UWHARRIE CAPITAL CORP

Previous wording

During the three months ended March 31, 2024, the Company’s total assets increased $24.1 million, from $1.07 billion to $1.10 billion.

Current wording

During the six months ended June 30, 2024, the Company’s total assets increased $50.7 million, from $1.07 billion to $1.12 billion.

Previous wording

Cash and cash equivalents decreased $785,000 during the three months ended March 31, 2024, from $63.4 million to $62.6 million. The decrease in cash and cash equivalents was used to fund growth in the loan portfolio.

Current wording

Cash and cash equivalents decreased $6.0 million during the six months ended June 30, 2024, from $63.4 million to $57.4 million. The decrease in cash and cash equivalents was used to fund growth in the loan portfolio.

Previous wording

Investment securities consist of securities available for sale and securities held to maturity. For the three-month period ended March 31, 2024, investment securities increased $1.6 million from $365.3 million at December 31, 2023 to $366.9 million at March 31, 2024. At March 31, 2024, the Company had net unrealized losses on securities available for sale of $34.0 million, compared to net unrealized losses of $32.6 million at December 31, 2023, a deterioration of $1.4 million. The decline in fair value of the available for sale securities is related to the increase in market interest rates at March 31, 2024 compared to December 31, 2023. During the first three months of 2024, a $10,000 provision was recorded against the allowance for credit losses on securities held to maturity bringing the balance to $66,000, with an amortized cost basis of $28.4 million, at March 31, 2024.

Current wording

Investment securities consist of securities available for sale and securities held to maturity. For the six-month period ended June 30, 2024, investment securities increased $12.7 million from $365.3 million at December 31, 2023 to $378.0 million at June 30, 2024. At June 30, 2024, the Company had net unrealized losses on securities available for sale of $34.1 million, compared to net unrealized losses of $32.6 million at December 31, 2023, a deterioration of $1.5 million. The decline in fair value of the available for sale securities is related to the increase in market interest rates at June 30, 2024 compared to December 31, 2023. During the first six months of 2024, a $10,000 provision was recorded against the allowance for credit losses on securities held to maturity bringing the balance to $66,000, with an amortized cost basis of $27.3 million, at June 30, 2024.

Previous wording

At March 31, 2024, equity securities improved in value from $302,000 at December 31, 2023 to $343,000 as a result of the increase in value in the equity market.

Current wording

At June 30, 2024, equity securities improved in value from $302,000 at December 31, 2023 to $324,000 as a result of the increase in value in the equity market.

Previous wording

Loans held for sale increased $604,000 from December 31, 2023 to $5.3 million at March 31, 2024. Loans held for investment increased from $592.1 million at December 31, 2023 to $613.8 million at March 31, 2024, an increase of $21.7 million. The Company experienced a net increase in all loan sectors with the exception of loans categorized as “Commercial - Other Real Estate Construction” and “Commercial - Other.”

Current wording

Loans held for sale decreased $1.1 million from December 31, 2023 to $3.6 million at June 30, 2024. Loans held for investment increased from $592.1 million at December 31, 2023 to $636.7 million at June 30, 2024, an increase of $44.7 million. The Company experienced a net increase in all loan sectors with the exception of loans categorized as “Commercial - Other” and "Consumer."

Previous wording

The allowance for credit losses on loans was $5.5 million at March 31, 2024, which represented 0.90% of total loans held for investment, compared to $5.6 million, or 0.94% of total loans held for investment, at December 31, 2023. Additional discussion regarding the allowance is included in the Asset Quality section below.

Current wording

The allowance for credit losses on loans was $5.9 million at June 30, 2024, which represented 0.93% of total loans held for investment, compared to $5.6 million, or 0.94% of total loans held for investment, at December 31, 2023. Additional discussion regarding the allowance is included in the Asset Quality section below.

