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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2016

Or

For the transition period from                  to                 

Commission File Number: 333- 209052

PARKWAY ACQUISITION CORP.

(Exact Name of Registrant as Specified in Its Charter)

(540) 745-4191

(Registrant’s Telephone Number, Including Area Code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The registrant had 5,021,376 shares of Common Stock, no par value per share, outstanding as of August 15, 2016.

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Part I. Financial Information

Item 1. Financial Statements

Parkway Acquisition Corp.

Balance Sheets

June 30, 2016 and December 31, 2015

See accompanying notes to financial statements.

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Parkway Acquisition Corp.

Notes to Financial Statements

(unaudited)

Note 1. Organization

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

Note 2. Subsequent Event

Business Combination

On July 1, 2016, Parkway completed its merger with Grayson and Cardinal. Under the terms of the merger agreement, each share of Cardinal common stock was converted to the right to receive 1.30 shares of common stock of Parkway. Parkway had no material assets or liabilities and did not conduct any business prior to consummation of the merger except to perform its obligations under the merger agreement. There is currently no trading market and no market price for Parkway common stock, therefore it is difficult to determine the fair value of Parkway common stock. Due to the lack of an existing market value for Parkway stock, the following summary of consideration paid to Cardinal is prepared using the recent trading value of Grayson stock.

The Company has engaged a third party to calculate fair values of all assets and liabilities acquired in the transaction. We anticipate these valuations being received in the third quarter of 2016. All amounts are subject to changes as more information is available.

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Parkway Acquisition Corp.

Notes to Financial Statements

(unaudited)

Note 2. Subsequent Event, continued

The following table presents a summary of total consideration paid by Parkway at the acquisition date.

The following table presents the Cardinal assets acquired and liabilities assumed as of July 1, 2016 as well as the related preliminary fair value adjustments and determination of purchase gain.

Explanation of fair value adjustments:

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Parkway Acquisition Corp.

Notes to Financial Statements

(unaudited)

Note 2. Subsequent Event, continued

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Parkway Acquisition Corp.

Notes to Financial Statements

(unaudited)

Note 2. Subsequent Event, continued

The merger is being accounted for under the acquisition method of accounting. The assets and liabilities of Cardinal will be recorded at their estimated fair values and added to those of Grayson for periods following the merger date. Valuations of acquired Cardinal assets and liabilities may be refined for up to one year following the merger date.

There are two methods to account for acquired loans as part of a business combination. Acquired loans that contain evidence of credit deterioration on the date of purchase are carried at the net present value of expected future proceeds in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 310-30. All other acquired loans are recorded at their initial fair value, adjusted for subsequent advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-offs and any other adjustment to carrying value in accordance with ASC 310-20.

The following table presents the assets and liabilities of Parkway and Grayson prior to the merger, the estimated fair value of Cardinal assets acquired and liabilities assumed, and the resulting estimated balance sheet of Parkway immediately following the merger on July 1, 2016.

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Parkway Acquisition Corp.

Notes to Financial Statements

(unaudited)

Note 2. Subsequent Event, continued

Supplemental Pro Forma Information (dollars in thousands except per share data)

The table below presents supplemental pro forma information as if the Cardinal acquisition had occurred at the beginning of the earliest period presented, which was January 1, 2015. Pro forma results include adjustments for amortization and accretion of fair value adjustments and do not include any projected cost savings or other anticipated benefits of the merger. Therefore, the pro forma financial information is not indicative of the results of operations that would have occurred had the transactions been effected on the assumed date. Pre-tax merger-related costs of $662 thousand were included in Grayson and Cardinal’s consolidated statements of operations for the six months ended June 30, 2016 and are not included in the pro forma statements below.

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Part I. Financial Information

General

Parkway Acquisition Corp. (“Parkway”) was incorporated as a Virginia Corporation on November 2, 2015. Parkway was formed as a business combination shell for the purpose of completing a business combination transaction between Grayson Bankshares, Inc. (“Grayson”) and Cardinal Bankshares Corporation (“Cardinal”). On November 6, 2015, Grayson, Cardinal and Parkway entered into an Agreement and Plan of Merger (the “merger agreement”), providing for the combination of the three companies. Terms of the merger agreement called for Grayson and Cardinal to merge with and into Parkway, with Parkway as the surviving corporation (the “merger”).

Parkway had no material assets or liabilities and did not conduct any business prior to consummation of the merger except to perform its obligations under the merger agreement. As such, Parkway had no operations, revenues, or expenses for the three and six months ended June 30, 2016.

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Part I. Financial Information

Not required.

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Part I. Financial Information

The Company maintains disclosure controls and procedures that are designed to provide assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2016 was carried out under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based on and as of the date of such evaluation, the aforementioned officers concluded that the Company’s disclosure controls and procedures were effective.

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Part II. Other Information

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which Parkway is a party or of which any of its property is subject.

Not applicable to smaller reporting companies

None

None

None

None

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Part II. Other Information

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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Exhibit Index