Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant
Accounting Policies
Organization
Parkway
Acquisition Corp. (Parkway) was incorporated as a Virginia corporation on November 2, 2015. Parkway was formed as a business combination shell 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 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 merger was completed on
July 1, 2016. Grayson is considered the acquiror and Cardinal is considered the acquiree in the transaction for accounting purposes.
Upon completion
of the 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 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. Parkway is regulated by the Board of Governors of the Federal Reserve System.
For purposes of this quarterly report on Form
10-Q,
all information contained herein as of and for periods prior to
July 1, 2016 reflects the operations of Grayson prior to the 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 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 merger.
The consolidated financial statements as of March 31, 2017 and for the periods ended March 31, 2017 and
2016 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 Companys 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 Companys audited financial statements and the notes thereto as of December 31, 2016, included in
the Companys Annual Report on Form
10-K
for the fiscal year ended December 31, 2016. The results of operations for the three-month period ended March 31, 2017 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 Banks loan portfolio consists of loans in its market area. Accordingly, the
ultimate collectibility of a substantial portion of the Banks 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 Banks
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 Companys 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 or
pay-off
are reported at their outstanding principal amount adjusted for any charge-offs and the allowance for loan losses.
Loan origination costs are capitalized and recognized as an adjustment to yield over the life of the related loan.
Interest is accrued and credited to
income based on the principal amount outstanding. The accrual of interest on impaired loans is discontinued when, in managements 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 Companys 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 there
of, 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 managements periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers 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 covers
non-impaired
loans and is based on historical loss experience adjusted for qualitative factors. An unallocated
component is maintained to cover uncertainties that could affect managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events,
it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status,
collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a
case-by-case
basis, taking into consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrowers 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 loans effective interest rate, the loans 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 borrowers
financial difficulties grants a concession to the borrower that the Bank would not otherwise consider. Debt restructuring or loan modifications for a borrower do not necessarily always constitute a troubled debt restructuring, however, and
troubled debt restructurings do not necessarily result in
non-accrual
loans. Troubled debt restructured loans are maintained in nonaccrual status until they have been performing in accordance with
modified terms for a period of at least six months.
Property and Equipment
Land is carried at cost. Bank premises, furniture and equipment are carried at cost, less accumulated depreciation and amortization computed principally by the
straight-line method over the following estimated useful lives:
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|
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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 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 banks 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 merger. Graysons 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. Floyds 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).
Income Taxes
Provision for income taxes is based on amounts reported in the statements of income (after exclusion of
non-taxable
income such as interest on state and municipal securities) and consists of taxes currently due plus deferred taxes on temporary differences in the recognition of income and expense for tax and
financial statement purposes. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Deferred
income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon
examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more
likely than not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of
all relevant information. The determination of whether or not a tax position has met the more likely than not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to
managements 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.
13
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant Accounting Policies, continued
Advertising Expense
The Company expenses advertising costs as they are incurred. Advertising expense for the years presented is not material.
Basic Earnings per Share
Basic earnings per share
is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock splits and dividends.
Comprehensive Income
Comprehensive income
consists of net income and other comprehensive income (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:
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Unrealized Gains
And Losses
|
|
|
|
|
|
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(dollars in thousands)
|
|
On Available for
Sale Securities
|
|
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Defined Benefit
Pension Items
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|
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Total
|
|
Balance, December 31, 2015
|
|
$
|
(116
|
)
|
|
$
|
(608
|
)
|
|
$
|
(724
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(218
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)
|
|
|
(172
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)
|
|
|
(390
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)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(240
|
)
|
|
|
|
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2016
|
|
|
(574
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)
|
|
|
(780
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)
|
|
|
(1,354
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)
|
Other comprehensive income before reclassifications
|
|
|
347
|
|
|
|
|
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2017
|
|
$
|
(227
|
)
|
|
$
|
(780
|
)
|
|
$
|
(1,007
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)
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|
|
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|
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|
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|
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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.
14
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 will be effective for the Company for annual periods beginning
after December 15, 2017, and interim periods within annual reporting periods beginning after December 15, 2018. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a
material effect on its consolidated financial statements.
In August 2015, the FASB deferred the effective date of ASU
2014-09,
Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU
2014-09
will be effective for the Company for reposting periods
beginning after December 15, 2017. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its consolidated financial statements.
In November 2015, the FASB amended the Income Taxes topic of the Accounting Standards Codification to simplify the presentation of deferred income taxes by
requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments will be effective for financial statements issued for annual periods beginning after December 15,
2016, and interim periods within those annual periods, with early adoption permitted as of the beginning of an interim or annual reporting period. The Company will apply the guidance prospectively. The Company does not expect these amendments to
have a material effect on its consolidated financial statements.
In January 2016, the FASB amended the Financial Instruments topic of the Accounting
Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily
determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its consolidated financial statements.
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.
In
March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it
is the principal or the agent in contracts that include three or more parties.
The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have
a material effect on its financial statements.
In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting
Standards Codification to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15,
2017. The Company does not expect these amendments to have a material effect on its financial statements.
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, continued
In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards
Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017
.
The
Company does not expect these amendments to have a material effect on its financial statements.
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. 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.
In August 2016, the FASB amended the
Statement of Cash Flows topic of the Accounting Standards Codification to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal
years beginning after December 15, 2017 including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.
In October 2016, the FASB amended the Income Taxes topic of the Accounting Standards Codification to modify the accounting for intra-entity transfers of
assets other than inventory. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these
amendments to have a material effect on its financial statements.
In November 2016, the FASB amended the Statement of Cash Flows topic of the Accounting
Standards Codification to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods
within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers Topic. These corrections make a limited
number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after
December 15, 2017. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.
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 issued guidance to clarify the definition of a business with the objective of
adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic is intended to address concerns that the
existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. The guidance will be effective for the Company for
reporting periods beginning after December 15, 2017.
Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In January 2017, the FASB updated the Accounting Changes and Error Corrections and the InvestmentsEquity 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 units 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 February 2017, the FASB amended the Other Income Topic of the Accounting Standards Codification to clarify the scope of the guidance on nonfinancial asset
derecognition as well as the accounting for partial sales of nonfinancial assets. The amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. The amendments will be effective
for the Company for reporting periods beginning after December 15, 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 CompensationRetirement Benefits Topic of the Accounting Standards Codification related to the
income statement presentation of the components of net periodic benefit cost for an entitys sponsored defined benefit pension and other postretirement plans. The amendments will be effective for the Company for interim and annual periods
beginning after December 15, 2017
.
Early adoption is permitted. 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 ReceivablesNonrefundable 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.
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
Companys consolidated financial position, results of operations or cash flows.
