to make difficult and subjective judgements that 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 (“GAAP”) 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. The amortization of premiums and accretion of discounts are recognized in interest income using the effective interest method over the period to maturity for discounts and the earlier of call date or maturity for premiums.

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.

Small Business Administration Paycheck Protection Program

The Small Business Administration Paycheck Protection Program (“SBA-PPP”) is

one

of the centerpieces of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”), which was passed on

March 27, 2020

in response to the outbreak of coronavirus (“COVID-

19”

) and was supplemented with subsequent legislation.  Overseen by the United States (“U.S.”) Treasury Department, the SBA-PPP offers cash-flow assistance to nonprofit and small business employers through guaranteed loans for expenses incurred between

February 15, 2020,

and

August 8, 2020. 

Borrowers are eligible for forgiveness of principal and accrued interest on SBA-PPP loans to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period between

eight

and

24

-weeks after the loan is made as long as the borrower retains its employees and their compensation levels.  The CARES Act authorized the SBA to temporarily guarantee these loans.

Due to the unique nature of these provisions, SBA-PPP loans have been disclosed as a separate loan class.  Origination fees received by the SBA are capitalized into the carrying amount of the loans.  The deferred fee income, net of origination costs, is recognized over the life of the loan as an adjustment to yield using the effective interest method. Loans outstanding as of

June 30, 2020

totaled

$77.1

million.

The allowance for loan losses for SBA-PPP loans originated during the

second

quarter of

2020

were separately evaluated given the explicit government guarantee.  This analysis, which incorporated historical experience with similar SBA guarantees and underwriting, concluded the likelihood of loss was remote and therefore these loans were assigned a

zero

expected credit loss in the allowance for loan losses.

Troubled Debt Restructurings

Under GAAP, the Bank is required to account for certain loan modifications or restructurings as “troubled debt restructurings” or "troubled debt restructured loans."  In general, the modification or restructuring of a debt constitutes a troubled debt restructuring if the Bank for economic or legal reasons related to the borrower's financial difficulties grants a concession to the borrower that the Bank would

not

otherwise consider. Debt restructuring or loan modifications for a borrower do

not

necessarily always constitute a troubled debt restructuring, however, and troubled debt restructurings do

not

necessarily result in non-accrual loans.

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's and Floyd's 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. 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. Noninterest revenue streams in-scope of Topic

606

are discussed below.

Service Charges on Deposit Accounts -

Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, ATM fees, wire transfer fees and other deposit account related fees. The Company's performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers' accounts. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Wire transfer fees, overdraft and nonsufficient funds fees, and other deposit account related fees are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time.

Other Service Charges and Fees - O

ther service charges include safety deposit box rental fees, check ordering charges, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Check ordering charges are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time.

Credit and Debit Card Fees -

Credit and debit card fees are primarily comprised of interchange fee income and merchant services income. Interchange fees are earned whenever the Company's debit and credit cards are processed through card payment networks such as Visa or Mastercard. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. The Company's performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Insurance and Investment -

Insurance income primarily consists of commissions received on insurance product sales. The Company acts as an intermediary between the Company's customer and the insurance carrier. The Company's performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the insurance policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. Investment income consists of recurring revenue streams such as commissions from sales of mutual funds and other investments. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined.

Leases

In

February 2016,

the FASB amended the Leases topic of the ASC 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. There was

not

a material change to the timing of expense recognition. See additional discussion of leases in Note

7

to the consolidated financial statements.

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. 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 are as follows:

	Unrealized Gains
	And (Losses)
(dollars in thousands)	On Available for			Defined Benefit
	Sale Securities			Pension Items			Total
Balance, December 31, 2018	$	(929	)	$	(1,038	)	$	(1,967	)
Other comprehensive income before reclassifications		997			-			997
Amounts reclassified from accumulated other comprehensive income, net of tax		3			-			3
Balance June 30, 2019	$	71		$	(1,038	)	$	(967	)
Balance, December 31, 2019	$	51		$	(975	)	$	(924	)
Other comprehensive income before reclassifications		731			-			731
Amounts reclassified from accumulated other comprehensive income, net of tax		(168	)		-			(168	)
Balance June 30, 2020	$	614		$	(975	)	$	(361	)

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

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 delayed the effective date to fiscal years beginning after

December 31, 2022,

including interim periods within those fiscal periods. On

October 16, 2019

the proposed changes were approved by the FASB. As the Company is a smaller reporting company, the delay is applicable to the Company.

In

November 2019,

the FASB issued guidance that addresses issues raised by stakeholders during the implementation of ASU

2016

-

13,

Financial Instruments—Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

. The amendments affect a variety of Topics in the Accounting Standards Codification. For entities that have

not

yet adopted the amendments in ASU

2016

-

13,

the amendments are effective for fiscal years beginning after

December 15, 2022,

including interim periods within those fiscal. Early adoption is permitted in any interim period as long as an entity has adopted the amendments in ASU

2016

-

13.

The Company does

not

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

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, 2022.

Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after

January 1, 2017.

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, 2022.

The Company does

not

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

In

November 2019,

the FASB issued guidance to defer the effective dates for private companies,

not

-for-profit organizations, and certain smaller reporting companies applying standards on current expected credit losses (“CECL”). Since the Company is a smaller reporting company, the new effect date for CECL will be fiscal years beginning after

December 15, 2022,

including interim periods within those fiscal years.

In

December 2019,

the FASB issued guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding. The amendments also improve consistent application of and simplify GAAP for other areas of Topic

740

by clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after

December 15, 2020,

including interim periods within those fiscal years. Early adoption is permitted. The Company does

not

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

In

January 2020,

the FASB issued guidance to address accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments are effective for fiscal years beginning after

December 15, 2020,

and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period. The Company does

not

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

In

February 2020,

the FASB issued guidance to add and amend SEC paragraphs in the ASC to reflect the issuance of SEC Staff Accounting Bulletin

No.

119

related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard. The amendments were effective upon issuance. The Company does

not

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

In

March 2020,

the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument guidance, including the CECL guidance issued in

2016.

Since the Company is a smaller reporting company, it should adopt the amendments in ASU

2016

-

13

during

2023.

The Company does

not

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

In

March 2020,

the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of

March 12, 2020

through

December 31, 2022.

The Company does

not

expect these amendments to have a material effect on its 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.

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Note 2 - Investment Securities

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

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

Note

2

. Investment Securities

Debt and equity securities have been classified in the consolidated balance sheets according to management's intent. The amortized cost of securities and their approximate fair values at

June 30, 2020

and

December 31, 2019

follow:

(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
June 3 0 , 20 20
Available for sale:
Mortgage-backed securities	$	17,993	$	597	$	-		$	18,590
Corporate securities		1,500		-		(62	)		1,438
State and municipal securities		12,737		243		(2	)		12,978
	$	32,230	$	840	$	(64	)	$	33,006
December 31, 201 9
Available for sale:
Mortgage-backed securities	$	19,540	$	61	$	(97	)	$	19,504
Corporate securities		1,500		-		(67	)		1,433
State and municipal securities		11,777		168		(1	)		11,944
	$	32,817	$	229	$	(165	)	$	32,881

Restricted equity securities totaled

$2.4

million at

June 30, 2020

and

December 31, 2019,

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 tables details unrealized losses and related fair values in the Company's available for sale investment securities portfolios. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of

June 30, 2020

and

December 31, 2019.

	Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30 , 20 20
Available for sale:
Mortgage-backed securities	$	-	$	-		$	-	$	-		$	-	$	-
Corporate securities		-		-			1,438		(62	)		1,438		(62	)
State and municipal securities		1,006		(2	)		-		-			1,006		(2	)
Total securities available for sale	$	1,006	$	(2	)	$	1,438	$	(62	)	$	2,444	$	(64	)
December 31, 201 9
Available for sale:
Mortgage-backed securities	$	8,625	$	(97	)	$	-	$	-		$	8,625	$	(97	)
Corporate securities		-		-			1,433		(67	)		1,433		(67	)
State and municipal securities		1,010		(1	)		-		-			1,010		(1	)
Total securities available for sale	$	9,635	$	(98	)	$	1,433	$	(67	)	$	11,068	$	(165	)

At

June 30, 2020,

2

debt securities with unrealized losses had depreciated

2.55

percent from their total amortized cost basis. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, and the financial condition and near-term prospects of the issuer. The relative significance of these and other factors will vary on a case by case basis. In analyzing an issuer's financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer's financial condition and the issuer's anticipated ability to pay the contractual cash flows of the investments. Since the Company intends to hold all of its investment securities until maturity, and it is more likely than

not

that the Company will

not

have to sell any of its investment securities before unrealized losses have been recovered, and the Company expects to recover the entire amount of the amortized cost basis of all its securities,

none

of the securities are deemed other than temporarily impaired at

June 30, 2020.

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

$7.80

million for the

six

-month period ended

June 30, 2020

and

$3.95

million for the

six

-month and

three

-month periods ended

June 30, 2019.

There were

no

proceeds from the sale of investment securities for the

three

-month period ended

June 30, 2020.

Gross proceeds from called securities totaled

$1.27

million and

$735

thousand for the

six

-month periods ended

June 30, 2020

and

2019,

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

six

-month and

three

-month periods ended

June 30, 2020

and

2019

are as follows:

	Six Months Ended June 30					Three Months Ended June 30
(dollars in thousands)	2020		2019			2020		2019
Realized gains	$	212	$	32		$	-	$	32
Realized losses		-		(36	)		-		(22	)-
	$	212	$	(4	)	$	-	$	10

There were

no

securities transferred between the available for sale and held to maturity portfolios or other sales of held to maturity securities during the periods presented. In the future management

may

elect to classify securities as held to maturity based upon such considerations as the nature of the security, the Bank's ability to hold the security until maturity, and general economic conditions.

The scheduled maturities of securities available for sale at

June 30, 2020,

were as follows:

(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	620	$	626
Due after one year through five years		7,819		7,847
Due after five years through ten years		7,914		8,252
Due after ten years		15,877		16,281
	$	32,230	$	33,006

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

$14.7

million and

$15.5

million at

June 30, 2020

and

December 31, 2019,

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

XML

Note 3 - Loans Receivable

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

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

Note

3

. Loans Receivable

The major components of loans in the consolidated balance sheets at

June 30, 2020

and

December 31, 2019

are as follows:

(dollars in thousands)	20 20			201 9
Construction & development	$	44,192		$	39,649
Farmland		34,629			34,166
Residential		260,565			253,674
Commercial mortgage		181,866			190,817
Commercial & agricultural		31,456			32,426
SBA-PPP		77,105			-
Consumer & other		20,786			19,621
Total loans		650,599			570,353
Allowance for loan losses		(4,654	)		(3,893	)
Loans, net of allowance for loan losses	$	645,945		$	566,460

As a qualified Small Business Administration (“SBA”) lender, we were automatically authorized to originate “SBA-PPP” loans and began taking applications on

April 3, 2020.

An eligible business can apply for a SBA- PPP loan up to the lesser of: (

1

)

2.5

times its average monthly “payroll costs;” or (

2

)

$10.0

million. SBA-PPP loans will have: (a) an interest rate of

1.0%,

(b) a

two

-year term to maturity; and (c) principal and interest payments deferred for

six

months from the date of disbursement. The SBA will guarantee

100%

of the SBA-PPP loans made to eligible borrowers. The entire principal amount of the borrower's SBA-PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the SBA-PPP, subject to certain eligibility requirements and conditions. As of

June 30, 2020,

the Bank had

1,148

SBA-PPP loans outstanding with an outstanding principal balance of

$79.9

million, less unearned net fees of

$2.8

million.

To bolster to effectiveness of the SBA-PPP, the Federal Reserve provides liquidity to participating financial institutions through term financing backed by SBA-PPP loans to small businesses. The Paycheck Protection Program Liquidity Facility (“PPPLF”) extends credit on a non-recourse basis to eligible financial institutions that originate SBA- PPP loans, taking the loans as collateral at face value. As of

June 30, 2020,

the Bank had

$5.4

million in PPPLF funding outstanding, that has a maturity date of

April 15, 2022

and is secured by

$5.4

million in SBA-PPP loans.

