UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015
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) |
Registrants Telephone number, including area code: (704) 983-6181
Securities registered pursuant to Section 12(b) of the Act
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 x 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 x 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. x Yes ¨ No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.45 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes x 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 asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter. $25,820,061.
Indicate the number of shares outstanding of each of the registrants classes of common stock as of the latest practicable date: 6,983,017 shares of common stock outstanding as of February 18, 2016.
Documents Incorporated by Reference.
Portions of the Registrants 2015 Annual Report to Shareholders are incorporated by reference into Part II of this report. Portions of the Registrants definitive Proxy Statement for the 2016 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 (i) the Registrants Annual Report to Shareholders for the fiscal year ended December 31, 2015 and (ii) the Registrants Proxy Statement for the 2016 Annual Meeting of Shareholders as filed with the Securities and Exchange Commission via EDGAR are incorporated by reference into Parts II and III of this report.
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Annual Report to Shareholders for the fiscal year ended December 31, 2015 | |
Proxy |
Proxy Statement for the 2016 Annual Meeting of Shareholders | |
10-K |
This annual report on Form 10-K for the fiscal year ended December 31, 2015 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Certain Relationships and Related Transactions, and Director Independence |
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10-K |
Item 1. | Business |
Uwharrie Capital Corp (the Company) is a North Carolina business corporation and registered bank holding company. The Company was organized on July 1, 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., formally 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, formerly known as Bank of Stanly, 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 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 todays quickly changing financial services industry. 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 Companys 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, 2015, the Company and related subsidiaries had 156 full-time and 17 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 eight other banking offices and one loan production office in Stanly County, Cabarrus County, Anson 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
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accounts, money market accounts, certificates of deposit, individual retirement accounts, and related business and individual banking services. The Banks 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, eBanking, 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 its customers to access their deposit accounts at the Banks nine 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. BOS Agency was formed during 1987 and engages in the sale of various insurance products, including annuities, life insurance, long-term care, disability insurance and Medicare supplements. Strategic Alliance was formed during 1989 as BOS Financial Corporation and, during 1993, adopted its current name. It is registered with the SEC and licensed by the Financial Industry Regulatory Authority (FINRA) as a securities broker-dealer. Gateway 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 Uwharrie Lakes Region. 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, thrift and savings and loan institutions, credit unions, and other financial institutions and financial intermediaries.
Among commercial banks, the Bank competes in its market areas with some of the largest banking organizations in the state, several of which have hundreds of branches in North Carolina and billions of dollars in assets. Moreover, competition is not limited to financial institutions based in North Carolina. The enactment of federal legislation authorizing nationwide interstate banking has greatly increased the size and financial resources of some of the Companys competitors. 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. As a result, the Company could encounter increased competition in the future 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 Companys success is dependent to a significant extent upon economic conditions in Stanly, Anson, Cabarrus and Mecklenburg Counties, and more generally, in the Uwharrie
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Lakes Region. In addition, the banking industry in general is affected by economic conditions such as inflation, recession, unemployment and other factors beyond the Companys control. Economic recession over a prolonged period or other economic dislocation in Stanly, Anson and Cabarrus Counties and the Uwharrie Lakes Region 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 Companys market area would not have a material adverse effect on the Companys financial condition, results of operations or cash flows.
Impact of Technological Advances; Upgrade to Companys 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, such as internet banking. In addition to improving customer services, the effective use of technology increases efficiency and enables financial institutions to reduce costs. The Companys 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 Companys 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 (including software applications) 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.
Federal Bank Holding Company Regulation and Structure
As a registered bank holding company, the Company is subject to regulation under 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.
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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 an individual 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 registered securities 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 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 companys 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 Act, the Company is expected to act as a source of financial strength for the Bank and to commit resources to 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 its 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.
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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 state-chartered banks, capital requirements for banks, loans to officers and directors, record keeping, types and amounts of loans and investments, and the establishment 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.
On October 1, 2012, the North Carolina Banking Law Modernization Act became effective and many of the state banking laws to which the Bank is subject were amended. Under the revised banking laws, the NCCOB continues to enforce specific requirements for bank capital, the payment of dividends, loans to officers and directors, record keeping, and types and amounts of loans and investments made by commercial banks.
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.
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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 companies, the principal source of cash revenues for the Company is dividends from its bank subsidiary, 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 Reserves view that a bank holding company should pay cash dividends only to the extent that the holding companys 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 companys 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 companys 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.
Capital Adequacy
The Company must comply with the Federal Reserves established capital adequacy standards, and the Bank is required to comply with the capital adequacy standards established by the Federal Reserve. The Federal Reserve has promulgated two basic measures of capital adequacy for bank holding companies: a risk-based measure and a leverage measure. A bank holding company must satisfy all applicable capital standards to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital requirements more 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 comprised of Tier 1 Capital, which is common stock, undivided profits, minority interests in the equity accounts of
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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.
At December 31, 2015 the Banks total risk-based capital ratio and its Tier 1 risk-based capital ratio were 15.75% and 14.95%, 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 Companys ratio at December 31, 2015 was 8.20% compared to 8.08% at December 31, 2014. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain 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 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 institutions 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, a 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 6% 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 4% 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 4% 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 3% or a leverage ratio of less than 3%; and |
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| 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, 2015, 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 banks capital. In addition, for a capital restoration plan to be acceptable, the banks 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 banks 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 and the cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator. A bank that is not well capitalized is also subject to certain limitations relating to brokered deposits.
The regulatory capital framework under which the Company and the Bank operate is expected to change in significant respects as a result of the Dodd-Frank Act, which was enacted in July 2010, and other regulations, including the separate regulatory capital requirements put forth by the Basel Committee on Banking Supervision, commonly known Basel III. Currently, the Company and the Bank are governed by a set of capital rules that the Federal Reserve and the FDIC have had in place since 1988, with some subsequent amendments and revisions.
On July 2, 2013, the Federal Reserve approved a final rule that establishes an integrated regulatory capital framework that addresses shortcomings in certain capital requirements. The rule implements in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. This rule began to apply to us and the Bank effective January 1, 2015.
The major provisions of the rule applicable to us are:
| The rule implements higher minimum capital requirements, includes a new common equity Tier 1 capital requirement, and establishes criteria that instruments must meet in order to be considered Common Equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital. These enhancements both improve the quality and increase the quantity of capital required to be held by banking organizations, better equipping the U.S. banking system to deal with adverse economic conditions. The minimum capital to risk-weighted assets (RWA) requirements under the rule are a common equity Tier 1 capital ratio of 4.5% and a Tier 1 capital ratio of 6.0%, which is an increase from 4.0%, and a total capital ratio that remains at 8.0%. The minimum leverage ratio (Tier 1 capital to total assets) is 4.0%. The rule maintains the general structure of the current prompt corrective action, or PCA, framework while incorporating these increased minimum requirements. |
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| The rule improves the quality of capital by implementing changes to the definition of capital. Among the most important changes are stricter eligibility criteria for regulatory capital instruments that would disallow the inclusion of instruments such as trust preferred securities in Tier 1 capital going forward, and new 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 addition, the rule requires that certain regulatory capital deductions be made from common equity Tier 1 capital. |
| Under the rule, 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. Phase-in of the capital conservation buffer requirements began on January 1, 2016. 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. The rule also prohibits a banking organization from making distributions or discretionary bonus payments during any quarter if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. When the rule is fully phased in, the minimum capital requirements plus the capital conservation buffer will exceed the PCA well-capitalized thresholds. |
| The rule also increases the risk weights for past-due loans, certain commercial real estate loans, and some equity exposures, and makes selected other changes in risk weights and credit conversion factors. |
The Bank was required to comply with the new rule beginning on January 1, 2015. 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.
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, since passage of the Dodd-Frank Act, a bank is now 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.
11
FDIC Insurance Assessments
Assessments are paid by each DIF member institution based on its relative risks of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institutions capitalization risk category and supervisory subgroup category. An institutions capitalization risk category is based on the FDICs determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. The Banks insurance assessments during 2015 and 2014 were $375,000 and $425,000, respectively.
An institutions supervisory subgroup category is based on the FDICs assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required. 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 Dodd-Frank Act expands the base for FDIC insurance assessments, requiring that assessments be based on the average consolidated total assets less tangible equity capital of a financial institution. On February 7, 2011, the FDIC approved a final rule to implement the foregoing provision of the Dodd-Frank Act. Among other things, the final rule revises the assessment rate schedule to provide assessments ranging from 5 to 35 basis points, with the initial assessment rates subject to adjustments which could increase or decrease the total base assessment rates. The FDIC has three possible adjustments to an institutions initial base assessment rate: (1) a decrease of up to five basis points (or 50% of the initial base assessment rate) for long-term unsecured debt, including senior unsecured debt and subordinated debt; (2) an increase for holding long-term unsecured or subordinated debt issued by other insured depository institutions known as the Depository Institution Debt Adjustment; and (3) for institutions not well rated and well capitalized, an increase not to exceed 10 basis points for brokered deposits in excess of 10 percent of domestic deposits.
Each of these changes may increase the rate of FDIC insurance assessments to maintain or replenish the DIF. This could, in turn, raise our future deposit insurance assessment costs. On the other hand, the law changes the deposit insurance assessment base so that it will generally be equal to consolidated assets less tangible equity. This change of the assessment base from an emphasis on deposits to an emphasis on assets is generally considered likely to cause larger banking organizations to pay a disproportionately higher portion of future deposit insurance assessments, which may, correspondingly, lower the level of deposit insurance assessments that smaller commercial banks such as the Bank may otherwise have to pay in the future. While it is likely that the new law will increase our future deposit insurance assessment costs, the specific amount by which the new laws combined changes will affect our deposit insurance assessment costs is hard to predict, particularly because the new law gives the FDIC enhanced discretion to set assessment rate levels.
The FDIC also collects a deposit-based assessment from insured financial institutions on behalf of the Financing Corporation (the FICO). The funds from these assessments are used to service debt issued by FICO in its capacity as a financial vehicle for the Federal Savings & Loan Insurance Corporation. The FICO assessment rate is set quarterly and in 2015 was 15 basis points in per $100 of assessable deposits throughout the year. These assessments will continue until the debt matures in 2017 through 2019.
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 institutions size and business strategy determines the type of examination that it will receive. Large, retail-oriented institutions are examined using a
12
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.
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 institutions Community Reinvestment Act performance and to review the institutions 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 institutions written Community Reinvestment Act evaluations. This promotes enforcement of Community Reinvestment Act requirements by providing the public with the status of a particular institutions community reinvestment record.
The Gramm-Leach-Bliley Act made various changes to the Community Reinvestment Act. Among other changes, Community Reinvestment Act agreements with private parties must be disclosed and annual Community Reinvestment Act reports must be made available to a banks 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 June 10, 2013.
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.
Federal law currently contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institutions policies and procedures regarding the handling of customers nonpublic personal financial information. These provisions also provide that, except for certain limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.
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) requires 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 requires 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 contains a provision encouraging 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.
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The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) mandates for public companies, such as Uwharrie Capital Corp a variety of reforms intended to address corporate and accounting fraud and provides 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 imposes higher standards for auditor independence and restricts the provision of consulting services by auditing firms to companies they audit and requires 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 banks 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 their 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 $533,000 at December 31, 2015. 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 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
14
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 Banks 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 banks concentration of commercial real estate loans. On December 6, 2006, the federal banking regulators issued final 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 institutions total capital; or |
| total CRE loans represent 300% or more of the institutions total capital, and the outstanding balance of the institutions CRE loan portfolio has increased by 50% or more. |
As of December 31, 2015, our C&D concentration as a percentage of risk-based capital totaled 41.5% and our CRE concentration, net of owner-occupied loans, as a percentage of risk-based capital totaled 96.4%.
Limitations on Incentive Compensation
In October 2009, the Federal Reserve issued proposed 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 organization. In connection with the proposed guidance, the Federal Reserve announced that it would review incentive compensation arrangements of bank holding companies such as Uwharrie Capital Corp as part of the regular, risk-focused supervisory process.
In June 2010, the Federal Reserve issued the incentive compensation guidance in final form and was joined by the FDIC, and the Office of the Comptroller of the Currency. The final 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 organizations incentive compensation arrangements should (i) provide employees incentives that appropriately balance risk and reward and, thus, do not encourage risk-taking beyond the organizations 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 organizations board of directors. Any deficiencies in compensation practices that are identified may be incorporated into the organizations 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 organizations safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
15
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 Reserves 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.
Evolving Legislation and Regulatory Action
In 2009, many emergency government programs enacted in 2008 in response to the financial crisis and the recession slowed or wound down, and global regulatory and legislative focus generally moved to a second phase of broader regulatory reform and a restructuring of the entire financial regulatory system. The Dodd-Frank Act was signed into law in 2010 and implements many new changes in the way financial and banking operations are regulated in the United States, including through the creation of a new resolution authority, mandating higher capital and liquidity requirements, requiring banks to pay increased fees to regulatory agencies and numerous other provisions intended to strengthen the financial services sector. The Dodd-Frank Act provided for the creation of the Financial Stability Oversight Council (FSOC), which is charged with overseeing and coordinating the efforts of the primary U.S. financial regulatory agencies (including the Federal Reserve, the FDIC and the SEC) in establishing regulations to address systemic financial stability concerns. The Dodd-Frank Act also provided for the creation of the Consumer Financial Protection Bureau (the CFPB), a new consumer financial services regulator. The CFPB is authorized to prevent unfair, deceptive and abusive practices and ensure that consumers have access to markets for consumer financial products and services and those markets are fair, transparent and competitive.
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. Many aspects of the Dodd-Frank Act are subject to further rulemaking and will take effect over several years. As a result, the overall financial impact on the Company and the Bank cannot be anticipated at this time.
Future Legislation
The Company cannot predict what legislation might be enacted or what regulations might be adopted, or if enacted or adopted, the effect thereof on the Companys operations.
Item 1A. | Risk Factors |
Item not required for smaller reporting companies.
Item 1B. | Unresolved Staff Comments |
None.
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Item 2. | Properties |
The Companys executive office is 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 Companys offices and meeting rooms and is also the location of the Banks subsidiary, Strategic Alliance.
The Banks Main Office is located at 167 North Second Street, Albemarle, North Carolina. A portion of the Main Office facility leased since it opened in 1984 was purchased in 2009. Its administrative and executive offices occupy an adjoining building, purchased in 1991. The Bank owns a commercial building which houses some of its operation offices and parking lot adjacent to its Main Office. The Bank also acquired a commercial building in downtown Albemarle in December 2001 that is held for future expansion. The Bank acquired a lot in Montgomery County in 2003 that is held as a potential ATM site. 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, a branch office located at 624 North Main Street in Oakboro, North Carolina and a branch located at 416 West Main Street in Locust, North Carolina. The Bank acquired property in Richfield, North Carolina for future expansion.
In Cabarrus County, the Bank owns full service branch offices located at 25 Palaside Drive, N.E., Concord, North Carolina and at 1490 South Main Street, Mt. Pleasant, North Carolina and also owns some property adjacent to the Mt. Pleasant banking office located at 1480 South Main Street. The Bank owns an office at 700 North Church Street in Concord, North Carolina where it previously provided banking services and which currently serves as an administrative 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. Anson purchased a lot in 2006 for a future branch location.
In Mecklenburg County, the Bank leases its loan production office located at 141 Providence Road, Charlotte, North Carolina.
All of the Banks existing offices are freestanding, fully equipped and have adequate parking and drive-up banking facilities, with the exception of Banks the loan production office, and the administrative offices and the Main Office in Albemarle, which does not have a drive-up facility.
Item 3. | Legal Proceedings |
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, 2015 there are no material pending legal proceedings to which the Registrant, or any of its subsidiaries, is a party, or of which any of their property is the subject
Item 4. | Mine Safety Disclosures |
None.
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Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
It is the philosophy of Uwharrie Capital Corp to promote a strong base of local shareholders. While bid and asked prices for the Companys common stock are quoted on the OTCQB marketplace operated by OTC Market Groups, Inc. under the symbol UWHR, trading is, limited and sporadic with most trades taking place in privately negotiated 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 Companys common stock. The Company has an independent valuation of its common stock performed on a quarterly basis and makes this valuation available to interested shareholders in order to promote fairness and market efficiency in privately negotiated transactions.
The following table sets forth information with respect to shares of common stock repurchased by the Company during each of the three months ended December 31, 2015.
(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 (2)(3) |
|||||||||||||
October 1, 2015 Through October 31, 2015 |
15,088 | $ | 3.65 | | $ | | ||||||||||
November 1, 2015 Through November 30, 2015 |
10,607 | $ | 3.73 | | $ | | ||||||||||
December 1, 2015 Through December 31, 2015 |
2,784 | $ | 3.70 | | $ | | ||||||||||
|
|
|
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|
|
|
|
|||||||||
Total |
28,479 | $ | 3.70 | | $ | | ||||||||||
|
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|
|
|
|
|
|
(1) | Trades of the Companys stock occur in the Over-the-Counter market from time to time. The Company also has in place a Stock Repurchase Plan that provides 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 7. | Managements Discussion and Analysis of Financial Condition and Results of Operation |
Incorporated by reference to the Companys Annual Report to Shareholders for the fiscal year ended December 31, 2015.
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Item not required for smaller reporting companies.
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Item 8. | Financial Statements and Supplementary Data |
Incorporated by reference to the Companys Annual Report to Shareholders for the fiscal year ended December 31, 2015.
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 Companys management, including the Companys Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14.
Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Companys 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 SECs 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 Companys management, including its Chief Executive Officer and Principal Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
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Managements Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Companys internal control over financial reporting is a process designed under the supervision of the Companys Chief Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Companys 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 Companys internal control over financial reporting as of December 31, 2015. In making its assessment of internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations (COSO) 2013 Internal Control Integrated Framework. 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 managements assessment pursuant to the COSO 2013 Internal Control Integrated Framework, the Company believes that, as of December 31, 2015, the Companys internal control over financial reporting is effective.
Date: March 2, 2016 | /s/ Roger L. Dick | |||||
Roger L. Dick | ||||||
Chief Executive Officer | ||||||
Date: March 2, 2016 | /s/ R. David Beaver, III | |||||
R. David Beaver, III | ||||||
Principal Financial Officer |
This Annual Report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys 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 Companys Chief Executive Officer and Principal Financial Officer, changes in the Companys 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 2015. 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 that have materially affected or are reasonably likely to materially affect, the Companys internal control over financial reporting.
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Item 9B. | Other Information |
None
Item 10. | Directors, Executive Officers and Corporate Governance |
Incorporated by reference to the Companys definitive proxy statement for the 2016 Annual Meeting of Shareholders.
The Company has adopted a Code of Ethics that applies to, among others, its Principal Executive Officer and Principal Financial Officer. The Companys Code of Ethics is available at www.uwharrie.com.
Item 11. | Executive Compensation |
Incorporated by reference to the Companys definitive proxy statement for the 2016 Annual Meeting of Shareholders.
Item 12. | Security Ownership Of Certain Beneficial Owners And Management and Related Stockholder Matters |
Incorporated by reference to the Companys definitive proxy statement for the 2016 Annual Meeting of Shareholders.
The following table sets forth certain equity compensation plan information at December 31, 2015.
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 |
12,859 | $ | 5.14 | 268,637 | ||||||||
Equity compensation plans not approved by security holders |
N/A | N/A | N/A | |||||||||
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|
|
|||||||
Total |
12,859 | $ | 5.14 | 263,370 | ||||||||
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|
A description of the Companys equity compensation plans is presented in Note 16 to the Companys consolidated financial statements incorporated by reference into Item 8 of this report.
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Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Incorporated by reference to the Companys definitive proxy statement for the 2016 Annual Meeting of Shareholders.
Item 14. | Principal Accountant Fees and Services |
Incorporated by reference to the Companys definitive proxy statement for the 2016 Annual Meeting of Shareholders.
Item 15. | Exhibits, Financial Statement Schedules |
The following documents are filed as part of this report:
1. | Financial statements from the Registrants Annual Report to stockholders for the fiscal year ended December 31, 2015, which are incorporated herein by reference: |
Consolidated Balance Sheets as of December 31, 2015 and 2014.
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013.
Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2015, 2014 and 2013.
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm.
2. | Financial statement schedules required to be filed by Item 8 of this Form: |
None
3. | Exhibits |
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Exhibit |
Description of Exhibit | |
3(a) | Registrants Articles of Incorporation (1) | |
3(b) | Registrants By-laws (1) | |
3(c) | Articles of Amendment dated December 19, 2008 regarding Series A and Series B Preferred Stock (5) | |
4(a) | Form of stock certificate (1) | |
4(b) | Form of certificate for the Series A Preferred stock (5) | |
4(c) | Form of certificate for the Series B Preferred stock (5) | |
4(d) | Form of Security Holders Agreement (8) | |
10(a) | Incentive Stock Option Plan, as amended, a compensatory plan (1) | |
10(b) | Employee Stock Ownership Plan and Trust, a compensatory plan (2) | |
10(c) | 2006 Incentive Stock Option Plan, a compensatory plan (3) | |
10(d) | 2006 Employee Stock Purchase Plan, a compensatory plan (3) | |
10(e) | Relocation Assistance Agreement dated February 9, 2009 between the Registrant and Brendan P. Duffey (6) | |
10(f) |
Nonqualified Deferred Compensation Plan and Supplemental Retirement Plan Agreement dated December 31, 2008 between the Registrant and Roger L. Dick, Brendan P. Duffey , Christy D. Stoner and R. David Beaver, III (6)(9) | |
10(g) | Change of Control Agreement dated January 1, 2015, between the Registrant and R. David Beaver, III (9) | |
10(h) | 2015 Stock Grant Plan (10) | |
13 | 2015 Annual Report to Shareholders (filed herewith) | |
21 | Subsidiaries of the Registrant (filed herewith) | |
23 | Consent of Dixon Hughes Goodman 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 (filed herewith) | |
99(a) | Registrants definitive proxy statement for the 2016 Annual Meeting of Shareholders (4) |
23
101 | Interactive data files providing financial information from the Registrants Annual Report on Form 10-K for the year ended December 31, 2015, in XBRL (eXtensible Business Reporting Language) (7) | |
(1) | Incorporated by reference from exhibits to Registrants Registration Statement on Form S-4 (Reg. No. 33-58882). | |
(2) | Incorporated by reference to Registrants Annual Report on Form 10-KSB for the fiscal year ended 1999. | |
(3) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. | |
(4) | Filed with the Commission pursuant to Rule 14a-6 (b). | |
(5) | Incorporated by reference to Registrants current report on Form 8-K, filed with the Securities and Exchange Commission on December 23, 2008. | |
(6) | Incorporated by reference to Registrants Annual Report on Form 10-K for the fiscal year ended 2009. | |
(7) | Pursuant to Regulation 406T of Regulation S-T, these interactive data files are furnished and not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability. | |
(8) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011. | |
(9) | Incorporated by reference to Registrants Current Report on Form 8-K dated June 30, 2015. | |
(10) |
Incorporated by reference to Registrants Registration Statement on Form S-8 dated October 27, 2015. |
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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 2, 2016 | |||
Roger L. Dick, Chief Executive Officer | ||||
/s/ R. David Beaver, III |
March 2, 2016 | |||
R. David Beaver, III, Principal Financial Officer | ||||
/s/ W. Stephen Aldridge, III |
March 2, 2016 | |||
W. Stephen Aldridge, III, Director | ||||
/s/ Nadine B. Bowers |
March 2, 2016 | |||
Nadine B. Bowers, Director | ||||
/s/ Joe S. Brooks |
March 2, 2016 | |||
Joe S. Brooks, Director | ||||
/s/ Ronald T. Burleson |
March 2, 2016 | |||
Ronald T. Burleson, Director | ||||
/s/ Bill C. Burnside, DDS |
March 2, 2016 | |||
Bill C. Burnside, DDS, Director | ||||
/s/ James O. Campbell |
March 2, 2016 | |||
James O. Campbell, Director | ||||
/s/ Raymond R. Cranford, Jr. |
March 2, 2016 | |||
Raymond R. Cranford, Jr. Director | ||||
/s/ Tara G. Eudy. |
March 2, 2016 | |||
Tara G. Eudy. Director | ||||
/s/ Charles F. Geschickter, III |
March 2, 2016 | |||
Charles F. Geschickter, III, Director | ||||
/s/ Thomas M. Hearne, Jr. |
March 2, 2016 | |||
Thomas M. Hearne, Jr., Director | ||||
/s/ Charles D. Horne |
March 2, 2016 | |||
Charles D. Horne, Director |
25
/s/ Harvey H. Leavitt, III |
March 2, 2016 | |||
Harvey H. Leavitt, III, Director | ||||
/s/ Samuel M. Leder |
March 2, 2016 | |||
Samuel M. Leder, Director | ||||
/s/ W. Chester Lowder |
March 2, 2016 | |||
W. Chester Lowder, Director | ||||
/s/ Cynthia L. Mynatt |
March 2, 2016 | |||
Cynthia L. Mynatt, Director | ||||
/s/ James E. Nance |
March 2, 2016 | |||
James E. Nance, Director | ||||
/s/ Frank A. Rankin, III |
March 2, 2016 | |||
Frank A. Rankin, III, Director | ||||
/s/ S. Todd Swaringen |
March 2, 2016 | |||
S. Todd Swaringen, Director | ||||
/s/ Dusty W. West |
March 2, 2016 | |||
Dusty W. West, Director |
26
UWHARRIE CAPITAL CORP
Exhibit Index
Exhibit Number |
Description | |
3(a) | Registrants Articles of Incorporation (1) | |
3(b) | Registrants By-laws (1) | |
3(c) | Articles of Amendment dated December 19, 2008 regarding Series A and Series B Preferred Stock (5) | |
4(a) | Form of stock certificate (1) | |
4(b) | Form of certificate for the Series A Preferred stock (5) | |
4(c) | Form of certificate for the Series B Preferred stock (5) | |
4(d) | Form of Security Holders Agreement (8) | |
10(a) | Incentive Stock Option Plan, as amended, a compensatory plan (1) | |
10(b) | Employee Stock Ownership Plan and Trust, a compensatory plan (2) | |
10(c) | 2006 Incentive Stock Option Plan, a compensatory plan (3) | |
10(d) | 2006 Employee Stock Purchase Plan, a compensatory plan (3) | |
10(e) | Relocation Assistance Agreement dated February 9, 2009 between the Registrant and Brendan P. Duffey (6) | |
10(f) | Nonqualified Deferred Compensation Plan and Supplemental Retirement Plan Agreement dated December 31, 2008 between the Registrant and Roger L. Dick, Brendan P. Duffey ,Christy D. Stoner and R. David Beaver, III (6)(9) | |
10(g) | Change in Control Agreement dated January 1, 2015, between the Registrant and R. David Beaver, III (9) | |
10(h) | 2015 Stock Grant Plan (10) | |
13 | 2015 Annual Report to Shareholders (filed herewith) | |
21 | Subsidiaries of the Registrant (filed herewith) | |
23 | Consent of Dixon Hughes Goodman LLP (filed herewith) |
27
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 (filed herewith) | |
99(a) | Registrants definitive proxy statement for the 2016 Annual Meeting of Shareholders (4) | |
101 | Interactive data files providing financial information from the Registrants Annual Report on Form 10-K for the year ended December 31, 2015, in XBRL (eXtensible Business Reporting Language) (7) | |
(1) | Incorporated by reference from exhibits to Registrants Registration Statement on Form S-4 (Reg. No. 33-58882). | |
(2) | Incorporated by reference to Registrants Annual Report on Form 10-KSB for the fiscal year ended 1999. | |
(3) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. | |
(4) | Filed with the Commission pursuant to Rule 14a-6 (b). | |
(5) | Incorporated by reference to Registrants current report on Form 8-K, filed with the Securities and Exchange Commission on December 23, 2008. | |
(6) | Incorporated by reference to Registrants Annual Report on Form 10-K for the fiscal year ended 2009. | |
(7) | Pursuant to Regulation 406T of Regulation S-T, these interactive data files are furnished and not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of1933, as amended, or section 18 of the Securities Exchange Act of1934, as amended, and are otherwise not subject to liability. | |
(8) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011. | |
(9) | Incorporated by reference to Registrants Current Report on Form 8-K dated June 30, 2015. | |
(10) | Incorporated by reference to Registrants Registration Statement on Form S-8 dated October 27, 2015. |
28
Exhibit 13
Uwharrie Capital Corp
2015
ANNUAL REPORT TO SHAREHOLDERS
29
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30
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Description of Business
Uwharrie Capital Corp (the Company) is a North Carolina bank holding company. The Company was incorporated on February 24, 1993 to become the bank holding company for Uwharrie Bank (the Bank), formerly, known as Bank of Stanly a North Carolina commercial bank chartered on September 28, 1983, and its three wholly-owned subsidiaries, The Strategic Alliance Corporation, BOS Agency, Inc., and Gateway Mortgage, Inc., a mortgage origination company. The Company also owns two non-bank subsidiaries, Uwharrie Investment Advisors, Inc., formally known as Strategic Investment Advisors, Inc., and Uwharrie Mortgage, Inc.
The Bank engages in retail and commercial banking, with six banking offices in Stanly County, North Carolina. The Bank provides a wide range of banking services including deposit accounts, commercial, consumer, home equity and residential mortgage loans, safe deposit boxes, and electronic banking services.
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 Co. (Anson) and provided financial services to customers through one banking office in Anson County until September 1, 2013 when it was consolidated with and into the Bank. The former Anson office is now operated by the Bank.
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 the Bank to begin its operation. Cabarrus operated as a commercial bank and provided a full range of banking services. Cabarrus was consolidated into the Bank effective September 1, 2013. The former Cabarrus offices are now operated as branches of the Bank.
The Company and its subsidiaries are located in Stanly County, Anson County, Cabarrus County and Mecklenburg County. However, the Company intends to prudently expand its service area to include the entire Uwharrie Lakes Region of North Carolina.
Depository services offered by the Bank include personal and commercial checking, savings, money market, certificates of deposit accounts and individual retirement accounts, all tailored to meet customers needs. The bank provides fixed and variable rate loans, which include mortgage, home equity, lines of credit, consumer and commercial loans. The bank also offers internet banking, mobile banking, and 24-hour telephone banking, providing customers the convenience of access to account information, rate information and accessibility of funds transfers between accounts. Other services include MasterCard® credit cards and a Visa® check card which functions as a point-of-sale (POS) and automated teller machine (ATM) card. Customers can use the check card for purchases at virtually any merchant accepting Visa® and ATMs displaying the STAR® or CIRRUS® networks regionally and worldwide, respectively.
Uwharrie Investment Advisors, Inc., an SEC registered investment advisory firm, provides portfolio management services to its customers. The Strategic Alliance Corporation (Strategic Alliance®) is a broker-dealer registered with the Financial Industry Regulatory Authority (FINRA) and SPIC. BOS Agency provides insurance products and is licensed in the state of North Carolina. Through Strategic Investment Group, a DBA for financial consultants registered with Private Client Services LLC., securities and insurance products are offered, including fixed annuities, long-term care products, Medicare supplement products, and life insurance products. Group insurance products are offered through an arrangement with Burchfield Insurance Group, Inc.
Uwharrie Investment Group: Securities and insurance products are offered through Private Client Services, LLC, 2225 Lexington Rd , Louisville, KY 40206, ph: 502-451-0600, Member FINRA and SIPC. Private Client Services, LLC and Uwharrie Capital Corp along with its affiliates and/or subsidiaries are separate, distinct, and unaffiliated entities. It is important to note that securities and insurance products are: NOT BANK DEPOSITS NOT INSURED BY THE FDIC OR ANY FEDERAL GOVERNMENT AGENCY NOT OBLICATIONS OF OR GUARANTEED BY ANY FINANCIAL INSTITUTION SUBJECT TO RISK AND MAY LOSE VALUE.
Uwharrie Bank, Member FDIC, Equal Housing Lender.
