UWHARRIE CAPITAL CORP

Previous wording

A discussion and analysis of the Company’s operating results and financial condition are presented in the following narrative and financial tables. The comments are intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto appearing on pages 33 through 76 of this Annual Report. References to changes in assets and liabilities represent end-of-period balances unless otherwise noted. Statements contained in this Annual Report, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary because of market and other factors. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission periodically. Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “might,” “planned,” “estimated,” “potential,” and similar words. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, results of operations and business of the Company that are subject to various factors, which could cause actual results to differ materially from these estimates. These factors include, but are not limited to: increases in our past due loans and provision for credit losses that may result from local and/or broader economic effects, including the impacts of inflation and constraints on the availability of credit that may impact our borrowers; declines in general economic conditions, including increased stress in the financial markets; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. Any use of “we” or “our” in the following discussion refers to the Company on a consolidated basis.

Current wording

A discussion and analysis of the Company’s operating results and financial condition are presented in the following narrative and financial tables. The comments are intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto appearing on pages 31 through 70 of this Annual Report. References to changes in assets and liabilities represent end-of-period balances unless otherwise noted. Statements contained in this Annual Report, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary because of market and other factors. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents periodically filed by the Company with the SEC. Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “might,” “planned,” “estimated,” “potential,” and similar words. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, results of operations and business of the Company that are subject to various factors, which could cause actual results to differ materially from these estimates. These factors include, but are not limited to: increases in our past due loans and provision for credit losses that may result from local and/or broader economic effects, including the impacts of inflation and constraints on the availability of credit that may impact our borrowers; declines in general economic conditions, including increased stress in the financial markets; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. Any use of “we” or “our” in the following discussion refers to the Company on a consolidated basis.

Previous wording

The Company’s total assets increased $53.1 million from $1.02 billion at December 31, 2022 to $1.07 billion at December 31, 2023. Cash and cash equivalents decreased $51.1 million during the same period as the Company used the cash and cash equivalents to fund substantial growth in the loans held for its investment portfolio.

Current wording

The Company’s total assets increased $56.2 million from $1.07 billion at December 31, 2023 to $1.13 billion at December 31, 2024. Cash and cash equivalents decreased $11.2 million during the same period as the Company utilized the cash and cash equivalents to fund growth of 12.6% in the loans held for its investment portfolio.

Previous wording

Investment securities consist of securities available for sale and securities held to maturity. Total investment securities increased $10.3 million, or 2.9%, from $355.0 million at December 31, 2022 to $365.3 million at December 31, 2023. At December 31, 2023, the Company had net unrealized losses on securities available for sale of $32.6 million, compared to net unrealized losses of $41.3 million at December 31, 2022. The improvement in fair value is directly related to the drop in the U.S. 10-year Treasury yield during the last two months of 2023.

Current wording

Investment securities consist of securities available for sale and securities held to maturity. Total investment securities decreased $5.5 million, or 1.5%, from $365.3 million at December 31, 2023 to $359.7 million at December 31, 2024. At December 31, 2024, the Company had net unrealized losses on securities available for sale of $32.1 million, compared to net unrealized losses of $32.6 million at December 31, 2023. The allowance for credit losses on securities held to maturity was $56,000 at December 31, 2023. During 2024, a provision of $12,000 was recorded against the allowance for credit losses on securities held to maturity bringing the balance to $68,000, with an amortized cost basis of $26.7 million, at December 31, 2024.

Previous wording

During 2023, the unrealized gain on equity securities increased by $10,000, resulting in a fair value of $302,000 at December 31, 2023, compared to a fair value of $292,000 at December 31, 2022.

Current wording

During 2024, the unrealized gain on equity securities increased by $32,000, resulting in a fair value of $334,000 at December 31, 2024, compared to a fair value of $302,000 at December 31, 2023.

Previous wording

Loans held for sale increased $1.9 million from December 31, 2022 to $4.7 million at December 31, 2023. Loans held for investment increased $94.2 million, or 18.9%, from $497.9 million at December 31, 2022 to $592.1 million at December 31, 2023. The Company experienced net growth in all loan sectors with the exception of loans categorized as “Other”.