As of

June 30, 2020

and

December 31, 2019,

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 4 - Allowance for Loan Losses and Impaired Loans

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note

4

. Allowance for Loan Losses and Impaired Loans

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed to be sufficient to provide for estimated loan losses based on evaluating known and inherent risks in the loan portfolio. The allowance is provided based upon management's comprehensive analysis of the pertinent factors underlying the quality of the loan portfolio. These factors include changes in the amount and composition of the loan portfolio, delinquency levels, actual loss experience, current economic conditions, and detailed analysis of individual loans for which the full collectability

may

not

be assured. The detailed analysis includes methods to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment. The allowance consists of specific and general components. The specific component is calculated on an individual basis for larger-balance, non-homogeneous loans, which are considered impaired. A specific allowance is established when the discounted cash flows, collateral value (less disposal costs), or observable market price of the impaired loan is lower than its carrying value. The specific component of the allowance for smaller-balance loans whose terms have been modified in a troubled debt restructuring (“TDR”) is calculated on a pooled basis considering historical experience adjusted for qualitative factors. These smaller-balance TDRs were collectively evaluated for impairment. The general component covers the remaining loan portfolio, and is based on historical loss experience adjusted for qualitative factors. The appropriateness of the allowance for loan losses on loans is estimated based upon these factors and trends identified by management at the time financial statements are prepared.

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

As noted in Note

1,

the Company determined that SBA-PPP loans have

zero

expected credit losses and as such are excluded from the disclosures included in the following table. The following table presents activity in the allowance by loan category and information on the loans evaluated individually for impairment and collectively evaluated for impairment as of

June 30, 2020

and

December 31, 2019:

Allowance for Loan Losses and Recorded Investment in Loans

(dollars in thousands)	Construction & Development		Farmland			Residential			Commercial Mortgage			Commercial & Agricultural			Consumer & Other			Total
For the Three Months Ended June 30, 20 20
Allowance for loan losses:
Balance, March 31, 2019	$	341	$	465		$	1,998		$	1,054		$	246		$	148		$	4,252
Charge-offs		-		-			-			-			-			(25	)		(25	)
Recoveries		-		-			3			-			-			10			13
Provision		74		7			125			(3	)		204			7			414
Balance, March 31, 2020	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
For the Three Months Ended June 30, 2019
Allowance for loan losses:
Balance, March 31, 2019	$	268	$	407		$	1,733		$	697		$	385		$	128		$	3,618
Charge-offs		-		-			(20	)		-			(19	)		(43	)		(82	)
Recoveries		-		-			1			-			2			3			6
Provision		17		133			16			155			(76	)		31			276
Balance, June 30, 2019	$	285	$	540		$	1,730		$	852		$	292		$	119		$	3,818
For the Six Months Ended June 30 , 20 20
Allowance for loan losses:
Balance, December 31, 2019	$	305	$	487		$	1,822		$	924		$	211		$	144		$	3,893
Charge-offs		-		-			-			-			-			(78	)		(78	)
Recoveries		4		-			11			65			2			21			103
Provision		106		(15	)		293			62			237			53			736
Balance, June 30, 2019	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
For the Six Months Ended June 30, 2019
Allowance for loan losses:
Balance, December 31, 2018	$	246	$	385		$	1,807		$	682		$	281		$	94		$	3,495
Charge-offs		-		(14	)		(32	)		(41	)		(63	)		(95	)		(245	)
Recoveries		-		-			8			28			4			14			54
Provision		39		169			(53	)		183			70			106			514
Balance, June 30, 2019	$	285	$	540		$	1,730		$	852		$	292		$	119		$	3,818
June 3 0 , 20 20
Allowance for loan losses:
Ending Balance	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
Ending balance: individually evaluated for impairment	$	-	$	-		$	-		$	-		$	-		$	-		$	-
Ending balance: collectively evaluated for impairment	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
Ending balance: purchased credit impaired loans	$	-	$	-		$	-		$	-		$	-		$	-		$	-
Loans outstanding:
Ending Balance	$	44,192	$	34,629		$	260,565		$	181,866		$	31,456		$	20,786		$	573,494
Ending balance: individually evaluated for impairment	$	-	$	2,836		$	-		$	-		$	-		$	-		$	2,836
Ending balance: collectively evaluated for impairment	$	44,192	$	31,793		$	260,422		$	181,554		$	31,310		$	20,786		$	570,057
Ending balance: purchased credit impaired loans	$	-	$	-		$	143		$	312		$	146		$	-		$	601

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, 2019
Allowance for loan losses:
Ending Balance	$	305	$	487	$	1,822	$	924	$	211	$	144	$	3,893
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment	$	305	$	487	$	1,822	$	924	$	211	$	144	$	3,893
Ending balance: purchased credit impaired loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans outstanding:
Ending Balance	$	39,649	$	34,166	$	253,674	$	190,817	$	32,426	$	19,621	$	570,353
Ending balance: individually evaluated for impairment	$	-	$	3,240	$	909	$	-	$	-	$	-	$	4,149
Ending balance: collectively evaluated for impairment	$	39,649	$	30,926	$	252,615	$	190,496	$	32,280	$	19,621	$	565,587
Ending balance: purchased credit impaired loans	$	-	$	-	$	150	$	321	$	146	$	-	$	617

As of

June 30, 2020

and

December 31, 2019,

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

June 30, 2020

and

December 31, 2019,

respectively, the Bank had

no

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

During the

first

quarter of

2020,

Management evaluated loan grades included in the “Watch” category and determined that loans associated with a certain grade should be classified as “Pass” credits. As a result of this reclassification, the loan grades previously reported as “Watch” & “Pass” of

December 31, 2019

have been reclassified as follows:

	Loan Grades
(dollars in thousands)	Watch As Reported		Reclass			Watch Adjusted
December 31, 2019
Real Estate Secured:
Construction & development	$	4,801	$	(4,244	)	$	557
Farmland		4,059		(2,565	)		1,494
Residential		19,887		(19,349	)		538
Commercial mortgage		21,960		(19,557	)		2,403
Non-Real Estate Secured:
Commercial & agricultural		4,346		(3,805	)		541
Consumer & other		300		(300	)		-
Total	$	55,353	$	(49,820	)	$	5,533

	Loan Grades
(dollars in thousands)	Pass As Reported		Reclass		Pass Adjusted
December 31, 2019
Real Estate Secured:
Construction & development	$	34,701	$	4,244	$	38,945
Farmland		22,969		2,565		25,534
Residential		231,629		19,349		250,978
Commercial mortgage		163,584		19,557		183,141
Non-Real Estate Secured:
Commercial & agricultural		27,503		3,805		31,308
Consumer & other		19,314		300		19,614
Total	$	499,700	$	49,820	$	549,520

These reclassifications did

not

have an impact on our calculation of the allowance for loan losses or our provision expense.

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

June 30, 2020

and

December 31, 2019 (

reclassified as noted above):

Credit Risk Profile by Internally Assigned Grades

	Loan Grades
(dollars in thousands)	Pass		Watch		Special Mention		Substandard		Total
June 30, 20 20
Real Estate Secured:
Construction & development	$	43,581	$	-	$	-	$	611	$	44,192
Farmland		27,076		813		661		6,079		34,629
Residential		257,636		626		124		2,179		260,565
Commercial mortgage		175,459		2,260		826		3,321		181,866
Non-Real Estate Secured:
Commercial & agricultural		30,270		502		125		559		31,456
SBA-PPP		77,105								77,105
Consumer & other		20,786		-		-		-		20,786
Total	$	631,913	$	4,201	$	1,736	$	12,749	$	650,599
December 31, 201 9
Real Estate Secured:
Construction & development	$	38,945	$	557	$	-	$	147	$	39,649
Farmland		25,534		1,494		673		6,465		34,166
Residential		250,978		538		176		1,982		253,674
Commercial mortgage		183,141		2,403		930		4,343		190,817
Non-Real Estate Secured:
Commercial & agricultural		31,308		541		103		474		32,426
Consumer & other		19,614		-		-		7		19,621
Total	$	549,520	$	5,533	$	1,882	$	13,418	$	570,353

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

June 30, 2020

and

December 31, 2019:

Analysis of Past Due and Nonaccrual Loans

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90+ Days Past Due and Still Accruing		Nonaccrual Loans
June 30, 20 20
Real Estate Secured:
Construction & development	$	-	$	-	$	9	$	9	$	44,183	$	44,192	$	-	$	9
Farmland		-		669		257		926		33,703		34,629		-		3,630
Residential		456		-		357		813		259,752		260,565		-		460
Commercial mortgage		-		-		292		292		181,574		181,866		-		485
Non-Real Estate Secured:
Commercial & agricultural		121		16		146		283		31,173		31,456		-		182
SBA-PPP		-		-		-		-		77,105		77,105		-		-
Consumer & other		1		-		-		1		20,785		20,786		-		-
Total	$	578	$	685	$	1,061	$	2,324	$	648,275	$	650,599	$	-	$	4,766
December 31, 201 9
Real Estate Secured:
Construction & development	$	-	$	-	$	10	$	10	$	39,639	$	39,649	$	-	$	10
Farmland		893		-		971		1,864		32,302		34,166		-		4,192
Residential		292		48		365		705		252,969		253,674		-		412
Commercial mortgage		185		-		-		185		190,632		190,817		-		198
Non-Real Estate Secured:
Commercial & agricultural		135		8		163		306		32,120		32,426		-		165
Consumer & other		2		6		2		10		19,611		19,621		-		2
Total	$	1,507	$	62	$	1,511	$	3,080	$	567,273	$	570,353	$	-	$	4,979

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 principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance.

As of

June 30, 2020

and

December 31, 2019,

respectively, the recorded investment in impaired loans totaled

$7.8

million and

$7.8

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

June 30, 2020

and

December 31, 2019,

respectively, was

$2.8

million and

$2.9

million. As of

June 30, 2020

and

December 31, 2019,

respectively,

$2.8

million and

$4.1

million of the recorded investment in impaired loans did

not

have a related allowance. The Bank had

$5.3

million and

$4.8

million in troubled debt restructured loans included in impaired loans at

June 30, 2020

and

December 31, 2019,

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.

Management collectively evaluates performing TDRs with a loan balance of

$250,000

or less for impairment. As of

June 30, 2020

and

December 31, 2019,

respectively,

$5.0

million and

$3.6

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

$246

thousand and

$174

thousand of related allowance.

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

June 30, 2020

and

December 31, 2019:

Impaired Loans

							Six 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
June 30, 2020
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Farmland		2,836		3,334		-		3,038		10		2,847		5
Residential		-		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-		-
Subtotal		2,836		3,334		-		3,038		10		2,847		5
With an allowance recorded:
Construction & development		538		538		27		545		16		539		10
Farmland		150		159		2		150		1		150		-
Residential		4,263		4,439		214		4,282		113		4,268		57
Commercial mortgage		10		54		1		10		1		10		-
Commercial & agricultural		49		49		2		50		2		50		2
Consumer & other		2		2		-		3		-		2		-
Subtotal		5,012		5,241		246		5,040		133		5,019		69
Totals:
Construction & development		538		538		27		545		16		539		10
Farmland		2,986		3,493		2		3,188		11		2,997		5
Residential		4,263		4,439		214		4,282		113		4,268		57
Commercial mortgage		10		54		1		10		1		10		-
Commercial & agricultural		49		49		2		50		2		50		2
Consumer & other		2		2		-		3		-		2		-
Total	$	7,848	$	8,575	$	246	$	8,078	$	143	$	7,866	$	74

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, 2019
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-
Farmland		3,240		3,240		-		3,505		25
Residential		909		909		-		921		40
Commercial mortgage		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-
Consumer & other		-		-		-		-		-
Subtotal		4,149		4,149		-		4,426		65
With an allowance recorded:
Construction & development		72		72		3		76		6
Farmland		150		150		2		1,545		70
Residential		3,345		3,495		166		4,161		225
Commercial mortgage		11		56		1		268		11
Commercial & agricultural		31		31		1		34		2
Consumer & other		3		3		1		4		-
Subtotal		3,612		3,807		174		6,088		314
Totals:
Construction & development		72		72		3		76		6
Farmland		3,390		3,390		2		5,050		95
Residential		4,254		4,404		166		5,082		265
Commercial mortgage		11		56		1		268		11
Commercial & agricultural		31		31		1		34		2
Consumer & other		3		3		1		4		-
Total	$	7,761	$	7,956	$	174	$	10,514	$	379

1

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

Troubled Debt Restructuring

A troubled debt restructured 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. Troubled debt restructured loans are considered impaired loans.

The following table sets forth information with respect to the Bank's troubled debt restructurings as of

June 30, 2020

and

June 30, 2019:

For the Six Months Ended

June 30,

20

20

(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		2	$	459	$	459		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		1		46		50		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		1		20		20		-		-		-
Consumer & other		-		-		-		-		-		-
Total		4	$	525	$	529		-	$	-	$	-

(

1

)

Loans past due

30

days or more are considered to be in default.