31
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Financial Highlights
(Dollars in thousands, except per share amounts) | 2015 | 2014 | Percent Increase (Decrease) |
|||||||||
For the year: |
||||||||||||
Net income |
$ | 2,007 | $ | 1,679 | 19.54 | % | ||||||
Net income (loss) available to common shareholders |
$ | 1,415 | $ | 1,088 | 30.06 | % | ||||||
Basic net income (loss) per common share (1) |
$ | 0.20 | $ | 0.15 | 33.33 | % | ||||||
Diluted net income (loss) per common share (1) |
$ | 0.20 | $ | 0.15 | 33.33 | % | ||||||
Weighted average common shares outstanding (diluted) |
7,051,751 | 7,447,008 | -5.31 | % | ||||||||
At year-end: |
||||||||||||
Total assets |
$ | 532,202 | $ | 518,464 | 2.65 | % | ||||||
Total earning assets |
482,527 | 473,157 | 1.98 | % | ||||||||
Loans held for investment |
320,132 | 310,853 | 2.99 | % | ||||||||
Total interest-bearing liabilities |
390,514 | 390,609 | -0.02 | % | ||||||||
Shareholders equity |
43,314 | 42,262 | 2.49 | % | ||||||||
Book value per common share (1) |
$ | 4.69 | $ | 4.46 | 5.14 | % | ||||||
Averages for the year: |
||||||||||||
Total assets |
$ | 521,699 | $ | 513,676 | 1.56 | % | ||||||
Total earning assets |
479,331 | 470,948 | 1.78 | % | ||||||||
Loans held for investment |
316,020 | 309,338 | 2.16 | % | ||||||||
Total interest-bearing liabilities |
382,461 | 386,237 | -0.98 | % | ||||||||
Shareholders equity |
43,123 | 41,681 | 3.46 | % | ||||||||
Financial ratios (in percentage): |
||||||||||||
Return on average assets |
0.38 | % | 0.33 | % | ||||||||
Return on average shareholders equity |
4.65 | % | 4.03 | % | ||||||||
Average equity to average assets |
8.27 | % | 8.11 | % | ||||||||
Net interest margin (fully tax equivalent basis) |
3.47 | % | 3.60 | % | ||||||||
Allowance as % of loans at year-end |
0.90 | % | 1.20 | % | ||||||||
Allowance as % of nonperforming loans |
368.23 | % | 166.43 | % | ||||||||
Nonperforming loans to total loans |
0.24 | % | 0.72 | % | ||||||||
Nonperforming assets to total assets |
1.09 | % | 1.56 | % | ||||||||
Net loan charge-offs (recoveries) to average loans |
0.07 | % | 0.31 | % |
(1) | Net income per share, book value per share and shares outstanding at year-end for 2014 have been adjusted to reflect the 2% stock dividend in 2015. |
Market for the Companys Common Stock and Related Security Holder Matters
It is the philosophy of Uwharrie Capital Corp to promote a strong base of local shareholders. While bid and ask prices for the Companys common stock are quoted on the OTCQB marketplace operated by OTC Markets Group, Inc. under the symbol UWHR, trading is sporadic with trades also taking place in privately negotiated 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 Companys common stock.
Shareholders needing information about purchasing or selling shares of Uwharrie Capital Corp should contact Tamara M. Singletary or Lisa E. Hartsell, Investor Relations at Uwharrie Capital Corp, 132 N. First Street, Post Office Box 338, Albemarle, NC 28002.
The Board of Directors adopts a dividend policy on an annual basis. For 2015, Uwharrie Capital Corp declared a 2% stock dividend on its outstanding common stock. The Board of Directors will determine an appropriate dividend, if any, on an annual basis, consistent with the capital needs of the Company.
32
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33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Uwharrie Capital Corp
Albemarle, North Carolina
We have audited the accompanying consolidated balance sheets of Uwharrie Capital Corp and Subsidiaries (the Company) as of December 31, 2015 and 2014, and 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, 2015. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Uwharrie Capital Corp and Subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
/s/ Dixon Hughes Goodman LLP
Charlotte, North Carolina
March 1, 2016
34
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2015 and 2014
2015 | 2014 | |||||||
(dollars in thousands) | ||||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 7,038 | $ | 6,807 | ||||
Interest-earning deposits with banks |
61,895 | 43,984 | ||||||
Securities available for sale, at fair value |
89,258 | 112,824 | ||||||
Securities held to maturity (fair value $11,242 and $5,450, respectively) |
11,242 | 5,496 | ||||||
Loans held for sale |
5,922 | 2,147 | ||||||
Loans: |
||||||||
Loans held for investment |
320,132 | 310,853 | ||||||
Less allowance for loan losses |
(2,884 | ) | (3,738 | ) | ||||
|
|
|
|
|||||
Net loans held for investment |
317,248 | 307,115 | ||||||
|
|
|
|
|||||
Premises and equipment, net |
14,666 | 14,858 | ||||||
Interest receivable |
1,564 | 1,747 | ||||||
Restricted stock |
1,040 | 1,038 | ||||||
Bank owned life insurance |
6,762 | 6,645 | ||||||
Other real estate owned |
4,994 | 5,865 | ||||||
Prepaid assets |
764 | 969 | ||||||
Other assets |
9,809 | 8,969 | ||||||
|
|
|
|
|||||
Total assets |
$ | 532,202 | $ | 518,464 | ||||
|
|
|
|
|||||
LIABILITIES |
||||||||
Deposits: |
||||||||
Demand noninterest-bearing |
$ | 92,524 | $ | 80,069 | ||||
Interest checking and money market accounts |
252,345 | 243,116 | ||||||
Savings deposits |
40,436 | 39,091 | ||||||
Time deposits, $250,000 and over |
8,148 | 9,865 | ||||||
Other time deposits |
74,280 | 84,294 | ||||||
|
|
|
|
|||||
Total deposits |
467,733 | 456,435 | ||||||
|
|
|
|
|||||
Short-term borrowed funds |
5,758 | 4,685 | ||||||
Long-term debt |
9,547 | 9,558 | ||||||
Interest payable |
168 | 180 | ||||||
Other liabilities |
5,682 | 4,783 | ||||||
|
|
|
|
|||||
Total liabilities |
488,888 | 475,641 | ||||||
|
|
|
|
|||||
Off balance sheet items, commitments and contingencies (Note 13) |
||||||||
Redeemable common stock held by the Employee Stock Ownership Plan (ESOP) (Note 17) |
| 561 | ||||||
SHAREHOLDERS EQUITY |
||||||||
Common stock, $1.25 par value: 20,000,000 shares authorized; shares issued and outstanding 6,983,017 and 6,961,484 |
8,729 | 8,702 | ||||||
Additional paid-in capital |
12,308 | 11,712 | ||||||
Undivided profits |
11,893 | 10,974 | ||||||
Accumulated other comprehensive income (loss) |
(212 | ) | 305 | |||||
|
|
|
|
|||||
Total Uwharrie Capital shareholders equity |
32,718 | 31,693 | ||||||
Noncontrolling interest |
10,596 | 10,569 | ||||||
|
|
|
|
|||||
Total shareholders equity |
43,314 | 42,262 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 532,202 | $ | 518,464 | ||||
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
35
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2015, 2014 and 2013
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands, except share | ||||||||||||
and per share data) | ||||||||||||
Interest Income |
||||||||||||
Loans, including fees |
$ | 15,725 | $ | 16,336 | $ | 17,573 | ||||||
Investment securities: |
||||||||||||
US Treasury |
212 | 361 | 397 | |||||||||
US Government agencies and corporations |
1,315 | 1,271 | 1,066 | |||||||||
State and political subdivisions |
410 | 321 | 252 | |||||||||
Interest-earning deposits with banks and federal funds sold |
185 | 168 | 177 | |||||||||
|
|
|
|
|
|
|||||||
Total interest income |
17,847 | 18,457 | 19,465 | |||||||||
|
|
|
|
|
|
|||||||
Interest Expense |
||||||||||||
Interest checking and money market accounts |
278 | 299 | 439 | |||||||||
Savings deposits |
44 | 57 | 171 | |||||||||
Time deposits $250,000 and over |
69 | 49 | 60 | |||||||||
Other time deposits |
728 | 948 | 1,240 | |||||||||
Short-term borrowed funds |
64 | 34 | 160 | |||||||||
Long-term debt |
550 | 573 | 664 | |||||||||
|
|
|
|
|
|
|||||||
Total interest expense |
1,733 | 1,960 | 2,734 | |||||||||
|
|
|
|
|
|
|||||||
Net interest income |
16,114 | 16,497 | 16,731 | |||||||||
Provision for (recovery of) loan losses |
(620 | ) | (389 | ) | 28 | |||||||
|
|
|
|
|
|
|||||||
Net interest income after provision for loan losses |
16,734 | 16,886 | 16,703 | |||||||||
|
|
|
|
|
|
|||||||
Noninterest Income |
||||||||||||
Service charges on deposit accounts |
1,293 | 1,467 | 1,627 | |||||||||
Other service fees and commissions |
4,117 | 3,928 | 3,399 | |||||||||
Gain (loss) on sale of securities (includes reclassification of $536, ($2) and ($523) from accumulated comprehensive income in 2015, 2014 and 2013, respectively) |
536 | (2 | ) | (523 | ) | |||||||
Income from mortgage loan sales |
2,306 | 1,001 | 2,113 | |||||||||
Other income |
458 | 927 | 971 | |||||||||
|
|
|
|
|
|
|||||||
Total noninterest income |
8,710 | 7,321 | 7,587 | |||||||||
|
|
|
|
|
|
|||||||
Noninterest Expense |
||||||||||||
Salaries and employee benefits |
13,186 | 12,051 | 12,423 | |||||||||
Net occupancy expense |
1,139 | 1,107 | 1,098 | |||||||||
Equipment expense |
678 | 680 | 734 | |||||||||
Data processing costs |
734 | 729 | 784 | |||||||||
Office supplies and printing |
217 | 273 | 358 | |||||||||
Foreclosed real estate expense |
853 | 1,246 | 1,647 | |||||||||
Professional fees and services |
594 | 847 | 680 | |||||||||
Marketing and donations |
852 | 762 | 728 | |||||||||
Electronic banking expense |
1,083 | 939 | 999 | |||||||||
Software amortization and maintenance |
578 | 535 | 541 | |||||||||
FDIC insurance |
375 | 425 | 518 | |||||||||
Other noninterest expense |
2,342 | 2,286 | 2,484 | |||||||||
|
|
|
|
|
|
|||||||
Total noninterest expense |
22,631 | 21,880 | 22,994 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
2,813 | 2,327 | 1,296 | |||||||||
Income taxes (includes reclassification of (($207), $1 and and $222) from accumulated other comprehensive income, respectively) |
806 | 648 | 342 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 2,007 | $ | 1,679 | $ | 954 | ||||||
|
|
|
|
|
|
|||||||
Consolidated net income |
$ | 2,007 | $ | 1,679 | $ | 954 | ||||||
Less: Net income attributable to noncontrolling interest |
(592 | ) | (591 | ) | (478 | ) | ||||||
|
|
|
|
|
|
|||||||
Net income attributable to Uwharrie Capital Corp |
1,415 | 1,088 | 476 | |||||||||
Dividends on preferred stock |
| | (325 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net Income available to common shareholders |
$ | 1,415 | $ | 1,088 | $ | 151 | ||||||
|
|
|
|
|
|
|||||||
Net income per common share |
||||||||||||
Basic |
$ | 0.20 | $ | 0.15 | $ | 0.02 | ||||||
|
|
|
|
|
|
|||||||
Diluted |
$ | 0.20 | $ | 0.15 | $ | 0.02 | ||||||
|
|
|
|
|
|
|||||||
Weighted average common shares outstanding |
||||||||||||
Basic |
7,051,751 | 7,447,008 | 7,570,732 | |||||||||
Diluted |
7,051,751 | 7,447,008 | 7,570,732 |
The accompanying notes are an integral part of the consolidated financial statements.
36
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2015, 2014 and 2013
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands) | ||||||||||||
Net Income |
$ | 2,007 | $ | 1,679 | $ | 954 | ||||||
|
|
|
|
|
|
|||||||
Other comprehensive income (loss): |
||||||||||||
Unrealized gains (losses) on available for sale securities |
(248 | ) | 1,311 | (3,662 | ) | |||||||
Related tax effect |
60 | (445 | ) | 1,292 | ||||||||
Reclassification of losses (gains) recognized in net income |
(536 | ) | 2 | 523 | ||||||||
Related tax effect |
207 | (1 | ) | (202 | ) | |||||||
|
|
|
|
|
|
|||||||
Total other comprehensive income (loss) |
(517 | ) | 867 | (2,049 | ) | |||||||
|
|
|
|
|
|
|||||||
Comprehensive income (loss) |
1,490 | 2,546 | (1,095 | ) | ||||||||
Less: Comprehensive income attributable to noncontrolling interest |
(592 | ) | (591 | ) | (478 | ) | ||||||
|
|
|
|
|
|
|||||||
Comprehensive income (loss) attributable to Uwharrie Capital |
$ | 898 | $ | 1,955 | $ | (1,573 | ) | |||||
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
37
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years Ended December 31, 2015, 2014 and 2013
Number of Common Shares Issued |
Preferred Stock Series A |
Preferred Stock Series B |
Discount on Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Unearned ESOP Compensation |
Undivided Profits |
Accumulated Other Comprehensive Income (Loss) |
Noncontrolling Interest |
Total | ||||||||||||||||||||||||||||||||||
(dollars in thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2012 |
7,502,496 | $ | 10,000 | $ | 500 | $ | (100 | ) | $ | 9,378 | $ | 12,201 | $ | (875 | ) | $ | 10,138 | $ | 1,487 | $ | | $ | 42,729 | |||||||||||||||||||||
Net Income |
| | | | | | | 476 | | 478 | 954 | |||||||||||||||||||||||||||||||||
Repurchase of common stock |
(56,565 | ) | | | | (71 | ) | (98 | ) | | | | | (169 | ) | |||||||||||||||||||||||||||||
Other comprehensive loss |
| | | | | | | | (2,049 | ) | | (2,049 | ) | |||||||||||||||||||||||||||||||
Release of ESOP shares |
| | | | | (49 | ) | 94 | | | | 45 | ||||||||||||||||||||||||||||||||
Increase in ESOP notes receivable |
| | | | | | (208 | ) | | | | (208 | ) | |||||||||||||||||||||||||||||||
Reclass to mezzanine capital |
| | | | | (132 | ) | | | | | (132 | ) | |||||||||||||||||||||||||||||||
Repayment of preferred stock series A |
| (10,000 | ) | (500 | ) | | | | | | | | (10,500 | ) | ||||||||||||||||||||||||||||||
Issuance of preferred stock (noncontrolling interest) |
| | | | | | | | | 10,655 | 10,655 | |||||||||||||||||||||||||||||||||
Record costs of preferred stock (noncontrolling interest) |
| | | | | | | | | (137 | ) | (137 | ) | |||||||||||||||||||||||||||||||
Record preferred stock dividend (noncontrolling interest) |
| | | | | | | | | (454 | ) | (454 | ) | |||||||||||||||||||||||||||||||
Record preferred stock dividend and discount accretion |
| | | 100 | | | | (325 | ) | | | (225 | ) | |||||||||||||||||||||||||||||||
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Balance, December 31, 2013 |
7,445,931 | $ | | $ | | $ | | $ | 9,307 | $ | 11,922 | $ | (989 | ) | $ | 10,289 | $ | (562 | ) | $ | 10,542 | $ | 40,509 | |||||||||||||||||||||
Net Income |
| | | | | | | 1,088 | | 591 | 1,679 | |||||||||||||||||||||||||||||||||
Repurchase of common stock |
(374,130 | ) | | | | (468 | ) | (942 | ) | | | | | (1,410 | ) | |||||||||||||||||||||||||||||
2% stock dividend |
142,129 | | | | 178 | 221 | | (399 | ) | | | | ||||||||||||||||||||||||||||||||
Cash paid fractional shares |
| | | | | | | (4 | ) | | | (4 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income |
| | | | | | | | 867 | | 867 | |||||||||||||||||||||||||||||||||
Release of ESOP shares |
| | | | | 5 | 16 | | | | 21 | |||||||||||||||||||||||||||||||||
Repayment of ESOP notes receivable |
(252,446 | ) | | | | (315 | ) | (649 | ) | 973 | | | | 9 | ||||||||||||||||||||||||||||||
Reclass from mezzanine capital |
| | | | | 1,155 | | | | | 1,155 | |||||||||||||||||||||||||||||||||
Record preferred stock dividend series B (noncontrolling interest) |
| | | | | | | | | (416 | ) | (416 | ) | |||||||||||||||||||||||||||||||
Record preferred stock dividend series C (noncontrolling interest) |
| | | | | | | | | (148 | ) | (148 | ) | |||||||||||||||||||||||||||||||
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Balance, December 31, 2014 |
6,961,484 | $ | | $ | | $ | | $ | 8,702 | $ | 11,712 | $ | | $ | 10,974 | $ | 305 | $ | 10,569 | $ | 42,262 | |||||||||||||||||||||||
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38
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY Continued
Years Ended December 31, 2015, 2014 and 2013
Number of Common Shares Issued |
Preferred Stock Series A |
Preferred Stock Series B |
Discount on Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Unearned ESOP Compensation |
Undivided Profits |
Accumulated Other Comprehensive Income (Loss) |
Noncontrolling Interest |
Total | ||||||||||||||||||||||||||||||||||
(dollars in thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2014 |
6,961,484 | $ | | $ | | $ | | $ | 8,702 | $ | 11,712 | $ | | $ | 10,974 | $ | 305 | $ | 10,569 | $ | 42,262 | |||||||||||||||||||||||
Net Income |
| | | | | | | 1,415 | | 592 | 2,007 | |||||||||||||||||||||||||||||||||
Repurchase of common stock |
(114,377 | ) | | | | (143 | ) | (286 | ) | | | | | (429 | ) | |||||||||||||||||||||||||||||
2% stock dividend |
135,910 | | | | 170 | 321 | | (491 | ) | | | | ||||||||||||||||||||||||||||||||
Cash paid fractional shares |
| | | | | | | (5 | ) | | | (5 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income |
| | | | | | | | (517 | ) | | (517 | ) | |||||||||||||||||||||||||||||||
Reclass from mezzanine capital |
| | | | | 561 | | | | | 561 | |||||||||||||||||||||||||||||||||
Record preferred stock dividend series B (noncontrolling interest) |
| | | | | | | | | (416 | ) | (416 | ) | |||||||||||||||||||||||||||||||
Record preferred stock dividend series C (noncontrolling interest) |
| | | | | | | | | (149 | ) | (149 | ) | |||||||||||||||||||||||||||||||
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Balance, December 31, 2015 |
6,983,017 | $ | | $ | | $ | | $ | 8,729 | $ | 12,308 | $ | | $ | 11,893 | $ | (212 | ) | $ | 10,596 | $ | 43,314 | ||||||||||||||||||||||
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The accompanying notes are an integral part of the consolidated financial statements.
39
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2015, 2014 and 2013
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands) | ||||||||||||
Cash flows from operating activities |
||||||||||||
Net income |
$ | 2,007 | $ | 1,679 | $ | 954 | ||||||
Adjustments to reconcile net income to net cash Provided (used) by operating activities: |
||||||||||||
Depreciation |
908 | 922 | 914 | |||||||||
Net amortization of security premiums/discounts AFS |
975 | 1,050 | 1,420 | |||||||||
Net amortization of security premiums/discounts HTM |
134 | 2 | | |||||||||
Net amortization of mortgage servicing rights |
689 | 709 | 801 | |||||||||
Impairment of foreclosed real estate |
425 | 647 | 921 | |||||||||
Provision for (recovery of) loan losses |
(620 | ) | (389 | ) | 28 | |||||||
Deferred income taxes |
336 | 593 | 438 | |||||||||
Net realized (gains) loss on sales / calls available for sale securities |
(536 | ) | 2 | 523 | ||||||||
Income from mortgage loan sales |
(2,306 | ) | (1,001 | ) | (2,113 | ) | ||||||
Proceeds from sales of loans held for sale |
65,101 | 39,012 | 77,544 | |||||||||
Origination of loans held for sale |
(66,570 | ) | (39,019 | ) | (71,197 | ) | ||||||
Gain on sale of premises, equipment and other assets |
(1 | ) | (142 | ) | (233 | ) | ||||||
Increase in cash surrender value of life insurance |
(117 | ) | (129 | ) | (122 | ) | ||||||
Gain on sales of foreclosed real estate |
(140 | ) | (398 | ) | (290 | ) | ||||||
Release of ESOP Shares |
| 21 | 45 | |||||||||
Net change in interest receivable |
183 | | 6 | |||||||||
Net change in other assets |
(1,201 | ) | (663 | ) | (810 | ) | ||||||
Net change in interest payable |
(12 | ) | (44 | ) | (46 | ) | ||||||
Net change in other liabilities |
899 | 349 | 424 | |||||||||
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|
|||||||
Net cash provided by operating activities |
154 | 3,201 | 9,207 | |||||||||
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Cash flows from investing activities |
||||||||||||
Proceeds from sales, maturities, calls and paydowns of securities available for sale |
47,253 | 18,839 | 32,969 | |||||||||
Proceeds from sales, maturities, calls and paydowns of securities held to maturity |
154 | | | |||||||||
Purchase of securities available for sale |
(24,910 | ) | (31,122 | ) | (46,693 | ) | ||||||
Purchase of securities held to maturity |
(6,034 | ) | (5,498 | ) | | |||||||
Net (increase) decrease in loans |
(11,331 | ) | (5,445 | ) | 16,282 | |||||||
Proceeds from sale of premises, equipment and other assets |
1 | 368 | 949 | |||||||||
Purchase of premises and equipment |
(716 | ) | (2,225 | ) | (488 | ) | ||||||
Proceeds from sales of foreclosed real estate |
2,404 | 2,028 | 4,731 | |||||||||
Investment in other assets |
(334 | ) | (366 | ) | (357 | ) | ||||||
Net change in restricted stock |
(2 | ) | 146 | 1,081 | ||||||||
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Net cash provided (used) by investing activities |
6,485 | (23,275 | ) | 8,474 | ||||||||
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Cash flows from financing activities |
||||||||||||
Net increase (decrease) in deposit accounts |
11,298 | 2,727 | (3,904 | ) | ||||||||
Net decrease in short-term borrowed funds |
1,073 | (824 | ) | (13,181 | ) | |||||||
Net decrease in long-term debt |
(11 | ) | (1,605 | ) | (1,510 | ) | ||||||
Proceeds from preferred stock offering, net of costs |
| | 3,136 | |||||||||
Repayment preferred stock, series A |
| | (10,500 | ) | ||||||||
Increase in unearned ESOP compensation |
| | (208 | ) | ||||||||
Repurchase of common stock, net |
(429 | ) | (1,401 | ) | (169 | ) | ||||||
Dividends on preferred stock |
(423 | ) | (422 | ) | (679 | ) | ||||||
Cash paid for fractional shares |
(5 | ) | (4 | ) | | |||||||
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Net cash provided (used) by financing activities |
11,503 | (1,529 | ) | (27,015 | ) | |||||||
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|
|
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|
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Increase (decrease) in cash and cash equivalents |
18,142 | (21,603 | ) | (9,334 | ) | |||||||
Cash and cash equivalents, beginning of year |
50,791 | 72,394 | 81,728 | |||||||||
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Cash and cash equivalents, end of year |
$ | 68,933 | $ | 50,791 | $ | 72,394 | ||||||
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Supplemental disclosures of cash flow information |
||||||||||||
Interest paid |
$ | 1,745 | $ | 2,004 | $ | 2,780 | ||||||
Income taxes paid |
459 | 41 | 648 | |||||||||
Supplemental schedule of non-cash activities |
||||||||||||
Net change in fair value of securities available for sale, net of tax |
(517 | ) | 867 | (2,049 | ) | |||||||
Loans transferred to foreclosed real estate |
1,818 | 972 | 4,032 | |||||||||
Company financed sales of other real estate owned |
(26 | ) | (65 | ) | (213 | ) | ||||||
Mortgage servicing rights capitalized |
657 | 386 | 763 | |||||||||
Preferred stock dividend accrued |
(142 | ) | (142 | ) | (142 | ) | ||||||
Net change in ESOP liability |
(561 | ) | 1,155 | 132 |
The accompanying notes are an integral part of the consolidated financial statements.
40
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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).
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 by the Federal Deposit Insurance Corporation (FDIC). Uwharrie is under regulation of the Federal Reserve, the FDIC and the North Carolina Commissioner of Banks. Through its six branch locations in Stanly County, Uwharrie provides 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 broker dealer in securities. 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. 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 Companys consolidated financials 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.
41
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, Uwharrie, UIA and Uwharries 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 loan losses.
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 agencies, Government Sponsored Enterprise (GSE) mortgage backed securities and collateralized mortgage obligations (CMOs), corporate bonds and state and political subdivision bonds. Unrealized holding gains and losses on available for sale securities are reported as a net amount in other comprehensive income, net of income taxes. Gains and losses on the sale of available for sale securities are determined using the specific identification method and recorded on a trade basis. Declines in the fair value of individual available for sale securities below their cost that are other than temporary would result in write-downs of the individual securities, to their fair value. Such write-downs would be included in earnings as realized losses to the extent the losses are associated with the credit quality of the issuer. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the period to maturity.
Investment Securities Held to Maturity
Investment securities held to maturity consist of United States Government agencies, and 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.
42
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
Loans
The Company divides the loans it grants into two segments, commercial and noncommercial loans. Commercial loans are broken down into the following classes: commercial loans, real estate commercial loans and other real estate construction loans. Noncommercial loans are divided into the following classes: real estate 1-4 family construction, real estate 1-4 family residential loans, home equity loans, consumer loans and other loans. The ability of the Companys borrowers to honor their contracts is largely dependent upon the real estate and general economic conditions in the Companys 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 loan losses, 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 the 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.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses. The provision for loan losses is expensed to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The Company has different specific risks identified within the loan segments. Specific risks within the commercial loan segment arise with borrowers that are experiencing diminished operating cash flows, depreciated collateral values or prolonged sales and rental absorption periods. Concentrations within the portfolio if unmanaged, pose additional risk. Occasionally, the Company will purchase participation loans from other institutions and if not independently underwritten by the Bank, could carry additional risk. Generally, owner-occupied commercial real estate loans carry less risk than non-owner occupied. Specific risks within the non-commercial portfolio tend to be tied to economic factors including high unemployment and decreased real estate values. Risk to the Company is greater as home values deteriorate more rapidly than amortization in a loan, leaving little to no equity in properties, especially in junior lien positions. Concentration in the portfolio, such as home equity lines of credit, could pose additional risk if not appropriately managed.
The allowance for loan losses is evaluated both individually and collectively by loan class on a regular basis by management. Loans are collectively evaluated based upon managements periodic review of the collectability of the loans in light of historical experience, the nature and
43
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. Individually evaluated loans are based upon discounted cash flows or the underlying value of the collateral. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, regulatory examiners may require the Company to recognize adjustments to the allowance for loan losses based on their judgment about information available to them at the time of their assessment.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Homogeneous loans are collectively evaluated by loan class for impairment. However, homogeneous loans will be evaluated individually for impairment if such a loan is deemed impaired.
Troubled debt restructure loans (TDR) are modifications of a loan when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. TDRs are considered to be impaired loans and are individually evaluated for impairment.
The portion of the Companys allowance for loan loss model related to general reserves captures the mean loss of individual loans and the rare event of severe loss that can occur within the loan portfolio. Specifically, the Company calculates probable losses on loans by computing a probability of loss and expected loss scenario by FDIC call report codes. Together, these expected components, as well as a level of more extreme unexpected losses form the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations.
Mortgage Servicing Rights
The Company capitalizes mortgage servicing rights when loans are sold and the loan servicing is retained. The cost of servicing rights is amortized in proportion to and over the estimated period of net servicing revenues is expected to be received based on projections of 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.
44
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
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.
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.
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 this investment was 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). Accounting Standards Codification (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. Excess tax benefits are reported as financing cash inflows in the consolidated statement of cash flows.
45
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return and separate North Carolina income tax returns. 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 for the 2011 fiscal year and thereafter. It is the Companys 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, 2015, 2014 and 2013.
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 Companys assets and liabilities, investment securities available for sale 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, impaired loans, loans held for sale, which are carried at the lower of cost or market; mortgage 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; and goodwill, which is periodically tested for impairment. Deposits, short-term borrowings and long-term obligations are not reported at fair value.
46
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
Prices for US Treasury securities are readily available in the active markets in which those securities are traded, and the resulting fair values are shown in the Level 1 input column. Prices for government agency securities, mortgage-backed securities and for state, county and municipal securities are obtained for similar securities, and the resulting fair values are shown in the Level 2 input column. 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 shown in the Level 3 input column. Non-marketable investment securities, which are 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 migration of securities between levels.
The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment by using one of several methods including collateral value, fair value of similar debt or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected repayments or fair value of collateral exceed the recorded investments in such loans. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations.
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 managements 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
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 Companys only component of other comprehensive income is unrealized gains and losses, net of income tax, on investment securities available for sale. The
47
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
following table presents the changes in accumulated other comprehensive income for the years ended December 31, 2015, 2014 and 2013:
Year ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands) | ||||||||||||
Beginning Balance |
$ | 305 | $ | (562 | ) | $ | 1,487 | |||||
Other comprehensive income (loss) before reclassifications, net of $474, ($445) and $1,292 tax effect, respectively |
(188 | ) | 866 | (2,370 | ) | |||||||
Amounts reclassified from accumulated other comprehensive income, net of ($207), $1 and $222 tax effect, respectively |
(329 | ) | 1 | 321 | ||||||||
|
|
|
|
|
|
|||||||
Net current-period other comprehensive loss |
(517 | ) | 867 | (2,049 | ) | |||||||
|
|
|
|
|
|
|||||||
Ending Balance |
$ | (212 | ) | $ | 305 | $ | (562 | ) | ||||
|
|
|
|
|
|
As of December 31, 2015 and December 31, 2014, total accumulated other comprehensive income (loss) was ($212,000) and $305,000 respectively.
Earnings per Common Share
The Company had stock options outstanding covering 12,859 shares of common stock at both December 31, 2015 and 2014 and 96,228 shares of common stock at December 31, 2015. All of these options were anti-dilutive because the strike price was higher than the current market price.
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 entity. The ESOP effect is the average of the unallocated ESOP shares.
On October 20, 2015, the Companys Board of Directors declared a 2% stock dividend payable on November 19, 2015 to shareholders of record on November 3, 2015. 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.
48
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
The computation of weighted average shares used in the calculation of basic and dilutive earnings per share is summarized below:
2015 | 2014 | 2013 | ||||||||||
Weighted average number of common shares used in computing basic net income per common share |
7,051,751 | 7,490,799 | 7,786,032 | |||||||||
Effect of ESOP shares |
| (43,791 | ) | (215,300 | ) | |||||||
|
|
|
|
|
|
|||||||
Adjusted weighted average number of common shares used in computing basic net income per common share |
7,051,751 | 7,447,008 | 7,570,732 | |||||||||
Effect of dilutive stock options |
| | | |||||||||
|
|
|
|
|
|
|||||||
Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per common share |
7,051,751 | 7,447,008 | 7,570,732 | |||||||||
|
|
|
|
|
|
During the first quarter of 2014, the board of directors of the Company voted to terminate the ESOP effective March 1, 2014. As of February 28, 2014, the ESOP held 740,530 shares, or 9.95% of the Companys total outstanding shares of common stock, of which 252,446 shares were unallocated to participants in the ESOP.
The Company originally made a term loan to the ESOP in 1999. In addition, the Company established a $500,000 line of credit to the ESOP in 2010 and established a second $500,000 line of credit to the ESOP in 2013. The ESOP used the proceeds of the term loan and lines of credit to purchase shares of the Companys common stock for the benefit of qualified employees. The unallocated shares of stock held by the ESOP were pledged as collateral for the term loan and lines of credit. As debt payments were made on the term loan and lines of credit, unallocated shares associated with those debt payments were released to the ESOP and allocated among participants.
In connection with the termination of the ESOP, the ESOP trustees transferred the 252,446 remaining unallocated shares to the Company in partial satisfaction of the outstanding balance on the term loan and lines of credit. The fair value of these unallocated shares was insufficient to repay the term loan and lines of credit in full. As a result, the Company forgave the remaining balance. Upon the transfer of the unallocated shares to the Company, these shares were cancelled and returned to the Companys pool of authorized but unissued shares of common stock.
The Company filed a request for a favorable determination letter from the Internal Revenue Service as to the tax-qualified status of the ESOP on its termination.
The Company received the favorable determination letter dated September 5, 2014 from the Internal Revenue Service and during the fourth quarter of 2014 distributed the allocated shares to the participants.
49
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
Noncontrolling Interest
In January 2013 the Companys subsidiary banks issued a total of $7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualified as Tier 1 capital at each 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. Effective September 1, 2013, the Fixed Rate Noncumulative Perpetual Preferred Stock, Series B was rolled into one issue under Uwharrie Bank in connection with the consolidation and name change.
During 2013, the Companys subsidiary bank, Uwharrie Bank, raised $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.
