UWHARRIE CAPITAL CORP

Previous wording

This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements generally relate to estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors that 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

This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements generally relate to estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors that 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 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

Cash and cash equivalents increased $58.7 million during the nine months ended September 30, 2025, from $52.3 million to $111.0 million. The increase in cash and cash equivalents is the result of growth in deposits.

Current wording

During the three months ended March 31, 2026, the Company’s total assets increased by $52.9 million, from $1.20 billion to $1.25 billion. Cash and cash equivalents increased by $42.9 million during the three months ended March 31, 2026, from $73.3 million to $116.2 million. The increase in cash and cash equivalents is the result of growth in deposits.

Previous wording

Investment securities consist of securities available for sale and securities held to maturity. For the nine-month period ended September 30, 2025, investment securities increased $17.1 million from $359.8 million at December 31, 2024 to $376.9 million at September 30, 2025. At September 30, 2025, the Company had net unrealized losses on securities available for sale of $24.0 million, compared to net unrealized losses of $32.1 million at December 31, 2024, an improvement of $8.1 million. During the first nine months of 2025, a $22,000 recovery was recorded against the allowance for credit losses on securities held to maturity, bringing the balance to $46,000 at September 30, 2025 compared to $68,000 at December 31, 2024. The amortized cost basis of securities held to maturity totaled $22.0 million and $26.8 million at September 30, 2025 and December 31, 2024, respectively.

Current wording

Investment securities consist of securities available for sale and securities held to maturity. For the three-month period ended March 31, 2026, investment securities increased by $9.1 million from $379.7 million at December 31, 2025 to $388.8 million at March 31, 2026. At March 31, 2026, the Company had net unrealized losses on securities available for sale of $23.7 million, compared to net unrealized losses of $21.5 million at December 31, 2025, a deterioration of $2.2 million. The allowance for credit losses on securities held to maturity was $45,000 at March 31, 2026 and December 31, 2025. The amortized cost basis of securities held to maturity totaled $22.0 million at March 31, 2026 and December 31, 2025, respectively.

Previous wording

Loans held for sale increased $522,000 from December 31, 2024 to $5.1 million at September 30, 2025. Loans held for investment increased from $666.4 million at December 31, 2024 to $677.4 million at September 30, 2025, an increase of $11.0 million. The Company experienced a net decrease in loans categorized as “Real Estate - 1-4 Family Construction,” “Consumer,” and “Commercial - Other.” All other loan sectors experienced a net increase during the nine months ended September 30, 2025.

Current wording

Loans held for sale increased by $2.3 million from December 31, 2025 to $11.3 million at March 31, 2026. Loans held for investment decreased from $689.6 million at December 31, 2025 to $686.0 million at March 31, 2026, a decrease of $3.6 million. The Company experienced a net decrease in all loan sectors with the exception of commercial construction loans and residential construction loans.

Previous wording

The allowance for credit losses on loans was $6.4 million at September 30, 2025, which represented 0.94% of total loans held for investment, compared to $5.8 million, or 0.87% of total loans held for investment, at December 31, 2024. Additional discussion regarding the allowance is included in the Asset Quality section below.

Current wording

The allowance for credit losses on loans was $6.4 million at March 31, 2026, which represented 0.93% of total loans held for investment, at March 31, 2026 and December 31, 2025. Additional discussion regarding the allowance is included in the Asset Quality section below.

Previous wording

Customer deposits, our primary funding source, experienced a $73.8 million increase during the nine-month period ended September 30, 2025, increasing from $1.03 billion to $1.10 billion. The overall increase in deposits is attributable to organic deposit growth. Demand noninterest-bearing checking accounts increased $14.9 million and interest checking and money market accounts increased $34.1 million, primarily from growth in public funds accounts, during the nine-month period ended September 30, 2025. Savings deposits increased $8.0 million and time deposits increased $17.0 million during the nine months ended September 30, 2025.