Previous wording

Other changes in the Company’s consolidated assets are primarily related to interest receivable, which increased $372,000 from $4.4 million as of December 31, 2023 to $4.8 million at March 31, 2024 as a result of the $21.7 million aforementioned loan growth. Mortgage banking derivatives increased $239,000 during the first three months of 2024, primarily related to interest rate lock commitments (“IRLCs”). The value of IRLCs appreciated $262,000 during the three-month period ended March 31, 2024 as the notional amount of the mortgage pipeline increased $10.2 million. Additionally, prepaid expenses, included in other assets, increased $352,000 from $1.4 million as of December 31, 2023 to $1.8 million at March 31, 2024.

Current wording

Other changes in the Company’s consolidated assets are primarily related to interest receivable, which increased $295,000 from $4.4 million as of December 31, 2023 to $4.7 million at June 30, 2024 as a result of the $44.7 million above-mentioned loan growth. Annual Company contributions, offset by negative market adjustments, increased the balance of supplemental executive retirement plans by $177,000 during the six months ended June 30, 2024. Additionally, prepaid expenses, included in other assets, increased $149,000 from $1.4 million as of December 31, 2023 to $1.6 million at June 30, 2024.

Previous wording

Customer deposits, our primary funding source, experienced a $18.1 million increase during the three-month period ended March 31, 2024, increasing from $981.7 million to $999.8 million. The overall increase in deposits is attributable to organic deposit growth combined with promotional time deposit offerings. Demand noninterest-bearing checking accounts increased $14.9 million, primarily from growth in commercial accounts, and time deposits increased $14.5 million during the three-month period ended March 31, 2024. Interest checking and money market accounts decreased $10.1 million and savings deposits decreased $1.1 million during the three months ended March 31, 2024. The decrease in interest checking, money market and savings accounts is primarily related to the movement of funds into the Company’s higher yielding time deposits. While the Company did not require funding for the balance sheet and believes it has ample liquidity, the Company wants to ensure its depositors are paid a fair, market rate for their deposits.

Current wording

Customer deposits, our primary funding source, experienced a $42.4 million increase during the six-month period ended June 30, 2024, increasing from $981.7 million to $1.02 billion. The overall increase in deposits is attributable to organic deposit growth combined with promotional time deposit offerings. Demand noninterest-bearing checking accounts increased $16.5 million, primarily from growth in commercial accounts, and time deposits increased $57.9 million during the six-month period ended June 30, 2024. Interest checking and money market accounts decreased $26.1 million and savings deposits decreased $6.0 million during the six months ended June 30, 2024. The decrease in interest checking, money market and savings accounts is primarily related to the movement of funds into the Company’s higher yielding time deposits.

Previous wording

Total short-term borrowings increased $4.9 million for the three-month period ended March 31, 2024 as the Company borrowed $5.0 million from the Federal Reserve Bank's Bank Term Funding Program (“BTFP”). At March 31, 2024, the Company had $29.1 million in long-term debt outstanding, which consists solely of its junior subordinated debt securities, net of unamortized debt issuance costs. During the third quarter of 2019, the Company issued $10.0 million in subordinated debt securities with a final maturity date of September 30, 2029 that may be redeemed on or after September 30, 2024. This junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. During the third quarter of 2021, the Company issued $12.0 million and $8.0 million of 10-year and 15-year fixed-to-floating rate subordinated debt securities, respectively. The 10-year subordinated notes mature on September 3, 2031, though they are redeemable at the Company’s option on or after September 3, 2026, and initially pay interest quarterly at an annual rate of 3.5%. From and including September 3, 2026 to but excluding September 3, 2031, or up to any early redemption date, the interest rate on the 10-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month secured overnight financing rate (“SOFR”), plus 283 basis points payable quarterly in arrears. The 15-year subordinated notes mature on September 3, 2036, though they are redeemable at the Company’s option on or after September 3, 2031, and initially pay interest quarterly at an annual rate of 4.0%. From and including September 3, 2031 to but excluding September 3, 2036, or up to any early redemption date, the interest rate on the 15-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month SOFR plus 292 basis points payable quarterly in arrears. The subordinated debt has been structured to qualify as and is included in the calculation of the Company’s Tier 2 capital. The Company also has a $3.0 million line of credit of which $3.0 million was available to use at March 31, 2024.