During the

six

months ended

June 30, 2020,

four

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

one

loan had additional funds advanced for property taxes.

No

TDRs identified in the last

twelve

months subsequently defaulted in the

six

months ended

June 30, 2020.

For the Three Months Ended

June 30,

20

20

(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	$	114	$	114		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		1		46		50		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		1		20		20		-		-		-
Consumer & other		-		-		-		-		-		-
Total		3	$	180	$	184		-	$	-	$	-

(

1

)

Loans past due

30

days or more are considered to be in default.

During the

three

months ended

June 30, 2020,

three

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

one

loan had additional funds advanced for property taxes.

No

TDRs identified in the last

twelve

months subsequently defaulted in the quarter ended

June 30, 2020.

For the Six Months Ended

June 30, 2019

(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		1		38		38		-		-		-
Residential		1		117		128		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		2	$	155	$	166		-	$	-	$	-

(

1

)

Loans past due

30

days or more are considered to be in default.

During the

six

months ended

June 30, 2019,

two

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

one

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

No

TDRs identified in the last

twelve

months subsequently defaulted in the

six

months ended

June 30, 2019.

For the Three Months Ended

June 30, 2019

(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		1		38		38		-		-		-
Residential		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		1	$	38	$	38		-	$	-	$	-

(

1

)

Loans past due

30

days or more are considered to be in default.

During the

three

months ended

June 30, 2019,

one

loan was modified that was considered to be a TDR. Term concessions were granted on this loan.

No

TDRs identified in the last

twelve

months subsequently defaulted in the quarter ended

June 30, 2019.

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

June 30, 2020

and

December 31, 2019

are as follows:

(dollars in thousands)	20 20		201 9
Residential	$	143	$	150
Commercial mortgage		312		321
Commercial & agricultural		146		146
Outstanding balance	$	601	$	617
Carrying amount	$	601	$	617

There was

no

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

There were

no

purchased credit impaired loans acquired during the

six

months ended

June 30, 2020

and during the year ended

December 31, 2019.

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

June 30, 2020

and

December 31, 2019

are as follows:

(dollars in thousands)	20 20		201 9
Loans at beginning of year	$	617	$	714
Loans purchased during the year		-		-
Loans at end of period	$	601	$	617

XML

Note 5 - Employee Benefit Plan

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Retirement Benefits [Text Block]

Note

5

. 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

six

-month and

three

-month periods ended

June 30, 2020

and

2019.

	Six Months Ended June 30,						Three Months Ended June 30,
(dollars in thousands)	2020			2019			2020			2019
Service cost	$	-		$	-		$	-		$	-
Interest cost		82			92			41			46
Expected return on plan assets		(314	)		(276	)		(157	)		(138	)
Amortization of prior service cost		-			-			-			-
Recognized net loss due to settlement		-			-			-			-
Recognized net actuarial (gain)/loss		14			20			7			10
Net periodic benefit cost	$	(218	)	$	(164	)	$	(109	)	$	(82	)

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, 2019

and there is

no

required contribution for

2020.

Based on this we do

not

anticipate making a contribution to the plan in

2020.

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Note 6 - Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note

6.

Goodwill and Intangible Assets

Goodwill

The change in goodwill during the

six

-month period ended

June 30, 2020

and for the year ended

December 31, 2019

is as follows:

	June 30,		December 31,
(dollars in thousands)	2020		2019
Beginning of year	$	3,257	$	3,198
Measurement period adjustment		-		59
End of the period	$	3,257	$	3,257

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

June 30, 2020

and

December 31, 2019

are as follows:

	June 30,			December 31,
(dollars in thousands)	2020			2019
Balance at beginning of year, net	$	3070		$	3892
Amortization expense		(385	)		(822	)
Net book value	$	2685		$	3070

Aggregate amortization expense was

$385

thousand and

$437

thousand for the

six

-month periods ended

June 30, 2020

and

2019,

respectively. Aggregate amortization expense was

$192

thousand and

$218

thousand for the

three

-month periods ended

June 30, 2020

and

2019,

respectively.

XML

Note 7 - Leases

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Note

7

. Leases

On

January 1, 2019,

the Company adopted ASU

No.

2016

-

02

“Leases (Topic

842

)”

and all subsequent ASUs that modified Topic

842.

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. Prior to adoption, all of the Company's leases were classified as operating leases and remain operating leases at adoption.

Contracts that commence subsequent to adoption are evaluated to determine whether they are or contain a lease in accordance with Topic

842.

The Company has elected the practical expedient provided by Topic

842

not

to allocate consideration in a contract between lease and non-lease components. The Company also elected, as provided by the standard,

not

to recognize right-of-use assets and lease liabilities for short-term leases, defined by the standard as leases with terms of

12

months or less. Since adoption, the Company entered into a new operating lease during

2019

and a renewed an operating lease during

2020

and recognized right-of-use assets and lease liabilities.

Lease liabilities represent the Company's obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company's incremental borrowing rate in effect at the commencement date of the lease. For our incremental borrowing rate, we used the Federal Home Loan Bank available at the time of lease inception. The right-of-use assets represent the Company's right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. The contracts in which the Company is lessee are with parties external to the Company and

not

related parties. The Company's lease right-of-use assets are included in other assets and the lease liabilities are included in other liabilities. The following tables present information about leases:

	June 30,			December 31,
(dollars in thousands)	2020			2019
Lease liabilities	$	748		$	729
Right-of-use assets	$	748		$	729
Weighted average remaining lease term (years)		7.35			8.06
Weighted average discount rate		2.45	%		2.39	%

	Six Months Ended June 3 0 ,
(dollars in thousands)	2020		2019
Lease Expense
Operating lease expense	$	70	$	45
Short-term lease expense		18		53
Total lease expense	$	88	$	98
Cash paid for amounts included in lease liabilities	$	70	$	45

The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liabilities:

(dollars in thousands)
Six months ending December 31, 2020	$	77
Twelve months ending December 31, 2021		150
Twelve months ending December 31, 2022		119
Twelve months ending December 31, 2023		79
Twelve months ending December 31, 2024		68
Thereafter		330
Total undiscounted cash flows	$	823
Less discount		(75	)
Lease liabilities	$	748

XML

Note 8 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

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

June 30, 2020

and

December 31, 2019

is as follows:

	June 30,		December 31,
(dollars in thousands)	2020		2019
Commitments to extend credit	$	107,134	$	95,190
Standby letters of credit		1,328		1,313
	$	108,462	$	96,503

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 9 - Financial Instruments

6 Months Ended

Jun. 30, 2020

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

June 30, 2020

and

December 31, 2019.

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

June 30, 2020

and

December 31, 2019,

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)
June 30, 20 20
Financial Instruments – Assets
Net Loans	$	645,945	$	642,553	$	-	$	642,352	$	201
Financial Instruments – Liabilities
Time Deposits		191,856		194,113		-		194,113		-
FHLB Advances		10,000		9,671		-		9,671		-
PPPLF Advances		5,375		5,375		-		5,375		-
December 31, 201 9
Financial Instruments – Assets
Net Loans	$	566,460	$	557,054	$	-	$	556,851	$	203
Financial Instruments – Liabilities
Time Deposits		191,988		192,365		-		192,365		-
FHLB Advances		10,000		10,021		-		10,021		-

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.

Impaired 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

June 30, 2020,

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.

Assets Recorded at Fair Value on a Recurring Basis

(dollars in thousands)	Total		Level 1		Level 2		Level 3
June 30 , 20 20
Investment securities available for sale
Mortgage-backed securities	$	18,590	$	-	$	18,590	$	-
Corporate securities		1,438		-		1,438		-
State and municipal securities		12,978		-		12,978		-
Total assets at fair value	$	33,006	$	-	$	33,006	$	-
December 31, 2019
Investment securities available for sale
Mortgage-backed securities	$	19,504	$	-	$	19,504	$	-
Corporate securities		1,433		-		1,433		-
State and municipal securities		11,944		-		11,944		-
Total assets at fair value	$	32,881	$	-	$	32,881	$	-

No

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

June 30, 2020

and

December 31, 2019.

There were

no

significant transfers between levels during the

six

-month and

three

-month periods ended

June 30, 2020

and the year ended

December 31, 2019.

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

June 30, 2020

and

December 31, 2019.

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
June 30 , 20 20
Impaired loans	$	201	$	-	$	-	$	201
Total assets at fair value	$	201	$	-	$	-	$	201

(dollars in thousands)	Total		Level 1		Level 2		Level 3
December 31, 201 9
Impaired loans	$	203	$	-	$	-	$	203
Total assets at fair value	$	203	$	-	$	-	$	203

For Level

3

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

June 30, 2020

and

December 31, 2019,

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

	Fair Value at June 30, 2020		Fair Value at December 31, 2019		Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Impaired Loans	$	201	$	203	Appraised Value/Discounted Cash Flows/Market Value of Note	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell	0	–	10%

XML

Note 10 - Short-term Debt

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Short-term Debt [Text Block]

Note

10.

Short-Term Debt

At

June 30, 2020

and

December 31, 2019,

the Bank had

no

debt outstanding classified as short-term.

At

June 30, 2020,

the Bank had established unsecured lines of credit of approximately

$50.0

million with correspondent banks to provide additional liquidity if, and as needed. In addition, the Bank has the ability to borrow up to approximately

$169.0

million from the Federal Home Loan Bank, subject to the pledging of collateral.

XML

Note 11 - Long-term Debt

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Long-term Debt [Text Block]

Note

11.

Long-Term Debt

At

June 30, 2020,

the Bank's long-term debt consisted of a

$10.0

million advance from FHLB and a

$5.4

million PPPLF advance from the Federal Reserve Bank. At

December 31, 2019,

the Bank's long-term debt consisted of the

$10.0

million advance from FHLB.

The FHLB advance, which is secured by substantially all the Bank's

1

-

4

family loans, is scheduled to mature on

December 6, 2029.

Interest on the advance was fixed at

0.819

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

September 8, 2020.

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

To bolster to effectiveness of the SBA-PPP, the Federal Reserve provides liquidity to participating financial institutions through term financing backed by SBA-PPP loans to small businesses. The PPPLF extends credit on a non-recourse basis to eligible financial institutions that originate SBA-PPP loans, taking the loans as collateral at face value. On

April 20, 2020,

the Bank borrowed

$5.4

million in PPPLF funding, that has a maturity date of

April 15, 2022

and is secured by

$5.4

million in SBA-PPP loans. The interest rate on the PPPLF is

35

basis points. The Bank

may

request additional PPPLF funding through

September 30, 2020.

XML

Note 12 - Capital Requirements

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

Note

1

2

. 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

June 30, 2020

and

December 31, 2019,

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
June 3 0, 20 20
Total Capital (to risk weighted assets)	$	81,303		13.80	%	$	47,138		8.00	%	$	58,922		10.00	%
Tier 1 Capital (to risk weighted assets)	$	76,609		13.00	%	$	35,353		6.00	%	$	47,138		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	76,609		13.00	%	$	26,515		4.50	%	$	38,299		6.50	%
Tier 1 Capital (to average total assets)	$	76,609		10.10	%	$	30,341		4.00	%	$	37,926		5.00	%
December 31, 201 9
Total Capital (to risk weighted assets)	$	78,652		13.53	%	$	46,499		8.00	%	$	58,124		10.00	%
Tier 1 Capital (to risk weighted assets)	$	74,726		12.86	%	$	34,874		6.00	%	$	46,499		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	74,726		12.86	%	$	26,156		4.50	%	$	37,780		6.50	%
Tier 1 Capital (to average total assets)	$	74,726		10.80	%	$	27,680		4.00	%	$	34,599		5.00	%

On

September 17, 2019

the Federal Deposit Insurance Corporation finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR”) framework, as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.

In order to qualify for the CBLR framework, a community banking organization must have a Tier

1

leverage ratio of greater than

9.00%,

less than

$10.0

billion in total consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the prompt corrective action regulations and will

not

be required to report or calculated risk-based capital.

The CBLR framework was available for banks to use in their

June 30, 2020,

Call Report. At this time the Company has elected

not

to opt into the CBLR framework for the Bank, but

may

opt into the CBLR framework in the future.

XML

Note 13 - Subsequent Events

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Subsequent Events [Text Block]

Note

1

3

. 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 reviewed the events occurring through the date the consolidated financial statements were issued and

no

subsequent events occurred requiring accrual or disclosure.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

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, such as the recoverability of intangible assets and other-than-temporary impairment of investment securities, involve a higher degree of complexity and require management to make difficult and subjective judgements that 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 (“GAAP”) 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. The amortization of premiums and accretion of discounts are recognized in interest income using the effective interest method over the period to maturity for discounts and the earlier of call date or maturity for premiums.

