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  4. [10-K] UWHARRIE CAPITAL CORP Files Annual Report

Uwharrie Capital (OTCQX: UWHR) grows 2025 profit and assets

Filing Impact
(High)
Filing Sentiment
(Neutral)
Form Type
10-K

Rhea-AI Filing Summary

Uwharrie Capital Corp reports higher 2025 earnings with net income of $11.4 million, up from $9.9 million in 2024, and net income available to common shareholders of $10.8 million, or $1.49 per share.

Total assets grew to $1.20 billion from $1.13 billion, driven by $50.5 million in organic deposit growth and a $23.2 million, or 3.5%, increase in loans held for investment to $689.6 million. Investment securities rose to $379.7 million, while unrealized losses on available-for-sale securities improved to $21.5 million from $32.1 million.

Net interest income increased to $38.9 million as net interest margin expanded to 3.50%. Noninterest income rose 15.6% to $11.3 million, led by stronger mortgage banking. The allowance for credit losses on loans increased to $6.4 million, or 0.93% of loans, and nonaccrual loans remained low at 0.05% of total loans. The Bank was "well capitalized," and shareholders’ equity increased to $75.6 million, despite repurchasing 110,939 shares and not paying common dividends.

Positive

  • None.

Negative

  • None.
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

 

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2025

OR

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to .

COMMISSION FILE NUMBER 000-22062

 

UWHARRIE CAPITAL CORP

(Exact name of registrant as specified in its charter)

 

 

North Carolina

56-1814206

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

 

132 NORTH FIRST STREET

 

ALBEMARLE, North Carolina

28001

(Address of Principal Executive Offices)

(Zip Code)

 

Registrant’s Telephone number, including area code: (704) 983-6181

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

 NONE

 

 

 

 

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $1.25 PER SHARE

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

 

Large accelerated filer

 

☐

 

Accelerated filer

 

☐

 

 

 

 

 

 

 

Non-accelerated filer

 

☒

 

Smaller reporting company

 

☒

 

 

 

 

 

 

 

Emerging growth company

 

☐

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $61,616,164.00.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: 7,160,254 shares of common stock outstanding as of March 2, 2026.

Documents Incorporated by Reference.

Portions of the Registrant’s definitive Proxy Statement for the 2026 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

 

 

FORM 10-K CROSS REFERENCE INDEX

As indicated below, portions of the Registrant’s definitive Proxy Statement for the 2026 Annual Meeting of Shareholders, which the Registrant plans to file with the Securities and Exchange Commission subsequent to the date hereof, are incorporated by reference into Part III of this report.

 

 

 

 

 

 

 

 

 

 

Page

Part I

 

 

 

 

 

 

 

Item 1.

Business

1

Item 1A.

Risk Factors

12

Item 1B.

Unresolved Staff Comments

12

Item 1C.

 

Cybersecurity

 

 

12

 

Item 2.

Properties

13

Item 3.

Legal Proceedings

14

Item 4.

Mine Safety Disclosures

14

 

 

 

Part II

 

 

 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

15

Item 6.

[Reserved]

15

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

28

Item 8.

Financial Statements and Supplementary Data

28

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

72

Item 9A.

Controls and Procedures

72

Item 9B.

Other Information

72

Item 9C.

 

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 

 

72

 

 

 

 

Part III

 

 

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

73

Item 11.

Executive Compensation

73

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

73

Item 13.

Certain Relationships and Related Transactions, and Director Independence

73

Item 14.

Principal Accountant Fees and Services

73

 

 

 

Part IV

 

 

 

 

 

 

 

Item 15.

Exhibit and Financial Statement Schedules

74

Item 16.

 

Form 10-K Summary

 

 

76

 

 

 

 

PART I

Item 1. Business.

Uwharrie Capital Corp (the “Company”) is a North Carolina business corporation and registered bank holding company. The Company was incorporated on February 24, 1993 to become the bank holding company for Uwharrie Bank (the “Bank”), a North Carolina commercial bank, originally chartered on September 28, 1983 as Bank of Stanly, and its three wholly owned subsidiaries, The Strategic Alliance Corporation (“Strategic Alliance”), BOS Agency, Inc. (“BOS Agency”) and Gateway Mortgage, Inc., a mortgage brokerage company acquired in August 2000. The Company also owns two non-bank subsidiaries, Uwharrie Investment Advisors, Inc., formerly known as Strategic Investment Advisors, Inc., formed in 1999, and Uwharrie Mortgage, Inc., formed in 2004.

On January 19, 2000, the Company completed its acquisition of Anson Bancorp, Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North Carolina savings bank charter and became a wholly owned subsidiary of the Company until September 1, 2013 when it was merged with and into the Bank.

During 2002, the Company expanded its service area into the Cabarrus County market. On April 10, 2003 the Company capitalized a new wholly owned subsidiary bank, Cabarrus Bank & Trust Company. As of that date, Cabarrus Bank & Trust Company purchased two Cabarrus County branch offices of the Bank in order to commence operations. Cabarrus Bank & Trust Company was merged with and into the Bank, effective September 1, 2013.

The Company and its subsidiaries conduct their operations in Stanly County, Anson County, Cabarrus County, Randolph County and Mecklenburg County, North Carolina. The Company is community-oriented, emphasizing the well-being of the people in its region above financial gain in directing its corporate decisions. In order to best serve its communities, the Company believes it must remain a strong, viable, independent financial institution. This means that the Company must evolve with today’s quickly changing financial services industry. Beginning with its inception in 1993, the Company implemented its current strategy to remain a strong, independent community financial institution that is competitive with larger institutions and allows its service area to enjoy the benefits of a local financial institution and the strength its capital investment provides the community. This strategy consists of developing and expanding the Company’s technological capabilities while recruiting and maintaining a workforce sensitive to the financial services needs of its customers. This strategy has provided the Company with the capacity to grow and leverage the cost of delivering competitive services.

At December 31, 2025, the Company and related subsidiaries had 176 full-time and 23 part-time employees.

Business of the Bank

The Bank is a North Carolina chartered commercial bank, which was incorporated in 1983 and which commenced banking operations as Bank of Stanly on January 26, 1984. Its main banking office is located at 167 North Second Street, Albemarle, North Carolina, and it operates nine other banking offices and three loan production offices in Stanly County, Anson County, Cabarrus County, Randolph County and Mecklenburg County, North Carolina. The Bank is the only commercial bank headquartered in Stanly County.

Its operations are primarily retail-oriented and directed to individuals and small to medium-sized businesses located in its market area, and its deposits and loans are derived primarily from customers in its geographical market. The Bank provides traditional commercial and consumer banking services, including personal and commercial checking and savings accounts, money market accounts, certificates of deposit, individual retirement accounts, and related business and individual banking services. The Bank’s lending activities include commercial loans and various consumer-type loans to individuals, including installment loans, mortgage loans, equity lines of credit and overdraft checking credit. The Bank also offers internet banking, mobile banking, 24-hour telephone banking, and issues Visa ® check cards, an electronic banking card, which functions as a point-of-sale card and allows cardholders to access their deposit accounts at the Bank’s ten branches and at most automated teller machines of other banks linked to the STAR ® or CIRRUS ® networks. The Bank offers credit cards under license from MasterCard ®. The Bank does not presently provide the services of a trust department.

Non-Bank Subsidiaries

The Bank has three wholly owned subsidiaries, BOS Agency, Strategic Alliance and Gateway Mortgage, Inc. BOS Agency was formed during 1987 and engages in the sale of various insurance products, including fixed annuities, life insurance, long-term care, disability insurance and Medicare supplements. Strategic Alliance was formed during 1989 as BOS Financial Corporation and, in 1993, adopted its current name. It is registered with the Securities and Exchange Commission (the “SEC”) and licensed by the

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Financial Industry Regulatory Authority (“FINRA”) as a securities broker-dealer. Gateway Mortgage, Inc. is a mortgage brokerage company, acquired by the Bank in 2000.

The Company has two non-bank subsidiaries. Uwharrie Investment Advisors, Inc., which is registered as an investment advisor with the SEC, began operations on April 1, 1999 and provides portfolio management services to customers in the Charlotte Metropolitan and Uwharrie Lakes Regions. The Company established Uwharrie Mortgage, Inc., a subsidiary to serve in the capacity of trustee and substitute trustee under deeds of trust, in 2004.

Competition

Commercial banking in North Carolina is extremely competitive, due in large part to early adoption of statewide and interstate branching laws. The Company encounters significant competition from a number of sources, including other bank holding companies, commercial banks, credit unions, and other financial institutions and financial intermediaries, including financial technology companies.

Among commercial banks, the Bank competes in its market areas with some of the largest banking organizations operating in the state, several of which have numerous branches throughout North Carolina and are larger than the Bank in terms of asset size. Consequently, some competitors have substantially higher lending limits due to their greater total capitalization, and may perform functions for their customers that the Company currently does not offer. The Company could encounter increased competition in the future, from existing or new competitors that may limit its ability to maintain or increase its market share or otherwise materially and adversely affect its business, results of operations and financial condition.

The Bank depends on its reputation as a community bank in its local market, direct customer contact, its ability to make credit and other business decisions locally, and personalized service to counter these competitive disadvantages.

Exposure to Local Economic Conditions

The Company’s success is dependent to a significant extent upon economic conditions in Stanly, Anson, Cabarrus, Randolph and Mecklenburg Counties, and more generally, in the Charlotte Metropolitan and Uwharrie Lakes Regions. In addition, the banking industry in general is affected by economic conditions such as inflation, recession, unemployment and other factors beyond the Company’s control. Economic recession over a prolonged period or other economic dislocation in the Charlotte Metropolitan and Uwharrie Lakes Regions could cause increases in non-performing assets and impair the values of real estate collateral, thereby causing operating losses, diminishing liquidity and eroding capital. Although management believes its loan policy and review process results in sound and consistent credit decisions on its loans, there can be no assurance that future adverse changes in the economy in the Company’s market area would not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Impact of Technological Advances; Upgrade to Company’s Infrastructure

The banking industry is undergoing, and management believes it will continue to undergo, technological changes with frequent introductions of new technology-driven products and services. In addition to improving customer services, the effective use of technology increases efficiency and enables financial institutions to reduce costs. The Company’s future success will depend, in part, on its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands for convenience as well as enhance efficiencies in the Company’s operations. Management believes that keeping pace with technological advances is critical for the Company in light of its strategy to continue its sustained pace of growth. As a result, the Company intends to continue to upgrade its internal systems, both through the efficient use of technology and by strengthening its policies and procedures. The Company also currently anticipates that it will evaluate opportunities to expand its array of technology-based products to its customers from time to time in the future.

Available Information

The Company makes its periodic and current reports available, free of charge, on or through its website, www.uwharrie.com, as soon as practicable after such material is electronically filed with, or furnished to, the SEC. In addition, the public may read and copy any materials filed with the SEC free of charge at the SEC’s website, www.sec.gov, that contains reports, proxy statements and other information regarding issuers that file electronically.

Except as otherwise expressly stated, the information contained on our website or available by hyperlink from our website is not part of this report and is not incorporated by reference into this report or any other documents we file with, or furnish to, the SEC.

 

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Federal Bank Holding Company Regulation and Structure

As a registered bank holding company, the Company is subject to regulation under the Bank Holding Company Act of 1956 (the “BHCA”) and to the supervision, examination and reporting requirements of the Federal Reserve System. The Bank has a North Carolina commercial bank charter and is subject to regulation, supervision and examination by the Federal Reserve and the North Carolina Commissioner of Banks (“NCCOB”).

The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve before:

•
it may acquire direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the voting shares of the bank;
•
it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or
•
it may merge or consolidate with any other bank holding company.

The BHCA further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or that would substantially lessen competition in the banking business, unless the public interest in meeting the needs of the communities to be served outweighs the anti-competitive effects. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved and the convenience and needs of the communities to be served. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues focuses, in part, on the performance under the Community Reinvestment Act of 1977, both of which are discussed elsewhere in more detail.

Subject to various exceptions, the BHCA and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company. Control is conclusively presumed to exist if a person or company acquires 25% or more of any class of voting securities of a bank holding company. Control is also presumed to exist, although rebuttable, if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:

•
the bank holding company has securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, or the Exchange Act; or
•
no other person owns a greater percentage of that class of voting securities immediately after the transaction.

The Company’s common stock is registered under Section 12 of the Exchange Act. Federal Reserve regulations provide a procedure for challenging rebuttable presumptions of control.

The BHCA generally prohibits a bank holding company from engaging in activities other than banking, managing or controlling banks or other permissible subsidiaries, and acquiring or retaining direct or indirect control of any company engaged in any activities other than activities closely related to banking or managing or controlling banks. In determining whether a particular activity is permissible, the Federal Reserve considers whether performing the activity can be expected to produce benefits to the public that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve has the power to order a bank holding company or its subsidiaries to terminate any activity or control of any subsidiary when the continuation of the activity or control constitutes a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company.

Under the BHCA, a bank holding company may file an election with the Federal Reserve to be treated as a financial holding company and engage in an expanded list of financial activities. The election must be accompanied by a certification that all of the company’s insured depository institution subsidiaries are “well capitalized” and “well managed.” Additionally, the Community Reinvestment Act of 1977 rating of each subsidiary bank must be satisfactory or better. If, after becoming a financial holding company and undertaking activities not permissible for a bank holding company, the company fails to continue to meet any of the prerequisites for financial holding company status, the company must enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements. If the company does not return to compliance within 180 days, the Federal Reserve may order the company to divest its subsidiary banks or the company may discontinue or divest investments in companies engaged in activities permissible only for a bank holding company that has elected to be treated as a financial holding company. The Company has not filed an election to become a financial holding company.

Under Federal Reserve policy and as has been codified by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the Company is expected to act as a source of financial strength for the Bank and to commit resources to

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support the Bank. This support may be required at times when the Company might not be inclined to provide it. In addition, any capital loans made by the Company to the Bank will be repaid only after the Bank’s deposits and various other obligations are repaid in full.

The Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities and operations and is supervised and examined by state and federal bank regulatory agencies. The Federal Reserve and the NCCOB regularly examine the operations of the Bank and are given the authority to approve or disapprove mergers, consolidations, the establishment of branches and similar corporate actions. These agencies also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

Bank Merger Act

Section 18(c) of the Federal Deposit Insurance Act, popularly known as the “Bank Merger Act,” requires the prior written approval of the federal banking regulators before any bank may (i) merge or consolidate with, (ii) purchase or otherwise acquire the assets of, or (iii) assume the deposit liabilities of, another bank if the resulting institution is to be a state nonmember bank.

The Bank Merger Act prohibits approval of any proposed merger transaction that would result in a monopoly, or would further a combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States. Similarly, the Bank Merger Act prohibits the approval of a proposed merger transaction whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade. An exception may be made in the case of a merger transaction whose effect would be to substantially lessen competition, tend to create a monopoly, or otherwise restrain trade, if federal regulators find that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.

In every proposed merger transaction, federal banking regulators must also consider the financial and managerial resources and future prospects of the existing and proposed institutions, the convenience and needs of the community to be served, and the effectiveness of each insured depository institution involved in the proposed merger transaction in combating money-laundering activities, including in overseas branches.

State Law

The Bank is subject to extensive supervision and regulation by the NCCOB. The NCCOB oversees state laws that set specific requirements for bank capital and that regulate deposits in, and loans and investments by, banks, including the amounts, types, and in some cases, rates. The NCCOB supervises and performs periodic examinations of North Carolina-chartered banks to assure compliance with state banking statutes and regulations, and banks are required to make regular reports to the NCCOB describing in detail their resources, assets, liabilities, and financial condition. Among other things, the NCCOB regulates mergers and consolidations of North Carolina state-chartered banks, capital requirements for banks, the payment of dividends, loans to officers and directors, record keeping, types and amounts of loans and investments, and the establishment, relocation, and closing of branches.

The NCCOB has extensive enforcement authority over North Carolina banks. Such authority includes the ability to issue cease-and-desist orders and to seek civil money penalties. The NCCOB may also take possession of a North Carolina bank in various circumstances, including for a violation of its charter or of applicable laws, operating in an unsafe and unsound manner, or as a result of an impairment of its capital, and may appoint a receiver.

The Company is also required to maintain registration as a bank holding company with the NCCOB. Subject to certain exceptions, the Company may not acquire control over another bank or bank holding company or consummate a merger or other combination transaction with another company without the prior approval of the NCCOB. The NCCOB also has authority to assert civil money penalties against a holding company if the NCCOB determines such holding company to be in violation of any banking laws and the holding company fails to comply with an NCCOB order to cease and desist from such violations of law.

The primary state banking laws to which the Bank is subject are set forth in Chapters 53 and 53C of the North Carolina General Statutes. Certain provisions of the North Carolina Business Corporation Act are also applicable to the Bank, as a North Carolina banking corporation.

Payment of Dividends and Other Restrictions

The Company is a legal entity separate and distinct from the bank it owns. While there are various legal and regulatory limitations under federal and state law on the extent to which banks can pay dividends or otherwise supply funds to holding

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companies, the principal source of cash revenues for the Company is dividends from the Bank. The relevant federal and state regulatory agencies have authority to prohibit a state bank or bank holding company, which would include Uwharrie Capital Corp and the Bank, from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound practice in conducting its business. The payment of dividends could, depending upon the financial condition of a bank, be deemed to constitute an unsafe or unsound practice in conducting its business.

North Carolina commercial banks, such as the Bank, are subject to legal limitations on the amounts of dividends they are permitted to pay. Specifically, an insured depository institution, such as the Bank, is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is defined in the applicable law and regulations).

The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition. The Federal Reserve also indicated that it would be inappropriate for a holding company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the Federal Reserve, the Federal Reserve may prohibit a bank holding company from paying any dividends if any of the holding company’s bank subsidiaries are classified as undercapitalized.

A bank holding company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of its consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order or any condition imposed by, or written agreement with, the Federal Reserve.

Under the Inflation Reduction Act of 2022, there is a 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

Capital Adequacy

The Bank must comply with the Federal Reserve’s established capital adequacy standards. The Federal Reserve has promulgated two basic measures of capital adequacy: a risk-based measure and a leverage measure. Banks and bank holding companies must satisfy all applicable capital standards to be considered in compliance. Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is exempt from the Federal Reserve’s risk-based capital and leverage rules.

The risk-based capital standards are designed to make regulatory capital requirements sensitive to differences in risk profile among banks and bank holding companies, account for off-balance-sheet exposure and minimize disincentives for holding liquid assets.

Assets and off-balance-sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items. The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. At least half of total capital must be Tier 1 Capital, which is common stock, undivided profits, minority interests in the equity accounts of consolidated subsidiaries and noncumulative perpetual preferred stock, less goodwill and certain other intangible assets. The remainder may consist of Tier 2 Capital, which is subordinated debt, other preferred stock and a limited amount of loan loss reserves. The Company’s accumulated other comprehensive income or loss, resulting from unrealized gains and losses, net of income tax, on investment securities available for sale, is excluded from regulatory capital.

At December 31, 2025 the Bank’s total risk-based capital ratio and its Tier 1 risk-based capital ratio were 15.16% and 14.35%, respectively. The Bank has not been advised by any federal banking agency of any additional specific minimum capital ratio requirement applicable to it.

In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and certain other intangible assets, of 3% for bank holding companies that meet specified criteria. All other bank holding companies generally are required to maintain a minimum leverage ratio of 4%. The Company’s ratio at December 31, 2025 was 7.61%, compared to 7.09% at December 31, 2024. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain

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strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital leverage ratio” and other indications of capital strength in evaluating proposals for expansion or new activities. The Federal Reserve has not advised us of any additional specific minimum leverage ratio or tangible Tier 1 Capital leverage ratio applicable to the Company.

Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the Federal Deposit Insurance Corporation (“FDIC”), a prohibition on taking brokered deposits and certain other restrictions on its business. As described below, federal banking regulators can impose substantial additional restrictions upon FDIC-insured depository institutions that fail to meet applicable capital requirements.

The Federal Deposit Insurance Act, or FDI Act, requires the federal regulatory agencies to take “prompt corrective action” if a depository institution does not meet minimum capital requirements. The FDI Act establishes five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation.

The federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels applicable to FDIC-insured banks. The relevant capital measures are the Total Risk-Based Capital ratio, Tier 1 Risk-Based Capital ratio and the leverage ratio. Under the regulations, an FDIC-insured bank will be:

•
“well capitalized” if it has a Total Risk-Based Capital ratio of 10% or greater, a Tier 1 Risk-Based Capital ratio of 8% or greater and a leverage ratio of 5% or greater and is not subject to any order or written directive by the appropriate regulatory authority to meet and maintain a specific capital level for any capital measure;
•
“adequately capitalized” if it has a Total Risk-Based Capital ratio of 8% or greater, a Tier 1 Risk-Based Capital ratio of 6% or greater and a leverage ratio of 4% or greater (3% in certain circumstances) and is not “well capitalized;”
•
“undercapitalized” if it has a Total Risk-Based Capital ratio of less than 8%, a Tier 1 Risk-Based Capital ratio of less than 6% or a leverage ratio of less than 4% (3% in certain circumstances);
•
“significantly undercapitalized” if it has a Total Risk-Based Capital ratio of less than 6%, a Tier 1 Risk-Based Capital ratio of less than 4% or a leverage ratio of less than 3%; and
•
“critically undercapitalized” if its tangible equity is equal to or less than 2% of average quarterly tangible assets.

An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. As of December 31, 2025, the Bank had capital levels that qualify as “well capitalized” under such regulations.

The FDI Act generally prohibits an FDIC-insured bank from making a capital distribution (including payment of a dividend) or paying any management fee to its holding company if the bank would thereafter be “undercapitalized.” “Undercapitalized” banks are subject to growth limitations and are required to submit a capital restoration plan. The federal regulators may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the bank’s capital. In addition, for a capital restoration plan to be acceptable, the bank’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of: (i) an amount equal to 5% of the bank’s total assets at the time it became “undercapitalized”; and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”

“Significantly undercapitalized” insured banks may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, cease receipt of deposits from correspondent banks, or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator, may not make any payment of principal or interest on certain subordinated debt, extend credit for a highly leveraged transaction, or enter into any material transaction outside the ordinary course of business. A bank that is not “well capitalized” is also subject to certain limitations relating to brokered deposits.

 

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The Federal Reserve, FDIC and Office of the Comptroller of the Currency have established an integrated regulatory capital framework that implements the regulatory capital requirements put forth by the Basel Committee on Banking Supervision, commonly known as “Basel III,” and certain provisions of the Dodd-Frank Act.

The major provisions of the rule applicable to us are:

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Minimum capital requirements, including a common equity Tier 1 capital requirement, and criteria that instruments must meet in order to be considered Common Equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital. The minimum capital to risk-weighted assets (“RWA”) requirements are a common equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, and a total capital ratio of 8.0%. The minimum leverage ratio (Tier 1 capital to average total assets) is 4.0%.
•
Disallowance of the inclusion of instruments such as trust preferred securities in Tier 1 capital going forward (subject to certain exceptions), and constraints on the inclusion of minority interests, mortgage-servicing assets (“MSAs”), deferred tax assets (“DTAs”), and certain investments in the capital of unconsolidated financial institutions.
•
In order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements. This buffer is intended to help ensure that banking organizations conserve capital when it is most needed, allowing them to better weather periods of economic stress. The buffer is measured relative to RWA. A banking organization with a buffer greater than 2.5% would not be subject to limits on capital distributions or discretionary bonus payments; however, a banking organization with a buffer of less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. Banking organizations are also prohibited from making distributions or discretionary bonus payments during any quarter if their eligible retained income is negative in that quarter and their capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. The minimum capital requirements plus the capital conservation buffer exceed the PCA well-capitalized thresholds.

Compliance by the Company and the Bank with these capital requirements affects their respective operations by increasing the amount of capital required to conduct operations.

In 2019, the federal banking agencies released a final rule amending the U.S. Basel III capital rules to simplify the capital treatment of capital deductions and recognition of minority interests for banking organizations such as the Registrant that are not subject to the advanced approaches capital rule. The final rule:

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simplifies the framework of regulatory capital deductions and heightened risk weights for mortgage servicing assets, deferred tax assets arising from temporary differences that an institution could not realize through net operating loss carrybacks, and investments in the capital of unconsolidated financial institutions, resulting in potentially fewer deductions for these items;
•
simplifies the recognition and calculation of minority interests that are includable in regulatory capital, resulting in potentially greater recognition of minority interests; and
•
makes certain technical amendments to the capital rules.

Community Bank Leverage Ratio. As discussed below, in 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) became law, which directed the federal banking agencies (which includes the FDIC, Federal Reserve Board, and Office of the Comptroller of the Currency, or OCC) to develop a community bank leverage ratio (“CBLR”) of not less than 8% and not more than 10% for qualifying community banking organizations. EGRRCPA defines a qualifying community banking organization as a depository institution or depository institution holding company with total consolidated assets of less than $10 billion, which would include the Company and its banking subsidiary. A qualifying community banking organization that exceeds the CBLR level established by the agencies is considered to have met: (i) the generally applicable leverage and risk-based capital requirements under the agencies’ capital rule; (ii) the capital ratio requirements in order to be considered well capitalized under the agencies’ PCA framework (in the case of insured depository institutions); and (iii) any other applicable capital or leverage requirements. Section 201 of EGRRCPA defines the CBLR as the ratio of a banking organization’s CBLR tangible equity to its average total consolidated assets, both as reported on the banking organization’s applicable regulatory filing.

The federal bank regulatory agencies have set the minimum required CBLR at 9%. Under the final rule, a qualifying community banking organization may elect to use the CBLR framework if its CBLR is greater than 9%. A qualifying community banking organization that has chosen the proposed framework is not required to calculate the existing risk-based and leverage capital requirements. A bank is also considered to have met the capital ratio requirements to be well capitalized for the agencies’ prompt

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corrective action rules provided it has a CBLR greater than 9%. On November 25, 2025, federal banking regulators issued a proposed rule that would lower the CBLR from 9% to 8%. No assurance can be made as to when and in what form a final rule will be adopted. We have not elected to implement the CBLR framework at this time.

Acquisitions

The Company must comply with numerous laws related to any potential acquisition activity. Under the BHCA, a bank holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank or merge or consolidate with another bank holding company without the prior approval of the Federal Reserve. The acquisition of non-banking companies is also regulated by the Federal Reserve. Current federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation. Furthermore, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, as long as neither of the states has opted out of such interstate merger authority prior to such date, and subject to any state requirement that the target bank shall have been in existence and operating for a minimum period of time, not to exceed five years, and to certain deposit market-share limitations. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law. Additionally, under the Dodd-Frank Act, banks are permitted to open a de novo branch in any state if that state would permit a bank organized in that state to open a branch.

Restrictions on Affiliate Transactions

Sections 23A and 23B of the Federal Reserve Act establish parameters for a bank to conduct “covered transactions” with its affiliates, with the objective of limiting risk to the insured bank. Generally, Sections 23A and 23B (i) limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and limit the aggregate of all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those that would be provided to a non-affiliate. The term “covered transaction” includes the making of loans to the affiliate, purchase of assets from the affiliate, issuance of a guaranty on behalf of the affiliate and several other types of transactions.

Under the Dodd-Frank Act, restrictions on transactions with affiliates are enhanced by (i) including among “covered transactions” transactions between bank and affiliate-advised investment funds; (ii) including among “covered transactions” transactions between a bank and an affiliate with respect to securities repurchase agreements and derivatives transactions; (iii) adopting stricter collateral rules; and (iv) imposing tighter restrictions on transactions between banks and their financial subsidiaries.

FDIC Insurance Assessments

Assessments are paid by each Deposit Insurance Fund (DIF) member institution. Assessments are based on the average consolidated total assets less tangible equity of a financial institution. The assessment rates for an insured depository institution vary according to the level of risk incurred in its activities, which for established small institutions like the Bank (i.e., those institutions with less than $10 billion in assets and insured for five years or more), is generally determined by reference to the institution’s supervisory ratings. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits.

The Bank’s insurance assessments during 2025 and 2024 were $540,000 and $543,000, respectively.

The FDIC may terminate insurance of deposits upon a finding that an institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

The FDIC has authority to increase deposit insurance assessments. A significant increase in deposit insurance assessments would likely have an adverse effect on the operating expenses and results of operations of the Company and the Bank. Management cannot predict what deposit insurance assessment rates will be in the future.

