Skyline Bankshares (SLBK) 10-Q 2018 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

(Mark One)

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

For the quarterly period ended March 31, 2018

Or

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

For the transition period from                    to                    

Commission File Number: 333- 209052

PARKWAY ACQUISITION CORP.

(Exact Name of Registrant as Specified in Its Charter)

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

(540)745-4191

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate website, if any, any Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulationS-T (Section 232.405) of this chapter during the preceding 12 months or for such shorter period that the Registrant was required to submit and post such files.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act.

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The registrant had 5,021,376 shares of Common Stock, no par value per share, outstanding as of May 14, 2018.

PART I FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets—March 31, 2018 (Unaudited) and December 31, 2017 (Audited)	3
	Unaudited Consolidated Statements of Income—Three Months Ended March 31, 2018 and March 31, 2017	4
	Unaudited Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2018 and March 31, 2017	5
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity—Three Months Ended March 31, 2018 and March 31, 2017	6
	Unaudited Consolidated Statements of Cash Flows—Three Months Ended March 31, 2018 and March 31, 2017	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
Item 4.	Controls and Procedures	42
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43
Signatures		44

Part I. Financial Information

Item 1. Financial Statements

Parkway Acquisition Corp. and Subsidiary

Consolidated Balance Sheets

March 31, 2018 and December 31, 2017

(dollars in thousands)	March 31, 2018			December 31, 2017
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	6,261		$	6,367
Interest-bearing deposits with banks		9,587			8,739
Federal funds sold		3,802			7,769
Investment securities available for sale		48,943			50,675
Restricted equity securities		1,378			1,388
Loans, net of allowance for loan losses of $3,415 at March 31, 2018 and $3,453 at December 31, 2017		422,688			421,418
Cash value of life insurance		17,459			17,348
Foreclosed assets		—			—
Properties and equipment, net		17,548			17,646
Accrued interest receivable		1,597			1,737
Core deposit intangible		1,975			2,045
Deferred tax assets, net		2,748			2,965
Other assets		9,542			9,864
	$	543,528		$	547,961
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Noninterest-bearing	$	130,058		$	130,847
Interest-bearing		353,629			357,594
Total deposits		483,687			488,441
Accrued interest payable		134			46
Other liabilities		2,486			2,292
		486,307			490,779
Commitments and contingencies (Note 7)
Stockholders’ Equity
Preferred stock, no par value; 5,000,000 shares authorized, none issued		—			—
Common stock, no par value; 25,000,000 shares authorized, 5,021,376 issued and outstanding		—			—
Surplus		26,166			26,166
Retained earnings		33,038			32,526
Accumulated other comprehensive loss		(1,983	)		(1,510	)
		57,221			57,182
	$	543,528		$	547,961

See Notes to Consolidated Financial Statements

3

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Income

For the Three Months ended March 31, 2018 and 2017

	Three Months Ended March 31,
(dollars in thousands except share amounts)	2018			2017
	(Unaudited)			(Unaudited)
Interest income
Loans and fees on loans	$	5,086		$	5,055
Interest-bearing deposits in banks		19			12
Federal funds sold		31			19
Interest on securities:
Taxable		303			343
Exempt from federal income tax		—			—
Dividends		9			29
		5,448			5,458
Interest expense
Deposits		361			370
Interest on borrowings		—			—
		361			370
Net interest income		5,087			5,088
Provision for loan losses		54			108
Net interest income after provision for loan losses		5,033			4,980
Noninterest income
Service charges on deposit accounts		345			322
Other service charges and fees		412			378
Net realized losses on securities		(4	)		—
Mortgage origination fees		77			45
Increase in cash value of life insurance		111			111
Other income		22			32
		963			888
Noninterest expenses
Salaries and employee benefits		2,531			2,550
Occupancy and equipment		629			666
Foreclosed asset expense, net		(3	)		5
Data processing expense		302			271
FDIC Assessments		69			75
Advertising		116			158
Bank franchise tax		105			82
Director fees		57			63
Merger related expenses		198			315
Other expense		697			722
		4,701			4,907
Net income before income taxes		1,295			961
Income tax expense		281			280
Net income	$	1,014		$	681
Net income per share	$	0.20		$	0.14
Weighted average shares outstanding		5,021,376			5,021,376
Dividends declared per share	$	0.10		$	0.08

See Notes to Consolidated Financial Statements

4

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Comprehensive Income

For the Three Months ended March 31, 2018 and 2017

	Three Months Ended March 31,
(dollars in thousands)	2018			2017
	(Unaudited)			(Unaudited)
Net Income	$	1,014		$	681
Other comprehensive income (loss)
Unrealized gains (losses) on investment securities available for sale:
Unrealized gains (losses) arising during the period		(602	)		526
Tax related to unrealized (gains) losses		126			(179	)
Reclassification of net realized losses during the period		4			—
Tax related to realized losses		(1	)		—
Total other comprehensive income (loss)		(473	)		347
Total comprehensive income	$	541		$	1,028

See Notes to Consolidated Financial Statements

5

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months ended March 31, 2018 and 2017 (unaudited)

(dollars in thousands except share amounts)
										Accumulated Other
	Common Stock						Retained			Comprehensive
	Shares		Amount		Surplus		Earnings			Loss			Total
Balance, December 31, 2016		5,021,376	$	—	$	26,166	$	30,654		$	(1,354	)	$	55,466
Net income		—		—		—		681			—			681
Other comprehensive income		—		—		—		—			347			347
Dividends paid ($0.08 per share)		—		—		—		(401	)		—			(401	)
Balance, March 31, 2017		5,021,376	$	—	$	26,166	$	30,934		$	(1,007	)	$	56,093
Balance, December 31, 2017		5,021,376	$	—	$	26,166	$	32,526		$	(1,510	)	$	57,182
Net income		—		—		—		1,014			—			1,014
Other comprehensive loss		—		—		—		—			(473	)		(473	)
Dividends paid ($0.10 per share)		—		—		—		(502	)		—			(502	)
Balance, March 31, 2018		5,021,376	$	—	$	26,166	$	33,038		$	(1,983	)	$	57,221