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.

SBA CARES Act Paycheck Protection Program, Policy [Policy Text Block]

Small Business Administration Paycheck Protection Program

The Small Business Administration Paycheck Protection Program (“SBA-PPP”) is

one

of the centerpieces of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”), which was passed on

March 27, 2020

in response to the outbreak of coronavirus (“COVID-

19”

) and was supplemented with subsequent legislation.  Overseen by the United States (“U.S.”) Treasury Department, the SBA-PPP offers cash-flow assistance to nonprofit and small business employers through guaranteed loans for expenses incurred between

February 15, 2020,

and

August 8, 2020. 

Borrowers are eligible for forgiveness of principal and accrued interest on SBA-PPP loans to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period between

eight

and

24

-weeks after the loan is made as long as the borrower retains its employees and their compensation levels.  The CARES Act authorized the SBA to temporarily guarantee these loans.

Due to the unique nature of these provisions, SBA-PPP loans have been disclosed as a separate loan class.  Origination fees received by the SBA are capitalized into the carrying amount of the loans.  The deferred fee income, net of origination costs, is recognized over the life of the loan as an adjustment to yield using the effective interest method. Loans outstanding as of

June 30, 2020

totaled

$77.1

million.

The allowance for loan losses for SBA-PPP loans originated during the

second

quarter of

2020

were separately evaluated given the explicit government guarantee.  This analysis, which incorporated historical experience with similar SBA guarantees and underwriting, concluded the likelihood of loss was remote and therefore these loans were assigned a

zero

expected credit loss in the allowance for loan losses.

Troubled Debt Restructuring [Policy Text Block]

Troubled Debt Restructurings

Under GAAP, the Bank is required to account for certain loan modifications or restructurings as “troubled debt restructurings” or "troubled debt restructured loans."  In general, the modification or restructuring of a debt constitutes a troubled debt restructuring if the Bank for economic or legal reasons related to the borrower's financial difficulties grants a concession to the borrower that the Bank would

not

otherwise consider. Debt restructuring or loan modifications for a borrower do

not

necessarily always constitute a troubled debt restructuring, however, and troubled debt restructurings do

not

necessarily result in non-accrual loans.

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's and Floyd's 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. 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. Noninterest revenue streams in-scope of Topic

606

are discussed below.

Service Charges on Deposit Accounts -

Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, ATM fees, wire transfer fees and other deposit account related fees. The Company's performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers' accounts. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Wire transfer fees, overdraft and nonsufficient funds fees, and other deposit account related fees are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time.

Other Service Charges and Fees - O

ther service charges include safety deposit box rental fees, check ordering charges, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Check ordering charges are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time.

Credit and Debit Card Fees -

Credit and debit card fees are primarily comprised of interchange fee income and merchant services income. Interchange fees are earned whenever the Company's debit and credit cards are processed through card payment networks such as Visa or Mastercard. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. The Company's performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Insurance and Investment -

Insurance income primarily consists of commissions received on insurance product sales. The Company acts as an intermediary between the Company's customer and the insurance carrier. The Company's performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the insurance policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. Investment income consists of recurring revenue streams such as commissions from sales of mutual funds and other investments. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined.

Lessee, Leases [Policy Text Block]

Leases

In

February 2016,

the FASB amended the Leases topic of the ASC 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. There was

not

a material change to the timing of expense recognition. See additional discussion of leases in Note

7

to the consolidated financial statements.

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. 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 are as follows:

	Unrealized Gains
	And (Losses)
(dollars in thousands)	On Available for			Defined Benefit
	Sale Securities			Pension Items			Total
Balance, December 31, 2018	$	(929	)	$	(1,038	)	$	(1,967	)
Other comprehensive income before reclassifications		997			-			997
Amounts reclassified from accumulated other comprehensive income, net of tax		3			-			3
Balance June 30, 2019	$	71		$	(1,038	)	$	(967	)
Balance, December 31, 2019	$	51		$	(975	)	$	(924	)
Other comprehensive income before reclassifications		731			-			731
Amounts reclassified from accumulated other comprehensive income, net of tax		(168	)		-			(168	)
Balance June 30, 2020	$	614		$	(975	)	$	(361	)

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, Comparability Adjustment [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

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 delayed the effective date to fiscal years beginning after

December 31, 2022,

including interim periods within those fiscal periods. On

October 16, 2019

the proposed changes were approved by the FASB. As the Company is a smaller reporting company, the delay is applicable to the Company.

In

November 2019,

the FASB issued guidance that addresses issues raised by stakeholders during the implementation of ASU

2016

-

13,

Financial Instruments—Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

. The amendments affect a variety of Topics in the Accounting Standards Codification. For entities that have

not

yet adopted the amendments in ASU

2016

-

13,

the amendments are effective for fiscal years beginning after

December 15, 2022,

including interim periods within those fiscal. Early adoption is permitted in any interim period as long as an entity has adopted the amendments in ASU

2016

-

13.

The Company does

not

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

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, 2022.

Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after

January 1, 2017.

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, 2022.

The Company does

not

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

In

November 2019,

the FASB issued guidance to defer the effective dates for private companies,

not

-for-profit organizations, and certain smaller reporting companies applying standards on current expected credit losses (“CECL”). Since the Company is a smaller reporting company, the new effect date for CECL will be fiscal years beginning after

December 15, 2022,

including interim periods within those fiscal years.

In

December 2019,

the FASB issued guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding. The amendments also improve consistent application of and simplify GAAP for other areas of Topic

740

by clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after

December 15, 2020,

including interim periods within those fiscal years. Early adoption is permitted. The Company does

not

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

In

January 2020,

the FASB issued guidance to address accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments are effective for fiscal years beginning after

December 15, 2020,

and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period. The Company does

not

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

In

February 2020,

the FASB issued guidance to add and amend SEC paragraphs in the ASC to reflect the issuance of SEC Staff Accounting Bulletin

No.

119

related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard. The amendments were effective upon issuance. The Company does

not

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

In

March 2020,

the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument guidance, including the CECL guidance issued in

2016.

Since the Company is a smaller reporting company, it should adopt the amendments in ASU

2016

-

13

during

2023.

The Company does

not

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

In

March 2020,

the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of

March 12, 2020

through

December 31, 2022.

The Company does

not

expect these amendments to have a material effect on its 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 1 - Organization and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Useful Lives of 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, 2018	$	(929	)	$	(1,038	)	$	(1,967	)
Other comprehensive income before reclassifications		997			-			997
Amounts reclassified from accumulated other comprehensive income, net of tax		3			-			3
Balance June 30, 2019	$	71		$	(1,038	)	$	(967	)
Balance, December 31, 2019	$	51		$	(975	)	$	(924	)
Other comprehensive income before reclassifications		731			-			731
Amounts reclassified from accumulated other comprehensive income, net of tax		(168	)		-			(168	)
Balance June 30, 2020	$	614		$	(975	)	$	(361	)

XML

Note 2 - Investment Securities (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

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

(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
June 3 0 , 20 20
Available for sale:
Mortgage-backed securities	$	17,993	$	597	$	-		$	18,590
Corporate securities		1,500		-		(62	)		1,438
State and municipal securities		12,737		243		(2	)		12,978
	$	32,230	$	840	$	(64	)	$	33,006
December 31, 201 9
Available for sale:
Mortgage-backed securities	$	19,540	$	61	$	(97	)	$	19,504
Corporate securities		1,500		-		(67	)		1,433
State and municipal securities		11,777		168		(1	)		11,944
	$	32,817	$	229	$	(165	)	$	32,881

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
June 30 , 20 20
Available for sale:
Mortgage-backed securities	$	-	$	-		$	-	$	-		$	-	$	-
Corporate securities		-		-			1,438		(62	)		1,438		(62	)
State and municipal securities		1,006		(2	)		-		-			1,006		(2	)
Total securities available for sale	$	1,006	$	(2	)	$	1,438	$	(62	)	$	2,444	$	(64	)
December 31, 201 9
Available for sale:
Mortgage-backed securities	$	8,625	$	(97	)	$	-	$	-		$	8,625	$	(97	)
Corporate securities		-		-			1,433		(67	)		1,433		(67	)
State and municipal securities		1,010		(1	)		-		-			1,010		(1	)
Total securities available for sale	$	9,635	$	(98	)	$	1,433	$	(67	)	$	11,068	$	(165	)

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

	Six Months Ended June 30					Three Months Ended June 30
(dollars in thousands)	2020		2019			2020		2019
Realized gains	$	212	$	32		$	-	$	32
Realized losses		-		(36	)		-		(22	)-
	$	212	$	(4	)	$	-	$	10

Investments Classified by Contractual Maturity Date [Table Text Block]

(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	620	$	626
Due after one year through five years		7,819		7,847
Due after five years through ten years		7,914		8,252
Due after ten years		15,877		16,281
	$	32,230	$	33,006

XML

Note 3 - Loans Receivable (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

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

(dollars in thousands)	20 20			201 9
Construction & development	$	44,192		$	39,649
Farmland		34,629			34,166
Residential		260,565			253,674
Commercial mortgage		181,866			190,817
Commercial & agricultural		31,456			32,426
SBA-PPP		77,105			-
Consumer & other		20,786			19,621
Total loans		650,599			570,353
Allowance for loan losses		(4,654	)		(3,893	)
Loans, net of allowance for loan losses	$	645,945		$	566,460

XML

Note 4 - Allowance for Loan Losses and Impaired Loans (Tables)

6 Months Ended

Jun. 30, 2020

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 June 30, 20 20
Allowance for loan losses:
Balance, March 31, 2019	$	341	$	465		$	1,998		$	1,054		$	246		$	148		$	4,252
Charge-offs		-		-			-			-			-			(25	)		(25	)
Recoveries		-		-			3			-			-			10			13
Provision		74		7			125			(3	)		204			7			414
Balance, March 31, 2020	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
For the Three Months Ended June 30, 2019
Allowance for loan losses:
Balance, March 31, 2019	$	268	$	407		$	1,733		$	697		$	385		$	128		$	3,618
Charge-offs		-		-			(20	)		-			(19	)		(43	)		(82	)
Recoveries		-		-			1			-			2			3			6
Provision		17		133			16			155			(76	)		31			276
Balance, June 30, 2019	$	285	$	540		$	1,730		$	852		$	292		$	119		$	3,818
For the Six Months Ended June 30 , 20 20
Allowance for loan losses:
Balance, December 31, 2019	$	305	$	487		$	1,822		$	924		$	211		$	144		$	3,893
Charge-offs		-		-			-			-			-			(78	)		(78	)
Recoveries		4		-			11			65			2			21			103
Provision		106		(15	)		293			62			237			53			736
Balance, June 30, 2019	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
For the Six Months Ended June 30, 2019
Allowance for loan losses:
Balance, December 31, 2018	$	246	$	385		$	1,807		$	682		$	281		$	94		$	3,495
Charge-offs		-		(14	)		(32	)		(41	)		(63	)		(95	)		(245	)
Recoveries		-		-			8			28			4			14			54
Provision		39		169			(53	)		183			70			106			514
Balance, June 30, 2019	$	285	$	540		$	1,730		$	852		$	292		$	119		$	3,818
June 3 0 , 20 20
Allowance for loan losses:
Ending Balance	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
Ending balance: individually evaluated for impairment	$	-	$	-		$	-		$	-		$	-		$	-		$	-
Ending balance: collectively evaluated for impairment	$	415	$	472		$	2,126		$	1,051		$	450		$	140		$	4,654
Ending balance: purchased credit impaired loans	$	-	$	-		$	-		$	-		$	-		$	-		$	-
Loans outstanding:
Ending Balance	$	44,192	$	34,629		$	260,565		$	181,866		$	31,456		$	20,786		$	573,494
Ending balance: individually evaluated for impairment	$	-	$	2,836		$	-		$	-		$	-		$	-		$	2,836
Ending balance: collectively evaluated for impairment	$	44,192	$	31,793		$	260,422		$	181,554		$	31,310		$	20,786		$	570,057
Ending balance: purchased credit impaired loans	$	-	$	-		$	143		$	312		$	146		$	-		$	601