Community Reinvestment Act

The Community Reinvestment Act requires federal bank regulatory agencies to encourage financial institutions to meet the credit needs of low and moderate-income borrowers in their local communities. An institution’s size and business strategy determines the type of examination that it will receive. Large, retail-oriented institutions are examined using a performance-based lending, investment and service test. Small institutions are examined using a streamlined approach. All institutions may opt to be evaluated under a strategic plan formulated with community input and pre-approved by the bank regulatory agency.

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The Community Reinvestment Act regulations provide for certain disclosure obligations. Each institution must post a notice advising the public of its right to comment to the institution and its regulator on the institution’s Community Reinvestment Act performance and to review the institution’s Community Reinvestment Act public file. Each lending institution must maintain for public inspection a file that includes a listing of branch locations and services, a summary of lending activity, a map of its communities and any written comments from the public on its performance in meeting community credit needs. The Community Reinvestment Act requires public disclosure of a financial institution’s written Community Reinvestment Act evaluations. This promotes enforcement of Community Reinvestment Act requirements by providing the public with the status of a particular institution’s community reinvestment record.

Community Reinvestment Act agreements with private parties must be disclosed and annual Community Reinvestment Act reports must be made available to a bank’s primary federal regulator. A bank holding company will not be permitted to become a financial holding company and no new activities authorized under the Gramm-Leach-Bliley Act may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a satisfactory Community Reinvestment Act rating in its latest Community Reinvestment Act examination. The Bank received a “Satisfactory” rating in its last CRA examination, which was conducted as of March 31, 2024.

The Federal Reserve is considering changes to the regulations under the Community Reinvestment Act. The Company will monitor any proposed changes as they make their way through the agency rulemaking process.

Consumer Protection Laws

The Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Act and state law counterparts.

Privacy and Data Security

We are subject to complex and evolving laws and regulations governing the privacy and security of personal information associated with consumers, prospective, current and former customers, employees and contractors, and other individuals. For example, financial institutions are required by the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “GLBA”) to disclose certain information to consumers regarding their privacy and security practices with respect to personal information. The GLBA imposes additional requirements, including restrictions on when and to which entities financial institutions may disclose personal information and how personal information can be used, as well as data security requirements. Another example of a federal privacy law with which we must comply is the Fair Credit Reporting Act, which imposes requirements on our use of consumer reports.

In addition to federal privacy and data security laws and regulations, numerous state laws and regulations govern the privacy and security of personal information, and state legislatures have been actively considering and enacting new legislation. For example, some states have enacted financial privacy laws and regulations that are similar to the GLBA’s privacy requirements. Many states have enacted comprehensive privacy laws, such as the California Consumer Privacy Act. To the extent applicable, these laws and regulations may impose additional and/or different requirements than federal law, may present implementation challenges, could be an enforcement priority for the state regulators, and could generate increased lawsuits by consumers and other individuals.

We are also subject to laws and regulations governing how we respond to data breaches, cybersecurity incidents, and similar matters. At the federal level, the Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice addresses financial institutions’ notification of customers and regulations when unauthorized access to sensitive customer information occurs.

The U.S. federal bank regulatory agencies have also established computer-security incident notification requirements for banking organizations and bank service providers. A bank holding company, such as the Company, and an FDIC-supervised depository institution, such as the Bank, are required to notify the Federal Reserve or FDIC, respectively, as soon as possible and no later than 36 hours after a determination that a computer-security incident that rises to the level of a notification incident has occurred. A notification incident may include a major computer-system failure; a cyber-related interruption, such as a distributed denial of service or ransomware attack; or another type of significant operational interruption.

SEC rules also require disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy, and governance. See Item 1C. Cybersecurity for additional information.

9

 

 

In addition to our obligation to address federal standards related to data breaches, cybersecurity incidents, and similar matters, all fifty states have enacted breach notification laws. State breach notification laws often present additional or different notification requirements than those arising under federal law. Evaluating and addressing our obligations under these laws adds complexity to our incident response process, and the nature of these laws may present compliance challenges.

The application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in light of new and rapidly evolving data-driven technologies and significant increases in computing power. These laws and regulations are constantly evolving, remain a focus of regulators, and will continue to have a significant impact on our businesses and operations. Violations of these laws and regulations can give rise to enforcement actions by governmental agencies and to private lawsuits for damages and other forms of relief.

Additional Legislative and Regulatory Matters

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) required each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls with respect to its private banking accounts involving foreign individuals and certain foreign banks; and (iii) to avoid establishing, maintaining, administering or managing correspondent accounts in the United States for, or on behalf of, foreign banks that do not have a physical presence in any country. The USA PATRIOT Act also required the Secretary of the Treasury to prescribe by regulation minimum standards that financial institutions must follow to verify the identity of customers, both foreign and domestic, when a customer opens an account. In addition, the USA PATRIOT Act encouraged cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) mandated for public companies, such as Uwharrie Capital Corp, a variety of reforms intended to address corporate and accounting fraud and provided for the establishment of the Public Company Accounting Oversight Board (“PCAOB”), which enforces auditing, quality control and independence standards for firms that audit SEC-reporting companies. Sarbanes-Oxley imposed higher standards for auditor independence and restricted the provision of consulting services by auditing firms to companies they audit and required that certain audit partners be rotated periodically. It also requires chief executive officers and chief financial officers, or their equivalents, to certify the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this certification requirement, and increases the oversight and authority of audit committees of publicly traded companies.

Fiscal and Monetary Policy

Banking is a business which depends on interest rate differentials for success. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities holdings, constitutes the significant portion of a bank’s earnings. Thus, our earnings and growth will be subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve and the reserve requirements on deposits. The nature and timing of any changes in such policies and their effect on our business and results of operations cannot be predicted.

Current and future legislation and the policies established by federal and state regulatory authorities will affect our future operations. Banking legislation and regulations may limit our growth and the return to investors by restricting certain of our activities.

In addition, capital requirements could be changed and have the effect of restricting the activities of the Company or requiring additional capital to be maintained. The Company cannot predict with certainty what changes, if any, will be made to existing federal and state legislation and regulations or the effect that such changes may have on our business and results of operations.

Federal Home Loan Bank System

The FHLB System consists of 12 district Federal Home Loan Banks (“FHLBs”) subject to supervision and regulation by the Federal Housing Finance Agency (“FHFA”). The FHLBs provide a central credit facility primarily for member institutions. As a member of the FHLB of Atlanta, the Bank is required to acquire and hold shares of capital stock in the FHLB of Atlanta. The Bank was in compliance with this requirement with investment in FHLB of Atlanta stock of $819,000 at December 31, 2025. The FHLB of Atlanta serves as a reserve or central bank for its member institutions within its assigned district. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It offers advances to members in accordance with policies and

10

 

 

procedures established by the FHFA and the Board of Directors of the FHLB of Atlanta. Long-term advances may only be made for the purpose of providing funds for residential housing finance, small businesses, small farms and small agribusinesses.

Real Estate Lending Evaluations

The federal regulators have adopted uniform standards for evaluations of loans secured by real estate or made to finance improvements to real estate. Banks are required to establish and maintain written internal real estate lending policies consistent with safe and sound banking practices and appropriate to the size of the institution and the nature and scope of its operations. The regulations establish loan to value ratio limitations on real estate loans. The Bank’s loan policies establish limits on loan to value ratios that are equal to or less than those established in such regulations.

Commercial Real Estate Concentrations

Lending operations of commercial banks may be subject to enhanced scrutiny by federal banking regulators based on a bank’s concentration of commercial real estate loans. The federal banking regulators have issued guidance to remind financial institutions of the risk posed by commercial real estate, or CRE, lending concentrations. CRE loans generally include land development, construction loans, and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for its examiners to help identify institutions that are potentially exposed to significant CRE risk and may warrant greater supervisory scrutiny:

•
total reported loans for construction, land development and other land (“C&D”) represent 100% or more of the institution’s total capital; or
•
total CRE loans represent 300% or more of the institution’s total capital, and the outstanding balance of the institution’s CRE loan portfolio has increased by 50% or more.

As of December 31, 2025, our C&D concentration as a percentage of risk-based capital totaled 62.4% and our CRE concentration, net of owner-occupied loans, as a percentage of risk-based capital totaled 178.0%.

Limitations on Incentive Compensation

The Federal Reserve reviews incentive compensation arrangements of bank holding companies such as Uwharrie Capital Corp as part of its regular, risk-focused supervisory process. The federal banking agencies have also issued guidance designed to help ensure that incentive compensation policies at banking organizations do not encourage excessive risk-taking or undermine the safety and soundness of the banking organizations. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide employees incentives that appropriately balance risk and reward and, thus, do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The guidance provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

Economic Environment

The policies of regulatory authorities, including the monetary policy of the Federal Reserve, have a significant effect on the operating results of bank holding companies and their subsidiaries. Among the means available to the Federal Reserve to affect the money supply are open market operations in U.S. government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.

The Federal Reserve’s monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. The nature of future monetary policies and the effect of these policies on our business and earnings cannot be predicted.

11

 

 

Evolving Legislation and Regulatory Action

New laws or regulations or changes to existing laws and regulations, including changes in interpretation or enforcement, could materially adversely affect our financial condition or results of operations. As a result, the overall financial impact on the Company and the Bank cannot be anticipated at this time.

Item 1A. Risk Factors.

Item not required for smaller reporting companies.

Item 1B. Unresolved Staff Comments.

Item not required for non-accelerated filers.

Item 1C. Cybersecurity.

Risk Management and Strategy

The Company recognizes the importance of a cybersecurity risk management program designed to assess, identify, and manage risk associated with cybersecurity threats. Our cybersecurity risk management program (the “Program”) is consistent with the Federal Financial Institutions Examination Council (“FFIEC”) Cybersecurity Assessment Tool, which incorporates bank regulatory guidance and principles from the National Institute of Standards and Technology Cybersecurity Framework and includes the following risk-based principles:

•
Identification, measurement, mitigation, monitoring and reporting of cybersecurity threats based on internal and external information sharing and resources;
•
Safeguards designed to protect against identified threats, including documented policies and procedures, controls, and employee education and awareness;
•
Processes to detect cybersecurity events and improve incident response, including routine testing of incident response, recovery and business continuity plans and processes; and
•
Third-party risk management process to manage cybersecurity risk with service providers, suppliers, and vendors.

Our Program is designed to adapt to an evolving landscape of emerging cybersecurity threats and advancing technology to determine the Company’s cybersecurity preparedness. Through routine data gathering, emerging risks, internal incidents, technology investments and internal controls, our Program and overall cybersecurity risk strategy is adjusted as needed.

Our Program is supported by regular training of information security employees and awareness training and activities for executives, directors, and employees through which we communicate our cybersecurity policies, standards, processes and practices to foster a culture of cybersecurity risk management across the Company.

Integrated Risk Management

The Program is integrated into the Company’s enterprise risk management framework and functions to identify risk, form a strategy to manage risk, implement the strategy, test the implementation, and monitor our technology environment to control risk. Our information technology team works closely with stakeholders across security, risk, compliance, operations, other business stakeholders, and senior leadership to conduct an annual cybersecurity risk assessment utilizing the FFIEC Cybersecurity Assessment Tool.

Engagement of Third Parties in Connection with Risk Management

The Company engages various third parties to evaluate the effectiveness and maturity of our Program. The Company engages an independent third party to audit the cybersecurity risk strategy and preparedness. The Company also maintains cybersecurity insurance, however, the costs related to cybersecurity threats or disruptions may not be fully insured. The Company also engages third parties to perform regular penetration tests, vulnerability scans, disaster recovery tests and cyber exercises to simulate threat actor attacks. Our relationships with third parties enable us to leverage their cybersecurity expertise and industry knowledge to assess our Program and make adjustments as needed.

12

 

 

Oversight of Third-party Risks

Our third-party service providers, suppliers, and vendors face their own risks from cybersecurity threats that could impact the Company in certain circumstances. In response, we have implemented processes for overseeing and managing these risks. The processes include limiting the exposure of our information systems to external systems to the least practical amount, assessing the third parties’ information security practices before allowing them to access our information systems or data, requiring third parties to implement appropriate cybersecurity controls in our agreements with them, conducting ongoing monitoring of their compliance with those requirements, and requiring third parties to agree to contractual requirements designed to ensure cybersecurity concepts are appropriately addressed.

Risks from Cybersecurity Threats

As of the date of this report, we have not encountered any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are expected to materially affect the Company, including its business strategy, results of operations, or financial condition.

Governance

Board of Directors Oversight

Our Board’s Audit Committee oversees cybersecurity risk.

Management’s Role in Cybersecurity Risk Management

Given the important role of technology in the Company’s operations and customer service, the Company has established an Information Technology Steering Committee, which consists of our IT Manager, President and Chief Risk Officer, Chief Operations Officer, Chief Financial Officer, Mortgage Systems Administrator and Enterprise Risk Manager. The Information Technology Steering Committee reviews, monitors, aligns, and prioritizes all significant strategic information technology initiatives and security risks. The Information Technology Steering Committee reports to the Audit Committee and minutes of the committee’s meetings are subsequently reported by the Audit Committee to the Company’s Board of Directors. Our IT Manager, in collaboration with our Enterprise Risk Manager make monthly/quarterly reports to the Information Technology Steering Committee. Such reports include updates related to key metrics, key risk indicators, key performance indicators, penetration test results, risk assessment results, project updates, incident reports, compliance matters, and operational issues.

Risk Management Personnel

The IT Manager has the primary responsibility for managing the Program to identify, assess, manage and control cybersecurity risk. The IT Manager reports directly to our Chief Operations Officer. Our IT Manager has approximately 20 years of experience in cybersecurity, information security risk management, identity and access management, security architecture, vulnerability management, threat intelligence, security operations and incident management and response.

Monitoring Cybersecurity Incidents

The IT Manager is continually informed of and monitors cybersecurity risks and incidents. In the event of a cybersecurity incident, the Company has developed an incident response plan to timely report cybersecurity incidents to our executive management team, the Audit Committee and Board of Directors, as necessary. In addition to facilitating timely evaluation, escalation and reporting of cybersecurity incidents, this plan also sets forth the process for identifying and assessing the severity of cybersecurity incidents, as well as monitoring post-incident mitigation and remediation.

Reporting to Board of Directors

The Audit Committee receives reports from the Chief Operations Officer, IT Manager or Enterprise Risk Manager and briefings on our information security and enterprise risk management programs at least quarterly, including the results of any external audits, bank regulatory examinations and evaluations, as well as maturity assessments of our information security program.

Item 2. Properties.

The Company’s executive and administrative offices are located at 132 North First Street, Albemarle, North Carolina, where the Company owns a three-building complex located at 130-134 North First Street in Albemarle. This complex houses the Company’s offices and meeting rooms and is also the location of the Bank’s subsidiary, Strategic Alliance.

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The Bank’s Main Office has been located at 167 North Second Street, Albemarle, North Carolina since it opened in 1984. The Bank’s credit administration offices and portion of its lending offices occupy an adjoining building, purchased in 1991. The Bank owns a commercial building which houses some of its operations offices and parking lot adjacent to its Main Office. During 2009, the Bank acquired property in downtown Albemarle for future expansion.

The Bank owns its other banking locations at 710 North First Street, which houses the Village Branch, and its East Albemarle Branch at 800 Highway 24-27 Bypass, both located in Albemarle. It also owns a branch office located at 107 South Main Street in Norwood, North Carolina and a branch located at 416 West Main Street in Locust, North Carolina. The Bank leases its branch office at 224 North Main Street in Oakboro, North Carolina.

In Cabarrus County, the Bank owns a full-service branch office located at 25 Palaside Drive, N.E., Concord, North Carolina and leases its branch office at 1490 South Main Street, Mt. Pleasant, North Carolina. In 2023, the Bank purchased 8320 W. Franklin Street, Mt. Pleasant, North Carolina. We intend to use this property as a branch location when leasing of the current Mt. Pleasant branch office is discontinued. The Bank owns an office at 700 North Church Street in Concord, North Carolina where it previously provided banking services, which currently serves as a loan production office.

In Anson County, the Bank owns its banking facility located at 211 South Greene Street, Wadesboro, North Carolina and also owns an ATM site at 426 East Caswell Street, Wadesboro, North Carolina. In 2006, the Bank purchased a lot in Anson County for a future branch location.

In Randolph County, the Bank leases its loan production office located at 222 Sunset Avenue, Suite 101, Asheboro, North Carolina. Uwharrie Investment Advisors leases suites 107 and 108 at the same location for an additional wealth advisory office.

In Mecklenburg County, the Bank leases its loan production office located at 141 Providence Road, Charlotte, North Carolina and leases its banking facility located at 5231 Piper Station Drive, Suite 100, Charlotte, North Carolina.

All of the Bank’s existing offices are fully equipped and have adequate parking and drive-up banking facilities, with the exception of the Bank’s loan production offices, the Main Office in Albemarle, and the banking facility in Charlotte, which do not have drive-up facilities.

In the ordinary course of operations, the Company and the Bank are at times involved in legal proceedings. In the opinion of management, as of December 31, 2025 there are no material pending legal proceedings to which the Company, or any of its subsidiaries, is a party, or of which any of their property is the subject.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

It is the philosophy of Uwharrie Capital Corp to promote a strong base of local shareholders. While bid and ask prices for the Company’s common stock are quoted on the OTCQX ® Best Market under the symbol UWHR, trading is limited and sporadic with most trades taking place in privately negotiated transactions. Any over-the-counter market quotations of the Company’s common stock reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions. Management makes every reasonable effort to match willing buyers with willing sellers as they become known for the purpose of private negotiations for the purchase and sale of the Company’s common stock. The Company has an independent valuation of its common stock performed on an annual basis and makes this valuation available to interested shareholders in order to promote fairness and market efficiency in privately negotiated transactions.

Holders

On February 12, 2026 there were approximately 2,334 shareholders of record of the Company’s common stock. This number does not include shareholders for whom shares are held in “nominee” or “street” name.

Dividends

There were no cash dividends declared on the Company’s common stock in 2025 or 2024. The timing and amount of cash dividends paid, if any, depends on the Company’s earnings, capital requirements, financial condition and other relevant factors. See “Payment of Dividends and Other Restrictions” under Item 1 of this Report for more information on restrictions on the Company’s ability to declare and pay dividends. The Company can offer no assurance that the board of directors will declare or pay cash dividends in any future period.

Recent Sales of Unregistered Securities

None.

Securities Authorized for Issuance under Equity Compensation Plans

See Item 12 of this Report for disclosure regarding securities authorized for issuance and equity compensation plans required by Item 201(d) of Regulation S-K.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table sets forth information with respect to shares of common stock repurchased by the Company during each of the three months in the quarterly period ended December 31, 2025.

 

 

 

(a) Total
Number of
Shares
Purchased

 

 

(b) Average
Price Paid per
Share

 

 

(c) Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or Program (1)

 

 

(d) Maximum
Dollar Value of
Shares that
May Yet Be
Purchased Under
the Plans

 

October 1, 2025 Through October 31, 2025

 

 

—

 

 

$

—

 

 

 

—

 

 

$

—

 

November 1, 2025 Through November 30, 2025

 

 

12,000

 

 

$

10.65

 

 

 

—

 

 

$

—

 

December 1, 2025 Through December 31, 2025

 

 

9,392

 

 

$

10.55

 

 

 

—

 

 

$

—

 

Total

 

 

21,392

 

 

$

10.61

 

 

 

—

 

 

$

—

 

 

(1) Trades of the Company’s common stock occur in the Over-the-Counter market from time to time. The Company also has in place a Stock Repurchase Plan that may provide liquidity to its shareholders in the event a willing buyer is not available to purchase shares that are offered for sale. The Company is under no obligation to purchase shares offered; however, it will accommodate such offers as its Stock Repurchase Plan allows.

Item 6. [Reserved].

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

A discussion and analysis of the Company’s operating results and financial condition are presented in the following narrative and financial tables. This discussion is intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto appearing on pages 31 through 69 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 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.

Financial Condition at December 31, 2025 and December 31, 2024

The Company’s total assets increased $67.5 million from $1.13 billion at December 31, 2024 to $1.20 billion at December 31, 2025. Cash and cash equivalents increased $21.1 million during the same period as a result of growth in customer deposits.

Investment securities consist of securities available for sale and securities held to maturity. Total investment securities increased $20.0 million, or 5.5%, from $359.7 million at December 31, 2024 to $379.7 million at December 31, 2025. At December 31, 2025, the Company had net unrealized losses on securities available for sale of $21.5 million, compared to net unrealized losses of $32.1 million at December 31, 2024. The allowance for credit losses on securities held to maturity was $68,000 at December 31, 2024. During 2025, a recovery of $23,000 was recorded against the allowance for credit losses on securities held to maturity bringing the balance to $45,000, with an amortized cost basis of $22.0 million, at December 31, 2025.

During 2025, the unrealized gain on equity securities decreased by $31,000, resulting in a fair value of $303,000 at December 31, 2025, compared to a fair value of $334,000 at December 31, 2024.

Loans held for sale increased $4.5 million from December 31, 2024 to $9.0 million at December 31, 2025. Loans held for investment increased $23.2 million, or 3.5%, from $666.4 million at December 31, 2024 to $689.6 million at December 31, 2025. The Company experienced net growth in all loan sectors with the exception of loans categorized as “Real Estate 1-4 Family Construction,” “Consumer,” and “Commercial - Other”.

The allowance for credit losses on loans was $5.8 million at December 31, 2024, which represented 0.87% of the total loans held for investment. At December 31, 2025, the allowance for credit losses on loans was $6.4 million, or 0.93% of total loans held for investment. Additional discussion regarding the allowance is included in the Asset Quality section below.

Other changes in the Company’s consolidated assets are primarily related to deferred tax assets, which decreased $2.1 million from $9.0 million at December 31, 2024 to $6.8 million at December 31, 2025 as a result of the improvement in fair value of the available for sale securities portfolio. Annual Company contributions, supplemented by positive market adjustments, increased the balance of supplemental executive retirement plans (“SERPs”), included in Other Assets, by $855,000 during 2025. Also included in Other Assets, accounts receivable increased $376,000 during the same period as a result of larger payments receivable on U.S. government agency securities.

Customer deposits, our primary funding source, experienced a $50.5 million increase during the year, increasing from $1.03 billion to $1.08 billion at December 31, 2025, a 4.9% increase. The overall increase in deposits is attributable to organic deposit growth. During 2025, demand noninterest-bearing checking accounts decreased $2.8 million and interest checking and money market accounts increased $26.3 million. Savings deposits increased $12.1 million and time deposits increased $14.9 million during the twelve-month period ended December 31, 2025.

16

 

 

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, 2025 and 2024, there were no outstanding Federal Home Loan Bank advances. During 2025, the Company’s net borrowings decreased by $1.5 million due to the closing of a master note account that carried a balance of $1.1 million. Short-term borrowings consisted of $25,000 in master notes, and long-term borrowings consisted solely of junior subordinated debt securities totaling $29.0 million, net of unamortized debt issuance costs of $154,000, at December 31, 2025.

Other changes in the Company’s liabilities are related to an increase of $558,000 in other liabilities from December 31, 2024 to December 31, 2025 resulting primarily from an increase in SERP balances, which increased $855,000 for the year. This increase was largely offset by a decrease of $428,000 in lease liability as leases approach expiration.

At December 31, 2025, total shareholders’ equity was $75.6 million, an increase of $17.9 million from December 31, 2024. Net income for the year ended December 31, 2025 was $11.4 million. Improvement in the unrealized loss position on our available for sale securities portfolio contributed $8.2 million to the increase in shareholders’ equity during the same period. During the twelve-month period ended December 31, 2025, the Company repurchased 110,939 shares of common stock at a total cost of $1.1 million, 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, 2025, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.

Results of Operations for the Years Ended December 31, 2025 and 2024

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $11.4 million for the twelve months ended December 31, 2025, compared to $9.9 million for the twelve months ended December 31, 2024, an increase of $1.4 million. Net income available to common shareholders was $10.8 million, or $1.49 per common share, for the year ended December 31, 2025, compared to net income available to common shareholders of $9.3 million, or $1.26 per common share, for the year ended December 31, 2024. Net income available to common shareholders is net income less any dividends paid on the aforementioned noncontrolling interest.

Net Interest Income

As with most financial institutions, the primary component of earnings for our subsidiary bank is net interest income. Net interest income is the difference between interest income, principally from the loan and investment securities portfolios, and interest expense, principally on customer deposits and wholesale borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as levels of noninterest bearing liabilities and capital.

Net interest income increased $2.9 million to a total of $38.9 million for the twelve months ended December 31, 2025 from the $35.9 million reported for the comparative period in 2024. The average yield on our interest-earning assets increased 4 basis points to 5.19%, while the average rate paid for interest-bearing liabilities decreased 10 basis points to 2.33%. These changes resulted in a net increase of 13 basis points in our interest rate spread, from 2.73% in 2024 to 2.86% in 2025. Our net interest margin for 2025 was 3.50%, compared to 3.40% in 2024. 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.

Provision for Credit Losses

The net provision for credit losses was $726,000 for the twelve months ended December 31, 2025, compared to a net provision of $528,000 for the same period in 2024. There were net loan charge-offs of $160,000 for the twelve months ended December 31, 2025, as compared to net loan charge-offs of $270,000 during the same period of 2024. Refer to the Asset Quality section below for further information.

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Noninterest Income

The Company generates most of its revenue from net interest income; however, diversification of our revenue sources is a key strategic initiative to our long-term success. Noninterest income increased 15.6%, from $9.7 million in 2024, to $11.3 million in 2025, an increase of $1.5 million. This improvement is primarily related to an increase of $1.1 million in income from mortgage banking, driven by increased mortgage production during 2025. Positive market value adjustments on supplemental executive retirement plans totaling $293,000 and an increase of $325,000 in other service fees and commissions also contributed to the overall increase.

Noninterest Expense

Noninterest expense for the year ended December 31, 2025 was $34.8 million compared to $32.4 million for 2024, an increase of $2.4 million. Salaries and employee benefits, the largest component of noninterest expense, increased $1.6 million, from $20.8 million for the twelve months ended December 31, 2024 to $22.4 million for the twelve months ended December 31, 2025 due to wage increases and more commissions paid on greater mortgage production during 2025. Additionally, positive market value adjustments on supplemental executive retirement plans contributed $293,000 to the increase in noninterest expense. Financial Table 5 reflects the additional breakdown of other noninterest expense.

Income Tax Expense

The Company had income tax expense of $3.3 million for 2025 at an effective tax rate of 22.26% compared to income tax expense of $2.9 million for 2024 with an effective tax rate of 22.35%. The year-over-year decrease in the effective tax rate is due, in part, to a $44,000 charge to income tax expense during 2025, compared to a charge of $63,000 during the twelve-month period ended December 31, 2024, 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.

Results of Operations for the Years Ended December 31, 2024 and 2023

Results of operations for the years ended December 31, 2024 and 2023 can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 6, 2025.

Asset Quality

The Company’s allowance for credit losses on loans is established through charges to earnings in the form of a provision for credit losses. The allowance is increased by provisions charged to operations and recoveries of amounts previously charged off and is reduced by recovery of provisions and loans charged off. Management continuously evaluates the adequacy of the allowance for credit losses. In evaluating the adequacy of the allowance, management considers the following: the growth, composition and industry diversification of the portfolio; historical loan loss experience; current delinquency levels; adverse situations that may affect a borrower’s ability to repay; estimated value of any underlying collateral; prevailing economic conditions; and other relevant factors.

The allowance for credit losses on loans represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company’s credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loan’s credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrower’s risk grade accordingly.

Previously, the Company individually reviewed loans that do not share the same risk characteristics as other loans and were determined to be collateral dependent. Beginning in the last quarter of 2025, the Company expanded its individual review process to include loans that do not share the same risk characteristics as loans in the collectively assessed population, regardless of collateral dependence. 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.

18

 

 

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.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

At December 31, 2025, the level of our individually evaluated loans was $5.0 million, and the allowance for credit losses related to individually evaluated loans was $179,000. The allowance, expressed as a percentage of gross loans held for investment, increased six basis points from 0.87% at December 31, 2024 to 0.93% at December 31, 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 December 31, 2025, and the qualitative factors portion increased from 0.12% to 0.40% over the same period. The ratio of nonaccrual loans to total loans increased from 0.03% at December 31, 2024 to 0.05% at December 31, 2025, and was related to the $185,000 increase in nonaccrual loans. Four loans totaling $360,000 were converted to nonaccrual during 2025. These additions were offset by paydowns of $46,000, two loans that were charged off for $88,000, and one loan totaling $40,000 that was moved to other real estate owned and the underlying collateral was subsequently sold.