See Notes to Consolidated Financial Statements

6

Parkway Acquisition Corp. and Subsidiary

Consolidated Statements of Cash Flows

For the Three Months ended March 31, 2018 and 2017

	Three Months Ended
	March 31,
(dollars in thousands)	2018			2017
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income	$	1,014		$	681
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation and amortization		300			318
Amortization of core deposit intangible		70			71
Accretion of loan discount and deposit premium, net		(188	)		(389	)
Provision for loan losses		54			108
Deferred income taxes		343			280
Net realized loss on securities		4			—
Accretion of discount on securities, net of amortization of premiums		138			181
Deferred compensation		9			(21	)
Changes in assets and liabilities:
Cash value of life insurance		(111	)		(165	)
Accrued interest receivable		140			283
Other assets		322			(46	)
Accrued interest payable		88			86
Other liabilities		185			(1,950	)
Net cash provided by (used in) operating activities		2,368			(563	)
Cash flows from investing activities
Activity in available for sale securities:
Purchases		—			—
Sales		—			—
Maturities/calls/paydowns		991			2,299
Sales (purchases) or restricted equity securities		10			(239	)
Net increase in loans		(1,166	)		(48	)
Purchases of property and equipment, net of sales		(202	)		(518	)
Net cash (used in) provided by investing activities		(367	)		1,494
Cash flows from financing activities
Net (decrease) increase in deposits		(4,724	)		940
Dividends paid		(502	)		(401	)
Net cash (used in) provided by financing activities		(5,226	)		539
Net (decrease) increase in cash and cash equivalents		(3,225	)		1,470
Cash and cash equivalents, beginning		22,875			35,908
Cash and cash equivalents, ending	$	19,650		$	37,378
Supplemental disclosure of cash flow information
Interest paid	$	273		$	284
Taxes paid	$	—		$	—
Supplemental disclosure of noncash investing activities
Effect on equity of change in net unrealized loss on available for sale securities	$	473		$	347

See Notes to Consolidated Financial Statements

7

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 1. Organization and Summary of Significant Accounting Policies

Organization

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

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

On March 1, 2018, Parkway entered into a definitive agreement pursuant to which Parkway will acquire Great State Bank, based in Wilkesboro, North Carolina, in a stock merger valued at approximately $14.5 million at signing (the “Great State merger”). The agreement provides for the merger of Great State Bank with and into the Bank, with the Bank as the surviving bank. Each share of Great State Bank common stock will be converted into the right to receive 1.21 shares of Parkway common stock upon closing. The closing of this transaction is subject to approval by Parkway’s and Great State Bank’s shareholders, regulatory approvals and other customary closing conditions and is expected to occur in the third quarter of 2018.

For purposes of this quarterly report on Form10-Q, all information contained herein as of and for periods prior to July 1, 2016 reflects the operations of Grayson prior to the Cardinal merger. Unless this report otherwise indicates or the context otherwise requires, all references to “Parkway” or the “Company” as of and for periods subsequent to July 1, 2016 refer to the combined company and its subsidiary as a combined entity after the Cardinal merger, and all references to the “Company” as of and for periods prior to July 1, 2016 are references to Grayson and its subsidiary as a combined entity prior to the Cardinal merger.

The consolidated financial statements as of March 31, 2018 and for the periods ended March 31, 2018 and 2017 included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the information furnished in the interim consolidated financial statements reflects all adjustments necessary to present fairly the Company’s consolidated financial position, results of operations, changes in stockholders’ equity and cash flows for such interim periods. Management believes that all interim period adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto as of December 31, 2017, included in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2017. The results of operations for the three-month period ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year.

8

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Critical Accounting Policies

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

Principles of Consolidation

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

Business Segments

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

Business Combinations

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

Use of Estimates

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

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

9

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Use of Estimates, continued

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

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

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

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

Cash and Cash Equivalents

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

Trading Securities

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

Securities Held to Maturity

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

Securities Available for Sale

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

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

10

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 orpay-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.

11

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 coversnon-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 acase-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for all loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

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

Troubled Debt Restructurings

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

Property and Equipment

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

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

12

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Foreclosed Assets

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

Pension Plan

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

Transfers of Financial Assets

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

Core Deposit Intangible

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

Revenue Recognition

On January 1, 2018, we adopted the requirements of Accounting Standards Update (“ASU”)2014-9,Revenue from Contracts with Customers (“ASU Topic 606”). The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Based on this assessment, the Company concluded that ASU2014-09 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 ASU2014-09 did not materially change the method in which the Company currently classifies certain costs associated with the related revenue streams. The Company adopted ASU2014-09 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.

13

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Income Taxes

Provision for income taxes is based on amounts reported in the statements of income (after exclusion ofnon-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.

14

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Comprehensive Income

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

(dollars in thousands)	Unrealized Gains And (Losses) On Available for Sale Securities			Defined Benefit Pension Items			Total
Balance, December 31, 2016	$	(574	)	$	(780	)	$	(1,354	)
Other comprehensive gain before reclassifications		347			—			347
Amounts reclassified from accumulated other comprehensive gain		—			—			—
Balance March 31, 2017	$	(227	)	$	(780	)	$	(1,007	)
Balance, December 31, 2017	$	(523	)	$	(987	)	$	(1,510	)
Other comprehensive loss before reclassifications		(476	)		—			(476	)
Amounts reclassified from accumulated other comprehensive loss		3			—			3
Balance March 31, 2018	$	(996	)	$	(987	)	$	(1,983	)

Off-Balance Sheet Credit Related Financial Instruments

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

Fair Value of Financial Instruments

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

Reclassification

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

15

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 May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance became effective for the Company for reporting periods beginning after December 15, 2017.

