PKKW Parkway Acquisition Corporation (QX)

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SHAREHOLDER MEETINGS

The following are answers to certain questions that you may have regarding the merger and the meetings of the shareholders of Parkway and GSB. You should carefully read this entire joint proxy statement/prospectus because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the appendices to this joint proxy statement/prospectus.

You are receiving this document because Parkway and GSB are each holding a meeting of shareholders to vote on the proposals necessary to complete the merger. The merger cannot be completed unless, among other things:

Each of the Parkway Board and the GSB Board has unanimously determined that the merger is in the best interest of its shareholders, approved the merger and recommended that its shareholders vote “FOR” the merger proposals. Parkway and GSB will hold separate shareholder meetings to obtain these approvals.

If you are a Parkway shareholder, you are also receiving this joint proxy statement/prospectus in connection with Parkway’s 2018 annual meeting of shareholders at which you will be asked to elect 13 directors for terms of one year each and to ratify Parkway’s independent auditor for the year ending December 31, 2018. Information about the Parkway 2018 annual meeting of shareholders, the GSB special meeting, the merger and the other business to be considered by Parkway’s shareholders at its annual meeting and by GSB’s shareholders at its special meeting is contained in this document. In this joint proxy statement/prospectus, we refer to Parkway’s annual meeting of shareholders and GSB’s special meeting of shareholders, together, as the “shareholder meetings.”

This joint proxy statement/prospectus contains important information about the merger and the other proposals being voted on at the shareholder meetings and you should read it carefully. It is a joint proxy statement because both the Parkway Board and the GSB Board are soliciting proxies from their respective shareholders. It is a prospectus because Parkway will issue shares of Parkway common stock to holders of GSB common stock in connection with the merger. The enclosed materials allow you to have your shares voted by proxy without attending your respective shareholder meeting. Your vote is important. We encourage you to submit your proxy as soon as possible.

Each of the Parkway Board and the GSB Board has unanimously determined that the merger is fair and in the best interest of its respective shareholders and recommends that its shareholders vote for their respective

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proposals. You should review the reasons for the merger described in greater detail under the sections entitled “The Merger – Parkway’s Reasons for the Merger; Recommendation of the Parkway Board” and “The Merger – GSB’s Reasons for the Merger; Recommendation of the GSB Board,” beginning on pages 54 and 63, respectively.

GSB : The GSB special meeting is scheduled to take place on [●], [●], 2018 at [●] [●].m., local time, at the [●].

GSB : Holders of record of GSB common stock at the close of business on [●], 2018, which is the date that the GSB Board has fixed as the record date for the GSB special meeting, are entitled to vote at the GSB special meeting.

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GSB : The presence at the GSB special meeting, in person or by proxy, of holders of a majority of the outstanding shares of GSB common stock entitled to vote at the GSB special meeting will constitute a quorum for the transaction of business. Abstentions will be included in determining the number of shares present at the GSB special meeting for the purpose of determining the presence of a quorum. If a GSB shareholder holds shares in “street name” through a bank, broker or other nominee, those shares will not be counted for purposes of determining the presence of a quorum unless the bank, broker or other nominee has been instructed to vote on at least one of the proposals at the GSB special meeting.

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Assuming a quorum is present, the election of each nominee named in the director election proposal to the Parkway Board will be approved by the affirmative vote of a plurality of the votes cast at the annual meeting, and approval of the auditor ratification proposal and the Parkway adjournment proposal each requires that the votes cast for such proposal exceed the votes cast against such proposal. If you (1) fail to submit a proxy or vote in person at the Parkway annual meeting, (2) mark “ABSTAIN” (or with respect to election of directors, “WITHHOLD”) on your proxy or (3) fail to instruct your bank or broker how to vote with respect to the Parkway adjournment proposal, it will have no effect on the outcome of the vote on such proposals.

GSB : Approval of the GSB merger proposal requires the affirmative vote of at least two-thirds of the outstanding shares of GSB common stock entitled to vote on the merger as of the close of business on [●], 2018, the record date for the GSB special meeting. If you (1) fail to submit a proxy or vote in person at the GSB special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your bank or broker how to vote with respect to the proposal to approve the merger agreement, it will have the same effect as a vote “AGAINST” the proposal. Approval of the GSB adjournment proposal requires that the votes cast for such proposal exceed the votes cast against such proposal. If you (1) fail to submit a proxy or vote in person at the GSB special meeting, (2) mark “ABSTAIN” on your proxy or (3) fail to instruct your bank or broker how to vote with respect to the GSB adjournment proposal, it will have no effect on the outcome of the vote on that proposal.

Under the rules of applicable securities exchanges, brokers who hold shares in street name for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that the securities exchanges determine to be “non-routine” without specific instructions from the beneficial owner. We believe that the auditor

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ratification proposal is considered a “routine” matter, but that all other proposals to be voted on at the Parkway annual meeting are “non-routine” matters. We believe that all proposals to be voted on at the GSB special meeting are “non-routine” matters. Broker non-votes occur when a broker or nominee is not instructed by the beneficial owner of shares to vote on a particular proposal for which the broker does not have discretionary voting power.