17
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 2. Business Combinations
On July 1, 2016, Parkway completed its merger with Grayson and Cardinal. Parkway had no material assets or liabilities and did not conduct any business
prior to consummation of the merger except to perform its obligations under the merger agreement. As such, Grayson is considered the acquiring entity in this business combination for accounting purposes. Under the terms of the merger agreement, 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. There was no trading
market and no market price for Parkway common stock on the date of the transaction. Parkway was quoted on the OTC Markets and began trading on August 31, 2016; however, Parkway is a new company and the stock is thinly traded. Grayson, as the
accounting acquirer at the time of the merger, was also thinly traded and the limited number of shares traded prior to the acquisition were not considered indicative of trading value. Due to the limited trading history of Parkway and Grayson, the
Company engaged a third party to determine the value of the transaction as well as the value of the consideration paid to Cardinal as a result of the transaction. The Company also engaged a third party to calculate fair values of all assets and
liabilities acquired in the transaction. These valuations are not final and may be refined for up to one year following the merger date.
The following
table presents the Cardinal assets acquired and liabilities assumed as of July 1, 2016 as well as the related fair value adjustments and determination of purchase gain.
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
As Reported by
|
|
|
Fair Value
|
|
|
As Reported by
|
|
|
|
Cardinal
|
|
|
Adjustments
|
|
|
Parkway
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,698
|
|
|
$
|
|
|
|
$
|
11,698
|
|
Investment securities
|
|
|
59,327
|
|
|
|
(322
|
)(a)
|
|
|
59,005
|
|
Restricted equity securities
|
|
|
1,308
|
|
|
|
|
|
|
|
1,308
|
|
Loans
|
|
|
164,044
|
|
|
|
(6,192
|
)(b)
|
|
|
157,852
|
|
Allowance for loan losses
|
|
|
(2,123
|
)
|
|
|
2,123
|
(c)
|
|
|
|
|
Cash value of life insurance
|
|
|
6,714
|
|
|
|
|
|
|
|
6,714
|
|
Property and equipment
|
|
|
5,384
|
|
|
|
1,039
|
(d)
|
|
|
6,423
|
|
Intangible assets
|
|
|
|
|
|
|
2,469
|
(e)
|
|
|
2,469
|
|
Accrued interest receivable
|
|
|
539
|
|
|
|
|
|
|
|
539
|
|
Other assets
|
|
|
2,450
|
|
|
|
4,677
|
(f)
|
|
|
7,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
249,341
|
|
|
$
|
3,794
|
|
|
$
|
253,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
218,671
|
|
|
$
|
602
|
(g)
|
|
$
|
219,273
|
|
Borrowings
|
|
|
8,000
|
|
|
|
|
(h)
|
|
|
8,000
|
|
Accrued interest payable
|
|
|
35
|
|
|
|
|
|
|
|
35
|
|
Other liabilities
|
|
|
1,289
|
|
|
|
147
|
(i)
|
|
|
1,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities acquired
|
|
$
|
227,995
|
|
|
$
|
749
|
|
|
$
|
228,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
|
|
|
|
|
|
24,391
|
|
Total consideration paid
|
|
|
|
|
|
|
|
|
|
|
23,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase gain
|
|
|
|
|
|
|
|
|
|
$
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 2. Business Combinations, continued
Explanation of fair value adjustments:
|
(a)
|
Reflects the opening fair value of securities portfolio, which was established as the new book basis of the portfolio.
|
|
(b)
|
Reflects the fair value adjustment based on the Companys third party valuation report.
|
|
(c)
|
Existing allowance for loan losses eliminated to reflect accounting guidance.
|
|
(d)
|
Estimated adjustment to Cardinals real property based upon third-party appraisals and the Companys evaluation of equipment and other fixed assets.
|
|
(e)
|
Reflects the recording of the estimated core deposit intangible based on the Companys third party valuation report.
|
|
(f)
|
Recording of deferred tax asset generated by the net fair value adjustments (tax rate = 34%). Also recognizes partial reversal of Cardinals deferred tax asset valuation allowance.
|
|
(g)
|
Estimated fair value adjustment to time deposits based on the Companys third party evaluation report on deposits assumed.
|
|
(h)
|
Cardinals borrowings were overnight borrowings and carried at fair value therefore no adjustment was required.
|
|
(i)
|
Reflects the fair value adjustment based on the Companys evaluation of acquired other liabilities.
|
The
merger was accounted for under the acquisition method of accounting. The assets and liabilities of Cardinal have been recorded at their estimated fair values and added to those of Grayson for periods following the merger date. Valuations of acquired
Cardinal assets and liabilities may be refined for up to one year following the merger date.
There are two methods to account for acquired loans as part
of a business combination. Acquired loans that contain evidence of credit deterioration on the date of purchase are carried at the net present value of expected future proceeds in accordance with Financial Accounting Standards Board Accounting
Standards Codification (ASC)
310-30.
All other acquired loans are recorded at their initial fair value, adjusted for subsequent advances, pay downs, amortization or accretion of any premium or
discount on purchase, charge-offs and any other adjustment to carrying value in accordance with ASC
310-20.
Due
to the limited trading history of Parkway and Grayson, the Company engaged a third party to determine the value of the transaction as well as the value of the consideration paid to Cardinal as a result of the transaction. The determined value of
consideration received by Cardinal, when compared to the fair value of the net assets acquired from Cardinal, resulted in a bargain purchase gain of $891 thousand for the year ended December 31, 2016. The determined value of consideration
received by Cardinal represented a premium when compared to the market price of Parkway stock, which was not publicly traded on the date of the merger. The premium results from enhanced cash flows and a lower required rate of return which are
expected to be realized by Parkway, as compared to Grayson or Cardinal on a standalone basis. The merger of Grayson and Cardinal is expected to increase loan revenues due to an increased legal lending limit and expanded market area. Fee income is
also expected to increase due to the larger deposit population. Significant cost savings are expected to be realized, particularly in the areas of salaries and benefits, data processing fees, and professional fees. A lower required rate of return is
anticipated due to increased access to capital and an expected increase in liquidity of shares due to higher trading volumes.