Current wording

Customer deposits, our primary funding source, experienced a $50.6 million increase during the three-month period ended March 31, 2026, increasing from $1.08 billion to $1.13 billion. The overall increase in deposits is attributable to organic deposit growth. Demand noninterest-bearing checking accounts increased $29.6 million and interest checking and money market accounts increased $7.6 million during the three-month period ended March 31, 2026. Savings deposits increased $9.1 million and time deposits increased $4.4 million during the three months ended March 31, 2026.

Previous wording

Total short-term borrowings decreased $1.4 million for the nine-month period ended September 30, 2025 due to the closing of a master note account during the third quarter that carried a balance of at least $1.1 million. At September 30, 2025, the Company had $29.2 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 became redeemable by the Company on 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. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. Of the subordinated debt that remains outstanding at September 30, 2025, $25.4 million qualifies as Tier 2 capital. The Company also has a $3.0 million line of credit of which $3.0 million was available to use at September 30, 2025.

Current wording

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 of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. Of the subordinated debt that remains outstanding at March 31, 2026, $25.4 million qualifies as 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, 2026.

Previous wording

Other changes in the Company’s liabilities are related to an increase of $1.2 million in other liabilities from December 31, 2024 to September 30, 2025, $955,000 of which is related to the accrual of reserves for payables due throughout 2025. As with SERP assets mentioned above, SERP liabilities increased $640,000 during the same period. These increases were offset by a decrease of $319,000 in lease liability as leases approach expiration.

Current wording

Other changes in the Company’s liabilities are related to an increase of $1.0 million in other liabilities from December 31, 2025 to March 31, 2026 resulting primarily from accrual of reserves for payables due throughout 2026.

Previous wording

At September 30, 2025, total shareholders’ equity was $71.0 million, an increase of $13.3 million from December 31, 2024. Net income for the nine-month period ended September 30, 2025 was $8.3 million, which positively contributed to shareholders’ equity. Improvement in the unrealized loss position of the available for sale securities portfolio also contributed to the increase in shareholders’ equity during the same nine-month period. During the nine months ended September 30, 2025, the Company repurchased 89,547 shares of common stock at a total cost of $844,000, and the Company paid $422,000 in dividends attributable to noncontrolling interest. See Note 3 (Noncontrolling Interest) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest.

Current wording

At March 31, 2026, total shareholders’ equity was $76.7 million, an increase of $1.1 million from December 31, 2025. Net income for the three-month period ended March 31, 2026 was $3.2 million, which positively contributed to shareholders’ equity. During the three months ended March 31, 2026, the Company repurchased 25,612 shares of common stock at a total cost of $274,000, and the Company paid $139,000 in dividends attributable to noncontrolling interest. See Note 3 ("Noncontrolling Interest") to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest.

Previous wording

Uwharrie Capital Corp reported net income of $2.9 million for the three months ended September 30, 2025, compared to $3.0 million for the three months ended September 30, 2024. Net income available to common shareholders was $2.7 million, or $0.38 per common share, for the three months ended September 30, 2025, compared to $2.9 million, or $0.39 per common share, for the three months ended September 30, 2024. 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 $3.2 million for the three months ended March 31, 2026, compared to $2.6 million for the three months ended March 31, 2025. Net income available to common shareholders was $3.1 million, or $0.43 per common share, for the three months ended March 31, 2026, compared to $2.4 million, or $0.33 per common share, for the three months ended March 31, 2025. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Previous wording

Net interest income for the nine months ended September 30, 2025 was $28.7 million, a $2.3 million increase from the $26.4 million reported for the comparative period in 2024. During the first nine months of 2025, the average yield on our interest-earning assets increased 9 basis points to 5.20% from the same period in 2024, and the average rate we paid for our interest-bearing liabilities decreased 6 basis points to 2.34%. These changes resulted in a higher interest rate spread of 2.86% as of September 30, 2025, compared to 2.71% as of September 30, 2024. The Company’s net interest margin was 3.50% and 3.38% for the comparable periods in 2025 and 2024, respectively.