Parkway : If you are a Parkway shareholder and you do not instruct your broker, bank or other nominee on how to vote your shares:

GSB : If you are a GSB shareholder and you do not instruct your broker, bank or other nominee on how to vote your shares:

GSB : With respect to the GSB merger proposal, if you fail to submit a proxy or vote in person at the GSB special meeting, or you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the proposal. With respect to the GSB adjournment proposal, if you fail to submit a proxy or vote in person at the GSB special meeting, or you mark “ABSTAIN” on your proxy, it will have no effect on the outcome of the vote on such proposal.

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GSB : Yes. If you are a holder of record of GSB common stock, you may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date, (2) timely submitting a later proxy via telephone or the Internet, (3) delivering a written revocation letter to GSB’s corporate secretary or (4) attending the GSB special meeting in person, notifying the corporate secretary and voting by ballot at the GSB special meeting. Attendance at the GSB special meeting alone will not automatically revoke your proxy. A revocation or later-dated proxy received by GSB after the GSB special meeting will be ineffective. GSB’s corporate secretary’s mailing address is: 1422 U.S. Highway 421, Wilkesboro, North Carolina, 28697, Attention: Corporate Secretary. If you hold your shares in “street name” through a bank or broker, you should contact your bank or broker if you want to revoke or change your voting instructions.

For further information, see “The Merger—Material United States Federal Income Tax Consequences” beginning on page 80.

The U.S. federal income tax consequences described above may not apply to all holders of GSB common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your own tax advisor to determine the particular tax consequences of the merger to you.

Following the merger, any inquiries should be directed to Parkway’s transfer agent, Computershare, at 250 Royall Street, Canton, Massachusetts 02021, or at (800) 368-5948.

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GSB : In addition to solicitation of proxies by GSB by mail, proxies may also be solicited by GSB’s directors and employees personally, and by telephone, facsimile or other means. GSB intends to engage Regan & Associates, Inc. to assist in soliciting proxies for a fee of approximately $7,500, plus payment of its out-of-pocket expenses. For more information on solicitation of proxies in connection with the GSB special meeting, see “GSB Special Meeting of Shareholders—Solicitation of Proxies” beginning on page 46.

GSB : If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need help voting your shares of GSB common stock, please contact: Lillian S. Eldreth, Corporate Secretary, Great State Bank, 1422 US Highway 421, Wilkesboro, North Carolina 28697, at (336) 903-4948. You may also obtain more information about the merger and the proxy materials by contacting Regan & Associates, Inc., GSB’s proxy solicitor, at (800) 737-3426.

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THE MERGER

The following is a discussion of the merger. This summary may not contain all of the information about the merger that is important to you. Holders of Parkway common stock and GSB common stock should read carefully this joint proxy statement/prospectus in its entirety, including the appendices, for more detailed information concerning the merger and the merger agreement. In particular, you are directed to the merger agreement, including the exhibits thereto, copies of which are attached as Appendix A and are incorporated in this joint proxy statement/prospectus by reference.

Background of the Merger

The merger agreement is the result of arms-length negotiations between representatives of Parkway and representatives of GSB, during which the parties consulted their respective legal and financial advisors. The following is a brief discussion of the background of these negotiations.

The Parkway Board and its management team have, from time to time, engaged in long-term strategic reviews and considered ways to enhance shareholder value and performance and prospects in light of industry changes, competitive challenges, compliance costs and other recent developments. These reviews have included periodic discussions concerning potential strategic transactions such as an acquisition of another financial institution.

Likewise, the GSB Board and management regularly review and discuss GSB’s financial condition, performance, capital, prospects and business strategy in fulfillment of the GSB Board’s duties to oversee and direct GSB’s management and business. As part of this review and discussion, the GSB Board periodically considers the difficulties GSB faces as a small community bank in increasing its size and profitability, strategic initiatives to increase GSB’s capital and enhance its profits, and strategies for increasing the liquidity and long-term value of shareholders’ investments.

During 2016 and into early 2017, the GSB Board recognized that, for GSB to continue to grow, it likely would be required to increase its capital, and the GSB Board began discussions, including discussions during February 2017 with financial advisors, of ways to increase capital, including through an offering of shares of common stock or of a series of preferred stock. The GSB Board recognized that additional equity capital was not always readily available to small financial institutions and that, depending on market conditions, any sale of shares by GSB might have to be at a price per share that would dilute the value of shares held by existing shareholders.

At a strategic planning session of the GSB Board during May 2017, the GSB Board concluded that, without additional capital, GSB likely would have to begin taking steps to limit its growth, and the GSB Board decided preliminarily to proceed toward an offering of a number of shares of GSB preferred stock that would call for a stated dividend rate and be converted into shares of GSB common stock after some period following issuance. During the summer of 2017, the GSB Board considered the terms of the preferred stock that might be offered and began preparation of offering documents.