Current wording

Loans held for sale decreased $134,000 from December 31, 2023 to $4.6 million at December 31, 2024. Loans held for investment increased $74.3 million, or 12.6%, from $592.1 million at December 31, 2023 to $666.4 million at December 31, 2024. The Company experienced net growth in all loan sectors with the exception of loans categorized as “Consumer”.

Previous wording

The allowance for loan losses was $2.3 million at December 31, 2022, which represented 0.46% of the total loans held for investment. As noted above, on January 1, 2023, the Company adopted ASC 326, requiring a change to the allowance methodology. The result of the accounting standard adoption was a $2.4 million increase in the allowance for credit losses on loans, which was allowed as a one- time adjustment to retained earnings at adoption. During 2023, the model called for a $1.5 million increase to our current expected credit losses to account for loan growth and charge-offs during the same period. The allowance for credit losses on loans was $5.6 million at December 31, 2023, which represented 0.94% of total loans held for investment. Additional discussion regarding the allowance is included in the Asset Quality section below.

Current wording

The allowance for credit losses was $5.6 million at December 31, 2023, which represented 0.94% of the total loans held for investment. At December 31, 2024, the allowance for credit losses on loans was $5.8 million, or 0.87% of total loans held for investment. Additional discussion regarding the allowance is included in the Asset Quality section below.

Previous wording

Customer deposits, our primary funding source, experienced a $41.9 million increase during the year, increasing from $939.9 million to $981.7 million at December 31, 2023, a 4.5% increase. Growth in the number of deposit accounts and relationship sizes, combined with promotional time deposit offerings, contributed to the increase in total deposits. During 2023, demand noninterest-bearing checking accounts increased $8.1 million, primarily from growth in commercial accounts, and time deposits increased $106.1 million as customers took advantage of higher rates offered on promotional time deposit products. Interest checking and money market accounts decreased $69.2 million and savings deposits decreased $3.1 million during the twelve-month period ended December 31, 2023. 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 $48.5 million increase during the year, increasing from $981.7 million to $1.03 billion at December 31, 2024, a 4.9% increase. Organic deposit growth, combined with promotional time deposit offerings, contributed to the increase in total deposits. During 2024, demand noninterest-bearing checking accounts increased $2.4 million, and time deposits increased $76.6 million as customers took advantage of higher rates offered on promotional time deposit products. Interest checking and money market accounts decreased $22.2 million and savings deposits decreased $8.2 million during the twelve-month period ended December 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.

Previous wording

During 2023, the Company’s net borrowings decreased by $168,000. Borrowings consist of both short-term and long-term borrowed funds. The Company utilizes both short-term and long-term advances from the Federal Home Loan Bank. At December 31, 2023 and 2022, there were no outstanding Federal Home Loan Bank advances. Short-term borrowings consisted of $1.4 million in master notes, and long-term borrowings consisted solely of junior subordinated debt securities totaling $29.1 million, net of unamortized debt issuance costs, at December 31, 2023.

Current wording

During 2024, the Company’s net borrowings increased by $92,000. Borrowings consist of both short-term and long-term borrowed funds. The Company has access to both short-term and long-term advances from the Federal Home Loan Bank. At December 31, 2024 and 2023, there were no outstanding Federal Home Loan Bank advances. Short-term borrowings consisted of $1.4 million in master notes, and long-term borrowings consisted solely of junior subordinated debt securities totaling $29.2 million, net of unamortized debt issuance costs of $231,000, at December 31, 2024.

Previous wording

Other changes in the Company’s liabilities are related to a decrease of $745,000 in other liabilities from December 31, 2022 to December 31, 2023 resulting primarily from a reduction in the reserve for federal income tax payable.

Current wording

Other changes in the Company’s liabilities are related to a decrease of $348,000 in other liabilities from December 31, 2023 to December 31, 2024 resulting primarily from a reduction in the reserve for federal income tax payable.