Recent Accounting Pronouncements
In January 2014, the FASB issued ASU 2014-04, an update to ASC 310 Receivables Troubled Debt Restructurings by Creditors. The amendments in this update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The update is effective for reporting periods beginning after December 15, 2014. The Company evaluated this update and it does not have a material impact on the Companys consolidated financial statements. The Company had $1.6 million in foreclosed residential real estate and $219,000 of residential real estate in process of foreclosure at December 31, 2015.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, Topic 606 (ASU 2014-09). The new standards core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Topic 606: Deferral of the Effective Date, deferring the effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this new guidance recognized at the date of initial application. The Company is currently evaluating the provisions of ASU 2014-09 to determine the potential impact the new standard will have to the Companys financial statements.
50
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
In January 2016, the FASB issued ASU 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU address certain aspects of recognition, measurement, presentation and disclosure. The amendments in this ASU (i) require equity investments to be measured at fair value with changes in fair value recognized in net income; (ii) simplify the impairment assessment of equity investments without readily determinable fair value; (iii) require public business entities to use exit prices, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (iv) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; (v) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the balance sheet; (vi) require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (vii) stat that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets. The amendments in this ASU are effective for public business entities for fiscal periods beginning after December 15, 2017, including interim period within those fiscal years. The ASU only permits early adoption of the instrument-specific credit risk provision. We are currently evaluating the impact of the new standard.
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.
Reclassification
Certain amounts in the 2014 and 2013 financial statements have been reclassified to conform to the 2015 presentation. These reclassifications do not have a material impact on net income or shareholders equity.
Note 2 - Investment Securities
Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:
December 31, 2015 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
(dollars in thousands) | ||||||||||||||||
Securities available for sale |
||||||||||||||||
U.S. Treasury |
$ | 4,026 | $ | | $ | 14 | $ | 4,012 | ||||||||
U.S. Government agencies |
36,159 | 99 | 188 | 36,070 | ||||||||||||
GSE - Mortgage-backed securities and CMOs |
30,269 | 53 | 549 | 29,773 | ||||||||||||
State and political subdivisions |
13,691 | 351 | 3 | 14,039 | ||||||||||||
Corporate bonds |
5,435 | | 71 | 5,364 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale |
$ | 89,580 | $ | 503 | $ | 825 | $ | 89,258 | ||||||||
|
|
|
|
|
|
|
|
51
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Investment Securities (Continued)
December 31, 2015 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Securities held to maturity |
||||||||||||||||
U.S. Government agencies |
$ | 1,911 | $ | | $ | 5 | $ | 1,906 | ||||||||
State and political subdivisions |
5,993 | 30 | 5 | 6,018 | ||||||||||||
Corporate bonds |
3,338 | | 20 | 3,318 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities held to maturity |
$ | 11,242 | $ | 30 | $ | 30 | $ | 11,242 | ||||||||
|
|
|
|
|
|
|
|
December 31, 2014 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Securities available for sale |
||||||||||||||||
U.S. Treasury |
$ | 19,030 | $ | 362 | $ | 6 | $ | 19,386 | ||||||||
U.S. Government agencies |
50,969 | 96 | 290 | 50,775 | ||||||||||||
GSE - Mortgage-backed securities and CMOs |
27,748 | 133 | 309 | 27,572 | ||||||||||||
State and political subdivisions |
11,575 | 505 | | 12,080 | ||||||||||||
Corporate bonds |
3,040 | | 29 | 3,011 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale |
$ | 112,362 | $ | 1,096 | $ | 634 | $ | 112,824 | ||||||||
|
|
|
|
|
|
|
|
December 31, 2014 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Securities held to maturity |
||||||||||||||||
U.S. Government agencies |
$ | 2,085 | $ | | $ | 32 | $ | 2,053 | ||||||||
Corporate bonds |
3,411 | | 14 | 3,397 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities held to maturity |
$ | 5,496 | $ | | $ | 46 | $ | 5,450 | ||||||||
|
|
|
|
|
|
|
|
At December 31, 2015 and December 31, 2014, the Company owned Federal Reserve Bank stock reported at cost of $507,000 and $506,000, respectively. Also at December 31, 2015 and December 31, 2014, the Company owned Federal Home Loan Bank Stock (FHLB) of $533,000 and $532,000, respectively. The investments in Federal Reserve stock and FHLB stock are required investments related to the Companys membership in, and borrowings with, these banks and 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 that the fair value approximated cost and that these investments were not impaired at December 31, 2015.
Results from sales and calls of securities available for sale for the years ended December 31, 2015, 2014 and 2013 are as follows:
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands) | ||||||||||||
Gross proceeds from sales and calls |
$ | 32,780 | $ | 11,592 | $ | 20,182 | ||||||
|
|
|
|
|
|
|||||||
Realized gains from sales |
$ | 536 | $ | 28 | $ | 41 | ||||||
Realized losses from sales |
| (30 | ) | (564 | ) | |||||||
|
|
|
|
|
|
|||||||
Net realized gains (losses) |
$ | 536 | $ | (2 | ) | $ | (523 | ) | ||||
|
|
|
|
|
|
At December 31, 2015, 2014 and 2013 securities available for sale with a carrying amount of $68.8 million, $84.7 million and $63.1 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
52
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Investment Securities (Continued)
The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2015 and December 31, 2014. We believe these 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. At December 31, 2015, the unrealized losses on available for sale securities less than twelve months related to one U.S. Treasury, five government agency bonds, eight government sponsored enterprise (GSE) mortgage backed securities, two corporate bonds and one state and political subdivision bond. The Company had six government agency bonds, four GSE mortgage backed securities and one corporate bond that had been in a loss position for more than twelve months. At December 31, 2015, the unrealized losses on held to maturity securities related to one government agency security, two corporate bonds and two state and political subdivision bonds. At December 31, 2014, the unrealized losses on available for sale securities related to one United States Treasury note, thirteen government agency bonds, eight GSE mortgage backed securities and two corporate bonds. At December 31, 2014, the unrealized losses on held to maturity securities related to one government agency security and two corporate bonds.
December 31, 2015
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Securities available for sale temporary impairment |
||||||||||||||||||||||||
U.S. Treasury |
$ | 4,013 | $ | 14 | $ | | $ | | $ | 4,013 | $ | 14 | ||||||||||||
U.S. Govt agencies |
16,692 | 128 | 5,048 | 60 | 21,740 | 188 | ||||||||||||||||||
GSE-Mortgage-backed securities and CMOs |
15,620 | 290 | 7,230 | 259 | 22,850 | 549 | ||||||||||||||||||
State and political |
465 | 3 | | | 465 | 3 | ||||||||||||||||||
Corporate bonds |
4,566 | 55 | 798 | 16 | 5,364 | 71 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total securities available for sale |
$ | 41,356 | $ | 490 | $ | 13,076 | $ | 335 | $ | 54,432 | $ | 825 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Held to maturity temporary impairment |
||||||||||||||||||||||||
U.S. Govt agencies |
$ | 1,906 | $ | 5 | $ | | $ | | $ | 1,906 | $ | 5 | ||||||||||||
State and political |
3,318 | 5 | | | 3,318 | 5 | ||||||||||||||||||
Corporate bonds |
1,312 | 20 | | | 1,312 | 20 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total securities held to maturity |
$ | 6,536 | $ | 30 | $ | | $ | | $ | 6,536 | $ | 30 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Securities available for sale temporary impairment |
||||||||||||||||||||||||
U.S. Treasury |
$ | 3,143 | $ | 6 | $ | | $ | | $ | 3,143 | $ | 6 | ||||||||||||
U.S. Govt agencies |
9,690 | 23 | 17,776 | 267 | 27,466 | 290 | ||||||||||||||||||
GSE-Mortgage-backed securities and CMOs |
1,990 | 4 | 14,168 | 305 | 16,158 | 309 | ||||||||||||||||||
Corporate bonds |
3,011 | 29 | | | 3,011 | 29 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total securities available for sale |
$ | 17,834 | $ | 62 | $ | 31,944 | $ | 572 | $ | 49,778 | $ | 634 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
53
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Investment Securities (Continued)
December 31, 2014
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Held to maturity temporary impairment |
||||||||||||||||||||||||
U.S. Govt agencies |
$ | 2,053 | $ | 32 | $ | | $ | | $ | 2,053 | $ | 32 | ||||||||||||
Corporate bonds |
3,397 | 14 | | | 3,397 | 14 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total securities held to maturity |
$ | 5,450 | $ | 46 | $ | | $ | | $ | 5,450 | $ | 46 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The Company did have six government agency securities, four GSE mortgage backed securities and one corporate bond that had been in a loss position for more than twelve months that are in the investments available for sale portfolio. Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for other-than-temporary impairment 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 and the intent and the 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 but that the losses are temporary in nature. At December 31, 2015, the Company does not intend to sell and is not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.
The following table shows contractual maturities of the entire investment portfolio as of December 31, 2015:
Amortized Cost |
Estimated Fair Value |
|||||||
(dollars in thousands) | ||||||||
Due within one year |
$ | 2,871 | $ | 2,872 | ||||
Due after one but within five years |
37,759 | 37,821 | ||||||
Due after five but within ten years |
15,111 | 15,076 | ||||||
Due after ten years |
14,812 | 14,958 | ||||||
Mortgage backed securities |
30,269 | 29,773 | ||||||
|
|
|
|
|||||
$ | 100,822 | $ | 100,500 | |||||
|
|
|
|
The mortgage-backed securities are shown separately as they are not due at a single maturity date.
54
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 Loans Held for Investment
The composition of net loans held for investment by class as of December 31, 2015 and 2014 is as follows:
2015 | 2014 | |||||||
(dollars in thousands) | ||||||||
Commercial |
||||||||
Commercial |
$ | 52,311 | $ | 47,418 | ||||
Real estate - commercial |
101,198 | 92,517 | ||||||
Other real estate construction loans |
17,692 | 22,362 | ||||||
Noncommercial |
||||||||
Real estate 1-4 family construction |
5,629 | 3,888 | ||||||
Real estate - residential |
83,379 | 89,374 | ||||||
Home equity |
49,420 | 46,360 | ||||||
Consumer loans |
8,982 | 8,460 | ||||||
Other loans |
1,481 | 481 | ||||||
|
|
|
|
|||||
320,092 | 310,860 | |||||||
Less: |
||||||||
Allowance for loan losses |
(2,884 | ) | (3,738 | ) | ||||
Deferred loan (fees) costs, net |
40 | (7 | ) | |||||
|
|
|
|
|||||
Loans held for investment, net |
$ | 317,248 | $ | 307,115 | ||||
|
|
|
|
Although the subsidiary bank loan portfolio is diversified, there is a concentration of mortgage real estate loans, primarily 1 to 4 family residential mortgage loans, which represent 43.25% of total loans. Additionally, there is concentration in commercial loans secured primarily by real estate, shopping center locations, commercial land development, commercial buildings and equipment that represent 53.48% of total loans. There is not a concentration of a particular type of credit in this group of commercial loans.
Total recorded investment in impaired loans, which consisted of nonaccrual loans and other loans identified by management as impaired, totaled $5.5 million and $7.6 million at December 31, 2015 and 2014, respectively. There were no loans 90 days past due and still accruing at December 31, 2015 or at December 31, 2014.
Restructured loans at December 31, 2015 totaled $4.7 million and are included in the impaired loan total, compared to $6.0 million which were included in impaired loans at December 31, 2014. The carrying value of foreclosed properties held as other real estate was $5.0 million and $5.9 million at December 31, 2015 and 2014, respectively.
The Company had loans of $135.9 million and $128.9 million pledged to borrowings at Federal Home Loan Bank and the Federal Reserve Bank at December 31, 2015 and 2014, respectively.
The Companys 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.
55
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31, 2015, 2014 and 2013 are presented below:
Commercial |
2015 | 2014 | 2013 | |||||||||
(dollars in thousands) | ||||||||||||
Balance, beginning of year |
$ | 1,716 | $ | 2,665 | $ | 2,791 | ||||||
Provision (recovery) charged to operations |
(527 | ) | (302 | ) | 784 | |||||||
Charge-offs |
(89 | ) | (749 | ) | (1,005 | ) | ||||||
Recoveries |
210 | 102 | 96 | |||||||||
|
|
|
|
|
|
|||||||
Net (charge-offs) |
121 | (647 | ) | (909 | ) | |||||||
|
|
|
|
|
|
|||||||
Other |
| | (1 | ) | ||||||||
|
|
|
|
|
|
|||||||
Balance, end of year |
$ | 1,310 | $ | 1,716 | $ | 2,665 | ||||||
|
|
|
|
|
|
|||||||
Non-Commercial |
2015 | 2014 | 2013 | |||||||||
(dollars in thousands) | ||||||||||||
Balance, beginning of year |
$ | 2,022 | $ | 2,430 | $ | 4,010 | ||||||
Provision (recovery) charged to operations |
(93 | ) | (87 | ) | (756 | ) | ||||||
Charge-offs |
(500 | ) | (482 | ) | (966 | ) | ||||||
Recoveries |
145 | 161 | 146 | |||||||||
|
|
|
|
|
|
|||||||
Net (charge-offs) |
(355 | ) | (321 | ) | (820 | ) | ||||||
|
|
|
|
|
|
|||||||
Other |
| | (4 | ) | ||||||||
|
|
|
|
|
|
|||||||
Balance, end of year |
$ | 1,574 | $ | 2,022 | $ | 2,430 | ||||||
|
|
|
|
|
|
|||||||
Total |
2015 | 2014 | 2013 | |||||||||
(dollars in thousands) | ||||||||||||
Balance, beginning of year |
$ | 3,738 | $ | 5,095 | $ | 6,801 | ||||||
Provision (recovery) charged to operations |
(620 | ) | (389 | ) | 28 | |||||||
Charge-offs |
(589 | ) | (1,231 | ) | (1,971 | ) | ||||||
Recoveries |
355 | 263 | 242 | |||||||||
|
|
|
|
|
|
|||||||
Net (charge-offs) |
(234 | ) | (968 | ) | (1,729 | ) | ||||||
|
|
|
|
|
|
|||||||
Other |
| | (5 | ) | ||||||||
|
|
|
|
|
|
|||||||
Balance, end of year |
$ | 2,884 | $ | 3,738 | $ | 5,095 | ||||||
|
|
|
|
|
|
During the third quarter of 2015, the Company made a change to their Allowance for Loan Loss methodology model. One of the components utilized in the model is Beacon 5 scores. During the third quarter, this was changed to FICO 9 scores. The impact of this change accounted for approximately a $20,000 decrease in the allowance Refer to the Asset Quality discussion on page 91 for further information.
The following table shows period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at December 31, 2015 and 2014:
December 31, 2015
Individually Evaluated | Collectively Evaluated | Total | ||||||||||||||||||||||
Reserve | Loans | Reserve | Loans | Reserve | Loans | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 18 | $ | 1,019 | $ | 1,292 | $ | 170,182 | $ | 1,310 | $ | 171,201 | ||||||||||||
Non-Commercial |
163 | 4,459 | 1,411 | 144,472 | 1,574 | 148,931 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 181 | $ | 5,478 | $ | 2,703 | $ | 314,654 | $ | 2,884 | $ | 320,132 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
56
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
December 31, 2014
Individually Evaluated | Collectively Evaluated | Total | ||||||||||||||||||||||
Reserve | Loans | Reserve | Loans | Reserve | Loans | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 179 | $ | 2,125 | $ | 1,537 | $ | 160,172 | $ | 1,716 | $ | 162,297 | ||||||||||||
Non-Commercial |
277 | 5,436 | 1,745 | 143,120 | 2,022 | 148,556 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 456 | $ | 7,561 | $ | 3,282 | $ | 303,292 | $ | 3,738 | $ | 310,853 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Past due loan information is used by management when assessing the adequacy of the allowance for loan loss. The following tables summarize the past due information of the loan portfolio by class:
December 31, 2015
Loans 30-89 Days Past Due |
Loans 90 Days or More Past due and Non - Accrual |
Total Past Due Loans |
Current Loans |
Total Loans |
Accruing Loans 90 or More Days Past Due |
|||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 46 | $ | 34 | $ | 80 | $ | 52,231 | $ | 52,311 | $ | | ||||||||||||
Real estate - commercial |
74 | | 74 | 101,124 | 101,198 | | ||||||||||||||||||
Other real estate construction |
110 | 195 | 305 | 17,387 | 17,692 | | ||||||||||||||||||
Real estate construction |
| | | 5,629 | 5,629 | | ||||||||||||||||||
Real estate - residential |
1,580 | 541 | 2,121 | 81,298 | 83,419 | | ||||||||||||||||||
Home equity |
75 | 13 | 88 | 49,332 | 49,420 | | ||||||||||||||||||
Consumer loan |
39 | | 39 | 8,943 | 8,982 | | ||||||||||||||||||
Other loans |
| | | 1,481 | 1,481 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 1,924 | $ | 783 | $ | 2,707 | $ | 317,425 | $ | 320,132 | $ | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2014 | ||||||||||||||||||||||||
Loans 30-89 Days Past Due |
Loans 90 Days or More Past due and Non - Accrual |
Total Past Due Loans |
Current Loans |
Total Loans |
Accruing Loans 90 or More Days Past Due |
|||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 42 | $ | | $ | 42 | $ | 47,376 | $ | 47,418 | $ | | ||||||||||||
Real estate - commercial |
77 | 794 | 871 | 91,646 | 92,517 | | ||||||||||||||||||
Other real estate construction |
| 342 | 342 | 22,020 | 22,362 | | ||||||||||||||||||
Real estate construction |
| | | 3,888 | 3,888 | | ||||||||||||||||||
Real estate - residential |
1,673 | 1,097 | 2,770 | 86,597 | 89,367 | | ||||||||||||||||||
Home equity |
89 | 13 | 102 | 46,258 | 46,360 | | ||||||||||||||||||
Consumer loan |
123 | | 123 | 8,337 | 8,460 | | ||||||||||||||||||
Other loans |
| | | 481 | 481 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 2,004 | $ | 2,246 | $ | 4,250 | $ | 306,603 | $ | 310,853 | $ | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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.
57
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
The composition of nonaccrual loans by class as of December 31, 2015 and 2014 is as follows:
2015 | 2014 | |||||||
(dollars in thousands) | ||||||||
Commercial |
$ | 34 | $ | | ||||
Real estate - commercial |
| 794 | ||||||
Other real estate construction |
195 | 342 | ||||||
Real estate 1 4 family construction |
| | ||||||
Real estate residential |
541 | 1,097 | ||||||
Home equity |
13 | 13 | ||||||
Consumer loans |
| | ||||||
Other loans |
| | ||||||
|
|
|
|
|||||
$ | 783 | $ | 2,246 | |||||
|
|
|
|
Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and to measure the adequacy of the allowance for loan losses. In this program, risk grades are initially assigned by the loan officers and reviewed and monitored by the lenders and credit administration on an ongoing basis. The program has eight risk grades summarized in five categories as follows:
Pass: Loans that are pass grade credits include loans that are fundamentally sound and risk factors are reasonable and acceptable. They generally conform to policy with only minor exceptions and any major exceptions are clearly mitigated by other economic factors.
Watch: Loans that are watch credits include loans on managements watch list where a risk concern may be anticipated in the near future.
Substandard: Loans that are considered substandard are loans that are inadequately protected by current sound net worth, 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.
58
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
The tables below summarize risk grades of the loan portfolio by class as of December 31, 2015 and 2014:
December 31, 2015 | ||||||||||||||||||||
Pass | Watch | Sub- standard |
Doubtful | Total | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Commercial |
$ | 52,096 | $ | 130 | $ | 85 | $ | | $ | 52,311 | ||||||||||
Real estate - commercial |
97,506 | 1,161 | 2,531 | | 101,198 | |||||||||||||||
Other real estate construction |
15,163 | 1,994 | 535 | | 17,692 | |||||||||||||||
Real estate 1 - 4 family construction |
5,526 | 103 | | | 5,629 | |||||||||||||||
Real estate - residential |
71,736 | 9,398 | 2,285 | | 83,419 | |||||||||||||||
Home equity |
48,195 | 1,209 | 16 | | 49,420 | |||||||||||||||
Consumer loans |
8,583 | 394 | 5 | | 8,982 | |||||||||||||||
Other loans |
1,481 | | | | 1,481 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 300,286 | $ | 14,389 | $ | 5,457 | $ | | $ | 320,132 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2014 | ||||||||||||||||||||
Pass | Watch | Sub- standard |
Doubtful | Total | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Commercial |
$ | 46,734 | $ | 614 | $ | 70 | $ | | $ | 47,418 | ||||||||||
Real estate - commercial |
82,846 | 5,513 | 4,158 | | 92,517 | |||||||||||||||
Other real estate construction |
19,724 | 1,925 | 713 | | 22,362 | |||||||||||||||
Real estate 1 - 4 family construction |
3,888 | | | | 3,888 | |||||||||||||||
Real estate - residential |
75,859 | 10,090 | 3,418 | | 89,367 | |||||||||||||||
Home equity |
44,799 | 1,458 | 103 | | 46,360 | |||||||||||||||
Consumer loans |
8,175 | 277 | 8 | | 8,460 | |||||||||||||||
Other loans |
481 | | | | 481 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 282,506 | $ | 19,877 | $ | 8,470 | $ | | $ | 310,853 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. During 2015, nonperforming loans decreased from $2.2 million at December 31, 2014 to $783,000 at December 31, 2015, a decrease of $1.5 million. There were several loans that were foreclosed on during 2015 with the related property being moved into other real estate owned.
59
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
The following tables show the breakdown between performing and nonperforming loans by class as of December 31, 2015 and 2014:
December 31, 2015
Performing | Non- Performing |
Total | ||||||||||
(dollars in thousands) | ||||||||||||
Commercial |
$ | 52,277 | $ | 34 | $ | 52,311 | ||||||
Real estate - commercial |
101,198 | | 101,198 | |||||||||
Other real estate construction |
17,497 | 195 | 17,692 | |||||||||
Real estate 1 4 family construction |
5,629 | | 5,629 | |||||||||
Real estate residential |
82,878 | 541 | 83,419 | |||||||||
Home equity |
49,407 | 13 | 49,420 | |||||||||
Consumer loans |
8,982 | | 8,982 | |||||||||
Other loans |
1,481 | | 1,481 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 319,349 | $ | 783 | $ | 320,132 | ||||||
|
|
|
|
|
|
December 31, 2014
Performing | Non- Performing |
Total | ||||||||||
(dollars in thousands) | ||||||||||||
Commercial |
$ | 47,418 | $ | | $ | 47,418 | ||||||
Real estate - commercial |
91,723 | 794 | 92,517 | |||||||||
Other real estate construction |
22,020 | 342 | 22,362 | |||||||||
Real estate 1 4 family construction |
3,888 | | 3,888 | |||||||||
Real estate residential |
88,270 | 1,097 | 89,367 | |||||||||
Home equity |
46,347 | 13 | 46,360 | |||||||||
Consumer loans |
8,460 | | 8,460 | |||||||||
Other loans |
481 | | 481 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 308,607 | $ | 2,246 | $ | 310,853 | ||||||
|
|
|
|
|
|
Loans are considered impaired when, based on current information and events it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. If a loan is deemed impaired, a valuation analysis is performed and a specific reserve is allocated if necessary. The tables below summarize the loans deemed impaired and the amount of specific reserves allocated by class as of December 31, 2015 and 2014:
60
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
As of December 31, 2015 | Year ended December 31, 2015 |
|||||||||||||||||||||||
Recorded | Recorded | |||||||||||||||||||||||
Unpaid | Investment | Investment | Average | |||||||||||||||||||||
Principal | With No | With | Related | Recorded | Interest | |||||||||||||||||||
Balance | Allowance | Allowance | Allowance | Investment | Income | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 97 | $ | 80 | $ | 17 | $ | 2 | $ | 81 | $ | 4 | ||||||||||||
Real estate - commercial |
620 | 498 | 122 | 9 | 1,121 | 42 | ||||||||||||||||||
Other real estate construction |
840 | 195 | 107 | 7 | 281 | 3 | ||||||||||||||||||
Real estate 1 -4 family construction |
13 | | 13 | | 16 | 1 | ||||||||||||||||||
Real estate - residential |
4,343 | 1,507 | 2,836 | 163 | 4,798 | 200 | ||||||||||||||||||
Home equity |
28 | 28 | | | 50 | 1 | ||||||||||||||||||
Consumer loans |
75 | 75 | | | 37 | 2 | ||||||||||||||||||
Other loans |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 6,016 | $ | 2,383 | $ | 3,095 | $ | 181 | $ | 6,384 | $ | 253 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Year ended | ||||||||||||||||||||||||
As of December 31, 2014 | December 31, 2014 | |||||||||||||||||||||||
Recorded | Recorded | |||||||||||||||||||||||
Unpaid | Investment | Investment | Average | |||||||||||||||||||||
Principal | With No | With | Related | Recorded | Interest | |||||||||||||||||||
Balance | Allowance | Allowance | Allowance | Investment | Income | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 98 | $ | 68 | $ | 30 | $ | 30 | $ | 117 | $ | 7 | ||||||||||||
Real estate - commercial |
1,820 | 1,242 | 389 | 145 | 2,641 | 73 | ||||||||||||||||||
Other real estate construction |
934 | 342 | 54 | 4 | 1,108 | 6 | ||||||||||||||||||
Real estate 1 -4 family construction |
20 | | 20 | 1 | 109 | 1 | ||||||||||||||||||
Real estate - residential |
5,298 | 1,865 | 3,433 | 257 | 5,865 | 268 | ||||||||||||||||||
Home equity |
49 | 30 | 19 | 19 | 73 | 2 | ||||||||||||||||||
Consumer loans |
69 | 29 | 40 | | 83 | 4 | ||||||||||||||||||
Other loans |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 8,288 | $ | 3,576 | $ | 3,985 | $ | 456 | $ | 9,996 | $ | 361 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Year ended | ||||||||||||||||||||||||
As of December 31, 2013 | December 31, 2013 | |||||||||||||||||||||||
Recorded | Recorded | |||||||||||||||||||||||
Unpaid | Investment | Investment | Average | |||||||||||||||||||||
Principal | With No | With | Related | Recorded | Interest | |||||||||||||||||||
Balance | Allowance | Allowance | Allowance | Investment | Income | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 377 | $ | 291 | $ | 86 | $ | 67 | $ | 845 | $ | 21 | ||||||||||||
Real estate - commercial |
6,808 | 3,962 | 2,375 | 507 | 7,089 | 328 | ||||||||||||||||||
Other real estate construction |
2,034 | 247 | 1,739 | 945 | 2,078 | 17 | ||||||||||||||||||
Real estate 1 -4 family construction |
374 | 25 | 349 | 16 | 380 | 23 | ||||||||||||||||||
Real estate - residential |
8,197 | 4,619 | 3,329 | 530 | 8,507 | 300 | ||||||||||||||||||
Home equity |
415 | 58 | 357 | 279 | 819 | 8 | ||||||||||||||||||
Consumer loans |
116 | 61 | 55 | 43 | 156 | 14 | ||||||||||||||||||
Other loans |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 18,321 | $ | 9,263 | $ | 8,290 | $ | 2,387 | $ | 19,874 | $ | 711 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
61
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 Troubled Debt Restructures
A modification of a loan constitutes a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. The Company offers various types of concessions when modifying loans to troubled borrowers, however, forgiveness of principal is rarely granted. Concessions offered are term extensions, capitalizing accrued interest, reducing interest rates to below current market rates or a combination of any of these. Combinations from time to time may include allowing a customer to be placed on interest-only payments. The presentations below in the other category are TDRs with a combination of concessions. At the time of a TDR, additional collateral or a guarantor may be requested.
Loans modified as TDRs are typically already on nonaccrual status and in some cases, partial chargeoffs may have already been taken against the outstanding loan balance. The Company classifies TDR loans as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis. An allowance is based on either the present value of expected future cash flows discounted at the loans effective interest rate, the loans observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan is deemed to be collateral dependent.
For the twelve months ended December 31, 2015, 2014 and 2013, the following table presents a breakdown of the types of concessions made by loan class:
Year ended December 31, 2015 | ||||||||||||
Pre-Modification | Post-Modification | |||||||||||
Number | Outstanding Recorded | Outstanding Recorded | ||||||||||
of Contracts | Investment | Investment | ||||||||||
(dollars in thousands) | ||||||||||||
Extend payment terms: |
||||||||||||
Commercial |
| $ | | $ | | |||||||
Real estate - commercial |
| | | |||||||||
Other real estate construction |
| | | |||||||||
Real estate 1 4 family construction |
| | | |||||||||
Real estate residential |
| | | |||||||||
Home equity |
| | | |||||||||
Consumer loans |
| | | |||||||||
Other loans |
| | | |||||||||
|
|
|
|
|
|
|||||||
| $ | | $ | | ||||||||
|
|
|
|
|
|
|||||||
Other: |
||||||||||||
Commercial |
2 | $ | 65 | $ | 44 | |||||||
Real estate - commercial |
| | | |||||||||
Other real estate construction |
1 | 55 | 55 | |||||||||
Real estate 1 4 family construction |
| | | |||||||||
Real estate residential |
6 | 535 | 521 | |||||||||
Home equity |
| | | |||||||||
Consumer loans |
| | | |||||||||
Other loans |
1 | 73 | 53 | |||||||||
|
|
|
|
|
|
|||||||
10 | $ | 728 | $ | 673 | ||||||||
|
|
|
|
|
|
|||||||
Total |
10 | $ | 728 | $ | 673 | |||||||
|
|
|
|
|
|
62
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 Troubled Debt Restructures (Continued)
Year ended December 31, 2014 | ||||||||||||
Pre-Modification | Post-Modification | |||||||||||
Number | Outstanding Recorded | Outstanding Recorded | ||||||||||
of Contracts | Investment | Investment | ||||||||||
(dollars in thousands) | ||||||||||||
Extend payment terms: |
||||||||||||
Commercial |
| $ | | $ | | |||||||
Real estate - commercial |
| | | |||||||||
Other real estate construction |
| | | |||||||||
Real estate 1 4 family construction |
| | | |||||||||
Real estate residential |
| | | |||||||||
Home equity |
| | | |||||||||
Consumer loans |
1 | 32 | 32 | |||||||||
Other loans |
| | | |||||||||
|
|
|
|
|
|
|||||||
1 | $ | 32 | $ | 32 | ||||||||
|
|
|
|
|
|
|||||||
Other: |
||||||||||||
Commercial |
| $ | | $ | | |||||||
Real estate - commercial |
3 | 424 | 424 | |||||||||
Other real estate construction |
| | | |||||||||
Real estate 1 4 family construction |
| | | |||||||||
Real estate residential |
6 | 870 | 870 | |||||||||
Home equity |
| | | |||||||||
Consumer loans |
| | | |||||||||
Other loans |
| | | |||||||||
|
|
|
|
|
|
|||||||
9 | $ | 1,294 | $ | 1,294 | ||||||||
|
|
|
|
|
|
|||||||
Total |
10 | $ | 1,326 | $ | 1,326 | |||||||
|
|
|
|
|
|
63
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 Troubled Debt Restructures (Continued)
Year ended December 31, 2013 | ||||||||||||
Pre-Modification | Post-Modification | |||||||||||
Number | Outstanding Recorded | Outstanding Recorded | ||||||||||
of Contracts | Investment | Investment | ||||||||||
(dollars in thousands) | ||||||||||||
Extend payment terms: |
||||||||||||
Commercial |
| $ | | $ | | |||||||
Real estate - commercial |
| | | |||||||||
Other real estate construction |
| | | |||||||||
Real estate 1 4 family construction |
| | | |||||||||
Real estate residential |
| | | |||||||||
Home equity |
| | | |||||||||
Consumer loans |
| | | |||||||||
Other loans |
| | | |||||||||
|
|
|
|
|
|
|||||||
| $ | | $ | | ||||||||
|
|
|
|
|
|
|||||||
Other: |
||||||||||||
Commercial |
| $ | | $ | | |||||||
Real estate - commercial |
1 | 356 | 341 | |||||||||
Other real estate construction |
| | | |||||||||
Real estate 1 4 family construction |
| | | |||||||||
Real estate residential |
8 | 895 | 875 | |||||||||
Home equity |
1 | 18 | 18 | |||||||||
Consumer loans |
| | | |||||||||
Other loans |
| | | |||||||||
|
|
|
|
|
|
|||||||
10 | $ | 1,269 | $ | 1,234 | ||||||||
|
|
|
|
|
|
|||||||
Total |
10 | $ | 1,269 | $ | 1,234 | |||||||
|
|
|
|
|
|
During the twelve months ended December 31, 2015, 2014 and 2013, there were no TDRs for which there was a payment default.