On August 17, 2017, at Parkway’s request, Greg Edwards, GSB’s President and Chief Executive Officer, met with Allan Funk, Parkway’s President and Chief Executive Officer, and Blake Edwards, Parkway’s Chief Financial Officer (no relation to Greg Edwards), to discuss a vacant branch facility, with which Greg Edwards had prior experience and familiarity, in Ashe County, North Carolina. Parkway had been an original subscriber for shares of GSB common stock in GSB’s 2006-2007 organizational offering, remained a GSB shareholder and, over the several years following GSB’s organization, the managements of GSB and Parkway, as peer banking institutions, periodically consulted on common business issues. During their conversation, the parties also discussed the community banking industry, current market conditions, and the challenges community banks are facing. GSB’s need for capital also was discussed, and Mr. Funk asked whether GSB had considered the possibility of a strategic combination with Parkway. However, no discussions of a potential combination ensued at that time.

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At a meeting of the Executive Committee of the GSB Board on September 25, 2017, attended by all directors, the GSB Board continued their discussion of the proposed preferred stock offering and again addressed concerns about the pricing of the offering and potential dilution to GSB shareholders. Management reported that GSB could not increase its growth rate, or even continue to grow at its then-current rate, unless capital was increased. The directors approved the terms of a series of preferred stock that was proposed to be offered to the public.

On September 26, 2017, Greg Edwards called Blake Edwards and indicated that GSB was interested in meeting with representatives of Parkway to discuss GSB’s preferred stock offering, as well as to learn more about Parkway.

On October 4, 2017, Greg Edwards met with Allan Funk and Blake Edwards. During that conversation, Mr. Funk shared his views regarding the potential benefits to both institutions of a strategic combination between GSB and Parkway, including the financial metrics and estimated performance of the combined company, a review of the combined branch footprint and market potential, and additional rationales for both institutions to consider a combination. The parties also discussed the mission of GSB and Skyline to continue to be “community” banks and the potential cultural and social fit of the two organizations. Mr. Funk asked that the GSB Board consider such a combination as an alternative to raising capital in a transaction that could be dilutive to GSB’s existing shareholders. At the conclusion of that meeting, Greg Edwards arranged for a meeting on October 10, 2017, for representatives of Parkway to discuss a strategic combination with GSB’s Chairman and Vice Chairman. At that meeting, the parties discussed, in greater detail, the various considerations that had been discussed at the meeting on October 4, 2017. The parties also discussed the capital challenges for smaller community banks, including stock price, trading volume, and the expense and dilution involved in raising additional capital. The parties reviewed various industry data demonstrating the impact of increased size on both financial and stock performance for community banks. The parties also briefly discussed the overall process and potential timeline that would be anticipated should both companies agree to pursue a combination.

Following that meeting, representatives of Parkway were invited to meet on October 16, 2017, with the entire GSB Board to discuss the similarities and synergies in the business and operating philosophies of the two institutions and Parkway’s perception of benefits to both institutions of a strategic combination. A representative of Raymond James, Parkway’s financial advisor, also was present at the meeting. After a review of the material by Parkway representatives, GSB directors were given the opportunity to ask questions and offer comments, and a lengthy discussion was held regarding all aspects of the potential merger. Following that discussion, the GSB Board unanimously agreed to consider a potential combination and to retain an independent financial advisor to assist the GSB Board in any ensuing discussions.

At a meeting held on October 23, 2017, the GSB Board met with and interviewed representatives of two different investment banking firms, including Performance Trust, to discuss a potential engagement in which one of those firms would act as an independent financial advisor to the GSB Board. Each firm discussed its capabilities and experience in representing community financial institutions and in merger transactions. Although the GSB Board found each of the firms to be well qualified, following the meeting the GSB Board selected Performance Trust as its independent advisor and, on November 1, 2017, GSB’s Chairman signed an engagement agreement under which Performance Trust would assist the GSB Board in any further discussions with, and its evaluation of any offer made by, Parkway; in the negotiation of the terms of any proposed transaction with Parkway and GSB’s due diligence investigation of Parkway; and, if the GSB Board proposed to accept an offer from Parkway, advise the GSB Board and provide it with Performance Trust’s written opinion of the fairness of the financial terms of the proposed transaction to GSB shareholders. GSB also engaged Ward and Smith, P.A. (“W&S”), to serve as the Board’s legal counsel in connection with any resulting transaction.

On October 31, 2017, GSB, Skyline and Parkway entered into a mutual non-disclosure agreement to facilitate ongoing discussions and in-depth due diligence, and further analysis of a potential business combination. Following execution of the non-disclosure agreement, GSB and Parkway began the process of

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sharing information about their businesses, including financial information, with each other and with their respective financial advisors, and began exchanging information through an online data room. During November 2017, Parkway began a preliminary due diligence investigation to assess GSB’s business and financial condition in order to formulate a non-binding offer to acquire GSB.