Previous wording

At December 31, 2023, total shareholders’ equity was $49.4 million, an increase of $12.0 million from December 31, 2022. Net income for the year ended December 31, 2023 was $8.6 million. ASC 326 was adopted on January 1, 2023, requiring an adoption entry to reduce retained earnings by the current expected credit losses adjustment, net of tax, of $1.9 million, which partially offset the impact of the Company’s net income during 2023. During the twelve-month period ended December 31, 2023, the Company repurchased 90,017 shares of common stock at a total cost of $728,000, and the Company paid $565,000 in dividends attributable to noncontrolling interest. See Note 1 (Significant Accounting Policies) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest. At December 31, 2023, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.

Current wording

At December 31, 2024, total shareholders’ equity was $57.7 million, an increase of $8.2 million from December 31, 2023. Net income for the year ended December 31, 2024 was $9.9 million. Improvement in the unrealized loss position on our available for sale securities portfolio contributed $373,000 to the increase in shareholders' equity during the same period. During the twelve-month period ended December 31, 2024, the Company repurchased 184,478 shares of common stock at a total cost of $1.5 million, and the Company paid $566,000 in dividends attributable to noncontrolling interest. See Note 1 (Significant Accounting Policies) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest. At December 31, 2024, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.

Previous wording

Uwharrie Capital Corp reported net income of $8.6 million for the twelve months ended December 31, 2023, as compared to $8.2 million for the twelve months ended December 31, 2022, an increase of $347,000. Net income available to common shareholders was $8.0 million, or $1.12 per common share, for the year ended December 31, 2023, compared to net income available to common shareholders of $7.7 million, or $1.06 per common share, for the same period in 2022. Net income available to common shareholders is net income less any dividends paid on the aforementioned noncontrolling interest.

Current wording

Uwharrie Capital Corp reported net income of $9.9 million for the twelve months ended December 31, 2024, compared to $8.6 million for the twelve months ended December 31, 2023, an increase of $1.3 million. Net income available to common shareholders was $9.3 million, or $1.30 per common share, for the year ended December 31, 2024, compared to net income available to common shareholders of $8.0 million, or $1.09 per common share, for the same period in 2023. Net income available to common shareholders is net income less any dividends paid on the aforementioned noncontrolling interest.

Previous wording

Net interest income increased $5.0 million to a total of $32.7 million for the twelve months ended December 31, 2023 from the $27.7 million reported for the comparative period in 2022. The average yield on our interest-earning assets increased 128 basis points to 4.65%, while the average rate paid for interest-bearing liabilities increased 124 basis points to 1.81%. These changes resulted in a net increase of 4 basis points in our interest rate spread, from 2.80% in 2022 to 2.84% in 2023. Our net interest margin for 2023 was 3.34%, compared to 2.97% in 2022. The Federal Reserve Bank increased overnight rates four times during 2023 for a total of 525 basis points, repricing many of the Company's variable rate assets and deposit funding sources. As a part of the loan agreements, a portion of the Company’s loan portfolio has interest rate floors and caps. The interest rate floor feature allows the Company to maintain a more favorable interest margin despite a decline in rates; however, the interest rate cap could hurt the margin in a rising rate environment. Financial Table 1 presents a detailed analysis of the components of the Company’s net interest income, while Financial Table 2 summarizes the effects on net interest income from changes in interest rates and in the dollar volume of the components of interest-earning assets and interest-bearing liabilities. Financial Table 1 and Table 2, as well other Financial Tables referenced here appear at the end of this discussion and analysis.

