Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant
Accounting Policies
Organization
Parkway
Acquisition Corp. (Parkway or the Company) was incorporated as a Virginia corporation on November 2, 2015. Parkway was formed as a business combination shell company for the purpose of completing a business combination
transaction between Grayson Bankshares, Inc. (Grayson) and Cardinal Bankshares Corporation (Cardinal). On November 6, 2015, Grayson, Cardinal and Parkway entered into an Agreement and Plan of Merger (the merger
agreement), providing for the combination of the three companies. Terms of the merger agreement called for Grayson and Cardinal to merge with and into Parkway, with Parkway as the surviving corporation (the Cardinal merger). The
merger agreement established exchange ratios under which each share of Grayson common stock was converted to the right to receive 1.76 shares of common stock of Parkway, while each share of Cardinal common stock was converted to the right to receive
1.30 shares of common stock of Parkway. The exchange ratios resulted in Grayson shareholders receiving approximately 60% of the newly issued Parkway shares and Cardinal shareholders receiving approximately 40% of the newly issued Parkway shares. The
Cardinal merger was completed on July 1, 2016. Grayson was considered the acquiror and Cardinal was considered the acquiree in the transaction for accounting purposes.
Upon completion of the Cardinal merger, the Bank of Floyd, a wholly-owned subsidiary of Cardinal, was merged with and into Grayson National Bank (the
Bank), a wholly-owned subsidiary of Grayson. The Bank was organized under the laws of the United States in 1900 and now serves the Virginia counties of Grayson, Floyd, Carroll, Wythe, Montgomery and Roanoke, and the North Carolina
counties of Alleghany and Ashe, and the surrounding areas through seventeen full-service banking offices and one loan production office. Effective March 13, 2017, the Bank changed its name to Skyline National Bank. As an FDIC-insured national
banking association, the Bank is subject to regulation by the Comptroller of the Currency and the FDIC. Parkway is regulated by the Board of Governors of the Federal Reserve System.
On March 1, 2018, Parkway entered into a definitive agreement pursuant to which Parkway will acquire Great State Bank, based in Wilkesboro, North
Carolina, in a stock merger valued at approximately $14.5 million at signing (the Great State merger). The agreement provides for the merger of Great State Bank with and into the Bank, with the Bank as the surviving bank. Each share
of Great State Bank common stock will be converted into the right to receive 1.21 shares of Parkway common stock upon closing. The closing of this transaction is subject to approval by Parkways and Great State Banks shareholders,
regulatory approvals and other customary closing conditions and is expected to occur in the third quarter of 2018.
For purposes of this quarterly report
on 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 Cardinal merger. Unless this report otherwise indicates or the
context otherwise requires, all references to Parkway or the Company as of and for periods subsequent to July 1, 2016 refer to the combined company and its subsidiary as a combined entity after the Cardinal merger, and
all references to the Company as of and for periods prior to July 1, 2016 are references to Grayson and its subsidiary as a combined entity prior to the Cardinal merger.
The consolidated financial statements as of March 31, 2018 and for the periods ended March 31, 2018 and 2017 included herein have been prepared by
the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the information furnished in the interim consolidated financial statements reflects all adjustments necessary
to present fairly the 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, 2017, included in the Companys Annual Report on Form
10-K
for the fiscal year ended December 31, 2017. The results of operations for the three-month period ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year.
8
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant Accounting Policies, continued
Critical Accounting Policies
Management believes the policies with respect to the methodology for the determination of the allowance for loan losses, and asset impairment judgments involve
a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported
results to differ materially. These critical policies and their application are periodically reviewed with the Audit Committee and the Board of Directors.
Principles of Consolidation
The consolidated
financial statements include the accounts of the Company and the Bank, which is wholly owned. All significant, intercompany transactions and balances have been eliminated in consolidation.
Business Segments
The Company reports its
activities as a single business segment. In determining the appropriateness of segment definition, the Company considers components of the business about which financial information is available and regularly evaluated relative to resource
allocation and performance assessment.
Business Combinations
Generally, acquisitions are accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 805,
Business Combinations
. A business combination occurs when the Company acquires net assets that constitute a business, or acquires equity interests in one or more other entities that are
businesses and obtains control over those entities. Business combinations are effected through the transfer of consideration consisting of cash and/or common stock and are accounted for using the acquisition method. Accordingly, the assets and
liabilities of the acquired entity are recorded at their respective fair values as of the closing date of the acquisition. Determining the fair value of assets and liabilities, especially the loan portfolio, is a complicated process involving
significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are subject to refinement for up to one year after the closing date of the acquisition as information relative to closing date fair values
becomes available. The results of operations of an acquired entity are included in our consolidated results from the closing date of the merger, and prior periods are not restated. No allowance for loan losses related to the acquired loans is
recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding future credit losses. The fair value estimates associated with the acquired loans include estimates related to expected prepayments and
the amount and timing of expected principal, interest and other cash flows.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for
loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan and foreclosed real estate losses, management obtains independent
appraisals for significant properties.
9
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant Accounting Policies, continued
Use of Estimates, continued
Substantially all of the Banks loan portfolio consists of loans in its market area. Accordingly, the
ultimate collectability 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
thereof, is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon managements periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the 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:
|
|
|
|
|
Years
|
Buildings and improvements
|
|
10-40
|
Furniture and equipment
|
|
5-12
|
12
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant Accounting Policies, continued
Foreclosed Assets
Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value less anticipated cost to sell
at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses
from operations and changes in the valuation allowance are included in foreclosure expense on the consolidated statements of income.
Pension Plan
Prior to the Cardinal merger, both Grayson National Bank (Grayson) and Bank of Floyd (Floyd) had qualified noncontributory defined benefit pension
plans in place which covered substantially all of each 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 Cardinal 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).