Current wording

September 30, 2024. This junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. During the third quarter of 2021, the Company issued $12.0 million and $8.0 million of 10-year and 15-year fixed-to-floating rate subordinated debt securities, respectively. The 10-year subordinated notes mature on September 3, 2031, though they are redeemable at the Company’s option on or after September 3, 2026, and initially pay interest quarterly at an annual rate of 3.5%. From and including September 3, 2026 to but excluding September 3, 2031, or up to any early redemption date, the interest rate on the 10-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month secured overnight financing rate (“SOFR”), plus 283 basis points payable quarterly in arrears. The 15-year subordinated notes mature on September 3, 2036, though they are redeemable at the Company’s option on or after September 3, 2031, and initially pay interest quarterly at an annual rate of 4.0%. From and including September 3, 2031 to but excluding September 3, 2036, or up to any early redemption date, the interest rate on the 15-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month SOFR plus 292 basis points payable quarterly in arrears. The subordinated debt has been structured to qualify as and is included in the calculation of the Company’s Tier 2 capital. The Company also has a $3.0 million line of credit of which $3.0 million was available to use at June 30, 2024.

Previous wording

At March 31, 2024, total shareholders’ equity was $50.4 million, an increase of $962,000 from December 31, 2023. Net income for the three-month period ended March 31, 2024 was $2.4 million, which positively contributed to our shareholders’ equity. During the three months ended March 31, 2024, the Company repurchased 21,435 shares of common stock at a total cost of $168,000, and the Company paid $141,000 in dividends attributable to noncontrolling interest during the same period. See Note 3 (Noncontrolling Interest) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest.

Current wording

At June 30, 2024, total shareholders’ equity was $41.5 million, an increase of $2.7 million from December 31, 2023. Net income for the six-month period ended June 30, 2024 was $4.6 million, which positively contributed to our shareholders’ equity. During the six months ended June 30, 2024, the Company repurchased 55,861 shares of common stock at a total cost of $436,000, and the Company paid $282,000 in dividends attributable to noncontrolling interest during the same period. See Note 3 (Noncontrolling Interest) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest.

Previous wording

The recovery of credit losses was $30,000 for the three months ended March 31, 2024, compared to a provision of $277,000 for the same period in 2023. There were net loan charge-offs of $33,000 for the three months ended March 31, 2024, as compared to net loan charge-offs of $392,000 during the same period of 2023. Refer to the Asset Quality section below for further information.

Current wording

The provision for credit losses was $431,000 for the three months ended June 30, 2024, compared to a provision of $109,000 for the same period in 2023. There were net loan charge-offs of $24,000 for the three months ended June 30, 2024, as compared to net loan recoveries of $16,000 during the same period of 2023. Refer to the Asset Quality section below for further information.

Previous wording

The Company places significant emphasis on diversification of revenue sources rather than relying solely upon interest income. Total noninterest income increased by $347,000 for the three-month period ended March 31, 2024, as compared to the same period in 2023. Positive market adjustments on supplemental executive retirement plans contributed $323,000 to the increase in total noninterest income. This increase was supplemented by an improvement of $140,000 in income from mortgage banking due to increased mortgage loan production in the first quarter of 2024 compared to the first quarter of 2023. These increases were offset by a $148,000 loss on the call of a held to maturity security under early redemption provisions.

Current wording

The Company places significant emphasis on diversification of revenue sources rather than relying solely upon interest income. Total noninterest income decreased by $460,000 for the three-month period ended June 30, 2024, as compared to the same period in 2023. Negative market valuation adjustments on supplemental executive retirement plans contributed $351,000 to the decrease in total noninterest income. This decrease was supplemented by a decline of $285,000 in income from mortgage banking due to the fluctuation in the value of mortgage banking derivatives as several loans were designated as held for investment rather than available for sale during the three months ended June 30, 2023.