The Company applied the guidance using a full retrospective approach. The Company’s revenue is comprised of net interest income and noninterest income. The scope of the guidance explicitly excludes net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives. Accordingly, the majority of our revenues were not affected. The Company has performed an assessment of our revenue contracts related to revenue streams that are within the scope of the standard. Our accounting policies will not change materially since the principles of revenue recognition from the ASU are largely consistent with existing guidance and current practices applied by our businesses. We have not identified material changes to the timing or amount of revenue recognition. Based on the updated guidance, we do anticipate changes in our disclosures associated with our revenues. We will provide qualitative disclosures of our performance obligations related to our revenue recognition and we continue to evaluate disaggregation for significant categories of revenue in the scope of the guidance.

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

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

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

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

16

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Recent Accounting Pronouncements, continued

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

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

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

In September 2017, the FASB updated the Revenue from Contracts with Customers and the Leases Topics of the Accounting Standards Codification. The amendments incorporate into the Accounting Standards Codification recent SEC guidance about certain public business entities (PBEs) electing to use thenon-PBE effective dates solely to adopt the FASB’s new standards on revenue and leases. The amendments were effective upon issuance. The Company is currently in the process of evaluating the impact of adoption of this guidance, however it does not expect these amendments to have a material effect on its financial statements.

In November 2017, the FASB updated the Income Statement and Revenue from Contracts with Customers Topics of the Accounting Standards Codification. The amendments incorporate into the Accounting Standards Codification recent SEC guidance related to revenue recognition. The amendments were effective upon issuance. The Company is currently evaluating the impact on revenue recognition, however it does not expect these amendments to have a material effect on its financial statements.

In February 2018, the FASB amended the Financial Instruments Topic of the Accounting Standards Codification. The amendments clarify certain aspects of the guidance issued in ASU2016-01. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018 -public business entities. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted ASU2016-01. The Company does not expect these amendments to have a material effect on its financial statements.

17

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Recent Accounting Pronouncements, continued

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

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

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.

18

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 March 31, 2018 and December 31, 2017 follow:

(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
March 31, 2018
Available for sale:
Mortgage-backed securities	$	27,799	$	—	$	(1,030	)	$	26,769
Corporate securities		3,004		—		(124	)		2,880
State and municipal securities		19,401		73		(180	)		19,294
	$	50,204	$	73	$	(1,334	)	$	48,943
December 31, 2017
Available for sale:
Mortgage-backed securities	$	28,780	$	—	$	(626	)	$	28,154
Corporate securities		3,016		—		(80	)		2,936
State and municipal securities		19,542		155		(112	)		19,585
	$	51,338	$	155	$	(818	)	$	50,675

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

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

	Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2018
Available for sale:
Mortgage-backed securities	$	14,978	$	(555	)	$	11,789	$	(475	)	$	26,767	$	(1,030	)
Corporate securities		1,465		(39	)		1,415		(85	)		2,880		(124	)
State and municipal securities		7,352		(93	)		2,734		(87	)		10,086		(180	)
Total securities available for sale	$	23,795	$	(687	)	$	15,938	$	(647	)	$	39,733	$	(1,334	)
December 31, 2017
Available for sale:
Mortgage-backed securities	$	15,791	$	(324	)	$	12,361	$	(302	)	$	28,152	$	(626	)
Corporate securities		1,506		(10	)		1,430		(70	)		2,936		(80	)
State and municipal securities		5,284		(44	)		2,758		(68	)		8,042		(112	)
Total securities available for sale	$	22,581	$	(378	)	$	16,549	$	(440	)	$	39,130	$	(818	)

19

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 2. Investment Securities, continued

At March 31, 2018, 38 debt securities with unrealized losses had depreciated 3.25 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 March 31, 2018. Management continues to monitor all of these securities with a high degree of scrutiny. There can be no assurance that the Company will not conclude in future periods that conditions existing at that time indicate some or all of these securities are other than temporarily impaired, which could require a charge to earnings in such periods.

There were no sales of investment securities available for sale for the three month periods ended March 31, 2018 or 2017. Gross realized losses for the three month period ended March 31, 2018 resulted from investment securities available for sale being called prior to their scheduled maturity date. Gross proceeds from called securities totaled $50 thousand for the three month period ended March 31, 2018. Gross realized losses for the three months ended March 31, 2018 and 2017 are as follows:

(dollars in thousands)	2018			2017
Realized gains	$	—		$	—
Realized losses		(4	)		—
	$	(4	)	$	—

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 March 31, 2018, were as follows:

(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,224	$	1,225
Due after one year through five years		10,552		10,398
Due after five years through ten years		19,498		18,799
Due after ten years		18,930		18,521
	$	50,204	$	48,943

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 $11.1 million and $11.2 million at March 31, 2018 and December 31, 2017, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

20

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 March 31, 2018 and December 31, 2017 are as follows:

(dollars in thousands)	2018			2017
Construction & development	$	26,338		$	25,475
Farmland		33,770			33,353
Residential		194,141			199,120
Commercial mortgage		130,299			125,661
Commercial & agricultural		26,731			25,672
Consumer & other		14,824			15,590
Total loans		426,103			424,871
Allowance for loan losses		(3,415	)		(3,453	)
Loans, net of allowance for loan losses	$	422,688		$	421,418

As of March 31, 2018 and December 31, 2017, substantially all of the Bank’s residential1-4 family loans were pledged as collateral for borrowing lines at the Federal Home Loan Bank of Atlanta.