Current wording

Net interest income increased $3.2 million to a total of $35.9 million for the twelve months ended December 31, 2024 from the $32.7 million reported for the comparative period in 2023. The average yield on our interest-earning assets increased 50 basis points to 5.15%, while the average rate paid for interest-bearing liabilities increased 62 basis points to 2.43%. These changes resulted in a net decrease of 11 basis points in our interest rate spread, from 2.84% in 2023 to 2.73% in 2024. Our net interest margin for 2024 was 3.40%, compared to 3.34% in 2023. As a part of the loan agreements, a portion of the Company’s loan portfolio has interest rate floors and caps. The interest rate floor feature allows the Company to maintain a more favorable interest margin despite a decline in rates; however, the interest rate cap could hurt the margin in a rising rate environment. Financial Table 1 presents a detailed analysis of the components of the Company’s net interest income, while Financial Table 2 summarizes the effects on net interest income from changes in interest rates and in the dollar volume of the components of interest-earning assets and interest-bearing liabilities. Financial Table 1 and Table 2, as well other Financial Tables referenced here appear at the end of this discussion and analysis.

Previous wording

The net provision for credit losses on loans and securities held to maturity was $1.5 million for the twelve months ended December 31, 2023, compared to a recovery of $1.8 million for the same period in 2022. There were net loan charge-offs of $631,000 for the twelve months ended December 31, 2023, as compared to net loan recoveries of $23,000 during the same period of 2022. Refer to the Asset Quality section below for further information.

Current wording

The net provision for credit losses was $528,000 for the twelve months ended December 31, 2024, compared to a net provision of $1.5 million for the same period in 2023. There were net loan charge-offs of $270,000 for the twelve months ended December 31, 2024, as compared to net loan charge-offs of $631,000 during the same period of 2023. Refer to the Asset Quality section below for further information.

Previous wording

Noninterest expense for the year ended December 31, 2023 was $29.9 million compared to $29.7 million for 2022, an increase of $242,000. The FDIC's increase in the base deposit insurance assessment rate, effective with the first quarterly assessment of 2023, and positive market adjustments on supplemental executive retirement plans contributed to the overall increase in total noninterest expense. Financial Table 5 reflects the additional breakdown of other noninterest expense.

Current wording

Noninterest expense for the year ended December 31, 2024 was $32.4 million compared to $29.9 million for 2023, an increase of $2.5 million. Salaries and employee benefits, the largest component of noninterest expense, increased $1.5 million from $19.3 million for the period ending December 31, 2023 to $20.8 million for 2024 due to salary increases and more commissions paid on increased mortgage production during the 2024 period. Additionally, positive market value adjustments on supplemental executive retirement plans contributed $428,000 to the increase in noninterest expense. Financial Table 5 reflects the additional breakdown of other noninterest expense.

Previous wording

The Company had income tax expense of $2.2 million for 2023 at an effective tax rate of 20.14% compared to income tax expense of $1.7 million in 2022 with an effective tax rate of 17.13%. Income taxes computed at the statutory rate are affected primarily 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 twelve months ended December 31, 2023, the effective tax rate increased due to proceeds received from the payout of a bank owned life insurance policy during the 2022 period.

Current wording

The Company had income tax expense of $2.9 million for 2024 at an effective tax rate of 22.35% compared to income tax expense of $2.2 million in 2023 with an effective tax rate of 20.14%. The year-over-year increase in the effective tax rate is due, in part, to a $63,000 charge to income tax expense as a result of revaluing the North Carolina deferred tax asset for unrealized losses on the available for sale securities portfolio. Income taxes computed at the statutory rate are affected primarily 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

Management uses a risk-grading program designed to evaluate the credit risk in the loan portfolio. In this program, risk grades are initially assigned by loan officers and then reviewed and monitored by credit administration. This process includes the maintenance of an internally classified loan list that is designed to help management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses on loans. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower’s ability to repay, the borrower’s payment history, and the current delinquent status.

Current wording

The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company evaluates credit risk in the Consumer segment based upon consumer credit scores and collateral and the Commercial segment based upon loan risk grade and collateral. The allowance for credit losses for each segment is calculated using a Non-Discounted Cash Flow methodology. Management uses a risk-grading program designed to evaluate the credit risk in the loan portfolio. In this program, risk grades are initially assigned by loan officers and then reviewed and monitored by credit administration. This process includes the maintenance of an internally classified loan list that is designed to help management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses on loans. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower’s ability to repay, the borrower’s payment history, and the current delinquent status.