On December 8, 2018, Parkway submitted to GSB a proposed, non-binding letter of intent providing for a preliminary offer to acquire GSB by merging GSB into Skyline and converting each outstanding share of GSB common stock into 1.18 newly issued shares of Parkway common stock.

The GSB Board met on December 15, 2018, with representatives of Performance Trust and W&S to discuss the preliminary offer and proposed letter of intent. Greg Edwards announced that, while no decisions on Parkway’s letter of intent or its offer would be made that day, Performance Trust had reviewed the offer and performed a preliminary analysis for the GSB Board’s consideration based on information available at the time. A representative of Performance Trust then discussed with the GSB Board the typical timeline and steps in merger transactions, the process it would use in its analysis of the offer and the financial terms of the proposed transaction, the scope of information that had been exchanged between GSB and Parkway, the progress to date in Parkway’s due diligence investigation of GSB, and Performance Trust’s perception of Parkway as a merger partner based on Performance Trust’s and GSB’s preliminary reviews of Parkway’s financial statements and business. Performance Trust then discussed the terms and his preliminary analysis of Parkway’s offer, including: the structure of the proposed transaction; the amount and form of consideration for which shares of GSB common stock were proposed to be exchanged; the treatment of existing outstanding warrants to purchase GSB common stock; the impact of the proposed transaction on GSB’s employees, including proposed arrangements with respect to existing employment agreements between GSB and two of its executive officers; representation of GSB’s shareholders in the management of Parkway through Parkway’s commitment to add two of GSB’s directors as directors of Parkway and Skyline; Parkway’s request for a 60-day exclusivity agreement under which, if GSB signed the proposed letter of intent, during that period it would not seek or entertain other offers to acquire GSB; and other terms of the proposed letter of intent.

A representative of W&S then discussed with the GSB Board the duties of directors in their consideration of a merger offer and their focus on the fairness of any such transaction, in terms of both the consideration to be paid to shareholders and the process of evaluating and approving the transaction.

Also during that meeting, Performance Trust and the GSB Board discussed in detail the exchange ratio proposed by Parkway and the assumptions upon which it likely was based. Performance Trust indicated that it would discuss with GSB’s management GSB’s budget and its own financial projections and, if it believed that Parkway reasonably could offer more for GSB, would advise the GSB Board to negotiate for an increase in the exchange ratio. In response to a question regarding whether another company might pay more than Parkway had offered, Performance Trust indicated that it had analyzed the financial abilities of three other companies that either had, in the past, expressed an interest in GSB, or been suggested as potential merger partners. Performance Trust’s analyses focused on amounts those companies might be able to pay without exceeding what, in its opinion, were acceptable levels of dilution or book value earn-back periods, or without being required to increase capital in transactions that could be dilutive to their shareholders. Performance Trust indicated that, while it could not give assurance that none of those companies would make a higher offer, its conclusion was that none of them were likely capable of making a significantly higher offer. Performance Trust explained that, in a strategic transaction such as the one proposed by Parkway, the potential of a higher offer from another company might be weighed against the perceived benefits of the transaction under consideration, such as the liquidity in the relatively active market for Parkway common stock and the potential for appreciation in the value of Parkway common stock based on current trading prices in relation to earnings and book value. At the request of the GSB Board, Performance Trust stated that it and management would discuss GSB’s budget and financial projections and then discuss the exchange ratio with Parkway and its financial advisor.

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During the remainder of December and into January 2018, Parkway continued its due diligence investigation of GSB, management of GSB and Performance Trust continued to analyze the proposed exchange ratio in relation to GSB’s financial projections and estimates of transaction expenses and cost savings, and Performance Trust continued its discussions of Parkway’s offer with Parkway’s management and financial advisor. On January 12, 2018, as a result of these continued discussions and analyses, Parkway submitted a revised non-binding offer to GSB reflecting a revised exchange ratio of 1.21 shares of Parkway common stock for each share of GSB common stock.

At a meeting of the GSB Board on January 15, 2018, Performance Trust updated the GSB Board on its continuing discussions with Parkway’s management and financial advisor and the increase in the exchange ratio. In addition, Performance Trust reported that it had requested an increase in the number of GSB directors who would join Parkway’s and Skyline’s boards from two to three, but that Parkway had not yet responded. Performance Trust then presented and discussed its detailed analysis of the financial aspects of Parkway’s then-current offer. It pointed out that the exchange ratio would be fixed and would not be adjusted if, before completion of a merger, the market price of Parkway common stock increased or decreased, so the value of the merger consideration that would be received by each GSB shareholder could change between the date the GSB Board approved the merger agreement and the date a merger was completed. Performance Trust indicated that, if the GSB Board approved execution of the proposed letter of intent, then Performance Trust, along with GSB’s management and other advisors, would conduct an in-depth due diligence investigation of Parkway and report back to the GSB Board before it considered a final decision to approve the proposed transaction.