19
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 2. Business Combinations, continued
The following table presents the assets and liabilities of Parkway and Grayson prior to the merger, the
estimated fair value of Cardinal assets acquired and liabilities assumed, and the resulting estimated balance sheet of Parkway immediately following the merger on July 1, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Pre-Merger
|
|
|
Pre-Merger
|
|
|
Cardinal
|
|
|
Post-Merger
|
|
|
|
Parkway
|
|
|
Grayson
|
|
|
Acquired
|
|
|
Parkway
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
13,117
|
|
|
$
|
11,698
|
|
|
$
|
24,815
|
|
Investment securities
|
|
|
|
|
|
|
33,847
|
|
|
|
59,005
|
|
|
|
92,852
|
|
Restricted equity securities
|
|
|
|
|
|
|
971
|
|
|
|
1,308
|
|
|
|
2,279
|
|
Loans
|
|
|
|
|
|
|
244,800
|
|
|
|
157,852
|
|
|
|
402,652
|
|
Allowance for loan losses
|
|
|
|
|
|
|
(3,309
|
)
|
|
|
|
|
|
|
(3,309
|
)
|
Cash value of life insurance
|
|
|
|
|
|
|
10,122
|
|
|
|
6,714
|
|
|
|
16,836
|
|
Foreclosed assets
|
|
|
|
|
|
|
95
|
|
|
|
|
|
|
|
95
|
|
Property and equipment
|
|
|
|
|
|
|
11,548
|
|
|
|
6,423
|
|
|
|
17,971
|
|
Goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
2,469
|
|
|
|
2,469
|
|
Accrued interest receivable
|
|
|
|
|
|
|
1,253
|
|
|
|
539
|
|
|
|
1,792
|
|
Other assets
|
|
|
|
|
|
|
5,044
|
|
|
|
7,127
|
|
|
|
12,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
317,488
|
|
|
$
|
253,135
|
|
|
$
|
570,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
|
|
|
$
|
274,265
|
|
|
$
|
219,273
|
|
|
$
|
493,538
|
|
Borrowings
|
|
|
|
|
|
|
10,000
|
|
|
|
8,000
|
|
|
|
18,000
|
|
Accrued interest payable
|
|
|
|
|
|
|
96
|
|
|
|
35
|
|
|
|
131
|
|
Other liabilities
|
|
|
|
|
|
|
1,146
|
|
|
|
1,436
|
|
|
|
2,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
|
$
|
285,507
|
|
|
$
|
228,744
|
|
|
$
|
514,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
$
|
|
|
|
$
|
31,981
|
|
|
$
|
24,391
|
|
|
$
|
56,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 2. Business Combinations, continued
Supplemental Pro Forma Information (dollars in thousands except per share data)
The table below presents supplemental pro forma information as if the Cardinal acquisition had occurred at the beginning of the earliest period presented,
which was January 1, 2016. Pro forma results include adjustments for amortization and accretion of fair value adjustments and do not include any projected cost savings or other anticipated benefits of the merger. Therefore, the pro forma
financial information is not indicative of the results of operations that would have occurred had the transactions been effected on the assumed date.
Pre-tax
merger-related costs of $315 thousand and
$168 thousand are included in the Companys consolidated statements of income for three month periods ended March 31, 2017 and 2016, respectively, and are not included in the pro forma statements below.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Net interest income
|
|
$
|
5,037
|
|
|
$
|
4,965
|
|
Net income (a)
|
|
$
|
647
|
|
|
$
|
889
|
|
Basic weighted average shares outstanding (b)
|
|
|
5,021,376
|
|
|
|
5,021,376
|
|
Basic earnings per common share
|
|
$
|
0.13
|
|
|
$
|
0.17
|
|
(a)
|
Supplemental pro forma net income includes the impact of certain fair value adjustments. Supplemental pro forma net income does not include assumptions on cost savings or the impact of merger-related expenses.
|
(b)
|
Weighted average shares outstanding includes the full effect of the common stock issued in connection with the Cardinal acquisition as of the earliest reporting date.
|
Note 3. Investment Securities
Debt and equity securities
have been classified in the consolidated balance sheets according to managements intent. The amortized cost of securities and their approximate fair values at March 31, 2017 and December 31, 2016 follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises
|
|
$
|
2,046
|
|
|
$
|
167
|
|
|
$
|
(62
|
)
|
|
$
|
2,151
|
|
Mortgage-backed securities
|
|
|
35,177
|
|
|
|
15
|
|
|
|
(425
|
)
|
|
|
34,767
|
|
Corporate securities
|
|
|
3,049
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
2,976
|
|
State and municipal securities
|
|
|
20,658
|
|
|
|
156
|
|
|
|
(122
|
)
|
|
|
20,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,930
|
|
|
$
|
338
|
|
|
$
|
(682
|
)
|
|
$
|
60,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises
|
|
|
2,046
|
|
|
|
236
|
|
|
|
(73
|
)
|
|
|
2,209
|
|
Mortgage-backed securities
|
|
|
36,021
|
|
|
|
4
|
|
|
|
(823
|
)
|
|
|
35,202
|
|
Corporate securities
|
|
|
3,061
|
|
|
|
|
|
|
|
(87
|
)
|
|
|
2,974
|
|
State and municipal securities
|
|
|
22,282
|
|
|
|
97
|
|
|
|
(224
|
)
|
|
|
22,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,410
|
|
|
$
|
337
|
|
|
$
|
(1,207
|
)
|
|
$
|
62,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 3. Investment Securities, continued
Restricted equity securities were $1.4 million and $1.1 million at March 31, 2017 and
December 31, 2016, respectively. 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 Banks 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
Companys 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, 2017 and
December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,935
|
|
|
$
|
(62
|
)
|
|
$
|
1,935
|
|
|
$
|
(62
|
)
|
Mortgage-backed securities
|
|
|
29,251
|
|
|
|
(397
|
)
|
|
|
694
|
|
|
|
(28
|
)
|
|
|
29,945
|
|
|
|
(425
|
)
|
Corporate securities
|
|
|
1,546
|
|
|
|
(3
|
)
|
|
|
1,430
|
|
|
|
(70
|
)
|
|
|
2,976
|
|
|
|
(73
|
)
|
State and municipal securities
|
|
|
7,220
|
|
|
|
(114
|
)
|
|
|
1,082
|
|
|
|
(8
|
)
|
|
|
8,302
|
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
38,017
|
|
|
$
|
(514
|
)
|
|
$
|
5,141
|
|
|
$
|
(168
|
)
|
|
$
|
43,158
|
|
|
$
|
(682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises
|
|
|
|
|
|
|
|
|
|
|
1,924
|
|
|
|
(73
|
)
|
|
|
1,924
|
|
|
|
(73
|
)
|
Mortgage-backed securities
|
|
|
31,759
|
|
|
|
(789
|
)
|
|
|
688
|
|
|
|
(34
|
)
|
|
|
32,447
|
|
|
|
(823
|
)
|
Corporate securities
|
|
|
1,548
|
|
|
|
(12
|
)
|
|
|
1,425
|
|
|
|
(75
|
)
|
|
|
2,973
|
|
|
|
(87
|
)
|
State and municipal securities
|
|
|
12,208
|
|
|
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
|
12,208
|
|
|
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
45,515
|
|
|
$
|
(1,025
|
)
|
|
$
|
4,037
|
|
|
$
|
(182
|
)
|
|
$
|
49,552
|
|
|
$
|
(1,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2017, 35 debt securities with unrealized losses had depreciated 1.58 percent from their 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 issuers 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 issuers financial condition and the
issuers 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, 2017. 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.
22
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 3. Investment Securities, continued
Proceeds from the sale of investment securities available for sale totaled $17.9 million for the three
month period ended March 31, 2016. There were no sales of investment securities available for sale for the three month period ended March 31, 2017. Gross realized gains and losses for the three months ended March 31, 2017 and 2016 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(dollars in thousands)
|
|
2017
|
|
|
2016
|
|
Realized gains
|
|
$
|
|
|
|
$
|
365
|
|
Realized losses
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
361
|
|
|
|
|
|
|
|
|
|
|
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 Banks ability to hold the security until
maturity, and general economic conditions.