A default on a troubled debt restructure is defined as being past due 90 days or being out of compliance with the modification agreement. As previously mentioned, the Company considers TDRs to be impaired loans and has $177,000 in the allowance for loan loss as of December 31, 2015, as a direct result of these TDRs. At December 31, 2014 and 2013 there was $373,000 and $420,000 in the allowance for loan loss related to TDRs, respectively.
64
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 Troubled Debt Restructures (Continued)
The following table presents the successes and failures of the types of modifications within the previous twelve months as of December 31, 2015, 2014 and 2013:
Paid In Full | Paying as restructured | Converted to nonaccrual | Foreclosure/ Default | |||||||||||||||||||||||||||||
Number of | Recorded | Number of | Recorded | Number of | Recorded | Number of | Recorded | |||||||||||||||||||||||||
Loans | Investments | Loans | Investments | Loans | Investments | Loans | Investments | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
December 31, 2015 |
||||||||||||||||||||||||||||||||
Extended payment terms |
| $ | | | $ | | | $ | | | $ | | ||||||||||||||||||||
Other |
| | 10 | 728 | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
| $ | | 10 | $ | 728 | | $ | | | $ | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid In Full | Paying as restructured | Converted to nonaccrual | Foreclosure/ Default | |||||||||||||||||||||||||||||
Number of | Recorded | Number of | Recorded | Number of | Recorded | Number of | Recorded | |||||||||||||||||||||||||
Loans | Investments | Loans | Investments | Loans | Investments | Loans | Investments | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
December 31, 2014 |
||||||||||||||||||||||||||||||||
Extended payment terms |
| $ | | 1 | $ | 32 | | $ | | | $ | | ||||||||||||||||||||
Other |
1 | 112 | 8 | 1,182 | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
1 | $ | 112 | 9 | $ | 1,214 | | $ | | | $ | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid In Full | Paying as restructured | Converted to nonaccrual | Foreclosure/ Default | |||||||||||||||||||||||||||||
Number of | Recorded | Number of | Recorded | Number of | Recorded | Number of | Recorded | |||||||||||||||||||||||||
Loans | Investments | Loans | Investments | Loans | Investments | Loans | Investments | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
December 31, 2013 |
||||||||||||||||||||||||||||||||
Extended payment terms |
| $ | | | $ | | | $ | | | $ | | ||||||||||||||||||||
Other |
| | 10 | 1,234 | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
| $ | | 10 | $ | 1,234 | | $ | | | $ | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Mortgage Servicing Assets
The principal balance of loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage and other loans serviced for others were approximately $406 million and $396 million at December 31, 2015 and 2014, respectively. The carrying value of capitalized servicing rights, net of valuation allowances, is included in other assets. A summary of mortgage servicing rights follows:
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands) | ||||||||||||
Beginning of year mortgage servicing rights: |
$ | 2,072 | $ | 2,356 | $ | 2,394 | ||||||
Amounts capitalized |
657 | 386 | 763 | |||||||||
Amortization |
(689 | ) | (709 | ) | (801 | ) | ||||||
Impairment |
| 39 | | |||||||||
|
|
|
|
|
|
|||||||
End of year |
$ | 2,040 | $ | 2,072 | $ | 2,356 | ||||||
|
|
|
|
|
|
65
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 6 Mortgage Servicing Assets (Continued)
Amortization expense is estimated as follows:
Year ending December 31, |
||||
(dollars in thousands) | ||||
2016 |
$ | 482 | ||
2017 |
417 | |||
2018 |
352 | |||
2019 |
287 | |||
2020 |
223 | |||
Thereafter |
279 | |||
|
|
|||
Total |
$ | 2,040 | ||
|
|
The amortization does not anticipate or pro-forma loan prepayments.
The fair value of mortgage servicing rights was $3.3 million at December 31, 2015 and $3.2 million at December 31, 2014. The key assumptions used to value mortgage servicing rights were as follows:
2015 | 2014 | |||||||
Weighted average remaining life |
257 months | 256 months | ||||||
Weighted average discount rate |
10 | % | 10 | % | ||||
Weighted average coupon |
3.95 | % | 3.98 | % | ||||
Weighted average prepayment speed |
171 | % | 187 | % |
Note 7 - Premises and Equipment
The major classes of premises and equipment and the total accumulated depreciation at December 31, 2015 and 2014 are listed below:
2015 | 2014 | |||||||
(dollars in thousands) | ||||||||
Land |
$ | 3,302 | $ | 3,302 | ||||
Building and improvements |
12,808 | 12,701 | ||||||
Furniture and equipment |
8,901 | 8,439 | ||||||
|
|
|
|
|||||
Total fixed assets |
25,011 | 24,442 | ||||||
Less accumulated depreciation |
10,345 | 9,584 | ||||||
|
|
|
|
|||||
Net fixed assets |
$ | 14,666 | $ | 14,858 | ||||
|
|
|
|
Note 8 Leases
The Companys subsidiary, Uwharrie Bank had entered into a noncancelable operating lease for an administrative office location in Concord that would have expired in 2017. The lease required annual rental payments of $62,120 and contained two five-year renewal options at the expiration of the initial term. During 2014, the Company purchased this location.
During 2015, Uwharrie Bank entered into a lease for a loan production office in Charlotte. This lease is a month to month lease with monthly rental payments of $2,888.
66
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 Leases (Continued)
Total rental expense related to the operating leases was $25,529, $16,230, and $61,914 for the years ended December 31, 2015, 2014 and 2013, respectively, and is included in net occupancy expense.
Note 9 - Deposits
The composition of deposits at December 31, 2015 and 2014 is as follows:
2015 | 2014 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
Amount | of Total | Amount | of Total | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Demand noninterest-bearing |
$ | 92,524 | 20 | % | $ | 80,069 | 18 | % | ||||||||
Interest checking and money market |
252,345 | 54 | % | 243,116 | 53 | % | ||||||||||
Savings |
40,436 | 8 | % | 39,091 | 9 | % | ||||||||||
Time deposits $250,000 and over |
8,148 | 2 | % | 9,865 | 2 | % | ||||||||||
Other time deposits |
74,280 | 16 | % | 84,294 | 18 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 467,733 | 100 | % | $ | 456,435 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
The maturities of fixed-rate time deposits at December 31, 2015 are reflected in the table below:
Time Deposits |
Other | |||||||
Year ending December 31, |
$250,000 and Over |
Time Deposits |
||||||
(dollars in thousands) | ||||||||
2016 |
$ | 4,841 | $ | 56,238 | ||||
2017 |
3,307 | 9,237 | ||||||
2018 |
| 2,538 | ||||||
2019 |
| 1,578 | ||||||
2020 |
| 4,591 | ||||||
Thereafter |
| 98 | ||||||
|
|
|
|
|||||
Total |
$ | 8,148 | $ | 74,280 | ||||
|
|
|
|
Note 10 - 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 2015 and 2014:
2015 | 2014 | |||||||||||||||
Amount | Rate | Amount | Rate | |||||||||||||
(dollars in thousands) | ||||||||||||||||
At year-end |
||||||||||||||||
Master notes and other short term borrowing |
$ | 3,396 | 0.25 | % | $ | 3,674 | 0.25 | % | ||||||||
Notes payable |
12 | 6.00 | % | 11 | 6.00 | % | ||||||||||
Short-term line of credit |
2,350 | 3.50 | % | 1,000 | 3.75 | % | ||||||||||
Short-term advances from FHLB |
| 0.00 | % | | 0.00 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 5,758 | 1.59 | % | $ | 4,685 | 1.01 | % | |||||||||
|
|
|
|
|
|
|
|
67
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Short-Term Borrowed Funds (Continued)
2015 | 2014 | |||||||||||||||
Amount | Rate | Amount | Rate | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Average for the year |
||||||||||||||||
Federal funds purchased |
$ | 2 | 0.79 | % | $ | 2 | 0.79 | % | ||||||||
Master notes and other short term borrowing |
3,280 | 0.25 | % | 4,250 | 0.44 | % | ||||||||||
Notes payable |
18 | 6.00 | % | 11 | 6.00 | % | ||||||||||
Short-term line of credit |
1,598 | 3.51 | % | 57 | 3.75 | % | ||||||||||
Short-term advances from FHLB |
| 0.00 | % | 510 | 4.08 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 4,898 | 1.32 | % | $ | 4,830 | 0.88 | % | |||||||||
|
|
|
|
|
|
|
|
2015 | 2014 | |||||||
(dollars in thousands) | ||||||||
Maximum month-end balance |
||||||||
Federal funds purchased |
$ | | $ | | ||||
Master notes and other short term borrowing |
7,736 | 4,640 | ||||||
Notes payable |
12 | 11 | ||||||
Short-term line of credit |
2,350 | 1,000 | ||||||
Short-term advances from FHLB |
| 1,500 |
Federal funds purchased represent unsecured overnight borrowings from other financial institutions. Master notes and other secured borrowings represent an overnight investment in commercial paper issued by the Company to customers of its subsidiary bank, where an agreement is in place.
The Company has a short term line of credit with $2.4 million outstanding at December 31, 2015. The line of credit has an interest rate of 3.50% and matures July 5, 2016. The line is collateralized by Uwharrie Bank Stock.
The subsidiary bank has combined available lines of credit for federal funds and Federal Reserve discount window availability in the amount of $48.7 million at December 31, 2015.
Note 11 - Long-Term Debt
The Company has a line of credit with the Federal Home Loan Bank secured by qualifying first lien and second mortgage loans and commercial real estate loans with eligible collateral value of $52.1 million with remaining availability of $52.1 million at December 31, 2015. There were no long-term advances under this line at December 31, 2015 and at December 31, 2014. The subsidiary bank also has standby letters of credit issued by the Federal Home Loan Bank to be used as collateral for public funds deposits. The aggregate amount of the letters of credit was $20.5 million at December 31, 2015.
During the first quarter of 2014, 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 $9.5 million, of which the entire $9.5 million was outstanding at December 31, 2014. These securities have a final maturity date of March 31, 2024 and may be redeemed by the Company after March 31, 2019. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.75%. All proceeds of this private placement qualify and are included in the calculation of Tier 2 capital. Once the final maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company would have a twenty percent reduction beginning at March 31, 2019.
68
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Long-Term Debt (Continued)
On November 19, 2002, the Company executed a mortgage in the amount of $129,000 for the purchase of property for branch expansion. This loan bears interest at 6.00% and is to be paid in 60 quarterly installments of $3,277. The outstanding principal balance on this note was $24,526 at December 31, 2015 down from $35,738 at December 31, 2014.
As of December 31, 2015, the scheduled maturities of these long term borrowings are as follows:
Year ending December 31, |
||||
(dollars in thousands) | ||||
2017 |
$ | 13 | ||
2018 |
| |||
2019 |
9,534 | |||
2020 |
| |||
2021 |
| |||
Thereafter |
| |||
|
|
|||
Total |
$ | 9,547 | ||
|
|
Note 12 - Income Tax Matters
The significant components of income tax expense (benefit) for the years ended December 31, 2015, 2014 and 2013 are summarized as follows:
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands) | ||||||||||||
Current tax expense (benefit): |
||||||||||||
Federal |
$ | 389 | $ | 11 | $ | (98 | ) | |||||
State |
81 | 44 | 2 | |||||||||
|
|
|
|
|
|
|||||||
Total |
470 | 55 | (96 | ) | ||||||||
|
|
|
|
|
|
|||||||
Deferred tax expense (benefit): |
||||||||||||
Federal |
228 | 458 | 285 | |||||||||
State |
108 | 135 | 153 | |||||||||
|
|
|
|
|
|
|||||||
Total |
336 | 593 | 438 | |||||||||
|
|
|
|
|
|
|||||||
Net provision for income taxes |
$ | 806 | $ | 648 | $ | 342 | ||||||
|
|
|
|
|
|
The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes is summarized below:
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands) | ||||||||||||
Tax computed at the statutory federal rate |
$ | 956 | $ | 791 | $ | 441 | ||||||
Increases (decrease) resulting from: |
||||||||||||
Tax exempt interest, net |
(280 | ) | (252 | ) | (229 | ) | ||||||
State income taxes, net of federal benefit |
125 | 118 | 102 | |||||||||
Other |
5 | (9 | ) | 28 | ||||||||
|
|
|
|
|
|
|||||||
Provision for income taxes |
$ | 806 | $ | 648 | $ | 342 | ||||||
|
|
|
|
|
|
69
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 - 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, 2015, 2014 and 2013 are as follows:
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands) | ||||||||||||
Deferred tax assets relating to: |
||||||||||||
Allowance for loan losses |
$ | 1,057 | $ | 1,395 | $ | 1,934 | ||||||
Deferred compensation |
1,080 | 975 | 853 | |||||||||
Other |
555 | 701 | 856 | |||||||||
Net unrealized loss on securities available for sale |
109 | | 289 | |||||||||
|
|
|
|
|
|
|||||||
Total deferred tax assets |
2,801 | 3,071 | 3,932 | |||||||||
Deferred tax liabilities relating to: |
||||||||||||
Net unrealized gain on securities available for sale |
| (157 | ) | | ||||||||
Premises and equipment |
(319 | ) | (371 | ) | (487 | ) | ||||||
Deferred loans fees and costs |
(213 | ) | (198 | ) | (199 | ) | ||||||
Loan servicing |
(176 | ) | (182 | ) | (201 | ) | ||||||
|
|
|
|
|
|
|||||||
Total deferred tax liabilities |
(708 | ) | (908 | ) | (887 | ) | ||||||
|
|
|
|
|
|
|||||||
Net recorded deferred tax asset |
$ | 2,093 | $ | 2,163 | $ | 3,045 | ||||||
|
|
|
|
|
|
The net deferred tax asset is included in other assets on the accompanying consolidated balance sheets.
Note 13 - 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 subsidiary banks 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 managements 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, 2015 and 2014, outstanding financial instruments whose contract amounts represent credit risk were as follows:
2015 | 2014 | |||||||
(dollars in thousands) | ||||||||
Commitments to extend credit |
$ | 82,417 | $ | 75,573 | ||||
Credit card commitments |
9,269 | 8,754 | ||||||
Standby letters of credit |
2,255 | 2,224 | ||||||
|
|
|
|
|||||
$ | 93,941 | $ | 86,551 | |||||
|
|
|
|
70
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 - Commitments and Contingencies (Continued)
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 and Mecklenburg counties. A substantial portion of the Companys customers ability to honor their contracts is dependent on the economy in these counties.
Although the Companys composition of loans is diversified, there is some concentration of mortgage real estate loans, primarily 1-to-4 family residential mortgage loans and in commercial loans secured primarily by real estate, shopping center locations, commercial land development, commercial buildings and equipment in the total portfolio. The Banks 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. Lending policy for all loans requires that they be supported by sufficient cash flows at the time of origination.
Note 14 - 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 managements opinion, do not involve more than the normal risk of collectability. All loans to directors and executive officers or their interests are submitted to the Board of Directors for approval. A summary of loans to directors, executive officers and their related interests follows:
2015 | 2014 | |||||||
(dollars in thousands) | ||||||||
Balance, at beginning of the year |
$ | 21,720 | $ | 12,667 | ||||
Disbursements during the year |
4,722 | 12,901 | ||||||
Collections during the year |
(7,234 | ) | (3,848 | ) | ||||
|
|
|
|
|||||
Balance, at end of the year |
$ | 19,208 | $ | 21,720 | ||||
|
|
|
|
At December 31, 2015, the Company had approved, but unused lines of credit, totaling $3.9 million to executive officers and directors, and their related interests.
Note 15 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.
71
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 Shareholders Equity and Regulatory Matters (Continued)
For the reserve maintenance period in effect at December 31, 2015, the subsidiary bank was required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank in the aggregate amount of $1.4 million 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.
Bank regulatory agencies approved regulatory capital guidelines (Basel III) aimed at strengthening existing capital requirements for banking organizations. Under the final rules, minimum requirements increase for both the quantity and quality of capital held by the Company. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.00% to 6.00%, require a minimum ratio of total capital to risk-weighted assets of 8.00%, and require a minimum Tier 1 leverage ratio of 4.00%. A new capital conservation buffer, comprised of common equity Tier 1 capital, was also established above the regulatory minimum capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by an additional 0.625% until reaching its final level of 2.50% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. The final rules also revise the definition and calculation of Tier 1 capital, total capital, and risk-weighted assets.
The phase-in period for the final rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance of all the final rules requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019. As of December 31, 2015, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under the new rules.
Quantitative measures established by regulation to ensure capital adequacy and the Companys 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.
72
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 Shareholders Equity and Regulatory Matters (Continued)
Minimum to Be Well | ||||||||||||||||||||||||
Minimum | Capitalized Under | |||||||||||||||||||||||
For Capital | Prompt Corrective | |||||||||||||||||||||||
Actual | Requirement | Action Provisions | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
December 31, 2015 |
||||||||||||||||||||||||
Total Capital to Risk |
||||||||||||||||||||||||
Weighted Assets: |
||||||||||||||||||||||||
Consolidated |
$ | 55,945 | 15.6 | % | $ | 28,708 | 8.0 | % | $ | 35,885 | 10.0 | % | ||||||||||||
Uwharrie Bank |
56,221 | 15.8 | % | 28,549 | 8.0 | % | 35,686 | 10.0 | % | |||||||||||||||
Tier 1 Capital to Risk |
||||||||||||||||||||||||
Weighted Assets: |
||||||||||||||||||||||||
Consolidated |
43,527 | 12.1 | % | 21,531 | 6.0 | % | 28,708 | 8.0 | % | |||||||||||||||
Uwharrie Bank |
53,337 | 15.0 | % | 21,412 | 6.0 | % | 28,549 | 8.0 | % | |||||||||||||||
Common Equity Tier 1 Capital to Risk Weighted Assets: |
||||||||||||||||||||||||
Consolidated |
32,931 | 9.2 | % | 16,148 | 5.0 | % | 23,325 | 6.5 | % | |||||||||||||||
Uwharrie Bank |
42,741 | 12.0 | % | 17,843 | 5.0 | % | 23,196 | 6.5 | % | |||||||||||||||
Tier 1 Capital to |
||||||||||||||||||||||||
Average Assets: |
||||||||||||||||||||||||
Consolidated |
43,527 | 8.2 | % | 21,225 | 4.0 | % | 26,531 | 5.0 | % | |||||||||||||||
Uwharrie Bank |
53,337 | 10.1 | % | 21,156 | 4.0 | % | 26,445 | 5.0 | % | |||||||||||||||
Minimum to Be Well | ||||||||||||||||||||||||
Minimum | Capitalized Under | |||||||||||||||||||||||
For Capital | Prompt Corrective | |||||||||||||||||||||||
Actual | Requirement | Action Provisions | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
December 31, 2014 |
||||||||||||||||||||||||
Total Capital to Risk |
||||||||||||||||||||||||
Weighted Assets: |
||||||||||||||||||||||||
Consolidated |
$ | 55,229 | 16.1 | % | $ | 27,469 | 8.0 | % | $ | N/A | | % | ||||||||||||
Uwharrie Bank |
54,933 | 16.1 | % | 27,362 | 8.0 | % | 34,202 | 10.0 | % | |||||||||||||||
Tier 1 Capital to Risk |
||||||||||||||||||||||||
Weighted Assets: |
||||||||||||||||||||||||
Consolidated |
41,957 | 12.2 | % | 13,735 | 4.0 | % | N/A | | % | |||||||||||||||
Uwharrie Bank |
51,195 | 15.0 | % | 13,681 | 4.0 | % | 20,521 | 6.0 | % | |||||||||||||||
Tier 1 Capital to |
||||||||||||||||||||||||
Average Assets: |
||||||||||||||||||||||||
Consolidated |
41,957 | 8.1 | % | 20,765 | 4.0 | % | N/A | | % | |||||||||||||||
Uwharrie Bank |
51,195 | 9.9 | % | 20,716 | 4.0 | % | 25,895 | 5.0 | % |
As of December 31, 2015, the most recent notification from the Federal Deposit Insurance Corporation categorized the Companys 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.
During 2012, each of the Companys subsidiary banks began a campaign to sell 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 sale ended on
73
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 Shareholders Equity and Regulatory Matters (Continued)
December 31, 2012 raising $7.9 million less issuance costs of $113,000. These funds were held in an escrow account at December 31, 2012 and the new preferred stock was issued in January 2013. Effective September 1, 2013, the Fixed Rate Noncumulative Perpetual Preferred Stock, Series B was rolled into one issue under Uwharrie Bank in connection with the consolidation and name change.
During 2013, the Companys subsidiary bank, Uwharrie Bank, raised $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 ended September 15, 2013 with Uwharrie raising $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.
All of the Companys aforementioned investment in its subsidiary bank qualifies for Tier 1 capital treatment for the bank and is included as such in its year end capital ratios.
Stock Repurchase Program
On February 21, 1995, the Companys Board of Directors authorized and approved a Stock Repurchase Program, to be reaffirmed annually, pursuant to which the Company may repurchase shares of the Companys common stock for the primary purpose of providing liquidity to its shareholders. During 2015 the Company repurchased 114,377 shares of outstanding common stock and repurchased 374,130 during 2014.
Note 16 - Stock Based Compensation
During 2006, the Company adopted the 2006 Incentive Stock Option Plan (SOP II) and the Employee Stock Purchase Plan (SPP II), under which options to purchase shares of the Companys common stock may be granted to officers and eligible employees. Options granted under the SOP II are exercisable in established increments according to vesting schedules, generally three to five years, and will expire if not exercised within ten years of the date of grant. Options granted under the SPP II are fully vested at the date of grant and expire if not exercised within two years of the grant date. At December 31, 2015, the SOP II had 12,859 options outstanding and the SPP II had no options outstanding.
74
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 16 - Stock Based Compensation (Continued)
Employee Stock Plans
The following is a summary of stock option activity for the year ended December 31, 2015:
Weighted | ||||||||||||
Average | Aggregate | |||||||||||
Exercise | Intrinsic Value | |||||||||||
Shares | Price | (in thousands) | ||||||||||
Options outstanding at the beginning of the year |
12,859 | $ | 5.13 | $ | | |||||||
|
|
|||||||||||
Options granted |
| | ||||||||||
Options exercised |
| | ||||||||||
Forfeitures |
| | ||||||||||
|
|
|
|
|||||||||
Options outstanding at the end of the year |
12,859 | $ | 5.13 | $ | | |||||||
|
|
|
|
|
|
|||||||
Options exercisable at the end of the year |
12,859 | $ | 5.13 | $ | | |||||||
|
|
|
|
|
|
Total options outstanding and exercisable at December 31, 2015 were 12,859 at an exercise price of $5.13 per share with a weighted average expected term of 2.12 years. At December 31, 2015, authorized shares of common stock reserved for future grants of options totaled 161,071 under the SOP II and 107,405 under the SPP II.
The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. There were no shares granted during the years ended December 31, 2014 and 2013 under the SOP II.
As of December 31, 2014, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all of the Companys stock benefit plans.
The Company funds the option shares from authorized but unissued shares. The Company does not typically purchase shares to fulfill the obligations of the stock benefit plans. Company policy does allow option holders to exercise options with seasoned shares.
There were no options exercised in 2013, 2014 or 2015.
Note 17 - 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, completes one year of eligibility service and completes at least 1,000 hours of service and is 100% vested in the plan once they enroll.
75
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17 - Employee and Director Benefit Plans (Continued)
The Companys annual contribution to the plan was $319,340 in 2015, $330,448 in 2014 and $317,281 in 2013, determined as follows:
| The Company will contribute a safe harbor matching contribution in an amount equal to: (i) 100% of the matched employee contributions that are not in excess of 3% of compensation, plus (ii) 50% of the amount of the matched employee contributions that exceed 3% of compensation, but do not exceed 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. |
Employee Stock Ownership Plan
During the first quarter of 2014, the board of directors of the Company voted to terminate the ESOP effective March 1, 2014. As of February 28, 2014, the ESOP held 740,530 shares, or 9.95% of the Companys total outstanding shares of common stock, of which 252,446 shares were unallocated to participants in the ESOP.
The Company originally made a term loan to the ESOP in 1999. In addition, the Company established a $500,000 line of credit to the ESOP in 2010 and established a second $500,000 line of credit to the ESOP in 2013. The ESOP used the proceeds of the term loan and lines of credit to purchase shares of the Companys common stock for the benefit of qualified employees. The unallocated shares of stock held by the ESOP were pledged as collateral for the term loan and lines of credit. As debt payments were made on the term loan and lines of credit, unallocated shares associated with those debt payments were released to the ESOP and allocated among participants.
In connection with the termination of the ESOP, the ESOP trustees transferred the 252,446 remaining unallocated shares to the Company in partial satisfaction of the outstanding balance on the term loan and lines of credit. The fair value of these unallocated shares was insufficient to repay the term loan and lines of credit in full. As a result, the Company expensed the remaining balance of $8,600. Upon the transfer of the unallocated shares to the Company, these shares were cancelled and returned to the Companys pool of authorized but unissued shares of common stock.
The Company filed a request for a favorable determination letter from the Internal Revenue Service as to the tax-qualified status of the ESOP on its termination.
The Company received the favorable determination letter dated September 5, 2014 from the Internal Revenue Service and during the fourth quarter all shares under the ESOP were distributed to the participants.
The Company did have expense of approximately 2% of eligible compensation as a contribution to the ESOP Plan during the first part of 2014, the same as 2013. Expenses of $45,693 and $223,283 during the years ended December 31, 2014 and 2013, respectively, were incurred in connection with the ESOP.
The ESOP had a put option that allowed the employee to put their shares back to the Company. At December 31, 2014, the Company had a liability set aside at fair value in the amount of approximately $561,000 for shares that can be put back to the Company during the first half of 2015. The put option has expired and there will no longer be a liability for the Company. This liability that had been reclassified from additional paid in capital and was presented separately on the Companys balance sheet, has now been returned to additional paid in capital.
76
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17 - Employee and Director Benefit Plans (Continued)
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 Companys expected annual funding contribution for the participants has been calculated through the participants 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 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.
During 2015, 2014 and 2013, $331,800, $316,800 and $336,800, respectively was expensed each year for benefits provided under the plans. The liability accrued for deferred compensation under the plan amounted to $3.7 million and $3.3 million at December 31, 2015 and 2014, 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 2015 and 2014, the expense associated with these policies was $86,346 and $112,176 respectively.
Stock Grant Plan
During 2015, the Company adopted the 2015 Stock Grant Plan (SGP), under which the Company, at their own 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 Common Stock to be used for Stock Grants under this Plan will be outstanding shares purchased by a revocable trust formed by the Company (the Trust). The Participant will be 100% vested in the shares purchased on their behalf as soon as the Trusts purchase is completed. The Company recognizes expense for the value of the shares at the time they are purchased by the Trust. The SGP allows for 510,000 shares to be granted and at December 31, 2015, the availability under the SGP was 491,994 shares. During 2015 there were 16,840 shares granted at an expense of $54,000.
77
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 - Fair Values of Financial Instruments and Interest Rate Risk
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, 2015 and December 31, 2014, 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 a liability could be settled for. However, given there is no active market or observable market transactions for many of the Companys 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, 2015 and December 31, 2014:
December 31, 2015
Carrying | Estimated | |||||||||||||||||||
Value | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
FINANCIAL ASSETS |
||||||||||||||||||||
Cash and cash equivalents |
$ | 68,933 | $ | 68,973 | $ | 65,198 | $ | 3,775 | $ | | ||||||||||
Securities available for sale |
89,258 | 89,258 | 4,012 | 85,246 | | |||||||||||||||
Securities held to maturity |
11,242 | 11,242 | | 11,242 | | |||||||||||||||
Loans held for investment, net |
317,248 | 313,649 | | | 313,649 | |||||||||||||||
Loans held for sale |
5,922 | 5,922 | | 5,922 | | |||||||||||||||
Restricted stock |
1,040 | 1,040 | 1,040 | | | |||||||||||||||
Accrued interest receivable |
1,564 | 1,564 | | | | |||||||||||||||
FINANCIAL LIABILITIES |
||||||||||||||||||||
Deposits |
$ | 467,733 | $ | 442,619 | $ | | $ | 442,619 | $ | | ||||||||||
Short-term borrowings |
5,758 | 5,758 | | 5,758 | | |||||||||||||||
Long-term borrowings |
13 | 13 | | 13 | ||||||||||||||||
Junior subordinated debt |
9,534 | 9,688 | | | 9,688 | |||||||||||||||
Accrued interest payable |
168 | 168 | | | 168 |
December 31, 2014
Carrying | Estimated | |||||||||||||||||||
Value | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
FINANCIAL ASSETS |
||||||||||||||||||||
Cash and cash equivalents |
$ | 50,791 | $ | 50,826 | $ | 47,605 | $ | 3,221 | $ | | ||||||||||
Securities available for sale |
112,824 | 112,824 | 19,386 | 93,438 | | |||||||||||||||
Securities held to maturity |
5,496 | 5,450 | 2,053 | 3,397 | | |||||||||||||||
Loans held for investment, net |
307,115 | 321,295 | | | 321,295 | |||||||||||||||
Loans held for sale |
2,147 | 2,147 | | 2,147 | ||||||||||||||||
Restricted stock |
1,038 | 1,038 | 1,038 | | | |||||||||||||||
Accrued interest receivable |
1,747 | 1,747 | | | 1,747 | |||||||||||||||
FINANCIAL LIABILITIES |
||||||||||||||||||||
Deposits |
$ | 456,435 | $ | 442,655 | $ | | $ | 442,655 | $ | | ||||||||||
Short-term borrowings |
4,685 | 4,685 | | 4,685 | | |||||||||||||||
Long-term borrowings |
24 | 24 | | 24 | | |||||||||||||||
Junior subordinated debt |
9,534 | 9,703 | | | 9,703 | |||||||||||||||
Accrued interest payable |
180 | 180 | | | 180 |
78
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 - Fair Values of Financial Instruments and Interest Rate Risk (Continued)
The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:
| Cash and cash equivalents The carrying amount of cash and cash equivalents approximate their fair values due to the short period of time until their expected realization and are recorded in Level 1. |
| Securities available for sale Securities available for sale are carried at fair value based on quoted and observable market prices and are recorded in Levels 1 and 2. Also see discussion in note 1 |
| Loans The fair value of loans is estimated based on discounted expected cash flows using the current interest rates at which similar loans would be made and carried in level 3. Loans held for sale, which represent current mortgage production forward sales not yet delivered, are valued based on secondary market prices. The fair value of loans does not consider the lack of liquidity and uncertainty in the market that would affect the valuation. Loans held for sale are recorded in Level 2. |
| Restricted stock It is not practicable to determine fair value of restricted stock which is comprised of Federal Home Loan Bank and Federal Reserve Bank stock due to restrictions placed on its transferability and it is presented at its carrying value and is recorded in Level 1 due to the redemption provisions of the Federal Home Loan Bank and the Federal Reserve Bank. |
| Accrued interest receivable and payable Both accrued interest receivable and payable are recorded in Level 3, as there are not active markets for these. |
| Deposits The fair value of deposits is estimated based on discounted cash flow analyses using offered market rates and is recorded in Level 2. The fair value of deposits does not consider any customer related intangibles. |
| Borrowings The fair value disclosed for short-term borrowings, which are composed of overnight borrowings and debt due within one year approximate the carrying value for such debt and is recorded in Level 2. The estimated fair value for long-term borrowings are estimated based on discounted cash flow analyses using offered market rates. Total borrowings are carried in Level 2. Junior subordinated debt is fair valued based on discounted cash flow analyses and is recorded in Level 3. |
At December 31, 2015, 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; therefore, they were deemed to have no current fair value. See Note 13.