(dollars in thousands)	Construction & Development		Farmland		Residential		Commercial Mortgage		Commercial & Agricultural		Consumer & Other		Total
December 31, 2019
Allowance for loan losses:
Ending Balance	$	305	$	487	$	1,822	$	924	$	211	$	144	$	3,893
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment	$	305	$	487	$	1,822	$	924	$	211	$	144	$	3,893
Ending balance: purchased credit impaired loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans outstanding:
Ending Balance	$	39,649	$	34,166	$	253,674	$	190,817	$	32,426	$	19,621	$	570,353
Ending balance: individually evaluated for impairment	$	-	$	3,240	$	909	$	-	$	-	$	-	$	4,149
Ending balance: collectively evaluated for impairment	$	39,649	$	30,926	$	252,615	$	190,496	$	32,280	$	19,621	$	565,587
Ending balance: purchased credit impaired loans	$	-	$	-	$	150	$	321	$	146	$	-	$	617

Reclassification of Financing Receivable by Credit Quality Indicator [Table Text Block]

	Loan Grades
(dollars in thousands)	Watch As Reported		Reclass			Watch Adjusted
December 31, 2019
Real Estate Secured:
Construction & development	$	4,801	$	(4,244	)	$	557
Farmland		4,059		(2,565	)		1,494
Residential		19,887		(19,349	)		538
Commercial mortgage		21,960		(19,557	)		2,403
Non-Real Estate Secured:
Commercial & agricultural		4,346		(3,805	)		541
Consumer & other		300		(300	)		-
Total	$	55,353	$	(49,820	)	$	5,533

	Loan Grades
(dollars in thousands)	Pass As Reported		Reclass		Pass Adjusted
December 31, 2019
Real Estate Secured:
Construction & development	$	34,701	$	4,244	$	38,945
Farmland		22,969		2,565		25,534
Residential		231,629		19,349		250,978
Commercial mortgage		163,584		19,557		183,141
Non-Real Estate Secured:
Commercial & agricultural		27,503		3,805		31,308
Consumer & other		19,314		300		19,614
Total	$	499,700	$	49,820	$	549,520

Financing Receivable Credit Quality Indicators [Table Text Block]

	Loan Grades
(dollars in thousands)	Pass		Watch		Special Mention		Substandard		Total
June 30, 20 20
Real Estate Secured:
Construction & development	$	43,581	$	-	$	-	$	611	$	44,192
Farmland		27,076		813		661		6,079		34,629
Residential		257,636		626		124		2,179		260,565
Commercial mortgage		175,459		2,260		826		3,321		181,866
Non-Real Estate Secured:
Commercial & agricultural		30,270		502		125		559		31,456
SBA-PPP		77,105								77,105
Consumer & other		20,786		-		-		-		20,786
Total	$	631,913	$	4,201	$	1,736	$	12,749	$	650,599
December 31, 201 9
Real Estate Secured:
Construction & development	$	38,945	$	557	$	-	$	147	$	39,649
Farmland		25,534		1,494		673		6,465		34,166
Residential		250,978		538		176		1,982		253,674
Commercial mortgage		183,141		2,403		930		4,343		190,817
Non-Real Estate Secured:
Commercial & agricultural		31,308		541		103		474		32,426
Consumer & other		19,614		-		-		7		19,621
Total	$	549,520	$	5,533	$	1,882	$	13,418	$	570,353

Financing Receivable, Past Due [Table Text Block]

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90+ Days Past Due and Still Accruing		Nonaccrual Loans
June 30, 20 20
Real Estate Secured:
Construction & development	$	-	$	-	$	9	$	9	$	44,183	$	44,192	$	-	$	9
Farmland		-		669		257		926		33,703		34,629		-		3,630
Residential		456		-		357		813		259,752		260,565		-		460
Commercial mortgage		-		-		292		292		181,574		181,866		-		485
Non-Real Estate Secured:
Commercial & agricultural		121		16		146		283		31,173		31,456		-		182
SBA-PPP		-		-		-		-		77,105		77,105		-		-
Consumer & other		1		-		-		1		20,785		20,786		-		-
Total	$	578	$	685	$	1,061	$	2,324	$	648,275	$	650,599	$	-	$	4,766
December 31, 201 9
Real Estate Secured:
Construction & development	$	-	$	-	$	10	$	10	$	39,639	$	39,649	$	-	$	10
Farmland		893		-		971		1,864		32,302		34,166		-		4,192
Residential		292		48		365		705		252,969		253,674		-		412
Commercial mortgage		185		-		-		185		190,632		190,817		-		198
Non-Real Estate Secured:
Commercial & agricultural		135		8		163		306		32,120		32,426		-		165
Consumer & other		2		6		2		10		19,611		19,621		-		2
Total	$	1,507	$	62	$	1,511	$	3,080	$	567,273	$	570,353	$	-	$	4,979

Impaired Financing Receivables [Table Text Block]

							Six 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
June 30, 2020
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Farmland		2,836		3,334		-		3,038		10		2,847		5
Residential		-		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-		-
Subtotal		2,836		3,334		-		3,038		10		2,847		5
With an allowance recorded:
Construction & development		538		538		27		545		16		539		10
Farmland		150		159		2		150		1		150		-
Residential		4,263		4,439		214		4,282		113		4,268		57
Commercial mortgage		10		54		1		10		1		10		-
Commercial & agricultural		49		49		2		50		2		50		2
Consumer & other		2		2		-		3		-		2		-
Subtotal		5,012		5,241		246		5,040		133		5,019		69
Totals:
Construction & development		538		538		27		545		16		539		10
Farmland		2,986		3,493		2		3,188		11		2,997		5
Residential		4,263		4,439		214		4,282		113		4,268		57
Commercial mortgage		10		54		1		10		1		10		-
Commercial & agricultural		49		49		2		50		2		50		2
Consumer & other		2		2		-		3		-		2		-
Total	$	7,848	$	8,575	$	246	$	8,078	$	143	$	7,866	$	74

(dollars in thousands)	Recorded Investment 1		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2019
With no related allowance recorded:
Construction & development	$	-	$	-	$	-	$	-	$	-
Farmland		3,240		3,240		-		3,505		25
Residential		909		909		-		921		40
Commercial mortgage		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-
Consumer & other		-		-		-		-		-
Subtotal		4,149		4,149		-		4,426		65
With an allowance recorded:
Construction & development		72		72		3		76		6
Farmland		150		150		2		1,545		70
Residential		3,345		3,495		166		4,161		225
Commercial mortgage		11		56		1		268		11
Commercial & agricultural		31		31		1		34		2
Consumer & other		3		3		1		4		-
Subtotal		3,612		3,807		174		6,088		314
Totals:
Construction & development		72		72		3		76		6
Farmland		3,390		3,390		2		5,050		95
Residential		4,254		4,404		166		5,082		265
Commercial mortgage		11		56		1		268		11
Commercial & agricultural		31		31		1		34		2
Consumer & other		3		3		1		4		-
Total	$	7,761	$	7,956	$	174	$	10,514	$	379

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		2	$	459	$	459		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		1		46		50		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		1		20		20		-		-		-
Consumer & other		-		-		-		-		-		-
Total		4	$	525	$	529		-	$	-	$	-

(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	$	114	$	114		-	$	-	$	-
Farmland		-		-		-		-		-		-
Residential		1		46		50		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		1		20		20		-		-		-
Consumer & other		-		-		-		-		-		-
Total		3	$	180	$	184		-	$	-	$	-

(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		1		38		38		-		-		-
Residential		1		117		128		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		2	$	155	$	166		-	$	-	$	-

(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		1		38		38		-		-		-
Residential		-		-		-		-		-		-
Commercial mortgage		-		-		-		-		-		-
Commercial & agricultural		-		-		-		-		-		-
Consumer & other		-		-		-		-		-		-
Total		1	$	38	$	38		-	$	-	$	-

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

(dollars in thousands)	20 20		201 9
Residential	$	143	$	150
Commercial mortgage		312		321
Commercial & agricultural		146		146
Outstanding balance	$	601	$	617
Carrying amount	$	601	$	617

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

(dollars in thousands)	20 20		201 9
Loans at beginning of year	$	617	$	714
Loans purchased during the year		-		-
Loans at end of period	$	601	$	617

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Note 5 - Employee Benefit Plan (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

	Six Months Ended June 30,						Three Months Ended June 30,
(dollars in thousands)	2020			2019			2020			2019
Service cost	$	-		$	-		$	-		$	-
Interest cost		82			92			41			46
Expected return on plan assets		(314	)		(276	)		(157	)		(138	)
Amortization of prior service cost		-			-			-			-
Recognized net loss due to settlement		-			-			-			-
Recognized net actuarial (gain)/loss		14			20			7			10
Net periodic benefit cost	$	(218	)	$	(164	)	$	(109	)	$	(82	)

XML

Note 6 - Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Goodwill [Table Text Block]

	June 30,		December 31,
(dollars in thousands)	2020		2019
Beginning of year	$	3,257	$	3,198
Measurement period adjustment		-		59
End of the period	$	3,257	$	3,257

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

	June 30,			December 31,
(dollars in thousands)	2020			2019
Balance at beginning of year, net	$	3070		$	3892
Amortization expense		(385	)		(822	)
Net book value	$	2685		$	3070

XML

Note 7 - Leases (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Lease, Cost [Table Text Block]

	June 30,			December 31,
(dollars in thousands)	2020			2019
Lease liabilities	$	748		$	729
Right-of-use assets	$	748		$	729
Weighted average remaining lease term (years)		7.35			8.06
Weighted average discount rate		2.45	%		2.39	%

Lessee, Operating Lease, Disclosure [Table Text Block]

	Six Months Ended June 3 0 ,
(dollars in thousands)	2020		2019
Lease Expense
Operating lease expense	$	70	$	45
Short-term lease expense		18		53
Total lease expense	$	88	$	98
Cash paid for amounts included in lease liabilities	$	70	$	45

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

(dollars in thousands)
Six months ending December 31, 2020	$	77
Twelve months ending December 31, 2021		150
Twelve months ending December 31, 2022		119
Twelve months ending December 31, 2023		79
Twelve months ending December 31, 2024		68
Thereafter		330
Total undiscounted cash flows	$	823
Less discount		(75	)
Lease liabilities	$	748

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Note 8 - Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

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

	June 30,		December 31,
(dollars in thousands)	2020		2019
Commitments to extend credit	$	107,134	$	95,190
Standby letters of credit		1,328		1,313
	$	108,462	$	96,503

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Note 9 - Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2020

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)
June 30, 20 20
Financial Instruments – Assets
Net Loans	$	645,945	$	642,553	$	-	$	642,352	$	201
Financial Instruments – Liabilities
Time Deposits		191,856		194,113		-		194,113		-
FHLB Advances		10,000		9,671		-		9,671		-
PPPLF Advances		5,375		5,375		-		5,375		-
December 31, 201 9
Financial Instruments – Assets
Net Loans	$	566,460	$	557,054	$	-	$	556,851	$	203
Financial Instruments – Liabilities
Time Deposits		191,988		192,365		-		192,365		-
FHLB Advances		10,000		10,021		-		10,021		-

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

(dollars in thousands)	Total		Level 1		Level 2		Level 3
June 30 , 20 20
Investment securities available for sale
Mortgage-backed securities	$	18,590	$	-	$	18,590	$	-
Corporate securities		1,438		-		1,438		-
State and municipal securities		12,978		-		12,978		-
Total assets at fair value	$	33,006	$	-	$	33,006	$	-
December 31, 2019
Investment securities available for sale
Mortgage-backed securities	$	19,504	$	-	$	19,504	$	-
Corporate securities		1,433		-		1,433		-
State and municipal securities		11,944		-		11,944		-
Total assets at fair value	$	32,881	$	-	$	32,881	$	-

Fair Value Measurements, Nonrecurring [Table Text Block]

(dollars in thousands)	Total		Level 1		Level 2		Level 3
June 30 , 20 20
Impaired loans	$	201	$	-	$	-	$	201
Total assets at fair value	$	201	$	-	$	-	$	201

(dollars in thousands)	Total		Level 1		Level 2		Level 3
December 31, 201 9
Impaired loans	$	203	$	-	$	-	$	203
Total assets at fair value	$	203	$	-	$	-	$	203

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

	Fair Value at June 30, 2020		Fair Value at December 31, 2019		Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Impaired Loans	$	201	$	203	Appraised Value/Discounted Cash Flows/Market Value of Note	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell	0	–	10%

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Note 12 - Capital Requirements (Tables)