The scheduled maturities of securities available for sale at March 31, 2017, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
(dollars in thousands)
|
|
Cost
|
|
|
Value
|
|
Due in one year or less
|
|
$
|
|
|
|
$
|
|
|
Due after one year through five years
|
|
|
11,391
|
|
|
|
11,344
|
|
Due after five years through ten years
|
|
|
22,104
|
|
|
|
21,932
|
|
Due after ten years
|
|
|
27,435
|
|
|
|
27,310
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,930
|
|
|
$
|
60,586
|
|
|
|
|
|
|
|
|
|
|
Maturities of mortgage backed securities are based on contractual amounts. Actual maturity will vary as loans underlying the
securities are prepaid.
Investment securities with amortized cost of approximately $10.1 million and $11.2 million at March 31, 2017 and
December 31, 2016, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
Note 4.
Loans Receivable
The major components of loans in the consolidated balance sheets at March 31, 2017 and December 31, 2016 are as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2017
|
|
|
2016
|
|
Commercial & agricultural
|
|
$
|
25,472
|
|
|
$
|
26,086
|
|
Commercial mortgage
|
|
|
124,359
|
|
|
|
128,515
|
|
Construction & development
|
|
|
27,977
|
|
|
|
26,464
|
|
Farmland
|
|
|
33,794
|
|
|
|
33,531
|
|
Residential
|
|
|
190,079
|
|
|
|
187,188
|
|
Consumer & other
|
|
|
10,688
|
|
|
|
10,184
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
412,369
|
|
|
|
411,968
|
|
Allowance for loan losses
|
|
|
(3,576
|
)
|
|
|
(3,420
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net of allowance for loan losses
|
|
$
|
408,793
|
|
|
$
|
408,548
|
|
|
|
|
|
|
|
|
|
|
23
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 4. Loans Receivable, continued
The major components of loans, net of fair value adjustments, acquired from Cardinal as of July 1, 2016,
the acquisition date, are as follows:
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Commercial & agricultural
|
|
$
|
15,897
|
|
Commercial mortgage
|
|
|
76,968
|
|
Construction & development
|
|
|
7,800
|
|
Farmland
|
|
|
4,146
|
|
Residential
|
|
|
49,609
|
|
Consumer & other
|
|
|
3,432
|
|
|
|
|
|
|
Total loans acquired
|
|
$
|
157,852
|
|
|
|
|
|
|
As of the acquisition date, all loans acquired from Cardinal were considered to be performing loans therefore there were no
purchased credit impaired loans.
As of March 31, 2017 and December 31, 2016, substantially all of the Banks residential
1-4
family loans were pledged as collateral toward borrowings with the Federal Home Loan Bank.
Note 5. Allowance for
Loan Losses and Impaired Loans
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed to be sufficient to provide for estimated loan losses based on evaluating known and inherent
risks in the loan portfolio. The allowance is provided based upon managements 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.
24
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 5. Allowance for Loan Losses and Impaired Loans, continued
Allowance for Loan Losses, continued
The following table presents activity in the allowance for loan losses by loan category three months ended
March 31, 2017 and 2016 and the related asset balances as of March 31, 2017 and December 31, 2016:
Allowance for Loan
Losses and Recorded Investment in Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
&
|
|
|
Commercial
|
|
|
&
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
(dollars in thousands)
|
|
Agricultural
|
|
|
Mortgage
|
|
|
Development
|
|
|
Farmland
|
|
|
Residential
|
|
|
& Other
|
|
|
Total
|
|
For the Three Months Ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
210
|
|
|
$
|
600
|
|
|
$
|
319
|
|
|
$
|
342
|
|
|
$
|
1,841
|
|
|
$
|
108
|
|
|
$
|
3,420
|
|
Charge-offs
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
(57
|
)
|
Recoveries
|
|
|
27
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
15
|
|
|
|
7
|
|
|
|
105
|
|
Provision
|
|
|
(7
|
)
|
|
|
86
|
|
|
|
(26
|
)
|
|
|
59
|
|
|
|
24
|
|
|
|
(28
|
)
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
|
$
|
230
|
|
|
$
|
644
|
|
|
$
|
349
|
|
|
$
|
401
|
|
|
$
|
1,880
|
|
|
$
|
72
|
|
|
$
|
3,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
$
|
136
|
|
|
$
|
578
|
|
|
$
|
344
|
|
|
$
|
435
|
|
|
$
|
1,887
|
|
|
$
|
38
|
|
|
$
|
3,418
|
|
Charge-offs
|
|
|
(19
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
(23
|
)
|
|
|
(75
|
)
|
Recoveries
|
|
|
2
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
14
|
|
|
|
5
|
|
|
|
56
|
|
Provision
|
|
|
11
|
|
|
|
20
|
|
|
|
(44
|
)
|
|
|
(32
|
)
|
|
|
(63
|
)
|
|
|
21
|
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2016
|
|
$
|
130
|
|
|
$
|
587
|
|
|
$
|
335
|
|
|
$
|
403
|
|
|
$
|
1,816
|
|
|
$
|
41
|
|
|
$
|
3,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
230
|
|
|
$
|
644
|
|
|
$
|
349
|
|
|
$
|
401
|
|
|
$
|
1,880
|
|
|
$
|
72
|
|
|
$
|
3,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
65
|
|
|
$
|
163
|
|
|
$
|
|
|
|
$
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
230
|
|
|
$
|
644
|
|
|
$
|
349
|
|
|
$
|
336
|
|
|
$
|
1,717
|
|
|
$
|
72
|
|
|
$
|
3,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
25,472
|
|
|
$
|
124,359
|
|
|
$
|
27,977
|
|
|
$
|
33,794
|
|
|
$
|
190,079
|
|
|
$
|
10,688
|
|
|
$
|
412,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
114
|
|
|
$
|
388
|
|
|
$
|
5,654
|
|
|
$
|
1,276
|
|
|
$
|
|
|
|
$
|
7,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
25,472
|
|
|
$
|
124,245
|
|
|
$
|
27,589
|
|
|
$
|
28,140
|
|
|
$
|
188,803
|
|
|
$
|
10,688
|
|
|
$
|
404,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
210
|
|
|
$
|
600
|
|
|
$
|
319
|
|
|
$
|
342
|
|
|
$
|
1,841
|
|
|
$
|
108
|
|
|
$
|
3,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
57
|
|
|
$
|
184
|
|
|
$
|
|
|
|
$
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
210
|
|
|
$
|
600
|
|
|
$
|
319
|
|
|
$
|
285
|
|
|
$
|
1,657
|
|
|
$
|
108
|
|
|
$
|
3,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
26,086
|
|
|
$
|
128,515
|
|
|
$
|
26,464
|
|
|
$
|
33,531
|
|
|
$
|
187,188
|
|
|
$
|
10,184
|
|
|
$
|
411,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
114
|
|
|
$
|
580
|
|
|
$
|
5,030
|
|
|
$
|
1,533
|
|
|
$
|
|
|
|
$
|
7,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
26,086
|
|
|
$
|
128,401
|
|
|
$
|
25,884
|
|
|
$
|
28,501
|
|
|
$
|
185,655
|
|
|
$
|
10,184
|
|
|
$
|
404,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017 and December 31, 2016, the Bank had no unallocated reserves included in the allowance for loan
losses.