79
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 - Fair Values of Financial Instruments and Interest Rate Risk (Continued)
The following table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and 2014:
December 31, 2015 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Securities available for sale: |
||||||||||||||||
US Treasury |
$ | 4,012 | $ | 4,012 | $ | | $ | | ||||||||
US Govt |
36,070 | | 36,070 | | ||||||||||||
Mortgage-backed securities and CMOs |
29,773 | | 29,773 | | ||||||||||||
State and political subdivisions |
14,039 | | 14,039 | | ||||||||||||
Corporate bonds |
5,364 | | 5,364 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 89,258 | $ | 4,012 | $ | 85,246 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2014 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Securities available for sale: |
||||||||||||||||
US Treasury |
$ | 19,386 | $ | 19,386 | $ | | $ | | ||||||||
US Govt |
50,775 | | 50,775 | | ||||||||||||
Mortgage-backed securities and CMOs |
27,572 | | 27,572 | | ||||||||||||
State and political subdivisions |
12,080 | | 12,080 | | ||||||||||||
Corporate bonds |
3,011 | | 3,011 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 112,824 | $ | 19,386 | $ | 93,438 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
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 that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of December 31, 2015 and December 31, 2014:
December 31, 2015 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Impaired loans |
$ | 3,108 | $ | | $ | | $ | 3,108 | ||||||||
Other real estate owned |
2,909 | | | 2,909 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 6,017 | $ | | $ | | $ | 6,017 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
80
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 - Fair Values of Financial Instruments and Interest Rate Risk (Continued)
December 31, 2014 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Impaired loans |
$ | 1,854 | $ | | $ | | $ | 1,854 | ||||||||
Other real estate owned |
3,290 | | | 3,290 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 5,144 | $ | | $ | | $ | 5,144 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
December 31, 2015
General | ||||||||
Valuation Technique |
Unobservable Input |
Range | ||||||
Nonrecurring measurements: |
||||||||
Impaired loans |
Discounted appraisals | Expected loss rates | 0 25 | % | ||||
Discounted cash flows | Discount rates | 4%-8.75 | % | |||||
OREO |
Discounted appraisals | Collateral discounts and Estimated costs to sell |
0 10 | % |
December 31, 2014
General | ||||||||
Valuation Technique |
Unobservable Input |
Range | ||||||
Nonrecurring measurements: |
||||||||
Impaired loans |
Discounted appraisals | Expected loss rates | 0 25 | % | ||||
Discounted cash flows | Discount rates | 4%-8.75 | % | |||||
OREO Estimated costs to sell |
Discounted appraisals | Collateral discounts and Estimated costs to sell |
0 10 | % |
At December 31, 2015 and 2014, impaired loans were being evaluated with discounted expected cash flows and discounted appraisals were being used on collateral dependent loans.
81
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19 - Parent Company Financial Data
The following is a summary of the condensed financial statements of Uwharrie Capital Corp:
Condensed Balance Sheets
December 31, | ||||||||
2015 | 2014 | |||||||
(dollars in thousands) | ||||||||
Assets |
||||||||
Cash and demand deposits |
$ | 246 | $ | 297 | ||||
Interest-earning deposits |
3,396 | 3,674 | ||||||
Investments in: |
||||||||
Bank subsidiaries |
42,528 | 40,931 | ||||||
Nonbank subsidiaries |
648 | 594 | ||||||
Other assets |
1,342 | 1,115 | ||||||
|
|
|
|
|||||
Total assets |
$ | 48,160 | $ | 46,611 | ||||
|
|
|
|
|||||
Liabilities and shareholders equity |
||||||||
Master notes |
$ | 3,396 | $ | 3,674 | ||||
Short term debt |
2,350 | 1,000 | ||||||
Junior subordinated debentures |
9,534 | 9,534 | ||||||
Other liabilities |
163 | 149 | ||||||
|
|
|
|
|||||
Total liabilities |
15,443 | 14,357 | ||||||
|
|
|
|
|||||
Redeemable common stock held by the Employee Stock Ownership Plan (ESOP) |
| 561 | ||||||
Shareholders equity |
32,717 | 31,693 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 48,160 | $ | 46,611 | ||||
|
|
|
|
Condensed Statements of Income
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands) | ||||||||||||
Equity in undistributed earnings (loss) of subsidiaries |
$ | 2,760 | $ | 1,456 | $ | (1,053 | ) | |||||
Dividends received from subsidiaries |
| 1,000 | 2,719 | |||||||||
Interest income |
8 | 11 | 21 | |||||||||
Management and service fees |
| | 4,347 | |||||||||
Other income |
81 | 87 | 166 | |||||||||
Interest expense |
(612 | ) | (583 | ) | (659 | ) | ||||||
Other operating expense |
(555 | ) | (624 | ) | (4,881 | ) | ||||||
Income tax benefit |
325 | 332 | 294 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 2,007 | $ | 1,679 | $ | 954 | ||||||
|
|
|
|
|
|
|||||||
Consolidated net income |
$ | 2,007 | $ | 1,679 | $ | 954 | ||||||
Less: Net income attributable to noncontrolling interest |
(592 | ) | (591 | ) | (478 | ) | ||||||
|
|
|
|
|
|
|||||||
Net income attributable to Uwharrie Capital Corp |
1,415 | 1,088 | 476 | |||||||||
Dividends preferred stock |
| | (325 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net Income (loss) available to common shareholders |
$ | 1,415 | $ | 1,088 | $ | 151 | ||||||
|
|
|
|
|
|
|||||||
Net income (loss) per common share |
||||||||||||
Basic |
$ | 0.20 | $ | 0.15 | $ | 0.02 | ||||||
|
|
|
|
|
|
|||||||
Diluted |
$ | 0.20 | $ | 0.15 | $ | 0.02 | ||||||
|
|
|
|
|
|
|||||||
Weighted average shares outstanding |
||||||||||||
Basic |
7,051,751 | 7,447,008 | 7,570,732 | |||||||||
Diluted |
7,051,751 | 7,447,008 | 7,570,732 |
82
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19 - Parent Company Financial Data (Continued)
Condensed Statements of Cash Flows
2015 | 2014 | 2013 | ||||||||||
(dollars in thousands) | ||||||||||||
Cash flows from operating activities |
||||||||||||
Net income |
$ | 2,007 | $ | 1,679 | $ | 954 | ||||||
Adjustments to reconcile net income to net cash used by operating activities: |
||||||||||||
Equity in undistributed (earnings) loss of subsidiaries |
(2,760 | ) | (1,456 | ) | 1,053 | |||||||
(Increase) decrease in other assets |
(228 | ) | 136 | 2,298 | ||||||||
Increase (decrease) in other liabilities |
14 | 78 | (305 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided (used) by operating activities |
(967 | ) | 437 | 4,000 | ||||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities |
||||||||||||
Net decrease in master notes |
(278 | ) | (324 | ) | (1,453 | ) | ||||||
Net increase in short-term debt |
1,350 | 1,000 | | |||||||||
Net repayments of issuance of junior subordinated debentures |
| (1,593 | ) | | ||||||||
Repurchase of common stock, net |
(429 | ) | (1,401 | ) | (169 | ) | ||||||
Repayment of series A preferred stock |
| | (10,500 | ) | ||||||||
Preferred stock redeemed by from bank subsidiary |
| | 7,800 | |||||||||
Increase in unearned ESOP compensation |
| | (114 | ) | ||||||||
Dividends on preferred stock |
| | (225 | ) | ||||||||
Cash paid for fractional shares |
(5 | ) | (4 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net cash used by financing activities |
638 | (2,322 | ) | (4,661 | ) | |||||||
|
|
|
|
|
|
|||||||
Net decrease in cash and cash equivalents |
(329 | ) | (1,885 | ) | (661 | ) | ||||||
Cash and cash equivalents at beginning of year |
3,971 | 5,856 | 6,517 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at end of year |
$ | 3,642 | $ | 3,971 | $ | 5,856 | ||||||
|
|
|
|
|
|
83
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Selected Financial Data
Selected Financial Data
(dollars in thousands except ratios, per share and shares outstanding information)
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Summary of Operations |
||||||||||||||||||||
Interest income |
$ | 17,847 | $ | 18,457 | $ | 19,465 | $ | 21,871 | $ | 23,822 | ||||||||||
Interest expense |
1,733 | 1,960 | 2,734 | 3,698 | 4,737 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income |
16,114 | 16,497 | 16,731 | 18,173 | 19,085 | |||||||||||||||
Provision for (recovery of) loan losses |
(620 | ) | (389 | ) | 28 | 1,832 | 3,456 | |||||||||||||
Noninterest income |
8,710 | 7,321 | 7,587 | 10,675 | 8,256 | |||||||||||||||
Noninterest expense |
22,631 | 21,880 | 22,994 | 26,247 | 22,789 | |||||||||||||||
Income taxes |
806 | 648 | 342 | 365 | 196 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 2,007 | $ | 1,679 | $ | 954 | $ | 404 | $ | 900 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Per Common Share |
||||||||||||||||||||
Net income basic (1) |
$ | 0.20 | $ | 0.15 | $ | 0.02 | $ | (0.03 | ) | $ | 0.03 | |||||||||
Net income (loss) diluted (1) |
0.20 | 0.15 | 0.02 | (0.03 | ) | 0.03 | ||||||||||||||
Book value (1) |
4.69 | 4.46 | 3.86 | 4.15 | 4.29 | |||||||||||||||
Weighted Average Shares |
||||||||||||||||||||
Outstanding: |
||||||||||||||||||||
Basic (1) |
7,051,751 | 7,447,008 | 7,570,732 | 7,669,482 | 7,769,079 | |||||||||||||||
Diluted (1) |
7,051,751 | 7,447,008 | 7,570,732 | 7,669,482 | 7,769,079 | |||||||||||||||
Ratios |
||||||||||||||||||||
Return on average assets |
0.38 | % | 0.33 | % | 0.18 | % | 0.08 | % | 0.17 | % | ||||||||||
Return on average equity |
4.65 | % | 4.03 | % | 2.17 | % | 0.90 | % | 2.02 | % | ||||||||||
Average equity to average assets |
8.27 | % | 8.11 | % | 8.34 | % | 8.52 | % | 8.39 | % | ||||||||||
Selected Year-end Balances |
||||||||||||||||||||
Assets |
$ | 532,202 | $ | 518,464 | $ | 517,320 | $ | 545,007 | $ | 526,902 | ||||||||||
Loans held for investment |
320,132 | 310,853 | 307,348 | 329,183 | 366,675 | |||||||||||||||
Securities |
100,500 | 118,320 | 100,280 | 91,638 | 88,661 | |||||||||||||||
Deposits |
467,733 | 456,435 | 453,708 | 457,612 | 431,338 | |||||||||||||||
Borrowed funds |
15,305 | 14,243 | 16,672 | 31,363 | 46,024 | |||||||||||||||
Shareholders equity |
43,314 | 42,262 | 40,509 | 42,729 | 44,254 | |||||||||||||||
Selected Average Balances |
||||||||||||||||||||
Assets |
$ | 521,699 | $ | 513,676 | $ | 527,693 | $ | 526,361 | $ | 529,970 | ||||||||||
Loans held for investment |
316,485 | 309,338 | 317,274 | 347,762 | 381,419 | |||||||||||||||
Securities |
112,348 | 109,056 | 116,333 | 102,686 | 90,701 | |||||||||||||||
Deposits |
458,655 | 451,160 | 455,146 | 440,274 | 430,998 | |||||||||||||||
Borrowed funds |
14,432 | 14,782 | 22,340 | 35,543 | 50,529 | |||||||||||||||
Shareholders equity |
43,123 | 41,681 | 43,994 | 44,868 | 44,462 |
(1) | Net income per share, book value per share, weighted average shares outstanding and shares outstanding at year-end for years 2014 through 2011 have been adjusted to reflect the 2% stock dividend in 2014 and 2015. |
84
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
A discussion and analysis of the Companys operating results and financial condition are presented in the following narrative and financial tables. The comments are intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto appearing on pages 36-86 of this Annual Report. References to changes in assets and liabilities represent end of period balances unless otherwise noted. Statements contained in this Annual Report, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary because of market and other factors. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission periodically. Such forward-looking statements may be identified by the use of such words as believe, expect, anticipate, should, might, planned, estimated, and potential. 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, general economic conditions, 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 Companys operations, pricing, products and services.
Financial Condition at December 31, 2015 and December 31, 2014
The Companys total assets increased $13.7 million from $518.5 million at December 31, 2014 to $532.2 million at December 31, 2015. This increase resulted primarily from a $9.3 million increase in loans held for investment and an increase in cash and cash equivalents of $18.1 million. These increases were offset by a decrease in investment securities available for sale of $23.6 million.
Cash and cash equivalents increased $18.1 million during the year ended December 31, 2015. Cash and due from banks increased $231,000, while interest-earning deposits with banks increased $17.9 million. This increase is attributable to the growth in deposits.
Investment securities consist of securities available for sale and securities held to maturity. Investment securities decreased $17.8 million or 15.1%, from $118.3 million at December 31, 2014 to $100.5 million combined at December 31, 2015. During the year, in an effort to improve our concentration risk in various sectors as well as to reduce our extension risk in a rising interest rate environment, management made the decision to sell $32.2 million of investment securities, including $27.3 million of US Treasuries and government agency bonds and $4.9 million of state and political subdivision bonds. There were also $2.0 million in securities called during 2015. The Company realized a net gain of $536,000 on these transactions. The Company is reinvesting the proceeds from these sales and calls and purchasing new securities that are lower duration securities as well as variable rate securities. These investments should provide better protection in a rising rate environment and were intended to help mitigate the downside risk embedded in the current portfolio. At December 31, 2015, the Company had net unrealized losses on the securities available for sale of $322,000.
Loans held for investment increased $9.3 million from $310.8 million at December 31, 2014 to $320.1 million at December 31, 2015. The growth in the portfolio was spread across several loan portfolio classes with commercial real estate experiencing the largest growth of $8.7 million or 9.4%. The commercial class, consumer class, home equity class and the real estate one-to-four
85
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
family construction all experienced appreciable growth. This growth was offset by declines in the real estate one-to-four family loan class and the other real estate commercial class, with real estate one-to-four family seeing the greatest decline of $6.0 million or 6.7%. Loans held for sale increased 104.6% or $3.8 million compared to the prior year. The allowance for loan losses was $2.9 million at December 31, 2015, which represents 0.90% of the loan portfolio, a decrease from 1.20% at December 31, 2014. Net chargeoffs decreased from $968,000 at December 31, 2014 to $234,000 at December 31, 2015.
Other changes in our consolidated assets are related to premises and equipment, restricted stock, bank owned life insurance, other real estate owned, and other assets. Bank owned life insurance increased $117,000 while premises and equipment decreased $192,000. During 2015, other real estate owned declined $871,000, from $5.9 million at December 31, 2014 to $5.0 million at December 31, 2015. Throughout 2015, the Company sold twenty-seven pieces of property totaling $2.4 million resulting in a net gain on the sale of other real estate owned of $140,000. Also during 2015, the Company had additional write downs and changes in reserves of $333,000 resulting from new appraisals and evaluations. These declines were offset by the addition of thirty-one pieces of property foreclosed on totaling $1.8 million. Restricted stock which is comprised of Federal Home Loan Bank stock and Federal Reserve Bank stock increased $2,000 because member institutions are required to increase or decrease their ownership as their utilization of FHLB borrowings change. The Companys required ownership in Federal Reserve Bank stock increased $1,000 in 2015, while the required ownership in Federal Home Loan Bank stock also increased $1,000. Other assets increased $840,000.
Customer deposits continued to be our principal funding source in 2015. At December 31, 2015, deposits from our customers totaled $467.7 million, an increase of $11.3 million from $456.4 million at December 31, 2014. Demand noninterest bearing checking increased $12.5 million, while interest checking and money market accounts and savings deposits increased $9.2 million and $1.3 million, respectively during 2015. These increases were offset by decreases in time deposits over $250,000 of $1.7 million and other time deposits of $10.0 million during 2015. In the current low rate environment, customers are continuing to stay in short term deposit products and are continuing to shift away from time deposits.
During 2015 the Companys net borrowings increased by $1.1 million. Borrowings consist of both short-term and long-term borrowed funds. The Company utilizes both short-term and long-term advances from the Federal Home Loan Bank. At December 31, 2015, there were no advances outstanding in the total borrowings of $15.3 million. During 2015, the Company put a line of credit in place. At December 31, 2015, there was $2.4 million outstanding on this line. Other components of total borrowings include $9.5 million in junior subordinated debt and $3.4 million in master notes and other secured borrowings.
Other liabilities increased from $4.8 million at December 31, 2014 to $5.7 million at December 31, 2015, an increase of $900,000.
As disclosed in Note 17 to the financial statements filed within this report, the Company voted to terminate its ESOP effective March 1, 2014. During the fourth quarter of 2014, all allocated shares were distributed to the ESOP participants. At December 31, 2014, there was $561,000 set aside to cover the liability for shares that could be put back to the Company during the first six months of 2015. After that time, the put option expired and this liability ceased to exist.
At December 31, 2015, total shareholders equity was $43.3 million, an increase of $1.0 million from December 31, 2014. Net income for the period was $2.0 million. Unrealized gains and losses on investment securities net of tax decreased $517,000. With the aforementioned
86
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
termination of the ESOP, the $561,000 of the liability set aside to cover the ESOP repurchase obligation was reallocated back to shareholders equity. The Company did repurchase 114,377 outstanding shares of common stock for an aggregate repurchase price of $429,000. Of the shares repurchased, 29,735 shares were related to the ESOP termination. The Company also has $592,000 in dividends attributed to noncontrolling interest. At December 31, 2015, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.
Results of Operations for the Years Ended December 31, 2015 and 2014
Earnings
Uwharrie Capital Corp reported net income of $2.0 million for the twelve months ended December 31, 2015, as compared to $1.7 million for the twelve months ended December 31, 2014, an increase of $328,000. Net income available to common shareholders was $1.4 million or $0.20 per common share for the year ended December 31, 2015, compared to net income available to common shareholders of $1.1 million or $0.15 per common share for the year ended December 31, 2014. 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 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 decreased $383,000 to $16.1 million for 2015 compared to the $16.5 million earned in 2014. During the year ended December 31, 2015, our growth in the volume of interest-earning assets outpaced the decline in interest-bearing liabilities by $588,000. The average yield on our interest-earning assets decreased 19 basis points to 3.83%, while the average rate we paid for our interest-bearing liabilities decreased 5 basis points. These decreases resulted in a decrease of 12 basis points in our interest rate spread, from 3.50% in 2014 to 3.38% in 2015. Our net interest margin for 2015 was 3.47%, compared to 3.60% in 2014. A portion of the Companys loan portfolio has interest rate floors and caps in place as part of the loan agreements. The interest rate floor feature has allowed the Company to maintain a more a 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 on page 99 presents a detailed analysis of the components of the Companys net interest income, while Financial Table 2 on page 100 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.
87
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
Provision for Loan Losses
The provision for loan losses was a recovery of ($620,000) and ($389,000) for the twelve months ended December 31, 2015 and 2014, respectively. There were net loan charge-offs of $234,000 for the twelve months ended December 31, 2015 as compared with net loan charge-offs of $968,000 during the same period of 2014. The continued decline in charge-offs and improvement in other credit quality metrics resulted in these recoveries of loan losses and Refer to the Asset Quality discussion beginning on page 91 for further information.
Noninterest Income
The Company generates most of its revenue from net interest income; however, diversification of our earnings base is of major importance to our long term success. Noninterest income increased 19.0%, from $7.3 million in 2014, to $8.7 million in 2015, an increase of $1.4 million. The primary factor contributing to this growth was the increase in income from mortgage loan sales that increased $1.3 million to $2.3 million for 2015 compared to $1.0 million during 2014. During 2015, the Company expanded its mortgage operation into a neighboring market. This expansion was the driving force behind the growth in income from loan sales. Service charges on deposit accounts produced earnings of $1.3 million, a decrease of 11.9%. The primary contributing factor was a decrease in NSF (non-sufficient funds) fees due in large part to changes in regulations. Other service fees and commissions experienced a 4.8% increase during 2015. This is related to an increase of $193,000 in other banking fees related to the growth in the customer bases usage of the Companys electronic banking products. The Company had realized gains on the sale of investments in the amount of $536,000 for the twelve months ending December 31, 2015, as compared to realized losses of $2,000 for the same period in 2014. The Company also had realized gains on the sale of other real estate owned of $140,000 during 2015 compared to realized gains of $398,000 for the twelve months ended December 31, 2014.
Noninterest Expense
Noninterest expense for the year ended December 31, 2015 was $22.6 million compared to $21.9 million for the same period of 2014, an increase of $751,000. Salaries and employee benefits, the largest component of noninterest expense, increased $1.1 million, from $12.1 million for the period ending December 31, 2014 to $13.2 million for the same period in 2015. The majority of this increase was attributable to the expansion in the mortgage operations department. Net occupancy and equipment expense had a combined increase of $30,000. Professional fees and services decreased $253,000 for the twelve month period. The improvement the Company is experiencing in asset quality resulted in this decrease with lower legal fees associated with loan collection costs. Marketing and donations that included expenditures associated with advertising, business development and public relations, donations to local charities, sponsorships of local community events and economic development increased $90,000 from the prior year, while premiums paid for FDIC insurance decreased $50,000 for the same period. Foreclosed real estate expense, another major component of noninterest expense, decreased $393,000, from $1.2 million in 2014 to $853,000 during 2015. The primary factor relating to this decrease was a reduction in write downs on properties held in other real estate owned. These write downs were attributed to updated appraisals and the lowering of list prices during the year totaling $333,000 compared to $647,000 for the same period in 2014. Other noninterest expense experienced an increase totaling $56,000 for the comparable twelve month period. The table on page 103 reflects the additional breakdown of other noninterest expense.
88
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
Income Tax Expense
The Company had income tax expense of $806,000 for 2015 at an effective tax rate of 28.65% compared to income tax expense of $648,000 in 2014 with an effective tax rate of 27.85%. Income taxes computed at the statutory rate are reduced 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. The corporate rate for the State of North Carolina was reduced from 6% in 2014 to 5% in 2015. The State further lowered the corporate income tax rate from 5% to 4% effective for tax years beginning on or after January 1, 2016. The State rate reduction caused the Company to write down the state deferred tax assets to their realizable value. This change coupled with an increase in the level of taxable income for the comparable periods resulted in the higher effective rate.
Results of Operations for the Years Ended December 31, 2014 and 2013
Earnings
Uwharrie Capital Corp reported net income of $1.7 million for the twelve months ended December 31, 2014, as compared to $954,000 for the twelve months ended December 31, 2013, an increase of $725,000. Net income available to common shareholders was $1.1 million or $0.15 per common share at December 31, 2014, compared to net income available to common shareholders of $151,000 or $0.02 per common share at December 31, 2013. Net income available to common shareholders is net income less any dividends and discount accretions on preferred stock related to the $10 million of capital received from the United States Department of the Treasury under the Capital Purchase Program in December 2008 that was repaid in 2013 and dividends on the aforementioned noncontrolling interest.
Net Interest Income
Net interest income decreased $234,000 to $16.5 million for 2014 compared to the $16.7 million earned in 2013. During the year ended December 31, 2014, our decline in the volume of interest-earning assets outpaced the decline in interest-bearing liabilities by $208,000. The average yield on our interest-earning assets decreased 8 basis points to 4.01%, while the average rate we paid for our interest-bearing liabilities decreased 16 basis points. These decreases resulted in an increase of 12 basis points in our interest rate spread, from 3.42% in 2013 to 3.50% in 2014. Our net interest margin for 2014 was 3.60%, compared to 3.52% in 2013. A portion of the Companys loan portfolio has interest rate floors and caps in place on the loans. The interest rate floor feature has allowed 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 on page 70 presents a detailed analysis of the components of the Companys net interest income, while Financial Table 2 on page 71 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.
Provision for Loan Losses
The provision for loan losses was a recovery of ($389,000) and provisions of $28,000 for the twelve months ended December 31, 2014 and 2013, respectively. There were net loan charge-offs of $968,000 for the twelve months ended December 31, 2014 as compared with net loan charge-offs of $1.7 million during the same period of 2013. Refer to the Asset Quality discussion beginning on page 91 for further information.
89
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
Noninterest Income
The Company generates most of its revenue from net interest income; however, diversification of our earnings base is of major importance to our long term success. Noninterest income decreased 3.5%, from $7.6 million in 2013, to $7.3 million in 2014, a decrease of $266,000. While the Company did benefit from another good year of income from mortgage loan sales, income from mortgage loan sales decreased $1.1 million to $1.0 million for 2014 compared to $2.1 million during 2013. Service charges on deposit accounts produced earnings of $1.5 million, a decrease of 9.8%. The primary contributing factor is a decrease in NSF (non-sufficient funds) fees due in large part to changes in regulatory governance. Other service fees and commissions experienced a 15.7% increase during 2014. This is related to an increase of $290,000 in fees from assets under management. The Company had realized losses on the sale of investments in the amount of $2,000 for the twelve months ending December 31, 2014, as compared to realized losses of $523,000 for the same period in 2013. The Company also had realized gains on the sale of other real estate owned of $398,000 compared to realized gains of $290,000 for the twelve months ended December 31, 2013.
Noninterest Expense
Noninterest expense for the year ended December 31, 2014 was $21.9 million compared to $23.0 million for the same period of 2013, a decrease of $1.1 million. Salaries and employee benefits, the largest component of noninterest expense, decreased $372,000, from $12.4 million for the period ending December 31, 2013 to $12.1 million for the same period in 2014. This decrease is attributable to a reduction in staff related to the consolidation of the Companys subsidiary banks during 2013. Net occupancy and equipment expense had a combined decrease of $45,000. Professional fees and services increased $167,000 for the twelve month period. Marketing and donations that included expenditures associated with advertising, business development and public relations, donations to local charities, sponsorships of local community events and economic development increased $34,000 from the prior year, while premiums paid for FDIC insurance decreased $93,000 for the same period. Data processing costs declined $55,000, a decrease related to the aforementioned bank consolidation. Foreclosed real estate expense, another major component of noninterest expense, decreased $401,000, from $1.6 million in 2013 to $1.2 million during 2014. The primary factor relating to this decrease was a reduction in write downs on properties held in other real estate owned. These write downs were attributed to updated appraisals and the lowering of list prices during the year totaling $647,000 compared to $921,000 for the same period in 2013. Other noninterest expense experienced a decrease totaling $198,000 for the comparable twelve month period. The table on page 103 reflects the additional breakdown of other noninterest expense.
Income Tax Expense
The Company had income tax expense of $648,000 for 2014 at an effective tax rate of 27.85% compared to income tax expense of $342,000 in 2013 with an effective tax rate of 26.39%.
Asset Quality
The Companys allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. The allowance is increased by provisions charged to operations, decreased by recoveries of amounts previously charged off and is reduced by recovery of provisions and loans charged off. Management continuously evaluates the adequacy of the
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UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
allowance for loan 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 borrowers ability to repay; estimated value of any underlying collateral; prevailing economic conditions and other relevant factors. The Companys credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loans credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrowers risk grade accordingly. For loans determined to be impaired, the allowance is based on either the present value of expected future cash flows discounted at the loans effective interest rate, the loans observable market price or the estimated fair value of the underlying collateral less the selling costs. This evaluation is inherently subjective, as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans, which may be susceptible to significant change. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require additions for estimated losses based upon judgments different from those of management.
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, 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 loan losses. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrowers ability to repay, the borrowers payment history and the current delinquent status. Because of this process, certain loans are deemed as impaired and evaluated as an impaired loan.
The allowance for loan losses represents managements best estimate of an appropriate amount to provide for probable credit risk inherent in the loan portfolio in the normal course of business. While management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance 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 for loan losses in conformity with GAAP, there can be no assurance that banking regulators, in reviewing the Companys portfolio, will not require an adjustment to the allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses 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 loan losses may adversely affect the Companys financial condition and results of operations.
At December 31, 2015 the levels of our impaired loans, which includes all loans in nonaccrual status, TDRs and other loans deemed by management to be impaired, were $5.5 million compared to $7.6 million at December 31, 2014, a net decrease of $2.1 million. Total nonaccrual loans, which are a component of impaired loans, decreased from $2.2 million at December 31, 2014 to $783,000 at December 31, 2015. During 2015, seventeen relationships totaling $1.4 million were added to impaired loans. These additions were offset by one relationship for $102,000 being deemed no longer impaired based on improved cash flow, seven impaired relationships totaling $271,000 being charged off, eight relationships in the amount of $1.8 million being foreclosed and transferred to other real estate owned, five impaired relationships in the amount of $441,000 being paid off completely and several relationships with pay downs totaling $861,000.
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UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
The allowance expressed as a percentage of gross loans held for investment decreased thirty basis points from 1.20% at December 31, 2014 to 0.90% at December 31, 2015. The collectively evaluated reserve allowance as a percentage of collectively evaluated loans was 1.08% at December 31, 2014 and 0.86% at December 31, 2015, while the individually evaluated allowance as a percentage of individually evaluated loans decreased from 6.04% to 3.31% for the same periods. The decrease in the ratio of general reserves to collectively evaluated loans is due to the decrease in charge-offs and improvement in credit scores of our borrowers as discussed below. The portion of the Companys allowance for loan loss model related to general reserves is intended to capture the mean loss of individual loans and the rare event of severe loss that can occur within the loan portfolio. Specifically, the Company calculates probable losses on loans by computing a probability of loss and expected loss scenario by FDIC call report codes. Together, these expected components as well as a level of more extreme unexpected losses form the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations.
The Company assesses the probability of losses inherent in the loan portfolio using probability of default data, acquired from a third party vendor representing a one year loss horizon for each obligor. The Company updates the data inputs into the model; specifically the loss given default and the probability of defaults obtained from the vendor annually during the second quarter. The Company updates the credit scores that are one of the components used within the allowance model semi-annually, during the first and third quarters. Beginning with the third quarter update, the Company transitioned from Beacon 5 scores to FICO 9 scores. This change accounted for approximately a $20,000 decrease in the allowance. The continued improvement in credit quality coupled with the continued trend of overall improvement in credit scores resulted in our average customer credit score increasing thirty-one points from 724 to 755 during 2015. The improvement in credit scores has been the major driver in the overall decrease in the allowance for loan losses. This improvement reduced the balance of the allowance by approximately $409,000.
Nonperforming loans, which consist of nonaccrual loans and loans past due 90 days and still accruing, to total loans decreased from 0.72% at December 31, 2014, to 0.24% at December 31, 2015.
Management believes the current level of the allowance for loan losses is appropriate in light of the risk inherent in the loan portfolio.
Other real estate owned decreased $871,000 during 2015. The Company sold twenty-seven pieces of foreclosed property totaling $2.4 million realizing a gain of $140,000. The Company also had write downs and changes in reserves totaling $333,000 on the remaining existing property. The Company foreclosed on eight loan relationships totaling $1.8 million and added thirty-one pieces of property to other real estate owned. One of the relationships foreclosed on totaled $792,000 and added twenty-four pieces of property.
Restructured loans at December 31, 2015 totaled $4.5 million compared to $5.3 million at December 31, 2014 and are included in impaired loans. At December 31, 2015, all restructured loans were on an accruing basis with the exception of two relationships totaling $264,000 that were in nonaccrual.
92
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
The following nonperforming loan table shows the comparison for the past five years:
Nonperforming Assets
(dollars in thousands)
At December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Nonperforming Assets: |
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Accruing loans past due 90 days or more |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Nonaccrual loans |
783 | 2,246 | 4,717 | 9,480 | 7,862 | |||||||||||||||
Other real estate owned |
4,994 | 5,865 | 7,170 | 8,713 | 10,258 | |||||||||||||||
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Total nonperforming assets |
$ | 5,777 | $ | 8,111 | $ | 11,887 | $ | 18,193 | $ | 18,120 | ||||||||||
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Allowance for loan losses |
$ | 2,884 | $ | 3,738 | $ | 5,095 | $ | 6,801 | $ | 6,815 | ||||||||||
Nonperforming loans to total loans |
0.24 | % | 0.72 | % | 1.53 | % | 2.88 | % | 2.14 | % | ||||||||||
Allowance for loan losses to total loans |
0.90 | % | 1.20 | % | 1.66 | % | 2.07 | % | 1.86 | % | ||||||||||
Nonperforming assets to total assets |
1.09 | % | 1.56 | % | 2.30 | % | 3.34 | % | 3.44 | % | ||||||||||
Allowance for loan losses to nonperforming loans |
368.23 | % | 166.48 | % | 108.02 | % | 71.74 | % | 86.88 | % |
Capital Resources
The Company continues to maintain capital ratios that support its asset growth. Bank regulatory agencies approved regulatory capital guidelines (Basel III) aimed at strengthening existing capital requirements for banking organizations. Under the final rules, minimum requirements increase for both the quantity and quality of capital held by the Company. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.00% to 6.00%, require a minimum ratio of total capital to risk-weighted assets of 8.00%, and require a minimum Tier 1 leverage ratio of 4.00%. A new capital conservation buffer, comprised of common equity Tier 1 capital, was also established above the regulatory minimum capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by an additional 0.625% until reaching its final level of 2.50% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. The final rules also revise the definition and calculation of Tier 1 capital, total capital, and risk-weighted assets.
