Parkway Acquisition Corp. Announces Third Quarter 2022 Results

FLOYD, Va. and INDEPENDENCE, Va., Nov. 2, 2022 /PRNewswire/ -- Parkway Acquisition Corp. ("Parkway" or the "Company") (OTC-QX: PKKW) – the holding company for Skyline National Bank ("Skyline" or the "Bank") – announced its results of operations for the third quarter of 2022. 

Parkway recorded net income of $2.8 million, or $0.50 per share, for the quarter ended September 30, 2022, compared to net income of $2.7 million, or $0.45 per share, for the same period in 2021.  For the nine months ended September 30, 2022, net income was $7.4 million, or $1.32 per share, compared to net income of $6.8 million, or $1.14 per share, for the nine months ended September 30, 2021.  Third quarter 2022 earnings represented an annualized return on average assets ("ROAA") of 1.07% and an annualized return on average equity ("ROAE") of 14.69%, compared to 1.11% and 12.13%, respectively, for the same period last year. 

President and CEO Blake Edwards stated, "We are pleased to report strong earnings for the third quarter and first nine months of 2022.  Recent increases in interest rates helped expand our net interest margin from 3.54% in the second quarter to 3.70% in the third quarter.  Our earnings, combined with a reduction in shares outstanding, resulted in an increase in earnings per share of 15.79% for the first nine months of 2022 compared to the first nine months of 2021.  Our focus of growing our core banking business, including core loans, while navigating pandemic-related challenges, allowed us to grow earnings despite the depletion of PPP-related revenues that contributed significantly to earnings in 2021 and the first half of 2022.  While PPP loans fell by $37.7 million from September 30, 2021 to September 30, 2022, our core loans have grown by $92.5 million, or 14.41%.  Through the first nine months of 2022 our core loans have grown at an annualized rate of 16.50%.  Further interest rate increases by the Federal Reserve, which we anticipate in the near term, will continue to enhance asset yields; however, the unprecedented level and pace of rate increases may dampen activity in commercial and mortgage lending as we end the year and move into 2023."

Edwards continued, "While assets have repriced at a faster pace than liabilities, we are now beginning to see increased competition for deposits and a resulting increase in the interest rates being paid for deposits in all of our markets.  Our strategy in recent years has been to focus on growing our lower-cost core deposits with less reliance on higher-yielding time deposits, which has resulted in almost 35% of our deposits being in non-interest bearing checking accounts as of September 30, 2022.  While interest-bearing deposits decreased by $21.0 million during the quarter, this decrease was partially offset by continued growth of $13.0 million in noninterest-bearing deposits.  We expect this competition for deposits to continue in the near term and place upward pressure on deposit rates and overall funding costs.  Despite concerns around rate increases and economic activity, I believe we remain well positioned for growth and success in the future and know that our employees will continue to deliver on our brand promise of being "Always our Best" for our customers each and every day."

Highlights

• Net income was $2.8 million, or $0.50 per share, in the third quarter of 2022, compared to $2.7 million, or $0.45 per share, in the third quarter of 2021.
• Net interest margin ("NIM") was 3.70% for the third quarter of 2022, compared to 3.54% in the second quarter of 2022, and 3.60% in the third quarter of 2021.
• Total assets increased $27.9 million, or 2.80%, to $1.02 billion at September 30, 2022 from $995.8 million at December 31, 2021, and increased by $43.5 million, or 4.45%, from $980.2 million a year earlier.
• Net loans were $732.8 million at September 30, 2022, an increase of $54.9 million, or 8.10%, when compared to $677.9 million at December 31, 2021, and an increase of $52.2 million, or 7.67%, when compared to $680.6 million at September 30, 2021.
• Total deposits were $945.7 million at September 30, 2022, an increase of $47.5 million, or 5.28%, from $898.2 million at December 31, 2021, and an increase of $67.4 million, or 7.68%, from $878.3 million at September 30, 2021.
• Annualized return on average assets decreased to 1.07% for the quarter ended September 30, 2022, from 1.11% for the quarter ended September 30, 2021, due mainly to growth in total assets. Annualized return on average equity increased to 14.69% for the quarter ended September 30, 2022, from 12.13% for the quarter ended September 30, 2021.