Revenue Recognition
On January 1, 2018, we adopted the requirements of Accounting Standards Update (ASU)
2014-9,
Revenue from Contracts with Customers (ASU Topic 606)
. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the
ASU, including deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Based on this assessment, the Company concluded that ASU
2014-09
did not materially change the
method in which the Company currently recognizes revenue for these revenue streams. The Company also completed its evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or
contra-revenue (i.e., gross vs. net). Based on its evaluation, the Company determined that ASU
2014-09
did not materially change the method in which the Company currently classifies certain costs associated
with the related revenue streams. The Company adopted ASU
2014-09
and its related amendments on its required effective date of January 1, 2018 utilizing the modified retrospective approach. Since there
was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary.
13
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant Accounting Policies, continued
Income Taxes
Provision for income taxes is based on amounts reported in the statements of income (after exclusion 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.
Advertising Expense
The Company expenses
advertising costs as they are incurred. Advertising expense for the years presented is not material.
Basic Earnings per Share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the
period, after giving retroactive effect to stock splits and dividends.
14
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant Accounting Policies, continued
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income includes unrealized gains and losses on
securities available for sale and changes in the funded status of the pension plan which are also recognized as separate components of equity. The accumulated balances related to each component of other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Unrealized Gains
And (Losses)
On Available for
Sale Securities
|
|
|
Defined Benefit
Pension Items
|
|
|
Total
|
|
Balance, December 31, 2016
|
|
$
|
(574
|
)
|
|
$
|
(780
|
)
|
|
$
|
(1,354
|
)
|
Other comprehensive gain before reclassifications
|
|
|
347
|
|
|
|
|
|
|
|
347
|
|
Amounts reclassified from accumulated other comprehensive gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2017
|
|
$
|
(227
|
)
|
|
$
|
(780
|
)
|
|
$
|
(1,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
$
|
(523
|
)
|
|
$
|
(987
|
)
|
|
$
|
(1,510
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(476
|
)
|
|
|
|
|
|
|
(476
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2018
|
|
$
|
(996
|
)
|
|
$
|
(987
|
)
|
|
$
|
(1,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance
Sheet Credit Related Financial Instruments
In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under line of credit arrangements,
commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.
Fair Value of Financial
Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in
Note 8. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.
Reclassification
Certain reclassifications have
been made to the prior years financial statements to place them on a comparable basis with the current presentation. Net income and stockholders equity previously reported were not affected by these reclassifications.
15
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant Accounting Policies, continued
Recent Accounting Pronouncements
The following accounting standards may affect the future financial reporting by the Company:
In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an
entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance became effective for the Company for reporting periods
beginning after December 15, 2017.
The Company applied the guidance using a full retrospective approach. The Companys revenue is comprised of
net interest income and noninterest income. The scope of the guidance explicitly excludes net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives. Accordingly, the
majority of our revenues were not affected. The Company has performed an assessment of our revenue contracts related to revenue streams that are within the scope of the standard. Our accounting policies will not change materially since the
principles of revenue recognition from the ASU are largely consistent with existing guidance and current practices applied by our businesses. We have not identified material changes to the timing or amount of revenue recognition. Based on the
updated guidance, we do anticipate changes in our disclosures associated with our revenues. We will provide qualitative disclosures of our performance obligations related to our revenue recognition and we continue to evaluate disaggregation for
significant categories of revenue in the scope of the guidance.
In February 2016, the FASB amended the Leases topic of the Accounting Standards
Codification to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.
We expect to adopt the guidance using the modified retrospective method and practical expedients for transition. The practical expedients allow us to largely
account for our existing leases consistent with current guidance except for the incremental balance sheet recognition for lessees. We have started an initial evaluation of our leasing contracts and activities. We have also started developing our
methodology to estimate the
right-of
use assets and lease liabilities, which is based on the present value of lease payments. (the December 31, 2017 future minimum lease payments were approximately $135
thousand). We do not expect a material change to the timing of expense recognition, but we are early in the implementation process and will continue to evaluate the impact. We are evaluating our existing disclosures and may need to provide
additional information as a result of adoption of the ASU.
In June 2016, the FASB issued guidance to change the accounting for credit losses and modify
the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for all organizations for periods beginning after
December 15, 2018.
The Company will apply the amendments to the ASU through a cumulative-effect adjustment to retained earnings as of the beginning
of the year of adoption. While early adoption is permitted beginning in first quarter 2019, we do not expect to elect that option. We are evaluating the impact of the ASU on our consolidated financial statements. We expect the ASU will result in an
increase in the recorded allowance for loan losses given the change to estimated losses over the contractual life of the loans adjusted for expected prepayments. The majority of the increase results from longer duration portfolios. In addition to
our allowance for loan losses, we will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolios composition and
credit quality at the adoption date as well as economic conditions and forecasts at that time.
16
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant Accounting Policies, continued
Recent Accounting Pronouncements, continued
In January 2017, the FASB updated the Accounting Changes and Error Corrections and the
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 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.
In September 2017, the FASB updated the Revenue from Contracts with Customers and the Leases Topics of the Accounting Standards Codification. The amendments
incorporate into the Accounting Standards Codification recent SEC guidance about certain public business entities (PBEs) electing to use the
non-PBE
effective dates solely to adopt the FASBs new
standards on revenue and leases. The amendments were effective upon issuance. The Company is currently in the process of evaluating the impact of adoption of this guidance, however it does not expect these amendments to have a material effect on its
financial statements.
In November 2017, the FASB updated the Income Statement and Revenue from Contracts with Customers Topics of the Accounting
Standards Codification. The amendments incorporate into the Accounting Standards Codification recent SEC guidance related to revenue recognition. The amendments were effective upon issuance. The Company is currently evaluating the impact on revenue
recognition, however it does not expect these amendments to have a material effect on its financial statements.
In February 2018, the FASB amended the
Financial Instruments Topic of the Accounting Standards Codification. The amendments clarify certain aspects of the guidance issued in ASU
2016-01.