The Company held no other real estate owned at December 31, 2025 and December 31, 2024.

As of December 31, 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.

The following table shows the comparison of nonperforming assets as of December 31, 2025 and 2024:

 

Nonperforming Assets

 

(dollars in thousands)

 

 

 

At December 31,

 

 

 

2025

 

 

2024

 

Nonperforming Assets:

 

 

 

 

 

 

Accruing loans past due 90 days or more

 

$

—

 

 

$

—

 

Nonaccrual loans

 

 

378

 

 

 

192

 

Other real estate owned

 

 

—

 

 

 

—

 

Total nonperforming assets

 

$

378

 

 

$

192

 

Allowance for credit losses on loans

 

$

6,420

 

 

$

5,824

 

Nonaccrual loans to total loans

 

 

0.05

%

 

 

0.03

%

Allowance for credit losses on loans to total loans

 

 

0.93

%

 

 

0.87

%

Allowance for credit losses on loans to nonaccrual loans

 

 

1698.41

%

 

 

3033.33

%

 

19

 

 

Capital Resources

The Company continues to maintain capital ratios intended to support its asset growth. The federal bank regulatory agencies have implemented regulatory capital rules known as “Basel III.” The Basel III rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, a minimum ratio of total capital to risk-weighted assets of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. There is also a capital conservation buffer that requires banks to hold common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.5% to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees. The Company’s accumulated other comprehensive income or loss, resulting from unrealized gains and losses, net of income tax, on investment securities available for sale, is excluded from regulatory capital.

Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is exempt from Basel III. As of December 31, 2025, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under applicable capital adequacy rules.

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.

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 $9.5 million was outstanding at December 31, 2025. 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, 2025, $5.7 million of the subordinated debt issued in 2019 qualifies as Tier 2 capital.

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, 2025, $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.

Proceeds of the Company’s aforementioned securities that have been invested in its subsidiary bank qualify for Tier 1 capital treatment for the Bank and are included as such in its year end capital ratios.

The Company expects to continue to exceed required minimum capital ratios without altering current operations or strategy. Note 14 (Shareholders’ Equity and Regulatory Matters) to the Notes to Consolidated Financial Statements presents additional information regarding the Company’s and its subsidiary bank’s capital ratios.

Dividends

The Board of Directors of Uwharrie Capital Corp declared a 3.0% stock dividend in 2025 and a 2.0% stock dividend in 2024 and 2023. 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.

20

 

 

Liquidity

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 flows 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 40.5% and 38.8% of total deposits at December 31, 2025 and 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 December 31, 2025, 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 $162.2 million; and access to borrowings from the Federal Reserve Bank discount window, with available credit of $33.8 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 December 31, 2025, $3.0 million remains available for use on the line of credit.

The following table summarizes the Company’s interest-earning cash and cash equivalents as of the periods indicated.

 

 

 

December 31, 2025

 

 

December 31, 2024

 

 

 

(dollars in thousands)

 

Interest-earning cash and cash equivalents

 

$

59,289

 

 

$

42,554

 

Interest-earning cash and cash equivalents as a percent of:

 

 

 

 

 

 

Total loans held for investment

 

 

8.6

%

 

 

6.4

%

Total earning assets

 

 

5.2

%

 

 

4.0

%

Total deposits

 

 

5.5

%

 

 

4.1

%

At December 31, 2025, short-term borrowings totaled $25,000. Long-term debt at that date consisted solely of $29.0 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 $768,000 and $1.1 billion, respectively, at December 31, 2025. Note 7 (Leases) and Note 8 (Deposits) to the Notes to Consolidated Financial Statements provide additional information, including maturities, regarding these obligations.

The Company has various financial instruments (outstanding commitments) with off-balance sheet risk that are issued in the normal course of business to meet the financing needs of its customers. See Note 12 (Commitments and Contingencies) to the Company’s Notes to Consolidated Financial Statements for more information regarding these commitments and contingent liabilities.

Management believes that the Company’s current sources of funds provide adequate liquidity for its current cash flow needs.

Critical Accounting Policies

A critical accounting policy is one that is both very important to the portrayal of the Company’s financial condition and results, and requires management’s most difficult, subjective and/or complex judgments. What makes these judgments difficult, subjective and/or complex is the need to make estimates about the effects of matters that are inherently uncertain. Refer to Note 1 (Significant Accounting Policies) in Notes to Consolidated Financial Statements for more information about these and other accounting policies utilized by the Company.

Allowance for Credit Losses

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance is a critical accounting estimate in the financial statements as it provides, by reference, an indication of the quality of the loan portfolio. Estimating credit losses is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Additional measurement uncertainty in the estimate is due, in part, to the large amount of data evaluated, the long-term nature of the underlying assets and the analysis of economic indicators. Regulatory examiners may require the Company to

21

 

 

recognize adjustments to the allowance for credit losses based on their judgment about information available to them at the time of their assessment.

On a regular basis, the allowance for credit losses is evaluated both individually and collectively by loan segments. The Company measures expected credit losses for loans on a collective basis when similar risk characteristics exist. However, loans that do not share the same risk characteristics as loans in the collectively assessed population are individually reviewed. Appropriately dividing the loan portfolio into different segments with similar risk characteristics aids in providing a more accurate estimation of the portfolio’s expected credit losses. The Company’s methodology for estimating lifetime credit losses is well documented and supported by internal controls, and validation of the process is performed on a recurring basis.

Interest Rate Sensitivity

Net Interest Income (“Margin”) is the single largest component of revenue for the Company. Margin is the difference between the yield on earning assets and interest paid on interest-bearing liabilities. Margin can vary over time as interest rates change. The variance fluctuates based on both the timing (repricing) and magnitude of maturing assets and liabilities.

To identify interest rate sensitivity, a common measure is a gap analysis, which reflects the difference or “gap” between rate sensitive assets and liabilities over various periods. While management reviews this information, it has implemented the use of an income simulation model, which calculates expected future Margin based on projected interest-earning assets, interest-bearing liabilities and forecasted interest rates along with multiple other forecasted assumptions. Management believes this provides a more relevant view of interest rate risk sensitivity than the traditional gap analysis because the gap analysis ignores optionality embedded in the balance sheet, such as prepayments or changes based on interest rates. The income simulation model allows a comparison of flat, rising and falling rate scenarios to determine the interest rate sensitivity of earnings in varying interest rate environments.

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 9.19% on Margin in a rates-down scenario and a positive impact of 0.92% in a rates-up scenario. Based on the most recent twelve-month forecast, the subsidiary bank is more asset-sensitive and may experience some negative impact to earnings should interest rates decrease. The Bank has the potential to benefit from an increasing interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the potential benefit.

The principal goals for asset liability management for the Company are to maintain adequate levels and sources of liquidity and to manage interest rate risk. Interest rate risk management attempts to balance the effects of interest rate changes on both interest-sensitive assets and interest-sensitive liabilities to protect Margin from wide fluctuations as a result of changes in market interest rates. To that end, management has recommended and the Board of Directors has approved policy limits that minimize the downside risk from interest rate shifts. The aforementioned ratios are within those stated limits of -18% for the respective modeled scenarios at the subsidiary bank and combined. Managing interest rate risk is an important factor to the long-term viability of the Company since Margin is such a large component of earnings. The Company’s Asset Liability Management Committee (ALCO) monitors market changes in interest rates and assists with the pricing of loans and deposit products while considering funding source needs, asset growth projections, and necessary operating liquidity.

22

 

 

Financial Table 1

Average Balances and Net Interest Income Analysis

 

 

2025

 

 

2024

 

 

2023

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

Interest

 

 

Average

 

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income

 

 

Yield

 

(dollars in thousands)

 

Balance

 

 

Expense

 

 

Rate (1)

 

 

Balance

 

 

Expense

 

 

Rate (1)

 

 

Balance

 

 

Expense

 

 

Rate (1)

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable securities

 

$

309,129

 

 

$

11,487

 

 

 

3.72

%

 

$

308,335

 

 

$

11,866

 

 

 

3.85

%

 

$

297,662

 

 

$

10,743

 

 

 

3.61

%

Non-taxable securities (1)

 

 

60,365

 

 

 

1,319

 

 

 

2.81

%

 

 

57,719

 

 

 

1,234

 

 

 

2.74

%

 

 

60,041

 

 

 

1,324

 

 

 

2.76

%

Short-term investments

 

 

72,179

 

 

 

2,765

 

 

 

3.83

%

 

 

69,986

 

 

 

3,231

 

 

 

4.62

%

 

 

89,839

 

 

 

4,131

 

 

 

4.60

%

Equity Securities

 

 

326

 

 

 

20

 

 

 

6.13

%

 

 

331

 

 

 

20

 

 

 

6.04

%

 

 

305

 

 

 

20

 

 

 

6.56

%

Taxable loans (2)

 

 

665,916

 

 

 

41,712

 

 

 

6.26

%

 

 

617,726

 

 

 

37,838

 

 

 

6.13

%

 

 

531,211

 

 

 

29,159

 

 

 

5.49

%

Non-taxable loans (1)

 

 

15,636

 

 

 

517

 

 

 

4.25

%

 

 

16,970

 

 

 

534

 

 

 

4.03

%

 

 

13,964

 

 

 

342

 

 

 

3.07

%

Total interest-earning assets

 

 

1,123,551

 

 

 

57,820

 

 

 

5.19

%

 

 

1,071,067

 

 

 

54,723

 

 

 

5.15

%

 

 

993,022

 

 

 

45,719

 

 

 

4.65

%

Non-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

7,105

 

 

 

 

 

 

 

 

 

7,307

 

 

 

 

 

 

 

 

 

7,418

 

 

 

 

 

 

 

Premises and equipment, net

 

 

14,310

 

 

 

 

 

 

 

 

 

14,790

 

 

 

 

 

 

 

 

 

14,967

 

 

 

 

 

 

 

Interest receivable and other

 

 

30,237

 

 

 

 

 

 

 

 

 

30,418

 

 

 

 

 

 

 

 

 

32,323

 

 

 

 

 

 

 

Total non-earning assets

 

 

51,652

 

 

 

 

 

 

 

 

 

52,515

 

 

 

 

 

 

 

 

 

54,708

 

 

 

 

 

 

 

Total assets

 

$

1,175,203

 

 

 

 

 

 

 

 

$

1,123,582

 

 

 

 

 

 

 

 

$

1,047,730

 

 

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings deposits

 

$

98,316

 

 

$

602

 

 

 

0.61

%

 

$

96,778

 

 

$

550

 

 

 

0.57

%

 

$

100,945

 

 

$

434

 

 

 

0.43

%

Interest checking & MMDA

 

 

409,587

 

 

 

6,650

 

 

 

1.62

%

 

 

405,444

 

 

 

6,724

 

 

 

1.66

%

 

 

440,087

 

 

 

6,124

 

 

 

1.39

%

Time deposits

 

 

276,677

 

 

 

10,378

 

 

 

3.75

%

 

 

238,576

 

 

 

9,977

 

 

 

4.18

%

 

 

147,218

 

 

 

5,088

 

 

 

3.46

%

Total deposits

 

 

784,580

 

 

 

17,630

 

 

 

2.25

%

 

 

740,798

 

 

 

17,251

 

 

 

2.33

%

 

 

688,250

 

 

 

11,646

 

 

 

1.69

%

Short-term borrowed funds

 

 

698

 

 

 

25

 

 

 

3.58

%

 

 

4,618

 

 

 

220

 

 

 

4.76

%

 

 

1,077

 

 

 

46

 

 

 

4.27

%

Long-term debt

 

 

29,177

 

 

 

1,313

 

 

 

4.50

%

 

 

29,205

 

 

 

1,327

 

 

 

4.54

%

 

 

29,216

 

 

 

1,331

 

 

 

4.56

%

Total interest-bearing liabilities

 

 

814,455

 

 

 

18,968

 

 

 

2.33

%

 

 

774,621

 

 

 

18,798

 

 

 

2.43

%

 

 

718,543

 

 

 

13,023

 

 

 

1.81

%

Noninterest liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction deposits

 

 

283,357

 

 

 

 

 

 

 

 

 

284,384

 

 

 

 

 

 

 

 

 

276,960

 

 

 

 

 

 

 

Interest payable and other

 

 

11,151

 

 

 

 

 

 

 

 

 

11,503

 

 

 

 

 

 

 

 

 

11,902

 

 

 

 

 

 

 

Total liabilities

 

 

1,108,963

 

 

 

 

 

 

 

 

 

1,070,508

 

 

 

 

 

 

 

 

 

1,007,405

 

 

 

 

 

 

 

Shareholders’ equity

 

 

66,240

 

 

 

 

 

 

 

 

 

53,074

 

 

 

 

 

 

 

 

 

40,325

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

1,175,203

 

 

 

 

 

 

 

 

$

1,123,582

 

 

 

 

 

 

 

 

$

1,047,730

 

 

 

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

 

2.86

%

 

 

 

 

 

 

 

 

2.73

%

 

 

 

 

 

 

 

 

2.84

%

Net interest income and net
   interest margin

 

 

 

 

$

38,852

 

 

 

3.50

%

 

 

 

 

$

35,925

 

 

 

3.40

%

 

 

 

 

$

32,696

 

 

 

3.34

%

 

(1) Yields related to securities and loans exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2025, 2024 and 2023.

(2) Nonaccrual loans are included in loans, net of unearned income.

23

 

 

Financial Table 2

Volume and Rate Variance Analysis

 

 

 

2025 Versus 2024

 

 

2024 Versus 2023

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

Net

 

(dollars in thousands)

 

Volume

 

 

Rate

 

 

Change

 

 

Volume

 

 

Rate

 

 

Change

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable securities

 

$

30

 

 

$

(409

)

 

$

(379

)

 

$

398

 

 

$

725

 

 

$

1,123

 

Non-taxable securities

 

 

57

 

 

 

28

 

 

 

85

 

 

 

(50

)

 

 

(40

)

 

 

(90

)

Short-term investments

 

 

93

 

 

 

(559

)

 

 

(466

)

 

 

(915

)

 

 

15

 

 

 

(900

)

Equity securities

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

(2

)

 

 

—

 

Taxable loans

 

 

2,985

 

 

 

889

 

 

 

3,874

 

 

 

5,024

 

 

 

3,655

 

 

 

8,679

 

Non-taxable loans

 

 

(43

)

 

 

26

 

 

 

(17

)

 

 

84

 

 

 

108

 

 

 

192

 

Total interest-earning assets

 

 

3,122

 

 

 

(25

)

 

 

3,097

 

 

 

4,543

 

 

 

4,461

 

 

 

9,004

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings deposits

 

 

9

 

 

 

43

 

 

 

52

 

 

 

(21

)

 

 

137

 

 

 

116

 

Transaction and MMDA deposits

 

 

68

 

 

 

(142

)

 

 

(74

)

 

 

(528

)

 

 

1,128

 

 

 

600

 

Other time deposits

 

 

1,511

 

 

 

(1,110

)

 

 

401

 

 

 

3,489

 

 

 

1,400

 

 

 

4,889

 

Short-term borrowed funds

 

 

(164

)

 

 

(31

)

 

 

(195

)

 

 

160

 

 

 

14

 

 

 

174

 

Long-term debt

 

 

(1

)

 

 

(13

)

 

 

(14

)

 

 

(1

)

 

 

(3

)

 

 

(4

)

Total interest-bearing liabilities

 

 

1,423

 

 

 

(1,253

)

 

 

170

 

 

 

3,099

 

 

 

2,676

 

 

 

5,775

 

Net interest income

 

$

1,699

 

 

$

1,228

 

 

$

2,927

 

 

$

1,444

 

 

$

1,785

 

 

$

3,229

 

 

The above table analyzes the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to volume (changes in volume multiplied by the prior period’s rate), (ii) changes attributable to rate (changes in rate multiplied by the prior period’s volume), and (iii) net change (the sum of the previous columns). The change attributable to both rate and volume (changes in rate multiplied by changes in volume) has been allocated equally to the change attributable to volume and the change attributable to rate.

24

 

 

Financial Table 3

Weighted Average Yield on Investment Securities

 

 

 

December 31, 2025

 

 

December 31, 2024

 

 

 

Weighted

 

 

Weighted

 

 

 

Average Yield (1)

 

 

Average Yield (1)

 

Securities available for sale

 

 

 

 

 

 

U.S. Treasury

 

 

 

 

 

 

Due within twelve months

 

 

—

 

 

 

2.02

%

Due after one but within five years

 

 

1.24

%

 

 

1.24

%

 

 

 

1.24

%

 

 

1.41

%

U.S. Government agencies

 

 

 

 

 

 

Due within twelve months

 

 

1.82

%

 

 

—

 

Due after one but within five years

 

 

3.35

%

 

 

3.53

%

Due after five but within ten years

 

 

4.74

%

 

 

5.34

%

Due after ten years

 

 

4.60

%

 

 

5.21

%

 

 

 

4.50

%

 

 

4.98

%

Mortgage-backed securities

 

 

 

 

 

 

Due within twelve months

 

 

2.43

%

 

 

6.94

%

Due after one but within five years

 

 

1.78

%

 

 

1.79

%

Due after five but within ten years

 

 

2.08

%

 

 

2.04

%

Due after ten years

 

 

3.97

%

 

 

3.77

%

 

 

 

3.51

%

 

 

3.30

%

Asset-backed securities

 

 

 

 

 

 

Due after ten years

 

 

5.53

%

 

 

6.29

%

 

 

 

5.53

%

 

 

6.29

%

State and political

 

 

 

 

 

 

Due within twelve months

 

 

5.75

%

 

 

5.62

%

Due after one but within five years

 

 

3.88

%

 

 

3.27

%

Due after five but within ten years

 

 

1.87

%

 

 

2.04

%

Due after ten years

 

 

2.60

%

 

 

2.25

%

 

 

 

2.48

%

 

 

2.23

%

Corporate Bonds

 

 

 

 

 

 

Due within twelve months

 

 

1.05

%

 

 

5.71

%

Due after one but within five years

 

 

4.00

%

 

 

2.53

%

 

 

 

2.53

%

 

 

3.59

%

Total Securities available for sale

 

 

 

 

 

 

Due within twelve months

 

 

1.43

%

 

 

3.18

%

Due after one but within five years

 

 

1.91

%

 

 

1.84

%

Due after five but within ten years

 

 

2.73

%

 

 

2.53

%

Due after ten years

 

 

3.79

%

 

 

3.77

%

 

 

 

3.30

%

 

 

3.24

%

 

(1) Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2025 and 2024.

25

 

 

Financial Table 3

Weighted Average Yield on Investment Securities (Continued)

 

 

 

December 31, 2025

 

 

December 31, 2024

 

 

 

Weighted

 

 

Weighted

 

 

 

Average Yield (1)

 

 

Average Yield (1)

 

Securities held to maturity

 

 

 

 

 

 

State and political

 

 

 

 

 

 

Due after five but within ten years

 

 

2.68

%

 

 

2.68

%

Due after ten years

 

 

3.38

%

 

 

3.35

%

 

 

 

3.23

%

 

 

3.20

%

Corporate Bonds

 

 

 

 

 

 

Due after one but within five years

 

 

6.56

%

 

 

8.65

%

Due after five but within ten years

 

 

3.69

%

 

 

4.34

%

 

 

 

5.17

%

 

 

5.20

%

Total Securities held to maturity

 

 

 

 

 

 

Due after one but within five years

 

 

6.56

%

 

 

8.65

%

Due after five but within ten years

 

 

3.35

%

 

 

4.04

%

Due after ten years

 

 

3.38

%

 

 

3.35

%

 

 

 

4.14

%

 

 

4.32

%

 

(1) Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2025 and 2024.

Financial Table 4

Noninterest Income

 

 

 

Year Ended December 31,

 

(dollars in thousands)

 

2025

 

 

2024

 

 

2023

 

Income from mortgage banking

 

$

3,872

 

 

$

2,781

 

 

$

3,159

 

Asset management fees

 

 

2,581

 

 

 

2,329

 

 

 

1,980

 

Interchange and card transaction fees, net

 

 

1,094

 

 

 

1,193

 

 

 

1,252

 

Service charges on deposit accounts

 

 

1,060

 

 

 

1,091

 

 

 

1,056

 

Other banking fees

 

 

934

 

 

 

1,035

 

 

 

982

 

Brokerage commissions

 

 

613

 

 

 

439

 

 

 

481

 

Other gains (losses) from sale of assets

 

 

15

 

 

 

(11

)

 

 

204

 

Investment securities losses

 

 

—

 

 

 

(148

)

 

 

(42

)

Supplemental executive retirement plan gain (loss)

 

 

631

 

 

 

338

 

 

 

(90

)

Other noninterest income

 

 

459

 

 

 

689

 

 

 

486

 

Total noninterest income

 

$

11,259

 

 

$

9,736

 

 

$

9,468

 

 

26

 

 

Financial Table 5

Other Noninterest Expense

 

 

 

Year Ended December 31,

 

(dollars in thousands)

 

2025

 

 

2024

 

 

2023

 

Director fees and expense

 

$

322

 

 

$

278

 

 

$

329

 

Dues and subscriptions

 

 

444

 

 

 

356

 

 

 

285

 

Postage

 

 

266

 

 

 

242

 

 

 

227

 

Shareholder relations expense

 

 

199

 

 

 

184

 

 

 

213

 

Telephone and data lines

 

 

182

 

 

 

196

 

 

 

198

 

Insurance

 

 

155

 

 

 

149

 

 

 

151

 

Employee education

 

 

140

 

 

 

157

 

 

 

141

 

Franchise and other taxes

 

 

156

 

 

 

134

 

 

 

120

 

Armored transport service

 

 

141

 

 

 

126

 

 

 

109

 

Office supplies and printing

 

 

100

 

 

 

75

 

 

 

94

 

Other

 

 

578

 

 

 

778

 

 

 

562

 

Total other noninterest expense

 

$

2,683

 

 

$

2,675

 

 

$

2,429

 

Financial Table 6

Loan Portfolio Composition

 

 

 

At December 31,

 

 

 

2025

 

 

2024

 

 

 

 

 

 

% of Total

 

 

 

 

 

% of Total

 

(dollars in thousands)

 

Amount

 

 

Loans

 

 

Amount

 

 

Loans

 

Loan type:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

110,088

 

 

 

15.98

%

 

$

104,872

 

 

 

15.76

%

Real estate - commercial

 

 

255,850

 

 

 

37.15

%

 

 

245,569

 

 

 

36.90

%

Real estate - construction

 

 

76,700

 

 

 

11.14

%

 

 

78,729

 

 

 

11.83

%

Real estate - residential

 

 

231,818

 

 

 

33.66

%

 

 

218,954

 

 

 

32.90

%

Consumer

 

 

9,611

 

 

 

1.39

%

 

 

11,020

 

 

 

1.65

%

Other

 

 

4,683

 

 

 

0.68

%

 

 

6,408

 

 

 

0.96

%

Total loans

 

 

688,750

 

 

 

100.00

%

 

 

665,552

 

 

 

100.00

%

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses

 

 

(6,420

)

 

 

 

 

 

(5,824

)

 

 

 

Unearned net loan costs

 

 

812

 

 

 

 

 

 

825

 

 

 

 

Net loans

 

$

683,142

 

 

 

 

 

$

660,553

 

 

 

 

Financial Table 7

Selected Loan Maturities

 

 

 

December 31, 2025

 

 

 

 

 

 

 

 

 

Five to

 

 

 

 

 

 

 

 

 

One Year

 

 

One to

 

 

Fifteen

 

 

Over Fifteen

 

 

 

 

(dollars in thousands)

 

or Less

 

 

Five Years

 

 

Years

 

 

Years

 

 

Total

 

Commercial and agricultural

 

$

9,073

 

 

$

27,977

 

 

$

20,498

 

 

$

52,540

 

 

$

110,088

 

Real estate - construction

 

 

24,615

 

 

 

5,431

 

 

 

15,575

 

 

 

31,079

 

 

 

76,700

 

Total selected loans

 

$

33,688

 

 

$

33,408

 

 

$

36,073

 

 

$

83,619

 

 

$

186,788

 

Fixed rate loans

 

$

3,875

 

 

$

27,721

 

 

$

39,886

 

 

$

59,463

 

 

$

130,945

 

Sensitivity to rate changes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable interest rates

 

$

45,987

 

 

$

34,956

 

 

$

159,465

 

 

$

318,209

 

 

$

558,617

 

 

27

 

 

Financial Table 8

Allocation of Charge-Offs and Recoveries

 

 

 

At December 31,

 

 

 

2025

 

 

2024

 

(dollars in thousands)

 

Net charge-offs (recoveries)

 

 

Average loans

 

 

Net charge-offs (recoveries) to average loans

 

 

Net charge-offs (recoveries)

 

 

Average loans

 

 

Net charge-offs (recoveries) to average loans

 

Commercial

 

$

15

 

 

$

108,026

 

 

 

0.01

%

 

$

187

 

 

$

103,871

 

 

 

0.18

%

Real estate - commercial

 

 

—

 

 

 

252,899

 

 

 

—

 

 

 

—

 

 

 

231,577

 

 

 

—

 

Other real estate construction

 

 

—

 

 

 

49,972

 

 

 

—

 

 

 

—

 

 

 

43,566

 

 

 

—

 

Real estate 1-4 family construction

 

 

—

 

 

 

22,607

 

 

 

—

 

 

 

—

 

 

 

19,537

 

 

 

—

 

Real estate - residential

 

 

(3

)

 

 

154,881

 

 

 

(0.002

)%

 

 

(2

)

 

 

149,600

 

 

 

(0.001

)%

Home equity

 

 

85

 

 

 

70,904

 

 

 

0.12

%

 

 

—

 

 

 

64,179

 

 

 

—

 

Consumer loans

 

 

63

 

 

 

9,797

 

 

 

0.64

%

 

 

85

 

 

 

11,410

 

 

 

0.74

%

Other loans

 

 

—

 

 

 

5,164

 

 

 

—

 

 

 

—

 

 

 

6,134

 

 

 

—

 

Total

 

$

160

 

 

$

674,250

 

 

 

0.024

%

 

$

270

 

 

$

629,874

 

 

 

0.043

%

Financial Table 9

Allocation of the Allowance for Credit Losses

 

 

 

At December 31,

 

 

 

2025

 

 

2024

 

 

 

 

 

 

% of Total

 

 

 

 

 

% of Total

 

(dollars in thousands)

 

Amount

 

 

Loans (1)

 

 

Amount

 

 

Loans (1)

 

Commercial

 

$

1,479

 

 

 

23.04

%

 

$

1,528

 

 

 

26.24

%

Real estate - commercial

 

 

2,420

 

 

 

37.70

%

 

 

2,266

 

 

 

38.91

%

Other real estate construction

 

 

487

 

 

 

7.59

%

 

 

412

 

 

 

7.07

%

Real estate 1-4 family construction

 

 

83

 

 

 

1.29

%

 

 

56

 

 

 

0.96

%

Real estate - residential

 

 

1,155

 

 

 

17.99

%

 

 

781

 

 

 

13.41

%

Home equity

 

 

687

 

 

 

10.70

%

 

 

588

 

 

 

10.10

%

Consumer loan

 

 

94

 

 

 

1.46

%

 

 

175

 

 

 

3.00

%

Other loans

 

 

15

 

 

 

0.23

%

 

 

18

 

 

 

0.31

%

Total loans

 

$

6,420

 

 

 

100.00

%

 

$

5,824

 

 

 

100.00

%

(1) Represents total of all outstanding loans in each category as a percent of total loans outstanding.

Financial Table 10

Maturities of Time Deposits

 

 

 

December 31, 2025

 

 

 

3 Months

 

 

Over 3 Months

 

 

Over 1 Year

 

 

Over

 

 

 

 

 

 

or Less

 

 

to 1 Year

 

 

to 3 Years

 

 

3 Years

 

 

Total

 

 

 

(dollars in thousands)

 

U.S. time deposits in amounts in excess of the FDIC insurance limit

 

$

69,625

 

 

$

63,781

 

 

$

818

 

 

$

—

 

 

$

134,224

 

Other time deposits

 

 

66,107

 

 

 

79,115

 

 

 

4,424

 

 

 

926

 

 

 

150,572

 

 

 

$

135,732

 

 

$

142,896

 

 

$

5,242

 

 

$

926

 

 

$

284,796

 

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Item not required for smaller reporting companies.

Item 8. Financial Statements and Supplementary Data.