Current wording

Net interest income for the three months ended March 31, 2026 was $9.8 million, a $660,000 increase from the $9.1 million reported for the comparative period in 2025. During the first three months of 2026, the average yield on our interest-earning assets decreased by 5 basis points to 5.07% from the same period in 2025, and the average rate we paid for our interest-bearing liabilities decreased 9 basis points to 2.27%. These changes resulted in an interest rate spread of 2.81% as of March 31, 2026, compared to 2.77% as of March 31, 2025. The Company’s net interest margin was 3.42% and 3.39% for the comparable periods in 2026 and 2025, respectively.

Previous wording

The provision for credit losses was $176,000 for the three months ended September 30, 2025, compared to a recovery of $230,000 for the same period in 2024. There were net loan charge-offs of $67,000 for the three months ended September 30, 2025, as compared to net loan recoveries of $51,000 during the same period of 2024. Refer to the Asset Quality section below for further information.

Current wording

The Company recorded a $62,000 recovery of credit losses for the three months ended March 31, 2026, compared to a provision of $281,000 for the same period in 2025. There were net loan recoveries of $61,000 for the three months ended March 31, 2026, as compared to net loan charge-offs of $47,000 during the same period of 2025. 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 $377,000 for the three-month period ended September 30, 2025, as compared to the same period in 2024. Income associated with market adjustments on SERP accounts increased by $359,000 during the three months ended September 30, 2025, compared to the three months ended September 30, 2024.

Current wording

The Company places significant emphasis on diversification of revenue sources rather than relying solely upon interest income. Total noninterest income increased by $578,000 for the three-month period ended March 31, 2026, as compared to the same period in 2025. The gain on sale of securities increased $186,000 related to the sale of available for sale securities during the first quarter of 2026. Income from mortgage banking increased $130,000 quarter-over-quarter, driven by increased mortgage loan production.

Previous wording

Noninterest expense for the three months ended September 30, 2025 increased by $1.0 million from the same period in 2024. Salaries and benefits, the largest component of noninterest expense, increased $429,000 due to wage and benefit increases during 2025. Expense associated with market adjustments on SERP accounts increased by $359,000 during the three months ended September 30, 2025, compared to the three months ended September 30, 2024.

Current wording

Noninterest expense for the three months ended March 31, 2026 increased by $767,000 compared to the same period in 2025. Salaries and benefits, the largest component of noninterest expense, increased by $462,000 due to wage and benefit increases and increased commissions related to higher mortgage production during the first quarter of 2026.

Previous wording

Total other noninterest expense increased $68,000 for the three months ended September 30, 2025, compared to the same period in 2024. The table below reflects the composition of other noninterest expense for the referenced periods.

Current wording

Total other noninterest expense increased by $169,000 for the three months ended March 31, 2026, compared to the same period in 2025. The table below reflects the composition of other noninterest expense for the referenced periods.

Previous wording

The Company had income tax expense of $2.3 million for the nine months ended September 30, 2025 at an effective tax rate of 22.1% compared to income tax expense of $2.2 million with an effective tax rate of 22.1% in the comparable 2024 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.

Current wording

The Company had income tax expense of $875,000 for the three months ended March 31, 2026 at an effective tax rate of 21.4% compared to income tax expense of $723,000 with an effective tax rate of 22.1% in the comparable 2025 period. The decrease in the effective tax rate is related to an increase in tax exempt income during the first quarter of 2026. 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

The Company individually reviews loans when it is determined that it does not share similar risk characteristics with other loans and with total relationship exposure greater than or equal to $100,000 that are determined to be collateral dependent. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate. This evaluation is inherently subjective, as it requires material estimates, including internal and external appraisal services. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for credit losses on loans and may require additions for estimated losses based upon judgments different from those of management.