Note 4. Allowance for Loan Losses and Impaired Loans

Allowance for Loan Losses

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

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

21

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Allowance for Loan Losses, continued

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

Allowance for Loan Losses and Recorded Investment in Loans

(dollars in thousands)	Construction & Development			Farmland			Residential			Commercial Mortgage			Commercial & Agricultural			Consumer & Other			Total
For the Three Months Ended March 31, 2018
Allowance for loan losses:
Balance, December 31, 2017	$	239		$	358		$	1,875		$	619		$	282		$	80		$	3,453
Charge-offs		(12	)		—			(117	)		—			—			(19	)		(148	)
Recoveries		—			34			10			—			2			10			56
Provision		20			(70	)		128			(10	)		(17	)		3			54
Balance, March 31, 2018	$	247		$	322		$	1,896		$	609		$	267		$	74		$	3,415
For the Three Months Ended March 31, 2017
Allowance for loan losses:
Balance, December 31, 2016	$	319		$	342		$	1,841		$	600		$	210		$	108		$	3,420
Charge-offs		—			—			—			(42	)		—			(15	)		(57	)
Recoveries		56			—			15			—			27			7			105
Provision		(26	)		59			24			86			(7	)		(28	)		108
Balance, March 31, 2017	$	349		$	401		$	1,880		$	644		$	230		$	72		$	3,576
March 31, 2018
Allowance for loan losses:
Ending Balance	$	247		$	322		$	1,896		$	609		$	267		$	74		$	3,415
Ending balance: individually evaluated for impairment	$	—		$	39		$	33		$	—		$	—		$	—		$	72
Ending balance: collectively evaluated for impairment	$	247		$	283		$	1,863		$	609		$	267		$	74		$	3,343
Loans outstanding:
Ending Balance	$	26,338		$	33,770		$	194,141		$	130,299		$	26,731		$	14,824		$	426,103
Ending balance: individually evaluated for impairment	$	—		$	4,751		$	1,455		$	—		$	—		$	—		$	6,206
Ending balance: collectively
evaluated for impairment	$	26,338		$	29,019		$	192,686		$	130,299		$	26,731		$	14,824		$	419,897
December 31, 2017
Allowance for loan losses:
Ending Balance	$	239		$	358		$	1,875		$	619		$	282		$	80		$	3,453
Ending balance: individually evaluated for impairment	$	—		$	49		$	42		$	—		$	—		$	—		$	91
Ending balance: collectively evaluated for impairment	$	239		$	309		$	1,833		$	619		$	282		$	80		$	3,362
Loans outstanding:
Ending Balance	$	25,475		$	33,353		$	199,120		$	125,661		$	25,672		$	15,590		$	424,871
Ending balance: individually evaluated for impairment	$	—		$	5,069		$	1,556		$	—		$	—		$	—		$	6,625
Ending balance: collectively evaluated for impairment	$	25,475		$	28,284		$	197,564		$	125,661		$	25,672		$	15,590		$	418,246

As of March 31, 2018 and December 31, 2017, the Bank had no unallocated reserves included in the allowance for loan losses.

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

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 March 31, 2018 and December 31, 2017, respectively, the Bank had no loans graded “Doubtful” or “Loss” included in the balance of total loans outstanding.

The following table lists the loan grades utilized by the Bank and the corresponding total of outstanding loans in each category as of March 31, 2018 and December 31, 2017:

Credit Risk Profile by Internally Assigned Grades

	Loan Grades
(dollars in thousands)	Pass		Watch		Special Mention		Substandard		Total
March 31, 2018
Real Estate Secured:
Construction & development	$	25,279	$	861	$	—	$	198	$	26,338
Farmland		24,548		5,523		74		3,625		33,770
Residential		178,153		12,931		509		2,548		194,141
Commercial mortgage		111,115		15,911		683		2,590		130,299
Non-Real Estate Secured:
Commercial & agricultural		23,781		2,304		142		504		26,731
Consumer & other		14,418		323		—		83		14,824
Total	$	377,294	$	37,853	$	1,408	$	9,548	$	426,103
December 31, 2017
Real Estate Secured:
Construction & development	$	24,612	$	652	$	—	$	211	$	25,475
Farmland		23,935		4,895		74		4,449		33,353
Residential		183,543		12,464		200		2,913		199,120
Commercial mortgage		106,102		15,291		1,611		2,657		125,661
Non-Real Estate Secured:
Commercial & agricultural		22,446		2,057		649		520		25,672
Consumer & other		15,262		328		—		—		15,590
Total	$	375,900	$	35,687	$	2,534	$	10,750	$	424,871

23

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 March 31, 2018 and December 31, 2017:

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
March 31, 2018
Real Estate Secured:
Construction & development	$	—	$	—	$	214	$	214	$	26,124	$	26,338	$	—	$	214
Farmland		—		592		—		592		33,178		33,770		—		3,170
Residential		479		248		459		1,186		192,955		194,141		—		955
Commercial mortgage		41		—		194		235		130,064		130,299		—		194
Non-Real Estate Secured:
Commercial & agricultural		2		6		23		31		26,700		26,731		—		89
Consumer & other		22		2		—		24		14,800		14,824		—		—
Total	$	544	$	848	$	890	$	2,282	$	423,821	$	426,103	$	—	$	4,622
December 31, 2017
Real Estate Secured:
Construction & development	$	—	$	—	$	227	$	227	$	25,248	$	25,475	$	—	$	226
Farmland		188		—		308		496		32,857		33,353		—		3,610
Residential		395		334		710		1,439		197,681		199,120		—		1,211
Commercial mortgage		—		—		194		194		125,467		125,661		—		194
Non-Real Estate Secured:
Commercial & agricultural		70		—		23		93		25,579		25,672		—		94
Consumer & other		2		24		—		26		15,564		15,590		—		—
Total	$	655	$	358	$	1,462	$	2,475	$	422,396	$	424,871	$	—	$	5,335

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.