28

 

 

Report of Independent Registered Public Accounting Firm

 

Shareholders and the Board of Directors

Uwharrie Capital Corp and Subsidiaries

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Uwharrie Capital Corp and Subsidiaries (the “Company”) as of December 31, 2025, and 2024, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

29

 

 

Allowance for Credit Losses on Loans

As described in Notes 1 and 4 to the consolidated financial statements, the Company’s allowance for credit losses (ACL) on loans was $6.4 million at December 31, 2025. The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist, evaluating credit risk in the Consumer segment based on 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 that incorporates macroeconomic forecasts to project expected losses. A third-party forecast is utilized to project defaults for two years followed by a one‑year reversion period to the historical long‑run average economic forecast for the remainder of the portfolio life. Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation model.

We identified the Company’s estimate of the ACL, and more specifically, the overall application of the qualitative reserve framework, as a critical audit matter. The principal considerations for our determination included the use of professionals with specialized skills and knowledge and the high degree of auditor judgment required to evaluate management’s application of the qualitative reserve framework, and in particular, the cumulative effect of key qualitative considerations and key assumptions not fully reflected in quantitative model outputs, due to the inherent estimation uncertainty involved.

The following are the primary procedures we performed to address this critical audit matter:

We obtained an understanding of the Company’s process and evaluated the design and implementation of internal controls related to management’s development of the ACL, including those specifically related to the overall application of the qualitative reserve framework.

We tested management’s process for developing the ACL, including the application of the qualitative reserve framework, through:

•
Assessing the appropriateness and reasonableness of the qualitative framework, including key judgments and assumptions applied by management.
•
Evaluating the relevance and reliability of key data used in developing the qualitative reserve and the appropriateness of qualitative adjustments, including testing the completeness and accuracy of the data used and mathematical accuracy of the calculations significant to the estimate.
•
Evaluating, with the support of our internal specialists, the conceptual soundness of certain aspects of the model methodology. We also tested the appropriateness of key inputs and assumptions used in these models by agreeing a sample of inputs to supporting documentation.

We evaluated the reasonableness of the overall qualitative ACL amount, considering past performance of the Company's loan portfolio, trends in credit quality, and peer-bank information.

/s/ Forvis Mazars, LLP

We have served as the Company’s auditor since 1996.

Charlotte, North Carolina

March 5, 2026

 

30

 

 

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2025 and 2024

 

 

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

14,040

 

 

$

9,713

 

Interest-earning deposits with banks

 

 

59,289

 

 

 

42,554

 

Cash and cash equivalents

 

 

73,329

 

 

 

52,267

 

Securities available for sale, at fair value (amortized cost $379,272 and $365,088, respectively)

 

 

357,740

 

 

 

332,986

 

Securities held to maturity, at amortized cost (fair value $20,208 and $24,561, respectively)

 

 

21,992

 

 

 

26,813

 

Less allowance for credit losses on securities held to maturity

 

 

(45

)

 

 

(68

)

Net securities held to maturity

 

 

21,947

 

 

 

26,745

 

Equity securities, at fair value

 

 

303

 

 

 

334

 

Loans held for sale

 

 

9,019

 

 

 

4,561

 

Loans held for investment

 

 

689,562

 

 

 

666,377

 

Less allowance for credit losses on loans

 

 

(6,420

)

 

 

(5,824

)

Net loans held for investment

 

 

683,142

 

 

 

660,553

 

Premises and equipment, net

 

 

14,710

 

 

 

14,479

 

Interest receivable

 

 

4,428

 

 

 

4,355

 

Prepaid expenses

 

 

1,255

 

 

 

1,359

 

Restricted stock

 

 

1,779

 

 

 

1,709

 

Bank-owned life insurance

 

 

8,081

 

 

 

7,938

 

Deferred income tax

 

 

6,840

 

 

 

8,983

 

Loan servicing assets

 

 

3,702

 

 

 

3,903

 

Mortgage banking derivatives

 

 

883

 

 

 

795

 

Other assets

 

 

9,187

 

 

 

7,841

 

Total assets

 

$

1,196,345

 

 

$

1,128,808

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Demand noninterest-bearing

 

$

269,566

 

 

$

272,355

 

Interest checking and money market accounts

 

 

421,381

 

 

 

395,079

 

Savings deposits

 

 

105,038

 

 

 

92,954

 

Time deposits, $250,000 and over

 

 

135,474

 

 

 

133,335

 

Other time deposits

 

 

149,322

 

 

 

136,513

 

Total deposits

 

 

1,080,781

 

 

 

1,030,236

 

Short-term borrowed funds

 

 

25

 

 

 

1,414

 

Long-term debt

 

 

29,048

 

 

 

29,161

 

Mortgage banking derivatives

 

 

58

 

 

 

—

 

Other liabilities

 

 

10,876

 

 

 

10,318

 

Total liabilities

 

 

1,120,788

 

 

 

1,071,129

 

Off balance sheet items, commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Common stock, $1.25 par value: 20,000,000 shares authorized; shares issued and
   outstanding 7,175,297 and 7,077,941, at December 31, 2025 and 2024, respectively

 

 

8,969

 

 

 

8,847

 

Additional paid-in capital

 

 

13,492

 

 

 

12,553

 

Undivided profits

 

 

58,996

 

 

 

50,351

 

Accumulated other comprehensive loss

 

 

(16,555

)

 

 

(24,727

)

Total Uwharrie Capital Corp shareholders’ equity

 

 

64,902

 

 

 

47,024

 

Noncontrolling interest

 

 

10,655

 

 

 

10,655

 

Total shareholders’ equity

 

 

75,557

 

 

 

57,679

 

Total liabilities and shareholders’ equity

 

$

1,196,345

 

 

$

1,128,808

 

The accompanying notes are an integral part of the consolidated financial statements.

31

 

 

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2025, 2024 and 2023

 

 

 

2025

 

 

2024

 

 

2023

 

 

 

(dollars in thousands, except share and per share data)

 

Interest Income

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

42,229

 

 

$

38,372

 

 

$

29,501

 

Investment securities:

 

 

 

 

 

 

 

 

 

Investment securities, taxable

 

 

11,487

 

 

 

11,866

 

 

 

10,743

 

Investment securities, non-taxable

 

 

1,319

 

 

 

1,234

 

 

 

1,324

 

Equity securities

 

 

20

 

 

 

20

 

 

 

20

 

Interest-earning deposits with banks and federal funds sold

 

 

2,765

 

 

 

3,231

 

 

 

4,131

 

Total interest income

 

 

57,820

 

 

 

54,723

 

 

 

45,719

 

Interest Expense

 

 

 

 

 

 

 

 

 

Interest checking and money market accounts

 

 

6,650

 

 

 

6,723

 

 

 

6,124

 

Savings deposits

 

 

602

 

 

 

550

 

 

 

434

 

Time deposits, $250,000 and over

 

 

5,188

 

 

 

4,893

 

 

 

2,333

 

Other time deposits

 

 

5,190

 

 

 

5,085

 

 

 

2,755

 

Short-term borrowed funds

 

 

25

 

 

 

220

 

 

 

46

 

Long-term debt

 

 

1,313

 

 

 

1,327

 

 

 

1,331

 

Total interest expense

 

 

18,968

 

 

 

18,798

 

 

 

13,023

 

Net interest income

 

 

38,852

 

 

 

35,925

 

 

 

32,696

 

Provision for (recovery of) credit losses

 

 

 

 

 

 

 

 

 

Loans

 

 

756

 

 

 

533

 

 

 

1,495

 

Securities held to maturity

 

 

(23

)

 

 

12

 

 

 

(15

)

Unfunded loan commitments

 

 

(7

)

 

 

(17

)

 

 

34

 

Total provision for credit losses

 

 

726

 

 

 

528

 

 

 

1,514

 

Net interest income after provision for credit losses

 

 

38,126

 

 

 

35,397

 

 

 

31,182

 

Noninterest Income

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

1,060

 

 

 

1,091

 

 

 

1,056

 

Other service fees and commissions

 

 

4,128

 

 

 

3,803

 

 

 

3,443

 

Interchange and card transaction fees, net

 

 

1,094

 

 

 

1,193

 

 

 

1,252

 

Loss on sale/call of securities

 

 

—

 

 

 

(148

)

 

 

(42

)

Realized/unrealized gain (loss) on equity securities

 

 

(31

)

 

 

32

 

 

 

10

 

Income from mortgage banking

 

 

3,872

 

 

 

2,781

 

 

 

3,159

 

Supplemental executive retirement plan gain (loss)

 

 

631

 

 

 

338

 

 

 

(90

)

Other income

 

 

505

 

 

 

646

 

 

 

680

 

Total noninterest income

 

 

11,259

 

 

 

9,736

 

 

 

9,468

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

22,437

 

 

 

20,806

 

 

 

19,306

 

Net occupancy expense

 

 

1,873

 

 

 

1,793

 

 

 

1,783

 

Equipment expense

 

 

808

 

 

 

849

 

 

 

788

 

Data processing costs

 

 

889

 

 

 

851

 

 

 

733

 

Loan costs

 

 

270

 

 

 

146

 

 

 

390

 

Professional fees and services

 

 

1,119

 

 

 

1,079

 

 

 

964

 

Marketing and donations

 

 

1,484

 

 

 

1,499

 

 

 

1,298

 

Electronic banking expense

 

 

504

 

 

 

426

 

 

 

563

 

Software amortization and maintenance

 

 

1,546

 

 

 

1,349

 

 

 

1,247

 

FDIC insurance

 

 

538

 

 

 

563

 

 

 

475

 

Supplemental executive retirement plan gain (loss)

 

 

631

 

 

 

338

 

 

 

(90

)

Other noninterest expense

 

 

2,683

 

 

 

2,675

 

 

 

2,429

 

Total noninterest expense

 

 

34,782

 

 

 

32,374

 

 

 

29,886

 

Income before income taxes

 

 

14,603

 

 

 

12,759

 

 

 

10,764

 

Income taxes

 

 

3,250

 

 

 

2,851

 

 

 

2,168

 

Net income

 

$

11,353

 

 

$

9,908

 

 

$

8,596

 

Consolidated net income

 

$

11,353

 

 

$

9,908

 

 

$

8,596

 

Less: Net income attributable to noncontrolling interest

 

 

(565

)

 

 

(566

)

 

 

(565

)

Net income attributable to Uwharrie Capital Corp and common shareholders

 

 

10,788

 

 

 

9,342

 

 

 

8,031

 

Net income per common share

 

 

 

 

 

 

 

 

 

Basic

 

$

1.49

 

 

$

1.26

 

 

$

1.06

 

Diluted

 

$

1.49

 

 

$

1.26

 

 

$

1.06

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

 

7,237,873

 

 

 

7,403,667

 

 

 

7,561,689

 

Diluted

 

 

7,237,873

 

 

 

7,403,667

 

 

 

7,561,689

 

The accompanying notes are an integral part of the consolidated financial statements.

32

 

 

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2025, 2024 and 2023

 

 

 

 

2025

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Net Income

 

$

11,353

 

 

$

9,908

 

 

$

8,596

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Unrealized gain on available for sale securities

 

 

10,570

 

 

 

485

 

 

 

8,624

 

Related tax effect

 

 

(2,398

)

 

 

(112

)

 

 

(1,993

)

Reclassification of loss recognized in net income

 

 

—

 

 

 

—

 

 

 

42

 

Related tax effect

 

 

—

 

 

 

—

 

 

 

(8

)

Total other comprehensive income

 

 

8,172

 

 

 

373

 

 

 

6,665

 

Comprehensive income

 

 

19,525

 

 

 

10,281

 

 

 

15,261

 

Less: Comprehensive income attributable to noncontrolling interest

 

 

(565

)

 

 

(566

)

 

 

(565

)

Comprehensive income attributable to Uwharrie Capital Corp

 

$

18,960

 

 

$

9,715

 

 

$

14,696

 

The accompanying notes are an integral part of the consolidated financial statements.

33

 

 

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years Ended December 31, 2025, 2024 and 2023

 

 

 

 

Number of
Common
Shares
Issued

 

 

Common
Stock

 

 

Additional
Paid-in
Capital

 

 

Undivided
Profits

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Noncontrolling
Interest

 

 

Total

 

 

 

(dollars in thousands, except share data)

 

Balance, December 31, 2022

 

 

7,075,125

 

 

$

8,844

 

 

$

12,633

 

 

$

37,030

 

 

$

(31,765

)

 

$

10,655

 

 

$

37,397

 

Cumulative effect of change in accounting principle

 

 

—

 

 

$

—

 

 

$

—

 

 

$

(1,915

)

 

 

—

 

 

$

—

 

 

 

(1,915

)

Net Income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8,031

 

 

 

—

 

 

 

565

 

 

 

8,596

 

Repurchase of common stock

 

 

(90,017

)

 

 

(113

)

 

 

(615

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(728

)

2.0% stock dividend

 

 

139,330

 

 

 

174

 

 

 

858

 

 

 

(1,032

)

 

 

—

 

 

 

—

 

 

 

—

 

Cash paid – fractional shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(9

)

 

 

—

 

 

 

—

 

 

 

(9

)

Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,665

 

 

 

—

 

 

 

6,665

 

Record preferred stock dividend series B (noncontrolling interest)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(416

)

 

 

(416

)

Record preferred stock dividend series C (noncontrolling interest)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(149

)

 

 

(149

)

Balance, December 31, 2023

 

 

7,124,438

 

 

$

8,905

 

 

$

12,876

 

 

$

42,105

 

 

$

(25,100

)

 

$

10,655

 

 

$

49,441

 

Net Income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

9,342

 

 

 

—

 

 

 

566

 

 

 

9,908

 

Repurchase of common stock

 

 

(184,478

)

 

 

(231

)

 

 

(1,236

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,467

)

2.0% stock dividend

 

 

137,981

 

 

 

173

 

 

 

913

 

 

 

(1,086

)

 

 

—

 

 

 

—

 

 

 

—

 

Cash paid – fractional shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10

)

 

 

—

 

 

 

—

 

 

 

(10

)

Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

373

 

 

 

—

 

 

 

373

 

Record preferred stock dividend series B (noncontrolling interest)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(417

)

 

 

(417

)

Record preferred stock dividend series C (noncontrolling interest)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(149

)

 

 

(149

)

Balance, December 31, 2024

 

 

7,077,941

 

 

$

8,847

 

 

$

12,553

 

 

$

50,351

 

 

$

(24,727

)

 

$

10,655

 

 

$

57,679

 

Net Income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

10,788

 

 

 

—

 

 

 

565

 

 

 

11,353

 

Repurchase of common stock

 

 

(110,939

)

 

 

(138

)

 

 

(932

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,070

)

3.0% stock dividend

 

 

208,295

 

 

 

260

 

 

 

1,871

 

 

 

(2,131

)

 

 

—

 

 

 

—

 

 

 

—

 

Cash paid – fractional shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(12

)

 

 

—

 

 

 

—

 

 

 

(12

)

Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8,172

 

 

 

—

 

 

 

8,172

 

Record preferred stock dividend series B (noncontrolling interest)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(416

)

 

 

(416

)

Record preferred stock dividend series C (noncontrolling interest)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(149

)

 

 

(149

)

Balance, December 31, 2025

 

 

7,175,297

 

 

$

8,969

 

 

$

13,492

 

 

$

58,996

 

 

$

(16,555

)

 

$

10,655

 

 

$

75,557

 

The accompanying notes are an integral part of the consolidated financial statements.

34

 

 

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2025, 2024 and 2023

 

 

 

 

2025

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net income

 

$

11,353

 

 

$

9,908

 

 

$

8,596

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,071

 

 

 

1,105

 

 

 

1,110

 

Right of use asset amortization

 

 

396

 

 

 

386

 

 

 

377

 

Provision for credit losses

 

 

726

 

 

 

528

 

 

 

1,514

 

Loss on sale of securities available for sale

 

 

—

 

 

 

—

 

 

 

42

 

Loss on call of securities held to maturity

 

 

—

 

 

 

148

 

 

 

—

 

Gain on sale of mortgage loans

 

 

(1,902

)

 

 

(1,000

)

 

 

(1,103

)

(Gain) loss on sale of premises and equipment

 

 

(15

)

 

 

11

 

 

 

(167

)

Gain on sale of OREO

 

 

(83

)

 

 

—

 

 

 

—

 

OREO write-down

 

 

—

 

 

 

141

 

 

 

—

 

Realized/unrealized (gain) loss on equity securities

 

 

31

 

 

 

(32

)

 

 

(10

)

Net amortization of premium on investment securities available for sale

 

 

1,763

 

 

 

1,702

 

 

 

1,939

 

Net amortization of premium on investment securities held to maturity

 

 

121

 

 

 

126

 

 

 

143

 

Amortization of loan servicing rights

 

 

1,290

 

 

 

1,213

 

 

 

1,228

 

Originations and purchases of mortgage loans for sale

 

 

(170,390

)

 

 

(109,352

)

 

 

(84,694

)

Proceeds from sale of mortgage loans for sale

 

 

167,834

 

 

 

110,486

 

 

 

83,876

 

Mortgage banking derivatives

 

 

(31

)

 

 

(231

)

 

 

(739

)

Loan servicing assets

 

 

(1,089

)

 

 

(829

)

 

 

(584

)

Accrued interest receivable

 

 

(73

)

 

 

38

 

 

 

(760

)

Prepaid assets

 

 

104

 

 

 

62

 

 

 

(591

)

Cash surrender value of life insurance

 

 

(143

)

 

 

(145

)

 

 

(140

)

Miscellaneous other assets

 

 

(1,418

)

 

 

334

 

 

 

882

 

Deferred income taxes

 

 

(254

)

 

 

(186

)

 

 

(794

)

Accrued interest payable

 

 

(52

)

 

 

91

 

 

 

306

 

Miscellaneous other liabilities

 

 

617

 

 

 

(422

)

 

 

(1,094

)

Net cash provided by operating activities

 

 

9,856

 

 

 

14,082

 

 

 

9,337

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Proceeds from sale of investment securities available for sale

 

 

—

 

 

 

—

 

 

 

11,329

 

Proceeds from maturities, calls and paydowns of securities available for sale

 

 

44,588

 

 

 

59,232

 

 

 

28,969

 

Proceeds from maturities, calls and paydowns of securities held to maturity

 

 

4,700

 

 

 

1,513

 

 

 

1,563

 

Purchase of investment securities available for sale

 

 

(60,535

)

 

 

(56,721

)

 

 

(45,644

)

Purchase of investments in other assets

 

 

(89

)

 

 

(564

)

 

 

(217

)

Proceeds from distributions of investments in other assets

 

 

161

 

 

 

224

 

 

 

—

 

Proceeds from redemptions of restricted stock

 

 

—

 

 

 

20

 

 

 

243

 

Purchases of restricted stock

 

 

(70

)

 

 

(57

)

 

 

(487

)

Net increase in loans

 

 

(23,451

)

 

 

(74,576

)

 

 

(94,953

)

Purchase of premises and equipment

 

 

(1,659

)

 

 

(846

)

 

 

(1,797

)

Proceeds from sale of premises, equipment and other assets

 

 

53

 

 

 

31

 

 

 

200

 

Proceeds from sale of OREO

 

 

189

 

 

 

—

 

 

 

—

 

Net cash used by investing activities

 

 

(36,113

)

 

 

(71,744

)

 

 

(100,794

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Net increase in deposit accounts

 

 

50,545

 

 

 

48,523

 

 

 

41,857

 

Net increase (decrease) in federal funds purchased and other short-term borrowings

 

 

(1,389

)

 

 

35

 

 

 

335

 

Repayment of long-term borrowings

 

 

(190

)

 

 

(20

)

 

 

(580

)

Repurchase of common stock, net

 

 

(1,070

)

 

 

(1,467

)

 

 

(728

)

Dividends paid on preferred stock (noncontrolling interest)

 

 

(565

)

 

 

(566

)

 

 

(565

)

Cash paid for fractional shares

 

 

(12

)

 

 

(10

)

 

 

(9

)

Net cash provided by financing activities

 

 

47,319

 

 

 

46,495

 

 

 

40,310

 

Increase (decrease) in cash and cash equivalents

 

 

21,062

 

 

 

(11,167

)

 

 

(51,147

)

Cash and cash equivalents, beginning of year

 

 

52,267

 

 

 

63,434

 

 

 

114,581

 

Cash and cash equivalents, end of year

 

$

73,329

 

 

$

52,267

 

 

$

63,434

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

 

Interest paid

 

$

18,943

 

 

$

18,624

 

 

$

12,633

 

Income taxes paid

 

 

3,646

 

 

 

3,062

 

 

 

2,427

 

Supplemental schedule of non-cash activities

 

 

 

 

 

 

 

 

 

Net change in fair value of securities available for sale, net of tax

 

 

8,172

 

 

 

373

 

 

 

6,665

 

Loans transferred to foreclosed real estate

 

 

106

 

 

 

—

 

 

 

142

 

The accompanying notes are an integral part of the consolidated financial statements.

35

 

 

Note 1 - Significant Accounting Policies

Nature of Business

Uwharrie Capital Corp (the “Company”) was incorporated under North Carolina law for the purpose of becoming the holding company for Bank of Stanly (“Stanly”). On July 1, 1993, Stanly became a wholly owned subsidiary of the Company through a one-for-one exchange of the common stock of Stanly for common stock of the Company. On September 1, 2013, Bank of Stanly changed its name to Uwharrie Bank (“Uwharrie” or the “Bank”).

Uwharrie was incorporated on September 28, 1983, under the laws of the State of North Carolina and began operations on January 26, 1984 in Albemarle, North Carolina. Deposits with Uwharrie are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). Uwharrie is under regulation of the Federal Reserve, the FDIC and the North Carolina Commissioner of Banks. In North Carolina, Uwharrie has ten branch locations that provide a wide range of deposit accounts, commercial, consumer, home equity and residential mortgage loans, safe deposit boxes and automated banking.

In 1987, Uwharrie established a wholly owned subsidiary, BOS Agency, Inc. (“BOS Agency”), which engages in insurance product sales. In 1989, Uwharrie established a second wholly owned subsidiary, BOS Financial Corporation, for the purpose of conducting business as a securities broker-dealer. During 1993, BOS Financial Corporation changed its name to The Strategic Alliance Corporation (“Strategic Alliance”) and was registered as a broker-dealer and is regulated by the Financial Industry Regulatory Authority (“FINRA”).

The Company formed a new subsidiary, Strategic Investment Advisors, Inc. (“SIA”), during 1998 to provide investment advisory and asset management services. This subsidiary is registered as an investment advisor with the Securities and Exchange Commission. During 2015, SIA changed its name to Uwharrie Investment Advisors, Inc. (“UIA”).

On January 19, 2000, the Company completed its acquisition of Anson BanCorp, Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North Carolina savings bank charter and became a wholly owned subsidiary of Uwharrie Capital Corp as Anson Bank & Trust Company (“Anson”), operating out of its main office branch in Wadesboro, North Carolina. Anson was consolidated into Uwharrie Bank effective September 1, 2013.

On August 4, 2000, Uwharrie acquired another subsidiary, Gateway Mortgage, Inc. (“Gateway”), a mortgage origination company. This company is currently inactive and does not affect the Company’s consolidated financial statements.

On April 10, 2003, the Company capitalized a new wholly owned subsidiary bank, Cabarrus Bank & Trust Company (“Cabarrus”), located in Concord, North Carolina. As of that date, Cabarrus purchased two branch offices located in Cabarrus County from Uwharrie to begin its operation. Cabarrus operated as a commercial bank and provided a full range of banking services. Cabarrus was consolidated into Uwharrie Bank effective September 1, 2013.

On April 7, 2004, Uwharrie Mortgage, Inc. was established as a subsidiary of the Company to serve in the capacity of trustee and substitute trustee under deeds of trust.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, Uwharrie, UIA and Uwharrie’s subsidiaries, BOS Agency and Strategic Alliance. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses.

The allowance for credit losses calculation utilizes a forecast model for the collectively assessed population. Effective June 30, 2025, after multiple periods of parallel modeling using the national unemployment rate and the NC unemployment rate as indices, compared to the national unemployment rate and the 10-Year T-Bill which had previously been utilized for this purpose, a change in estimate was incorporated into the model. The change in estimate incorporated more recent data to enhance and maintain reliable results.

36

 

 

Note 1 - Significant Accounting Policies (Continued)

In conjunction with this change, it was also necessary to update the framework we used for establishing qualitative reserves, which has likewise been modified to use new indices and metrics. The change in estimate of the forecast model for the collectively assessed population also increased the maximum potential allowance allocated to the qualitative factors. While these changes altered the overall composition of the allowance model, the overall impact is not material.

 

Cash and Cash Equivalents

For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet captions “Cash and due from banks” and “Interest-earning deposits with banks.”

Investment Securities Available for Sale

Investment securities available for sale consist of United States Treasuries, United States Government agency securities, Government Sponsored Enterprise (GSE) mortgage-backed securities and collateralized mortgage obligations (CMOs), Federal Family Education Loan Program (FFELP) student loan asset-backed securities, corporate bonds and state and political subdivision bonds. Gains and losses on the sale of available for sale securities are determined using the specific identification method and recorded on a trade basis. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the period to maturity.

Unrealized holding gains and losses on available for sale securities are reported in other comprehensive income, net of income taxes. Management evaluates all available for sale securities in an unrealized loss position on a quarterly basis, or more frequently if economic or market conditions warrant. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

Investment Securities Held to Maturity

Investment securities held to maturity consist of corporate bonds and state and political subdivision bonds. The Company has both the intent and ability to hold the securities to maturity. These securities are reported at amortized cost.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Loans Held for Investment

The Company divides the loans it originates into two segments, commercial and noncommercial loans. Commercial loans are broken down into the following classes: commercial loans, real estate commercial loans, other real estate construction loans and other loans. Noncommercial loans are divided into the following classes: real estate 1-4 family construction loans, real estate 1-4 family residential loans, home equity loans and consumer loans. The ability of the Company’s borrowers to honor their contracts is largely dependent upon the real estate and general economic conditions in the Company’s market area. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for credit losses on loans, and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the effective interest method. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. The exception to this policy is credit card loans that remain in accrual status 90 days or more until they are paid current or charged off.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these impaired loans is accounted for on a cash basis until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Generally, a minimum of six months of sustained performance is required.

37

 

 

Note 1 - Significant Accounting Policies (Continued)

Allowance for Credit Losses

On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC 326”). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities.

In concurrence with the adoption of CECL, the Company also adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 enhanced disclosures for loan modifications made for borrowers experiencing financial difficulty and eliminated the Troubled Debt Restructurings (“TDR”) accounting guidance for financial institutions that have adopted CECL. See Note 4 (Allowance for Credit Losses on Loans) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the adoption of ASU 2022-02.

Allowance for Credit Losses – Available for Sale Securities

Management evaluates all available for sale securities in an unrealized loss position on a quarterly basis, or more frequently if economic or market conditions warrant. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the length of time and extent to which the security has been in a loss position, performance of any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled principal or interest payments and adverse conditions specifically related to the security. If the evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Changes in the allowance for credit loss are recorded as provision for (or recovery of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At December 31, 2025, there was no allowance for credit loss related to the available for sale securities portfolio. Accrued interest receivable on available for sale debt securities, included in interest receivable in the consolidated balance sheets, totaled $1.9 million at December 31, 2025 and was excluded from the estimate of credit losses.

Allowance for Credit Losses – Held to Maturity Securities

Management measures expected credit losses on held to maturity debt securities on a collective basis by major security type. Accrued interest receivable on held to maturity debt securities, included in interest receivable in the consolidated balance sheets, was excluded from the estimate of credit losses.

The estimate of expected credit losses is primarily based on the ratings assigned to the securities by debt rating agencies and the average of the annual historical loss rates associated with those ratings. The Company then multiplies those loss rates, as adjusted for any modifications to reflect current conditions and reasonable and supportable forecasts as considered necessary, by the remaining lives of each individual security to arrive at a lifetime expected loss amount. Management classifies the held to maturity portfolio into the following major security types: state and political subdivisions and corporate bonds. The state and political subdivisions securities held by the Company are highly rated by major rating agencies. As such, there was minimal allowance for credit losses recorded at December 31, 2025 and December 31, 2024 for state and political subdivisions securities.

38

 

 

Note 1 - Significant Accounting Policies (Continued)

Allowance for Credit Losses – Loans

The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

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. The non-discounted cash flow methodology incorporates macroeconomic forecasts to project expected losses. Significant macroeconomic factors used in estimating the expected losses include the national unemployment rate and the NC unemployment rate. A third-party forecast is utilized to project defaults for two years followed by a one year reversion period to the historical long run average economic forecast for the remainder of the portfolio life.