Previous wording

Noninterest expense for the three months ended March 31, 2024 increased by $757,000 from the same period in 2023, to $7.9 million. Salaries and benefits, the largest component of noninterest expense, increased $470,000 due salary increases and more commissions paid on increased production in the mortgage division during the first quarter of 2024. Additionally, positive market adjustments on supplemental executive retirement plans contributed $323,000 to the increase in total noninterest expense.

Current wording

Noninterest expense for the three months ended June 30, 2024 decreased by $10,000 from the same period in 2023. Salaries and benefits, the largest component of noninterest expense, increased $213,000 due to wage increases and more commissions paid on increased production in the mortgage division during the 2024 period. Negative market adjustments of $351,000 on supplemental executive retirement plans served to offset the increase from salaries and employee benefits.

Previous wording

Total other noninterest expense increased $24,000 for the three months ended March 31, 2024, compared to the same period in 2023. The table below reflects the composition of other noninterest expense for the referenced periods.

Current wording

Total other noninterest expense increased $62,000 for the three months ended June 30, 2024, compared to the same period in 2023. The table below reflects the composition of other noninterest expense for the referenced periods.

Previous wording

The Company had income tax expense of $632,000 for the three months ended March 31, 2024 at an effective tax rate of 21.0% compared to income tax expense of $471,000 with an effective tax rate of 19.4% in the comparable 2023 period. Income taxes computed at the statutory rate are primarily affected by the state income tax expense offset by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank-owned life insurance. For the three months ended

Current wording

The Company had income tax expense of $566,000 for the three months ended June 30, 2024 at an effective tax rate of 20.4% compared to income tax expense of $579,000 with an effective tax rate of 20.7% in the comparable 2023 period. Income taxes computed at the statutory rate are primarily affected by the state income tax expense offset by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank-owned life insurance.

Previous wording

Uwharrie Capital Corp reported net income of $2.4 million for the three months ended March 31, 2024, as compared to $2.0 million for the three months ended March 31, 2023, an increase of $429,000. Net income available to common shareholders was $2.2 million, or $0.31 per common share, for the three months ended March 31, 2024, compared to $1.8 million, or $0.25 per common share, for the same period in 2023. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Current wording

Uwharrie Capital Corp reported net income of $4.6 million for the six months ended June 30, 2024, as compared to $4.2 million for the six months ended June 30, 2023, an increase of $419,000. Net income available to common shareholders was $4.3 million, or $0.61 per common share, for the six months ended June 30, 2024, compared to $3.9 million, or $0.54 per common share, for the six months ended June 30, 2023. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Previous wording

Net interest income for the three months ended March 31, 2024 was $8.5 million, a $693,000 increase from the $7.8 million reported for the comparative period in 2023. During the first three months of 2024, the average yield on our interest-earning assets increased 66 basis points to 5.00% from the same period in 2023, and the average rate we paid for our interest-bearing liabilities increased 82 basis points to 2.23%. These changes resulted in a lower interest rate spread of 2.77% as of March 31, 2024, compared to 2.92% as of March 31, 2023. The Company’s net interest margin was 3.39% and 3.31% for the comparable periods in 2024 and 2023, respectively.

Current wording

Net interest income for the six months ended June 30, 2024 was $17.4 million, a $1.4 million increase from the $15.9 million reported for the comparative period in 2023. During the first six months of 2024, the average yield on our interest-earning assets increased 61 basis points to 5.07% from the same period in 2023, and the average rate we paid for our interest-bearing liabilities increased 74 basis points to 2.31%. These changes resulted in a lower interest rate spread of 2.76% as of June 30, 2024, compared to 2.89% as of June 30, 2023. The Company’s net interest margin was 3.40% and 3.33% for the comparable periods in 2024 and 2023, respectively.

Previous wording

At March 31, 2024, the level of our individually assessed loans, which includes all loans in nonaccrual status with total relationship exposure of more than $100,000 of collateral dependency, was $1.4 million. The allowance for credit losses related to individually evaluated loans was $167,000 at March 31, 2024.