The amendments are effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018 -public business entities. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years, as long as they have adopted ASU
2016-01.
The Company does not expect these amendments to have a material effect on its financial statements.
17
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Summary of Significant Accounting Policies, continued
Recent Accounting Pronouncements, continued
In March 2018, the FASB updated the Debt Securities and the Regulated Operations Topics of the Accounting
Standards Codification. The amendments incorporate into the Accounting Standards Codification recent SEC guidance which was issued in order to make the relevant interpretive guidance consistent with current authoritative accounting and auditing
guidance and SEC rules and regulations. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.
In March 2018, the FASB updated the Income Taxes Topic of the Accounting Standards Codification. The amendments incorporate into the Accounting Standards
Codification recent SEC guidance related to the income tax accounting implications of the Tax Cuts and Jobs Act. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial
statements
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material
impact on the Companys consolidated financial position, results of operations or cash flows.
18
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 2. Investment Securities
Debt and equity securities have been classified in the consolidated balance sheets according to managements intent. The amortized cost of securities and
their approximate fair values at March 31, 2018 and December 31, 2017 follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
27,799
|
|
|
$
|
|
|
|
$
|
(1,030
|
)
|
|
$
|
26,769
|
|
Corporate securities
|
|
|
3,004
|
|
|
|
|
|
|
|
(124
|
)
|
|
|
2,880
|
|
State and municipal securities
|
|
|
19,401
|
|
|
|
73
|
|
|
|
(180
|
)
|
|
|
19,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,204
|
|
|
$
|
73
|
|
|
$
|
(1,334
|
)
|
|
$
|
48,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
28,780
|
|
|
$
|
|
|
|
$
|
(626
|
)
|
|
$
|
28,154
|
|
Corporate securities
|
|
|
3,016
|
|
|
|
|
|
|
|
(80
|
)
|
|
|
2,936
|
|
State and municipal securities
|
|
|
19,542
|
|
|
|
155
|
|
|
|
(112
|
)
|
|
|
19,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,338
|
|
|
$
|
155
|
|
|
$
|
(818
|
)
|
|
$
|
50,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted equity securities totaled $1.4 million at March 31, 2018 and December 31, 2017. Restricted equity
securities consist of investments in stock of the Federal Home Loan Bank of Atlanta (FHLB), Community Bankers Bank, Pacific Coast Bankers Bank, and the Federal Reserve Bank of Richmond, all of which are carried at cost. All of these entities are
upstream correspondents of the Bank. The FHLB requires financial institutions to make equity investments in the FHLB in order to borrow money. The Bank is required to hold that stock so long as it borrows from the FHLB. The Federal Reserve requires
Banks to purchase stock as a condition for membership in the Federal Reserve System. The 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, 2018 and December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
(dollars in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
14,978
|
|
|
$
|
(555
|
)
|
|
$
|
11,789
|
|
|
$
|
(475
|
)
|
|
$
|
26,767
|
|
|
$
|
(1,030
|
)
|
Corporate securities
|
|
|
1,465
|
|
|
|
(39
|
)
|
|
|
1,415
|
|
|
|
(85
|
)
|
|
|
2,880
|
|
|
|
(124
|
)
|
State and municipal securities
|
|
|
7,352
|
|
|
|
(93
|
)
|
|
|
2,734
|
|
|
|
(87
|
)
|
|
|
10,086
|
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
23,795
|
|
|
$
|
(687
|
)
|
|
$
|
15,938
|
|
|
$
|
(647
|
)
|
|
$
|
39,733
|
|
|
$
|
(1,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
15,791
|
|
|
$
|
(324
|
)
|
|
$
|
12,361
|
|
|
$
|
(302
|
)
|
|
$
|
28,152
|
|
|
$
|
(626
|
)
|
Corporate securities
|
|
|
1,506
|
|
|
|
(10
|
)
|
|
|
1,430
|
|
|
|
(70
|
)
|
|
|
2,936
|
|
|
|
(80
|
)
|
State and municipal securities
|
|
|
5,284
|
|
|
|
(44
|
)
|
|
|
2,758
|
|
|
|
(68
|
)
|
|
|
8,042
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
22,581
|
|
|
$
|
(378
|
)
|
|
$
|
16,549
|
|
|
$
|
(440
|
)
|
|
$
|
39,130
|
|
|
$
|
(818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 2. Investment Securities, continued
At March 31, 2018, 38 debt securities with unrealized losses had depreciated 3.25 percent from
their total amortized cost basis. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length
of time and the extent to which the fair value has been less than cost, and the financial condition and near-term prospects of the issuer. The relative significance of these and other factors will vary on a case by case basis. In analyzing an
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, 2018. Management continues to monitor all of these securities with a high degree of scrutiny. There can be no assurance that the Company will not conclude in future periods that conditions existing at that time
indicate some or all of these securities are other than temporarily impaired, which could require a charge to earnings in such periods.
There were no
sales of investment securities available for sale for the three month periods ended March 31, 2018 or 2017. Gross realized losses for the three month period ended March 31, 2018 resulted from investment securities available for sale being
called prior to their scheduled maturity date. Gross proceeds from called securities totaled $50 thousand for the three month period ended March 31, 2018. Gross realized losses for the three months ended March 31, 2018 and 2017 are as
follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Realized gains
|
|
$
|
|
|
|
$
|
|
|
Realized losses
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
There were no securities transferred between the available for sale and held to maturity portfolios or other sales of held to
maturity securities during the periods presented. In the future management may elect to classify securities as held to maturity based upon such considerations as the nature of the security, the Banks ability to hold the security until
maturity, and general economic conditions.