The phase-in period for the final rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance of all the final rules requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019. As of December 31, 2015, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under the new rules.
During 2012, each of the Companys subsidiary banks began a campaign to sell Fixed Rate Noncumulative Perpetual Preferred Stock, Series B to be issued by each subsidiary bank. The preferred stock qualifies as Tier 1 capital at each bank and pays dividends at a rate of 5.30%. The offering raised $7.9 million less issuance costs of $113,000. Effective September 1, 2013, the Fixed Rate Noncumulative Perpetual Preferred Stock, Series B was rolled into one issue under Uwharrie Bank in connection with the consolidation and name change.
93
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
During 2013, the Companys subsidiary bank, Uwharrie Bank, began a campaign to sell Fixed Rate Noncumulative Perpetual Preferred Stock, Series C to be issued by the subsidiary bank. 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 campaign raised $2.8 million less issuance costs of $23,000.
The Company expects to continue to exceed required minimum capital ratios without altering current operations or strategy. Note 15 to the Consolidated Financial Statements presents additional information regarding the Companys and its subsidiary banks capital ratios.
Dividends
The Board of Directors of Uwharrie Capital Corp declared a 2% stock dividend in 2015. 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. There was a 2% stock dividend declared in 2014 and no dividends declared or paid in 2013.
Liquidity
Liquidity, the ability to raise cash when needed without adversely affecting profits, is managed primarily by the selection of asset mix and the maturity mix of liabilities. Maturities and the marketability of securities and other funding sources provide a source of liquidity to meet deposit fluctuations. Maturities in the securities portfolio, presented in Financial Table 3 on page 101, are supported by cash flows from mortgage-backed securities that have longer-term contractual maturities. Other funding sources at year-end 2015 included $28.0 million in federal funds lines of credit from correspondent banks and approximately $52.1 million of remaining credit availability from the Federal Home Loan Bank. The Company may also borrow from the Federal Reserve Bank discount window with credit availability of $20.7 million. Growth in deposits is typically the primary source of funding for loans, supported by long-term credit available from the Federal Home Loan Bank.
At December 31, 2015, borrowings from federal funds lines and the issuance of commercial paper amounted to $3.4 million. The Company also had a short-term line of credit totaling $2.4 million. Long-term debt at that date consisted of junior subordinated debt of $9.5 million and a mortgage payable of $25,000.
Management believes that the Companys current sources of funds provide adequate liquidity for its current cash flow needs.
94
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
Contractual Obligations
The following table reflects the contractual obligations of the Company outstanding as of December 31, 2015.
Payments Due by Period (in thousands) | ||||||||||||||||||||
On Demand | ||||||||||||||||||||
or less | After | |||||||||||||||||||
Total | than 1 year | 1-3 Years | 4-5 Years | 5 Years | ||||||||||||||||
Contractual Obligations |
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Short-term debt |
$ | 5,758 | $ | 5,758 | $ | | $ | | $ | | ||||||||||
Long-term debt |
9,547 | | 13 | 9,534 | | |||||||||||||||
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Total contractual cash obligations, excluding deposits |
15,305 | 5,758 | 13 | 9,534 | | |||||||||||||||
Deposits |
467,733 | 446,383 | 15,082 | 6,169 | 99 | |||||||||||||||
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Total contractual cash obligations, including deposits |
$ | 483,038 | $ | 452,141 | $ | 15,095 | $ | 15,703 | $ | 99 | ||||||||||
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Critical Accounting Policy
A critical accounting policy is one that is both very important to the portrayal of the Companys financial condition and results, and requires managements 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 in the consolidated financial statements for more information about these and other accounting policies utilized by the Company.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated both individually and collectively by loan class on a regular basis by management and is based upon managements periodic review of the collectability of the loans in light of historical experiences. The nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay; estimated value of any underlying collateral and prevailing economic conditions are the key factors. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, regulatory examiners may require the Company to recognize adjustments to the allowance for loan losses based on their judgment about information available to them at the time of their assessment.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case
95
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Income Taxes
The calculation of the Companys income tax expense is complex and requires the use of many estimates and judgments in its determination. Managements determination of the realization of the net deferred tax asset is based upon managements evaluation of positive and negative evidence related to cumulative pretax earnings over a three year period and projected earnings trends. This evidence is reviewed to determine if it is more likely than not that the net deferred tax asset will be realized.
Valuation of Foreclosed Assets
Assets acquired through, or in lieu of, foreclosure are held for sale and are initially recorded at fair value less estimated cost to sell at the date of foreclosure, establishing a new cost basis. Principal and interest losses existing at the time of acquisition of such assets are charged against the allowance for loan losses and interest income, respectively. Subsequent to foreclosure, management periodically performs valuations and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell.
Off-Balance Sheet Arrangements
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 13 to the consolidated financial statements for more information regarding these commitments and contingent liabilities.
Interest Rate Sensitivity
Net Interest Income (Margin) is the single largest component of revenue for the Company. Net Interest Margin is the difference between the yield on earning assets and interest paid on costing liabilities. The 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 Net Interest Income (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. 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 no growth and most likely balance sheet growth, for a two year
96
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion And Analysis of Financial Condition
And Results of Operations
horizon, as preferred by regulators. The most recent consolidated 2% rate shock projections using the most likely balance sheet growth for a one-year horizon, indicates a negative impact of (9.93%) on Net Interest Income (Margin) in a rates down scenario and a positive impact of 19.70% on Net Interest Income (Margin) in a rates up scenario. Based on the most recent twelve month forecast, the subsidiary bank is asset sensitive and may experience some negative impact to earnings should interest rates decline. While many interest bearing assets would reprice in a declining interest rate environment; many liabilities are already approaching 0% interest rates. The subsidiary bank has the potential to benefit from a rising interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the upside potential.
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 Net Interest Income (Margin) from wide fluctuations as a result from changes in market interest rates. To that end, management has recommended and the board 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 Net Interest Income (Margin) is such a large component of earnings. The Companys Asset Liability Management Committee (ALCO) monitors market changes in interest rates and assists with the pricing of loans and deposit products while considering the funding source needs, asset growth projections, and necessary operating liquidity.
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UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 1
Average Balances and Net Interest Income Analysis
(dollars in thousands)
2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||
Interest | Average | Interest | Average | Interest | Average | |||||||||||||||||||||||||||||||
Average | Income/ | Yield/ | Average | Income/ | Yield/ | Average | Income | Yield | ||||||||||||||||||||||||||||
Balance | Expense | Rate (1) | Balance | Expense | Rate (1) | Balance | Expense | Rate (1) | ||||||||||||||||||||||||||||
Interest-earning assets |
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Taxable securities |
$ | 96,867 | 1,527 | 1.58 | % | $ | 98,549 | 1,632 | 1.66 | % | $ | 108,767 | 1,464 | 1.35 | % | |||||||||||||||||||||
Non-taxable securities (1) |
15,481 | 410 | 4.27 | % | 10,507 | 321 | 4.92 | % | 7,566 | 251 | 5.40 | % | ||||||||||||||||||||||||
Short-term investments |
50,963 | 185 | 0.36 | % | 52,554 | 168 | 0.32 | % | 51,612 | 177 | 0.34 | % | ||||||||||||||||||||||||
Taxable loans (2) |
301,837 | 15,299 | 5.07 | % | 295,004 | 15,903 | 5.39 | % | 303,698 | 17,134 | 5.64 | % | ||||||||||||||||||||||||
Non-taxable loans (1) |
14,649 | 426 | 4.69 | % | 14,974 | 433 | 4.66 | % | 15,451 | 439 | 4.62 | % | ||||||||||||||||||||||||
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Total interest-earning assets |
479,797 | 17,847 | 3.83 | % | 471,588 | 18,457 | 4.01 | % | 487,094 | 19,465 | 4.09 | % | ||||||||||||||||||||||||
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Non-earning assets |
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Cash and due from banks |
5,966 | 5,898 | 2,172 | |||||||||||||||||||||||||||||||||
Premises and equipment, net |
14,779 | 14,806 | 14,127 | |||||||||||||||||||||||||||||||||
Interest receivable and other |
21,157 | 21,384 | 24,300 | |||||||||||||||||||||||||||||||||
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Total non-earning assets |
41,902 | 42,088 | 40,599 | |||||||||||||||||||||||||||||||||
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Total assets |
$ | 521,699 | $ | 513,676 | $ | 527,693 | ||||||||||||||||||||||||||||||
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Interest-bearing liabilities |
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Savings deposits |
$ | 39,393 | $ | 44 | 0.11 | % | $ | 38,751 | $ | 57 | 0.15 | % | $ | 45,706 | $ | 171 | 0.37 | % | ||||||||||||||||||
Interest checking & MMDA |
239,546 | 278 | 0.12 | % | 230,779 | 299 | 0.13 | % | 220,663 | 439 | 0.20 | % | ||||||||||||||||||||||||
Time deposits |
89,091 | 797 | 0.89 | % | 101,925 | 997 | 0.98 | % | 119,149 | 1,300 | 1.09 | % | ||||||||||||||||||||||||
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Total deposits |
368,030 | 1,119 | 0.30 | % | 371,455 | 1,353 | 0.36 | % | 385,518 | 1,910 | 0.50 | % | ||||||||||||||||||||||||
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Short-term borrowed funds |
4,880 | 64 | 1.31 | % | 4,830 | 34 | 0.70 | % | 10,657 | 160 | 1.50 | % | ||||||||||||||||||||||||
Long-term debt |
9,552 | 550 | 5.76 | % | 9,952 | 573 | 5.76 | % | 11,683 | 664 | 5.68 | % | ||||||||||||||||||||||||
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Total interest-bearing liabilities |
382,462 | 1,733 | 0.45 | % | 386,237 | 1,960 | 0.51 | % | 407,858 | 2,734 | 0.67 | % | ||||||||||||||||||||||||
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Noninterest liabilities |
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Transaction deposits |
90,625 | 79,705 | 69,628 | |||||||||||||||||||||||||||||||||
Interest payable and other |
5,489 | 6,053 | 6,213 | |||||||||||||||||||||||||||||||||
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Total liabilities |
478,576 | 471,995 | 483,699 | |||||||||||||||||||||||||||||||||
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Shareholders equity |
43,123 | 41,681 | 43,994 | |||||||||||||||||||||||||||||||||
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Total liabilities and shareholders equity |
$ | 521,699 | $ | 513,676 | $ | 527,693 | ||||||||||||||||||||||||||||||
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Interest rate spread |
3.38 | % | 3.50 | % | 3.42 | % | ||||||||||||||||||||||||||||||
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Net interest income and net interest margin |
$ | 16,114 | 3.47 | % | $ | 16,497 | 3.60 | % | $ | 16,731 | 3.52 | % | ||||||||||||||||||||||||
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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 34.00% tax rate. |
2) | Nonaccrual loans are included in loans, net of unearned income. |
98
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 2
Volume and Rate Variance Analysis
(dollars in thousands)
2015 Versus 2014 | 2014 Versus 2013 | |||||||||||||||||||||||
Net | Net | |||||||||||||||||||||||
Volume | Rate | Change | Volume | Rate | Change | |||||||||||||||||||
Interest-earning assets |
||||||||||||||||||||||||
Taxable securities |
$ | (27 | ) | $ | (78 | ) | $ | (105 | ) | $ | (153 | ) | $ | 321 | $ | 168 | ||||||||
Non-taxable securities |
142 | (53 | ) | 89 | 94 | (24 | ) | 70 | ||||||||||||||||
Short-term investments |
(5 | ) | 22 | 17 | 3 | (12 | ) | (9 | ) | |||||||||||||||
Taxable loans |
357 | (961 | ) | (604 | ) | (480 | ) | (751 | ) | (1,231 | ) | |||||||||||||
Non-taxable loans |
(9 | ) | 2 | (7 | ) | (14 | ) | 8 | (6 | ) | ||||||||||||||
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|||||||||||||
Total interest-earning assets |
458 | (1,068 | ) | (610 | ) | (550 | ) | (458 | ) | (1,008 | ) | |||||||||||||
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|
|||||||||||||
Interest-bearing liabilities |
||||||||||||||||||||||||
Savings deposits |
1 | (14 | ) | (13 | ) | (18 | ) | (96 | ) | (114 | ) | |||||||||||||
Transaction and MMDA deposits |
11 | (32 | ) | (21 | ) | 17 | (157 | ) | (140 | ) | ||||||||||||||
Other time deposits |
(120 | ) | (80 | ) | (200 | ) | (178 | ) | (125 | ) | (303 | ) | ||||||||||||
Short-term borrowed funds |
1 | 29 | 30 | (64 | ) | (62 | ) | (126 | ) | |||||||||||||||
Long-term debt |
(23 | ) | | (23 | ) | (99 | ) | 8 | (91 | ) | ||||||||||||||
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|
|||||||||||||
Total interest-bearing liabilities |
(130 | ) | (97 | ) | (227 | ) | (342 | ) | (432 | ) | (774 | ) | ||||||||||||
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|
|||||||||||||
Net interest income |
$ | 588 | $ | (971 | ) | $ | (383 | ) | $ | (208 | ) | $ | (26 | ) | $ | (234 | ) | |||||||
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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 periods rate), (ii) changes attributable to rate (changes in rate multiplied by the prior periods 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.
99
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 3
Investment Securities Portfolio Analysis
(dollars in thousands)
December 31, 2015 | December 31, 2014 | December 31, 2013 | ||||||||||||||||||||||||||||||||||
Estimated | Estimated | Estimated | ||||||||||||||||||||||||||||||||||
Amortized | Fair | Book | Amortized | Fair | Book | Amortized | Fair | Book | ||||||||||||||||||||||||||||
Cost | Value | Yield(1) | Cost | Value | Yield(1) | Cost | Value | Yield(1) | ||||||||||||||||||||||||||||
Securities available for sale |
||||||||||||||||||||||||||||||||||||
U.S. Treasury |
||||||||||||||||||||||||||||||||||||
Due after one but within five years |
$ | 4,026 | $ | 4,012 | 1.13 | % | $ | 19.030 | $ | 19,386 | 1.86 | % | $ | 16,062 | $ | 16,564 | 1.91 | % | ||||||||||||||||||
Due after five but within ten years |
| | 0.00 | % | | | 0.00 | % | 4,930 | 4,722 | 1.37 | % | ||||||||||||||||||||||||
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|||||||||||||||||||
4,026 | 4,012 | 1.13 | % | 19,030 | 19,386 | 1.86 | % | 20,992 | 21,286 | 1.79 | % | |||||||||||||||||||||||||
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|||||||||||||||||||
U.S. Government agencies |
||||||||||||||||||||||||||||||||||||
Due within twelve months |
| | 0.00 | % | 4,972 | 4,998 | 2.77 | % | | | 0.00 | % | ||||||||||||||||||||||||
Due after one but within five years |
27,671 | 27,635 | 1.43 | % | 36,292 | 36,116 | 1.30 | % | 21,059 | 20,965 | 1.46 | % | ||||||||||||||||||||||||
Due after five but within ten years |
2,193 | 2,199 | 1.05 | % | | | 0.00 | % | 13,872 | 13,335 | 1.45 | % | ||||||||||||||||||||||||
Due after ten years |
6,295 | 6,236 | 1.23 | % | 9,705 | 9,661 | 0.96 | % | | | 0.00 | % | ||||||||||||||||||||||||
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|||||||||||||||||||
36,159 | 36,070 | 1.37 | % | 50,969 | 50,775 | 1.38 | % | 34,931 | 34,300 | 1.45 | % | |||||||||||||||||||||||||
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|||||||||||||||||||
Mortgage-backed securities |
||||||||||||||||||||||||||||||||||||
Due after one but within five years |
4,351 | 4,317 | 1.90 | % | 4,192 | 4,151 | 1.52 | % | 2,557 | 2,436 | 1.77 | % | ||||||||||||||||||||||||
Due after five but within ten years |
8,545 | 8,489 | 2.32 | % | 3,003 | 3,046 | 2.43 | % | 4,706 | 4,777 | 2.08 | % | ||||||||||||||||||||||||
Due after ten years |
17,373 | 16,967 | 1.89 | % | 20,553 | 20,375 | 2.00 | % | 30,608 | 29,793 | 2.01 | % | ||||||||||||||||||||||||
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|||||||||||||||||||
30,269 | 29,773 | 2.01 | % | 27,748 | 27,572 | 1.98 | % | 37,871 | 37,006 | 2.00 | % | |||||||||||||||||||||||||
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|||||||||||||||||||
State and political |
||||||||||||||||||||||||||||||||||||
Due within twelve months |
471 | 473 | 5.77 | % | 175 | 177 | 4.62 | % | 481 | 485 | 4.97 | % | ||||||||||||||||||||||||
Due after one but within five years |
3,304 | 3,423 | 3.86 | % | 2,389 | 2,541 | 4.96 | % | 1,469 | 1,595 | 5.75 | % | ||||||||||||||||||||||||
Due after five but within ten years |
1,399 | 1,421 | 6.28 | % | 3,296 | 3,481 | 4.89 | % | 4,369 | 4,566 | 4.64 | % | ||||||||||||||||||||||||
Due after ten years |
8,517 | 8,722 | 3.77 | % | 5,715 | 5,881 | 4.36 | % | 1,018 | 1,042 | 6.33 | % | ||||||||||||||||||||||||
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|||||||||||||||||||
13,691 | 14,039 | 4.12 | % | 11,575 | 12,080 | 4.64 | % | 7,337 | 7,688 | 5.12 | % | |||||||||||||||||||||||||
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|||||||||||||||||||
Corporate Bonds |
||||||||||||||||||||||||||||||||||||
Due within twelve months |
2,400 | 2,399 | 1.19 | % | | | 0.00 | % | | | 0.00 | % | ||||||||||||||||||||||||
Due after one but within five years |
814 | 798 | 1.79 | % | | | 0.00 | % | | | 0.00 | % | ||||||||||||||||||||||||
Due after five but within ten years |
2,221 | 2,167 | 1.38 | % | 3,040 | 3,011 | 1.24 | % | | | 0.00 | % | ||||||||||||||||||||||||
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|||||||||||||||||||
5,435 | 5,364 | 1.36 | % | 3,040 | 3,011 | 1.24 | % | | | 0.00 | % | |||||||||||||||||||||||||
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|||||||||||||||||||
Total Securities available for sale |
||||||||||||||||||||||||||||||||||||
Due within twelve months |
2,871 | 2,872 | 1.94 | % | 5,147 | 5,175 | 2.83 | % | 481 | 485 | 2.36 | % | ||||||||||||||||||||||||
Due after one but within five years |
40,166 | 40,185 | 1.66 | % | 61,903 | 62,194 | 1.63 | % | 41,147 | 41,560 | 1.59 | % | ||||||||||||||||||||||||
Due after five but within ten years |
14,358 | 14,276 | 2.37 | % | 9,339 | 9,538 | 3.72 | % | 27,877 | 27,400 | 1.64 | % | ||||||||||||||||||||||||
Due after ten years |
32,185 | 31,925 | 2.26 | % | 35,973 | 35,917 | 2.03 | % | 31,626 | 30,835 | 1.67 | % | ||||||||||||||||||||||||
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|||||||||||||||||||
$ | 89,580 | $ | 89,258 | 2.00 | % | $ | 112,362 | $ | 112,824 | 1.94 | % | $ | 101,131 | $ | 100,280 | 1.66 | % | |||||||||||||||||||
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1) | Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax- equivalent basis, assuming a 34.00% tax rate. |
100
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 3
Investment Securities Portfolio Analysis (Continued)
(dollars in thousands)
December 31, 2015 | December 31, 2014 | December 31, 2013 | ||||||||||||||||||||||||||||||||||
Estimated | Estimated | Estimated | ||||||||||||||||||||||||||||||||||
Amortized | Fair | Book | Amortized | Fair | Book | Amortized | Fair | Book | ||||||||||||||||||||||||||||
Cost | Value | Yield(1) | Cost | Value | Yield(1) | Cost | Value | Yield(1) | ||||||||||||||||||||||||||||
Securities held to maturity |
||||||||||||||||||||||||||||||||||||
U.S. Government agencies |
||||||||||||||||||||||||||||||||||||
Due after five but within ten years |
$ | 1,911 | $ | 1,906 | 2.39 | % | $ | 2,085 | $ | 2,053 | 2.29 | % | $ | | $ | | 0.00 | % | ||||||||||||||||||
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|||||||||||||||||||
1,911 | 1,906 | 2.39 | % | 2,085 | 2,053 | 2.29 | % | | | 0.00 | % | |||||||||||||||||||||||||
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|
|||||||||||||||||||
State and political |
||||||||||||||||||||||||||||||||||||
Due after one but within five years |
1,944 | 1,953 | 2.27 | % | | | 0.00 | % | | | 0.00 | % | ||||||||||||||||||||||||
Due after five but within ten years |
4,049 | 4,065 | 2.95 | % | | | 0.00 | % | | | 0.00 | % | ||||||||||||||||||||||||
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|
|||||||||||||||||||
5,993 | 6,018 | 2.73 | % | | | 0.00 | % | | | 0.00 | % | |||||||||||||||||||||||||
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|||||||||||||||||||
Corporate Bonds |
||||||||||||||||||||||||||||||||||||
Due after five but within five years |
3,338 | 3,318 | 2.76 | % | 3,411 | 3,397 | 2.76 | % | | | 0.00 | % | ||||||||||||||||||||||||
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|||||||||||||||||||
3,338 | 3,318 | 2.76 | % | 3,411 | 3,397 | 2.76 | % | | | 0.00 | % | |||||||||||||||||||||||||
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|||||||||||||||||||
Total Securities held to maturity |
||||||||||||||||||||||||||||||||||||
Due after one but within five years |
1,944 | 1,953 | 2.58 | % | | | 0.00 | % | | | 0.00 | % | ||||||||||||||||||||||||
Due after five but within ten years |
9,298 | 9,289 | 2.77 | % | 5,496 | 5,450 | 2.58 | % | | | 0.00 | % | ||||||||||||||||||||||||
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|||||||||||||||||||
$ | 11,242 | $ | 11,242 | 2.68 | % | $ | 5,496 | $ | 5,450 | 2.58 | % | $ | | $ | | 0.00 | % | |||||||||||||||||||
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1) | Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax- equivalent basis, assuming a 34.00% tax rate. |
101
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 4
Noninterest Income
(dollars in thousands)
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Service charges on deposit accounts |
$ | 1,293 | $ | 1,467 | $ | 1,627 | ||||||
Other banking fees |
2,110 | 1,917 | 1,589 | |||||||||
Asset management fees |
1,737 | 1,732 | 1,624 | |||||||||
Brokerage commissions |
270 | 279 | 186 | |||||||||
Other noninterest income |
317 | 388 | 448 | |||||||||
Income from mortgage loan sales |
2,306 | 1,001 | 2,113 | |||||||||
Security gains (losses) |
536 | (2 | ) | (523 | ) | |||||||
Gains (losses) from sale of OREO |
140 | 398 | 290 | |||||||||
Other gains (losses) from sale of assets |
1 | 141 | 233 | |||||||||
|
|
|
|
|
|
|||||||
Total noninterest income |
$ | 8,710 | $ | 7,321 | $ | 7,587 | ||||||
|
|
|
|
|
|
Financial Table 5
Other Noninterest Expense
(dollars in thousands)
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Postage |
$ | 184 | $ | 184 | $ | 171 | ||||||
Telephone and data lines |
156 | 145 | 162 | |||||||||
Loan collection cost |
121 | 139 | 352 | |||||||||
Shareholder relations expense |
140 | 234 | 164 | |||||||||
Dues and subscriptions |
167 | 127 | 139 | |||||||||
Other |
1,574 | 1,457 | 1,496 | |||||||||
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|
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|
|||||||
Total other noninterest expense |
$ | 2,342 | $ | 2,286 | $ | 2,484 | ||||||
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|
|
102
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 6
Loan Portfolio Composition
(dollars in thousands)
At December 31, | ||||||||||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||||||||||
% of Total | % of Total | % of Total | ||||||||||||||||||||||
Amount | Loans | Amount | Loans | Amount | Loans | |||||||||||||||||||
Loan type: |
||||||||||||||||||||||||
Commercial |
$ | 52,311 | 16.34 | % | $ | 47,418 | 15.25 | % | $ | 47,436 | 15.44 | % | ||||||||||||
Real estate - construction |
23,321 | 7.29 | % | 26,250 | 8.44 | % | 21,001 | 6.83 | % | |||||||||||||||
Real estate - residential |
132,799 | 41.49 | % | 135,734 | 43.67 | % | 132,694 | 43.18 | % | |||||||||||||||
Real estate - commercial |
101,198 | 31.62 | % | 92,517 | 29.76 | % | 95,922 | 31.22 | % | |||||||||||||||
Consumer |
8,982 | 2.81 | % | 8,460 | 2.72 | % | 9,623 | 3.13 | % | |||||||||||||||
Other |
1,481 | 0.45 | % | 481 | 0.16 | % | 612 | 0.20 | % | |||||||||||||||
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|
|||||||||||||
Total loans |
320,092 | 100.00 | % | 310,860 | 100.00 | % | 307,288 | 100.00 | % | |||||||||||||||
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|||||||||||||||||||
Less: |
||||||||||||||||||||||||
Allowance for loan losses |
(2,884 | ) | (3,738 | ) | (5,095 | ) | ||||||||||||||||||
Unearned net loan fees |
40 | (7 | ) | 60 | ||||||||||||||||||||
|
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|
|
|
|
|||||||||||||||||||
Net loans |
$ | 317,248 | $ | 307,115 | $ | 302,253 | ||||||||||||||||||
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|
|
|
At December 31, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
% of Total | % of Total | |||||||||||||||
Amount | Loans | Amount | Loans | |||||||||||||
Loan type: |
||||||||||||||||
Commercial |
$ | 41,390 | 12.58 | % | $ | 45,907 | 12.52 | % | ||||||||
Real estate - construction |
28,132 | 8.55 | % | 37,144 | 10.13 | % | ||||||||||
Real estate - residential |
142,444 | 43.28 | % | 153,260 | 41.82 | % | ||||||||||
Real estate - commercial |
103,304 | 31.39 | % | 114,944 | 31.36 | % | ||||||||||
Consumer |
12,986 | 3.95 | % | 14,710 | 4.01 | % | ||||||||||
Other |
822 | 0.25 | % | 602 | 0.16 | % | ||||||||||
|
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|
|
|
|
|
|
|||||||||
Total loans |
329,078 | 100.00 | % | 366,567 | 100.00 | % | ||||||||||
|
|
|
|
|||||||||||||
Less: |
||||||||||||||||
Allowance for loan losses |
(6,801 | ) | (6,815 | ) | ||||||||||||
Unearned net loan fees |
105 | 108 | ||||||||||||||
|
|
|
|
|||||||||||||
Net loans |
$ | 322,382 | $ | 359,860 | ||||||||||||
|
|
|
|
103
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 7
Selected Loan Maturities
(dollars in thousands)
December 31, 2015 | ||||||||||||||||
One Year | One to | Over Five | ||||||||||||||
or Less | Five Years | Years | Total | |||||||||||||
Commercial and agricultural |
$ | 15,914 | $ | 12,766 | $ | 23,631 | $ | 52,311 | ||||||||
Real estate construction |
9,819 | 6,565 | 6,937 | 23,321 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Total selected loans |
$ | 25,733 | $ | 19,331 | $ | 30,568 | $ | 75,632 | ||||||||
|
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|
|
|
|
|
|||||||||
Fixed rate loans |
$ | 15,066 | $ | 67,650 | $ | 63,094 | $ | 145,810 | ||||||||
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|
|
|
|
|
|||||||||
Sensitivity to rate changes: |
||||||||||||||||
Variable interest rates |
$ | 33,631 | $ | 25,934 | $ | 114,757 | $ | 174,322 | ||||||||
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|
104
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 8
Activity in the Allowance for Loan Loss
(dollars in thousands)
At or for the Year Ended December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Allowance for loan losses at beginning of year |
$ | 3,738 | $ | 5,095 | $ | 6,801 | $ | 6,815 | $ | 9,067 | ||||||||||
Provision for (recovery of) loan losses |
(620 | ) | (389 | ) | 28 | 1,832 | 3,456 | |||||||||||||
Other |
| | (5 | ) | | (5 | ) | |||||||||||||
Loan charge-offs: |
||||||||||||||||||||
Commercial |
34 | 8 | 571 | 322 | 336 | |||||||||||||||
Real estate |
427 | 1,140 | 1,225 | 1,427 | 5,110 | |||||||||||||||
Consumer |
128 | 83 | 175 | 242 | 390 | |||||||||||||||
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|
|
|
|
|
|
|
|
|||||||||||
Total charge-offs |
589 | 1,231 | 1,971 | 1,991 | 5,836 | |||||||||||||||
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|
|
|
|||||||||||
Recoveries of loans previously charged off: |
||||||||||||||||||||
Commercial |
16 | 81 | 14 | 43 | 4 | |||||||||||||||
Real estate |
278 | 138 | 180 | 66 | 28 | |||||||||||||||
Consumer |
61 | 44 | 48 | 36 | 101 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total recoveries |
355 | 263 | 242 | 145 | 133 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net charge-offs |
234 | 968 | 1,729 | 1,846 | 5,703 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Allowance for loan losses at end of year |
$ | 2,884 | $ | 3,738 | $ | 5,095 | $ | 6,801 | $ | 6,815 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (charge-offs) recoveries as a percent of average loans |
0.07 | % | 0.31 | % | 0.55 | % | 0.53 | % | 1.50 | % |
105
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 9
Allocation of the Allowance for Loan Losses
(dollars in thousands)
At December 31, | ||||||||||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||||||||||
% of Total | % of Total | % of Total | ||||||||||||||||||||||
Amount | Loans (1) | Amount | Loans (1) | Amount | Loans (1) | |||||||||||||||||||
Commercial |
$ | 478 | 16.57 | % | $ | 790 | 21.13 | % | $ | 722 | 14.17 | % | ||||||||||||
Real estate - construction |
227 | 7.87 | % | 223 | 5.97 | % | 1,203 | 23.61 | % | |||||||||||||||
Real estate - residential |
1,338 | 46.40 | % | 1,775 | 47.50 | % | 2,025 | 39.75 | % | |||||||||||||||
Real estate - commercial |
653 | 22.64 | % | 738 | 19.74 | % | 890 | 17.47 | % | |||||||||||||||
Other |
188 | 6.52 | % | 212 | 5.66 | % | 255 | 5.00 | % | |||||||||||||||
Unallocated |
| | % | | | % | | | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total loans |
$ | 2,884 | 100.00 | % | $ | 3,738 | 100.00 | % | $ | 5,095 | 100.00 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
% of Total | % of Total | |||||||||||||||
Amount | Loans (1) | Amount | Loans (1) | |||||||||||||
Commercial |
$ | 1,180 | 17.35 | % | $ | 1,127 | 12.52 | % | ||||||||
Real estate construction |
719 | 10.57 | % | 557 | 10.13 | % | ||||||||||
Real estate residential |
3,020 | 44.41 | % | 2,924 | 41.81 | % | ||||||||||
Real estate commercial |
1,040 | 15.29 | % | 1,459 | 31.37 | % | ||||||||||
Consumer |
842 | 12.38 | % | 667 | 4.01 | % | ||||||||||
Other |
| | % | 81 | 0.16 | % | ||||||||||
Unallocated |
| | % | | | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total loans |
$ | 6,801 | 100.00 | % | $ | 6,815 | 100.00 | % | ||||||||
|
|
|
|
|
|
|
|
(1) | Represents total of all outstanding loans in each category as a percent of total loans outstanding. |
106
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 10
Short Term Borrowings
(dollars in thousands)
2015 | 2014 | 2013 | ||||||||||||||||||||||
Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||||||
At year-end |
||||||||||||||||||||||||
Federal funds purchase |
$ | | 0.00 | % | $ | | 0.00 | % | $ | | 0.00 | % | ||||||||||||
Master notes and other secured borrowings |
3,396 | 0.25 | % | 3,674 | 0.25 | % | 3,998 | 0.25 | % | |||||||||||||||
Notes payable |
12 | 6.00 | % | 11 | 6.00 | % | 11 | 6.00 | % | |||||||||||||||
Short-term line of credit |
2,350 | 3.50 | % | 1,000 | 3.75 | % | | 0.00 | % | |||||||||||||||
Short-term advances from FHLB |
| 0.00 | % | | 0.00 | % | 1,500 | 4.80 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 5,758 | 1.59 | % | $ | 4,685 | 1.70 | % | $ | 5,509 | 1.30 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Average for the year |
||||||||||||||||||||||||
Federal funds purchase |
$ | 2 | 0.79 | % | $ | 2 | 0.79 | % | $ | 4 | 0.79 | % | ||||||||||||
Master notes and other secured borrowings |
3,280 | 0.25 | % | 4,250 | 0.44 | % | 5,617 | 0.41 | % | |||||||||||||||
Notes payable |
18 | 6.00 | % | 11 | 6.00 | % | 10 | 6.00 | % | |||||||||||||||
Short-term line of credit |
1,598 | 3.51 | % | 57 | 3.75 | % | | 0.00 | % | |||||||||||||||
Short-term advances from FHLB |
| 0.00 | % | 510 | 4.08 | % | 5,026 | 2.61 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 4,898 | 1.32 | % | $ | 4,830 | 1.86 | % | $ | 10,657 | 1.34 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Maximum month-end balance |
||||||||||||||||||||||||
Federal funds purchase |
$ | | $ | | $ | | ||||||||||||||||||
Master notes and other secured borrowings |
4,736 | 4,640 | 6,736 | |||||||||||||||||||||
Notes payable |
12 | 11 | 11 | |||||||||||||||||||||
Short-term line of credit |
2,350 | 1,000 | | |||||||||||||||||||||
Short-term advances from FHLB |
| 1,500 | 9,500 |
107
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 11
Maturities of Time Deposits
(dollars in thousands)
Over 3 | Over 6 | |||||||||||||||||||
3 Months | Months to | Months to | Over | |||||||||||||||||
or Less | 6 Months | 12 Months | 12 Months | Total | ||||||||||||||||
Time Deposits of $250,000 or more |
$ | 1,850 | $ | 2,121 | $ | 870 | $ | 3,307 | $ | 8,148 | ||||||||||
Other Time Deposits |
18,839 | 18,007 | 19,392 | 18,042 | 74,280 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 20,689 | $ | 20,128 | $ | 20,262 | $ | 21,349 | $ | 82,428 | |||||||||||
|
|
|
|
|
|
|
|
|
|
Financial Table 12
Performance Ratios
At December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Return on average assets |
0.38 | % | 0.33 | % | 0.18 | % | 0.08 | % | 0.17 | % | ||||||||||
Return on average equity |
4.65 | % | 4.03 | % | 2.17 | % | 0.90 | % | 2.02 | % | ||||||||||
Equity to average assets ratio |
8.27 | % | 8.11 | % | 8.34 | % | 8.52 | % | 8.39 | % |
108
UWHARRIE CAPITAL CORP
Board of Directors
W. Stephen Aldridge, III | Tara G. Eudy | Cynthia L. Mynatt | ||
President/Funeral Director | President and Treasurer | President | ||
Stanly Funeral Home, Inc. | Carolina Title Company, Inc. | Ben Mynatt Buick - GMC | ||
Nadine B. Bowers | Charles F. Geschickter, III | James E. Nance | ||
Retired Senior Vice President | President and | Founder and Managing Member | ||
Strategic Investment Advisors, Inc. | Chief Executive Officer | North State Negotiations, LLC & | ||
and Bank of Stanly | JTG Racing, Inc.; | North State Acquisitions, LLC | ||
ST Motorsports, Inc. | ||||
Joe S. Brooks | Thomas M. Hearne, Jr. | Frank A. Rankin, III | ||
Board Vice Chairman | Retired | President and Owner | ||
Owner and Manager | Geopavement Engineer | Concord Engineering & | ||
Brothers Precision Tool Co. | North Carolina Department | Surveying, Inc. | ||
of Transportation | ||||
Ronald T. Burleson | Charles D. Horne | S. Todd Swaringen | ||
Partner | President | Certified Public Accountant/ | ||
Thurman Burleson & Sons Farm | Hornwood, Inc. | Partner | ||
Beane Swaringen & | ||||
Company, PLLC | ||||
Bill C. Burnside, DDS | Harvey H. Leavitt, III | Dusty W. West | ||
Retired General Dentist | Owner and Operator | President and Owner | ||
Leavitt Funeral Home | Deans Ready Mixed, Inc. | |||
James O. Campbell | Samuel M. Leder | |||
Channel Sales Manager | Certified Public Accountant/ | |||
Viewpoint Construction Software | Partner | |||
Potter & Company, P.A. | ||||
Raymond R. Cranford, Jr. | W. Chester Lowder | |||
Owner and Vice President of Sales | Board Chairman | |||
Crook Motor Co., Inc. | Director of Livestock Program | |||
Public Policy Division | ||||
NC Farm Bureau | ||||
Federation, Inc. | ||||
Executive Officers | ||||
Roger L. Dick | Brendan P. Duffey | R. David Beaver, III | ||
President and | Chief Operating Officer and | Chief Financial Officer | ||
Chief Executive Officer | Chief Risk Officer | Uwharrie Capital Corp | ||
Uwharrie Capital Corp; | Uwharrie Capital Corp; | and Uwharrie Bank | ||
Chief Executive Officer | President | |||
Uwharrie Bank | Uwharrie Bank |
109
Exhibit 21
UWHARRIE CAPITAL CORP
SUBSIDIARIES OF THE REGISTRANT
At December 31, 2015
Subsidiaries of Uwharrie Capital Corp | State of Incorporation | |
Uwharrie Bank | North Carolina | |
Uwharrie Investment Advisors, Inc. | North Carolina | |
Uwharrie Mortgage, Inc. | North Carolina | |
Subsidiaries of Uwharrie Bank | State of Incorporation | |
The Strategic Alliance Corporation | North Carolina | |
BOS Agency, Inc. | North Carolina | |
Gateway Mortgage, Inc. | North Carolina |
110
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Uwharrie Capital Corp
Albemarle, North Carolina
We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-146595 and 333-207626) of Uwharrie Capital Corp of our report dated March 1, 2016, with respect to the consolidated financial statements of Uwharrie Capital Corp and Subsidiaries, which report appears in Uwharrie Capital Corps 2015 Annual Report on Form 10-K.