Third Quarter, First Nine Months of 2022 Income Statement Review

Net interest income after provision for loan losses in the third quarter of 2022 was $8.8 million, compared to $7.9 million in the third quarter of 2021, primarily reflecting increased interest income and a reduction in interest expense.  Total interest income was $9.4 million in the third quarter of 2022, representing an increase of $728 thousand in comparison to the third quarter of 2021.  Interest income on loans decreased in the quarterly comparison by $42 thousand, primarily due to a decrease in SBA-PPP related interest and fees of $1.1 million from the year ago period.  From September 30, 2021 to September 30, 2022, SBA-PPP loans decreased by $37.7 million; however, this decrease has been offset by higher yielding organic loan growth of $92.5 million.  Management anticipates that this loan growth, in addition to higher rates in the current year, will have a positive impact on both earning assets and loan yields.  Interest income on securities increased by $444 thousand in the quarterly comparison, as a result of the $58.0 million increase in the securities portfolio, excluding market value changes, from the year ago period.  The Company also successfully reduced interest expense on deposits by $182 thousand, or 32.73%, in the quarterly comparison, reflecting rate reductions in deposit offerings.  Management anticipates that interest expense will increase in the near term as competitive pressures for deposits may result in increases in rates on deposit offerings, especially on time deposits.

For the first nine months of 2022, net interest income after provision for loan losses was $24.8 million compared to $22.7 million for the first nine months of 2021.  Interest income increased by $1.4 million, primarily due to an increase of $1.2 million in interest income on securities and an increase of $463 thousand in interest income on interest-bearing deposits in banks, which offset a decrease in loan interest income of $169 thousand during the first nine months of 2022, compared to the first nine months of 2021.  Interest income on loans decreased in the nine-month comparison, primarily due to a decrease in SBA-PPP related interest and fees of $1.2 million from the year ago period.  Excluding SBA-PPP related interest and fees of $1.8 million for the first nine months of 2022 and $3.0 for the first nine months of 2021, interest income on loans would have increased $1 million, reflecting our core loan growth as well as the current rate environment.  Interest expense on deposits decreased by $625 thousand for the nine months ended September 30, 2022 compared to the same period last year.  As previously discussed, this is a reflection of the reduced rates for savings and time deposits, as well as a reduction in time deposit balances from a year ago.

Third quarter 2022 noninterest income was $1.6 million compared with $1.8 million in the third quarter of 2021.  Income from service charges and fees increased by $212 thousand, offsetting a $201 thousand decrease in mortgage origination fees as mortgage origination volume has declined compared to the year ago period.  Nonrecurring income of $265 thousand from net realized gains on the sale of securities was recorded in the third quarter of 2021.  Excluding this nonrecurring income of $265 thousand in 2021, noninterest income increased by $22 thousand for the third quarter of 2022 compared to the third quarter of 2021. 

For the nine months ended September 30, 2022 and 2021, noninterest income was $4.7 million and $4.8 million, respectively.  Included in noninterest income for the nine months ended September 30, 2022 was nonrecurring income from life insurance contracts of $217 thousand, and for the nine months ended September 30, 2021, there was nonrecurring income of $200 thousand from a one-time lease termination fee and $265 thousand from net realized gains on the sale of securities.  Excluding these items, noninterest income increased $144 thousand in the nine-month comparison, primarily as a result of increased income from service charges and fees of $715 thousand, partially offset by a decrease of $502 thousand in mortgage origination income.   

Noninterest expenses in both the quarterly comparison and the nine-month comparison were negatively impacted by rising inflation in 2022, and the added cost from branch expansion earlier in the year.  Noninterest expense increased $616 thousand, or 9.80%, from the third quarter of 2021 to the third quarter of 2022.  There was an increase in salary and benefit costs of $230 thousand, while occupancy and equipment expenses increased $232 thousand in the quarterly comparisons.  FDIC assessments increased by $38 thousand to adjust for continued deposit growth, offsetting a decrease in core deposit intangible amortization of $29 thousand in the quarterly comparison.  For the nine-month period ended September 30, 2022, total noninterest expenses increased by $1.3 million compared to the same period in 2021.  Salary and benefit cost increased by $459 thousand, occupancy and equipment expenses increased by $520 thousand, and telephone expense increased by $72 thousand from the first nine months of 2021 to 2022.  FDIC assessments increased by $113 thousand in the nine-month comparison due to continued deposit growth.

Net income before taxes was comparable at $3.5 million and $3.4 million in the quarterly comparison, resulting in income tax expense of $701 thousand for both the three months ended September 30, 2022 and 2021, respectively.  In the nine-month comparison, net income before taxes increased by $626 thousand, resulting in an increase in income tax expense of $45 thousand. 

Balance Sheet Review

Total assets decreased in the third quarter of 2022 by $14.5 million, or 1.40%, to $1.02 billion at September 30, 2022 from $1.04 billion at June 30, 2022, and increased by $27.9 million, or 2.80%, from $995.8 million at December 31, 2021.  The decrease in assets during the third quarter of 2022 was primarily the result of a decrease in deposits of $8.0 million during the quarter and a $9.0 million decrease in the market value of the investment portfolio during the quarter. 