Previous wording

At December 31, 2023, the level of our individually evaluated loans, which includes all collateral dependent loans in nonaccrual status with total relationship exposure greater than or equal to $100,000, was $867,000. The allowance for credit losses related to individually evaluated loans was $98,000 at December 31, 2023.

Current wording

At December 31, 2024, there were no individually evaluated loans, which includes all collateral dependent loans in nonaccrual status with total relationship exposure greater than or equal to $100,000. As such, there was no allowance for credit losses related to individually evaluated loans at December 31, 2024.

Previous wording

The allowance, expressed as a percentage of gross loans held for investment, increased forty-eight basis points from 0.46% at December 31, 2022 to 0.94% at December 31, 2023. The adoption of ASC 326 is the primary driver of the increase in allowance for credit losses on loans as a percentage of gross loans held for investment. The ratio of nonaccrual loans to total loans increased from 0.08% at December 31, 2022 to 0.19% at December 31, 2023, and was related to the $578,000 increase in nonaccrual loans. Six loans were converted to nonaccrual during 2023, offset by one loan that was moved to other real estate owned, two loans that were removed from nonaccrual status and one loan that was charged off.

Current wording

The allowance, expressed as a percentage of gross loans held for investment, decreased seven basis points from 0.94% at December 31, 2023 to 0.87% at December 31, 2024. The ratio of nonaccrual loans to total loans decreased from 0.19% at December 31, 2023 to 0.03% at December 31, 2024, and was related to the $909,000 decrease in nonaccrual loans. Six loans totaling $847,000 were converted to nonaccrual during 2024. These additions were offset by paydowns of $23,000, six loans totaling $1.4 million that were paid off, three loans that were charged off for $309,000, and one loan of $16,000 that was removed from nonaccrual status.

Previous wording

Other real estate owned increased to $141,000 at December 31, 2023 compared to $0 at December 31, 2022 as there was one loan foreclosed on during the first quarter of 2023.

Current wording

Other real estate owned decreased to $0 at December 31, 2024 compared to $141,000 at December 31, 2023 as there was one loan foreclosed on during the first quarter of 2023 that was written off during the fourth quarter of 2024.

Previous wording

In January 2013, the Company’s subsidiary bank issued $7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualifies as Tier 1 capital at the bank and pays dividends at a rate of 5.30%. The offering raised $7.9 million less issuance costs of $113,000.

Current wording

In 2013, the Company’s subsidiary bank issued a total of $10.7 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at a rate of 5.30%. The offering raised $10.7 million less issuance costs of $136,000. The preferred stock has no voting rights.

Previous wording

During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $1,000 per security with a required minimum investment of $50,000. The offering raised $10.0 million, of which the entire $9.7 million was outstanding at December 31, 2023. These securities have a final maturity date of September 30, 2029 and may be redeemed by the Company after September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. All proceeds of this private placement qualify and are included in the calculation of Tier 2 capital. Once the final maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 30, 2024.

Current wording

During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $1,000 per security with a required minimum investment of $50,000. The offering raised $10.0 million, of which $9.6 million was outstanding at December 31, 2024. These securities have a final maturity date of September 30, 2029 and became redeemable by the Company on September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. All proceeds of this private placement qualify as and are included in the calculation of Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. At December 31, 2024, $7.7 million of the subordinated debt issued in 2019 qualifies as Tier 2 capital.

Previous wording

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. At December 31, 2023, $11.7 million and $8.0 million remained outstanding of the 10-year and 15-year subordinated notes, 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 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

Current wording

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. At December 31, 2024, $11.8 million and $8.0 million remained outstanding of the 10-year and 15-year subordinated notes, 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. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 3, 2026 and September 3, 2031 for the 10-year and 15-year subordinated notes, respectively.

Previous wording

The Board of Directors of Uwharrie Capital Corp declared a 2.0% stock dividend in 2023, a 2.5% stock dividend in 2022 and a 3.0% stock dividend in 2021. All references in this Annual Report to net income per share and weighted average common and common equivalent shares outstanding reflect the effects of these stock dividends.