The scheduled maturities of securities available for sale at March 31, 2018, were as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due in one year or less
|
|
$
|
1,224
|
|
|
$
|
1,225
|
|
Due after one year through five years
|
|
|
10,552
|
|
|
|
10,398
|
|
Due after five years through ten years
|
|
|
19,498
|
|
|
|
18,799
|
|
Due after ten years
|
|
|
18,930
|
|
|
|
18,521
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,204
|
|
|
$
|
48,943
|
|
|
|
|
|
|
|
|
|
|
Maturities of mortgage backed securities are based on contractual amounts. Actual maturity will vary as loans underlying the
securities are prepaid.
Investment securities with amortized cost of approximately $11.1 million and $11.2 million at March 31, 2018 and
December 31, 2017, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
20
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 3. Loans Receivable
The major components of loans in the consolidated balance sheets at March 31, 2018 and December 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Construction & development
|
|
$
|
26,338
|
|
|
$
|
25,475
|
|
Farmland
|
|
|
33,770
|
|
|
|
33,353
|
|
Residential
|
|
|
194,141
|
|
|
|
199,120
|
|
Commercial mortgage
|
|
|
130,299
|
|
|
|
125,661
|
|
Commercial & agricultural
|
|
|
26,731
|
|
|
|
25,672
|
|
Consumer & other
|
|
|
14,824
|
|
|
|
15,590
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
426,103
|
|
|
|
424,871
|
|
Allowance for loan losses
|
|
|
(3,415
|
)
|
|
|
(3,453
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net of allowance for loan losses
|
|
$
|
422,688
|
|
|
$
|
421,418
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018 and December 31, 2017, substantially all of the Banks residential
1-4
family loans were pledged as collateral for borrowing lines at the Federal Home Loan Bank of Atlanta.
Note 4.
Allowance for Loan Losses and Impaired Loans
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed to be sufficient to provide for estimated loan losses based on evaluating known and inherent
risks in the loan portfolio. The allowance is provided based upon 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.
21
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 4. Allowance for Loan Losses and Impaired Loans, continued
Allowance for Loan Losses, continued
The following table presents activity in the allowance by loan category and information on the loans
evaluated individually for impairment and collectively evaluated for impairment as of March 31, 2018 and December 31, 2017:
Allowance for Loan Losses and Recorded Investment in Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Construction
&
Development
|
|
|
Farmland
|
|
|
Residential
|
|
|
Commercial
Mortgage
|
|
|
Commercial
&
Agricultural
|
|
|
Consumer
& Other
|
|
|
Total
|
|
For the Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
$
|
239
|
|
|
$
|
358
|
|
|
$
|
1,875
|
|
|
$
|
619
|
|
|
$
|
282
|
|
|
$
|
80
|
|
|
$
|
3,453
|
|
Charge-offs
|
|
|
(12
|
)
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
(148
|
)
|
Recoveries
|
|
|
|
|
|
|
34
|
|
|
|
10
|
|
|
|
|
|
|
|
2
|
|
|
|
10
|
|
|
|
56
|
|
Provision
|
|
|
20
|
|
|
|
(70
|
)
|
|
|
128
|
|
|
|
(10
|
)
|
|
|
(17
|
)
|
|
|
3
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2018
|
|
$
|
247
|
|
|
$
|
322
|
|
|
$
|
1,896
|
|
|
$
|
609
|
|
|
$
|
267
|
|
|
$
|
74
|
|
|
$
|
3,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
319
|
|
|
$
|
342
|
|
|
$
|
1,841
|
|
|
$
|
600
|
|
|
$
|
210
|
|
|
$
|
108
|
|
|
$
|
3,420
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
(57
|
)
|
Recoveries
|
|
|
56
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
27
|
|
|
|
7
|
|
|
|
105
|
|
Provision
|
|
|
(26
|
)
|
|
|
59
|
|
|
|
24
|
|
|
|
86
|
|
|
|
(7
|
)
|
|
|
(28
|
)
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
|
$
|
349
|
|
|
$
|
401
|
|
|
$
|
1,880
|
|
|
$
|
644
|
|
|
$
|
230
|
|
|
$
|
72
|
|
|
$
|
3,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
247
|
|
|
$
|
322
|
|
|
$
|
1,896
|
|
|
$
|
609
|
|
|
$
|
267
|
|
|
$
|
74
|
|
|
$
|
3,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
39
|
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
247
|
|
|
$
|
283
|
|
|
$
|
1,863
|
|
|
$
|
609
|
|
|
$
|
267
|
|
|
$
|
74
|
|
|
$
|
3,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
26,338
|
|
|
$
|
33,770
|
|
|
$
|
194,141
|
|
|
$
|
130,299
|
|
|
$
|
26,731
|
|
|
$
|
14,824
|
|
|
$
|
426,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
4,751
|
|
|
$
|
1,455
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment
|
|
$
|
26,338
|
|
|
$
|
29,019
|
|
|
$
|
192,686
|
|
|
$
|
130,299
|
|
|
$
|
26,731
|
|
|
$
|
14,824
|
|
|
$
|
419,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
239
|
|
|
$
|
358
|
|
|
$
|
1,875
|
|
|
$
|
619
|
|
|
$
|
282
|
|
|
$
|
80
|
|
|
$
|
3,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
49
|
|
|
$
|
42
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
239
|
|
|
$
|
309
|
|
|
$
|
1,833
|
|
|
$
|
619
|
|
|
$
|
282
|
|
|
$
|
80
|
|
|
$
|
3,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
25,475
|
|
|
$
|
33,353
|
|
|
$
|
199,120
|
|
|
$
|
125,661
|
|
|
$
|
25,672
|
|
|
$
|
15,590
|
|
|
$
|
424,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
5,069
|
|
|
$
|
1,556
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
25,475
|
|
|
$
|
28,284
|
|
|
$
|
197,564
|
|
|
$
|
125,661
|
|
|
$
|
25,672
|
|
|
$
|
15,590
|
|
|
$
|
418,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018 and December 31, 2017, the Bank had no unallocated reserves included in the allowance for loan
losses.