25
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 5. Allowance for Loan Losses and Impaired Loans, continued
Allowance for Loan Losses, continued
Management closely monitors the quality of the loan portfolio and has established a loan review process
designed to help grade the quality of the Banks loan portfolio. The Banks 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, 2017 and December 31, 2016, 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, 2017 and
December 31, 2016:
Credit Risk Profile by Internally Assigned Grades
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Grades
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Pass
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Total
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
residential construction
|
|
$
|
4,496
|
|
|
$
|
102
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,598
|
|
Commercial construction
|
|
|
3,776
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
3,901
|
|
Land development & other land
|
|
|
18,242
|
|
|
|
356
|
|
|
|
|
|
|
|
880
|
|
|
|
19,478
|
|
Farmland
|
|
|
23,385
|
|
|
|
4,723
|
|
|
|
659
|
|
|
|
5,027
|
|
|
|
33,794
|
|
1-4
residential mortgage
|
|
|
123,814
|
|
|
|
11,954
|
|
|
|
|
|
|
|
2,300
|
|
|
|
138,068
|
|
Multifamily
|
|
|
26,038
|
|
|
|
1,313
|
|
|
|
|
|
|
|
|
|
|
|
27,351
|
|
Home equity and second mortgage
|
|
|
23,341
|
|
|
|
1,210
|
|
|
|
|
|
|
|
109
|
|
|
|
24,660
|
|
Commercial mortgage
|
|
|
102,446
|
|
|
|
13,136
|
|
|
|
3,086
|
|
|
|
5,691
|
|
|
|
124,359
|
|
Non-Real
Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
22,673
|
|
|
|
2,219
|
|
|
|
431
|
|
|
|
149
|
|
|
|
25,472
|
|
Civic organizations
|
|
|
3,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,928
|
|
Consumer-auto
|
|
|
1,588
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
1,607
|
|
Consumer-other
|
|
|
5,017
|
|
|
|
131
|
|
|
|
|
|
|
|
5
|
|
|
|
5,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
358,744
|
|
|
$
|
35,288
|
|
|
$
|
4,176
|
|
|
$
|
14,161
|
|
|
$
|
412,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 5. Allowance for Loan Losses and Impaired Loans, continued
Allowance for Loan Losses, continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Grades
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Pass
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
residential construction
|
|
$
|
4,056
|
|
|
$
|
370
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,426
|
|
Commercial construction
|
|
|
2,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,603
|
|
Land development & other land
|
|
|
18,000
|
|
|
|
532
|
|
|
|
|
|
|
|
903
|
|
|
|
19,435
|
|
Farmland
|
|
|
23,201
|
|
|
|
5,276
|
|
|
|
|
|
|
|
5,054
|
|
|
|
33,531
|
|
1-4
residential mortgage
|
|
|
122,301
|
|
|
|
11,517
|
|
|
|
|
|
|
|
2,111
|
|
|
|
135,929
|
|
Multifamily
|
|
|
25,365
|
|
|
|
1,321
|
|
|
|
|
|
|
|
|
|
|
|
26,686
|
|
Home equity and second mortgage
|
|
|
23,219
|
|
|
|
1,243
|
|
|
|
|
|
|
|
111
|
|
|
|
24,573
|
|
Commercial mortgage
|
|
|
105,317
|
|
|
|
13,449
|
|
|
|
3,353
|
|
|
|
6,396
|
|
|
|
128,515
|
|
Non-Real
Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
22,719
|
|
|
|
2,333
|
|
|
|
485
|
|
|
|
549
|
|
|
|
26,086
|
|
Civic organizations
|
|
|
3,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,603
|
|
Consumer-auto
|
|
|
1,400
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
1,421
|
|
Consumer-other
|
|
|
5,015
|
|
|
|
105
|
|
|
|
|
|
|
|
40
|
|
|
|
5,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
356,799
|
|
|
$
|
36,167
|
|
|
$
|
3,838
|
|
|
$
|
15,164
|
|
|
$
|
411,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans may be placed in nonaccrual status when, in managements 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, 2017 and December 31, 2016:
Analysis of Past Due and Nonaccrual Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90+ Days
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days or
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
More Past
|
|
|
Total Past
|
|
|
|
|
|
Total
|
|
|
and Still
|
|
|
Nonaccrual
|
|
(dollars in thousands)
|
|
Past Due
|
|
|
Past Due
|
|
|
Due
|
|
|
Due
|
|
|
Current
|
|
|
loans
|
|
|
Accruing
|
|
|
Loans
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
residential construction
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,598
|
|
|
$
|
4,598
|
|
|
$
|
|
|
|
$
|
|
|
Commercial construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,901
|
|
|
|
3,901
|
|
|
|
|
|
|
|
|
|
Land development & other land
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
394
|
|
|
|
19,084
|
|
|
|
19,478
|
|
|
|
|
|
|
|
623
|
|
Farmland
|
|
|
190
|
|
|
|
778
|
|
|
|
|
|
|
|
968
|
|
|
|
32,826
|
|
|
|
33,794
|
|
|
|
|
|
|
|
4,022
|
|
1-4
residential mortgage
|
|
|
877
|
|
|
|
174
|
|
|
|
48
|
|
|
|
1,099
|
|
|
|
136,969
|
|
|
|
138,068
|
|
|
|
|
|
|
|
59
|
|
Multifamily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,351
|
|
|
|
27,351
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgage
|
|
|
210
|
|
|
|
|
|
|
|
5
|
|
|
|
215
|
|
|
|
24,445
|
|
|
|
24,660
|
|
|
|
|
|
|
|
5
|
|
Commercial mortgage
|
|
|
171
|
|
|
|
12
|
|
|
|
306
|
|
|
|
489
|
|
|
|
123,870
|
|
|
|
124,359
|
|
|
|
|
|
|
|
439
|
|
Non-Real
Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
28
|
|
|
|
48
|
|
|
|
25
|
|
|
|
101
|
|
|
|
25,371
|
|
|
|
25,472
|
|
|
|
|
|
|
|
30
|
|
Civic organizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,928
|
|
|
|
3,928
|
|
|
|
|
|
|
|
|
|
Consumer-auto
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,607
|
|
|
|
1,607
|
|
|
|
|
|
|
|
|
|
Consumer-other
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5,148
|
|
|
|
5,153
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,870
|
|
|
$
|
1,012
|
|
|
$
|
389
|
|
|
$
|
3,271
|
|
|
$
|
409,098
|
|
|
$
|
412,369
|
|
|
$
|
|
|
|
$
|
5,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 5. Allowance for Loan Losses and Impaired Loans, continued
Allowance for Loan Losses, continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90+ Days
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days or
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
(dollars in thousands)
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
More Past
|
|
|
Total Past
|
|
|
|
|
|
Total
|
|
|
and Still
|
|
|
Nonaccrual
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Due
|
|
|
Due
|
|
|
Current
|
|
|
loans
|
|
|
Accruing
|
|
|
Loans
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
residential construction
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,426
|
|
|
$
|
4,426
|
|
|
$
|
|
|
|
$
|
|
|
Commercial construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,603
|
|
|
|
2,603
|
|
|
|
|
|
|
|
|
|
Land development & other land
|
|
|
|
|
|
|
|
|
|
|
390
|
|
|
|
390
|