24

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 March 31, 2018 and December 31, 2017, respectively, the recorded investment in impaired loans totaled $11.6 million and $12.3 million. The total amount of collateral-dependent impaired loans at March 31, 2018 and December 31, 2017, respectively, was $3.3 million and $3.7 million. As of March 31, 2018 and December 31, 2017, respectively, $3.3 million and $3.7 million of the recorded investment in impaired loans did not have a related allowance. The Bank had $8.3 million and $8.6 million in troubled debt restructured loans included in impaired loans at March 31, 2018 and December 31, 2017, respectively.

The categories ofnon-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 onnon-accrual status, such as the financial strength of the borrower, the estimated collateral value, reasons for the delay, payment record, the amount past due and the number of days past due.

In 2015, management began collectively evaluating performing TDRs with a loan balance of $250,000 or less for impairment. As of March 31, 2018 and December 31, 2017, respectively, $5.4 million and $5.7 million of TDRs included in the following table were evaluated collectively for impairment and were deemed to have $289 thousand and $303 thousand of related allowance.

The following table is a summary of information related to impaired loans as of March 31, 2018 and December 31, 2017:

Impaired Loans

							Three months ended
(dollars in thousands)	Recorded Investment1		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
March 31, 2018
With no related allowance recorded:
Construction & development	$	—	$	—	$	—	$	—	$	—
Farmland		3,119		3,119		—		3,271		1
Residential		213		299		—		256		2
Commercial mortgage		—		—		—		—		—
Commercial & agricultural		—		26		—		—		8
Consumer & other		—		—		—		—		—
Subtotal		3,332		3,444		—		3,527		11
With an allowance recorded:
Construction & development		357		357		16		359		3
Farmland		1,917		1,917		48		1,926		26
Residential		5,381		5,573		261		5,612		72
Commercial mortgage		596		680		33		599		5
Commercial & agricultural		51		51		3		53		1
Consumer & other		—		—		—		—		—
Subtotal		8,302		8,578		361		8,549		107
Totals:
Construction & development		357		357		16		359		3
Farmland		5,036		5,036		48		5,197		27
Residential		5,594		5,872		261		5,868		74
Commercial mortgage		596		680		33		599		5
Commercial & agricultural		51		77		3	��	53		9
Consumer & other		—		—		—		—		—
Total	$	11,634	$	12,022	$	361	$	12,076	$	118

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

25

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, 2017
With no related allowance recorded:
Construction & development	$	—	$	—	$	—	$	—	$	—
Farmland		3,422		3,456		—		3,774		10
Residential		300		300		—		300		8
Commercial mortgage		—		—		—		—		—
Commercial & agricultural		—		26		—		27		—
Consumer & other		—		—		—		—		2
Subtotal		3,722		3,782		—		4,101		20
With an allowance recorded:
Construction & development		361		361		16		718		111
Farmland		1,936		1,936		58		2,224		135
Residential		5,647		5,832		284		6,209		290
Commercial mortgage		602		737		33		1,020		54
Commercial & agricultural		55		55		3		89		13
Consumer & other		—		—		—		2		—
Subtotal		8,601		8,921		394		10,262		603
Totals:
Construction & development		361		361		16		718		111
Farmland		5,358		5,392		58		5,998		145
Residential		5,947		6,132		284		6,509		298
Commercial mortgage		602		737		33		1,020		54
Commercial & agricultural		55		81		3		116		13
Consumer & other		—		—		—		2		2
Total	$	12,323	$	12,703	$	394	$	14,363	$	623

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; orre-aging, extensions, deferrals and renewals. Troubled debt restructured loans are considered impaired loans.

26

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

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

Troubled Debt Restructuring, continued

The following table sets forth information with respect to the Bank’s troubled debt restructurings as of March 31, 2018 and March 31, 2017:

TDRs identified during the period

TDRs identified in the last twelve months that subsequently defaulted(1)

(dollars in thousands)

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

March 31, 2018

Construction & development

—

$

—

$

—

—

$

—

$

—

Farmland

—

—

—

—

—

—

Residential

—

—

—

—

—

—

Commercial mortgage

—

—

—

—

—

—

Commercial & agricultural

—

—

—

—

—

—

Consumer & other

—

—

—

—

—

—

Total

—

$

—

$

—

—

$

—

$

—

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

During the three months ended March 31, 2018, no loans were modified that were considered to be TDRs. No TDRs identified in the last twelve months subsequently defaulted in the quarter ended March 31, 2018.

	TDRs identified during the period						TDRs identified in the last twelve months that subsequently defaulted(1)
(dollars in thousands)	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
March 31, 2017
Construction & development		—	$	—	$	—		—	$	—	$	—
Farmland		1		150		150		—		—		—
Residential		—		—		—		—		—		—
Commercial mortgage		—		—		—		—		—		—
Commercial & agricultural		—		—		—		—		—		—
Consumer & other		—		—		—		—		—		—
Total		1	$	150	$	150		—	$	—	$	—

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

During the three months ended March 31, 2017, one loan was modified that was considered to be TDRs. Term concession only was granted and no additional funds were advanced. No TDRs identified in the last twelve months subsequently defaulted in the quarter ended March 31, 2017.

27

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 three-month periods ended March 31, 2018 and 2017.

	Three Months Ended March 31,
(dollars in thousands)	2018			2017
Service cost	$	—		$	—
Interest cost		43			48
Expected return on plan assets		(144	)		(138	)
Amortization of prior service cost		—			—
Recognized net loss due to settlement		—			—
Recognized net actuarial (gain)/loss		8			7
Net periodic benefit cost	$	(93	)	$	(83	)

It has been Company practice to contribute the maximumtax-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, 2017 and there is no required contribution for 2018. Based on this we do not anticipate making a contribution to the plan in 2018.

Note 6. Intangible Assets

The following table presents the gross carrying amount and accumulated amortization for the Company’s core deposit intangible assets, which are the only identifiable intangible assets subject to amortization. Core deposit intangibles at March 31, 2018 and December 31, 2017 are as follows:

(dollars in thousands)	March 31, 2018		December 31, 2017
Gross carrying amount	$	2,469	$	2,469
Accumulated amortization		494		424
Net book value	$	1,975	$	2,045

Note 7. 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 withOff-Balance Sheet Risk

The Bank is party to financial instruments withoff-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.