Previously, the Company individually reviewed loans that do not share the same risk characteristics as other loans and were determined to be collateral dependent. Beginning in the last quarter of 2025, the Company expanded its individual review process to include loans that do not share the same risk characteristics as loans in the collectively assessed population, regardless of collateral dependence. 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.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

Allowance for Credit Losses – Unfunded Loan Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on unfunded loan commitments, unless the commitments to extend credit are unconditionally cancellable, through a charge to provision for unfunded loan commitments, included in loan costs in the Company’s consolidated income statements. The allowance for credit losses on unfunded loan commitments is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded loan commitments is included in other liabilities on the Company’s consolidated balance sheets.

Loan Servicing Assets

The Company capitalizes mortgage and U.S. Small Business Administration (SBA) loan servicing rights when loans are sold and the loan servicing is retained. Servicing revenue is recognized in the statement of income as a component of other noninterest
income. The amortization of servicing rights is realized over the estimated period that net servicing revenues are expected to be

39

 

 

Note 1 - Significant Accounting Policies (Continued)

received. These projections are based on the amount and timing of estimated future cash flows. The amortization of servicing rights is
recognized in the statement of income as an offset to other noninterest income. Servicing assets are periodically evaluated for
impairment based upon their fair value. Fair value is based upon discounted cash flows using market-based assumptions. Impairment
is recognized through a valuation allowance and charged to other expense.

Mortgage Banking Derivatives

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding, otherwise known as Interest Rate Lock Commitments (“IRLCs”). IRLCs on mortgage loans that will be held for resale are considered to be derivatives and must be accounted for at fair value on the balance sheet. Accordingly, such commitments are recorded at fair value in the mortgage banking derivatives asset or liability with changes in fair value recorded in income from mortgage banking within the consolidated statement of income. Fair value is based on anticipated margins determined by market movement from the original lock date and projected pull-through rates on each loan by loan product, loan stage, and loan purpose.

During the term of the IRLC, the Company is exposed to the risk that the interest rate will change from the rate quoted to the borrower. In an effort to mitigate interest rate risk, the Company enters into mortgage forward sales commitments on a mandatory basis for future delivery of residential mortgage loans after an interest rate lock is committed to the borrower. Mandatory commitments require that the loan must be delivered to the investor or a pair-off fee be paid. These forward commitments are recorded at fair value in the mortgage banking derivatives asset or liability, and changes in fair value are recorded to income from mortgage banking within the consolidated statement of income. The fair value of the forward commitments is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date.

The Company also enters into purchase and sale agreements of to-be-announced mortgage-backed securities trades (“TBAs”). A TBA trade is a contract to buy or sell mortgage-backed securities on a specific date while the underlying mortgages are not announced until just prior to settlement. These TBA trades provide an economic hedge against the effect of changes in interest rates resulting from IRLCs. TBAs are accounted for as derivatives under Accounting Standards Codification (“ASC”) 815, issued by the Financial Accounting Standards Board (“FASB”), when either of the following conditions exist: (i) when settlement of the TBA trade is not expected to occur at the next regular settlement date (which is typically the next month) or (ii) a mechanism exists to settle the contract on a net basis. As a result, these instruments are recorded at fair value in the mortgage banking derivatives asset or liability with changes in fair value recorded in income from mortgage banking within the consolidated statement of income. The fair value of the TBA trades is based on the gain or loss that would occur if the Company were to pair-off the trade at the measurement date.

The following table reflects the notional amount and fair value of mortgage banking derivatives included in the balance sheet at fair value as of December 31, 2025 and December 31, 2024.

 

 

Notional Amount

 

 

Fair Value

 

 

(dollars in thousands)

 

Balance at December 31, 2025

 

 

 

 

 

Included in mortgage banking derivatives asset:

 

 

 

 

 

Interest rate lock commitments

$

25,267

 

 

$

845

 

Forward sales commitments

 

3,452

 

 

 

38

 

Included in mortgage banking derivatives liability:

 

 

 

 

 

To-be-announced mortgage-backed securities trades

 

22,250

 

 

 

58

 

 

 

 

 

 

 

Balance at December 31, 2024

 

 

 

 

 

Included in mortgage banking derivatives asset:

 

 

 

 

 

Interest rate lock commitments

$

32,352

 

 

$

591

 

Forward sales commitments

 

2,173

 

 

 

44

 

To-be-announced mortgage-backed securities trades

 

25,500

 

 

 

160

 

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

40

 

 

Note 1 - Significant Accounting Policies (Continued)

Foreclosed Real Estate

Real estate properties acquired through foreclosure or other proceedings are initially recorded at fair value less costs to sell upon foreclosure, establishing a new cost basis. Annually, valuations are performed and the foreclosed property is adjusted to the lower of cost or fair value of the properties, less costs to sell. Any write-down at the time of transfer to foreclosed properties is charged to the allowance for loan losses. Subsequent write-downs are charged to noninterest expense, and costs related to the improvement of the property are capitalized if the fair value less cost to sell will allow it. If not, these costs are expensed also.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Land is carried at cost. Additions and major replacements or betterments which extend the useful lives of premises and equipment are capitalized. Maintenance, repairs and minor improvements are expensed as incurred. Depreciation is computed principally by the straight-line method over estimated useful lives, except in the case of leasehold improvements, which are amortized over the term of the leases, if shorter. Useful lives range from five to seven years for furniture, fixtures and equipment, to ten to thirty-nine years for leasehold improvements and buildings, respectively. Upon retirement or other disposition of the assets, the cost and the related accumulated depreciation are removed from the accounts and any gains or losses are reflected in income. Right-of-use (“ROU”) assets that are recognized at the initial adoption of a lease arrangement are included in premises and equipment. More information regarding ROU assets can be found in Note 7 (Leases) to the Company’s Notes to Consolidated Financial Statements.

Restricted Stock

As a requirement for membership, the Bank invests in the stock of the Federal Home Loan Bank of Atlanta (“FHLB”) and Federal Reserve Bank (“FRB”). These investments are carried at cost. Due to the redemption provisions of these investments, the Company estimated that fair value approximates cost and that these investments were not impaired.

Stock-Based Compensation

The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). ASC 718 also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. As of December 31, 2025 and December 31, 2024, there are no outstanding awards.

Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return and separate North Carolina income tax returns. The Bank files a separate South Carolina income tax return. The provision for income taxes in the accompanying consolidated financial statements is provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold. The tax returns for the Company are subject to audit by federal and state taxing authorities for the 2022 fiscal year and thereafter. It is the Company’s policy to recognize interest and penalties associated with uncertain tax positions as components of other expenses in the income statement; however, if interest becomes a material amount, it would be reclassified as interest expense. There were no interest or penalties accrued during the years ended December 31, 2025, 2024 or 2023.

Leases

Operating leases in which we are the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on our consolidated balance sheet. Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental collateralized borrowing rate at the lease commencement date. ROU assets are further adjusted for the lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in the net occupancy expense in the consolidated statement of income.

41

 

 

Note 1 - Significant Accounting Policies (Continued)

Revenue Recognition

For revenue not associated with financial instruments, loan servicing guarantees and lease contracts, we apply the following steps when recognizing revenue from contracts with customers: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations and (v) recognize revenue when the performance obligation is satisfied. Our contracts with customers are generally short term in nature, typically due within one year or less or cancellable by us or our customer upon a short notice period. Performance obligations for our customer contracts are generally satisfied at a single point in time, typically when the transaction is complete, or over time. For performance obligations satisfied over time, we primarily use the output method, directly measuring the value of the products/services transferred to the customer, to determine when performance obligations have been satisfied. We typically receive payment from customers and recognize revenue concurrent with the satisfaction of our performance obligations. In most cases, this occurs within a single financial reporting period. For payments received in advance of the satisfaction of performance obligations, revenue recognition is deferred until such time as the performance obligations have been satisfied. In cases where we have not received payment despite satisfaction of our performance obligations, we accrue an estimate of the amount due in the period our performance obligations have been satisfied.

For contracts with variable components, only amounts for which collection is probable are accrued. We generally act in a principal capacity, on our own behalf, in most of our contracts with customers. In such transactions, we recognize revenue and the related costs to provide our services on a gross basis in our financial statements. In some cases, we act in an agent capacity, deriving revenue through assisting other entities in transactions with our customers. In such transactions, we recognize revenue and the related costs to provide our services on a net basis in our financial statements. These transactions primarily relate to insurance and brokerage commissions and fees derived from our customers’ use of various interchange and ATM/debit card/credit card networks. Network costs associated with debit card and credit card transactions are netted against the related fees from such transactions. For the twelve months ended December 31, 2025, gross interchange and card transaction fees totaled $3.1 million while related network costs totaled $2.1 million. On a net basis, we reported $1.1 million as interchange and card transaction fees in the accompanying Consolidated Statement of Income for the twelve months ended December 31, 2025. For the twelve months ended December 31, 2024 and December 31, 2023, interchange and card transaction fees were $3.1 million and $3.0 million, respectively, on a gross basis while related network costs were $1.9 million and $1.7 million, respectively.

Fair Value of Financial Instruments

ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.

ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which those assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. Fair values determined using Level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on Level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities for which identical or similar assets and liabilities are not actively traded in observable markets are based on Level 3 inputs, which are considered to be unobservable.

Among the Company’s assets and liabilities, investment securities available for sale and mortgage banking derivatives are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including other real estate owned, individually evaluated loans, loans held for sale, which are carried at the lower of cost or market, and loan servicing rights, where fair value is determined using similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Deposits, short-term borrowings and long-term obligations are not reported at fair value.

Prices for U.S. Treasury and marketable equity securities are readily available in the active markets in which those securities are traded, and the resulting fair values are classified as Level 1. Prices for government agency securities, mortgage-backed securities, asset-backed securities and state, county and municipal securities are obtained for similar securities, and the resulting fair values are classified as Level 2. Prices for all other non-marketable investments are determined based on various assumptions that are not observable. The fair values for these investment securities are classified as Level 3. Non-marketable investment securities, which are

42

 

 

Note 1 - Significant Accounting Policies (Continued)

carried at their purchase price, include those that may only be redeemed by the issuer. The changes in securities between Level 1 and Level 2 were related to the purchase and sale of several securities and not the transfer of securities.

Mortgage banking derivatives, which are comprised of interest rate lock commitments, mortgage forward sales commitments and to-be-announced mortgage-backed securities trades, are recorded at fair value on a recurring basis. Fair value of the IRLCs is based on projected pull-through rates and anticipated margins based on changes in market interest rates. The Company considers these to be Level 3 valuations. The fair value of mortgage forward sales commitments and TBAs is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date and is considered to be a Level 2 input.

The Company does not record loans at fair value on a recurring basis. The Company measures expected credit losses on loans held at amortized cost using the CECL model. Loans that do not share common risk characteristics with other loans are evaluated on an individual basis. For individually evaluated loans, expected credit losses are measured using one or more methods, which may include non-discounted cash flow analyses or the fair value of collateral. For collateral dependent loans, expected credit losses are measured based on the fair value of the collateral, less estimated costs to sell when foreclosure is probable. In certain circumstances, the fair value of collateral may exceed the amortized cost basis of the loan. If the fair value of collateral equals or exceeds the amortized cost basis of a collateral dependent loan, the measured expected credit loss is zero and no allowance is recorded for that loan. The Company generally determines the fair value of collateral using appraised values, which involve significant management judgment and are classified as Level 3 valuations within the fair value hierarchy.

Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at the estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charged to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations.

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate, based on secondary market prices. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. These loans are recorded in Level 2.

Comprehensive Income (Loss)

The Company reports as comprehensive income all changes in shareholders’ equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company’s only component of other comprehensive income (loss) is unrealized gains and losses, net of income tax, on investment securities available for sale.

The following table presents the changes in accumulated other comprehensive loss for the years ended December 31, 2025, 2024 and 2023:

 

 

 

Year ended December 31,

 

 

 

2025

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Beginning Balance

 

$

(24,727

)

 

$

(25,100

)

 

$

(31,765

)

Accumulated other comprehensive income before reclassifications,
   net of ($2,398), ($112) and ($1,993) tax effect, respectively

 

 

8,172

 

 

 

373

 

 

 

6,631

 

Amounts reclassified from accumulated other comprehensive income,
   net of $0, $0, and ($8) tax effect, respectively

 

 

—

 

 

 

—

 

 

 

34

 

Net current-period other comprehensive income

 

 

8,172

 

 

 

373

 

 

 

6,665

 

Ending Balance

 

$

(16,555

)

 

$

(24,727

)

 

$

(25,100

)

Earnings per Common Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The Company had no stock options outstanding at December 31, 2025, 2024 and 2023.

43

 

 

Note 1 - Significant Accounting Policies (Continued)

On October 28, 2025, the Company’s Board of Directors declared a 3.0% stock dividend payable on December 1, 2025 to shareholders of record on November 10, 2025. All information presented in the accompanying consolidated financial statements regarding earnings per share and weighted average number of shares outstanding has been computed giving effect to this stock dividend.

The computation of weighted average shares used in the calculation of basic and dilutive earnings per share is summarized below:

 

 

 

2025

 

 

2024

 

 

2023

 

Weighted average number of common shares and dilutive
   potential common shares used in computing diluted net
   income per common share

 

 

7,237,873

 

 

 

7,403,667

 

 

 

7,561,689

 

 

The Company had no outstanding dilutive securities at December 31, 2025, 2024 and 2023.

Noncontrolling Interest

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 of the Bank and pays dividends at an annual rate of 5.30%. The preferred stock has no voting rights. This capital is presented as noncontrolling interest in the consolidated balance sheets. Dividends declared on this preferred stock are presented as earnings allocated to the noncontrolling interest in the consolidated statements of income.

Segment Reporting

The Company operates in three operating segments: banking operations, mortgage banking, and wealth management. The Company’s operating segments are determined based on the nature of the products and services. The Executive Management Team (as defined in Note 18) has determined it is appropriate to aggregate the three operating segments into one reportable segment. See Note 18 (Segment Reporting) to the Company’s Notes to Consolidated Financial Statements for more information regarding segment reporting.

Recent Accounting Pronouncements

The Inflation Reduction Act of 2022 (“IRA”) created a new nondeductible 1% excise tax on repurchases of corporate stock by certain publicly traded corporations or their specified affiliates after December 31, 2022. The tax is imposed on the fair value of the stock of a covered corporation that is repurchased in a given year, less the fair market value of any stock issued in that year. A “covered corporation” is any domestic corporation whose stock is traded on an established securities market, such as an OTC market. The excise tax applies to all of the stock of a covered corporation regardless of whether the corporation has profits or losses. The IRA contains several exceptions to the excise tax, including, but not limited to, any repurchase of stock: in which the total value of the repurchased stock in a given year does not exceed $1,000,000; that is contributed to an employer-sponsored retirement plan or other similar stock compensation plan; or that is taxed as a dividend. The impact of the IRA on our consolidated financial statements is dependent on the extent of stock repurchases.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances income tax disclosure requirements. Under the new guidance, entities must disclose additional information in specified categories for federal, state and foreign income taxes with respect to the reconciliation of the effective tax rate to the statutory rate (rate reconciliation). Greater detail is also required about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. Additionally, the amendments require that entities must disaggregate income taxes paid, net of refunds received, for federal, state and foreign taxes and further disaggregate for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The quantitative threshold is equal to 5% or more of the amount

determined by multiplying pretax income (loss) from continuing operations by the applicable statutory rate. Public business entities must apply the guidance to annual periods beginning after December 15, 2024. ASU 2023-09 became effective for the Company on January 1, 2025. Entities may apply the amendments prospectively or may elect retrospective application. The Company has adopted the ASU on a prospective basis as presented in Note 11 (Income Tax Matters) to the Company’s Notes to Consolidated Financial Statements. This adoption did not have a material impact on the Company’s financial statements.

44

 

 

Note 1 - Significant Accounting Policies (Continued)

In November 2024, the FASB issued ASU 2024-03 “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” requiring public business entities to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments should be applied prospectively. The Company is currently evaluating the impact of this ASU but does not expect it to have a material effect on its consolidated financial statements.

On July 4, 2025, President Trump signed into law the legislation formally titled “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14” and commonly referred to as the One Big Beautiful Bill (“the Act”). The Company is currently evaluating income tax implications of the Act. The Company does not expect the Act to have a material impact on the Company’s financial statements.

From time to time the FASB issues exposure drafts of proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.

Note 2 – Investment and Equity Securities

Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:

 

December 31, 2025

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

 

(dollars in thousands)

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

25,753

 

 

$

—

 

 

$

1,756

 

 

$

23,997

 

U.S. Government agencies

 

 

45,862

 

 

 

95

 

 

 

729

 

 

 

45,228

 

GSE - Mortgage-backed securities and CMOs

 

 

182,088

 

 

 

839

 

 

 

8,173

 

 

 

174,754

 

Asset-backed securities

 

 

20,726

 

 

 

271

 

 

 

32

 

 

 

20,965

 

State and political subdivisions

 

 

100,843

 

 

 

221

 

 

 

12,178

 

 

 

88,886

 

Corporate bonds

 

 

4,000

 

 

 

—

 

 

 

90

 

 

 

3,910

 

Total securities available for sale

 

$

379,272

 

 

$

1,426

 

 

$

22,958

 

 

$

357,740

 

 

December 31, 2025

 

Amortized
 Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

Allowance for
Credit Losses

 

 

Net Carrying
Amount

 

 

 

(dollars in thousands)

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and political subdivisions

 

$

11,692

 

 

$

—

 

 

$

1,133

 

 

$

10,559

 

 

$

—

 

 

$

11,692

 

Corporate bonds

 

 

10,300

 

 

 

—

 

 

 

651

 

 

 

9,649

 

 

 

45

 

 

 

10,255

 

Total securities held to maturity

 

$

21,992

 

 

$

—

 

 

$

1,784

 

 

$

20,208

 

 

$

45

 

 

$

21,947

 

 

December 31, 2024

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

 

(dollars in thousands)

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

32,961

 

 

$

—

 

 

$

3,067

 

 

$

29,894

 

U.S. Government agencies

 

 

42,667

 

 

 

97

 

 

 

1,035

 

 

 

41,729

 

GSE - Mortgage-backed securities and CMOs

 

 

165,561

 

 

 

198

 

 

 

12,970

 

 

 

152,789

 

Asset-backed securities

 

 

23,215

 

 

 

407

 

 

 

44

 

 

 

23,578

 

State and political subdivisions

 

 

94,684

 

 

 

5

 

 

 

15,436

 

 

 

79,253

 

Corporate bonds

 

 

6,000

 

 

 

—

 

 

 

257

 

 

 

5,743

 

Total securities available for sale

 

$

365,088

 

 

$

707

 

 

$

32,809

 

 

$

332,986

 

 

45

 

 

Note 2 - Investment and Equity Securities (Continued)

 

December 31, 2024

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

Allowance for
Credit Losses

 

 

Net Carrying
Amount

 

 

 

(dollars in thousands)

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and political subdivisions

 

$

11,813

 

 

$

—

 

 

$

1,078

 

 

$

10,735

 

 

$

—

 

 

$

11,813

 

Corporate bonds

 

 

15,000

 

 

 

—

 

 

 

1,174

 

 

 

13,826

 

 

 

68

 

 

 

14,932

 

Total securities held to maturity

 

$

26,813

 

 

$

—

 

 

$

2,252

 

 

$

24,561

 

 

$

68

 

 

$

26,745

 

 

At December 31, 2025 and December 31, 2024, the Company owned Federal Reserve Bank (FRB) stock reported at cost of $959,000. The Company owned Federal Home Loan Bank (FHLB) stock reported at cost of $819,000 and $750,000 at December 31, 2025 and December 31, 2024, respectively. The investments in Federal Reserve stock and FHLB stock are required investments related to the Company’s membership in, and borrowings with, these banks and are classified as restricted stock on the consolidated balance sheet. These investments are carried at cost since there is no ready market and redemption has historically been made at par value. The Company estimated the fair value approximated cost and that these investments were not impaired at December 31, 2025.

There is no allowance for credit losses on available for sale securities. The following table shows a rollforward of the allowance for credit losses on held to maturity securities for the year ended December 31, 2025.

 

 

 

State and political subdivisions

 

 

Corporate bonds

 

 

Total

 

 

 

 

 

Balance, December 31, 2024

 

$

—

 

 

$

68

 

 

$

68

 

Recovery of credit losses

 

 

—

 

 

 

(23

)

 

 

(23

)

Charge-offs of securities

 

 

—

 

 

 

—

 

 

 

—

 

Recoveries

 

 

—

 

 

 

—

 

 

 

—

 

Balance, December 31, 2025

 

$

—

 

 

$

45

 

 

$

45

 

 

On a quarterly basis, the Company monitors the credit quality of the debt securities held to maturity through the use of credit ratings. For unrated securities, primarily corporate bonds consisting of subordinated debt of bank holding companies, individual financial reports are reviewed quarterly. Capital, profitability, liquidity and other ratios are reviewed to assist in determining credit quality. The following table summarizes the credit ratings of debt securities held to maturity, presented at amortized cost, by major security type at December 31, 2025.

 

December 31, 2025

 

State and political subdivisions

 

 

Corporate bonds

 

 

Total

 

 

 

 

 

Aaa

 

$

—

 

 

$

—

 

 

$

—

 

Aa1/Aa2/Aa3

 

 

11,088

 

 

 

—

 

 

 

11,088

 

A1/A2

 

 

—

 

 

 

—

 

 

 

—

 

BBB

 

 

—

 

 

 

—

 

 

 

—

 

Not rated

 

 

604

 

 

 

10,300

 

 

 

10,904

 

Total

 

$

11,692

 

 

$

10,300

 

 

$

21,992

 

At December 31, 2025, the Company had no securities held to maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held to maturity classified as nonaccrual for the year ended December 31, 2025.

Results from sales of securities available for sale for the years ended December 31, 2025, 2024 and 2023 are as follows:

 

 

 

2025

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Gross proceeds from sales

 

$

—

 

 

$

—

 

 

$

11,329

 

Realized gains from sales

 

$

—

 

 

$

—

 

 

$

54

 

Realized losses from sales

 

 

—

 

 

 

—

 

 

 

(96

)

Net realized gains (losses)

 

$

—

 

 

$

—

 

 

$

(42

)

 

46

 

 

Note 2 - Investment and Equity Securities (Continued)

At December 31, 2025 and 2024 securities available for sale with a carrying amount of $167.4 million and $161.5 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

We believe the unrealized losses on investment securities are a result of a volatile market and fluctuations in market prices due to a rise in interest rates, which will adjust if rates decline. Management does not believe these fluctuations are a reflection of the credit quality of the investments.

The following tables show the gross unrealized losses and estimated fair value of available for sale securities, for which an allowance has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2025 and 2024.

 

December 31, 2025

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Number of Securities

 

 

Fair Value

 

 

Unrealized
Losses

 

 

Number of Securities

 

 

Fair Value

 

 

Unrealized
Losses

 

 

Fair Value

 

 

Unrealized
Losses

 

 

 

(dollars in thousands)

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

 

—

 

 

$

—

 

 

$

—

 

 

 

5

 

 

$

23,997

 

 

$

1,756

 

 

$

23,997

 

 

$

1,756

 

U.S. Government agencies

 

 

11

 

 

 

13,378

 

 

 

56

 

 

 

28

 

 

 

18,932

 

 

 

673

 

 

 

32,310

 

 

 

729

 

GSE - Mortgage-backed securities and CMOs

 

 

11

 

 

 

23,048

 

 

 

177

 

 

 

61

 

 

 

94,444

 

 

 

7,996

 

 

 

117,492

 

 

 

8,173

 

Asset-backed securities

 

 

1

 

 

 

466

 

 

 

2

 

 

 

4

 

 

 

4,316

 

 

 

30

 

 

 

4,782

 

 

 

32

 

State and political subdivisions

 

 

4

 

 

 

5,376

 

 

 

113

 

 

 

57

 

 

 

72,704

 

 

 

12,065

 

 

 

78,080

 

 

 

12,178

 

Corporate bonds

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

3,910

 

 

 

90

 

 

 

3,910

 

 

 

90

 

Total securities available for sale

 

 

27

 

 

$

42,268

 

 

$

348

 

 

 

157

 

 

$

218,303

 

 

$

22,610

 

 

$

260,571

 

 

$

22,958

 

 

December 31, 2024

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Number of Securities

 

 

Fair Value

 

 

Unrealized
Losses

 

 

Number of Securities

 

 

Fair Value

 

 

Unrealized
Losses

 

 

Fair Value

 

 

Unrealized
Losses

 

 

 

(dollars in thousands)

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

 

—

 

 

$

—

 

 

$

—

 

 

 

7

 

 

$

29,894

 

 

$

3,067

 

 

$

29,894

 

 

$

3,067

 

U.S. Government agencies

 

 

9

 

 

 

9,956

 

 

 

134

 

 

 

24

 

 

 

19,995

 

 

 

901

 

 

 

29,951

 

 

 

1,035

 

GSE - Mortgage-backed securities and CMOs

 

 

19

 

 

 

32,580

 

 

 

313

 

 

 

57

 

 

 

97,798

 

 

 

12,657

 

 

 

130,378

 

 

 

12,970

 

Asset-backed securities

 

 

2

 

 

 

2,872

 

 

 

21

 

 

 

3

 

 

 

4,189

 

 

 

23

 

 

 

7,061

 

 

 

44

 

State and political subdivisions

 

 

5

 

 

 

7,773

 

 

 

253

 

 

 

57

 

 

 

70,169

 

 

 

15,183

 

 

 

77,942

 

 

 

15,436

 

Corporate bonds

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3

 

 

 

5,743

 

 

 

257

 

 

 

5,743

 

 

 

257

 

Total securities available for sale

 

 

35

 

 

$

53,181

 

 

$

721

 

 

 

151

 

 

$

227,788

 

 

$

32,088

 

 

$

280,969

 

 

$

32,809

 

Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for credit loss, management considers, among other things, the length of time and the extent to which the fair value has been in a loss position; the financial condition of the issuer through the review of credit ratings and, if necessary, corporate financial statements; adverse conditions specifically related to the security such as past due principal or interest; underlying assets that collateralize the debt security; other economic conditions and demographics; and the intent and ability of the Company to hold the investment until the loss position is recovered. Any unrealized losses were largely due to increases in market interest rates over the

yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality.

At December 31, 2025, the Company did not intend to sell and believed it was not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.

47

 

 

Note 2 - Investment and Equity Securities (Continued)

The following tables show contractual maturities of the investment portfolio as of December 31, 2025:

 

 

 

Amortized
Cost

 

 

Estimated
Fair Value

 

 

 

(dollars in thousands)

 

Securities available for sale

 

 

 

 

 

 

Due within twelve months

 

$

2,605

 

 

$

2,562

 

Due after one but within five years

 

 

63,791

 

 

 

60,554

 

Due after five but within ten years

 

 

55,525

 

 

 

51,334

 

Due after ten years

 

 

257,351

 

 

 

243,290

 

 

 

$

379,272

 

 

$

357,740

 

 

 

 

Amortized
Cost

 

 

Estimated
Fair Value

 

 

 

(dollars in thousands)

 

Securities held to maturity

 

 

 

 

 

 

Due after one but within five years

 

$

5,300

 

 

$

5,086

 

Due after five but within ten years

 

 

7,599

 

 

 

7,082

 

Due after ten years

 

 

9,093

 

 

 

8,040

 

 

 

$

21,992

 

 

$

20,208

 

 

The portion of unrealized gains and losses for the twelve months ended December 31, 2025 and 2024 related to equity securities still held at the reporting date is calculated as follows:

 

 

 

Twelve Months Ended December 31,

 

 

 

2025

 

 

2024

 

 

(dollars in thousands)

 

Gross proceeds from sales

 

$

—

 

 

$

—

 

 

 

 

 

 

 

 

Net gains (losses) recognized during the period on equity securities

 

$

(31

)

 

$

32

 

Less: Net gains (losses) recognized from equity securities sold during the period

 

 

—

 

 

 

—

 

Unrealized gains (losses) recognized during the period on equity securities still held at the reporting date

 

$

(31

)

 

$

32

 

 

Note 3 – Loans Held for Investment

The composition of net loans held for investment by class as of December 31, 2025 and 2024 is as follows:

 

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Commercial

 

 

 

 

 

 

Commercial

 

$

110,088

 

 

$

104,872

 

Real estate - commercial

 

 

255,850

 

 

 

245,569

 

Other real estate construction loans

 

 

57,247

 

 

 

50,940

 

Other loans

 

 

4,683

 

 

 

6,408

 

Noncommercial

 

 

 

 

 

 

Real estate 1-4 family construction

 

 

19,453

 

 

 

27,789

 

Real estate - residential

 

 

158,556

 

 

 

150,667

 

Home equity

 

 

73,262

 

 

 

68,287

 

Consumer loans

 

 

9,611

 

 

 

11,020

 

 

 

 

688,750

 

 

 

665,552

 

Less:

 

 

 

 

 

 

Allowance for credit losses

 

 

(6,420

)

 

 

(5,824

)

Deferred loan fees, net

 

 

812

 

 

 

825

 

Loans held for investment, net

 

$

683,142

 

 

$

660,553

 

 

48

 

 

Note 3 – Loans Held for Investment (Continued)

Although the Bank’s loan portfolio is diversified, there is a concentration of mortgage real estate loans, primarily one-to-four family residential and home equity loans, which represents 33.7% of total loans. Additionally, there is a concentration in commercial loans secured by real estate that represents 37.1% of total loans. The commercial loan real estate portfolio is diversified and comprised of different types of real estate including, but not limited to, commercial buildings, commercial land development, multi-family housing, hotels, agriculture, and shopping center locations. There is not a concentration of a particular type of credit in this group of commercial loans. The Company’s loan policies are written to address loan-to-value ratios and collateralization methods with respect to each lending category. Consideration is given to the economic and credit risk of lending areas and customers associated with each category.