/s/ Dixon Hughes Goodman LLP
Charlotte, North Carolina
March 1, 2016
111
Exhibit 31.1
UWHARRIE CAPITAL CORP
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Roger L. Dick, certify that:
1. | I have reviewed this report on Form 10-K of Uwharrie Capital Corp (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: March 2, 2016 | By: | /s/ Roger L. Dick | ||||
Roger L. Dick | ||||||
Chief Executive Officer |
112
Exhibit 31.2
UWHARRIE CAPITAL CORP
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, R. David Beaver, III, certify that:
1. | I have reviewed this report on Form 10-K of Uwharrie Capital Corp (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: March 2, 2016 | /s/ R. David Beaver, III | |||||
R. David Beaver, III | ||||||
Principal Financial Officer |
113
Exhibit 32
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350)
The undersigned hereby certifies that, to his or her knowledge, (i) the Form 10-K filed by Uwharrie Capital Corp (the Issuer) for the fiscal year ended December 31, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer on the dates and for the periods presented therein.
Date: March 2, 2016 | /s/ Roger L. Dick | |||||
Roger L. Dick | ||||||
Chief Executive Officer | ||||||
Date: March 2, 2016 | /s/ R. David Beaver, III | |||||
R. David Beaver, III | ||||||
Principal Financial Officer |
114
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Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Feb. 18, 2016 |
Jun. 30, 2015 |
|
Document And Entity Information [Abstract] | |||
Document Type | 10-K | ||
Amendment Flag | false | ||
Document Period End Date | Dec. 31, 2015 | ||
Document Fiscal Year Focus | 2015 | ||
Document Fiscal Period Focus | FY | ||
Trading Symbol | UWHR | ||
Entity Registrant Name | UWHARRIE CAPITAL CORP | ||
Entity Central Index Key | 0000898171 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Current Reporting Status | Yes | ||
Entity Voluntary Filers | No | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Common Stock, Shares Outstanding | 6,983,017 | ||
Entity Public Float | $ 25,820,061 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Securities held for sale, at fair value | $ 11,242 | $ 5,450 |
Common stock, par value | $ 1.25 | $ 1.25 |
Common stock, shares authorized | 20,000,000 | 20,000,000 |
Common stock, shares issued | 6,983,017 | 6,961,484 |
Common stock, shares outstanding | 6,983,017 | 6,961,484 |
Consolidated Statements of Income (Parenthetical) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Income Statement [Abstract] | |||
Reclassification from accumulated other comprehensive income | $ 536 | $ (2) | $ (523) |
Tax effect on amount reclassified from accumulated Other comprehensive income | $ (207) | $ 1 | $ 222 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Statement of Comprehensive Income [Abstract] | |||
Net Income | $ 2,007 | $ 1,679 | $ 954 |
Other comprehensive income (loss): | |||
Unrealized gains (losses) on available for sale securities | (248) | 1,311 | (3,662) |
Related tax effect | 60 | (445) | 1,292 |
Reclassification of losses (gains) recognized in net income | (536) | 2 | 523 |
Related tax effect | 207 | (1) | (222) |
Total other comprehensive income (loss) | (517) | 867 | (2,049) |
Comprehensive income (loss) | 1,490 | 2,546 | (1,095) |
Less: Comprehensive income attributable to noncontrolling interest | (592) | (591) | (478) |
Comprehensive income (loss) attributable to Uwharrie Capital | $ 898 | $ 1,955 | $ (1,573) |
Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) |
Dec. 31, 2015 |
Oct. 20, 2015 |
Dec. 31, 2014 |
---|---|---|---|
Statement of Stockholders' Equity [Abstract] | |||
Stock dividend, percentage | 2.00% | 2.00% | 2.00% |
Significant Accounting Policies |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Accounting Policies | 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”). 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 by the Federal Deposit Insurance Corporation (“FDIC”). Uwharrie is under regulation of the Federal Reserve, the FDIC and the North Carolina Commissioner of Banks. Through its six branch locations in Stanly County, Uwharrie provides 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 “broker dealer” in securities. 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. 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 financials 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 loan losses. 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 agencies, Government Sponsored Enterprise (GSE) mortgage backed securities and collateralized mortgage obligations (CMOs), corporate bonds and state and political subdivision bonds. Unrealized holding gains and losses on available for sale securities are reported as a net amount in other comprehensive income, net of income taxes. Gains and losses on the sale of available for sale securities are determined using the specific identification method and recorded on a trade basis. Declines in the fair value of individual available for sale securities below their cost that are other than temporary would result in write-downs of the individual securities, to their fair value. Such write-downs would be included in earnings as realized losses to the extent the losses are associated with the credit quality of the issuer. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the period to maturity. Investment Securities Held to Maturity Investment securities held to maturity consist of United States Government agencies, and 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 The Company divides the loans it grants into two segments, commercial and noncommercial loans. Commercial loans are broken down into the following classes: commercial loans, real estate commercial loans and other real estate construction loans. Noncommercial loans are divided into the following classes: real estate 1-4 family construction, real estate 1-4 family residential loans, home equity loans, consumer loans and other 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 loan losses, 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 the 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. Allowance for Loan Losses The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses. The provision for loan losses is expensed to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The Company has different specific risks identified within the loan segments. Specific risks within the commercial loan segment arise with borrowers that are experiencing diminished operating cash flows, depreciated collateral values or prolonged sales and rental absorption periods. Concentrations within the portfolio if unmanaged, pose additional risk. Occasionally, the Company will purchase participation loans from other institutions and if not independently underwritten by the Bank, could carry additional risk. Generally, owner-occupied commercial real estate loans carry less risk than non-owner occupied. Specific risks within the non-commercial portfolio tend to be tied to economic factors including high unemployment and decreased real estate values. Risk to the Company is greater as home values deteriorate more rapidly than amortization in a loan, leaving little to no equity in properties, especially in junior lien positions. Concentration in the portfolio, such as home equity lines of credit, could pose additional risk if not appropriately managed. The allowance for loan losses is evaluated both individually and collectively by loan class on a regular basis by management. Loans are collectively evaluated based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. Individually evaluated loans are based upon discounted cash flows or the underlying value of the collateral. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, regulatory examiners may require the Company to recognize adjustments to the allowance for loan losses based on their judgment about information available to them at the time of their assessment. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Homogeneous loans are collectively evaluated by loan class for impairment. However, homogeneous loans will be evaluated individually for impairment if such a loan is deemed impaired. Troubled debt restructure loans (TDR) are modifications of a loan when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. TDRs are considered to be impaired loans and are individually evaluated for impairment. The portion of the Company’s allowance for loan loss model related to general reserves captures the mean loss of individual loans and the rare event of severe loss that can occur within the loan portfolio. Specifically, the Company calculates probable losses on loans by computing a probability of loss and expected loss scenario by FDIC call report codes. Together, these expected components, as well as a level of more extreme unexpected losses form the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations. Mortgage Servicing Rights The Company capitalizes mortgage servicing rights when loans are sold and the loan servicing is retained. The cost of servicing rights is amortized in proportion to and over the estimated period of net servicing revenues is expected to be received based on projections of 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.
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. 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. 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 this investment was 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). Accounting Standards Codification (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. Excess tax benefits are reported as financing cash inflows in the consolidated statement of cash flows. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return and separate North Carolina income tax returns. 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 for the 2011 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, 2015, 2014 and 2013. 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 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, impaired loans, loans held for sale, which are carried at the lower of cost or market; mortgage 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; and goodwill, which is periodically tested for impairment. Deposits, short-term borrowings and long-term obligations are not reported at fair value. Prices for US Treasury securities are readily available in the active markets in which those securities are traded, and the resulting fair values are shown in the ‘Level 1 input’ column. Prices for government agency securities, mortgage-backed securities and for state, county and municipal securities are obtained for similar securities, and the resulting fair values are shown in the ‘Level 2 input’ column. 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 shown in the ‘Level 3 input’ column. Non-marketable investment securities, which are 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 migration of securities between levels. The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment by using one of several methods including collateral value, fair value of similar debt or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected repayments or fair value of collateral exceed the recorded investments in such loans. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations. 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 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 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 income for the years ended December 31, 2015, 2014 and 2013:
As of December 31, 2015 and December 31, 2014, total accumulated other comprehensive income (loss) was ($212,000) and $305,000 respectively. Earnings per Common Share The Company had stock options outstanding covering 12,859 shares of common stock at both December 31, 2015 and 2014 and 96,228 shares of common stock at December 31, 2015. All of these options were anti-dilutive because the strike price was higher than the current market price. 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 entity. The ESOP effect is the average of the unallocated ESOP shares. On October 20, 2015, the Company’s Board of Directors declared a 2% stock dividend payable on November 19, 2015 to shareholders of record on November 3, 2015. 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:
During the first quarter of 2014, the board of directors of the Company voted to terminate the ESOP effective March 1, 2014. As of February 28, 2014, the ESOP held 740,530 shares, or 9.95% of the Company’s total outstanding shares of common stock, of which 252,446 shares were unallocated to participants in the ESOP. The Company originally made a term loan to the ESOP in 1999. In addition, the Company established a $500,000 line of credit to the ESOP in 2010 and established a second $500,000 line of credit to the ESOP in 2013. The ESOP used the proceeds of the term loan and lines of credit to purchase shares of the Company’s common stock for the benefit of qualified employees. The unallocated shares of stock held by the ESOP were pledged as collateral for the term loan and lines of credit. As debt payments were made on the term loan and lines of credit, unallocated shares associated with those debt payments were released to the ESOP and allocated among participants. In connection with the termination of the ESOP, the ESOP trustees transferred the 252,446 remaining unallocated shares to the Company in partial satisfaction of the outstanding balance on the term loan and lines of credit. The fair value of these unallocated shares was insufficient to repay the term loan and lines of credit in full. As a result, the Company forgave the remaining balance. Upon the transfer of the unallocated shares to the Company, these shares were cancelled and returned to the Company’s pool of authorized but unissued shares of common stock. The Company filed a request for a favorable determination letter from the Internal Revenue Service as to the tax-qualified status of the ESOP on its termination. The Company received the favorable determination letter dated September 5, 2014 from the Internal Revenue Service and during the fourth quarter of 2014 distributed the allocated shares to the participants. Noncontrolling Interest In January 2013 the Company’s subsidiary banks issued a total of $7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualified as Tier 1 capital at each 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. Effective September 1, 2013, the Fixed Rate Noncumulative Perpetual Preferred Stock, Series B was rolled into one issue under Uwharrie Bank in connection with the consolidation and name change. During 2013, the Company’s subsidiary bank, Uwharrie Bank, raised $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. Recent Accounting Pronouncements In January 2014, the FASB issued ASU 2014-04, an update to ASC 310 “Receivables – Troubled Debt Restructurings by Creditors”. The amendments in this update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The update is effective for reporting periods beginning after December 15, 2014. The Company evaluated this update and it does not have a material impact on the Company’s consolidated financial statements. The Company had $1.6 million in foreclosed residential real estate and $219,000 of residential real estate in process of foreclosure at December 31, 2015. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, Topic 606 (“ASU 2014-09”). The new standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Topic 606: Deferral of the Effective Date, deferring the effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this new guidance recognized at the date of initial application. The Company is currently evaluating the provisions of ASU 2014-09 to determine the potential impact the new standard will have to the Company’s financial statements. In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this ASU address certain aspects of recognition, measurement, presentation and disclosure. The amendments in this ASU (i) require equity investments to be measured at fair value with changes in fair value recognized in net income; (ii) simplify the impairment assessment of equity investments without readily determinable fair value; (iii) require public business entities to use exit prices, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (iv) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; (v) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the balance sheet; (vi) require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (vii) stat that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets. The amendments in this ASU are effective for public business entities for fiscal periods beginning after December 15, 2017, including interim period within those fiscal years. The ASU only permits early adoption of the instrument-specific credit risk provision. We are currently evaluating the impact of the new standard. 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. Reclassification Certain amounts in the 2014 and 2013 financial statements have been reclassified to conform to the 2015 presentation. These reclassifications do not have a material impact on net income or shareholders’ equity. |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment Securities | Note 2 - Investment Securities Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:
At December 31, 2015 and December 31, 2014, the Company owned Federal Reserve Bank stock reported at cost of $507,000 and $506,000, respectively. Also at December 31, 2015 and December 31, 2014, the Company owned Federal Home Loan Bank Stock (FHLB) of $533,000 and $532,000, 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 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 that the fair value approximated cost and that these investments were not impaired at December 31, 2015. Results from sales and calls of securities available for sale for the years ended December 31, 2015, 2014 and 2013 are as follows:
At December 31, 2015, 2014 and 2013 securities available for sale with a carrying amount of $68.8 million, $84.7 million and $63.1 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2015 and December 31, 2014. We believe these 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. At December 31, 2015, the unrealized losses on available for sale securities less than twelve months related to one U.S. Treasury, five government agency bonds, eight government sponsored enterprise (GSE) mortgage backed securities, two corporate bonds and one state and political subdivision bond. The Company had six government agency bonds, four GSE mortgage backed securities and one corporate bond that had been in a loss position for more than twelve months. At December 31, 2015, the unrealized losses on held to maturity securities related to one government agency security, two corporate bonds and two state and political subdivision bonds. At December 31, 2014, the unrealized losses on available for sale securities related to one United States Treasury note, thirteen government agency bonds, eight GSE mortgage backed securities and two corporate bonds. At December 31, 2014, the unrealized losses on held to maturity securities related to one government agency security and two corporate bonds. December 31, 2015
December 31, 2015
December 31, 2014
December 31, 2014
The Company did have six government agency securities, four GSE mortgage backed securities and one corporate bond that had been in a loss position for more than twelve months that are in the investments available for sale portfolio. Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for other-than-temporary impairment 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 and the intent and the 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 but that the losses are temporary in nature. At December 31, 2015, the Company does not intend to sell and is not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery. The following table shows contractual maturities of the entire investment portfolio as of December 31, 2015:
The mortgage-backed securities are shown separately as they are not due at a single maturity date. |
Loans Held for Investment |
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Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans Held for Investment | Note 3 – Loans Held for Investment The composition of net loans held for investment by class as of December 31, 2015 and 2014 is as follows:
Although the subsidiary bank loan portfolio is diversified, there is a concentration of mortgage real estate loans, primarily 1 to 4 family residential mortgage loans, which represent 43.25% of total loans. Additionally, there is concentration in commercial loans secured primarily by real estate, shopping center locations, commercial land development, commercial buildings and equipment that represent 53.48% of total loans. There is not a concentration of a particular type of credit in this group of commercial loans. Total recorded investment in impaired loans, which consisted of nonaccrual loans and other loans identified by management as impaired, totaled $5.5 million and $7.6 million at December 31, 2015 and 2014, respectively. There were no loans 90 days past due and still accruing at December 31, 2015 or at December 31, 2014. Restructured loans at December 31, 2015 totaled $4.7 million and are included in the impaired loan total, compared to $6.0 million which were included in impaired loans at December 31, 2014. The carrying value of foreclosed properties held as other real estate was $5.0 million and $5.9 million at December 31, 2015 and 2014, respectively. The Company had loans of $135.9 million and $128.9 million pledged to borrowings at Federal Home Loan Bank and the Federal Reserve Bank at December 31, 2015 and 2014, respectively. 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. |
Allowance for Loan Losses |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for Loan Losses | Note 4 - Allowance for Loan Losses Changes in the allowance for loan losses for the years ended December 31, 2015, 2014 and 2013 are presented below:
During the third quarter of 2015, the Company made a change to their Allowance for Loan Loss methodology model. One of the components utilized in the model is Beacon 5 scores. During the third quarter, this was changed to FICO 9 scores. The impact of this change accounted for approximately a $20,000 decrease in the allowance Refer to the Asset Quality discussion on page 91 for further information. The following table shows period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at December 31, 2015 and 2014: December 31, 2015
December 31, 2014
Past due loan information is used by management when assessing the adequacy of the allowance for loan loss. The following tables summarize the past due information of the loan portfolio by class: December 31, 2015
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, 2015 and 2014 is as follows:
Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and to measure the adequacy of the allowance for loan losses. In this program, risk grades are initially assigned by the loan officers and reviewed and monitored by the lenders and credit administration on an ongoing basis. The program has eight risk grades summarized in five categories as follows: Pass: Loans that are pass grade credits include loans that are fundamentally sound and risk factors are reasonable and acceptable. They generally conform to policy with only minor exceptions and any major exceptions are clearly mitigated by other economic factors. Watch: Loans that are watch credits include loans on management’s watch list where a risk concern may be anticipated in the near future. Substandard: Loans that are considered substandard are loans that are inadequately protected by current sound net worth, 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. The tables below summarize risk grades of the loan portfolio by class as of December 31, 2015 and 2014:
Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. During 2015, nonperforming loans decreased from $2.2 million at December 31, 2014 to $783,000 at December 31, 2015, a decrease of $1.5 million. There were several loans that were foreclosed on during 2015 with the related property being moved into other real estate owned. The following tables show the breakdown between performing and nonperforming loans by class as of December 31, 2015 and 2014: December 31, 2015
December 31, 2014
Loans are considered impaired when, based on current information and events it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. If a loan is deemed impaired, a valuation analysis is performed and a specific reserve is allocated if necessary. The tables below summarize the loans deemed impaired and the amount of specific reserves allocated by class as of December 31, 2015 and 2014:
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Troubled Debt Restructures |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Troubled Debt Restructures | Note 5 – Troubled Debt Restructures A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. The Company offers various types of concessions when modifying loans to troubled borrowers, however, forgiveness of principal is rarely granted. Concessions offered are term extensions, capitalizing accrued interest, reducing interest rates to below current market rates or a combination of any of these. Combinations from time to time may include allowing a customer to be placed on interest-only payments. The presentations below in the “other” category are TDR’s with a combination of concessions. At the time of a TDR, additional collateral or a guarantor may be requested. Loans modified as TDRs are typically already on nonaccrual status and in some cases, partial chargeoffs may have already been taken against the outstanding loan balance. The Company classifies TDR loans as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis. An allowance is based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan is deemed to be collateral dependent. For the twelve months ended December 31, 2015, 2014 and 2013, the following table presents a breakdown of the types of concessions made by loan class:
During the twelve months ended December 31, 2015, 2014 and 2013, there were no TDRs for which there was a payment default. A default on a troubled debt restructure is defined as being past due 90 days or being out of compliance with the modification agreement. As previously mentioned, the Company considers TDRs to be impaired loans and has $177,000 in the allowance for loan loss as of December 31, 2015, as a direct result of these TDRs. At December 31, 2014 and 2013 there was $373,000 and $420,000 in the allowance for loan loss related to TDRs, respectively.
The following table presents the successes and failures of the types of modifications within the previous twelve months as of December 31, 2015, 2014 and 2013:
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Mortgage Servicing Assets |
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Text Block [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage Servicing Assets | Note 6 – Mortgage Servicing Assets The principal balance of loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage and other loans serviced for others were approximately $406 million and $396 million at December 31, 2015 and 2014, respectively. The carrying value of capitalized servicing rights, net of valuation allowances, is included in other assets. A summary of mortgage servicing rights follows:
Amortization expense is estimated as follows:
The amortization does not anticipate or pro-forma loan prepayments. The fair value of mortgage servicing rights was $3.3 million at December 31, 2015 and $3.2 million at December 31, 2014. The key assumptions used to value mortgage servicing rights were as follows:
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Premises and Equipment |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Premises and Equipment | Note 7 - Premises and Equipment The major classes of premises and equipment and the total accumulated depreciation at December 31, 2015 and 2014 are listed below:
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Leases |
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Leases [Abstract] | |
Leases | Note 8 – Leases The Company’s subsidiary, Uwharrie Bank had entered into a noncancelable operating lease for an administrative office location in Concord that would have expired in 2017. The lease required annual rental payments of $62,120 and contained two five-year renewal options at the expiration of the initial term. During 2014, the Company purchased this location. During 2015, Uwharrie Bank entered into a lease for a loan production office in Charlotte. This lease is a month to month lease with monthly rental payments of $2,888. Total rental expense related to the operating leases was $25,529, $16,230, and $61,914 for the years ended December 31, 2015, 2014 and 2013, respectively, and is included in net occupancy expense. |
Deposits |
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Deposits | Note 9 - Deposits The composition of deposits at December 31, 2015 and 2014 is as follows:
The maturities of fixed-rate time deposits at December 31, 2015 are reflected in the table below:
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Short-Term Borrowed Funds |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-Term Borrowed Funds | Note 10 - 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 2015 and 2014:
Federal funds purchased represent unsecured overnight borrowings from other financial institutions. Master notes and other secured borrowings represent an overnight investment in commercial paper issued by the Company to customers of its subsidiary bank, where an agreement is in place. The Company has a short term line of credit with $2.4 million outstanding at December 31, 2015. The line of credit has an interest rate of 3.50% and matures July 5, 2016. The line is collateralized by Uwharrie Bank Stock. The subsidiary bank has combined available lines of credit for federal funds and Federal Reserve discount window availability in the amount of $48.7 million at December 31, 2015.
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Long-Term Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Debt | Note 11 - Long-Term Debt The Company has a line of credit with the Federal Home Loan Bank secured by qualifying first lien and second mortgage loans and commercial real estate loans with eligible collateral value of $52.1 million with remaining availability of $52.1 million at December 31, 2015. There were no long-term advances under this line at December 31, 2015 and at December 31, 2014. The subsidiary bank also has standby letters of credit issued by the Federal Home Loan Bank to be used as collateral for public funds deposits. The aggregate amount of the letters of credit was $20.5 million at December 31, 2015. During the first quarter of 2014, 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 $9.5 million, of which the entire $9.5 million was outstanding at December 31, 2014. These securities have a final maturity date of March 31, 2024 and may be redeemed by the Company after March 31, 2019. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.75%. All proceeds of this private placement qualify and are included in the calculation of Tier 2 capital. Once the final maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company would have a twenty percent reduction beginning at March 31, 2019.
On November 19, 2002, the Company executed a mortgage in the amount of $129,000 for the purchase of property for branch expansion. This loan bears interest at 6.00% and is to be paid in 60 quarterly installments of $3,277. The outstanding principal balance on this note was $24,526 at December 31, 2015 down from $35,738 at December 31, 2014. As of December 31, 2015, the scheduled maturities of these long term borrowings are as follows:
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Income Tax Matters |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Matters | Note 12 - Income Tax Matters The significant components of income tax expense (benefit) for the years ended December 31, 2015, 2014 and 2013 are summarized as follows:
The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes is summarized below:
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, 2015, 2014 and 2013 are as follows:
The net deferred tax asset is included in other assets on the accompanying consolidated balance sheets.
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Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Note 13 - 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 subsidiary 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, 2015 and 2014, outstanding financial instruments whose contract amounts represent credit risk were as follows:
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 and Mecklenburg counties. 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 1-to-4 family residential mortgage loans and in 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. Lending policy for all loans requires that they be supported by sufficient cash flows at the time of origination. |
Related Party Transactions |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions | Note 14 - 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 interests are submitted to the Board of Directors for approval. A summary of loans to directors, executive officers and their related interests follows:
At December 31, 2015, the Company had approved, but unused lines of credit, totaling $3.9 million to executive officers and directors, and their related interests. |
Shareholders' Equity and Regulatory Matters |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity and Regulatory Matters | Note 15 – 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, 2015, the subsidiary bank was required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank in the aggregate amount of $1.4 million 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. Bank regulatory agencies approved regulatory capital guidelines (“Basel III”) aimed at strengthening existing capital requirements for banking organizations. Under the final rules, minimum requirements increase for both the quantity and quality of capital held by the Company. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.00% to 6.00%, require a minimum ratio of total capital to risk-weighted assets of 8.00%, and require a minimum Tier 1 leverage ratio of 4.00%. A new capital conservation buffer, comprised of common equity Tier 1 capital, was also established above the regulatory minimum capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by an additional 0.625% until reaching its final level of 2.50% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. The final rules also revise the definition and calculation of Tier 1 capital, total capital, and risk-weighted assets. The phase-in period for the final rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance of all the final rules’ requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019. As of December 31, 2015, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under the new 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.
As of December 31, 2015, 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. During 2012, each of the Company’s subsidiary banks began a campaign to sell 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 sale ended on
December 31, 2012 raising $7.9 million less issuance costs of $113,000. These funds were held in an escrow account at December 31, 2012 and the new preferred stock was issued in January 2013. Effective September 1, 2013, the Fixed Rate Noncumulative Perpetual Preferred Stock, Series B was rolled into one issue under Uwharrie Bank in connection with the consolidation and name change. During 2013, the Company’s subsidiary bank, Uwharrie Bank, raised $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 ended September 15, 2013 with Uwharrie raising $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. All of the Company’s aforementioned investment in its subsidiary bank qualifies for Tier 1 capital treatment for the bank and is 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 2015 the Company repurchased 114,377 shares of outstanding common stock and repurchased 374,130 during 2014.
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Stock Based Compensation |
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Stock Based Compensation | Note 16 - Stock Based Compensation During 2006, the Company adopted the 2006 Incentive Stock Option Plan (“SOP II”) and the Employee Stock Purchase Plan (“SPP II”), under which options to purchase shares of the Company’s common stock may be granted to officers and eligible employees. Options granted under the SOP II are exercisable in established increments according to vesting schedules, generally three to five years, and will expire if not exercised within ten years of the date of grant. Options granted under the SPP II are fully vested at the date of grant and expire if not exercised within two years of the grant date. At December 31, 2015, the SOP II had 12,859 options outstanding and the SPP II had no options outstanding.
Employee Stock Plans The following is a summary of stock option activity for the year ended December 31, 2015:
Total options outstanding and exercisable at December 31, 2015 were 12,859 at an exercise price of $5.13 per share with a weighted average expected term of 2.12 years. At December 31, 2015, authorized shares of common stock reserved for future grants of options totaled 161,071 under the SOP II and 107,405 under the SPP II. The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. There were no shares granted during the years ended December 31, 2014 and 2013 under the SOP II. As of December 31, 2014, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all of the Company’s stock benefit plans. The Company funds the option shares from authorized but unissued shares. The Company does not typically purchase shares to fulfill the obligations of the stock benefit plans. Company policy does allow option holders to exercise options with seasoned shares. There were no options exercised in 2013, 2014 or 2015.
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Employee and Director Benefit Plans |
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Postemployment Benefits [Abstract] | |||||||||
Employee and Director Benefit Plans | Note 17 - 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, completes one year of eligibility service and completes at least 1,000 hours of service and is 100% vested in the plan once they enroll.