Current wording

At June 30, 2024, the level of our individually assessed loans, which includes all loans in nonaccrual status with total relationship exposure of more than $100,000 of collateral dependency, was $1.4 million. The allowance for credit losses related to individually evaluated loans was $164,000 at June 30, 2024.

Previous wording

The allowance, expressed as a percentage of gross loans held for investment, decreased four basis points from 0.94% at December 31, 2023 to 0.90% at March 31, 2024. The ratio of nonaccrual loans to total loans increased from 0.19% at December 31, 2023 to 0.26% at March 31, 2024, and was related to the $476,000 increase in nonaccrual loans. Two loans totaling $576,00 were converted to nonaccrual during the first three months of 2024, offset by principal payments and one loan that was paid off.

Current wording

The allowance, expressed as a percentage of gross loans held for investment, decreased one basis point from 0.94% at December 31, 2023 to 0.93% at June 30, 2024. The ratio of nonaccrual loans to total loans increased from 0.19% at December 31, 2023 to 0.25% at June 30, 2024, and was related to the $487,000 increase in nonaccrual loans. Three loans totaling $613,000 were converted to nonaccrual during the first half of 2024, offset by principal payments, one loan that was paid off and one loan that was charged off.

Previous wording

As of March 31, 2024, management believed the level of the allowance for credit losses on loans was appropriate in light of the risk inherent in the loan portfolio. While management believes that it uses the best information available to establish the allowance

Current wording

As of June 30, 2024, management believed the level of the allowance for credit losses on loans was appropriate in light of the risk inherent in the loan portfolio. While management believes that it uses the best information available to establish the allowance for credit losses on loans, future adjustments may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the Company’s loan portfolio, will not require an adjustment to the allowance for credit losses on loans. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance is adequate or that increases will not be necessary, should the quality of any loans deteriorate because of the factors discussed herein. Any material increase in the allowance for credit losses on loans may adversely affect the Company’s financial condition, results of operations and the value of its securities.

Previous wording

The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flow generated by investments. Growth in deposits is typically the primary source of funds for loan growth. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 37.7% of total deposits at March 31, 2024 and 36.5% of total deposits at December 31, 2023. The Company and its subsidiary bank have multiple funding sources, in addition to deposits, that can be used to increase liquidity and provide additional financial flexibility. At March 31, 2024, these sources were the subsidiary bank’s established federal funds lines with correspondent banks aggregating $38.0 million, with available credit of $38.0 million; an established borrowing relationship with the Federal Home Loan Bank, with available credit of $159.3 million; and access to borrowings from the Federal Reserve Bank discount window, with available credit of $33.1 million. In January 2024, the Company secured $5.0 million in other short-term borrowed funds through the BTFP. The note is secured by three available for sale agency securities issued by the Small Business Administration. The Company also has a $3.0 million line of credit with TIB The Independent BankersBank, N.A. The line is held by the holding company and is secured with 100% of the outstanding common shares of the Company’s subsidiary bank. As of March 31, 2024, $3.0 million remained available for use on the line of credit.

Current wording

The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flow generated by investments. Growth in deposits is typically the primary source of funds for loan growth. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 39.1% of total deposits at June 30, 2024 and 36.5% of total deposits at December 31, 2023. The Company and its subsidiary bank have multiple funding sources, in addition to deposits, that can be used to increase liquidity and provide additional financial flexibility. At June 30, 2024, these sources were the subsidiary bank’s established federal funds lines with correspondent banks aggregating $38.0 million, with available credit of $38.0 million; an established borrowing relationship with the FHLB, with available credit of $160.9 million; and access to borrowings from the FRB discount window, with available credit of $35.9 million. In January 2024, the Company secured $5.0 million in other short-term borrowed funds through the BTFP. The note is secured by three available for sale agency securities issued by the Small Business Administration. The Company also has a $3.0 million line of credit with TIB The Independent BankersBank, N.A. The line is held by the holding company and is secured with 100% of the outstanding common shares of the Company’s subsidiary bank. As of June 30, 2024, $3.0 million remained available for use on the line of credit.