The carrying value of foreclosed properties held as other real estate was $0 at December 31, 2025 and December 31, 2024. The Company had no residential real estate in process of foreclosure at December 31, 2025. At December 31, 2024, the Company had $93,000 of residential real estate in process of foreclosure.

Note 4 - Allowance for Credit Losses on Loans

The following tables summarize the activity related to the allowance for credit losses on loans for the years ended December 31, 2025 and 2024.

 

 

 

Commercial Loans

 

 

Noncommercial Loans

 

 

 

 

(dollars in thousands)

 

Commercial

 

 

Real estate
commercial

 

 

Other
real estate
construction

 

 

Other
loans

 

 

Real estate
1-4 family
construction

 

 

Real estate
residential

 

 

Home
equity

 

 

Consumer

 

 

Total
Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2024

 

$

1,528

 

 

$

2,266

 

 

$

412

 

 

$

18

 

 

$

56

 

 

$

781

 

 

$

588

 

 

$

175

 

 

$

5,824

 

Provision for (recovery of) credit losses

 

 

(34

)

 

 

154

 

 

 

75

 

 

 

(3

)

 

 

27

 

 

 

371

 

 

 

184

 

 

 

(18

)

 

 

756

 

Charge-offs

 

 

(123

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(89

)

 

 

(130

)

 

 

(342

)

Recoveries

 

 

108

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3

 

 

 

4

 

 

 

67

 

 

 

182

 

Net (charge-offs) recoveries

 

 

(15

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3

 

 

 

(85

)

 

 

(63

)

 

 

(160

)

Balance, December 31, 2025

 

$

1,479

 

 

$

2,420

 

 

$

487

 

 

$

15

 

 

$

83

 

 

$

1,155

 

 

$

687

 

 

$

94

 

 

$

6,420

 

 

 

 

Commercial Loans

 

 

Noncommercial Loans

 

 

 

 

(dollars in thousands)

 

Commercial

 

 

Real estate
commercial

 

 

Other
real estate
construction

 

 

Other
loans

 

 

Real estate
1-4 family
construction

 

 

Real estate
residential

 

 

Home
equity

 

 

Consumer

 

 

Total
Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2023

 

$

1,493

 

 

$

2,057

 

 

$

389

 

 

$

9

 

 

$

31

 

 

$

796

 

 

$

582

 

 

$

204

 

 

$

5,561

 

Provision for (recovery of) credit losses

 

 

222

 

 

 

209

 

 

 

23

 

 

 

9

 

 

 

25

 

 

 

(17

)

 

 

6

 

 

 

56

 

 

 

533

 

Charge-offs

 

 

(322

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

(157

)

 

 

(480

)

Recoveries

 

 

135

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

1

 

 

 

72

 

 

 

210

 

Net (charge-offs) recoveries

 

 

(187

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

—

 

 

 

(85

)

 

 

(270

)

Balance, December 31, 2024

 

$

1,528

 

 

$

2,266

 

 

$

412

 

 

$

18

 

 

$

56

 

 

$

781

 

 

$

588

 

 

$

175

 

 

$

5,824

 

 

49

 

 

Note 4 - Allowance for Credit Losses on Loans (Continued)

Past due loan information is used by management when assessing the adequacy of the allowance for credit losses. The following tables summarize the past due information of the loan portfolio by class as of the dates indicated:

 

December 31, 2025

 

Loans
30-89 Days
Past Due

 

 

Nonaccrual Loans

 

 

Total Past
Due Loans

 

 

Current
Loans

 

 

Total
Loans

 

 

Accruing Loans
90 Days or More
Past Due

 

 

 

(dollars in thousands)

 

 

 

 

Commercial

 

$

22

 

 

$

—

 

 

$

22

 

 

$

110,066

 

 

$

110,088

 

 

$

—

 

Real estate - commercial

 

 

—

 

 

 

—

 

 

 

—

 

 

 

255,944

 

 

 

255,944

 

 

 

—

 

Other real estate construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

57,247

 

 

 

57,247

 

 

 

—

 

Real estate 1-4 family construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,453

 

 

 

19,453

 

 

 

—

 

Real estate - residential

 

 

561

 

 

 

179

 

 

 

740

 

 

 

158,534

 

 

 

159,274

 

 

 

—

 

Home equity

 

 

104

 

 

 

199

 

 

 

303

 

 

 

72,959

 

 

 

73,262

 

 

 

—

 

Consumer loans

 

 

13

 

 

 

—

 

 

 

13

 

 

 

9,598

 

 

 

9,611

 

 

 

—

 

Other loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,683

 

 

 

4,683

 

 

 

—

 

Total

 

$

700

 

 

$

378

 

 

$

1,078

 

 

$

688,484

 

 

$

689,562

 

 

$

—

 

 

December 31, 2024

 

Loans
30-89 Days
Past Due

 

 

Nonaccrual Loans

 

 

Total Past
Due Loans

 

 

Current
Loans

 

 

Total
Loans

 

 

Accruing Loans
90 Days or More
Past Due

 

 

 

(dollars in thousands)

 

 

 

 

Commercial

 

$

9

 

 

$

88

 

 

$

97

 

 

$

104,773

 

 

$

104,870

 

 

$

—

 

Real estate - commercial

 

 

43

 

 

 

—

 

 

 

43

 

 

 

245,636

 

 

 

245,679

 

 

 

—

 

Other real estate construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

50,940

 

 

 

50,940

 

 

 

—

 

Real estate 1-4 family construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

27,789

 

 

 

27,789

 

 

 

—

 

Real estate - residential

 

 

429

 

 

 

64

 

 

 

493

 

 

 

150,891

 

 

 

151,384

 

 

 

—

 

Home equity

 

 

176

 

 

 

40

 

 

 

216

 

 

 

68,071

 

 

 

68,287

 

 

 

—

 

Consumer loans

 

 

42

 

 

 

—

 

 

 

42

 

 

 

10,978

 

 

 

11,020

 

 

 

—

 

Other loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,408

 

 

 

6,408

 

 

 

—

 

Total

 

$

699

 

 

$

192

 

 

$

891

 

 

$

665,486

 

 

$

666,377

 

 

$

—

 

 

Once a loan becomes 90 days past due, the loan is automatically transferred to a nonaccrual status. The exception to this policy is credit card loans that remain in accrual status 90 days or more until they are paid current or charged off.

The composition of nonaccrual loans by class as of December 31, 2025 and 2024 is as follows:

 

 

 

December 31, 2025

 

 

Twelve Months Ended

 

 

 

Nonaccrual Loans

 

 

Nonaccrual Loans

 

 

Total Nonaccrual

 

 

December 31, 2025

 

 

 

with No Allowance

 

 

with an Allowance

 

 

Loans

 

 

Interest Income

 

 

 

(dollars in thousands)

 

Commercial

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Real estate - commercial

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other real estate construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate 1-4 family construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate - residential

 

 

—

 

 

 

179

 

 

 

179

 

 

 

26

 

Home equity

 

 

—

 

 

 

199

 

 

 

199

 

 

 

11

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

—

 

 

$

378

 

 

$

378

 

 

$

37

 

 

50

 

 

Note 4 - Allowance for Credit Losses on Loans (Continued)

 

 

 

December 31, 2024

 

 

Twelve Months Ended

 

 

 

Nonaccrual Loans

 

 

Nonaccrual Loans

 

 

Total Nonaccrual

 

 

December 31, 2024

 

 

 

with No Allowance

 

 

with an Allowance

 

 

Loans

 

 

Interest Income

 

 

 

(dollars in thousands)

 

Commercial

 

$

—

 

 

$

88

 

 

$

88

 

 

$

1

 

Real estate - commercial

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other real estate construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate 1-4 family construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate - residential

 

 

—

 

 

 

64

 

 

 

64

 

 

 

13

 

Home equity

 

 

—

 

 

 

40

 

 

 

40

 

 

 

1

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

—

 

 

$

192

 

 

$

192

 

 

$

15

 

Loans that are in nonaccrual status or 90 days or more past due and still accruing are considered to be nonperforming. At both December 31, 2025 and 2024, there were no loans 90 days or more past due and still accruing. The following tables show the breakdown between performing and nonperforming loans by class as of December 31, 2025 and 2024:

 

December 31, 2025

 

Performing

 

 

Nonperforming

 

 

Total

 

 

 

(dollars in thousands)

 

Commercial

 

$

110,088

 

 

$

—

 

 

$

110,088

 

Real estate - commercial

 

 

255,944

 

 

 

—

 

 

 

255,944

 

Other real estate construction

 

 

57,247

 

 

 

—

 

 

 

57,247

 

Real estate 1-4 family construction

 

 

19,453

 

 

 

—

 

 

 

19,453

 

Real estate - residential

 

 

159,095

 

 

 

179

 

 

 

159,274

 

Home equity

 

 

73,063

 

 

 

199

 

 

 

73,262

 

Consumer loans

 

 

9,611

 

 

 

—

 

 

 

9,611

 

Other loans

 

 

4,683

 

 

 

—

 

 

 

4,683

 

Total

 

$

689,184

 

 

$

378

 

 

$

689,562

 

 

December 31, 2024

 

Performing

 

 

Nonperforming

 

 

Total

 

 

 

(dollars in thousands)

 

Commercial

 

$

104,782

 

 

$

88

 

 

$

104,870

 

Real estate - commercial

 

 

245,679

 

 

 

—

 

 

 

245,679

 

Other real estate construction

 

 

50,940

 

 

 

—

 

 

 

50,940

 

Real estate 1-4 family construction

 

 

27,789

 

 

 

—

 

 

 

27,789

 

Real estate - residential

 

 

151,320

 

 

 

64

 

 

 

151,384

 

Home equity

 

 

68,247

 

 

 

40

 

 

 

68,287

 

Consumer loans

 

 

11,020

 

 

 

—

 

 

 

11,020

 

Other loans

 

 

6,408

 

 

 

—

 

 

 

6,408

 

Total

 

$

666,185

 

 

$

192

 

 

$

666,377

 

 

51

 

 

Note 4 - Allowance for Credit Losses on Loans (Continued)

Loans that do not share the same risk characteristics as loans in the collectively assessed population will be individually assessed. 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.

The Company did not have any individually assessed loans deemed to be collateral dependent at December 31, 2025 or 2024.

Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and to measure the adequacy of the allowance for credit losses on loans. In this program, risk grades are initially assigned by the loan officers and reviewed and monitored by the lenders and credit administration. The program has nine risk grades summarized in six categories as follows:

Pass: Loans that are pass grade credits include loans that are fundamentally sound, with risk factors that are reasonable and acceptable. They generally conform to policy with only minor exceptions; any major exceptions are clearly mitigated by other economic factors.

Watch: Loans that are acceptable but show signs of weakness in either adequate sources of repayment or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss. These loans may deserve management’s attention.

Special Mention: Loans that exhibit potential weakness that deserve management’s close attention. Credits within this category exhibit risk that is increasing beyond the point where the loan would have been originally approved.

Substandard: Loans that are considered substandard are loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or the value of the collateral pledged. All nonaccrual loans are graded as substandard.

Doubtful: Loans that are considered to be doubtful have all weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make the collection or liquidation in full on the basis of current existing facts, conditions and values highly questionable and improbable.

Loss: Loans that are considered to be a loss are considered to be uncollectible and of such little value that their continuance as bankable assets is not warranted.

52

 

 

Note 4 - Allowance for Credit Losses on Loans (Continued)

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2025:

 

December 31, 2025

 

Term Loans by Year of Origination

 

 

 

 

 

 

 

 

 

2025

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

Prior

 

 

Revolving

 

 

Total

 

 

 

(dollars in thousands)

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

41,614

 

 

$

18,998

 

 

$

10,134

 

 

$

9,822

 

 

$

4,665

 

 

$

9,300

 

 

$

14,673

 

 

$

109,206

 

Watch

 

 

40

 

 

 

—

 

 

 

3

 

 

 

—

 

 

 

640

 

 

 

39

 

 

 

160

 

 

 

882

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total commercial

 

 

41,654

 

 

 

18,998

 

 

 

10,137

 

 

 

9,822

 

 

 

5,305

 

 

 

9,339

 

 

 

14,833

 

 

 

110,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

33,690

 

 

 

44,721

 

 

 

38,979

 

 

 

43,708

 

 

 

35,143

 

 

 

52,174

 

 

 

2,666

 

 

 

251,081

 

Watch

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

148

 

 

 

85

 

 

 

233

 

Special Mention

 

 

—

 

 

 

—

 

 

 

4,267

 

 

 

—

 

 

 

—

 

 

 

24

 

 

 

—

 

 

 

4,291

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

339

 

 

 

—

 

 

 

339

 

Total real estate - commercial

 

 

33,690

 

 

 

44,721

 

 

 

43,246

 

 

 

43,708

 

 

 

35,143

 

 

 

52,685

 

 

 

2,751

 

 

 

255,944

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

20,951

 

 

 

14,474

 

 

 

8,480

 

 

 

3,754

 

 

 

1,778

 

 

 

4,633

 

 

 

1,330

 

 

 

55,400

 

Watch

 

 

1,847

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,847

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total other real estate construction

 

 

22,798

 

 

 

14,474

 

 

 

8,480

 

 

 

3,754

 

 

 

1,778

 

 

 

4,633

 

 

 

1,330

 

 

 

57,247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate 1-4 family construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

12,819

 

 

 

6,634

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,453

 

Watch

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total real estate 1-4 family construction

 

 

12,819

 

 

 

6,634

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

30,041

 

 

 

24,409

 

 

 

31,429

 

 

 

29,022

 

 

 

19,789

 

 

 

20,706

 

 

 

2,268

 

 

 

157,664

 

Watch

 

 

322

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

200

 

 

 

446

 

 

 

—

 

 

 

968

 

Special Mention

 

 

—

 

 

 

—

 

 

 

99

 

 

 

—

 

 

 

117

 

 

 

22

 

 

 

—

 

 

 

238

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

404

 

 

 

—

 

 

 

404

 

Total real estate - residential

 

 

30,363

 

 

 

24,409

 

 

 

31,528

 

 

 

29,022

 

 

 

20,106

 

 

 

21,578

 

 

 

2,268

 

 

 

159,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

52

 

 

 

43

 

 

 

610

 

 

 

332

 

 

 

254

 

 

 

2,100

 

 

 

69,507

 

 

 

72,898

 

Watch

 

 

—

 

 

 

—

 

 

 

—

 

 

 

15

 

 

 

—

 

 

 

75

 

 

 

—

 

 

 

90

 

Special Mention

 

 

—

 

 

 

—

 

 

 

75

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

75

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

96

 

 

 

103

 

 

 

—

 

 

 

—

 

 

 

199

 

Total home equity

 

 

52

 

 

 

43

 

 

 

685

 

 

 

443

 

 

 

357

 

 

 

2,175

 

 

 

69,507

 

 

 

73,262

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

3,014

 

 

 

1,800

 

 

 

865

 

 

 

456

 

 

 

62

 

 

 

278

 

 

 

3,086

 

 

 

9,561

 

Watch

 

 

—

 

 

 

50

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

50

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total consumer loans

 

 

3,014

 

 

 

1,850

 

 

 

865

 

 

 

456

 

 

 

62

 

 

 

278

 

 

 

3,086

 

 

 

9,611

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

66

 

 

 

567

 

 

 

—

 

 

 

1,597

 

 

 

1,071

 

 

 

1,382

 

 

 

—

 

 

 

4,683

 

Watch

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total other loans

 

 

66

 

 

 

567

 

 

 

—

 

 

 

1,597

 

 

 

1,071

 

 

 

1,382

 

 

 

—

 

 

 

4,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Pass

 

 

142,247

 

 

 

111,646

 

 

 

90,497

 

 

 

88,691

 

 

 

62,762

 

 

 

90,573

 

 

 

93,530

 

 

 

679,946

 

Total Watch

 

 

2,209

 

 

 

50

 

 

 

3

 

 

 

15

 

 

 

840

 

 

 

708

 

 

 

245

 

 

 

4,070

 

Total Special Mention

 

 

—

 

 

 

—

 

 

 

4,441

 

 

 

—

 

 

 

117

 

 

 

46

 

 

 

—

 

 

 

4,604

 

Total Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

96

 

 

 

103

 

 

 

743

 

 

 

—

 

 

 

942

 

Total loans

 

$

144,456

 

 

$

111,696

 

 

$

94,941

 

 

$

88,802

 

 

$

63,822

 

 

$

92,070

 

 

$

93,775

 

 

$

689,562

 

During the year ended December 31, 2025, ninety-nine loans totaling $10.4 million were converted from revolving to term loans.

53

 

 

Note 4 - Allowance for Credit Losses on Loans (Continued)

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2024:

 

December 31, 2024

 

Term Loans by Year of Origination

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving

 

 

Total

 

 

 

(dollars in thousands)

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

25,634

 

 

$

18,992

 

 

$

14,319

 

 

$

11,948

 

 

$

2,292

 

 

$

10,270

 

 

$

20,964

 

 

$

104,419

 

Watch

 

 

48

 

 

 

117

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

182

 

 

 

347

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

15

 

 

 

—

 

 

 

88

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

103

 

Total commercial

 

 

25,682

 

 

 

19,124

 

 

 

14,319

 

 

 

12,036

 

 

 

2,292

 

 

 

10,270

 

 

 

21,146

 

 

 

104,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

38,684

 

 

 

55,090

 

 

 

48,600

 

 

 

30,383

 

 

 

20,722

 

 

 

48,127

 

 

 

3,040

 

 

 

244,646

 

Watch

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

63

 

 

 

—

 

 

 

63

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

561

 

 

 

—

 

 

 

32

 

 

 

—

 

 

 

593

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

113

 

 

 

264

 

 

 

—

 

 

 

377

 

Total real estate - commercial

 

 

38,684

 

 

 

55,090

 

 

 

48,600

 

 

 

30,944

 

 

 

20,835

 

 

 

48,486

 

 

 

3,040

 

 

 

245,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

22,447

 

 

 

15,004

 

 

 

4,981

 

 

 

2,287

 

 

 

3,211

 

 

 

2,172

 

 

 

795

 

 

 

50,897

 

Watch

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

44

 

 

 

—

 

 

 

44

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total other real estate construction

 

 

22,447

 

 

 

15,004

 

 

 

4,981

 

 

 

2,287

 

 

 

3,211

 

 

 

2,216

 

 

 

795

 

 

 

50,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate 1-4 family construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

19,845

 

 

 

7,944

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

27,789

 

Watch

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total real estate 1-4 family construction

 

 

19,845

 

 

 

7,944

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

27,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

29,936

 

 

 

37,448

 

 

 

34,018

 

 

 

21,613

 

 

 

10,473

 

 

 

14,397

 

 

 

1,829

 

 

 

149,714

 

Watch

 

 

—

 

 

 

—

 

 

 

—

 

 

 

204

 

 

 

365

 

 

 

490

 

 

 

—

 

 

 

1,059

 

Special Mention

 

 

—

 

 

 

104

 

 

 

—

 

 

 

122

 

 

 

—

 

 

 

83

 

 

 

—

 

 

 

309

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

302

 

 

 

—

 

 

 

302

 

Total real estate - residential

 

 

29,936

 

 

 

37,552

 

 

 

34,018

 

 

 

21,939

 

 

 

10,838

 

 

 

15,272

 

 

 

1,829

 

 

 

151,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

57

 

 

 

255

 

 

 

159

 

 

 

192

 

 

 

402

 

 

 

1,679

 

 

 

65,158

 

 

 

67,902

 

Watch

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

84

 

 

 

140

 

 

 

224

 

Special Mention

 

 

—

 

 

 

—

 

 

 

100

 

 

 

—

 

 

 

—

 

 

 

20

 

 

 

—

 

 

 

120

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

41

 

 

 

—

 

 

 

41

 

Total home equity

 

 

57

 

 

 

255

 

 

 

259

 

 

 

192

 

 

 

402

 

 

 

1,824

 

 

 

65,298

 

 

 

68,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

3,934

 

 

 

1,944

 

 

 

985

 

 

 

170

 

 

 

70

 

 

 

320

 

 

 

3,586

 

 

 

11,009

 

Watch

 

 

11

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

11

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total consumer loans

 

 

3,945

 

 

 

1,944

 

 

 

985

 

 

 

170

 

 

 

70

 

 

 

320

 

 

 

3,586

 

 

 

11,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

644

 

 

 

—

 

 

 

1,598

 

 

 

2,602

 

 

 

1,211

 

 

 

353

 

 

 

—

 

 

 

6,408

 

Watch

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Special Mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total other loans

 

 

644

 

 

 

—

 

 

 

1,598

 

 

 

2,602

 

 

 

1,211

 

 

 

353

 

 

 

—

 

 

 

6,408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Pass

 

 

141,181

 

 

 

136,677

 

 

 

104,660

 

 

 

69,195

 

 

 

38,381

 

 

 

77,318

 

 

 

95,372

 

 

 

662,784

 

Total Watch

 

 

59

 

 

 

117

 

 

 

—

 

 

 

204

 

 

 

365

 

 

 

681

 

 

 

322

 

 

 

1,748

 

Total Special Mention

 

 

—

 

 

 

104

 

 

 

100

 

 

 

683

 

 

 

—

 

 

 

135

 

 

 

—

 

 

 

1,022

 

Total Substandard

 

 

—

 

 

 

15

 

 

 

—

 

 

 

88

 

 

 

113

 

 

 

607

 

 

 

—

 

 

 

823

 

Total loans

 

$

141,240

 

 

$

136,913

 

 

$

104,760

 

 

$

70,170

 

 

$

38,859

 

 

$

78,741

 

 

$

95,694

 

 

$

666,377

 

During the year ended December 31, 2024, one hundred and thirty-two totaling $2.5 million were converted from revolving to term loans.

54

 

 

Note 4 - Allowance for Credit Losses on Loans (Continued)

The following tables present gross charge-offs by origination date for the years ended December 31, 2025 and 2024:

 

December 31, 2025

 

Gross Loan Charge-offs by Year of Origination

 

 

 

 

 

 

 

 

 

2025

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

Prior

 

 

Revolving

 

 

Total

 

 

 

(dollars in thousands)

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

—

 

 

$

9

 

 

$

—

 

 

$

16

 

 

$

88

 

 

$

—

 

 

$

10

 

 

$

123

 

Real estate - commercial

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other real estate construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Noncommercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate 1-4 family construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate - residential

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Home equity

 

 

—

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

89

 

 

 

—

 

 

 

89

 

Consumer loans

 

 

—

 

 

 

33

 

 

 

7

 

 

 

2

 

 

 

—

 

 

 

2

 

 

 

86

 

 

 

130

 

Total charge-offs

 

$

—

 

 

$

42

 

 

$

7

 

 

$

18

 

 

$

88

 

 

$

91

 

 

$

96

 

 

$

342

 

 

December 31, 2024

 

Gross Loan Charge-offs by Year of Origination

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving

 

 

Total

 

 

 

(dollars in thousands)

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

—

 

 

$

10

 

 

$

—

 

 

$

137

 

 

$

164

 

 

$

—

 

 

$

10

 

 

$

321

 

Real estate - commercial

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other real estate construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Noncommercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate 1-4 family construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate - residential

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Home equity

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

1

 

Consumer loans

 

 

12

 

 

 

51

 

 

 

7

 

 

 

12

 

 

 

7

 

 

 

4

 

 

 

65

 

 

 

158

 

Total charge-offs

 

$

12

 

 

$

61

 

 

$

7

 

 

$

149

 

 

$

171

 

 

$

5

 

 

$

75

 

 

$

480

 

Modifications to Borrowers Experiencing Financial Difficulty

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses due to the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. The Company rarely modifies loans by providing principal forgiveness. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Company will modify a loan by providing multiple types of concessions. Typically one type of concession is granted initially. If the borrower continues to experience financial difficulty, another concession may be granted. Types of concessions include term extensions beyond customary terms, capitalization of accrued interest, interest rate reductions to below current market rates, payment deferrals or principal forgiveness.

There were no loans modified for borrowers experiencing financial difficulty during the twelve months ended December 31, 2025 or December 31, 2024. As such, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the twelve months ended December 31, 2025 or December 31, 2024 that subsequently defaulted. A default on a modified loan is defined as being past due 90 days or being out of compliance with the modification agreement. The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

 

55

 

 

Note 5 – Loan Servicing Assets

The principal balance of loans serviced for others is not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage and other loans serviced for others were approximately $729.1 million and $720.8 million at December 31, 2025 and 2024, respectively. The carrying value of capitalized servicing rights, net of valuation allowances, is included in other assets. A summary of loan servicing rights follows:

 

 

 

2025

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Beginning of year servicing rights:

 

$

3,903

 

 

$

4,287

 

 

$

4,931

 

Amounts capitalized

 

 

1,089

 

 

 

829

 

 

 

584

 

Amortization

 

 

(1,290

)

 

 

(1,213

)

 

 

(1,228

)

Impairment

 

 

—

 

 

 

—

 

 

 

—

 

End of year

 

$

3,702

 

 

$

3,903

 

 

$

4,287

 

Amortization expense is estimated as follows:

 

Year ending December 31,

 

(dollars in thousands)

 

2026

 

$

874

 

2027

 

 

757

 

2028

 

 

639

 

2029

 

 

522

 

2030

 

 

404

 

Thereafter

 

 

506

 

Total

 

$

3,702

 

The amortization expense table above does not anticipate or pro-forma loan prepayments.

The fair value of loan servicing rights was $7.4 million at December 31, 2025 and $7.3 million at December 31, 2024. The key assumptions used to value loan servicing rights were as follows:

 

 

 

2025

 

 

2024

 

Weighted average remaining life

 

282 months

 

 

284 months

 

Weighted average discount rate

 

 

11.24

%

 

 

11.22

%

Weighted average coupon

 

 

4.29

%

 

 

3.99

%

Weighted average prepayment speed

 

 

126

%

 

 

115

%

 

Note 6 - Premises and Equipment

The major classes of premises and equipment and the total accumulated depreciation at December 31, 2025 and 2024 are listed below:

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Land

 

$

2,903

 

 

$

2,903

 

Building and improvements

 

 

14,219

 

 

 

13,785

 

ROU assets

 

 

713

 

 

 

1,109

 

Furniture and equipment

 

 

12,402

 

 

 

11,352

 

Total fixed assets

 

 

30,237

 

 

 

29,149

 

Less accumulated depreciation

 

 

15,527

 

 

 

14,670

 

Net fixed assets

 

$

14,710

 

 

$

14,479

 

 

Depreciation expense was $994,000 for the year ended December 31, 2025 and $1.1 million for the years ended December 31, 2024 and 2023, and is included in net occupancy expense, equipment expense and software amortization and maintenance expense.

See Note 7 (Leases) to the Company’s Notes to Consolidated Financial Statements for more information regarding ROU assets.