22
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 4. Allowance for Loan Losses and Impaired Loans, continued
Allowance for Loan Losses, continued
Management closely monitors the quality of the loan portfolio and has established a loan review process
designed to help grade the quality of the 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, 2018 and December 31, 2017, respectively, the Bank had no loans graded Doubtful or Loss included in the balance of total loans outstanding.
The following table lists the loan grades utilized by the Bank and the corresponding total of outstanding loans in each category as of March 31, 2018 and
December 31, 2017:
Credit Risk Profile by Internally Assigned Grades
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Grades
|
|
|
|
|
(dollars in thousands)
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Total
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
$
|
25,279
|
|
|
$
|
861
|
|
|
$
|
|
|
|
$
|
198
|
|
|
$
|
26,338
|
|
Farmland
|
|
|
24,548
|
|
|
|
5,523
|
|
|
|
74
|
|
|
|
3,625
|
|
|
|
33,770
|
|
Residential
|
|
|
178,153
|
|
|
|
12,931
|
|
|
|
509
|
|
|
|
2,548
|
|
|
|
194,141
|
|
Commercial mortgage
|
|
|
111,115
|
|
|
|
15,911
|
|
|
|
683
|
|
|
|
2,590
|
|
|
|
130,299
|
|
Non-Real
Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
23,781
|
|
|
|
2,304
|
|
|
|
142
|
|
|
|
504
|
|
|
|
26,731
|
|
Consumer & other
|
|
|
14,418
|
|
|
|
323
|
|
|
|
|
|
|
|
83
|
|
|
|
14,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
377,294
|
|
|
$
|
37,853
|
|
|
$
|
1,408
|
|
|
$
|
9,548
|
|
|
$
|
426,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
$
|
24,612
|
|
|
$
|
652
|
|
|
$
|
|
|
|
$
|
211
|
|
|
$
|
25,475
|
|
Farmland
|
|
|
23,935
|
|
|
|
4,895
|
|
|
|
74
|
|
|
|
4,449
|
|
|
|
33,353
|
|
Residential
|
|
|
183,543
|
|
|
|
12,464
|
|
|
|
200
|
|
|
|
2,913
|
|
|
|
199,120
|
|
Commercial mortgage
|
|
|
106,102
|
|
|
|
15,291
|
|
|
|
1,611
|
|
|
|
2,657
|
|
|
|
125,661
|
|
Non-Real
Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
22,446
|
|
|
|
2,057
|
|
|
|
649
|
|
|
|
520
|
|
|
|
25,672
|
|
Consumer & other
|
|
|
15,262
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
15,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
375,900
|
|
|
$
|
35,687
|
|
|
$
|
2,534
|
|
|
$
|
10,750
|
|
|
$
|
424,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 4. Allowance for Loan Losses and Impaired Loans, continued
Loans may be placed in nonaccrual status when, in 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, 2018 and December 31, 2017:
Analysis of Past Due and Nonaccrual
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
90 Days
or More
Past Due
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total
Loans
|
|
|
90+ Days
Past Due
and Still
Accruing
|
|
|
Nonaccrual
Loans
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
214
|
|
|
$
|
214
|
|
|
$
|
26,124
|
|
|
$
|
26,338
|
|
|
$
|
|
|
|
$
|
214
|
|
Farmland
|
|
|
|
|
|
|
592
|
|
|
|
|
|
|
|
592
|
|
|
|
33,178
|
|
|
|
33,770
|
|
|
|
|
|
|
|
3,170
|
|
Residential
|
|
|
479
|
|
|
|
248
|
|
|
|
459
|
|
|
|
1,186
|
|
|
|
192,955
|
|
|
|
194,141
|
|
|
|
|
|
|
|
955
|
|
Commercial mortgage
|
|
|
41
|
|
|
|
|
|
|
|
194
|
|
|
|
235
|
|
|
|
130,064
|
|
|
|
130,299
|
|
|
|
|
|
|
|
194
|
|
Non-Real
Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
2
|
|
|
|
6
|
|
|
|
23
|
|
|
|
31
|
|
|
|
26,700
|
|
|
|
26,731
|
|
|
|
|
|
|
|
89
|
|
Consumer & other
|
|
|
22
|
|
|
|
2
|
|
|
|
|
|
|
|
24
|
|
|
|
14,800
|
|
|
|
14,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
544
|
|
|
$
|
848
|
|
|
$
|
890
|
|
|
$
|
2,282
|
|
|
$
|
423,821
|
|
|
$
|
426,103
|
|
|
$
|
|
|
|
$
|
4,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
227
|
|
|
$
|
227
|
|
|
$
|
25,248
|
|
|
$
|
25,475
|
|
|
$
|
|
|
|
$
|
226
|
|
Farmland
|
|
|
188
|
|
|
|
|
|
|
|
308
|
|
|
|
496
|
|
|
|
32,857
|
|
|
|
33,353
|
|
|
|
|
|
|
|
3,610
|
|
Residential
|
|
|
395
|
|
|
|
334
|
|
|
|
710
|
|
|
|
1,439
|
|
|
|
197,681
|
|
|
|
199,120
|
|
|
|
|
|
|
|
1,211
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
194
|
|
|
|
194
|
|
|
|
125,467
|
|
|
|
125,661
|
|
|
|
|
|
|
|
194
|
|
Non-Real
Estate Secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
70
|
|
|
|
|
|
|
|
23
|
|
|
|
93
|
|
|
|
25,579
|
|
|
|
25,672
|
|
|
|
|
|
|
|
94
|
|
Consumer & other
|
|
|
2
|
|
|
|
24
|
|
|
|
|
|
|
|
26
|
|
|
|
15,564
|
|
|
|
15,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
655
|
|
|
$
|
358
|
|
|
$
|
1,462
|
|
|
$
|
2,475
|
|
|
$
|
422,396
|
|
|
$
|
424,871
|
|
|
$
|
|
|
|
$
|
5,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
A
loan is considered impaired when it is probable that the Bank will be unable to collect all contractual principal and interest payments due in accordance with the original or modified terms of the loan agreement. Smaller balance homogenous loans may
be collectively evaluated for impairment.