6 Months Ended

Jun. 30, 2020

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
June 3 0, 20 20
Total Capital (to risk weighted assets)	$	81,303		13.80	%	$	47,138		8.00	%	$	58,922		10.00	%
Tier 1 Capital (to risk weighted assets)	$	76,609		13.00	%	$	35,353		6.00	%	$	47,138		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	76,609		13.00	%	$	26,515		4.50	%	$	38,299		6.50	%
Tier 1 Capital (to average total assets)	$	76,609		10.10	%	$	30,341		4.00	%	$	37,926		5.00	%
December 31, 201 9
Total Capital (to risk weighted assets)	$	78,652		13.53	%	$	46,499		8.00	%	$	58,124		10.00	%
Tier 1 Capital (to risk weighted assets)	$	74,726		12.86	%	$	34,874		6.00	%	$	46,499		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	74,726		12.86	%	$	26,156		4.50	%	$	37,780		6.50	%
Tier 1 Capital (to average total assets)	$	74,726		10.80	%	$	27,680		4.00	%	$	34,599		5.00	%

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Note 1 - Organization and Summary of Significant Accounting Policies (Details Textual) $ in Thousands			6 Months Ended
	Jul. 01, 2018 USD ($) shares	Jul. 01, 2016	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Loans and Leases Receivable, Gross, Total			$ 650,599	$ 570,353
SBA PPP Loans [Member]
Loans and Leases Receivable, Gross, Total			77,105
SBA PPP Loans [Member] | SBA CARES Act Paycheck Protection Program [Member]
Loans and Leases Receivable, Gross, Total			$ 77,100
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] | Core Deposits [Member]
Finite-Lived Intangible Asset, Useful Life (Year)			20 years
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 (in shares) | shares	1,191,899
Stock Issued During Period, Value, Acquisitions	$ 15,500
Great State Bank [Member] | Core Deposits [Member]
Finite-Lived Intangible Asset, Useful Life (Year)			7 years

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Note 1 - Organization and Summary of Significant Accounting Policies - Property and Equipment Useful Lives (Details)	6 Months Ended
	Jun. 30, 2020
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

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Note 1 - Organization and Summary of Significant Accounting Policies - Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Balance	$ 81,428	$ 75,622
Balance	83,103	79,041
AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent [Member]
Balance	51	(929)
Other comprehensive income before reclassifications	731	997
Amounts reclassified from accumulated other comprehensive income, net of tax	(168)	3
Balance	614	71
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Balance	(975)	(1,038)
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive income, net of tax
Balance	(975)	(1,038)
AOCI Attributable to Parent [Member]
Balance	(924)	(1,967)
Other comprehensive income before reclassifications	731	997
Amounts reclassified from accumulated other comprehensive income, net of tax	(168)	3
Balance	$ (361)	$ (967)

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Note 2 - Investment Securities (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Restricted Investments	$ 2,416		$ 2,416		$ 2,394
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	2		2
Percentage of Debt Securities with Unrealized Losses Depreciated	2.55%		2.55%
Proceeds from Sale of Available-for-sale Securities, Equity	$ 0	$ 3,950	$ 7,800	$ 3,950
Available for Sale Securities Called, Gross Realized Losses			1,270	$ 735
Deposit Liabilities, Collateral Issued, Financial Instruments	$ 14,700		$ 14,700		$ 15,500

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Note 2 - Investment Securities - Amortized Cost and Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Amortized cost	$ 32,230	$ 32,817
Unrealized gains	840	229
Unrealized losses	(64)	(165)
Fair value	33,006	32,881
Collateralized Mortgage Backed Securities [Member]
Amortized cost	17,993	19,540
Unrealized gains	597	61
Unrealized losses		(97)
Fair value	18,590	19,504
Corporate Debt Securities [Member]
Amortized cost	1,500	1,500
Unrealized gains
Unrealized losses	(62)	(67)
Fair value	1,438	1,433
US States and Political Subdivisions Debt Securities [Member]
Amortized cost	12,737	11,777
Unrealized gains	243	168
Unrealized losses	(2)	(1)
Fair value	$ 12,978	$ 11,944

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Note 2 - Investment Securities - Continuous Unrealized Loss Positions (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Less than 12 months, fair value	$ 1,006	$ 9,635
Less than 12 months, unrealized losses	(2)	(98)
12 months or more, fair value	1,438	1,433
12 months or more, unrealized losses	(62)	(67)
Fair value	2,444	11,068
Unrealized losses	(64)	(165)
Collateralized Mortgage Backed Securities [Member]
Less than 12 months, fair value		8,625
Less than 12 months, unrealized losses		(97)
12 months or more, fair value
12 months or more, unrealized losses
Fair value		8,625
Unrealized losses		(97)
Corporate Debt Securities [Member]
Less than 12 months, fair value
Less than 12 months, unrealized losses
12 months or more, fair value	1,438	1,433
12 months or more, unrealized losses	(62)	(67)
Fair value	1,438	1,433
Unrealized losses	(62)	(67)
US States and Political Subdivisions Debt Securities [Member]
Less than 12 months, fair value	1,006	1,010
Less than 12 months, unrealized losses	(2)	(1)
12 months or more, fair value
12 months or more, unrealized losses
Fair value	1,006	1,010
Unrealized losses	$ (2)	$ (1)

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Note 2 - Investment Securities - Realized Gains and Losses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Realized gains		$ 32	$ 212	$ 32
Realized losses		(22)		(36)
Debt Securities, Available-for-sale, Realized Gain (Loss), Total		$ 10	$ 212	$ (4)

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Note 2 - Investment Securities - Maturities of Securities Available for Sale (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Due in one year or less, amortized cost	$ 620
Due in one year or less, fair value	626
Due after one year through five years, amortized cost	7,819
Due after one year through five years, fair value	7,847
Due after five years through ten years, amortized cost	7,914
Due after five years through ten years, fair value	8,252
Due after ten years, amortized cost	15,877
Due after ten years, fair value	16,281
Amortized cost	32,230	$ 32,817
Fair value	$ 33,006	$ 32,881

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Note 3 - Loans Receivable (Details Textual) $ in Thousands	Jun. 30, 2020 USD ($)	Apr. 20, 2020 USD ($)	Dec. 31, 2019 USD ($)
Secured Debt, Total	$ 5,375
Paycheck Protection Program Liquidity Facility [Member]
Secured Debt, Total	$ 5,400
Debt Instrument, Collateral Amount		$ 5,400
SBA PPP Loans [Member] | SBA CARES Act Paycheck Protection Program [Member]
Financing Receivable, SBA PPP Loans Outstanding, Number of Contracts	1,148
Financing Receivable, before Allowance for Credit Loss, Total	$ 79,900
Loans and Leases Receivable, Deferred Income, Total	$ 2,800

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Note 3 - Loans Receivable - Components of Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Loans receivable	$ 650,599		$ 570,353
Allowance for loan losses	(4,654)	$ (4,252)	(3,893)	$ (3,818)	$ (3,618)	$ (3,495)
Loans, net of allowance for loan losses	645,945		566,460
Construction and Development Loan [Member]
Loans receivable	44,192		39,649
Allowance for loan losses	(415)	(341)	(305)	(285)	(268)	(246)
Farmland Loan [Member]
Loans receivable	34,629		34,166
Allowance for loan losses	(472)	(465)	(487)	(540)	(407)	(385)
Residential Loan [Member]
Loans receivable	260,565		253,674
Allowance for loan losses	(2,126)	(1,998)	(1,822)	(1,730)	(1,733)	(1,807)
Commercial Mortgage Loan [Member]
Loans receivable	181,866		190,817
Allowance for loan losses	(1,051)	(1,054)	(924)	(852)	(697)	(682)
Commercial and Agricultural Loan [Member]
Loans receivable	31,456		32,426
Allowance for loan losses	(450)	(246)	(211)	(292)	(385)	(281)
SBA PPP Loans [Member]
Loans receivable	77,105
Consumer and Other Loan [Member]
Loans receivable	20,786		19,621
Allowance for loan losses	$ (140)	$ (148)	$ (144)	$ (119)	$ (128)	$ (94)

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Note 4 - Allowance for Loan Losses and Impaired Loans (Details Textual)	3 Months Ended			6 Months Ended		12 Months Ended
	Jun. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)	Mar. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Loans and Leases Receivable, Allowance, Ending Balance	$ 4,654,000	$ 4,252,000	$ 3,818,000	$ 4,654,000	$ 3,818,000	$ 3,893,000	$ 3,618,000	$ 3,495,000
Provision for Loan and Lease Losses, Total	414,000		$ 276,000	736,000	$ 514,000
Loans and Leases Receivable, Gross, Total	650,599,000			650,599,000		570,353,000
Impaired Financing Receivable, Recorded Investment, Total	7,848,000			7,848,000		7,761,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,836,000			2,836,000		4,149,000
Financing Receivable, Troubled Debt Restructuring	5,300,000			5,300,000		4,800,000
Financing Receivable, Troubled Debt Restructuring, Collectively Evaluated for impairment	5,000,000			5,000,000		3,600,000
Financing Receivable, Troubled Debt Restructuring, Related Allowance	$ 246,000			$ 246,000		174,000
Financing Receivable, Modifications, Number of Contracts	3		1	4	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		0
Purchase Credit Impaired Loans		$ 0				0
Maximum [Member]
Financing Receivable, Troubled Debt Restructuring	250,000			250,000
Collateral Pledged [Member]
Impaired Financing Receivable, Recorded Investment, Total	2,800,000			2,800,000		2,900,000
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
Unallocated Financing Receivables [Member]
Provision for Loan and Lease Losses, Total				0		0
SBA PPP Loans [Member]
Loans and Leases Receivable, Gross, Total	77,105,000			77,105,000
SBA PPP Loans [Member] | SBA CARES Act Paycheck Protection Program [Member]
Loans and Leases Receivable, Allowance, Ending Balance	0			0
Loans and Leases Receivable, Gross, Total	$ 77,100,000			$ 77,100,000

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Note 4 - Allowance for Loan Losses and Impaired Loans - Allowance for Loan Losses and Recorded Investment (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Balance	$ 4,252	$ 3,618	$ 3,893	$ 3,495	$ 3,495
Charge-offs	(25)	(82)	(78)	(245)
Recoveries	13	6	103	54
Provision for Loan and Lease Losses, Total	414	276	736	514
Balance	4,654	3,818	4,654	3,818	3,893
Provision	414	276	736	514
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	4,654		4,654		3,893
Ending Balance	650,599		650,599		570,353
Allowance for loan losses, ending balance: individually evaluated for impairment					4,149
Allowance for loan losses, ending balance: collectively evaluated for impairment					565,587
Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Ending Balance	601		601		617
Construction and Development Loan [Member]
Balance	341	268	305	246	246
Charge-offs
Recoveries			4
Provision for Loan and Lease Losses, Total	74	17	106	39
Balance	415	285	415	285	305
Provision	74	17	106	39
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	415		415		305
Ending Balance	44,192		44,192		39,649
Allowance for loan losses, ending balance: individually evaluated for impairment
Allowance for loan losses, ending balance: collectively evaluated for impairment	44,192		44,192		39,649
Construction and Development Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Ending Balance
Farmland Loan [Member]
Balance	465	407	487	385	385
Charge-offs				(14)
Recoveries
Provision for Loan and Lease Losses, Total	7	133	(15)	169
Balance	472	540	472	540	487
Provision	7	133	(15)	169
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	472		472		487
Ending Balance	34,629		34,629		34,166
Allowance for loan losses, ending balance: individually evaluated for impairment	2,836		2,836		3,240
Allowance for loan losses, ending balance: collectively evaluated for impairment	31,793		31,793		30,926
Farmland Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Ending Balance
Residential Loan [Member]
Balance	1,998	1,733	1,822	1,807	1,807
Charge-offs		(20)		(32)
Recoveries	3	1	11	8
Provision for Loan and Lease Losses, Total	125	16	293	(53)
Balance	2,126	1,730	2,126	1,730	1,822
Provision	125	16	293	(53)
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	2,126		2,126		1,822
Ending Balance	260,565		260,565		253,674
Allowance for loan losses, ending balance: individually evaluated for impairment					909
Allowance for loan losses, ending balance: collectively evaluated for impairment	260,422		260,422		252,615
Residential Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Ending Balance	143		143		150
Commercial Mortgage Loan [Member]
Balance	1,054	697	924	682	682
Charge-offs				(41)
Recoveries			65	28
Provision for Loan and Lease Losses, Total	(3)	155	62	183
Balance	1,051	852	1,051	852	924
Provision	(3)	155	62	183
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	1,051		1,051		924
Ending Balance	181,866		181,866		190,817
Allowance for loan losses, ending balance: individually evaluated for impairment
Allowance for loan losses, ending balance: collectively evaluated for impairment	181,554		181,554		190,496
Commercial Mortgage Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Ending Balance	312		312		321
Commercial and Agricultural Loan [Member]
Balance	246	385	211	281	281
Charge-offs		(19)		(63)
Recoveries		2	2	4
Provision for Loan and Lease Losses, Total	204	(76)	237	70
Balance	450	292	450	292	211
Provision	204	(76)	237	70
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	450		450		211
Ending Balance	31,456		31,456		32,426
Allowance for loan losses, ending balance: individually evaluated for impairment
Allowance for loan losses, ending balance: collectively evaluated for impairment	31,310		31,310		32,280
Commercial and Agricultural Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Ending Balance	146		146		146
Consumer and Other Loan [Member]
Balance	148	128	144	94	94
Charge-offs	(25)	(43)	(78)	(95)
Recoveries	10	3	21	14
Provision for Loan and Lease Losses, Total	7	31	53	106
Balance	140	119	140	119	144
Provision	7	$ 31	53	$ 106
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment	140		140		144
Ending Balance	20,786		20,786		19,621
Allowance for loan losses, ending balance: individually evaluated for impairment
Allowance for loan losses, ending balance: collectively evaluated for impairment	20,786		20,786		19,621
Consumer and Other Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Ending Balance
Loans Excluding SBA PPP Loans [Member]
Ending Balance	573,494		573,494
Allowance for loan losses, ending balance: individually evaluated for impairment	2,836		2,836
Allowance for loan losses, ending balance: collectively evaluated for impairment	$ 570,057		$ 570,057