56

 

 

Note 7 – Leases

Operating leases in which we are the lessee are recorded as operating lease right of use (“ROU”) assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on our consolidated balance sheets. Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental collateralized borrowing rate at the lease commencement date. ROU assets are further adjusted for any lease incentives. Operating lease expense, which is composed of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in the net occupancy expense in the consolidated statements of income. We do not currently have any finance leases in which we are the lessee.

Our leases relate to four office locations, three of which are branch locations, with remaining terms of one to four years. Certain lease arrangements contain extension options which range from five to ten years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As of December 31, 2025, operating lease ROU assets were $713,000 and the lease liability was $768,000. Operating lease ROU assets were $1.1 million and the lease liability was $1.2 million at December 31, 2024. The table below depicts information related to the Company’s leases:

 

 

 

Twelve Months Ended December 31,

 

 

 

2025

 

 

2024

 

 

 

(in thousands except percent and period data)

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

455

 

 

$

445

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

—

 

 

 

—

 

Weighted-average remaining lease term - operating leases, in years

 

 

2.2

 

 

 

3.0

 

Weighted-average discount rate - operating leases

 

 

3.0

%

 

 

2.8

%

Total rental expense related to the operating leases was $455,000, $445,000, and $435,000 for the years ended December 31, 2025, 2024 and 2023, respectively, and is included in net occupancy expense.

A table detailing the lease payments associated with the aforementioned properties is below.

 

December 31,

 

(dollars in thousands)

 

2026

 

416

 

2027

 

260

 

2028

 

98

 

2029

 

20

 

2030

 

—

 

Thereafter

 

—

 

Total lease payments

 

794

 

Less: Interest

 

(26

)

Present value of lease liabilities

$

768

 

Note 8 - Deposits

The composition of deposits at December 31, 2025 and 2024 is as follows:

 

 

 

2025

 

 

2024

 

 

 

Amount

 

 

Percentage
of Total

 

 

Amount

 

 

Percentage
of Total

 

 

 

(dollars in thousands)

 

Demand noninterest-bearing

 

$

269,566

 

 

 

25

%

 

$

272,355

 

 

 

27

%

Interest checking and money market

 

 

421,381

 

 

 

39

%

 

 

395,079

 

 

 

38

%

Savings

 

 

105,038

 

 

 

10

%

 

 

92,954

 

 

 

9

%

Time deposits $250,000 and over

 

 

135,474

 

 

 

12

%

 

 

133,335

 

 

 

13

%

Other time deposits

 

 

149,322

 

 

 

14

%

 

 

136,513

 

 

 

13

%

Total

 

$

1,080,781

 

 

 

100

%

 

$

1,030,236

 

 

 

100

%

 

57

 

 

Note 8 - Deposits (Continued)

The maturities of fixed-rate time deposits at December 31, 2025 are reflected in the table below:

 

 

 

Time Deposits

 

 

Other

 

Year ending December 31,

 

$250,000 and Over

 

 

Time Deposits

 

 

 

(dollars in thousands)

 

2026

 

$

134,656

 

 

$

143,972

 

2027

 

 

818

 

 

 

4,005

 

2028

 

 

—

 

 

 

419

 

2029

 

 

—

 

 

 

389

 

2030

 

 

—

 

 

 

537

 

Thereafter

 

 

—

 

 

 

—

 

Total

 

$

135,474

 

 

$

149,322

 

 

Note 9 - Short-Term Borrowed Funds

The following tables set forth certain information regarding the amounts, year-end weighted average rates, average balances, weighted average rate, and maximum month-end balances for short-term borrowed funds, at and during 2025 and 2024:

 

 

 

2025

 

 

2024

 

 

 

Amount

 

 

Rate

 

 

Amount

 

 

Rate

 

 

 

(dollars in thousands)

 

At year-end

 

 

 

 

 

 

 

 

 

 

 

 

Master notes and other short-term borrowings

 

$

25

 

 

 

3.78

%

 

$

1,414

 

 

 

3.69

%

 

 

$

25

 

 

 

3.78

%

 

$

1,414

 

 

 

3.69

%

 

 

 

2025

 

 

2024

 

 

 

Amount

 

 

Rate

 

 

Amount

 

 

Rate

 

 

 

(dollars in thousands)

 

Average for the year

 

 

 

 

 

 

 

 

 

 

 

 

Federal funds purchased

 

$

2

 

 

 

4.91

%

 

$

2

 

 

 

5.82

%

Master notes and other short-term borrowings

 

 

696

 

 

 

3.56

%

 

 

1,351

 

 

 

4.36

%

Notes payable

 

 

—

 

 

 

—

 

 

 

3,265

 

 

 

4.93

%

 

 

$

698

 

 

 

3.57

%

 

$

4,618

 

 

 

4.77

%

 

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Maximum month-end balance

 

 

 

 

 

 

Master notes and other short-term borrowings

 

$

1,467

 

 

$

1,463

 

Master notes represent an overnight investment in commercial paper issued by the Company to customers of its subsidiary bank, where an agreement is in place.

The subsidiary bank has combined available lines of credit for federal funds and Federal Reserve discount window availability in the amount of $71.8 million at December 31, 2025.

Note 10 - Long-Term Debt

The Company has a line of credit with the Federal Home Loan Bank secured by qualifying first lien and second lien mortgage loans and commercial real estate loans with eligible collateral value of $182.2 million with $162.2 million available for advances at December 31, 2025. The Company utilized a $20.0 million letter of credit with FHLB as collateral for public deposits at December 31, 2025. There were no long-term advances under this line at December 31, 2025 or at December 31, 2024. The Company also secured a $3.0 million line of credit with TIB The Independent BankersBank, N.A. during 2020. The line is secured with 100% of the outstanding common shares of the Company’s subsidiary bank. As of December 31, 2025, there was no outstanding balance on the line of credit. This loan carries certain debt covenants, and as of December 31, 2025, the Company was in compliance with all of these covenants.

58

 

 

Note 10 - Long-Term Debt (Continued)

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 $9.5 million was outstanding at December 31, 2025. 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 qualified 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, 2025, $5.7 million of the subordinated debt issued in 2019 qualifies as Tier 2 capital.

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, 2025, $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 was 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.

Debt is reported net of unamortized debt issuance costs of $154,000 and $231,000 at December 31, 2025 and December 31, 2024, respectively.

As of December 31, 2025, the scheduled maturities of these long-term borrowings are as follows:

 

Year Ended December 31, 2025

 

(dollars in thousands)

 

2026

 

$

—

 

2027

 

 

—

 

2028

 

 

—

 

2029

 

 

9,452

 

2030

 

 

—

 

Thereafter

 

 

19,750

 

 

 

 

29,202

 

Less: unamortized debt issuance costs

 

 

(154

)

Total

 

$

29,048

 

 

Note 11 - Income Tax Matters

Cash paid for income taxes, net of refunds, disaggregated by taxing jurisdiction is summarized in the following table for the year ended December 31, 2025.

 

 

 

2025

 

 

 

(dollars in thousands)

 

Federal

 

$

3,250

 

States

 

 

 

North Carolina

 

 

343

 

South Carolina

 

 

53

 

Foreign

 

 

—

 

Total

 

$

3,646

 

 

59

 

 

Note 11 - Income Tax Matters (Continued)

Pretax income is entirely related to domestic activities as the Company did not have any foreign operations.

The significant components of income tax expense for the years ended December 31, 2025, 2024 and 2023 are summarized as follows:

 

 

 

2025

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Current tax expense:

 

 

 

 

 

 

 

 

 

Federal

 

$

3,106

 

 

$

2,728

 

 

$

2,706

 

State

 

 

398

 

 

 

309

 

 

 

256

 

Total

 

 

3,504

 

 

 

3,037

 

 

 

2,962

 

Deferred tax expense (benefit):

 

 

 

 

 

 

 

 

 

Federal

 

 

(320

)

 

 

(263

)

 

 

(709

)

State

 

 

66

 

 

 

77

 

 

 

(85

)

Total

 

 

(254

)

 

 

(186

)

 

 

(794

)

Net provision for income taxes from continuing operations

 

$

3,250

 

 

$

2,851

 

 

$

2,168

 

The Company did not have any income tax expense (benefit) in foreign jurisdictions.

The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 21% to income before taxes is summarized below in accordance with ASU 2023-09:

 

 

 

2025

 

 

 

Amount

 

 

% of Pretax Income

 

 

 

(dollars in thousands)

 

 

 

 

Tax computed at the statutory federal rate

 

$

3,067

 

 

 

21.00

%

State income taxes, net of federal benefit (a)

 

367

 

 

 

2.51

%

Nontaxable or nondeductible items

 

 

 

 

 

 

Meals and entertainment

 

 

42

 

 

 

0.29

%

Tax exempt income on bank-owned life insurance policies

 

 

(30

)

 

 

-0.21

%

Tax exempt interest, net

 

 

(193

)

 

 

-1.32

%

Other

 

 

(6

)

 

 

-0.04

%

Other adjustments

 

 

3

 

 

 

0.02

%

Provision for income taxes

 

$

3,250

 

 

 

22.26

%

(a) State taxes in North Carolina make up the majority (greater than 50%) of the tax effect in this category.

The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 21% to income before taxes is summarized below before the adoption of ASU 2023-09:

 

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Tax computed at the statutory federal rate

 

$

2,679

 

 

$

2,260

 

Increases (decreases) resulting from:

 

 

 

 

 

 

State income taxes, net of federal benefit

 

 

305

 

 

 

135

 

Meals and entertainment

 

 

49

 

 

 

33

 

Tax exempt income on bank-owned life insurance policies

 

 

(30

)

 

 

(29

)

Tax exempt interest, net

 

 

(181

)

 

 

(315

)

Other

 

 

29

 

 

 

84

 

Provision for income taxes

 

$

2,851

 

 

$

2,168

 

 

60

 

 

Note 11 - Income Tax Matters (Continued)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred taxes at December 31, 2025, 2024 and 2023 are as follows:

 

 

 

2025

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Deferred tax assets relating to:

 

 

 

 

 

 

 

 

 

Net unrealized loss on securities available for sale

 

$

4,870

 

 

$

7,311

 

 

$

7,487

 

Allowance for credit losses

 

 

1,483

 

 

 

1,366

 

 

 

1,333

 

Deferred compensation

 

 

1,253

 

 

 

1,086

 

 

 

967

 

Lease liability

 

 

172

 

 

 

270

 

 

 

369

 

Other

 

 

42

 

 

 

74

 

 

 

20

 

Total deferred tax assets

 

 

7,820

 

 

 

10,107

 

 

 

10,176

 

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities relating to:

 

 

 

 

 

 

 

 

 

Deferred loan fees and costs

 

 

(533

)

 

 

(544

)

 

 

(529

)

ROU asset

 

 

(160

)

 

 

(250

)

 

 

(344

)

Loan servicing

 

 

(207

)

 

 

(220

)

 

 

(239

)

Premises and equipment

 

 

(73

)

 

 

(95

)

 

 

(147

)

2016-01 unrealized gain

 

 

(7

)

 

 

(15

)

 

 

(7

)

Total deferred tax liabilities

 

 

(980

)

 

 

(1,124

)

 

 

(1,266

)

 

 

 

 

 

 

 

 

 

 

Net recorded deferred tax asset

 

$

6,840

 

 

$

8,983

 

 

$

8,910

 

The net deferred tax asset is included in deferred income tax benefit on the accompanying consolidated balance sheet. The Company has no uncertain tax positions. The Company is subject to U.S. federal income tax as well as income tax of North Carolina and South Carolina. The Company is no longer subject to examination by federal and state taxing authorities for years before 2022.

Note 12 - Commitments and Contingencies

Financial Instruments with Off-Balance Sheet Risk

The subsidiary bank is party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, lines of credit and standby letters of credit. These instruments involve elements of credit risk in excess of amounts recognized in the accompanying financial statements.

The Bank’s risk of loss with the unfunded loans and lines of credit or standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments under such instruments as it does for on-balance sheet instruments. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, real estate and time deposits with financial institutions. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are unsecured.

As of December 31, 2025 and 2024, outstanding financial instruments whose contract amounts represent credit risk were as follows:

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Commitments to extend credit

 

$

195,681

 

 

$

224,708

 

Credit card commitments

 

 

26,453

 

 

 

26,715

 

Standby letters of credit

 

 

8,020

 

 

 

8,141

 

Total commitments

 

$

230,154

 

 

$

259,564

 

 

61

 

 

Note 12 - Commitments and Contingencies (Continued)

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancelable. The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $160,000 and $167,000 at December 31, 2025 and December 31, 2024, respectively, is separately classified on the balance sheet within Other Liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the year ended December 31, 2025.

 

 

 

Total Allowance for Credit Losses -
Unfunded Loan Commitments

 

 

 

(dollars in thousands)

 

Balance, December 31, 2024

 

$

167

 

Recovery of credit losses

 

 

(7

)

Balance, December 31, 2025

 

$

160

 

Contingencies

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements.

Financial Instruments with Concentration of Credit Risk

The subsidiary bank makes commercial, agricultural, real estate mortgage, home equity and consumer loans primarily in Stanly, Anson, Cabarrus, Randolph and Mecklenburg counties in North Carolina. A substantial portion of the Company’s customers’ ability to honor their contracts is dependent on the economy in these counties.

Although the Company’s composition of loans is diversified, there is some concentration of mortgage real estate loans, primarily one-to-four family residential mortgage loans and commercial loans secured primarily by real estate, shopping center locations, commercial land development, commercial buildings and equipment in the total portfolio. The Bank’s policy is to abide by real estate loan-to-value margin limits corresponding to guidelines issued by the federal supervisory agencies on March 19, 1993. The Bank’s lending policy for all loans requires that they be supported by sufficient cash flows at the time of origination.

Note 13 - Related Party Transactions

The Company has granted loans to certain directors and executive officers and their related interests. Such loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other borrowers and, in management’s opinion, do not involve more than the normal risk of collectability. All loans to directors and executive officers or their related interests are submitted to the Board of Directors for approval. A summary of loans to directors, executive officers and their related interests follows:

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Balance, at beginning of the year

 

$

5,282

 

 

$

4,853

 

Disbursements during the year

 

 

3,396

 

 

 

1,487

 

Collections during the year

 

 

(4,123

)

 

 

(1,058

)

Balance, at end of the year

 

$

4,555

 

 

$

5,282

 

At December 31, 2025, the Company had approved, but unused lines of credit, totaling $11.3 million to executive officers and directors, and their related interests, compared to $5.3 million at December 31, 2024. In addition, at December 31, 2025, the Company had $34.5 million of deposits for executive officers and directors, and their related interests compared to $28.1 million at December 31, 2024. Preferred stock issued to directors, executive officers and their related interests was $1.2 million at December 31, 2025 and 2024. Additionally, certain directors own subordinated debt issued by the Company. The amount of related interest ownership of the Company’s subordinated debt was $685,000 at December 31, 2025 and 2024.

62

 

 

Note 14 – Shareholders’ Equity and Regulatory Matters

The Company and its banking subsidiary are subject to certain requirements imposed by state and federal banking statutes and regulations. These requirements, among other things, establish minimum levels of capital, restrict the amount of dividends that may be distributed, and require that reserves on deposit liabilities be maintained in the form of vault cash or deposits with the Federal Reserve Bank. For the reserve maintenance period in effect at December 31, 2025, there was no requirement of the Bank to maintain reserve balances in cash or on deposit with the Federal Reserve Bank as reserves on deposit liabilities.

The Company and its subsidiary bank are subject to federal regulatory risk-based capital guidelines for banks and bank holding companies. Each must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices which measure Total Capital, Tier 1 Capital and Common Equity Tier 1 Capital to risk-weighted assets and Tier 1 Capital to average assets. As of December 31, 2025, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under the capital adequacy rules.

Quantitative measures established by regulation to ensure capital adequacy and the Company’s consolidated capital ratios are set forth in the table below. The Company expects to meet or exceed these minimums without altering current operations or strategy.

 

 

 

 

 

 

 

 

 

Minimum

 

 

Minimum to Be Well

 

 

 

 

 

 

 

 

 

For Capital

 

 

Capitalized Under Prompt

 

 

 

Actual

 

 

Requirement

 

 

Corrective Action Provisions

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

December 31, 2025

 

(dollars in thousands)

 

Total Capital to Risk Weighted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

123,799

 

 

 

15.2

%

 

$

65,079

 

 

 

8.0

%

 

 

 

 

 

 

Uwharrie Bank

 

 

123,142

 

 

 

15.2

%

 

 

64,966

 

 

 

8.0

%

 

 

81,207

 

 

 

10.0

%

Tier 1 Capital to Risk Weighted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

92,112

 

 

 

11.3

%

 

 

48,809

 

 

 

6.0

%

 

 

 

 

 

 

Uwharrie Bank

 

 

116,517

 

 

 

14.3

%

 

 

48,724

 

 

 

6.0

%

 

 

64,966

 

 

 

8.0

%

Common Equity Tier 1 Capital to Risk Weighted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

81,457

 

 

 

10.0

%

 

 

36,607

 

 

 

4.5

%

 

 

 

 

 

 

Uwharrie Bank

 

 

105,862

 

 

 

13.0

%

 

 

36,543

 

 

 

4.5

%

 

 

52,785

 

 

 

6.5

%

Tier 1 Capital to Average Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

92,112

 

 

 

7.6

%

 

 

48,428

 

 

 

4.0

%

 

 

 

 

 

 

Uwharrie Bank

 

 

116,517

 

 

 

9.6

%

 

 

48,372

 

 

 

4.0

%

 

 

60,465

 

 

 

5.0

%

 

 

 

 

 

 

 

 

 

Minimum

 

 

Minimum to Be Well

 

 

 

 

 

 

 

 

 

For Capital

 

 

Capitalized Under Prompt

 

 

 

Actual

 

 

Requirement

 

 

Corrective Action Provisions

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

December 31, 2024

 

(dollars in thousands)

 

Total Capital to Risk Weighted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

115,464

 

 

 

14.3

%

 

$

64,547

 

 

 

8.0

%

 

 

 

 

 

 

Uwharrie Bank

 

 

112,609

 

 

 

14.0

%

 

 

64,501

 

 

 

8.0

%

 

 

80,626

 

 

 

10.0

%

Tier 1 Capital to Risk Weighted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

82,406

 

 

 

10.2

%

 

 

48,410

 

 

 

6.0

%

 

 

 

 

 

 

Uwharrie Bank

 

 

106,548

 

 

 

13.2

%

 

 

48,376

 

 

 

6.0

%

 

 

64,501

 

 

 

8.0

%

Common Equity Tier 1 Capital to Risk Weighted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

71,751

 

 

 

8.9

%

 

 

36,308

 

 

 

4.5

%

 

 

 

 

 

 

Uwharrie Bank

 

 

95,893

 

 

 

11.9

%

 

 

36,282

 

 

 

4.5

%

 

 

52,407

 

 

 

6.5

%

Tier 1 Capital to Average Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

82,406

 

 

 

7.1

%

 

 

46,469

 

 

 

4.0

%

 

 

 

 

 

 

Uwharrie Bank

 

 

106,548

 

 

 

9.2

%

 

 

46,385

 

 

 

4.0

%

 

 

57,981

 

 

 

5.0

%

As of December 31, 2025, the most recent notification from the Federal Deposit Insurance Corporation categorized the Company’s subsidiary bank as being well capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events since such notification that management believes would have changed the categorization.

63

 

 

Note 14 – Shareholders’ Equity and Regulatory Matters (Continued)

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 subsidiary bank and pays dividends at a rate of 5.30%. The preferred stock has no voting rights. The offering raised $7.9 million less issuance costs of $113,000. During 2013, the Company’s subsidiary bank issued $2.8 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series C. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30%. The preferred stock has no voting rights. The offering raised $2.8 million in new capital less total issuance costs of $23,000. The total net amount of capital raised from Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C issued at the subsidiary bank level is presented as noncontrolling interest in the consolidated balance sheets.

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 $9.5 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 qualified 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, 2025, $5.7 million of the subordinated debt issued in 2019 qualifies as Tier 2 capital.

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, 2025, $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 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 was 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. Proceeds of the Company’s aforementioned securities that have been invested in its subsidiary bank qualify for Tier 1 capital treatment for the Bank and are included as such in its year end capital ratios.

Stock Repurchase Program

On February 21, 1995, the Company’s Board of Directors authorized and approved a Stock Repurchase Program, to be reaffirmed annually, pursuant to which the Company may repurchase shares of the Company’s common stock for the primary purpose of providing liquidity to its shareholders. During 2025, the Company repurchased 110,939 shares of outstanding common stock and repurchased 184,478 and 90,017 shares of outstanding common stock during 2024 and 2023, respectively.

Note 15 - Employee and Director Benefit Plans

Employees’ 401(k) Retirement Plan

The Company has established an associate tax deferred savings plan under Section 401(k) of the Internal Revenue Code of 1986. All associates are eligible to make elective deferrals on the first day of the calendar month coincident or next following the date the associate attains the age of 18 and completes thirty days of eligible service. Employees are 100% vested in the plan once they enroll.

64

 

 

Note 15 - Employee and Director Benefit Plans (Continued)

The Company’s annual contribution to the plan was $759,000 in 2025, $711,000 in 2024 and $665,000 in 2023, determined as follows:

•
The Company will contribute a safe harbor matching contribution in an amount equal to 100% of the matched employee contributions that are not in excess of 5% of compensation.
•
A discretionary contribution, subject to approval by the Board of Directors, limited to an amount not to exceed the maximum amount deductible for income tax purposes.

Supplemental Executive Retirement Plan

The Company has implemented a non-qualifying deferred compensation plan for certain executive officers. Certain of the plan benefits will accrue and vest during the period of employment and will be paid in fixed monthly benefit payments for up to ten years upon separation from service. The plan also provides for payment of death benefits and for payment of disability benefits in the event the officer becomes permanently disabled prior to separation from service.

Effective December 31, 2008, this plan was amended and restated to comply with Section 409A of the Internal Revenue Code. The participants’ account liability balances as of December 31, 2008 could be transferred into a trust fund, where investments will be participant-directed.

The plan is structured as a defined contribution plan and the Company’s expected annual funding contribution for the participants has been calculated through the participant’s expected retirement date. Under terms of the agreement, the Company has reserved the absolute right, at its sole discretion, to either fund or refrain from funding the plan. The plans assets are maintained in a rabbi trust and are recorded at fair value with the corresponding liability adjusted to the same fair value.

During 2025, $223,000 was expensed for benefits provided under the plans. Benefits provided under the plans were $223,000 for 2024 and 2023, respectively. The liability accrued for deferred compensation under the plan amounted to $6.0 million and $5.1 million at December 31, 2025 and 2024, respectively.

Split-Dollar Life Insurance

The Company has entered into Life Insurance Endorsement Method Split-Dollar Agreements with certain officers. Under these agreements, upon death of the officer, the Company first recovers the cash surrender value of the contract and then shares the remaining death benefits from insurance contracts, which are written with different carriers, with the designated beneficiaries of the officers. The death benefit to the officers’ beneficiaries is a multiple of base salary at the time of the agreements. The Company, as owner of the policies, retains an interest in the life insurance proceeds and a 100% interest in the cash surrender value of the policies. During 2025, the income associated with these policies was $45,000. During 2024, the income associated with these policies was $68,000 compared to income of $79,000 during 2023. The liability associated with the split-dollar life insurance policies is $620,000 and $664,000 at December 31, 2025 and 2024, respectively.

Stock Grant Plan

During 2015, the Company adopted the 2015 Stock Grant Plan (“SGP”), under which the Company, at its discretion, may choose to make grants or awards of Uwharrie Capital Corp common stock (the “Common Stock”) to employees, directors or independent contractors of the Company or its subsidiaries as an alternate form of compensation or as a performance bonus. Shares of the Company’s Common Stock to be used for Stock Grants under this Plan are outstanding shares purchased by a revocable trust formed by the Company (the “Trust”). Participants are 100% vested in the shares purchased on their behalf as soon as the Trust’s purchase is completed. The Company recognizes expense for the value of the shares at the time they are purchased by the Trust. During 2025, there were 21,803 shares granted at an expense of $195,000 compared to 22,683 shares granted at an expense of $173,000 in 2024 and 23,576 shares granted at an expense of $183,000 in 2023.

65

 

 

Note 16 - Fair Values of Financial Instruments

ASC 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or non-recurring basis.

The fair value estimates presented at December 31, 2025 and December 31, 2024, are based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price at which a liability could be settled. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following table do not represent market values of all assets and liabilities of the Company and should not be interpreted to represent the underlying value of the Company. The following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of December 31, 2025 and December 31, 2024:

 

 

 

Carrying

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

December 31, 2025

 

Value

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(dollars in thousands)

 

 

 

 

FINANCIAL ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

73,329

 

 

$

73,329

 

 

$

73,329

 

 

$

—

 

 

$

—

 

Securities available for sale

 

 

357,740

 

 

 

357,740

 

 

 

23,997

 

 

 

333,743

 

 

 

—

 

Securities held to maturity, net

 

 

21,947

 

 

 

20,208

 

 

 

—

 

 

 

10,559

 

 

 

9,649

 

Equity securities

 

 

303

 

 

 

303

 

 

 

303

 

 

 

—

 

 

 

—

 

Loans held for investment, net

 

 

683,142

 

 

 

666,337

 

 

 

—

 

 

 

—

 

 

 

666,337

 

Loans held for sale

 

 

9,019

 

 

 

9,019

 

 

 

—

 

 

 

9,019

 

 

 

—

 

Restricted stock

 

 

1,779

 

 

 

1,779

 

 

 

1,779

 

 

 

—

 

 

 

—

 

Loan servicing assets

 

 

3,702

 

 

 

7,413

 

 

 

—

 

 

 

7,413

 

 

 

—

 

Mortgage banking derivatives

 

 

883

 

 

 

883

 

 

 

—

 

 

 

38

 

 

 

845

 

Accrued interest receivable

 

 

4,428

 

 

 

4,428

 

 

 

—

 

 

 

—

 

 

 

4,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,080,781

 

 

$

1,080,610

 

 

$

—

 

 

$

1,080,610

 

 

$

—

 

Short-term borrowings

 

 

25

 

 

 

25

 

 

 

—

 

 

 

25

 

 

 

—

 

Long-term debt

 

 

29,048

 

 

 

27,369

 

 

 

—

 

 

 

—

 

 

 

27,369

 

Mortgage banking derivatives

 

 

58

 

 

 

58

 

 

 

—

 

 

 

58

 

 

 

—

 

Accrued interest payable

 

 

453

 

 

 

453

 

 

 

—

 

 

 

—

 

 

 

453

 

 

 

 

Carrying

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

Value

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(dollars in thousands)

 

 

 

 

FINANCIAL ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,267

 

 

$

52,267

 

 

$

52,267

 

 

$

—

 

 

$

—

 

Securities available for sale

 

 

332,986

 

 

 

332,986

 

 

 

29,894

 

 

 

303,092

 

 

 

—

 

Securities held to maturity, net

 

 

26,745

 

 

 

24,561

 

 

 

—

 

 

 

10,735

 

 

 

13,826

 

Equity securities

 

 

334

 

 

 

334

 

 

 

334

 

 

 

—

 

 

 

—

 

Loans held for investment, net

 

 

660,553

 

 

 

629,111

 

 

 

—

 

 

 

—

 

 

 

629,111

 

Loans held for sale

 

 

4,561

 

 

 

4,561

 

 

 

—

 

 

 

4,561

 

 

 

—

 

Restricted stock

 

 

1,709

 

 

 

1,709

 

 

 

1,709

 

 

 

—

 

 

 

—

 

Loan servicing assets

 

 

3,903

 

 

 

7,323

 

 

 

—

 

 

 

7,323

 

 

 

—

 

Mortgage banking derivatives

 

 

795

 

 

 

795

 

 

 

—

 

 

 

204

 

 

 

591

 

Accrued interest receivable

 

 

4,355

 

 

 

4,355

 

 

 

—

 

 

 

—

 

 

 

4,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,030,236

 

 

$

1,029,696

 

 

$

—

 

 

$

1,029,696

 

 

$

—

 

Short-term borrowings

 

 

1,414

 

 

 

1,414

 

 

 

—

 

 

 

1,414

 

 

 

—

 

Long-term debt

 

 

29,161

 

 

 

25,725

 

 

 

—

 

 

 

—

 

 

 

25,725

 

Accrued interest payable

 

 

505

 

 

 

505

 

 

 

—

 

 

 

—

 

 

 

505

 

 

66

 

 

Note 16 - Fair Values of Financial Instruments (Continued)

At December 31, 2025, the subsidiary bank had outstanding standby letters of credit and commitments to extend credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed. The fair value is not material. See Note 12 (Commitments and Contingencies) to the Company’s Notes to Consolidated Financial Statements for more information regarding commitments and contingent liabilities.