28

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 7. Commitments and Contingencies, continued

Financial Instruments withOff-Balance Sheet Risk, continued

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 foron-balance sheet instruments. A summary of the Bank’s commitments at March 31, 2018 and December 31, 2017 is as follows:

	March 31,		December 31,
(dollars in thousands)	2018		2017
Commitments to extend credit	$	54,169	$	56,912
Standby letters of credit		1,043		1,106
	$	55,212	$	58,018

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 acase-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.

29

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 8. 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 March 31, 2018 and December 31, 2017. 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. Fornon-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 ASUNo. 2016-01, the fair value of loans as of March 31, 2018 was measured using an exit price notion. The fair value of loans as of December 31, 2017 was measured using an entry 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)
March 31, 2018
Financial Instruments – Assets
Net Loans	$	422,688	$	420,400	$	—	$	—	$	420,400
Financial Instruments – Liabilities
Time Deposits		144,498		140,369		—		140,369		—
December 31, 2017
Financial Instruments – Assets
Net Loans	$	421,418	$	417,229	$	—	$	416,426	$	803
Financial Instruments – Liabilities
Time Deposits		147,725		144,656		—		144,656		—

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.

30

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 8. 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 activeover-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. If a loan is identified as individually impaired, management measures impairment in accordance with applicable accounting guidance. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2018, 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.

31

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 8. Financial Instruments, continued

Foreclosed Assets

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

Assets Recorded at Fair Value on a Recurring Basis

(dollars in thousands)	Total		Level 1		Level 2		Level 3
March 31, 2018
Investment securities available for sale
Mortgage-backed securities	$	26,769	$	—	$	26,769	$	—
Corporate securities		2,880		—		2,880		—
State and municipal securities		19,294		—		19,294		—
Total assets at fair value	$	48,943	$	—	$	48,943	$	—
December 31, 2017
Investment securities available for sale
Mortgage-backed securities	$	28,154	$	—	$	28,154	$	—
Corporate securities		2,936		—		2,936		—
State and municipal securities		19,585		—		19,585		—
Total assets at fair value	$	50,675	$	—	$	50,675	$	—

No liabilities were recorded at fair value on a recurring basis as of March 31, 2018 and December 31, 2017. There were no significant transfers between levels during the three month period ended March 31, 2018 and the year ended December 31, 2017.

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 March 31, 2018 and December 31, 2017. 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
March 31, 2018
Impaired loans	$	503	$	—	$	—	$	503
Foreclosed assets		—		—		—		—
Total assets at fair value	$	503	$	—	$	—	$	503

32

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 8. Financial Instruments, continued

Assets Recorded at Fair Value on a Nonrecurring Basis

(dollars in thousands)	Total		Level 1		Level 2		Level 3
December 31, 2017
Impaired loans	$	803	$	—	$	—	$	803
Foreclosed assets		—		—		—		—
Total assets at fair value	$	803	$	—	$	—	$	803

For Level 3 assets measured at fair value on a recurring ornon-recurring basis as of March 31, 2018 and December 31, 2017, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair Value at March 31, 2018		Fair Value at December 31, 2017		Valuation Technique	Significant Unobservable Inputs	General Range of Significant Unobservable Input Values
Impaired Loans	$	503	$	803	Appraised Value/Discounted Cash Flows/Market Value of Note	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell		0 – 10	%
Other Real Estate Owned	$	—	$	—	Appraised Value/Comparable Sales/Other Estimates from Independent Sources	Discounts to reflect current market conditions and estimated costs to sell		0 – 10	%

33

Parkway Acquisition Corp. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 9. 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 issued in February 2015, and is no longer obligated to report consolidated regulatory capital. The Bank’s actual capital amounts and ratios are presented in the following table as of March 31, 2018 and December 31, 2017, 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
March 31, 2018
Total Capital (to risk weighted assets)	$	57,353		13.11	%	$	34,998		8.00	%	$	43,748		10.00	%
Tier 1 Capital (to risk weighted assets)	$	53,908		12.32	%	$	26,249		6.00	%	$	34,998		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	53,908		12.32	%	$	19,686		4.50	%	$	28,436		6.50	%
Tier 1 Capital (to average total assets)	$	53,908		10.00	%	$	21,557		4.00	%	$	26,947		5.00	%
December 31, 2017
Total Capital (to risk weighted assets)	$	56,962		13.14	%	$	34,688		8.00	%	$	43,360		10.00	%
Tier 1 Capital (to risk weighted assets)	$	53,483		12.33	%	$	26,016		6.00	%	$	34,688		8.00	%
Common Equity Tier 1 (to risk weighted assets)	$	53,483		12.33	%	$	19,512		4.50	%	$	28,184		6.50	%
Tier 1 Capital (to average total assets)	$	53,483		9.81	%	$	21,808		4.00	%	$	27,260		5.00	%

Note 10. Subsequent Events

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

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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 Form10-K for the year ended December 31, 2017.

Critical Accounting Policies

For a discussion of the Company’s critical accounting policies, including its allowance for loan losses, see Note 1 in the Notes to Consolidated Financial Statements above, or the Company’s Annual Report on Form10-K for the year ended December 31, 2017.