Non-homogenous
impaired loans are either measured based on the estimated fair value of the collateral less estimated cost to sell if the loan is considered collateral
dependent, or measured based on the present value of expected future cash flows if not collateral dependent. The valuation of real estate collateral is subjective in nature and may be adjusted in future periods because of changes in economic
conditions. Management considers third-party appraisals, as well as independent fair market value assessments in determining the estimated fair value of particular properties. In addition, as certain of these third-party appraisals and independent
fair market value assessments are only updated periodically, changes in the values of specific properties may have occurred subsequent to the most recent appraisals. Accordingly, the amounts of any such potential changes and any related adjustments
are generally recorded at the time such information is received. When the measurement of the impaired loan is less than the recorded investment in the loan, impairment is recognized by creating or adjusting an allocation of the allowance for loan
losses and uncollected accrued interest is reversed against interest income. If ultimate collection of principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance.
24
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 4. Allowance for Loan Losses and Impaired Loans, continued
Impaired Loans, continued
As of March 31, 2018 and December 31, 2017, respectively, the recorded investment in impaired loans
totaled $11.6 million and $12.3 million. The total amount of collateral-dependent impaired loans at March 31, 2018 and December 31, 2017, respectively, was $3.3 million and $3.7 million. As of March 31, 2018 and
December 31, 2017, respectively, $3.3 million and $3.7 million of the recorded investment in impaired loans did not have a related allowance. The Bank had $8.3 million and $8.6 million in troubled debt restructured loans
included in impaired loans at March 31, 2018 and December 31, 2017, respectively.
The categories of
non-accrual
loans and impaired loans overlap, although they are not coextensive. The Bank considers all circumstances regarding the loan and borrower on an individual basis when determining whether an impaired
loan should be placed on
non-accrual
status, such as the financial strength of the borrower, the estimated collateral value, reasons for the delay, payment record, the amount past due and the number of days
past due.
In 2015, management began collectively evaluating performing TDRs with a loan balance of $250,000 or less for impairment. As of March 31,
2018 and December 31, 2017, respectively, $5.4 million and $5.7 million of TDRs included in the following table were evaluated collectively for impairment and were deemed to have $289 thousand and $303 thousand of related
allowance.
The following table is a summary of information related to impaired loans as of March 31, 2018 and December 31, 2017:
Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
(dollars in thousands)
|
|
Recorded
Investment
1
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Farmland
|
|
|
3,119
|
|
|
|
3,119
|
|
|
|
|
|
|
|
3,271
|
|
|
|
1
|
|
Residential
|
|
|
213
|
|
|
|
299
|
|
|
|
|
|
|
|
256
|
|
|
|
2
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,332
|
|
|
|
3,444
|
|
|
|
|
|
|
|
3,527
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
|
357
|
|
|
|
357
|
|
|
|
16
|
|
|
|
359
|
|
|
|
3
|
|
Farmland
|
|
|
1,917
|
|
|
|
1,917
|
|
|
|
48
|
|
|
|
1,926
|
|
|
|
26
|
|
Residential
|
|
|
5,381
|
|
|
|
5,573
|
|
|
|
261
|
|
|
|
5,612
|
|
|
|
72
|
|
Commercial mortgage
|
|
|
596
|
|
|
|
680
|
|
|
|
33
|
|
|
|
599
|
|
|
|
5
|
|
Commercial & agricultural
|
|
|
51
|
|
|
|
51
|
|
|
|
3
|
|
|
|
53
|
|
|
|
1
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
8,302
|
|
|
|
8,578
|
|
|
|
361
|
|
|
|
8,549
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
|
357
|
|
|
|
357
|
|
|
|
16
|
|
|
|
359
|
|
|
|
3
|
|
Farmland
|
|
|
5,036
|
|
|
|
5,036
|
|
|
|
48
|
|
|
|
5,197
|
|
|
|
27
|
|
Residential
|
|
|
5,594
|
|
|
|
5,872
|
|
|
|
261
|
|
|
|
5,868
|
|
|
|
74
|
|
Commercial mortgage
|
|
|
596
|
|
|
|
680
|
|
|
|
33
|
|
|
|
599
|
|
|
|
5
|
|
Commercial & agricultural
|
|
|
51
|
|
|
|
77
|
|
|
|
3
|
|
|
|
53
|
|
|
|
9
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,634
|
|
|
$
|
12,022
|
|
|
$
|
361
|
|
|
$
|
12,076
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Recorded investment is the loan balance, net of any charge-offs
|
25
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 4. Allowance for Loan Losses and Impaired Loans, continued
Impaired Loans, continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Recorded
Investment
1
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Farmland
|
|
|
3,422
|
|
|
|
3,456
|
|
|
|
|
|
|
|
3,774
|
|
|
|
10
|
|
Residential
|
|
|
300
|
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
|
|
8
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,722
|
|
|
|
3,782
|
|
|
|
|
|
|
|
4,101
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
|
361
|
|
|
|
361
|
|
|
|
16
|
|
|
|
718
|
|
|
|
111
|
|
Farmland
|
|
|
1,936
|
|
|
|
1,936
|
|
|
|
58
|
|
|
|
2,224
|
|
|
|
135
|
|
Residential
|
|
|
5,647
|
|
|
|
5,832
|
|
|
|
284
|
|
|
|
6,209
|
|
|
|
290
|
|
Commercial mortgage
|
|
|
602
|
|
|
|
737
|
|
|
|
33
|
|
|
|
1,020
|
|
|
|
54
|
|
Commercial & agricultural
|
|
|
55
|
|
|
|
55
|
|
|
|
3
|
|
|
|
89
|
|
|
|
13
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
8,601
|
|
|
|
8,921
|
|
|
|
394
|
|
|
|
10,262
|
|
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
|
361
|
|
|
|
361
|
|
|
|
16
|
|
|
|
718
|
|
|
|
111
|
|
Farmland
|
|
|
5,358
|
|
|
|
5,392
|
|
|
|
58
|
|
|
|
5,998
|
|
|
|
145
|
|
Residential
|
|
|
5,947
|
|
|
|
6,132
|
|
|
|
284
|
|
|
|
6,509
|
|
|
|
298
|
|
Commercial mortgage
|
|
|
602
|
|
|
|
737
|
|
|
|
33
|
|
|
|
1,020
|
|
|
|
54
|
|
Commercial & agricultural
|
|
|
55
|
|
|
|
81
|
|
|
|
3
|
|
|
|
116
|
|
|
|
13
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,323
|
|
|
$
|
12,703
|
|
|
$
|
394
|
|
|
$
|
14,363
|
|
|
$
|
623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Recorded investment is the loan balance, net of any charge-offs
|
Troubled Debt Restructuring
A troubled debt restructured loan is a loan for which the Bank, for reasons related to the 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.