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Note 4 - Allowance for Loan Losses and Impaired Loans - Reclassification of Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Loans receivable	$ 650,599	$ 570,353
Construction and Development Loan [Member]
Loans receivable	44,192	39,649
Farmland Loan [Member]
Loans receivable	34,629	34,166
Residential Loan [Member]
Loans receivable	260,565	253,674
Commercial Mortgage Loan [Member]
Loans receivable	181,866	190,817
Commercial and Agricultural Loan [Member]
Loans receivable	31,456	32,426
Consumer and Other Loan [Member]
Loans receivable	20,786	19,621
Watch [Member]
Loans receivable	4,201	5,533
Watch [Member] | Previously Reported [Member]
Loans receivable		55,353
Watch [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		(49,820)
Watch [Member] | Construction and Development Loan [Member]
Loans receivable		557
Watch [Member] | Construction and Development Loan [Member] | Previously Reported [Member]
Loans receivable		4,801
Watch [Member] | Construction and Development Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		(4,244)
Watch [Member] | Farmland Loan [Member]
Loans receivable	813	1,494
Watch [Member] | Farmland Loan [Member] | Previously Reported [Member]
Loans receivable		4,059
Watch [Member] | Farmland Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		(2,565)
Watch [Member] | Residential Loan [Member]
Loans receivable	626	538
Watch [Member] | Residential Loan [Member] | Previously Reported [Member]
Loans receivable		19,887
Watch [Member] | Residential Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		(19,349)
Watch [Member] | Commercial Mortgage Loan [Member]
Loans receivable	2,260	2,403
Watch [Member] | Commercial Mortgage Loan [Member] | Previously Reported [Member]
Loans receivable		21,960
Watch [Member] | Commercial Mortgage Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		(19,557)
Watch [Member] | Commercial and Agricultural Loan [Member]
Loans receivable	502	541
Watch [Member] | Commercial and Agricultural Loan [Member] | Previously Reported [Member]
Loans receivable		4,346
Watch [Member] | Commercial and Agricultural Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		(3,805)
Watch [Member] | Consumer and Other Loan [Member]
Loans receivable
Watch [Member] | Consumer and Other Loan [Member] | Previously Reported [Member]
Loans receivable		300
Watch [Member] | Consumer and Other Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		(300)
Pass [Member]
Loans receivable	631,913	549,520
Pass [Member] | Previously Reported [Member]
Loans receivable		499,700
Pass [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		49,820
Pass [Member] | Construction and Development Loan [Member]
Loans receivable	43,581	38,945
Pass [Member] | Construction and Development Loan [Member] | Previously Reported [Member]
Loans receivable		34,701
Pass [Member] | Construction and Development Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		4,244
Pass [Member] | Farmland Loan [Member]
Loans receivable	27,076	25,534
Pass [Member] | Farmland Loan [Member] | Previously Reported [Member]
Loans receivable		22,969
Pass [Member] | Farmland Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		2,565
Pass [Member] | Residential Loan [Member]
Loans receivable	257,636	250,978
Pass [Member] | Residential Loan [Member] | Previously Reported [Member]
Loans receivable		231,629
Pass [Member] | Residential Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		19,349
Pass [Member] | Commercial Mortgage Loan [Member]
Loans receivable	175,459	183,141
Pass [Member] | Commercial Mortgage Loan [Member] | Previously Reported [Member]
Loans receivable		163,584
Pass [Member] | Commercial Mortgage Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		19,557
Pass [Member] | Commercial and Agricultural Loan [Member]
Loans receivable	30,270	31,308
Pass [Member] | Commercial and Agricultural Loan [Member] | Previously Reported [Member]
Loans receivable		27,503
Pass [Member] | Commercial and Agricultural Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		3,805
Pass [Member] | Consumer and Other Loan [Member]
Loans receivable	$ 20,786	19,614
Pass [Member] | Consumer and Other Loan [Member] | Previously Reported [Member]
Loans receivable		19,314
Pass [Member] | Consumer and Other Loan [Member] | Revision of Prior Period, Reclassification, Adjustment [Member]
Loans receivable		$ 300

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Note 4 - Allowance for Loan Losses and Impaired Loans - Credit Quality Indicators (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Loans receivable	$ 650,599	$ 570,353
Construction and Development Loan [Member]
Loans receivable	44,192	39,649
Farmland Loan [Member]
Loans receivable	34,629	34,166
Residential Loan [Member]
Loans receivable	260,565	253,674
Commercial Mortgage Loan [Member]
Loans receivable	181,866	190,817
Commercial and Agricultural Loan [Member]
Loans receivable	31,456	32,426
SBA PPP Loans [Member]
Loans receivable	77,105
Consumer and Other Loan [Member]
Loans receivable	20,786	19,621
Pass [Member]
Loans receivable	631,913	549,520
Pass [Member] | Construction and Development Loan [Member]
Loans receivable	43,581	38,945
Pass [Member] | Farmland Loan [Member]
Loans receivable	27,076	25,534
Pass [Member] | Residential Loan [Member]
Loans receivable	257,636	250,978
Pass [Member] | Commercial Mortgage Loan [Member]
Loans receivable	175,459	183,141
Pass [Member] | Commercial and Agricultural Loan [Member]
Loans receivable	30,270	31,308
Pass [Member] | SBA PPP Loans [Member]
Loans receivable	77,105
Pass [Member] | Consumer and Other Loan [Member]
Loans receivable	20,786	19,614
Watch [Member]
Loans receivable	4,201	5,533
Watch [Member] | Construction and Development Loan [Member]
Loans receivable		557
Watch [Member] | Farmland Loan [Member]
Loans receivable	813	1,494
Watch [Member] | Residential Loan [Member]
Loans receivable	626	538
Watch [Member] | Commercial Mortgage Loan [Member]
Loans receivable	2,260	2,403
Watch [Member] | Commercial and Agricultural Loan [Member]
Loans receivable	502	541
Watch [Member] | SBA PPP Loans [Member]
Loans receivable
Watch [Member] | Consumer and Other Loan [Member]
Loans receivable
Special Mention [Member]
Loans receivable	1,736	1,882
Special Mention [Member] | Construction and Development Loan [Member]
Loans receivable
Special Mention [Member] | Farmland Loan [Member]
Loans receivable	661	673
Special Mention [Member] | Residential Loan [Member]
Loans receivable	124	176
Special Mention [Member] | Commercial Mortgage Loan [Member]
Loans receivable	826	930
Special Mention [Member] | Commercial and Agricultural Loan [Member]
Loans receivable	125	103
Special Mention [Member] | SBA PPP Loans [Member]
Loans receivable
Special Mention [Member] | Consumer and Other Loan [Member]
Loans receivable
Substandard [Member]
Loans receivable	12,749	13,418
Substandard [Member] | Construction and Development Loan [Member]
Loans receivable	611	147
Substandard [Member] | Farmland Loan [Member]
Loans receivable	6,079	6,465
Substandard [Member] | Residential Loan [Member]
Loans receivable	2,179	1,982
Substandard [Member] | Commercial Mortgage Loan [Member]
Loans receivable	3,321	4,343
Substandard [Member] | Commercial and Agricultural Loan [Member]
Loans receivable	559	474
Substandard [Member] | SBA PPP Loans [Member]
Loans receivable
Substandard [Member] | Consumer and Other Loan [Member]
Loans receivable		$ 7

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Note 4 - Allowance for Loan Losses and Impaired Loans - Analysis of Past Due and Nonaccrual Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Past due	$ 2,324	$ 3,080
Current	648,275	567,273
Loans receivable	650,599	570,353
Past due and still accruing
Nonaccrual loans	4,766	4,979
Construction and Development Loan [Member]
Past due	9	10
Current	44,183	39,639
Loans receivable	44,192	39,649
Past due and still accruing
Nonaccrual loans	9	10
Farmland Loan [Member]
Past due	926	1,864
Current	33,703	32,302
Loans receivable	34,629	34,166
Past due and still accruing
Nonaccrual loans	3,630	4,192
Residential Loan [Member]
Past due	813	705
Current	259,752	252,969
Loans receivable	260,565	253,674
Past due and still accruing
Nonaccrual loans	460	412
Commercial Mortgage Loan [Member]
Past due	292	185
Current	181,574	190,632
Loans receivable	181,866	190,817
Past due and still accruing
Nonaccrual loans	485	198
Commercial and Agricultural Loan [Member]
Past due	283	306
Current	31,173	32,120
Loans receivable	31,456	32,426
Past due and still accruing
Nonaccrual loans	182	165
SBA PPP Loans [Member]
Past due
Current	77,105
Loans receivable	77,105
Past due and still accruing
Nonaccrual loans
Consumer and Other Loan [Member]
Past due	1	10
Current	20,785	19,611
Loans receivable	20,786	19,621
Past due and still accruing
Nonaccrual loans		2
Financial Asset, 30 to 59 Days Past Due [Member]
Past due	578	1,507
Financial Asset, 30 to 59 Days Past Due [Member] | Construction and Development Loan [Member]
Past due
Financial Asset, 30 to 59 Days Past Due [Member] | Farmland Loan [Member]
Past due		893
Financial Asset, 30 to 59 Days Past Due [Member] | Residential Loan [Member]
Past due	456	292
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Mortgage Loan [Member]
Past due		185
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial and Agricultural Loan [Member]
Past due	121	135
Financial Asset, 30 to 59 Days Past Due [Member] | SBA PPP Loans [Member]
Past due
Financial Asset, 30 to 59 Days Past Due [Member] | Consumer and Other Loan [Member]
Past due	1	2
Financial Asset, 60 to 89 Days Past Due [Member]
Past due	685	62
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	669
Financial Asset, 60 to 89 Days Past Due [Member] | Residential Loan [Member]
Past due		48
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	16	8
Financial Asset, 60 to 89 Days Past Due [Member] | SBA PPP Loans [Member]
Past due
Financial Asset, 60 to 89 Days Past Due [Member] | Consumer and Other Loan [Member]
Past due		6
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due	1,061	1,511
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Construction and Development Loan [Member]
Past due	9	10
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Farmland Loan [Member]
Past due	257	971
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Residential Loan [Member]
Past due	357	365
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Mortgage Loan [Member]
Past due	292
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial and Agricultural Loan [Member]
Past due	146	163
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | SBA PPP Loans [Member]
Past due
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Consumer and Other Loan [Member]
Past due		$ 2