Despite the reduction in total assets, total loans increased during the third quarter by $18.4 million, or 2.55%, to $739.0 million at September 30, 2022 from $720.6 million at June 30, 2022, and increased by $55.5 million, or 8.11%, compared to $683.5 million at December 31, 2021.  Core loan growth during the first nine months of 2022 was at an annualized rate of 16.50%.  SBA-PPP loans decreased by $5.1 million during the third quarter 2022; however, this decrease was offset by higher yielding organic loan growth of $23.7 million during the quarter.  Gross loans at September 30, 2022 included $96 thousand in SBA-PPP loans with net deferred fees of $10 thousand. 

Asset quality has remained strong, with a ratio of nonperforming loans to total loans of 0.24% at September 30, 2022 compared to 0.19% at December 31, 2021.  The allowance for loan losses was approximately 0.83% of total loans as of September 30, 2022 and December 31, 2021, respectively.  Management's estimate of probable credit losses inherent in the acquired Cardinal Bankshares Corporation and Great State Bank loan portfolios was reflected as a purchase discount which will continue to be accreted into income over the remaining life of the acquired loans.  As of September 30, 2022, the remaining unaccreted discount on the acquired loan portfolios totaled $737 thousand.

Investment securities decreased by $11.4 million during the third quarter to $138.5 million at September 30, 2022 from $149.9 million at June 30, 2022, and increased by $8.8 million from $129.7 million at December 31, 2021.  The decrease in the third quarter of 2022 was the result of $2.0 million in purchases, offset by paydowns, calls, and maturities of $4.3 million, and an increase in unrealized losses of $9.0 million as a result of the increase in interest rates during the quarter.

Total deposits decreased in the third quarter of 2022 by $8.0 million, or 0.84%, to $945.7 million at September 30, 2022 from $953.7 million at June 30, 2022, and increased $47.5 million, or 5.28%, compared to $898.2 million at December 31, 2021.  The decrease in deposits during the quarter was a result of a $21.0 million decrease in interest bearing deposits, partially offset by an increase of $13.0 million in noninterest bearing deposits.  The largest balance decline was in money market accounts, which decreased by $27.2 million during the quarter, as competition for deposits has increased.  

Total stockholders' equity decreased by $5.3 million, or 6.98% to $70.5 million at September 30, 2022, from $75.8 million three months earlier, and decreased $14.7 million, or 17.23%, from $85.2 million at December 31, 2021.  The change during the quarter reflects net income of $2.8 million, less dividends paid of $954 thousand, and an unrealized decrease in the value of the securities portfolio as a result of increased interest rates during the quarter.  As interest rates rise, we anticipate continued negative pressure on the market value of our investment portfolio which is recognized on our balance sheet as a reduction in stockholders' equity.  However, management does not anticipate the need to sell any investment securities prior to their scheduled maturity, therefore we do not expect market value changes to impact future earnings.    

Forward-looking statements

This release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934 as amended. These include statements as to expectations regarding future financial performance and any other statements regarding future results or expectations. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by the use of words such as "believe," "expect," "intend," "anticipate," "estimate," or "project" or similar expressions. Our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the combined company and its subsidiaries include, but are not limited to:  changes in interest rates, general economic conditions; the effects of the COVID-19 pandemic, including the Company's credit quality and business operations, as well as its impact on general economic and financial market conditions; the effect of changes in banking, tax and other laws and regulations and interpretations or guidance thereunder;  monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality and composition of the loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in the combined company's market area; the implementation of new technologies; the ability to develop and maintain secure and reliable electronic systems; accounting principles, policies, and guidelines; and other factors identified in Item 1A, "Risk Factors," in the Company's Annual Report on 10-K for the year ended December 31, 2021.  These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  We undertake no obligation to update or clarify these forward‐looking statements, whether as a result of new information, future events or otherwise.

(See Attached Financial Statements for quarter ending September 30, 2022) 

 