The following table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024:

 

 

December 31, 2025

 

 

 

(dollars in thousands)

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

23,997

 

 

$

23,997

 

 

$

—

 

 

$

—

 

U.S. Government agencies

 

 

45,228

 

 

 

—

 

 

 

45,228

 

 

 

—

 

GSE - Mortgage-backed securities and CMOs

 

 

174,754

 

 

 

—

 

 

 

174,754

 

 

 

—

 

Asset-backed securities

 

 

20,965

 

 

 

—

 

 

 

20,965

 

 

 

—

 

State and political subdivisions

 

 

88,886

 

 

 

—

 

 

 

88,886

 

 

 

—

 

Corporate bonds

 

 

3,910

 

 

 

—

 

 

 

3,910

 

 

 

—

 

Equity securities

 

 

303

 

 

 

303

 

 

 

—

 

 

 

—

 

Mortgage banking derivatives

 

 

883

 

 

 

—

 

 

 

38

 

 

 

845

 

Total assets at fair value

 

$

358,926

 

 

$

24,300

 

 

$

333,781

 

 

$

845

 

Mortgage banking derivatives

 

$

58

 

 

$

—

 

 

$

58

 

 

$

—

 

Total liabilities at fair value

 

$

58

 

 

$

—

 

 

$

58

 

 

$

—

 

 

 

 

December 31, 2024

 

 

 

(dollars in thousands)

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

29,894

 

 

$

29,894

 

 

$

—

 

 

$

—

 

U.S. Government agencies

 

 

41,729

 

 

 

—

 

 

 

41,729

 

 

 

—

 

GSE - Mortgage-backed securities and CMOs

 

 

152,789

 

 

 

—

 

 

 

152,789

 

 

 

—

 

Asset-backed securities

 

 

23,578

 

 

 

—

 

 

 

23,578

 

 

 

—

 

State and political subdivisions

 

 

79,253

 

 

 

—

 

 

 

79,253

 

 

 

—

 

Corporate bonds

 

 

5,743

 

 

 

—

 

 

 

5,743

 

 

 

—

 

Equity securities

 

 

334

 

 

 

334

 

 

 

—

 

 

 

—

 

Mortgage banking derivatives

 

 

795

 

 

 

—

 

 

 

204

 

 

 

591

 

Total assets at fair value

 

$

334,115

 

 

$

30,228

 

 

$

303,296

 

 

$

591

 

Mortgage banking derivatives

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Total liabilities at fair value

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

The following table provides a reconciliation for recurring Level 3 fair value measurements:

 

 

December 31, 2025

 

 

Mortgage banking derivatives:
Interest rate lock commitments

 

 

Total

 

 

(dollars in thousands)

 

Balance at December 31, 2023

$

806

 

 

$

806

 

Change in fair value:

 

 

 

 

 

Included in income from mortgage banking

 

(215

)

 

 

(215

)

Balance at December 31, 2024

$

591

 

 

$

591

 

Change in fair value:

 

 

 

 

 

Included in income from mortgage banking

 

254

 

 

 

254

 

Balance at December 31, 2025

$

845

 

 

$

845

 

 

67

 

 

Note 16 - Fair Values of Financial Instruments (Continued)

The fair value of mortgage IRLCs at December 31, 2025 was calculated based on a notional amount of $25.3 million. Significant unobservable inputs are used to determine the fair value of these derivatives. For the twelve months ended December 31, 2025, such inputs included anticipated margins to be earned based on market movement from the original lock date and a weighted average projected pull-through rate of 88.5% determined by loan product, loan stage, and loan purpose. The fair value of mortgage IRLCs at December 31, 2024 was calculated based on a notional amount of $32.4 million. Significant unobservable inputs were the same as those used for the twelve months ended December 31, 2024 and assumed a weighted average projected pull-through rate of 90.1% at December 31, 2024. Changes in interest rates and other assumptions could significantly change these estimated values.

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets, such as other real estate owned and individually evaluated loans deemed to be collateral dependent, that are measured at the lower of cost or market value that were recognized at fair value less cost to sell at the end of the period. There were no assets for which a nonrecurring fair value adjustment was required as of December 31, 2025 and 2024.

Note 17 - Parent Company Financial Data

The following is a summary of the condensed financial statements of Uwharrie Capital Corp:

Condensed Balance Sheets

 

 

December 31,

 

 

 

2025

 

 

2024

 

 

 

(dollars in thousands)

 

Assets

 

 

 

 

 

 

Cash and demand deposits

 

$

106

 

 

$

102

 

Interest-earning deposits

 

 

2,676

 

 

 

4,549

 

Equity securities

 

 

303

 

 

 

334

 

Investments in:

 

 

 

 

 

 

Bank subsidiaries

 

 

89,308

 

 

 

71,165

 

Nonbank subsidiaries

 

 

1,048

 

 

 

911

 

Other assets

 

 

851

 

 

 

838

 

Total assets

 

$

94,292

 

 

$

77,899

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

Master notes

 

$

25

 

 

$

1,414

 

Long term debt

 

 

29,048

 

 

 

29,161

 

Other liabilities

 

 

317

 

 

 

300

 

Total liabilities

 

 

29,390

 

 

 

30,875

 

Shareholders’ equity

 

 

64,902

 

 

 

47,024

 

Total liabilities and shareholders’ equity

 

$

94,292

 

 

$

77,899

 

 

68

 

 

Note 17 - Parent Company Financial Data (Continued)

Condensed Statements of Income

 

 

2025

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Equity in undistributed earnings of subsidiaries

 

$

10,672

 

 

$

9,154

 

 

$

7,907

 

Dividends received from subsidiaries

 

 

2,000

 

 

 

2,000

 

 

 

2,000

 

Interest income

 

 

67

 

 

 

103

 

 

 

87

 

Other income

 

 

146

 

 

 

203

 

 

 

167

 

Interest expense

 

 

(1,338

)

 

 

(1,386

)

 

 

(1,377

)

Other operating expense

 

 

(545

)

 

 

(497

)

 

 

(537

)

Income tax benefit

 

 

351

 

 

 

331

 

 

 

349

 

Net income

 

$

11,353

 

 

$

9,908

 

 

$

8,596

 

Consolidated net income

 

$

11,353

 

 

$

9,908

 

 

$

8,596

 

Less: Net income attributable to noncontrolling interest

 

 

(565

)

 

 

(566

)

 

 

(565

)

Net income attributable to Uwharrie Capital Corp

 

 

10,788

 

 

 

9,342

 

 

 

8,031

 

Net income available to common shareholders

 

$

10,788

 

 

$

9,342

 

 

$

8,031

 

Net income per common share

 

 

 

 

 

 

 

 

 

Basic

 

$

1.49

 

 

$

1.26

 

 

$

1.06

 

Diluted

 

$

1.49

 

 

$

1.26

 

 

$

1.06

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

 

7,237,873

 

 

 

7,403,667

 

 

 

7,561,689

 

Diluted

 

 

7,237,873

 

 

 

7,403,667

 

 

 

7,561,689

 

Condensed Statements of Cash Flows

 

 

2025

 

 

2024

 

 

2023

 

 

 

(dollars in thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net income

 

$

11,353

 

 

$

9,908

 

 

$

8,596

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Equity in undistributed earnings of subsidiaries

 

 

(10,672

)

 

 

(9,154

)

 

 

(7,907

)

Realized/unrealized (gain) loss on equity securities

 

 

31

 

 

 

(32

)

 

 

(10

)

Amortization of debt issuance costs

 

 

77

 

 

 

77

 

 

 

77

 

(Increase) decrease in other assets

 

 

(13

)

 

 

12

 

 

 

397

 

Increase (decrease) in other liabilities

 

 

16

 

 

 

(60

)

 

 

(169

)

Net cash provided by operating activities

 

 

792

 

 

 

751

 

 

 

984

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Net increase (decrease) in master notes

 

 

(1,389

)

 

 

35

 

 

 

335

 

Net decrease in long-term debt

 

 

(190

)

 

 

(20

)

 

 

(580

)

Repurchase of common stock, net

 

 

(1,070

)

 

 

(1,467

)

 

 

(728

)

Cash paid for fractional shares

 

 

(12

)

 

 

(10

)

 

 

(9

)

Net cash used by financing activities

 

 

(2,661

)

 

 

(1,462

)

 

 

(982

)

Net increase in cash and cash equivalents

 

 

(1,869

)

 

 

(711

)

 

 

2

 

Cash and cash equivalents at beginning of year

 

 

4,651

 

 

 

5,362

 

 

 

5,360

 

Cash and cash equivalents at end of year

 

$

2,782

 

 

$

4,651

 

 

$

5,362

 

 

69

 

 

Note 18 - Segment Reporting

The chief operating decision maker (“CODM”) of the Company is a group of individuals, also referred to as the Executive Management Team, consisting of the Chief Executive Officer, Chief Financial Officer, Chief Operations Officer and Chief Risk Officer. The Executive Management Team is responsible for allocating resources and assessing the performance of the Company.

Segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by the CODM. The Executive Management Team has identified three operating segments within the Company, each with a manager that reports directly to the CODM. The Company’s business operating segments are determined based on the nature of the products or services provided and reflect the manner in which financial information is currently evaluated by the Executive Management Team. The three operating segments of the Company are as follows:

Banking Operations - This segment provides financial products and services to consumer and commercial customers in the form of deposit products, loan products and cash management services through branches, online banking, mobile banking and telephone banking. This segment is also responsible for the management of the investment portfolio. Significant components of noninterest income for this segment are service charges on deposits and interchange fees on card transactions. Significant noninterest expense is salaries and employee benefits.

Mortgage Banking - This segment reflects Uwharrie Bank Mortgage, a division of the Bank that specializes in originating and

servicing one-to-four family residential mortgage loans which are primarily sold on the secondary market. Loans sold to Fannie Mae or Freddie Mac are sold with servicing rights retained. Significant noninterest income for this segment is gain or loss on the sale of loans. Significant noninterest expense is salaries and employee benefits.

Wealth Management - This segment reflects investment advisory, broker-dealer and insurance services of UIA, TSAC and BOS

Agency, respectively. Significant noninterest income for this segment is service fees and commissions. Significant noninterest expense is salaries and employee benefits.

While the CODM monitors each segment’s pre-tax, pre-provision profit or loss, the primary measure for allocating resources to the operating segments during the annual budgeting process is Net Income. This measure is also used to assess the performance of each segment, with a focus on net interest income, noninterest income, and noninterest expense. The CODM conducts monthly income review meetings, where budget-to-actual variances for Net Income and pre-tax, pre-provision profit or loss and its components are analyzed. The Company provides a broad range of financial services as described above and aims to provide one place for its customers to satisfy all of their financial services needs. As such, many customers are shared under the “Uwharrie” umbrella as are certain costs to conduct business. Management regularly reviews the different revenue streams, but is aware that shared resources and costs of key corporate functions may not be fully allocated among the operating segments. The Executive Management Team believes it is appropriate to aggregate the three operating segments into one reportable segment. A review of quantitative thresholds was performed, and the CODM has determined that the Company’s operations are not considered to constitute more than one reportable segment. Non-segment operations are classified as Other below and include assets and activity of the parent holding company. Management will continue to evaluate the operating segments for separate reporting as facts and circumstances change.

70

 

 

Note 18 - Segment Reporting (Continued)

 

 

 

Banking, Mortgage and
Wealth Management

 

 

Other

 

 

Consolidated

 

 

 

(dollars in thousands)

 

For the Year Ended December 31, 2025

 

 

 

 

 

 

 

 

 

Interest income

 

$

57,800

 

 

$

20

 

 

$

57,820

 

Interest expense

 

 

17,630

 

 

 

1,338

 

 

 

18,968

 

Net interest income

 

 

40,170

 

 

 

(1,318

)

 

 

38,852

 

Noninterest income

 

 

11,113

 

 

 

146

 

 

 

11,259

 

Noninterest expense

 

 

34,237

 

 

 

545

 

 

 

34,782

 

Pre-tax, pre-provision income

 

 

17,046

 

 

 

(1,717

)

 

 

15,329

 

Provision for (recovery of) credit losses

 

 

726

 

 

 

—

 

 

 

726

 

Provision for income taxes

 

 

3,601

 

 

 

(351

)

 

 

3,250

 

Net income (loss)

 

$

12,719

 

 

$

(1,366

)

 

$

11,353

 

Total assets as of December 31, 2025

 

$

1,192,527

 

 

$

3,818

 

 

$

1,196,345

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended December 31, 2024

 

 

 

 

 

 

 

 

 

Interest income

 

$

54,703

 

 

$

20

 

 

$

54,723

 

Interest expense

 

 

17,412

 

 

 

1,386

 

 

 

18,798

 

Net interest income

 

 

37,291

 

 

 

(1,366

)

 

 

35,925

 

Noninterest income

 

 

9,533

 

 

 

203

 

 

 

9,736

 

Noninterest expense

 

 

31,877

 

 

 

497

 

 

 

32,374

 

Pre-tax, pre-provision income

 

 

14,947

 

 

 

(1,660

)

 

 

13,287

 

Provision for (recovery of) credit losses

 

 

528

 

 

 

—

 

 

 

528

 

Provision for income taxes

 

 

3,183

 

 

 

(332

)

 

 

2,851

 

Net income (loss)

 

$

11,236

 

 

$

(1,328

)

 

$

9,908

 

Total assets as of December 31, 2024

 

$

1,123,764

 

 

$

5,044

 

 

$

1,128,808

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 2023

 

 

 

 

 

 

 

 

 

Interest income

 

$

45,699

 

 

$

20

 

 

$

45,719

 

Interest expense

 

 

11,646

 

 

 

1,377

 

 

 

13,023

 

Net interest income

 

 

34,053

 

 

 

(1,357

)

 

 

32,696

 

Noninterest income

 

 

9,301

 

 

 

167

 

 

 

9,468

 

Noninterest expense

 

 

29,350

 

 

 

536

 

 

 

29,886

 

Pre-tax, pre-provision income

 

 

14,004

 

 

 

(1,726

)

 

 

12,278

 

Provision for (recovery of) credit losses

 

 

1,514

 

 

 

—

 

 

 

1,514

 

Provision for income taxes

 

 

2,516

 

 

 

(348

)

 

 

2,168

 

Net income (loss)

 

$

9,974

 

 

$

(1,378

)

 

$

8,596

 

Total assets as of December 31, 2023

 

$

1,066,192

 

 

$

6,399

 

 

$

1,072,591

 

 

71

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this Report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15.

Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective (1) to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Principal Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Management has made a comprehensive review, evaluation and assessment of the Company’s internal control over financial reporting as of December 31, 2025. In making its assessment of internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission’s (“COSO”) Internal Control Integrated Framework 2013. In accordance with Section 404 of the Sarbanes-Oxley Act of 2002, management makes the following assertions:

Management has implemented a process to monitor and assess both the design and operating effectiveness of internal control over financial reporting.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Based on management’s assessment pursuant to the COSO Internal Control Integrated Framework 2013, the Company believes that, as of December 31, 2025, the Company’s internal control over financial reporting is effective.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to applicable Securities and Exchange Commission rules.

Changes in Internal Control over Financial Reporting

Management of the Company has evaluated, with the participation of the Company’s Chief Executive Officer and Principal Financial Officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter of 2025. In connection with such evaluation, the Company has determined that there have been no changes in internal control over financial reporting during the fourth quarter of 2025 that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

72

 

 

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Incorporated by reference to the Company’s definitive proxy statement for the 2026 Annual Meeting of Shareholders.

Code of Business Conduct and Ethics

The Company has adopted a Code of Business Conduct and Ethics that applies to, among others, its Principal Executive Officer and Principal Financial Officer. The Company’s Code of Business Conduct and Ethics is available on the Company’s website at https://www.uwharrie.com/about/investor, and is incorporated by reference as Exhibit 19 to this Report. The Code of Business Conduct and Ethics contains a section on “Insider Trading and Tipping” that governs transactions in the Company’s securities by the Company’s directors, officers and employees. The Company does not transact in its own securities if it is aware of material non-public information about the Company. The Company believes that these policies are reasonably designed to promote compliance with insider trading laws, rules, and regulations.

Item 11. Executive Compensation.

Incorporated by reference to the Company’s definitive proxy statement for the 2026 Annual Meeting of Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Incorporated by reference to the Company’s definitive proxy statement for the 2026 Annual Meeting of Shareholders.

The following table sets forth information with respect to certain equity compensation plans at December 31, 2025.

Equity Compensation Plan Information

 

Plan Category

 

Number of securities
to be issued upon
exercise of outstanding
options, warrants and rights

 

 

Weighted-average
exercise price of
outstanding options,
warrants and rights

 

 

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))

 

 

 

(a)

 

 

(b)

 

 

(c)

 

Equity compensation plans approved by
security holders

 

 

—

 

 

$

—

 

 

 

—

 

Equity compensation plans not approved by
security holders

 

N/A

 

 

N/A

 

 

N/A

 

Total

 

 

—

 

 

$

—

 

 

 

—

 

Incorporated by reference to the Company’s definitive proxy statement for the 2026 Annual Meeting of Shareholders.

Item 14. Principal Accountant Fees and Services.

Incorporated by reference to the Company’s definitive proxy statement for the 2026 Annual Meeting of Shareholders.

The Independent Registered Public Accounting Firm is Forvis Mazars, LLP (PCAOB Firm ID No. 686) located in Asheville, North Carolina.

73

 

 

PART IV

Item 15. Exhibit and Financial Statement Schedules.

The following documents are filed as part of this report:

1.
Financial statements from the Registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2025, which are incorporated herein by reference:

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets as of December 31, 2025 and 2024

Consolidated Statements of Income for the years ended December 31, 2025, 2024 and 2023

Consolidated Statements of Comprehensive Income for the years ended December 31, 2025, 2024 and 2023

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2025, 2024 and 2023

Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023

Notes to Consolidated Financial Statements.

2.
Financial statement schedules required to be filed by Item 8 of this Form:

None

3.
Exhibits

74

 

 

UWHARRIE CAPITAL CORP

Exhibit Index

Exhibit Number

 

Description of Exhibit

 

 

 

3.1

 

Registrant’s Articles of Incorporation (Incorporated by reference to Exhibit 3(a) of Registrant’s Annual Report on Form 10-K filed with SEC on March 1, 2017)

 

 

 

3.2

 

Registrant’s Bylaws, as amended (Incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K filed with SEC on April 19, 2024)

 

 

 

3.3

 

Articles of Amendment effective April 24, 1997 (Incorporated by reference to Exhibit 3.3 of Registrant’s Annual Report on Form 10-K filed with SEC on March 4, 2020)

 

 

 

3.4

 

Articles of Amendment effective November 1, 1999 (Incorporated by reference to Exhibit 3(c) of Registrant’s Annual Report on Form 10-K filed with SEC on March 1, 2017)

 

 

 

3.5

 

Articles of Amendment effective May 31, 2000 (Incorporated by reference to Exhibit 3(d) of Registrant’s Annual Report on Form 10-K filed with SEC on March 1, 2017)

 

 

 

3.6

 

Articles of Amendment effective December 19, 2008 (Incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K filed with SEC on December 29, 2008)

 

 

 

4.1

 

Form of common stock certificate (Incorporated by reference to Exhibit 4(a) of Registrant’s Annual Report on Form 10-K filed with SEC on March 1, 2017)

 

 

 

4.2

 

Description of Registrant’s Securities Registered under Section 12 of the Exchange Act (Incorporated by reference to Exhibit 4.2 of Registrant’s Annual Report on Form 10-K filed with SEC on March 4, 2020)

 

 

 

4.3

 

Form of 10-Year Subordinated Note (Incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed with SEC on September 8, 2021)

 

 

 

4.4

 

Form of 15-Year Subordinated Note (Incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form 8-K filed with SEC on September 8, 2021)

 

 

 

10.1

 

Nonqualified Deferred Compensation Plan and Executive Supplemental Retirement Plan Agreement between Uwharrie Capital Corp and Roger L. Dick, a compensatory plan (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed with SEC on December 31, 2008)

 

 

 

10.2

 

Nonqualified Deferred Compensation Plan and Executive Supplemental Retirement Plan Agreement between Uwharrie Capital Corp and R. David Beaver, III, a compensatory plan (Incorporated by reference to Exhibit 10(e) of Registrant’s Annual Report on Form 10-K filed with SEC on March 1, 2017)

 

 

 

10.3

 

2015 Stock Grant Plan (Incorporated by reference to Exhibit 4.1 of Registrant’s Form S-8 filed with SEC on October 27, 2015)

 

 

 

10.4

 

Form of 10-Year Subordinated Note Purchase Agreement (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed with SEC on September 8, 2021)

 

 

 

10.5

 

Form of 15-Year Subordinated Note Purchase Agreement (Incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed with SEC on September 8, 2021)

 

 

 

10.6

 

Uwharrie Capital Corp Employees 401(k) Retirement Plan – Adoption Agreement (Incorporated by reference to Exhibit 99.1 of Registrant’s Form S-8 filed with SEC on December 23, 2021)

 

 

 

75

 

 

10.7

 

Uwharrie Capital Corp Employees 401(k) Retirement Plan – Plan Document (Incorporated by reference to Exhibit 99.2 of Registrant’s Form S-8 filed with SEC on December 23, 2021)

 

 

 

10.8

 

Uwharrie Capital Corp Employees 401(k) Retirement Plan – Amendment for SECURE Act (Incorporated by reference to Exhibit 99.3 of Registrant’s Form S-8 filed with SEC on December 23, 2021)

 

 

 

10.9

 

Uwharrie Capital Corp Employees 401(k) Retirement Plan – Amendment for CARES Act (Incorporated by reference to Exhibit 99.4 of Registrant’s Form S-8 filed with SEC on December 23, 2021)

 

 

 

10.10

 

Uwharrie Capital Corp Employees 401(k) Retirement Plan – Amendment Number Three (Incorporated by reference to Exhibit 99.5 of Registrant’s Form S-8 filed with SEC on December 23, 2021)

 

 

 

19

 

Code of Business Conduct and Ethics (including insider trading policies) (Incorporated by reference to Exhibit 19 of Registrant’s Annual Report on Form 10-K filed with SEC on March 6, 2025)

 

 

 

21

 

Subsidiaries of the Registrant (filed herewith)

 

 

 

23

 

Consent of Forvis Mazars, LLP (filed herewith)

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

 

 

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

 

 

32

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

 

 

 

101

 

Interactive data files providing financial information from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2025, in inline XBRL (eXtensible Business Reporting Language) (filed herewith)

 

 

 

104

 

Cover page interactive data file (formatted in inline XBRL and contained in Exhibit 101)

Item 16. Form 10-K Summary.

Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information.

76

 

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

UWHARRIE CAPITAL CORP

 

 

By:

/s/ Roger L. Dick

 

Roger L. Dick, Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

/s/ Roger L. Dick

 

March 5, 2026

Roger L. Dick, Chief Executive Officer

 

 

 

 

 

/s/ Heather H. Almond

 

March 5, 2026

Heather H. Almond, Principal Financial Officer and Principal Accounting Officer

 

 

 

 

 

/s/ Merlin Amirtharaj

 

March 5, 2026

Merlin Amirtharaj, Director

 

 

 

 

 

 

 

 

 

/s/ Aaron D. Bates

 

March 5, 2026

Aaron D. Bates, Director

 

 

 

 

 

/s/ Dean M. Bowers

 

March 5, 2026

Dean M. Bowers, Director

 

 

 

 

 

/s/ Vanessa O. Chambers

 

March 5, 2026

Vanessa O. Chambers, Director

 

 

 

 

 

/s/ Deidre B. Foster

 

March 5, 2026

Deidre B. Foster, Director

 

 

 

 

 

/s/ Allen K. Furr

 

March 5, 2026

Allen K. Furr, Director

 

 

 

 

 

/s/ Cynthia B. Hanson

 

March 5, 2026

Cynthia B. Hanson, Director

 

 

 

 

 

/s/ Mary N. Klauder

 

 

 

March 5, 2026

Mary N. Klauder, Director

 

 

 

 

 

 

 

/s/ Matthew D. McAulay

 

 

 

March 5, 2026

Matthew D. McAulay, Director

 

 

 

 

 

 

 

 

 

/s/ Wesley A. Morgan

 

 

 

March 5, 2026

Wesley A. Morgan, Director

 

 

 

 

 

 

 

 

 

/s/ Chris M. Poplin

 

 

 

March 5, 2026

Chris M. Poplin, Director

 

 

 

 

 

 

 

 

 

/s/ Frank A. Rankin, III

 

 

 

March 5, 2026

Frank A. Rankin, III, Director

 

 

 

 

 

 

 

 

 

77

 

 

/s/ Vernon A. Russell

 

 

 

March 5, 2026

Vernon A. Russell, Director

 

 

 

 

 

 

 

 

 

/s/ S. Todd Swaringen

 

 

 

March 5, 2026

S. Todd Swaringen, Director

 

 

 

 

 

 

 

 

 

78

 

Source: View Original Filing on SEC EDGAR

FAQ

How did Uwharrie Capital Corp (UWHR) perform financially in 2025?

Uwharrie Capital Corp generated 2025 net income of $11.4 million, up from $9.9 million in 2024. Total assets reached $1.20 billion, supported by loan growth and higher securities balances, while net interest margin improved to 3.50%, enhancing core profitability.

What was Uwharrie Capital Corp’s loan and deposit growth in 2025?

In 2025, loans held for investment grew 3.5% to $689.6 million, with most categories expanding. Customer deposits increased $50.5 million to $1.08 billion, reflecting organic growth across interest-bearing checking, money market, savings, and time deposit accounts.

How strong is Uwharrie Capital Corp’s asset quality at year-end 2025?

Uwharrie Capital Corp reported nonaccrual loans of $378,000, just 0.05% of total loans, at December 31, 2025. The allowance for credit losses on loans was $6.4 million, or 0.93% of total loans, which management believes appropriately reflects inherent credit risk.

What were Uwharrie Capital Corp’s capital levels and shareholder equity in 2025?

At December 31, 2025, the Bank’s risk-based and leverage ratios qualified it as “well capitalized” under regulatory standards. Total shareholders’ equity rose to $75.6 million, helped by earnings and improved securities valuations, despite share repurchases and noncontrolling interest dividends.

Did Uwharrie Capital Corp (UWHR) pay dividends or repurchase stock in 2025?

Uwharrie Capital Corp did not declare cash dividends on common stock in 2025 or 2024. The company repurchased 110,939 common shares during 2025 at a total cost of approximately $1.1 million under its stock repurchase plan.

How did noninterest income and expenses change for Uwharrie Capital Corp in 2025?

Noninterest income increased 15.6% to $11.3 million, mainly from stronger mortgage banking and higher service fees. Noninterest expense rose to $34.8 million, driven by higher salaries, benefits, commissions on mortgage production, and market adjustments on supplemental executive retirement plans.

What did Uwharrie Capital Corp disclose about cybersecurity risk in 2025?

Uwharrie Capital Corp described a cybersecurity program aligned with FFIEC and NIST frameworks, including risk assessments, incident response testing, and third-party reviews. As of the report date, it had not experienced cybersecurity threats that materially affected its business, results, or financial condition.
Uwharrie Cap Corp

OTC:UWHR

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UWHR Latest News

Feb 10, 2026
Uwharrie Capital Corp Year-End 2025 - Earnings Release
Oct 29, 2025
Uwharrie Capital Corp Third Quarter 2025 - Earnings Release and Dividend Declaration
Oct 29, 2025
Uwharrie Capital Corp Third Quarter 2025 - Earnings Release and Dividend Declaration
Jul 25, 2025
Second Quarter 2025 - Earnings Release
May 5, 2025
First Quarter 2025 - Earnings Release

UWHR Latest SEC Filings

Mar 12, 2026
[Form 4] UWHARRIE CAPITAL CORP Insider Trading Activity
Mar 11, 2026
[Form 4] UWHARRIE CAPITAL CORP Insider Trading Activity
Mar 3, 2026
[Form 4] UWHARRIE CAPITAL CORP Insider Trading Activity
Mar 3, 2026
[Form 4] UWHARRIE CAPITAL CORP Insider Trading Activity
Mar 3, 2026
[Form 4] UWHARRIE CAPITAL CORP Insider Trading Activity

UWHR Stock Data

75.58M
6.21M
Banks - Regional
Financial Services
Link
United States
Albemarle