|
|
|
19,045
|
|
|
|
19,435
|
|
|
|
|
|
|
|
647
|
|
Farmland
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
343
|
|
|
|
33,188
|
|
|
|
33,531
|
|
|
|
|
|
|
|
3,310
|
|
1-4
residential mortgage
|
|
|
315
|
|
|
|
48
|
|
|
|
14
|
|
|
|
377
|
|
|
|
135,552
|
|
|
|
135,929
|
|
|
|
|
|
|
|
26
|
|
Multifamily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,686
|
|
|
|
26,686
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgage
|
|
|
98
|
|
|
|
|
|
|
|
5
|
|
|
|
103
|
|
|
|
24,470
|
|
|
|
24,573
|
|
|
|
|
|
|
|
5
|
|
Commercial mortgage
|
|
|
25
|
|
|
|
227
|
|
|
|
426
|
|
|
|
678
|
|
|
|
127,837
|
|
|
|
128,515
|
|
|
|
|
|
|
|
640
|
|
Non-Real
Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
67
|
|
|
|
|
|
|
|
25
|
|
|
|
92
|
|
|
|
25,994
|
|
|
|
26,086
|
|
|
|
|
|
|
|
31
|
|
Civic organizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,603
|
|
|
|
3,603
|
|
|
|
|
|
|
|
|
|
Consumer-auto
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
1,416
|
|
|
|
1,421
|
|
|
|
|
|
|
|
|
|
Consumer-other
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
5,154
|
|
|
|
5,160
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
853
|
|
|
$
|
281
|
|
|
$
|
860
|
|
|
$
|
1,994
|
|
|
$
|
409,974
|
|
|
$
|
411,968
|
|
|
$
|
|
|
|
$
|
4,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
A
loan is considered impaired when it is probable that the Bank will be unable to collect all contractual principal and interest payments due in accordance with the original or modified terms of the loan agreement. Smaller balance homogenous loans may
be collectively evaluated for impairment.
Non-homogenous
impaired loans are either measured based on the estimated fair value of the collateral less estimated cost to sell if the loan is considered collateral
dependent, or measured based on the present value of expected future cash flows if not collateral dependent. The valuation of real estate collateral is subjective in nature and may be adjusted in future periods because of changes in economic
conditions. Management considers third-party appraisals, as well as independent fair market value assessments in determining the estimated fair value of particular properties. In addition, as certain of these third-party appraisals and independent
fair market value assessments are only updated periodically, changes in the values of specific properties may have occurred subsequent to the most recent appraisals. Accordingly, the amounts of any such potential changes and any related adjustments
are generally recorded at the time such information is received. When the measurement of the impaired loan is less than the recorded investment in the loan, impairment is recognized by creating or adjusting an allocation of the allowance for loan
losses and uncollected accrued interest is reversed against interest income. If ultimate collection of principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance.
As of March 31, 2017 and December 31, 2016, respectively, the recorded investment in impaired loans totaled $13.9 million and
$13.3 million. The total amount of collateral-dependent impaired loans at March 31, 2017 and December 31, 2016, respectively, was $4.4 million and $4.0 million. As of March 31, 2017 and December 31, 2016,
respectively, $4.5 million and $4.4 million of the recorded investment in impaired loans did not have a related allowance. The Bank had $10.0 million and $10.0 million in troubled debt restructured loans included in impaired
loans at March 31, 2017 and December 31, 2016, respectively.
The categories of
non-accrual
loans and
impaired loans overlap, although they are not coextensive. The Bank considers all circumstances regarding the loan and borrower on an individual basis when determining whether an impaired loan should be placed on
non-accrual
status, such as the financial strength of the borrower, the estimated collateral value, reasons for the delay, payment record, the amount past due and the number of days past due.
28
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 5. Allowance for Loan Losses and Impaired Loans, continued
Impaired Loans, continued
In 2015, management began collectively evaluating performing TDRs with a loan balance of $250,000 or less for
impairment. As of March 31, 2017 and December 31, 2016, respectively, $6.5 million and $6.1 million of TDRs included in the following table were evaluated collectively for impairment and were deemed to have $387 thousand and
$315 thousand of related allowance.
The following table is a summary of information related to impaired loans as of March 31, 2017 and
December 31, 2016:
Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
(dollars in thousands)
|
|
Investment
1
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
Residential Construction
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Land development & other land
|
|
|
388
|
|
|
|
388
|
|
|
|
|
|
|
|
389
|
|
|
|
|
|
Farmland
|
|
|
4,039
|
|
|
|
4,039
|
|
|
|
|
|
|
|
4,074
|
|
|
|
6
|
|
1-4
residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
|
114
|
|
|
|
114
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
Commercial & agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
4,541
|
|
|
|
4,541
|
|
|
|
|
|
|
|
4,577
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
Residential Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land development & other land
|
|
|
425
|
|
|
|
425
|
|
|
|
25
|
|
|
|
429
|
|
|
|
3
|
|
Farmland
|
|
|
1,915
|
|
|
|
1,915
|
|
|
|
83
|
|
|
|
2,013
|
|
|
|
23
|
|
1-4
residential mortgage
|
|
|
5,922
|
|
|
|
6,079
|
|
|
|
441
|
|
|
|
6,094
|
|
|
|
78
|
|
Home equity and second mortgage
|
|
|
173
|
|
|
|
178
|
|
|
|
10
|
|
|
|
178
|
|
|
|
2
|
|
Commercial mortgage
|
|
|
828
|
|
|
|
963
|
|
|
|
50
|
|
|
|
917
|
|
|
|
9
|
|
Commercial & agricultural
|
|
|
99
|
|
|
|
99
|
|
|
|
6
|
|
|
|
106
|
|
|
|
2
|
|
Consumer & other
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
9,363
|
|
|
|
9,660
|
|
|
|
615
|
|
|
|
9,740
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
Residential Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land development & other land
|
|
|
813
|
|
|
|
813
|
|
|
|
25
|
|
|
|
818
|
|
|
|
3
|
|
Farmland
|
|
|
5,954
|
|
|
|
5,954
|
|
|
|
83
|
|
|
|
6,087
|
|
|
|
29
|
|
1-4
residential mortgage
|
|
|
5,922
|
|
|
|
6,079
|
|
|
|
441
|
|
|
|
6,094
|
|
|
|
78
|
|
Home equity and second mortgage
|
|
|
173
|
|
|
|
178
|
|
|
|
10
|
|
|
|
178
|
|
|
|
2
|
|
Commercial mortgage
|
|
|
942
|
|
|
|
1,077
|
|
|
|
50
|
|
|
|
1,031
|
|
|
|
9
|
|
Commercial & agricultural
|
|
|
99
|
|
|
|
99
|
|
|
|
6
|
|
|
|
106
|
|
|
|
2
|
|
Consumer & other
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,904
|
|
|
$
|
14,201
|
|
|
$
|
615
|
|
|
$
|
14,317
|
|
|
$