The Company’s annual contribution to the plan was $319,340 in 2015, $330,448 in 2014 and $317,281 in 2013, determined as follows:
Employee Stock Ownership Plan During the first quarter of 2014, the board of directors of the Company voted to terminate the ESOP effective March 1, 2014. As of February 28, 2014, the ESOP held 740,530 shares, or 9.95% of the Company’s total outstanding shares of common stock, of which 252,446 shares were unallocated to participants in the ESOP. The Company originally made a term loan to the ESOP in 1999. In addition, the Company established a $500,000 line of credit to the ESOP in 2010 and established a second $500,000 line of credit to the ESOP in 2013. The ESOP used the proceeds of the term loan and lines of credit to purchase shares of the Company’s common stock for the benefit of qualified employees. The unallocated shares of stock held by the ESOP were pledged as collateral for the term loan and lines of credit. As debt payments were made on the term loan and lines of credit, unallocated shares associated with those debt payments were released to the ESOP and allocated among participants. In connection with the termination of the ESOP, the ESOP trustees transferred the 252,446 remaining unallocated shares to the Company in partial satisfaction of the outstanding balance on the term loan and lines of credit. The fair value of these unallocated shares was insufficient to repay the term loan and lines of credit in full. As a result, the Company expensed the remaining balance of $8,600. Upon the transfer of the unallocated shares to the Company, these shares were cancelled and returned to the Company’s pool of authorized but unissued shares of common stock. The Company filed a request for a favorable determination letter from the Internal Revenue Service as to the tax-qualified status of the ESOP on its termination. The Company received the favorable determination letter dated September 5, 2014 from the Internal Revenue Service and during the fourth quarter all shares under the ESOP were distributed to the participants. The Company did have expense of approximately 2% of eligible compensation as a contribution to the ESOP Plan during the first part of 2014, the same as 2013. Expenses of $45,693 and $223,283 during the years ended December 31, 2014 and 2013, respectively, were incurred in connection with the ESOP. The ESOP had a put option that allowed the employee to put their shares back to the Company. At December 31, 2014, the Company had a liability set aside at fair value in the amount of approximately $561,000 for shares that can be put back to the Company during the first half of 2015. The put option has expired and there will no longer be a liability for the Company. This liability that had been reclassified from additional paid in capital and was presented separately on the Company’s balance sheet, has now been returned to additional paid in capital.
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 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. During 2015, 2014 and 2013, $331,800, $316,800 and $336,800, respectively was expensed each year for benefits provided under the plans. The liability accrued for deferred compensation under the plan amounted to $3.7 million and $3.3 million at December 31, 2015 and 2014, 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 2015 and 2014, the expense associated with these policies was $86,346 and $112,176 respectively. Stock Grant Plan During 2015, the Company adopted the 2015 Stock Grant Plan (“SGP”), under which the Company, at their own 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 Common Stock to be used for Stock Grants under this Plan will be outstanding shares purchased by a revocable trust formed by the Company (the “Trust”). The Participant will be 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. The SGP allows for 510,000 shares to be granted and at December 31, 2015, the availability under the SGP was 491,994 shares. During 2015 there were 16,840 shares granted at an expense of $54,000. |
Fair Values of Financial Instruments and Interest Rate Risk |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Values of Financial Instruments and Interest Rate Risk | Note 18 - Fair Values of Financial Instruments and Interest Rate Risk 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, 2015 and December 31, 2014, 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 a liability could be settled for. 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, 2015 and December 31, 2014: December 31, 2015
December 31, 2014
The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:
At December 31, 2015, 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; therefore, they were deemed to have no current fair value. See Note 13. The following table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and 2014:
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 that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of December 31, 2015 and December 31, 2014:
Quantitative Information about Level 3 Fair Value Measurements December 31, 2015
December 31, 2014
At December 31, 2015 and 2014, impaired loans were being evaluated with discounted expected cash flows and discounted appraisals were being used on collateral dependent loans. |
Parent Company Financial Data |
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Condensed Financial Information of Parent Company Only Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Parent Company Financial Data | Note 19 - Parent Company Financial Data The following is a summary of the condensed financial statements of Uwharrie Capital Corp: Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Cash Flows
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Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nature of Business | 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”). 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 by the Federal Deposit Insurance Corporation (“FDIC”). Uwharrie is under regulation of the Federal Reserve, the FDIC and the North Carolina Commissioner of Banks. Through its six branch locations in Stanly County, Uwharrie provides 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 “broker dealer” in securities. 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. 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 financials 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. |
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Principles of Consolidation | 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. |
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Use of Estimates | 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 loan losses. |
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Cash and Cash Equivalents | 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.” |
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Investment Securities Available for Sale | Investment Securities Available for Sale Investment securities available for sale consist of United States Treasuries, United States Government agencies, Government Sponsored Enterprise (GSE) mortgage backed securities and collateralized mortgage obligations (CMOs), corporate bonds and state and political subdivision bonds. Unrealized holding gains and losses on available for sale securities are reported as a net amount in other comprehensive income, net of income taxes. Gains and losses on the sale of available for sale securities are determined using the specific identification method and recorded on a trade basis. Declines in the fair value of individual available for sale securities below their cost that are other than temporary would result in write-downs of the individual securities, to their fair value. Such write-downs would be included in earnings as realized losses to the extent the losses are associated with the credit quality of the issuer. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the period to maturity. |
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Investment Securities Held to Maturity | Investment Securities Held to Maturity Investment securities held to maturity consist of United States Government agencies, and 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. |
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Loans Held for Sale | 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. |
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Loans | Loans The Company divides the loans it grants into two segments, commercial and noncommercial loans. Commercial loans are broken down into the following classes: commercial loans, real estate commercial loans and other real estate construction loans. Noncommercial loans are divided into the following classes: real estate 1-4 family construction, real estate 1-4 family residential loans, home equity loans, consumer loans and other 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 loan losses, 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 the 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. |
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Allowance for Loan Losses | Allowance for Loan Losses The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses. The provision for loan losses is expensed to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The Company has different specific risks identified within the loan segments. Specific risks within the commercial loan segment arise with borrowers that are experiencing diminished operating cash flows, depreciated collateral values or prolonged sales and rental absorption periods. Concentrations within the portfolio if unmanaged, pose additional risk. Occasionally, the Company will purchase participation loans from other institutions and if not independently underwritten by the Bank, could carry additional risk. Generally, owner-occupied commercial real estate loans carry less risk than non-owner occupied. Specific risks within the non-commercial portfolio tend to be tied to economic factors including high unemployment and decreased real estate values. Risk to the Company is greater as home values deteriorate more rapidly than amortization in a loan, leaving little to no equity in properties, especially in junior lien positions. Concentration in the portfolio, such as home equity lines of credit, could pose additional risk if not appropriately managed. The allowance for loan losses is evaluated both individually and collectively by loan class on a regular basis by management. Loans are collectively evaluated based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. Individually evaluated loans are based upon discounted cash flows or the underlying value of the collateral. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, regulatory examiners may require the Company to recognize adjustments to the allowance for loan losses based on their judgment about information available to them at the time of their assessment. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Homogeneous loans are collectively evaluated by loan class for impairment. However, homogeneous loans will be evaluated individually for impairment if such a loan is deemed impaired. Troubled debt restructure loans (TDR) are modifications of a loan when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. TDRs are considered to be impaired loans and are individually evaluated for impairment. The portion of the Company’s allowance for loan loss model related to general reserves captures the mean loss of individual loans and the rare event of severe loss that can occur within the loan portfolio. Specifically, the Company calculates probable losses on loans by computing a probability of loss and expected loss scenario by FDIC call report codes. Together, these expected components, as well as a level of more extreme unexpected losses form the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations. |
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Mortgage Servicing Rights | Mortgage Servicing Rights The Company capitalizes mortgage servicing rights when loans are sold and the loan servicing is retained. The cost of servicing rights is amortized in proportion to and over the estimated period of net servicing revenues is expected to be received based on projections of 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. |
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Transfers of Financial Assets | 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. |
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Foreclosed Real Estate | 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. |
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Premises and Equipment | 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. |
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Restricted Stock | 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 this investment was not impaired. |
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Stock-Based Compensation | 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). Accounting Standards Codification (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. Excess tax benefits are reported as financing cash inflows in the consolidated statement of cash flows. |
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Income Taxes | Income Taxes The Company and its subsidiaries file a consolidated federal income tax return and separate North Carolina income tax returns. 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 for the 2011 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, 2015, 2014 and 2013. |
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Fair Value of Financial Instruments | 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 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, impaired loans, loans held for sale, which are carried at the lower of cost or market; mortgage 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; and goodwill, which is periodically tested for impairment. Deposits, short-term borrowings and long-term obligations are not reported at fair value. Prices for US Treasury securities are readily available in the active markets in which those securities are traded, and the resulting fair values are shown in the ‘Level 1 input’ column. Prices for government agency securities, mortgage-backed securities and for state, county and municipal securities are obtained for similar securities, and the resulting fair values are shown in the ‘Level 2 input’ column. 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 shown in the ‘Level 3 input’ column. Non-marketable investment securities, which are 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 migration of securities between levels. The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment by using one of several methods including collateral value, fair value of similar debt or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected repayments or fair value of collateral exceed the recorded investments in such loans. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations. 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. |
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Comprehensive Income | Comprehensive Income 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 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 income for the years ended December 31, 2015, 2014 and 2013:
As of December 31, 2015 and December 31, 2014, total accumulated other comprehensive income (loss) was ($212,000) and $305,000 respectively. |
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Earnings per Common Share | Earnings per Common Share The Company had stock options outstanding covering 12,859 shares of common stock at both December 31, 2015 and 2014 and 96,228 shares of common stock at December 31, 2015. All of these options were anti-dilutive because the strike price was higher than the current market price. 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 entity. The ESOP effect is the average of the unallocated ESOP shares. On October 20, 2015, the Company’s Board of Directors declared a 2% stock dividend payable on November 19, 2015 to shareholders of record on November 3, 2015. 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:
During the first quarter of 2014, the board of directors of the Company voted to terminate the ESOP effective March 1, 2014. As of February 28, 2014, the ESOP held 740,530 shares, or 9.95% of the Company’s total outstanding shares of common stock, of which 252,446 shares were unallocated to participants in the ESOP. The Company originally made a term loan to the ESOP in 1999. In addition, the Company established a $500,000 line of credit to the ESOP in 2010 and established a second $500,000 line of credit to the ESOP in 2013. The ESOP used the proceeds of the term loan and lines of credit to purchase shares of the Company’s common stock for the benefit of qualified employees. The unallocated shares of stock held by the ESOP were pledged as collateral for the term loan and lines of credit. As debt payments were made on the term loan and lines of credit, unallocated shares associated with those debt payments were released to the ESOP and allocated among participants. In connection with the termination of the ESOP, the ESOP trustees transferred the 252,446 remaining unallocated shares to the Company in partial satisfaction of the outstanding balance on the term loan and lines of credit. The fair value of these unallocated shares was insufficient to repay the term loan and lines of credit in full. As a result, the Company forgave the remaining balance. Upon the transfer of the unallocated shares to the Company, these shares were cancelled and returned to the Company’s pool of authorized but unissued shares of common stock. The Company filed a request for a favorable determination letter from the Internal Revenue Service as to the tax-qualified status of the ESOP on its termination. The Company received the favorable determination letter dated September 5, 2014 from the Internal Revenue Service and during the fourth quarter of 2014 distributed the allocated shares to the participants. |
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Noncontrolling Interest | Noncontrolling Interest In January 2013 the Company’s subsidiary banks issued a total of $7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualified as Tier 1 capital at each 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. Effective September 1, 2013, the Fixed Rate Noncumulative Perpetual Preferred Stock, Series B was rolled into one issue under Uwharrie Bank in connection with the consolidation and name change. During 2013, the Company’s subsidiary bank, Uwharrie Bank, raised $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. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements In January 2014, the FASB issued ASU 2014-04, an update to ASC 310 “Receivables – Troubled Debt Restructurings by Creditors”. The amendments in this update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The update is effective for reporting periods beginning after December 15, 2014. The Company evaluated this update and it does not have a material impact on the Company’s consolidated financial statements. The Company had $1.6 million in foreclosed residential real estate and $219,000 of residential real estate in process of foreclosure at December 31, 2015. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, Topic 606 (“ASU 2014-09”). The new standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Topic 606: Deferral of the Effective Date, deferring the effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this new guidance recognized at the date of initial application. The Company is currently evaluating the provisions of ASU 2014-09 to determine the potential impact the new standard will have to the Company’s financial statements. In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this ASU address certain aspects of recognition, measurement, presentation and disclosure. The amendments in this ASU (i) require equity investments to be measured at fair value with changes in fair value recognized in net income; (ii) simplify the impairment assessment of equity investments without readily determinable fair value; (iii) require public business entities to use exit prices, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (iv) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; (v) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the balance sheet; (vi) require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (vii) stat that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets. The amendments in this ASU are effective for public business entities for fiscal periods beginning after December 15, 2017, including interim period within those fiscal years. The ASU only permits early adoption of the instrument-specific credit risk provision. We are currently evaluating the impact of the new standard. 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. |
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Reclassification | Reclassification Certain amounts in the 2014 and 2013 financial statements have been reclassified to conform to the 2015 presentation. These reclassifications do not have a material impact on net income or shareholders’ equity. |
Significant Accounting Policies (Tables) |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income | The following table presents the changes in accumulated other comprehensive income for the years ended December 31, 2015, 2014 and 2013:
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Computation of Weighted Average Shares Used in the Calculation of Basic and Dilutive Earnings Per Share | The computation of weighted average shares used in the calculation of basic and dilutive earnings per share is summarized below:
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Investment Securities (Tables) |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying Amounts and Fair Values of Securities Available for Sale and Held to Maturity | Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:
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Sales and Calls of Securities Available for Sale | Results from sales and calls of securities available for sale for the years ended December 31, 2015, 2014 and 2013 are as follows:
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Gross Unrealized Losses and Fair Value of Investments | At December 31, 2014, the unrealized losses on available for sale securities related to one United States Treasury note, thirteen government agency bonds, eight GSE mortgage backed securities and two corporate bonds. At December 31, 2014, the unrealized losses on held to maturity securities related to one government agency security and two corporate bonds. December 31, 2015
December 31, 2015
December 31, 2014
December 31, 2014
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Amortized Cost and Fair Value of Available for Sale Securities Portfolio | The following table shows contractual maturities of the entire investment portfolio as of December 31, 2015:
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Loans Held for Investment (Tables) |
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Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Composition of Net Loans Held for Investment by Class | The composition of net loans held for investment by class as of December 31, 2015 and 2014 is as follows:
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Allowance for Loan Losses (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Allowance for Loan Losses | Changes in the allowance for loan losses for the years ended December 31, 2015, 2014 and 2013 are presented below:
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Schedule of Loans and Reserve Balances by Loan Segment Both Individually and Collectively Evaluated for Impairment | The following table shows period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at December 31, 2015 and 2014: December 31, 2015
December 31, 2014
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Past Due Information of Loan Portfolio by Class | Past due loan information is used by management when assessing the adequacy of the allowance for loan loss. The following tables summarize the past due information of the loan portfolio by class: December 31, 2015
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Composition of Nonaccrual Loans by Class | The composition of nonaccrual loans by class as of December 31, 2015 and 2014 is as follows:
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Summary of Risk Grades of Portfolio by Class | The tables below summarize risk grades of the loan portfolio by class as of December 31, 2015 and 2014:
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Summary of Performing and Nonperforming Loans by Class | The following tables show the breakdown between performing and nonperforming loans by class as of December 31, 2015 and 2014: December 31, 2015
December 31, 2014
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Summary of Loans Deemed Impaired and Specific Reserves Allocated by Class | The tables below summarize the loans deemed impaired and the amount of specific reserves allocated by class as of December 31, 2015 and 2014:
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Troubled Debt Restructures (Tables) |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Breakdown of Types of Concessions Made by Loan Class |
For the twelve months ended December 31, 2015, 2014 and 2013, the following table presents a breakdown of the types of concessions made by loan class:
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Schedule of Successes and Failures of Types of Debt Restructuring | The following table presents the successes and failures of the types of modifications within the previous twelve months as of December 31, 2015, 2014 and 2013:
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Mortgage Servicing Assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Text Block [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Mortgage Servicing Rights | A summary of mortgage servicing rights follows:
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Estimated Amortization Expense | Amortization expense is estimated as follows:
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Key Assumptions Used to Value Mortgage Servicing Rights | The key assumptions used to value mortgage servicing rights were as follows:
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Premises and Equipment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Major Classes of Premises and Equipment and the Total Accumulated Depreciation | The major classes of premises and equipment and the total accumulated depreciation at December 31, 2015 and 2014 are listed below:
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Deposits (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking and Thrift [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Composition of Time Deposits | The composition of deposits at December 31, 2015 and 2014 is as follows:
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Maturities of Fixed-Rate Time Deposits | The maturities of fixed-rate time deposits at December 31, 2015 are reflected in the table below:
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Short-Term Borrowed Funds (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of 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 2015 and 2014:
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Long-Term Debt (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Scheduled Maturities of Advances and Notes Payable | As of December 31, 2015, the scheduled maturities of these long term borrowings are as follows:
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Income Tax Matters (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Components of Income Tax Expense (Benefit) | The significant components of income tax expense (benefit) for the years ended December 31, 2015, 2014 and 2013 are summarized as follows:
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Provision for Income Taxes and the Amounts Computed by Applying the Statutory Federal Income Tax Rate of 34% to Income Before Income Taxes | The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes is summarized below:
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Significant Components of Deferred Taxes | Significant components of deferred taxes at December 31, 2015, 2014 and 2013 are as follows:
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Commitments and Contingencies (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Outstanding Financial Instruments Whose Contract Amounts Represent Credit Risk | As of December 31, 2015 and 2014, outstanding financial instruments whose contract amounts represent credit risk were as follows:
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Related Party Transactions (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Loans to Directors, Executive Officers and Their Related Interests | A summary of loans to directors, executive officers and their related interests follows:
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Shareholders' Equity and Regulatory Matters (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company's Consolidated Capital Ratios | The Company expects to meet or exceed these minimums without altering current operations or strategy.
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Stock Based Compensation (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock Option Activity | The following is a summary of stock option activity for the year ended December 31, 2015:
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Fair Values of Financial Instruments and Interest Rate Risk (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comparison of Carrying Amounts and Estimated Fair Value of Financial Instruments | The following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of December 31, 2015 and December 31, 2014: December 31, 2015
December 31, 2014
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Fair Value Information for Assets and Liabilities Measured at Fair Value on a Recurring Basis | The following table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and 2014:
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 that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of December 31, 2015 and December 31, 2014:
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Assets Measured at Fair Value on Nonrecurring Basis | Assets measured at fair value on a nonrecurring basis are included in the table below as of December 31, 2015 and December 31, 2014:
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Quantitative Information about Level 3 Fair Value Measurements | Quantitative Information about Level 3 Fair Value Measurements December 31, 2015
December 31, 2014
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Parent Company Financial Data (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Condensed Financial Information of Parent Company Only Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Balance Sheets | Condensed Balance Sheets
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Condensed Statements of Income | Condensed Statements of Income
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Condensed Statements of Cash Flows | Condensed Statements of Cash Flows
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Significant Accounting Policies - Accumulated Other Comprehensive Income (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Equity [Abstract] | |||
Beginning Balance | $ 305 | $ (562) | $ 1,487 |
Other comprehensive income (loss) before reclassifications, net of $474, ($445) and $1,292 tax effect, respectively | (188) | 866 | (2,370) |
Amounts reclassified from accumulated other comprehensive income, net of ($207), $1 and $222 tax effect, respectively | (329) | 1 | 321 |
Total other comprehensive income (loss) | (517) | 867 | (2,049) |
Ending Balance | $ (212) | $ 305 | $ (562) |
Significant Accounting Policies - Accumulated Other Comprehensive Income (Parenthetical) (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
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Equity [Abstract] | |||
Tax effect on Other Comprehensive income before reclassifications | $ 474 | $ (445) | $ 1,292 |
Tax effect on amount reclassified from accumulated Other comprehensive income | $ (207) | $ 1 | $ 222 |
Significant Accounting Policies - Computation of Weighted Average Shares Used in the Calculation of Basic and Dilutive Earnings Per Share (Detail) - shares |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Earnings Per Share [Abstract] | |||
Weighted average number of common shares used in computing basic net income per common share | 7,051,751 | 7,490,799 | 7,786,032 |
Effect of ESOP shares | (43,791) | (215,300) | |
Adjusted weighted average number of common shares used in computing basic net income per common share | 7,051,751 | 7,447,008 | 7,570,732 |
Effect of dilutive stock options | 0 | 0 | 0 |
Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per common share | 7,051,751 | 7,447,008 | 7,570,732 |
Investment Securities - Sales and Calls of Securities Available for Sale (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Investments, Debt and Equity Securities [Abstract] | |||
Gross proceeds from sales and calls | $ 32,780 | $ 11,592 | $ 20,182 |
Realized gains from sales | 536 | 28 | 41 |
Realized losses from sales | (30) | (564) | |
Net realized gains (losses) | $ 536 | $ (2) | $ (523) |
Investment Securities - Amortized Cost and Fair Value of Available for Sale Securities Portfolio (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Investments, Debt and Equity Securities [Abstract] | ||
Due within one year, Amortized Cost | $ 2,871 | |
Due after one but within five years, Amortized Cost | 37,759 | |
Due after five but within ten years, Amortized Cost | 15,111 | |
Due after ten years, Amortized Cost | 14,812 | |
Mortgage backed securities, Amortized Cost | 30,269 | |
Available-for-sale Securities, Amortized Cost | 89,580 | $ 112,362 |
Due within one year, Estimated Fair Value | 2,872 | |
Due after one but within five years, Estimated Fair Value | 37,821 | |
Due after five but within ten years, Estimated Fair Value | 15,076 | |
Due after ten years, Estimated Fair Value | 14,958 | |
Mortgage backed securities, Estimated Fair Value | 29,773 | |
Fair Value | $ 89,258 | $ 112,824 |
Loans Held for Investment - Additional Information (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items] | ||
Noncommercial segment Loans | $ 5,500 | $ 7,600 |
Accruing Loans 90 or More Days Past Due | 0 | 0 |
Restructured loans | 4,700 | 6,000 |
Restructured loans included in impaired loans | 4,700 | 6,000 |
Carrying value of foreclosed properties | 5,000 | 5,900 |
Amount pledged to borrowings at Federal Home Loan Bank | 135,900 | 128,900 |
Amount pledged to borrowings at Federal Reserve Bank | $ 135,900 | $ 128,900 |
Mortgages [Member] | ||
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items] | ||
Concentrations of Loans as Percentage of Net Loans | 43.25% | |
Commercial Loan [Member] | ||
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items] | ||
Concentrations of Loans as Percentage of Net Loans | 53.48% |
Allowance for Loan Losses - Additional Information (Detail) - USD ($) |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Sep. 30, 2015 |
Dec. 31, 2015 |
Dec. 31, 2014 |
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Receivables [Abstract] | |||
Decrease in allowance for loan losses | $ 20,000 | ||
Financing receivable recorded investment number of days past due | 90 days | ||
Non-performing loans | $ 783,000 | $ 2,200,000 | |
Decrease of non-performing loans | $ 1,500,000 |
Troubled Debt Restructures - Additional Information (Detail) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
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Receivables [Abstract] | |||
TDR's which was default payment | $ 0 | $ 0 | $ 0 |
TDR is defined as being past due | 90 days | ||
Allowance for loan loss on TDR | $ 177,000 | $ 373,000 | $ 420,000 |
Mortgage Servicing Assets - Additional Information (Detail) - Mortgage Servicing Assets [Member] - USD ($) $ in Millions |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
Unpaid principal balances of mortgage and other loans serviced for others | $ 406.0 | $ 396.0 |
Fair value of mortgage servicing rights | $ 3.3 | $ 3.2 |
Mortgage Servicing Assets - Summary of Mortgage Servicing Rights (Detail) - Mortgage Servicing Assets [Member] - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
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Finite-Lived Intangible Assets [Line Items] | |||
Beginning of year mortgage servicing rights | $ 2,072 | $ 2,356 | $ 2,394 |
Amounts capitalized | 657 | 386 | 763 |
Amortization | (689) | (709) | (801) |
Impairment | 39 | ||
End of year | $ 2,040 | $ 2,072 | $ 2,356 |
Mortgage Servicing Assets - Estimated Amortization Expense (Detail) - Mortgage Servicing Assets [Member] - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
Dec. 31, 2012 |
---|---|---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||||
2016 | $ 482 | |||
2017 | 417 | |||
2018 | 352 | |||
2019 | 287 | |||
2020 | 223 | |||
Thereafter | 279 | |||
Total | $ 2,040 | $ 2,072 | $ 2,356 | $ 2,394 |
Mortgage Servicing Assets - Key Assumptions Used to Value Mortgage Servicing Rights (Detail) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Transfers and Servicing [Abstract] | ||
Weighted average remaining life | 257 months | 256 months |
Weighted average discount rate | 10.00% | 10.00% |
Weighted average coupon | 3.95% | 3.98% |
Weighted average prepayment speed | 171.00% | 187.00% |
Premises and Equipment - Major Classes of Premises and Equipment and the Total Accumulated Depreciation (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Property, Plant and Equipment [Line Items] | ||
Total fixed assets | $ 25,011 | $ 24,442 |
Less accumulated depreciation | 10,345 | 9,584 |
Net fixed assets | 14,666 | 14,858 |
Land [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total fixed assets | 3,302 | 3,302 |
Building and Improvements [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total fixed assets | 12,808 | 12,701 |
Furniture, Fixtures and Equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total fixed assets | $ 8,901 | $ 8,439 |
Leases - Additional Information (Detail) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015
USD ($)
Option
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Dec. 31, 2014
USD ($)
|
Dec. 31, 2013
USD ($)
|
|
Lease Disclosure [Line Items] | |||
Number of times to renew amended office lease option | Option | 2 | ||
Lease renewal options | 5 years | ||
Rental expense related to the operating leases | $ 25,529 | $ 16,230 | $ 61,914 |
Concord [Member] | |||
Lease Disclosure [Line Items] | |||
Non-cancellable operating lease expired | 2017 | ||
Annual rental payments | $ 62,120 | ||
Charlotte [Member] | |||
Lease Disclosure [Line Items] | |||
Rental expense related to the operating leases | $ 2,888 |
Deposits - Schedule of Composition of Time Deposits (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Banking and Thrift [Abstract] | ||
Demand noninterest-bearing | $ 92,524 | $ 80,069 |
Interest checking and money market | 252,345 | 243,116 |
Savings | 40,436 | 39,091 |
Time deposits $250,000 and over | 8,148 | 9,865 |
Other time deposits | 74,280 | 84,294 |
Total deposits | $ 467,733 | $ 456,435 |
Demand noninterest-bearing, percentage | 20.00% | 18.00% |
Interest checking and money market, percentage | 54.00% | 53.00% |
Savings, percentage | 8.00% | 9.00% |
Time deposits $250,000 and over, percentage | 2.00% | 2.00% |
Other time deposits, percentage | 16.00% | 18.00% |
Total, percentage | 100.00% | 100.00% |
Deposits - Maturities of Fixed-Rate Time Deposits (Detail) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Time Deposits $250,000 and Over [Member] | |
Time Deposits By Maturity [Line Items] | |
2016 | $ 4,841 |
2017 | 3,307 |
Total | 8,148 |
Other Time Deposits [Member] | |
Time Deposits By Maturity [Line Items] | |
2016 | 56,238 |
2017 | 9,237 |
2018 | 2,538 |
2019 | 1,578 |
2020 | 4,591 |
Thereafter | 98 |
Total | $ 74,280 |
Short Term-Borrowed Funds - Additional Information (Detail) |
12 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
| |
Debt Disclosure [Abstract] | |
Line of credit, outstanding amount | $ 2,400,000 |
Interest rate | 3.50% |
Line of credit facility, maturity date | Jul. 05, 2016 |
Federal Reserve discount | $ 48,700,000 |
Long-Term Debt - Scheduled Maturities of Advances and Notes Payable (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Debt Disclosure [Abstract] | ||
2017 | $ 13 | |
2018 | 0 | |
2019 | 9,534 | |
2020 | 0 | |
2021 | 0 | |
Thereafter | 0 | |
Total | $ 9,547 | $ 9,558 |
Income Tax Matters - Significant Components of Income Tax Expense (Benefit) (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Current tax expense (benefit): | |||
Federal | $ 389 | $ 11 | $ (98) |
State | 81 | 44 | 2 |
Total | 470 | 55 | (96) |
Deferred tax expense (benefit): | |||
Federal | 228 | 458 | 285 |
State | 108 | 135 | 153 |
Total | 336 | 593 | 438 |
Net provision for income taxes | $ 806 | $ 648 | $ 342 |
Income Tax Matters - Additional Information (Detail) |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Income Tax Disclosure [Abstract] | |
Statutory federal income tax rate | 34.00% |
Income Tax Matters - Provision for Income Taxes and the Amounts Computed by Applying the Statutory Federal Income Tax Rate of 34% to Income Before Income Taxes (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes | |||
Tax computed at the statutory federal rate | $ 956 | $ 791 | $ 441 |
Increases (decrease) resulting from: | |||
Tax exempt interest, net | (280) | (252) | (229) |
State income taxes, net of federal benefit | 125 | 118 | 102 |
Other | 5 | (9) | 28 |
Net provision for income taxes | $ 806 | $ 648 | $ 342 |
Income Tax Matters - Significant Components of Deferred Taxes (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
---|---|---|---|
Deferred tax assets relating to: | |||
Allowance for loan losses | $ 1,057 | $ 1,395 | $ 1,934 |
Deferred compensation | 1,080 | 975 | 853 |
Other | 555 | 701 | 856 |
Net unrealized loss on securities available for sale | 109 | 289 | |
Total deferred tax assets | 2,801 | 3,071 | 3,932 |
Deferred tax liabilities relating to: | |||
Net unrealized gain on securities available for sale | (157) | ||
Premises and equipment | (319) | (371) | (487) |
Deferred loans fees and costs | (213) | (198) | (199) |
Loan servicing | (176) | (182) | (201) |
Total deferred tax liabilities | (708) | (908) | (887) |
Net recorded deferred tax asset | $ 2,093 | $ 2,163 | $ 3,045 |
Commitments and Contingencies - Outstanding Financial Instruments Whose Contract Amounts Represent Credit Risk (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Loss Contingencies [Line Items] | ||
Total commitments | $ 93,941 | $ 86,551 |
Standby Letters of Credit [Member] | ||
Loss Contingencies [Line Items] | ||
Total commitments | 2,255 | 2,224 |
Commitments to Extend Credit [Member] | ||
Loss Contingencies [Line Items] | ||
Total commitments | 82,417 | 75,573 |
Credit Card Commitments [Member] | ||
Loss Contingencies [Line Items] | ||
Total commitments | $ 9,269 | $ 8,754 |
Related Party Transactions - Summary of Loans to Directors, Executive Officers and Their Related Interests (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Related Party Transactions [Abstract] | ||
Balance, at beginning of the year | $ 21,720 | $ 12,667 |
Disbursements during the year | 4,722 | 12,901 |
Collections during the year | (7,234) | (3,848) |
Balance,at end of the year | $ 19,208 | $ 21,720 |
Related Party Transactions - Additional Information (Detail) $ in Millions |
Dec. 31, 2015
USD ($)
|
---|---|
Executive Officers and Directors [Member] | |
Related Party Transaction [Line Items] | |
Unused lines of credit | $ 3.9 |
Stock Based Compensation - Summary of Stock Option Activity (Detail) - $ / shares |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||
Options outstanding at the beginning of the year, Shares | 12,859 | ||
Options granted, Shares | 0 | ||
Options exercised, Shares | 0 | 0 | 0 |
Forfeitures, Shares | 0 | ||
Options outstanding at the end of the year, Shares | 12,859 | 12,859 | |
Options exercisable at the end of the year, Shares | 12,859 | ||
Options outstanding at the beginning of the year, Weighted Average Exercise Price | $ 5.13 | ||
Options granted, Weighted Average Exercise Price | 0 | ||
Options exercised, Weighted Average Exercise Price | 0 | ||
Forfeitures, Weighted Average Exercise Price | 0 | ||
Options outstanding at the end of the year, Weighted Average Exercise Price | 5.13 | $ 5.13 | |
Options exercisable at the end of the year, Weighted Average Exercise Price | $ 5.13 |
Fair Values of Financial Instruments and Interest Rate Risk - Additional Information (Detail) |
12 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
| |
Fair Value, Assets, Liabilities and Stockholders' Equity Measured on Recurring Basis [Abstract] | |
Short term borrowings due period | 1 year |
Current fair value of off-balance sheet financial instruments | $ 0 |
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