Current wording

The Company individually reviews loans that do not share the same risk characteristics as loans in the collectively assessed population. Individually assessed loans determined to be collateral dependent are evaluated based on the fair value of the underlying collateral, as repayment is expected to be derived through the operation or sale of the collateral. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are measured using the fair value of collateral at the reporting date, adjusted for selling costs as appropriate. Loans that are not deemed collateral dependent are assigned a probability of default based on default history. If the loan has defaulted, it will be assigned a 100% probability of default; otherwise, it will be assigned a probability of default based on the Company’s historical experience, which is higher than the forecasted probability of default applied in the collectively assessed portfolio. This evaluation is inherently subjective, as it requires material estimates, including internal and external appraisal services. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for credit losses on loans and may require additions for estimated losses based upon judgments different from those of management.

Previous wording

The allowance, expressed as a percentage of gross loans held for investment, increased seven basis points from 0.87% at December 31, 2024 to 0.94% at September 30, 2025. During the second quarter of 2025, the Company implemented a change in estimate of the allowance model which altered the allocation of these percentages between the collectively assessed population and qualitative factors. The collectively assessed portion decreased from 0.75% at December 31, 2024 to 0.53% at September 30, 2025, and the qualitative factors portion increased from 0.12% to 0.41% over the same period. The increase in the allowance was driven by an increase in the national unemployment rate forecast used in the commercial regression model. Additionally, while total loans decreased during the third quarter of 2025, newly originated loans had a higher forecasted loss rate due to a longer projected duration than the loans that were fully repaid during the same quarter. The ratio of nonaccrual loans to total loans increased from 0.03% at December 31, 2024 to 0.06% at September 30, 2025, and was related to the $211,000 increase in nonaccrual loans. Four loans totaling $360,000 were converted to nonaccrual during the first nine months of 2025, offset by paydowns of $20,000, two loans totaling $88,000 were charged off, and one loan totaling $40,000 was moved to other real estate owned and subsequently sold.

Current wording

At March 31, 2026, the level of our individually evaluated loans was $5.2 million, and the allowance for credit losses related to individually evaluated loans was $308,000. The allowance, expressed as a percentage of gross loans held for investment, was 0.93% at December 31, 2025 and March 31, 2026. The ratio of nonaccrual loans to total loans increased from 0.05% at December 31, 2025 to 0.06% at March 31, 2026, and was related to the $38,000 increase in nonaccrual loans. One loan totaling $50,000 was converted to nonaccrual during the first three months of 2026, offset by paydowns of $12,000.

Previous wording

Other real estate owned was $0 at September 30, 2025 and December 31, 2024.

Current wording

The Company did not hold any other real estate owned at March 31, 2026 and December 31, 2025.

Previous wording

As of September 30, 2025, 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.

Current wording

As of March 31, 2026, 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 GAAP, 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 42.0% and 38.8% of total deposits at September 30, 2025 and December 31, 2024, 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 September 30, 2025, 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 $145.1 million; and access to borrowings from the FRB discount window, with available credit of $26.5 million. 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 September 30, 2025, $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 flows 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 41.9% and 40.5% of total deposits at March 31, 2026 and December 31, 2025, 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 March 31, 2026, 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 $183.6 million; and access to borrowings from the FRB discount window, with available credit of $28.6 million. 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, 2026, $3.0 million remained available for use on the line of credit.

Previous wording

The Company’s subsidiary bank has a net total of $10.7 million in outstanding Fixed Rate Noncumulative Perpetual Preferred Stock. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30%. The net total of $10.7 million is presented as noncontrolling interest at the Company level and qualifies as Tier 1 capital at the Company. At September 30, 2025, the Company had $29.2 million, net of unamortized debt issuance costs of $173,000, in subordinated debt outstanding, of which $25.4 million qualifies as Tier 2 capital at the Company level. The Company has made all interest and dividend payments in a timely manner.

Current wording

The Company’s subsidiary bank has a net total of $10.7 million in outstanding Fixed Rate Noncumulative Perpetual Preferred Stock. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30%. The net total of $10.7 million is presented as noncontrolling interest at the Company level and qualifies as Tier 1 capital at the Company. At March 31, 2026, the Company had $29.1 million, net of unamortized debt issuance costs of $135,000, in subordinated debt outstanding, of which $25.4 million qualifies as Tier 2 capital at the Company level. The Company has made all interest and dividend payments in a timely manner.