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Recorded investment is the loan balance, net of any charge-offs
|
29
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 5. Allowance for Loan Losses and Impaired Loans, continued
Impaired Loans, continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
(dollars in thousands)
|
|
Investment
1
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
Residential Construction
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Land development & other land
|
|
|
581
|
|
|
|
581
|
|
|
|
|
|
|
|
840
|
|
|
|
17
|
|
Farmland
|
|
|
3,660
|
|
|
|
3,660
|
|
|
|
|
|
|
|
4,170
|
|
|
|
18
|
|
1-4
residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
347
|
|
|
|
10
|
|
Home equity and second mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
|
114
|
|
|
|
114
|
|
|
|
|
|
|
|
115
|
|
|
|
4
|
|
Commercial & agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
4,355
|
|
|
|
4,355
|
|
|
|
|
|
|
|
5,472
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
Residential Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land development & other land
|
|
|
193
|
|
|
|
193
|
|
|
|
10
|
|
|
|
201
|
|
|
|
16
|
|
Farmland
|
|
|
1,679
|
|
|
|
1,679
|
|
|
|
73
|
|
|
|
1,705
|
|
|
|
84
|
|
1-4
residential mortgage
|
|
|
5,964
|
|
|
|
6,121
|
|
|
|
414
|
|
|
|
6,375
|
|
|
|
294
|
|
Home equity and second mortgage
|
|
|
174
|
|
|
|
179
|
|
|
|
9
|
|
|
|
254
|
|
|
|
8
|
|
Commercial mortgage
|
|
|
838
|
|
|
|
974
|
|
|
|
44
|
|
|
|
1,035
|
|
|
|
39
|
|
Commercial & agricultural
|
|
|
113
|
|
|
|
113
|
|
|
|
6
|
|
|
|
155
|
|
|
|
9
|
|
Consumer & other
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
10
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
8,965
|
|
|
|
9,263
|
|
|
|
556
|
|
|
|
9,735
|
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
Residential Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land development & other land
|
|
|
774
|
|
|
|
774
|
|
|
|
10
|
|
|
|
1,041
|
|
|
|
33
|
|
Farmland
|
|
|
5,339
|
|
|
|
5,339
|
|
|
|
73
|
|
|
|
5,875
|
|
|
|
102
|
|
1-4
residential mortgage
|
|
|
5,964
|
|
|
|
6,121
|
|
|
|
414
|
|
|
|
6,722
|
|
|
|
304
|
|
Home equity and second mortgage
|
|
|
174
|
|
|
|
179
|
|
|
|
9
|
|
|
|
254
|
|
|
|
8
|
|
Commercial mortgage
|
|
|
952
|
|
|
|
1,088
|
|
|
|
44
|
|
|
|
1,150
|
|
|
|
43
|
|
Commercial & agricultural
|
|
|
113
|
|
|
|
113
|
|
|
|
6
|
|
|
|
155
|
|
|
|
9
|
|
Consumer & other
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
10
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,320
|
|
|
$
|
13,618
|
|
|
$
|
556
|
|
|
$
|
15,207
|
|
|
$
|
501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 borrowers 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 borrowers
financial difficulty, include but are not limited to: a reduction in the stated interest rate; an extension of the maturity at an interest rate below current market; a reduction in the face amount of the debt; a reduction in the accrued interest; or
re-aging,
extensions, deferrals and renewals. Troubled debt restructured loans are considered impaired loans.
30
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 5. Allowance for Loan Losses and Impaired Loans, continued
Troubled Debt Restructuring, continued
The following table sets forth information with respect to the Banks troubled debt restructurings as of
March 31, 2017 and March 31, 2016:
For the Three Months Ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
TDRs identified during the period
|
|
|
TDRs identified in the last twelve
months that subsequently defaulted
(1)
|
|
|
|
Number
of
contracts
|
|
|
Pre-
modification
outstanding
recorded
investment
|
|
|
Post-
modification
outstanding
recorded
investment
|
|
|
Number
of
contracts
|
|
|
Pre-
modification
outstanding
recorded
investment
|
|
|
Post-
modification
outstanding
recorded
investment
|
|
Land development & other land
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Farmland
|
|
|
1
|
|
|
|
150
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
150
|
|
|
$
|
150
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2017, one loan was modified that was considered to be a 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.
(1)
|
Loans past due 30 days or more are considered to be in default.
|
For the Three Months Ended
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
TDRs identified during the period
|
|
|
TDRs identified in the last twelve
months that subsequently defaulted
(1)
|
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
|
modification
|
|
|
modification
|
|
|
|
|
|
modification
|
|
|
modification
|
|
|
|
Number
|
|
|
outstanding
|
|
|
outstanding
|
|
|
Number
|
|
|
outstanding
|
|
|
outstanding
|
|
|
|
of
|
|
|
recorded
|
|
|
recorded
|
|
|
of
|
|
|
recorded
|
|
|
recorded
|
|
|
|
contracts
|
|
|
investment
|
|
|
investment
|
|
|
contracts
|
|
|
investment
|
|
|
investment
|
|
Land development & other land
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
residential mortgage
|
|
|
4
|
|
|
|
394
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4
|
|
|
$
|
394
|
|
|
$
|
408
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2016, four loans were modified that were considered to be TDRs. Term concessions
only were granted for four loans; and additional funds were advanced for one loan to pay real estate taxes and closing costs. No TDRs identified in the twelve months prior to March 31, 2016 subsequently defaulted in the quarter ended March 31,
2016.
(1)
|
Loans past due 30 days or more are considered to be in default.
|
31
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 6. Employee Benefit Plan
The Bank has a qualified noncontributory defined benefit pension plan that covers substantially all of its employees. Effective December 31, 2012, the
pension plan was amended to freeze benefit accruals for all eligible employees. The following is a summary of net periodic pension costs for the three-month periods ended March 31, 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(dollars in thousands)
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
48
|
|
|
|
49
|
|
Expected return on plan assets
|
|
|
(138
|
)
|
|
|
(140
|
)
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
Recognized net loss due to settlement
|
|
|
|
|
|
|
14
|
|
Recognized net actuarial (gain)/loss
|
|
|
7
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(83
|
)
|
|
$
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
It has been Bank practice to contribute the maximum
tax-deductible
amount each year as
determined by the plan administrator. As a result of prior year contributions exceeding the minimum requirements, a Prefunding Balance existed as of December 31, 2016 and there is no required contribution for 2017. Based on this we do not
anticipate making a contribution to the plan in 2017.