Following Performance Trust’s presentation, the GSB Board discussed the terms of Parkway’s offer and the proposed letter of intent with Performance Trust, W&S and GSB’s management. The GSB Board concluded that, in order to give each director time to study Performance Trust’s financial analysis in more detail, the GSB Board would meet again by telephone on January 17, at which time directors could ask any further questions they had before a final decision on the letter of intent was made. The GSB Board asked Performance Trust to again ask Parkway that the number of GSB directors joining Parkway’s and Skyline’s boards be increased to three, that the 60-day exclusivity provision contained in the letter of intent be shortened to 45 days, and that certain other proposed non-financial terms of the merger contained in the letter of intent be modified.

On January 16, 2018, the Parkway Board held a regularly scheduled meeting at which it reviewed the proposed terms of the non-binding letter of intent with Parkway management and representatives of Raymond James. Following thorough discussion of the proposed terms, the Parkway Board authorized Parkway’s management to execute the non-binding letter of intent, to proceed with the due diligence process and to move forward with discussions with GSB on terms similar to those in the revised letter of intent.

The GSB Board met again on January 17, 2018. Performance Trust reported that Parkway had agreed to make the other requested changes to the terms of the letter of intent, but that the number of GSB directors who would be appointed to Parkway’s and Skyline’s boards would remain at two. Following a discussion among the directors and responses by Performance Trust and W&S to directors’ questions, the GSB Board voted unanimously to authorize the execution of the revised letter of intent. The letter of intent was signed by GSB’s management that day.

During the remainder of January and into February 2018, the parties pursued further discussions regarding the proposed merger. In connection with these discussions, and continuing up until the signing of the definitive merger agreement, representatives and advisors of each of Parkway and GSB conducted extensive business, legal and financial due diligence investigations. As part of the diligence process, GSB’s management, Performance Trust and W&S reviewed documents provided by Parkway and available publicly, and conducted in-person interviews of Parkway’s and Skyline’s managements. Also, GSB retained the services of DHG Credit Risk Management to conduct an independent assessment and provide a report to the GSB Board regarding Skyline’s loan portfolio.

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On January 29, 2018, Parkway’s legal counsel, Williams Mullen, delivered to GSB’s legal counsel a draft of a proposed definitive merger agreement containing the proposed complete terms of the transaction, and GSB’s management and its advisors began their review and negotiation of the provisions of that agreement. On February 12, 2018, W&S delivered a revised draft of the proposed definitive merger agreement to Williams Mullen and, between February 12, 2018 and March 1, 2018, negotiations occurred between Parkway and GSB and their respective advisors in an effort to resolve all open issues to reach a definitive merger agreement.

On February 19, 2018, managements of Parkway and GSB, with the assistance of their respective financial and legal advisors and representatives, gathered in Dobson, North Carolina and reviewed business, financial and other information regarding each company. During these meetings, members of management of each of the companies, with the assistance of their advisors and representatives, engaged in a series of discussions about each company’s respective businesses.

On February 20, 2018, the Parkway Board held a regularly scheduled meeting at which it reviewed the proposed terms of the merger and the merger agreement. At the meeting, representatives of Raymond James reviewed its financial analysis of the terms of the merger, including the merger consideration. Also at the meeting, representatives of Williams Mullen discussed with the Parkway Board the legal standards applicable to its decisions and actions with respect to the proposed transaction and reviewed in detail the proposed merger agreement and related agreements, copies of which were delivered to each director before the date of the meeting, including open items subject to further negotiation. Following these discussions, the Parkway Board authorized management to continue due diligence reviews and discussions with GSB.

The GSB Board met again on February 22, 2018. At that meeting, Performance Trust and GSB’s management reported on the results of GSB’s due diligence investigation of Parkway, including the report of DHG Credit Risk Management on its review of Skyline’s loan portfolio. Performance Trust reviewed the process it had used in its evaluation and analysis of Parkway’s offer and the proposed merger, and it discussed with the GSB Board and responded to their questions regarding its detailed analysis of the financial terms of the proposed merger and its views on the fairness of the merger consideration to GSB shareholders from a financial perspective. W&S went through and discussed with the board, and responded to questions regarding, the material provisions of the proposed definitive merger agreement (a copy of which previously had been delivered to each director) that had resulted from negotiations with Parkway’s counsel, as well as proposed arrangements between Parkway and GSB’s executive officers and proposed support and non-competition agreements that Parkway would require to be executed and delivered by GSB’s directors as a condition to the merger.

On February 27, 2018, the Parkway Board held a special meeting to update the Parkway Board on the status of negotiations with GSB. Representatives of Williams Mullen led a review of the updates to the merger agreement since the prior meeting of the Parkway Board, and representatives of Raymond James led a discussion of updated financial aspects of the merger. Following these discussions, the Parkway Board determined to meet the following day, at which point Parkway’s management expected that all open items would be resolved.