Parkway Acquisition Corp.
Condensed Consolidated Balance Sheets
September 30, 2022; June 30, 2022; December 31, 2021; September 30, 2021
	September 30,		June 30,		December 31,		September 30,
(dollars in thousands except share amounts)	2022		2022		2021		2021
	(Unaudited)		(Unaudited)		(Audited)		(Unaudited)
Assets
Cash and due from banks	$            18,615		$            19,458		$            14,349		$            15,835
Interest-bearing deposits with banks	49,795		71,302		5,986		4,757
Federal funds sold	602		387		95,311		99,891
Investment securities available for sale	138,491		149,886		129,715		107,422
Restricted equity securities	1,950		1,950		1,971		2,209
Loans	738,992		720,618		683,532		686,117
Allowance for loan losses	(6,168)		(6,034)		(5,677)		(5,550)
Net loans	732,824		714,584		677,855		680,567
Cash value of life insurance	22,368		22,233		18,750		18,628
Properties and equipment, net	32,128		32,953		30,856		30,268
Accrued interest receivable	2,589		2,601		2,363		2,414
Core deposit intangible	1,391		1,496		1,764		1,898
Goodwill	3,257		3,257		3,257		3,257
Deferred tax assets, net	5,955		4,186		1,122		1,509
Other assets	13,780		13,940		12,549		11,519
Total assets	$       1,023,745		$       1,038,233		$          995,848		$          980,174
Liabilities
Deposits
Noninterest-bearing	$          328,000		$          315,005		$          298,107		$          291,058
Interest-bearing	617,666		638,688		600,119		587,194
Total deposits	945,666		953,693		898,226		878,252
Borrowings	3,350		3,350		8,200		10,000
Accrued interest payable	91		54		73		122
Other liabilities	4,124		5,329		4,155		3,420
Total liabilities	953,231		962,426		910,654		891,794
Stockholders' Equity
Common stock and surplus	33,493		33,471		33,588		38,812
Retained earnings	59,378		57,544		53,745		51,112
Accumulated other comprehensive loss	(22,357)		(15,208)		(2,139)		(1,544)
Total stockholders' equity	70,514		75,807		85,194		88,380
Total liabilities and stockholders' equity	$       1,023,745		$       1,038,233		$          995,848		$          980,174
Book value per share	$               12.57		$               13.52		$               15.20		$               14.78
Tangible book value per share(1)	$               11.74		$               12.67		$               14.30		$               13.91
Asset Quality Indicators
Nonperforming assets to total assets	0.17 %		0.16 %		0.13 %		0.21 %
Nonperforming loans to total loans	0.24 %		0.23 %		0.19 %		0.30 %
Allowance for loan losses to total loans	0.83 %		0.84 %		0.83 %		0.81 %
Allowance for loan losses to nonperforming loans	348.47 %		371.32 %		430.08 %		269.55 %

(1)

Tangible book value is a non-GAAP financial measure defined as stockholders' equity less goodwill and other intangible assets, divided by shares outstanding, that the Company believes is a meaningful measure of capital adequacy because it provides a meaningful base for period-to-period and company-to-company comparisons, which the Company believes will assist investors in assessing the capital of the Company and its ability to absorb potential losses.

 

Parkway Acquisition Corp.
Condensed Consolidated Statement of Operations
	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
(dollars in thousands except share amounts)	2022		2022		2021		2022		2021
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Interest income
Loans and fees on loans	$          8,217		$          7,830		$          8,259		$        23,923		$        24,092
Interest-bearing deposits in banks	356		156		19		548		85
Federal funds sold	3		2		11		5		11
Interest on securities	814		768		370		2,138		986
Dividends	5		46		8		59		66
	9,395		8,802		8,667		26,673		25,240
Interest expense
Deposits	374		411		556		1,232		1,857
Interest on borrowings	55		40		21		140		62
	429		451		577		1,372		1,919
Net interest income	8,966		8,351		8,090		25,301		23,321
Provision for loan losses	148		217		219		502		576
Net interest income after
provision for loan losses	8,818		8,134		7,871		24,799		22,745
Noninterest income
Service charges on deposit accounts	489		481		444		1,406		1,071
Other service charges and fees	835		796		668		2,314		1,934
Net realized gains on securities	-		-		265		-		265
Mortgage origination fees	74		119		275		359		861
Increase in cash value of life insurance	135		135		108		397		324
Life insurance income	-		-		-		217		-
Other income	37		1		53		45		387
	1,570		1,532		1,813		4,738		4,842
Noninterest expenses
Salaries and employee benefits	3,875		3,817		3,645		11,271		10,812
Occupancy and equipment	1,139		1,072		907		3,216		2,696
Foreclosed asset expense, net	(1)		-		1		(1)		1
Data processing expense	408		429		468		1,343		1,434
FDIC Assessments	114		114		76		342		229
Advertising	161		182		172		488		473
Bank franchise tax	126		127		126		379		379
Director fees	56		85		58		202		205
Professional fees	144		172		107		484		455
Telephone expense	110		127		100		370		298
Core deposit intangible amortization	105		134		134		373		461
Other expense	662		616		489		1,842		1,542
	6,899		6,875		6,283		20,309		18,985
Net income before income taxes	3,489		2,791		3,401		9,228		8,602
Income tax expense	701		555		701		1,798		1,753
Net income	$          2,788		$          2,236		$          2,700		$          7,430		$          6,849
Net income per share	$             0.50		$             0.40		$             0.45		$             1.32		$             1.14
Weighted average shares outstanding	5,608,716		5,615,705		6,003,504		5,612,452		6,028,449
Dividends declared per share	$             0.17		$             0.00		$             0.14		$             0.32		$             0.27

 

For more information contact:
Blake Edwards, President & CEO – 276-773-2811
Lori Vaught, EVP & CFO – 276-773-2811

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SOURCE Parkway Acquisition Corp.