26
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 4. Loans and the Allowance for Loan Losses, continued
Troubled Debt Restructuring, continued
The following table sets forth information with respect to the Banks troubled debt restructurings as of
March 31, 2018 and March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs identified during the period
|
|
|
TDRs identified in the last twelve
months that subsequently defaulted
(1)
|
|
(dollars in thousands)
|
|
Number
of
contracts
|
|
|
Pre-
modification
outstanding
recorded
investment
|
|
|
Post-
modification
outstanding
recorded
investment
|
|
|
Number
of
contracts
|
|
|
Pre-
modification
outstanding
recorded
investment
|
|
|
Post-
modification
outstanding
recorded
investment
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Loans past due 30 days or more are considered to be in default.
|
During the three months ended
March 31, 2018, no loans were modified that were considered to be TDRs. No TDRs identified in the last twelve months subsequently defaulted in the quarter ended March 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs identified during the period
|
|
|
TDRs identified in the last twelve
months that subsequently defaulted
(1)
|
|
(dollars in thousands)
|
|
Number
of
contracts
|
|
|
Pre-
modification
outstanding
recorded
investment
|
|
|
Post-
modification
outstanding
recorded
investment
|
|
|
Number
of
contracts
|
|
|
Pre-
modification
outstanding
recorded
investment
|
|
|
Post-
modification
outstanding
recorded
investment
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & development
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Farmland
|
|
|
1
|
|
|
|
150
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
150
|
|
|
$
|
150
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Loans past due 30 days or more are considered to be in default.
|
During the three months ended
March 31, 2017, one loan was modified that was considered to be TDRs. Term concession only was granted and no additional funds were advanced. No TDRs identified in the last twelve months subsequently defaulted in the quarter ended
March 31, 2017.
27
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 5. Employee Benefit Plan
The Bank has a qualified noncontributory defined benefit pension plan that covers substantially all of its employees. Effective December 31, 2012, the
pension plan was amended to freeze benefit accruals for all eligible employees. The following is a summary of net periodic pension costs for the three-month periods ended March 31, 2018 and 2017.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
43
|
|
|
|
48
|
|
Expected return on plan assets
|
|
|
(144
|
)
|
|
|
(138
|
)
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
Recognized net loss due to settlement
|
|
|
|
|
|
|
|
|
Recognized net actuarial (gain)/loss
|
|
|
8
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(93
|
)
|
|
$
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
It has been Company practice to contribute the 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, 2017 and there is no required contribution for 2018. Based on this we do not
anticipate making a contribution to the plan in 2018.
Note 6. Intangible Assets
The following table presents the gross carrying amount and accumulated amortization for the Companys core deposit intangible assets, which are the only
identifiable intangible assets subject to amortization. Core deposit intangibles at March 31, 2018 and December 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Gross carrying amount
|
|
$
|
2,469
|
|
|
$
|
2,469
|
|
Accumulated amortization
|
|
|
494
|
|
|
|
424
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
$
|
1,975
|
|
|
$
|
2,045
|
|
|
|
|
|
|
|
|
|
|
Note 7. Commitments and Contingencies
Litigation
In the normal course of business the
Bank is involved in various legal proceedings. After consultation with legal counsel, management believes that any liability resulting from such proceedings will not be material to the consolidated financial statements.
Financial Instruments 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.
28
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
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, 2018 and December 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Commitments to extend credit
|
|
$
|
54,169
|
|
|
$
|
56,912
|
|
Standby letters of credit
|
|
|
1,043
|
|
|
|
1,106
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,212
|
|
|
$
|
58,018
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates each 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 3. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit are granted primarily to commercial borrowers. The 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.
29
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 8. Financial Instruments
The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Companys financial instruments not recorded at
fair value on a recurring basis as of March 31, 2018 and December 31, 2017. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents,
the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For
non-marketable
equity securities such as
Federal Home Loan Bank and Federal Reserve Bank stock, the carrying amount is a reasonable estimate of the fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government supported
institution or to another member institution. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no
stated maturity.
For loans, the carrying amount is net of unearned income and the allowance for loan losses. In accordance with the prospective adoption
of ASU
No. 2016-01,
the fair value of loans as of March 31, 2018 was measured using an exit price notion. The fair value of loans as of December 31, 2017 was measured using an entry price
notion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
(dollars in thousands)
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets or
Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
422,688
|
|
|
$
|
420,400
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
420,400
|
|
|
|
|
|
|
|
Financial Instruments Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
144,498
|
|
|
|
140,369
|
|
|
|
|
|
|
|
140,369
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
421,418
|
|
|
$
|
417,229
|
|
|
$
|
|
|
|
$
|
416,426
|
|
|
$
|
803
|
|
|
|
|
|
|
|
Financial Instruments Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
147,725
|
|
|
|
144,656
|
|
|
|
|
|
|
|
144,656
|
|
|
|
|
|
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine
fair value disclosures. Securities available for sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as
loans or foreclosed assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
30
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 8. Financial Instruments, continued
Fair Value Hierarchy
Under FASB ASC 820, Fair Value Measurements and Disclosures, the Company groups assets and liabilities at fair value in three levels, based on the
markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 Valuation is generated from model-based techniques that use at least one significant assumption not observable in the
market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include the use of option pricing models, discounted cash flow models and similar
techniques.
Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.
Investment Securities Available for Sale
Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If
quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the 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 March 31, 2018, a small
percentage of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with accounting standards, impaired loans where an allowance is established based on the fair value of collateral require classification
in the fair value hierarchy. When the fair value of the collateral is based on an observable market price the Company records the impaired loan as nonrecurring Level 2. When the fair value is based on either an external or internal appraisal
and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.
31
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 8. Financial Instruments, continued
Foreclosed Assets
Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of
carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or 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, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
26,769
|
|
|
$
|
|
|
|
$
|
26,769
|
|
|
$
|
|
|
Corporate securities
|
|
|
2,880
|
|
|
|
|
|
|
|
2,880
|
|
|
|
|
|
State and municipal securities
|
|
|
19,294
|
|
|
|
|
|
|
|
19,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
48,943
|
|
|
$
|
|
|
|
$
|
48,943
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
28,154
|
|
|
$
|
|
|
|
$
|
28,154
|
|
|
$
|
|
|
Corporate securities
|
|
|
2,936
|
|
|
|
|
|
|
|
2,936
|
|
|
|
|
|
State and municipal securities
|
|
|
19,585
|
|
|
|
|
|
|
|
19,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
50,675
|
|
|
$
|
|
|
|
$
|
50,675
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No liabilities were recorded at fair value on a recurring basis as of March 31, 2018 and December 31, 2017. There
were no significant transfers between levels during the three month period ended March 31, 2018 and the year ended December 31, 2017.
Assets Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with U.S.
generally accepted accounting principles. These include assets and liabilities that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. No liabilities were recorded at fair value on a
nonrecurring basis at March 31, 2018 and December 31, 2017. Assets measured at fair value on a nonrecurring basis are included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
503
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
503
|
|
Foreclosed assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
503
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 8. Financial Instruments, continued
Assets Recorded at Fair Value on a Nonrecurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
803
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
803
|
|
Foreclosed assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
803
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Level 3 assets measured at fair value on a recurring or
non-recurring
basis
as of March 31, 2018 and December 31, 2017, the significant unobservable inputs used in the fair value measurements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
March 31,
2018
|
|
|
Fair Value at
December 31,
2017
|
|
|
Valuation Technique
|
|
Significant
Unobservable
Inputs
|
|
General Range
of Significant
Unobservable
Input Values
|
|
Impaired Loans
|
|
$
|
503
|
|
|
$
|
803
|
|
|
Appraised Value/Discounted Cash Flows/Market Value of Note
|
|
Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell
|
|
|
0 10
|
%
|
|
|
|
|
|
|
Other Real Estate Owned
|
|
$
|
|
|
|
$
|
|
|
|
Appraised Value/Comparable Sales/Other Estimates from Independent Sources
|
|
Discounts to reflect current market conditions and estimated costs to sell
|
|
|
0 10
|
%
|
33
Parkway Acquisition Corp. and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Note 9. Capital Requirements
The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve 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, 2018 and December 31,
2017, respectively. These ratios comply with Federal Reserve rules to align with the Basel III Capital requirements effective January 1, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
To Be Well-
Capitalized
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk weighted assets)
|
|
$
|
57,353
|
|
|
|
13.11
|
%
|
|
$
|
34,998
|
|
|
|
8.00
|
%
|
|
$
|
43,748
|
|
|
|
10.00
|
%
|
Tier 1 Capital (to risk weighted assets)
|
|
$
|
53,908
|
|
|
|
12.32
|
%
|
|
$
|
26,249
|
|
|
|
6.00
|
%
|
|
$
|
34,998
|
|
|
|
8.00
|
%
|
Common Equity Tier 1 (to risk weighted assets)
|
|
$
|
53,908
|
|
|
|
12.32
|
%
|
|
$
|
19,686
|
|
|
|
4.50
|
%
|
|
$
|
28,436
|
|
|
|
6.50
|
%
|
Tier 1 Capital (to average total assets)
|
|
$
|
53,908
|
|
|
|
10.00
|
%
|
|
$
|
21,557
|
|
|
|
4.00
|
%
|
|
$
|
26,947
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk weighted assets)
|
|
$
|
56,962
|
|
|
|
13.14
|
%
|
|
$
|
34,688
|
|
|
|
8.00
|
%
|
|
$
|
43,360
|
|
|
|
10.00
|
%
|
Tier 1 Capital (to risk weighted assets)
|
|
$
|
53,483
|
|
|
|
12.33
|
%
|
|
$
|
26,016
|
|
|
|
6.00
|
%
|
|
$
|
34,688
|
|
|
|
8.00
|
%
|
Common Equity Tier 1 (to risk weighted assets)
|
|
$
|
53,483
|
|
|
|
12.33
|
%
|
|
$
|
19,512
|
|
|
|
4.50
|
%
|
|
$
|
28,184
|
|
|
|
6.50
|
%
|
Tier 1 Capital (to average total assets)
|
|
$
|
53,483
|
|
|
|
9.81
|
%
|
|
$
|
21,808
|
|
|
|
4.00
|
%
|
|
$
|
27,260
|
|
|
|
5.00
|
%
|
Note 10. Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events
are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.
Non-recognized
subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has evaluated events occurring
subsequent to the balance sheet date through the date these financial statements were issued, determining no events require additional disclosure in these consolidated financial statements.
34
Part I. Financial Information