Results of Operations

Results of Operations for the Three Months ended March 31, 2018 and 2017

Parkway recorded net income of $1.0 million, or $0.20 per share, for the quarter ended March 31, 2018 compared to net income of $681 thousand, or $0.14 per share, for the same period in 2017.Pre-tax earnings totaled $1.3 million for the first quarter of 2018 compared topre-tax earnings of $961 thousand for the same period in 2017.    The increase in earnings was due primarily to an increase in noninterest income, as well as reductions in noninterest expenses and a decrease in the loan loss provision. Income tax expense increased from $280 thousand to just $281 thousand for the quarter, despite the increase inpre-tax earnings, due to a reduction in tax rates pursuant to the Tax Cuts and Jobs Act, which became effective January 1, 2018 and reduced the Company’s marginal federal income tax rate from 34% to 21%. First quarter earnings represented an annualized return on average assets of 0.75% and an annualized return on average equity of 7.19% for the quarter ended March 31, 2018, compared to 0.49% and 4.95%, respectively, for the quarter ended March 31, 2017.

On March 1, 2018, Parkway entered into a definitive agreement pursuant to which Parkway will acquire Great State Bank, based in Wilkesboro, North Carolina, in a stock merger valued at approximately $14.5 million at signing (the “Great State merger”). The agreement provides for the merger of Great State Bank with and into the Bank, with the Bank as the surviving bank. Each share of Great State Bank common stock will be converted into the right to receive 1.21 shares of Parkway common stock upon closing. The closing of this transaction is subject to approval by Parkway’s and Great State Bank’s shareholders, regulatory approvals and other customary closing conditions and is expected to occur in the third quarter of 2018.

Total interest income decreased by $10 thousand for the quarter ended March 31, 2018 compared to the quarter ended March 31, 2017. The decrease in interest income was attributable primarily to a reduction in the accretion of purchase discounts applied to the loan portfolio acquired in the Company’s July 1, 2016 merger with Cardinal Bankshares Corp. (the “Cardinal merger”). Accretion of purchased loan discounts increased interest income by $305 thousand in the first quarter of 2017 compared to just $158 thousand in the first quarter of 2018, representing a decrease of $147 thousand. Excluding the change in discount accretion, interest income increased by $137 thousand for the quarter ended March 31, 2018 compared to the same period last year, due mainly to continued growth in the bank’s loan portfolio as total loans increased by $13.7 million or 3.33% from March 31, 2017 to March 31, 2018.

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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 March 31, 2018 and 2017, continued

Interest expense on deposits decreased by $9 thousand compared to the prior year, due to a reduction in the level of higher-yielding time deposits as well as a reduction in amortization of premiums on time deposits acquired in the Cardinal merger. Amortization of premiums on acquired time deposits, which reduces interest expense, totaled $84 thousand in the first quarter of 2017, compared to just $30 thousand in the first quarter of 2018. Without the change in premium amortization, interest expense on deposits would have decreased by $63 thousand for the quarter ended March 31, 2018, compared to the quarter ended March 31, 2017. The result was a decrease in net interest income of $1 thousand for the quarter ended March 31, 2018, compared to the same quarter last year. The Company’s net interest margin totaled 4.18% for the first quarter of 2018, compared to 4.07% for the first quarter of 2017.

The provision for loan losses was $54 thousand for the quarter ended March 31, 2018, compared to $108 thousand for the quarter ended March 31, 2017. The reserve for loan losses at March 31, 2018 was approximately 0.80% of total loans, compared to 0.87% at March 31, 2017. Management’s estimate of probable credit losses inherent in the acquired Cardinal loan portfolio was reflected as a purchase discount which will continue to be accreted into income over the remaining life of the acquired loans. As of March 31, 2018, the remaining unaccreted discount on the acquired loan portfolio totaled $3.8 million.

Total noninterest income was $963 thousand in the first quarter of 2018 compared to $888 thousand in the first quarter of 2017. The increase was due to growth and expansion offee-based products and services throughout the Company’s market area.

Total noninterest expenses decreased by $206 thousand for the quarter ended March 31, 2018 compared to the quarter ended March 31, 2017, due mainly to a reduction in merger related expenses. Merger related expenses totaled $315 thousand for the first quarter of 2017 compared to $198 thousand for the first quarter of 2018. The 2017 merger related expenses were primarily costs associated with data processing system conversions for the Cardinal merger, while 2018 merger related expenses are associated with the proposed Great State merger. The overall reduction in noninterest expenses led to improvement in the company’s efficiency ratio, which fell from 82.1% for the first quarter of 2017 to 77.7% for the first quarter of 2018.    

Financial Condition

Total assets decreased by $4.4 million, or 0.8%, from December 31, 2017 to March 31, 2018, due to continued reductions in interest-bearing deposits. Cash and cash equivalent balances decreased by $3.2 million and investment securities decreased by $1.7 million. The reduction in cash and investments was used to fund net loan growth of $1.3 million as well as a reduction in total deposits of $4.8 million. Loan growth, combined with the decrease in deposits, resulted in an increase in the company’s loan to deposit ratio to 87.4% at March 31, 2018 compared to 86.3% at December 31, 2017.

Noninterest bearing deposits decreased by $789 thousand from December 31, 2017 to March 31, 2018, while interest bearing deposits decreased by $4.0 million over the same time period. The decrease in interest bearing deposits came primarily in the form of higher yielding certificates of deposit and individual retirement accounts. This reflected the continuation of a management strategy to allow therun-off of higher-yielding time deposits.

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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 $5.3 million at December 31, 2017 to $4.6 million at March 31, 2018. There were no foreclosed assets as of March 31, 2018. There were no loans past due more than ninety days and still accruing interest at March 31, 2018 and December 31, 2017.

Nonaccrual loans decreased from $5.3 million at December 31, 2017 to $4.6 million at March 31, 2018. During the three months ended March 31, 2018, there were no substantial addtions to nonaccrual status while loans totaling $619 thousand were repaid or returned to accrual status. 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:

(dollars in thousands)	March 31, 2018			December 31, 2017
Nonperforming Assets
Nonaccrual loans	$	4,622		$	5,335
Loans past due 90 days or more and still accruing interest		—			—
Total nonperforming loans		4,622			5,335
Foreclosed assets		—			—
Total nonperforming assets	$	4,622		$	5,335
Nonperforming assets to total assets		0.85	%		0.97	%
Nonperforming loans to total loans		1.08	%		1.26	%

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.