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 with
Off-Balance
Sheet Risk
The Bank is party to financial instruments with
off-balance
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the consolidated
balance sheets.
The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for
on-balance
sheet instruments. A summary of the Banks commitments at March 31, 2017 and December 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(dollars in thousands)
|
|
2017
|
|
|
2016
|
|
Commitments to extend credit
|
|
$
|
42,486
|
|
|
$
|
54,667
|
|
Standby letters of credit
|
|
|
1,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,552
|
|
|
$
|
54,667
|
|
|
|
|
|
|
|
|
|
|
32
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 7. Commitments and Contingencies, continued
Financial Instruments with
Off-Balance
Sheet Risk, continued
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 customers creditworthiness on a
case-by-case
basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on managements 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 Banks loans, commitments to extend credit, and standby letters of credit have been granted to customers
in the Banks market area and such customers are generally depositors of the Bank. Investments in state and municipal securities involve governmental entities within and outside the Banks market area. The concentrations of credit by type
of loan are set forth in Note 5. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit are granted primarily to commercial borrowers. The Banks 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.
33
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 8. Financial Instruments
FASB ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the
balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value of future cash flows or other valuation techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the
instruments. FASB ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Companys financial instruments as of
March 31, 2017 and December 31, 2016. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable
estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments - Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
408,793
|
|
|
$
|
406,345
|
|
|
$
|
|
|
|
$
|
405,638
|
|
|
$
|
707
|
|
|
|
|
|
|
|
Financial Instruments Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
166,967
|
|
|
|
164,626
|
|
|
|
|
|
|
|
164,626
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments - Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
408,548
|
|
|
$
|
405,876
|
|
|
$
|
|
|
|
$
|
405,410
|
|
|
$
|
466
|
|
|
|
|
|
|
|
Financial Instruments Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
167,355
|
|
|
|
165,257
|
|
|
|
|
|
|
|
165,257
|
|
|
|
|
|
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.
34
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 securitys credit rating, prepayment
assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active
over-the-counter
markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and
corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.
Loans
The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan
losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. If a loan is identified as individually impaired,
management measures impairment in accordance with applicable accounting guidance. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation
value, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2016, 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.
35
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 managements 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, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises
|
|
$
|
2,151
|
|
|
$
|
|
|
|
$
|
2,151
|
|
|
$
|
|
|
Mortgage-backed securities
|
|
|
34,767
|
|
|
|
|
|
|
|
34,767
|
|
|
|
|
|
Corporate securities
|
|
|
2,976
|
|
|
|
|
|
|
|
2,976
|
|
|
|
|
|
State and municipal securities
|
|
|
20,692
|
|
|
|
|
|
|
|
20,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
60,586
|
|
|
$
|
|
|
|
$
|
60,586
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises
|
|
$
|
2,209
|
|
|
$
|
|
|
|
$
|
2,209
|
|
|
$
|
|
|
Mortgage-backed securities
|
|
|
35,202
|
|
|
|
|
|
|
|
35,202
|
|
|
|
|
|
Corporate securities
|
|
|
2,974
|
|
|
|
|
|
|
|
2,974
|
|
|
|
|
|
State and municipal securities
|
|
|
22,155
|
|
|
|
|
|
|
|
22,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
62,540
|
|
|
$
|
|
|
|
$
|
62,540
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No liabilities were recorded at fair value on a recurring basis as of March 31, 2017 and December 31, 2016. There
were no significant transfers between levels during the years ended March 31, 2017 and December 31, 2016.
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, 2017 and December 31, 2016. Assets measured at fair value on a nonrecurring basis are included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
707
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
707
|
|
Foreclosed assets
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
777
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
466
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
466
|
|
Foreclosed assets
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
536
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
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, continued
For Level 3 assets measured at fair value on a recurring or
non-recurring
basis as of March 31, 2017 and December 31, 2016, the significant unobservable inputs used in the fair value measurements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
March 31,
2017
|
|
|
Fair Value at
December 31,
2016
|
|
|
Valuation Technique
|
|
Significant
Unobservable
Inputs
|
|
General Range
of Significant
Unobservable
Input Values
|
Impaired Loans
|
|
$
|
707
|
|
|
$
|
466
|
|
|
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
|
|
$
|
70
|
|
|
$
|
70
|
|
|
Appraised Value/Comparable Sales/Other Estimates from Independent
Sources
|
|
Discounts to reflect current market conditions and estimated
costs to sell
|
|
0 10%
|
Note 9. Capital Requirements
The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Boards Small Bank Holding Company Policy
Statement issued in February 2015, and is no longer obligated to report consolidated regulatory capital. The Banks actual capital amounts and ratios are presented in the following table as of March 31, 2017 and December 31, 2016, respectively.
These ratios comply with Federal Reserve rules to align with the Basel III Capital requirements effective January 1, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
To Be Well-
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
Capitalized
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
53,933
|
|
|
|
12.82
|
%
|
|
$
|
33,661
|
|
|
|
8.00
|
%
|
|
$
|
42,077
|
|
|
|
10.00
|
%
|
Tier 1 Capital (to risk weighted assets)
|
|
$
|
50,262
|
|
|
|
11.95
|
%
|
|
$
|
25,246
|
|
|
|
6.00
|
%
|
|
$
|
33,661
|
|
|
|
8.00
|
%
|
Common Equity Tier 1 (to risk weighted assets)
|
|
$
|
50,262
|
|
|
|
11.95
|
%
|
|
$
|
18,934
|
|
|
|
4.50
|
%
|
|
$
|
27,350
|
|
|
|
6.50
|
%
|
Tier 1 Capital (to average total assets)
|
|
$
|
50,262
|
|
|
|
9.14
|
%
|
|
$
|
21,988
|
|
|
|
4.00
|
%
|
|
$
|
27,485
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
53,657
|
|
|
|
12.72
|
%
|
|
$
|
33,744
|
|
|
|
8.00
|
%
|
|
$
|
42,180
|
|
|
|
10.00
|
%
|
Tier 1 Capital (to risk weighted assets)
|
|
$
|
50,111
|
|
|
|
11.88
|
%
|
|
$
|
25,308
|
|
|
|
6.00
|
%
|
|
$
|
33,744
|
|
|
|
8.00
|
%
|
Common Equity Tier 1 (to risk weighted assets)
|
|
$
|
50,111
|
|
|
|
11.88
|
%
|
|
$
|
18,981
|
|
|
|
4.50
|
%
|
|
$
|
27,417
|
|
|
|
6.50
|
%
|
Tier 1 Capital (to average total assets)
|
|
$
|
50,111
|
|
|
|
9.01
|
%
|
|
$
|
22,242
|
|
|
|
4.00
|
%
|
|
$
|
27,803
|
|
|
|
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.
37
Part I. Financial Information