On February 28, 2018, the Parkway Board and the Skyline board of directors held a joint meeting to consider the proposed merger and the merger agreement. At the meeting, the Parkway Board received an update from Parkway’s management and Williams Mullen on the status of the negotiations with GSB and updates to the proposed merger agreement. Also at the meeting, representatives of Raymond James reviewed its financial analysis of the terms of the merger, including the merger consideration, and delivered to the Parkway Board its oral opinion (which was subsequently confirmed in writing) that, based on and subject to various assumptions and limitations described in the opinion, the merger consideration was fair, from a financial point of view, to Parkway. Following these discussions, the Parkway Board unanimously voted to approve the merger and the merger agreement.

The GSB Board met again on March 1, 2018, with Performance Trust and W&S to further evaluate, discuss and consider the terms of the proposed merger and the adoption of the definitive merger agreement. At that meeting, Performance Trust rendered its oral opinion to the GSB Board to the effect that, as of that date and

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subject to the procedures and assumptions discussed with the GSB Board, it believed the consideration to be paid by Parkway pursuant to the merger agreement was fair, from a financial point of view, to the holders of GSB common stock. Performance Trust reported that, if the GSB Board approved the definitive merger agreement, it was prepared to confirm its opinion in writing. See “– Opinion of GSB’s Financial Advisor” beginning on page 66. W&S responded to questions from the directors regarding the terms of the merger agreement and the support and non-competition agreements. After considering the proposed terms of the merger agreement and related transaction documents and the presentations of Performance Trust and its legal advisor, and taking into consideration the matters discussed during that meeting and prior meetings of the GSB Board, including the factors described under the caption “– GSB’s Reasons for the Merger; Recommendation of the GSB Board” beginning on page 63, the GSB Board unanimously determined that the definitive merger agreement and strategic combination with Parkway was in the best interests of GSB and its shareholders, and it approved and adopted, and authorized the execution and delivery of, the merger agreement. Performance Trust delivered its written fairness opinion to the GSB Board following the meeting.

After the financial markets closed on March 1, 2018, Parkway, Skyline and GSB executed the merger agreement and issued a joint press release announcing the execution of the merger agreement and the terms of the merger.

Parkway’s Reasons for the Merger; Recommendation of the Parkway Board

In reaching its determination to approve and adopt the merger agreement, and to recommend the merger agreement to Parkway shareholders, the Parkway Board consulted with Parkway’s management and its financial and legal advisors, and considered a number of factors, including the following:

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The Parkway Board also considered a number of potential risks and uncertainties associated with the merger in connection with its deliberation of the proposed transaction, including, without limitation, the following:

In the judgment of the Parkway Board, the potential benefits of the merger outweigh these considerations.

The preceding discussion of the information and factors considered by the Parkway Board is not intended to be exhaustive, but, rather, includes all of the material factors considered by it in connection with its evaluation of the merger. In reaching its determination to approve and adopt the merger agreement and recommend that Parkway shareholders approve the merger agreement, the Parkway Board did not quantify, rank or otherwise assign any relative or specific weights to the factors considered in reaching that determination. In addition, the Parkway Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. Moreover, in considering the information and factors described above, individual directors may have given differing weights to different factors. The Parkway Board based its determination on the totality of the information presented.

The Parkway Board unanimously determined that the merger agreement is in the best interests of Parkway and its shareholders. Accordingly, the Parkway Board unanimously approved and adopted the merger agreement and unanimously recommends that shareholders vote “FOR” the Parkway merger proposal.

Opinion of Parkway’s Financial Advisor

Parkway retained Raymond James as financial advisor on November 15, 2017. Pursuant to that engagement, the Parkway Board requested that Raymond James evaluate the fairness of the merger consideration, from a financial point of view, to Parkway. Parkway (and previously Grayson) has had a longstanding relationship with Raymond James dating back approximately a decade. Parkway selected Raymond James as its financial advisor based upon Raymond James’s knowledge of Parkway and the Virginia and North Carolina markets, as well as Raymond James’s experience as a nationally recognized investment banking firm with significant experience in mergers and acquisitions, including bank mergers and acquisitions.

At the February 28, 2018 meeting of the Parkway Board, representatives of Raymond James rendered its oral opinion, which was subsequently confirmed by delivery of a written opinion to the Board dated March 1, 2018, as to the fairness of the merger consideration, as of such date, from a financial point of view, to Parkway pursuant to the merger agreement, based upon and subject to the qualifications, assumptions and other matters considered in connection with the preparation of its opinion.

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The full text of the written opinion of Raymond James is attached as Appendix B to this joint proxy statement/prospectus. The summary of the opinion of Raymond James set forth in this document is qualified in its entirety by reference to the full text of such written opinion. Holders of Parkway common stock are urged to read this opinion in its entirety.