37

Part I. Financial Information

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

Financial Condition, continued

At March 31, 2018, the allowance for loan losses included $361 thousand specifically reserved for impaired loans in the amount of $8.3 million. Based on impairment analysis, loans totaling $3.3 million were also considered to be impaired but did not require a specific reserve or the related reserve had previously beencharged-off. Impaired loans at December 31, 2017 totaled $12.3 million, of which $8.6 million required specific reserves of $394 thousand.

Summary of Loan Loss Experience

(dollars in thousands)	Three months ended March 31, 2018			Three months ended March 31, 2017			Year ended December 31, 2017
Total loans outstanding at end of period	$	426,103		$	412,369		$	424,871
Allowance for loan losses, beginning of period	$	3,453		$	3,420		$	3,420
Charge offs:
Commercial & agricultural		—			—			(27	)
Commercial mortgage		—			(42	)		(59	)
Construction & development		(12	)		—			(33	)
Farmland		—			—			(34	)
Residential		(117	)		—			(89	)
Consumer & other		(19	)		(15	)		(76	)
Total charge-offs		(148	)		(57	)		(318	)
Recoveries:
Commercial & agricultural		2			27			33
Commercial mortgage		—			—			—
Construction & development		—			56			56
Farmland		34			—			—
Residential		10			15			23
Consumer & other		10			7			22
Total recoveries		56			105			134
Net (charge-offs) recoveries		(92	)		48			(184	)
Provision for (recovery of) allowance		54			108			217
Allowance for loan losses at end of period	$	3,415		$	3,576		$	3,453
Ratios:
Allowance for loan losses to loans at end of period		0.80	%		0.87	%		0.81	%
Net charge-offs (recoveries) to allowance for loan losses		2.69	%		(1.34	)%		5.33	%
Net charge-offs (recoveries) to provisions for loan losses		170.37	%		(44.44	)%		84.79	%

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 ofnon-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 March 31, 2018 totaled $6.4 million, or 1.49% of total loans. Historicalcharge-off rates in this category have not varied significantly from other real estate secured loans.

38

Part I. Financial Information

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

Financial Condition, continued

Stockholders’ equity totaled $57.22 million at March 31, 2018 compared to $57.18 million at December 31, 2017. The increase in equity resulted from earnings of $1.0 million, less a net change in unrealized depreciation of investment securities classified as available for sale totaling $473 thousand, and the payment of dividends of $502 thousand. Book value increased from $11.39 per share at December 31, 2017 to $11.40 per share at March 31, 2018. Skyline remains well capitalized with Common equity tier 1 capital, Tier 1 risk-based capital, Total risk based capital, and Tier 1 leverage ratios of 12.32%, 12.32%, 13.11%, and 10.00%, respectively, as of March 31, 2018.

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 $28.0 million at March 31, 2018. No balances were outstanding on these lines at March 31, 2018 or December 31, 2017. In addition, the Bank has the ability to borrow up to approximately $136.9 million from the Federal Home Loan Bank, subject to the pledging of collateral. The Bank had no debt outstanding classified as long-term at March 31, 2018 or December 31, 2017.

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

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

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

Capital Resources

A significant measure of the strength of a financial institution is its capital base. Federal regulations have classified and defined capital into the following components: (1) Tier 1 capital, which includes common shareholders’ equity and qualifying preferred equity, and (2) Tier 2 capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt and preferred stock which does not qualify as Tier 1 capital. Financial institutions and holding companies were also subject to the new BASEL III requirements starting the first quarter of 2016. A new part of the capital ratios profile is 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 certainoff-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 tooff-balance sheet activities. At March 31, 2018, the Company and the Bank both exceeded minimum regulatory capital requirements, and the Bank is considered to be “well capitalized.”

39

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 the benefits of or other expectations regarding the Cardinal merger and the Great State merger, 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: the ability to obtain required regulatory and shareholder approvals and meet other closing conditions to the Great State merger; the ability to complete the Great State merger as expected and within the expected time frame, or at all; the ability to implement integration plans associated with the Great State merger, which integration may be more difficult, time-consuming or costly than expected; disruptions to customer and employee relationships and business operations caused by the Great State merger or the Cardinal merger; the ability to achieve the expected revenues, cost savings and synergies contemplated by the Great State merger or the Cardinal merger within the expected time frame, or at all; changes in interest rates, general economic conditions; the effect of changes in banking, tax and other laws and regulations and interpretations or guidance thereunder; monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality and composition of the loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in the combined company’s market area; the implementation of new technologies; the ability to develop and maintain secure and reliable electronic systems; accounting principles, policies, and guidelines and other factors identified in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form10-K for the year ended December 31, 2017. 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 theseforward-looking statements, whether as a result of new information, future events or otherwise.

40

Part I. Financial Information

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required.

41

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 Rules13a-15(e) and15d-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.

42

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 Form10-Q, the factors discussed under “Risk Factors” in our Form10-K for the year ended December 31, 2017 should be considered. These risks could materially and adversely affect our business, financial condition and results of operations. There have been no material changes to the factors discussed in our Form10-K.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

2.1	Agreement and Plan of Merger, dated as of March  1, 2018, by and among Parkway Acquisition Corp., Skyline National Bank and Great State Bank (attached as Exhibit 2.1 to the Company’s Current Report on Form8-K filed March  7, 2018, and incorporated herein by reference).
31.1	Rule15(d)-14(a) Certification of Chief Executive Officer.
31.2	Rule15(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 Form10-Q for the quarter ended March 31, 2018, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Unaudited Consolidated Financial Statements.

43

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: May 15, 2018	By:	/s/ J. Allan Funk
		J. Allan Funk
		President and Chief Executive Officer
	By:	/s/ Blake M. Edwards
		Blake M. Edwards
		Chief Financial Officer

44