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Note 4 - Allowance for Loan Losses and Impaired Loans - Impaired Loans (Details) - USD ($) $ in Thousands		3 Months Ended	6 Months Ended	12 Months Ended
		Jun. 30, 2020	Jun. 30, 2020	Dec. 31, 2019
Recorded investment with no related allowance		$ 2,836	$ 2,836	$ 4,149
Unpaid principal balance with no related allowance		3,334	3,334	4,149
Average recorded investment with no related allowance		2,847	3,038	4,426
Interest income recognized with no related allowance		5	10	65
Recorded investment with related allowance	[1]	5,012	5,012	3,612
Unpaid principal balance with related allowance		5,241	5,241	3,807
Related allowance		246	246	174
Average recorded investment with related allowance		5,019	5,040	6,088
Interest income recognized with related allowance		69	133	314
Recorded investment		7,848	7,848	7,761
Unpaid principal balance		8,575	8,575	7,956
Average recorded investment		7,866	8,078	10,514
Interest income recognized		74	143	379
Construction and Development Loan [Member]
Recorded investment with no related allowance	[1]
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	[1]	538	538	72
Unpaid principal balance with related allowance		538	538	72
Related allowance		27	27	3
Average recorded investment with related allowance		539	545	76
Interest income recognized with related allowance		10	16	6
Recorded investment	[1]	538	538	72
Unpaid principal balance		538	538	72
Average recorded investment		539	545	76
Interest income recognized		10	16	6
Farmland Loan [Member]
Recorded investment with no related allowance	[1]	2,836	2,836	3,240
Unpaid principal balance with no related allowance		3,334	3,334	3,240
Average recorded investment with no related allowance		2,847	3,038	3,505
Interest income recognized with no related allowance		5	10	25
Recorded investment with related allowance	[1]	150	150	150
Unpaid principal balance with related allowance		159	159	150
Related allowance		2	2	2
Average recorded investment with related allowance		150	150	1,545
Interest income recognized with related allowance			1	70
Recorded investment	[1]	2,986	2,986	3,390
Unpaid principal balance		3,493	3,493	3,390
Average recorded investment		2,997	3,188	5,050
Interest income recognized		5	11	95
Residential Loan [Member]
Recorded investment with no related allowance	[1]			909
Unpaid principal balance with no related allowance				909
Average recorded investment with no related allowance				921
Interest income recognized with no related allowance				40
Recorded investment with related allowance	[1]	4,263	4,263	3,345
Unpaid principal balance with related allowance		4,439	4,439	3,495
Related allowance		214	214	166
Average recorded investment with related allowance		4,268	4,282	4,161
Interest income recognized with related allowance		57	113	225
Recorded investment	[1]	4,263	4,263	4,254
Unpaid principal balance		4,439	4,439	4,404
Average recorded investment		4,268	4,282	5,082
Interest income recognized		57	113	265
Commercial Mortgage Loan [Member]
Recorded investment with no related allowance	[1]
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	[1]	10	10	11
Unpaid principal balance with related allowance		54	54	56
Related allowance		1	1	1
Average recorded investment with related allowance		10	10	268
Interest income recognized with related allowance			1	11
Recorded investment	[1]	10	10	11
Unpaid principal balance		54	54	56
Average recorded investment		10	10	268
Interest income recognized			1	11
Commercial and Agricultural Loan [Member]
Recorded investment with no related allowance	[1]
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	[1]	49	49	31
Unpaid principal balance with related allowance		49	49	31
Related allowance		2	2	1
Average recorded investment with related allowance		50	50	34
Interest income recognized with related allowance		2	2	2
Recorded investment	[1]	49	49	31
Unpaid principal balance		49	49	31
Average recorded investment		50	50	34
Interest income recognized		2	2	2
Consumer and Other Loan [Member]
Recorded investment with no related allowance	[1]
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	[1]	2	2	3
Unpaid principal balance with related allowance		2	2	3
Related allowance				1
Average recorded investment with related allowance		2	3	4
Interest income recognized with related allowance
Recorded investment	[1]	2	2	3
Unpaid principal balance		2	2	3
Average recorded investment		2	3	4
Interest income recognized

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

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Note 4 - Allowance for Loan Losses and Impaired Loans - Troubled Debt Restructuring (Details) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)
Number of contracts		3	1	4	2
Premodification		$ 180	$ 38	$ 525	$ 155
Postmodification		$ 184	$ 38	$ 529	$ 166
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		2
Premodification		$ 114		$ 459
Postmodification		$ 114		$ 459
Number of contracts, subsequently defaulted	[1]
Premodification, subsequently defaulted	[1]
Postmodification, subsequently defaulted	[1]
Farmland Loan [Member]
Number of contracts			1		1
Premodification			$ 38		$ 38
Postmodification			$ 38		$ 38
Number of contracts, subsequently defaulted	[1]
Premodification, subsequently defaulted	[1]
Postmodification, subsequently defaulted	[1]
Residential Loan [Member]
Number of contracts		1		1	1
Premodification		$ 46		$ 46	$ 117
Postmodification		$ 50		$ 50	$ 128
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		1		1
Premodification		$ 20		$ 20
Postmodification		$ 20		$ 20
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.

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Note 4 - Allowance for Loan Losses and Impaired Loans - Carrying Amount of Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Outstanding balance	$ 601	$ 617
Carrying amount	601	617
Residential Loan [Member]
Outstanding balance	143	150
Commercial Mortgage Loan [Member]
Outstanding balance	312	321
Commercial and Agricultural Loan [Member]
Outstanding balance	$ 146	$ 146

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Note 4 - Allowance for Loan Losses and Impaired Loans - Summary of Carrying Amount of Loans (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Loans	$ 617
Loans	601	$ 617
Financial Asset Acquired with Credit Deterioration [Member]
Loans	617	714
Loans purchased during the year
Loans	$ 601	$ 617

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Note 5 - Employee Benefit Plan - Net Periodic Pension Costs (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Service cost
Interest cost	41	46	82	92
Expected return on plan assets	(157)	(138)	(314)	(276)
Amortization of prior service cost
Recognized net loss due to settlement
Recognized net actuarial (gain)/loss	7	10	14	20
Net periodic benefit cost	$ (109)	$ (82)	$ (218)	$ (164)

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Note 6 - Goodwill and Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Amortization of Intangible Assets, Total	$ 192	$ 218	$ 385	$ 437

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Note 6 - Goodwill and Intangible Assets - Change in Goodwill (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Beginning of year	$ 3,257	$ 3,198
Measurement period adjustment		59
End of the period	$ 3,257	$ 3,257

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Note 6 - Goodwill and Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Net book value, balance	$ 3,070
Net book value, balance	2,685	$ 3,070
Core Deposits [Member]
Net book value, balance	3,070	3,892
Amortization expense	(385)	(822)
Net book value, balance	$ 2,685	$ 3,070

XML

Note 7 - Leases - Present Information About Leases (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Right-of-use assets	$ 748	$ 729
Weighted average remaining lease term (years) (Year)	7 years 127 days	8 years 21 days
Weighted average discount rate	2.45%	2.39%
Other Liabilities [Member]
Lease liabilities	$ 748	$ 729

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Note 7 - Leases - Lease expense (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Operating lease expense	$ 70	$ 45
Short-term lease expense	18	53
Total lease expense	88	98
Cash paid for amounts included in lease liabilities	$ 70	$ 45

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Note 7 - Lease - Maturity Schedule of Undiscounted Cash flow (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Six months ending December 31, 2020	$ 77
Twelve months ending December 31, 2021	150
Twelve months ending December 31, 2022	119
Twelve months ending December 31, 2023	79
Twelve months ending December 31, 2024	68
Thereafter	330
Total undiscounted cash flows	823
Less discount	(75)
Other Liabilities [Member]
Lease liabilities	$ 748	$ 729

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Note 8 - Commitments and Contingencies (Details Textual)	6 Months Ended
	Jun. 30, 2020 USD ($)
Concentration Risk, Credit Risk, Financial Instrument, Maximum Exposure	$ 5,000,000

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Note 8 - Commitments and Contingencies - Summary of Bank's Commitments (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Financial instruments with off balance sheet risk	$ 108,462	$ 96,503
Commitments to Extend Credit [Member]
Financial instruments with off balance sheet risk	107,134	95,190
Standby Letters of Credit [Member]
Financial instruments with off balance sheet risk	$ 1,328	$ 1,313

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Note 9 - Financial Instruments (Details Textual) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Fair Value, Nonrecurring [Member]
Financial and Nonfinancial Liabilities, Fair Value Disclosure	$ 0	$ 0

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Note 9 - Financial Instruments - Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Reported Value Measurement [Member]
Net Loans	$ 645,945	$ 566,460
Time Deposits	191,856	191,988
FHLB Advances	10,000	10,000
Time Deposits	191,856	191,988
Reported Value Measurement [Member] | Paycheck Protection Program Liquidity Facility [Member]
PPPLF Advances	5,375
Estimate of Fair Value Measurement [Member]
Net Loans	642,553	557,054
Time Deposits	194,113	192,365
FHLB Advances	9,671	10,021
Time Deposits	194,113	192,365
Estimate of Fair Value Measurement [Member] | Paycheck Protection Program Liquidity Facility [Member]
PPPLF Advances	5,375
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Net Loans
Time Deposits
FHLB Advances
Time Deposits
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member] | Paycheck Protection Program Liquidity Facility [Member]
PPPLF Advances
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Net Loans	642,352	556,851
Time Deposits	194,113	192,365
FHLB Advances	9,671	10,021
Time Deposits	194,113	192,365
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member] | Paycheck Protection Program Liquidity Facility [Member]
PPPLF Advances	5,375
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Net Loans	201	203
Time Deposits
FHLB Advances
Time Deposits
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member] | Paycheck Protection Program Liquidity Facility [Member]
PPPLF Advances

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Note 9 - Financial Instruments - Assets Recorded at Fair Value on a Recurring Basis (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Investment securities available for sale	$ 33,006	$ 32,881
Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale
Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale	33,006	32,881
Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale
Collateralized Mortgage Backed Securities [Member]
Investment securities available for sale	18,590	19,504
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	18,590	19,504
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	1,438	1,433
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	1,438	1,433
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	12,978	11,944
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	12,978	11,944
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale

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Note 9 - Financial Instruments - Assets Recorded at Fair Value on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Impaired Loans [Member]
Assets at fair value	$ 201	$ 203
Fair Value, Nonrecurring [Member]
Assets at fair value	201	203
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	201	203
Fair Value, Nonrecurring [Member] | Impaired Loans [Member]
Assets at fair value	201	203
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	$ 201	$ 203

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Note 9 - Financial Instruments - Significant Unobservable Inputs Used Fair Value Measurements (Details) $ in Thousands	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Minimum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, significant unobservable inputs	0
Maximum [Member] | Measurement Input, Discount Rate [Member]
Impaired loans, significant unobservable inputs	0.1
Impaired Loans [Member]
Assets at fair value	$ 201	$ 203

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Note 10 - Short-term Debt (Details Textual) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Short-term Debt, Total	$ 0	$ 0
Unsecured Lines of Credit [Member]
Line of Credit Facility, Current Borrowing Capacity	50,000
Unsecured Lines of Credit [Member] | Federal Home Loan Bank [Member]
Line of Credit Facility, Current Borrowing Capacity	$ 169,000

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Note 11 - Long-term Debt (Details Textual) - USD ($) $ in Thousands		6 Months Ended
	Apr. 20, 2020	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Advances from Federal Home Loan Banks, Total		$ 10,000		$ 10,000
Secured Debt, Total		$ 5,375
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Interest Rate		0.819%
Proceeds from Issuance of Secured Debt		$ 5,375
Paycheck Protection Program Liquidity Facility [Member]
Secured Debt, Total		$ 5,400
Proceeds from Issuance of Secured Debt	$ 5,400
Debt Instrument, Collateral Amount	$ 5,400

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Note 12 - Capital Requirements - Capital Amounts and Ratios (Details)	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Capital	$ 81,303	$ 78,652
Capital, ratio	0.138	0.1353
Capital required for capital adequacy	$ 47,138	$ 46,499
Capital required for capital adequacy, ratio	0.08	0.08
Capital required to be well capitalized	$ 58,922	$ 58,124
Capital required to be well capitalized, ratio	0.1	0.1
Tier 1 capital risk	$ 76,609	$ 74,726
Tier 1 capital risk, raio	0.13	0.1286
Tier 1 Capital risk required for capital adequacy	$ 35,353	$ 34,874
Tier 1 Capital risk required for capital adequacy, ratio	0.06	0.06
Tier 1 Capital risk required to be well capitalized	$ 47,138	$ 46,499
Tier 1 Capital risk required to be well capitalized, ratio	0.08	0.08
Common equity Tier 1	$ 76,609	$ 74,726
Common equity Tier 1, raio	0.13	0.1286
Common equity Tier 1 required for capital adequacy	$ 26,515	$ 26,156
Common equity Tier 1 required for capital adequacy, raio	0.045	0.045
Common equity Tier 1 required to be well capitalized	$ 38,299	$ 37,780
Common equity Tier 1 required to be well capitalized, ratio	0.065	0.065
Tier 1 capital average	$ 76,609	$ 74,726
Tier 1 capital average, ratio	0.101	0.108
Tier 1 capital average required for capital adequacy	$ 30,341	$ 27,680
Tier 1 capital average required for capital adequacy, ratio	0.04	0.04
Tier 1 capital average required to be well capitalized	$ 37,926	$ 34,599
Tier 1 capital average required to be well capitalized, ratio	0.05	0.05