Raymond James provided its opinion for the information of the Parkway Board (solely in its capacity as such) in connection with, and for purposes of, its consideration of the merger agreement and its opinion only addresses whether the merger consideration was fair, from a financial point of view, to Parkway as of the date of such opinion. The opinion of Raymond James does not address any other term or aspect of the merger agreement or the merger contemplated thereby. The Raymond James opinion does not constitute a recommendation to the Parkway Board or to any holder of Parkway or GSB common stock as to how the Parkway Board, such shareholder or any other person should vote or otherwise act with respect to the merger agreement or any other matter. Raymond James does not express any opinion as to the likely trading range of Parkway common stock following the merger, which may vary depending on numerous factors that generally impact the price of securities or on the financial condition of Parkway at that time. Raymond James also does not express any opinion as to Parkway’s future financial condition or results of operation.

In connection with its review of the proposed merger and the preparation of its opinion, Raymond James, among other things:

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With Parkway’s consent, Raymond James assumed and relied upon the accuracy and completeness of all information supplied by or on behalf of Parkway, or otherwise reviewed by or discussed with Raymond James, and Raymond James did not undertake any duty or responsibility to, nor did Raymond James, independently verify any of such information. Raymond James is not an expert in the evaluation of loan and lease losses and accordingly assumed that such allowances for losses are in the aggregate adequate to cover such losses. Raymond James did not make or obtain an independent appraisal of the assets or liabilities (contingent or otherwise) of Parkway or GSB. With respect to projections and any other information and data provided to or otherwise reviewed by or discussed with Raymond James, Raymond James, with Parkway’s consent, assumed that projections and data were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of management of Parkway and Raymond James relied upon Parkway to advise Raymond James promptly if any information previously provided became inaccurate or was required to be updated during the period of its review. Raymond James expressed no opinion with respect to Parkway management’s projections or the assumptions on which they were based. Based upon the terms specified in the merger agreement, Raymond James assumed that the merger will qualify as a reorganization under the provisions of Section 368(a) of the Code. Raymond James relied upon and assumed, without independent verification, that the final form of the merger agreement would be substantially similar to the draft reviewed by Raymond James in all respects material to its analysis, and that the merger would be consummated in accordance with the terms of the merger agreement without waiver of or amendment to any of the conditions thereto. Furthermore, Raymond James assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement were true and correct and that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement without being waived. Raymond James also relied upon and assumed, without independent verification, that (i) the merger would be consummated in a manner that complies in all respects with all applicable international, federal and state statutes, rules and regulations, and (ii) all governmental, regulatory or other consents and approvals necessary for the consummation of the merger would be obtained and that no delay, limitations, restrictions or conditions would be imposed or amendments, modifications or waivers made that would have an effect on the merger or Parkway that would be material to its analysis or opinion.

Raymond James expressed no opinion as to the underlying business decision to effect the merger, the structure or tax consequences of the merger, or the availability or advisability of any alternatives to the merger. The Raymond James opinion is limited to the fairness, from a financial point of view, of the merger consideration to Parkway. Raymond James expressed no opinion with respect to any other reasons (legal, business, or otherwise) that may support the decision of Parkway’s board of directors to approve or consummate the merger. Furthermore, no opinion, counsel or interpretation was intended by Raymond James on matters that require legal, accounting or tax advice. Raymond James assumed that such opinions, counsel or interpretations had been or would be obtained from appropriate professional sources. Furthermore, Raymond James relied, with the consent of Parkway, on the fact that Parkway was assisted by legal, accounting and tax advisors, and, with the consent of Parkway relied upon and assumed the accuracy and completeness of the assessments by Parkway and its advisors, as to all legal, accounting and tax matters with respect to Parkway and the merger.

In formulating its opinion, Raymond James considered only the merger consideration, and Raymond James did not consider, and its opinion did not address, the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of GSB, or such class of persons, in connection with the merger whether relative to the merger consideration or otherwise. Raymond James was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (1) the fairness of the merger to the holders of any class of securities, creditors or other constituencies of Parkway, or to any other party, except and only to the extent expressly set forth in the last sentence of its opinion or (2) the fairness of the merger to any one class or group of Parkway’s or any other party’s security holders or other constituents vis-à-vis any other class or group of Parkway’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration to be received in the merger amongst or within such classes or groups of security holders or other constituents). Raymond James expressed no opinion as to the impact of the merger on the solvency or viability of Parkway or GSB or the ability of Parkway or GSB to pay their respective obligations when they come due.

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Material Financial Analyses

The following summarizes the material financial analyses reviewed by Raymond James with the Parkway Board at its meeting on February 28, 2018, which material was considered by Raymond James in rendering its opinion. No company or transaction used in the analyses described below is identical or directly comparable to Parkway, GSB or the merger.