Current wording

The Board of Directors of Uwharrie Capital Corp declared a 2.0% stock dividend in 2024 and 2023 and a 2.5% stock dividend in 2022. All references in this Annual Report to net income per share and weighted average common and common equivalent shares outstanding reflect the effects of these stock dividends.

Previous wording

The objective of the Company’s liquidity management policy is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on any opportunities for expansion. Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature and to fund new loans and investments as opportunities arise. Liquidity is managed primarily by the selection of asset mix and the maturity mix of liabilities. 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. Maturities and the marketability of securities provide a source of liquidity to meet deposit fluctuations. Maturities of the securities portfolio are presented in Financial Table 3. Growth in deposits is typically the primary source of funds for loan growth. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 36.5% and 38% of total deposits at December 31, 2023 and 2022, respectively. 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 December 31, 2023, these sources are 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 $147.0 million; and access to borrowings from the Federal Reserve Bank discount window, with available credit of $22.3 million. In March 2023, the Federal Reserve established a Bank Term Funding Program (“BTFP”) which offers loans of up to one year in length to banks pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. The assets are valued at par. The Company had approximately $83.8 million of additional liquidity available through the BTFP at December 31, 2023. 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 December 31, 2023, $3.0 million remains available for use on the line of credit.

Current wording

The objective of the Company’s liquidity management policy is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on any opportunities for expansion. Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature and to fund new loans and investments as opportunities arise. Liquidity is managed primarily by the selection of asset mix and the maturity mix of liabilities. 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. Maturities and the marketability of securities provide a source of liquidity to meet deposit fluctuations. Maturities of the securities portfolio are presented in Financial Table 3. Growth in deposits is typically the primary source of funds for loan growth. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 38.8% and 36.5% of total deposits at December 31, 2024 and 2023, respectively.

Previous wording

At December 31, 2023, short-term borrowings amounted to $1.4 million. Long-term debt at that date consisted solely of $29.1 million of junior subordinated debt. Other contractual obligations of the Company exist in the form of operating leases and deposits. Obligations for operating leases and deposits totaled $1.6 million and $981.7 million, respectively, at December 31, 2023. Note 8 (Leases) and Note 9 (Deposits) to the Notes to Consolidated Financial Statements provide additional information, including maturities, regarding these obligations.

Current wording

At December 31, 2024, short-term borrowings totaled $1.4 million. Long-term debt at that date consisted solely of $29.2 million of junior subordinated debt, net of issuance costs. Other contractual obligations of the Company exist in the form of operating leases and deposits. Obligations for operating leases and deposits totaled $1.2 million and $1.0 billion, respectively, at December 31, 2024. Note 7 (Leases) and Note 8 (Deposits) to the Notes to Consolidated Financial Statements provide additional information, including maturities, regarding these obligations.

Previous wording

The Company models immediate rising and declining rate shocks of up to 4% (in 1% intervals) on its subsidiary bank, using a static balance sheet for a two-year horizon, as preferred by regulators. The most recent consolidated 2% rate shock projections for a one-year horizon, indicates a negative impact of (4.43%) on Margin in a rates-down scenario and a positive impact of 0.60% on Margin in a rates-up scenario. Based on the most recent twelve-month forecast, the subsidiary bank is asset-sensitive and may experience some negative impact to earnings should interest rates decline. The Bank has the potential to benefit from a rising interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the upside potential.

Current wording

The Company models immediate rising and declining rate shocks of up to 4% (in 1% intervals) on its subsidiary bank, using a static balance sheet for a two-year horizon, as preferred by regulators. The most recent consolidated 2% rate shock projections for a one-year horizon, indicates a negative impact of (0.43%) on Margin in a rates-down scenario and a negative impact of (3.40%) on Margin in a rates-up scenario. Based on the most recent twelve-month forecast, the subsidiary bank is liability-sensitive and may experience some negative impact to earnings should interest rates increase. The Bank has the potential to benefit from a declining interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the potential benefit.