Contribution Analysis. Raymond James analyzed the relative contribution of Parkway and GSB to certain financial and operating metrics for the pro forma combined company resulting from the merger agreement. Such financial and operating metrics included: (i) gross loans; (ii) deposits; (iii) tangible common equity; (iv) 2017 net income; (v) 2017 net income adjusted to exclude the impact of deferred tax asset adjustments that took place in Q4 2017 due to revisions in the U.S. corporate tax rate (“tax normalized net income”); (vi) 2018 estimated net income based on the projected financial information provided to Raymond James by Parkway management; and (vii) 2019 estimated net income provided to Raymond James by Parkway management. The relative contribution analysis did not give effect to any synergies or purchase accounting adjustments as a result of the merger. The results of this analysis are summarized in the table below:

Discounted Cash Flow Analysis. Raymond James performed a discounted cash flow analysis of Parkway and GSB based on the projected financial information provided to Raymond James and approved for use by Parkway management. Consistent with the periods included in the projections, Raymond James used calendar year 2022 as the final year for the analysis and applied multiples, ranging from 14.0x to 16.0x, to calendar year 2022 earnings in order to derive a range of terminal values for Parkway and GSB in 2022.

For Parkway, Raymond James used discount rates ranging from 16.9% to 18.9%. For GSB, Raymond James used discount rates ranging from 16.9% to 18.9%. Raymond James arrived at its discount ranges by using the Modified CAPM methodology as presented in the 2017 Duff & Phelps Valuation Handbook. Raymond James reviewed the ranges of implied per share values indicated by the discounted cash flow analysis for each of Parkway and GSB and calculated a range of implied exchange ratios by dividing the maximum implied per share value of GSB by the minimum implied per share value of Parkway common stock to calculate the maximum implied exchange ratio, and by dividing the minimum implied per share value of GSB by the maximum implied per share value of Parkway to calculate the minimum implied exchange ratio. The results of the discounted cash flow analysis are summarized in the table below:

Selected Companies Analysis. Raymond James reviewed certain data for two selected groups of companies with publicly traded equity securities that it deemed relevant for its analysis. The two selected groups represent

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companies believed relevant to Parkway and GSB, respectively. For Parkway, Raymond James selected certain companies that (i) are headquartered in North Carolina, South Carolina, and Virginia; (ii) have 3 month average daily trading volume greater than 10 shares; (iii) have total assets between $450 million and $700 million; and (iv) have last twelve month (“LTM”) return on average assets (“ROAA”) between 0.25% and 1.50%; this group excludes mutual holding companies and targets of announced mergers. For GSB, Raymond James selected certain companies that (i) are headquartered in North Carolina, South Carolina, Georgia, Tennessee, and Virginia; (ii) have 3 month average daily trading volume greater than 10 shares; (iii) have total assets between $50 million and $350 million; and (iv) have LTM ROAA between 0.25% and 1.50%; this group excludes mutual holding companies and targets of announced mergers. The financial data reviewed included (i) tangible book value per share; (ii) 2017 earnings per share, for which data was available (which was year ended December 31, 2017); and (iii) tax normalized 2017 earnings per share, which adjusts 2017 earnings to remove the impact of deferred tax asset write downs in Q4 2017 due to changes in the U.S. corporate tax code. No company used in the analyses described below is identical or directly comparable to Parkway or GSB. The selected companies and resulting data are below:

Parkway Selected Companies

GSB Selected Companies

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Taking into account the results of the selected companies analysis, Raymond James applied the 75 ^th and 25 ^th percentiles of the price to tangible book value ratio and earnings per share multiples to corresponding financial data for each of Parkway and GSB. For Parkway, Raymond James used the 75 ^th and 25 ^th percentiles of the banks and thrifts for the Parkway Selected Companies above, which group it deemed to include companies with operating results similar to Parkway. For GSB, Raymond James used the banks and thrifts in the GSB Selected Companies above. Raymond James reviewed the ranges of implied per share values and calculated a range of implied exchange ratios by dividing the higher implied per share value of GSB by the lower implied per share value of Parkway to calculate the implied exchange ratio, and by dividing the lower implied per share value of GSB by the higher implied per share value of Parkway to calculate the low implied exchange ratio. The results of the selected companies analysis are summarized below:

Selected Transaction Analysis. Raymond James analyzed publicly available information relating to selected regional transactions announced since January 1, 2017 involving targets headquartered in the Southeast with (i) target assets between $100 million and $300 million; and (ii) LTM ROAA between 0.50% and 1.50%. Raymond James also analyzed publicly available information relating to selected national transactions announced since January 1, 2017 involving targets headquartered in the U.S. with (i) target assets between $100 million and $300 million; and (ii) LTM ROAA between 0.50% and 1.50%. Financial data for the selected targets were based on the most recent twelve month period reported as of March 1, 2018. Both regional and national selected transactions excluded (i) investor recapitalizations; (ii) transactions without meaningful pricing data; and (iii) transactions with less than 100% cumulative equity ownership acquired. The selected transactions (with respective transaction announcement dates shown) used in the analyses included:

National Transactions since January 1, 2017

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Regional Transactions since January 1, 2017

Taking into account the results of the selected transaction analysis, Raymond James applied the 25 ^th percentile and 75 ^th percentile tangible book value multiple, tax normalized earnings per share multiple, and core deposit premium. to the corresponding GSB metrics to create the range of exchange ratios used for its analysis

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based on Parkway’s 10-day average closing stock price. The results of the selected transactions analysis are summarized below: