UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2016
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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 |
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56-1814206 |
(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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132 NORTH FIRST STREET |
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ALBEMARLE, NORTH CAROLINA |
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28001 |
(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant’s 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 ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the Registrant has submitted electronically 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). ☒ 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 registrant’s 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 ☒
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 |
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Accelerated filer |
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Non-accelerated filer |
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☐ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $30,164,193.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: 7,050,315 shares of common stock outstanding as of February 21, 2017.
Documents Incorporated by Reference.
Portions of the Registrant’s 2016 Annual Report to Shareholders are incorporated by reference into Part II of this report. Portions of the Registrant’s definitive Proxy Statement for the 2017 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 Registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2016 and (ii) the Registrant’s Proxy Statement for the 2017 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, 2016 |
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Proxy Statement for the 2017 Annual Meeting of Shareholders |
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This annual report on Form 10-K for the fiscal year ended December 31, 2016 |
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Item 1. |
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Item 1A. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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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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Item 15. |
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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 today’s 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 Company’s technological capabilities while recruiting and maintaining a workforce sensitive to the financial services needs of its customers. This strategy has provided the Company with the capacity to grow and leverage the cost of delivering competitive services.
At December 31, 2016, the Company and related subsidiaries had 162 full-time and 19 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 two loan production offices 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 accounts, money market accounts, certificates of deposit, individual retirement accounts, and related business and individual banking services. The Bank’s lending activities include commercial loans and various consumer-type loans to individuals, including installment loans, mortgage loans, equity lines of credit and overdraft checking credit. The Bank also offers Internet Banking, 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 Bank’s 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 Mortgage, Inc. 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 Mortgage, Inc. is a mortgage brokerage company, acquired by the Bank in 2000.
The Company has two non-bank subsidiaries. Uwharrie Investment Advisors, Inc., which is registered as an investment advisor with the SEC, began operations on April 1, 1999 and provides portfolio management services to customers in the Charlotte
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Metropolitan and Uwharrie Lakes Regions. The Company established Uwharrie Mortgage, Inc., a subsidiary to serve in the capacity of trustee and substitute trustee under deeds of trust, in 2004.
Competition
Commercial banking in North Carolina is extremely competitive, due in large part to early adoption of statewide and interstate branching laws. The Company encounters significant competition from a number of sources, including other bank holding companies, commercial banks, credit unions, and other financial institutions and financial intermediaries.
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 Company’s 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 Company’s success is dependent to a significant extent upon economic conditions in Stanly, Anson, Cabarrus and Mecklenburg Counties, and more generally, in the Charlotte Metropolitan and Uwharrie Lakes Regions. In addition, the banking industry in general is affected by economic conditions such as inflation, recession, unemployment and other factors beyond the Company’s control. Economic recession over a prolonged period or other economic dislocation in the Charlotte Metropolitan and Uwharrie Lakes Regions could cause increases in non-performing assets and impair the values of real estate collateral, thereby causing operating losses, diminishing liquidity and eroding capital. Although management believes its loan policy and review process results in sound and consistent credit decisions on its loans, there can be no assurance that future adverse changes in the economy in the Company’s market area would not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
Impact of Technological Advances; Upgrade to Company’s Infrastructure
The banking industry is undergoing, and management believes it will continue to undergo, technological changes with frequent introductions of new technology-driven products and services, 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 Company’s future success will depend, in part, on its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands for convenience as well as enhance efficiencies in the Company’s operations. Management believes that keeping pace with technological advances is critical for the Company in light of its strategy to continue its sustained pace of growth. As a result, the Company intends to continue to upgrade its internal systems, both through the efficient use of technology (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:
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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; |
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it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or |
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it may merge or consolidate with any other bank holding company. |
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The BHCA further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or that would substantially lessen competition in the banking business, unless the public interest in meeting the needs of the communities to be served outweighs the anti-competitive effects. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved and the convenience and needs of the communities to be served. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues focuses, in part, on the performance under the Community Reinvestment Act of 1977, both of which are discussed elsewhere in more detail.
Subject to various exceptions, the BHCA and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company. Control is conclusively presumed to exist if 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:
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the bank holding company has registered securities under Section 12 of the Securities Exchange Act of 1934, as amended, or the Exchange Act; or |
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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 company’s insured depository institution subsidiaries are “well capitalized” and “well managed.” Additionally, the Community Reinvestment Act of 1977 rating of each subsidiary bank must be satisfactory or better. If, after becoming a financial holding company and undertaking activities not permissible for a bank holding company, the company fails to continue to meet any of the prerequisites for financial holding company status, the company must enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements. If the company does not return to compliance within 180 days, the Federal Reserve may order the company to divest its subsidiary banks or the company may discontinue or divest investments in companies engaged in activities permissible only for a bank holding company that has elected to be treated as a financial holding company. The Company has not filed an election to become a financial holding company.
Under Federal Reserve policy and as has been codified by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the Company is expected to act as a source of financial strength for the Bank and to commit resources to 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.
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
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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.
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 Reserve’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition. The Federal Reserve also indicated that it would be inappropriate for a holding company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the Federal Reserve, the Federal Reserve may prohibit a bank holding company from paying any dividends if any of the holding company’s bank subsidiaries are classified as undercapitalized.
A bank holding company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of its consolidated net worth. The
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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 Reserve’s 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 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, 2016 the Bank’s total risk-based capital ratio and its Tier 1 risk-based capital ratio were 14.61% and 13.91%, respectively. The Bank has not been advised by any federal banking agency of any additional specific minimum capital ratio requirement applicable to it.
In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and certain other intangible assets, of 3% for bank holding companies that meet specified criteria. All other bank holding companies generally are required to maintain a minimum leverage ratio of 4%. The Company’s ratio at December 31, 2016 was 8.40% compared to 8.20% at December 31, 2015. 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 institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation.
The federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels applicable to FDIC-insured banks. The relevant capital measures are the Total Risk-Based Capital ratio, Tier 1 Risk-Based Capital ratio and the leverage ratio. Under the regulations, a FDIC-insured bank will be:
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“well capitalized” if it has a Total Risk-Based Capital ratio of 10% or greater, a Tier 1 Risk-Based Capital ratio of 8% or greater and a leverage ratio of 5% or greater and is not subject to any order or written directive by the appropriate regulatory authority to meet and maintain a specific capital level for any capital measure; |
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“adequately capitalized” if it has a Total Risk-Based Capital ratio of 8% or greater, a Tier 1 Risk-Based Capital ratio of 6% or greater and a leverage ratio of 4% or greater (3% in certain circumstances) and is not “well capitalized;” |
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“undercapitalized” if it has a Total Risk-Based Capital ratio of less than 8%, a Tier 1 Risk-Based Capital ratio of less than 6% or a leverage ratio of less than 4% (3% in certain circumstances); |
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“significantly undercapitalized” if it has a Total Risk-Based Capital ratio of less than 6%, a Tier 1 Risk-Based Capital ratio of less than 4% or a leverage ratio of less than 3%; and |
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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, 2016, the Bank had capital levels that qualify as “well capitalized” under such regulations.
The FDI Act generally prohibits an FDIC-insured bank from making a capital distribution (including payment of a dividend) or paying any management fee to its holding company if the bank would thereafter be “undercapitalized.” “Undercapitalized” banks are subject to growth limitations and are required to submit a capital restoration plan. The federal regulators may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the bank’s capital. In addition, for a capital restoration plan to be acceptable, the bank’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of: (i) an amount equal to 5% of the bank’s total assets at the time it became “undercapitalized”; and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”
“Significantly undercapitalized” insured banks may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets 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 has changed 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.”
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 implemented 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:
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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. |
|
• |
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. |
8
|
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.
FDIC Insurance Assessments
Assessments are paid by each Deposit Insurance Fund (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 institution’s capitalization risk category and supervisory subgroup category. An institution’s capitalization risk category is based on the FDIC’s determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. The Bank’s insurance assessments during 2016 and 2015 were $269,000 and $375,000, respectively.
An institution’s supervisory subgroup category is based on the FDIC’s 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 revised 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 institution’s 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 changed 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. The specific amount by which the new law’s 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 2016 was 14 basis points per $100 of assessable deposits throughout the year. These assessments will continue until the debt matures in 2017 through 2019.
9
The Community Reinvestment Act requires federal bank regulatory agencies to encourage financial institutions to meet the credit needs of low and moderate-income borrowers in their local communities. An institution’s size and business strategy determines the type of examination that it will receive. Large, retail-oriented institutions are examined using a performance-based lending, investment and service test. Small institutions are examined using a streamlined approach. All institutions may opt to be evaluated under a strategic plan formulated with community input and pre-approved by the bank regulatory agency.
The Community Reinvestment Act regulations provide for certain disclosure obligations. Each institution must post a notice advising the public of its right to comment to the institution and its regulator on the institution’s Community Reinvestment Act performance and to review the institution’s Community Reinvestment Act public file. Each lending institution must maintain for public inspection a file that includes a listing of branch locations and services, a summary of lending activity, a map of its communities and any written comments from the public on its performance in meeting community credit needs. The Community Reinvestment Act requires public disclosure of a financial institution’s written Community Reinvestment Act evaluations. This promotes enforcement of Community Reinvestment Act requirements by providing the public with the status of a particular institution’s community reinvestment record.
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 bank’s primary federal regulator. A bank holding company will not be permitted to become a financial holding company and no new activities authorized under the Gramm-Leach-Bliley Act may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a satisfactory Community Reinvestment Act rating in its latest Community Reinvestment Act examination. The Bank received a “Satisfactory” rating in its last CRA examination, which was conducted as of 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 institution’s 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.
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
10
and criminal penalties if they knowingly or willfully violate this certification requirement, and increases the oversight and authority of audit committees of publicly traded companies.
Fiscal and Monetary Policy
Banking is a business which depends on interest rate differentials for success. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities holdings, constitutes the significant portion of a bank’s earnings. Thus, our earnings and growth will be subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve and the reserve requirements on deposits. The nature and timing of any changes in such policies and their effect on our business and results of operations cannot be predicted.
Current and future legislation and the policies established by federal and state regulatory authorities will affect our future operations. Banking legislation and regulations may limit our growth and the return to 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 $545,000 at December 31, 2016. 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 and maintain written internal real estate lending policies consistent with safe and sound banking practices and appropriate to the size of the institution and the nature and scope of its operations. The regulations establish loan to value ratio limitations on real estate loans. The Bank’s loan policies establish limits on loan to value ratios that are equal to or less than those established in such regulations.
Commercial Real Estate Concentrations
Lending operations of commercial banks may be subject to enhanced scrutiny by federal banking regulators based on a bank’s concentration of commercial real estate loans. 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 institution’s total capital; or |
|
• |
total CRE loans represent 300% or more of the institution’s total capital, and the outstanding balance of the institution’s CRE loan portfolio has increased by 50% or more. |
As of December 31, 2016, our C&D concentration as a percentage of risk-based capital totaled 57.7% and our CRE concentration, net of owner-occupied loans, as a percentage of risk-based capital totaled 127.9%.
11
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 organization’s incentive compensation arrangements should (i) provide employees incentives that appropriately balance risk and reward and, thus, do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The guidance provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Economic Environment
The policies of regulatory authorities, including the monetary policy of the Federal Reserve, have a significant effect on the operating results of bank holding companies and their subsidiaries. Among the means available to the Federal Reserve to affect the money supply are open market operations in U.S. government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.
The Federal Reserve’s monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. The nature of future monetary policies and the effect of these policies on our business and earnings cannot be predicted.
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 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.
On February 3, 2017, President Trump signed an executive order entitled “Presidential Executive Order on Core Principles for Regulating the United States Financial System.” The executive order requires the Secretary of the Treasury to consult with the heads of the member agencies of the Financial Stability Oversight Council (including the Federal Reserve) and report to the president within 120 days of the date of the executive order on the extent to which existing laws, regulations, and other policies promote the core principles outlined in the order. The report must also identify any laws, regulations, and other policies that inhibit financial regulation in a manner consistent with the core principles. The extent to which this executive order may ultimately result in changes to financial services laws, regulations, and policies applicable to us is not currently known.
New laws or regulations or changes to existing laws and regulations, including changes in interpretation or enforcement, could materially adversely affect our financial condition or results of operations. As a result, the overall financial impact on the Company and the Bank cannot be anticipated at this time.
12
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 Company’s operations.
Item not required for smaller reporting companies.
Item not required for smaller reporting companies.
The Company’s 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 Company’s offices and meeting rooms and is also the location of the Bank’s subsidiary, Strategic Alliance.
The Bank’s 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 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 a loan production office.
In Anson County, the Bank owns its banking facility located at 211 South Greene Street, Wadesboro, North Carolina and also owns an ATM site at 426 East Caswell Street, Wadesboro, North Carolina. 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 Bank’s existing offices are freestanding, fully equipped and have adequate parking and drive-up banking facilities, with the exception of the Bank’s loan production offices and the Main Office in Albemarle, which does not have a drive-up facility.
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, 2016 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
Not applicable.
13
Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
It is the philosophy of Uwharrie Capital Corp to promote a strong base of local shareholders. While bid and asked prices for the Company’s common stock are quoted on the OTC Pink marketplace through www.otcmarkets.com, operated by OTC Market Groups, Inc. and 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 Company’s common stock. The Company has an independent valuation of its common stock performed on an annual basis and makes this valuation available to interested shareholders in order to promote fairness and market efficiency in privately negotiated transactions.
The following table summarizes the high and low quarterly trading prices for shares of the Company’s common stock as quoted on the OTC Pink marketplace for the periods indicated. The OTC Pink prices are quotations, which reflect inter-dealer prices, without retail mark-up, mark-down, or commissions and may not represent actual transactions.
|
2016 |
|
|
2015 |
|
||||||||||
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
||||
First Quarter |
$ |
4.50 |
|
|
$ |
3.82 |
|
|
$ |
3.40 |
|
|
$ |
3.06 |
|
Second Quarter |
$ |
4.54 |
|
|
$ |
4.31 |
|
|
$ |
3.99 |
|
|
$ |
3.08 |
|
Third Quarter |
$ |
4.71 |
|
|
$ |
4.45 |
|
|
$ |
4.25 |
|
|
$ |
3.31 |
|
Fourth Quarter |
$ |
7.00 |
|
|
$ |
4.70 |
|
|
$ |
4.15 |
|
|
$ |
3.46 |
|
Holders
On February 17, 2017, there were approximately 2,773 shareholders of record of the Company’s common stock. This number does not include shareholders for whom shares are held in “nominee” or “street” name.
Dividends
There were no cash dividends declared on the Company’s common stock in 2016 or 2015. The timing and amount of cash dividends paid depends on the Company’s earnings, capital requirements, financial condition and other relevant factors. See “Payment of Dividends and Other Restrictions” under Item 1 of this Report for more information on restrictions on the Company’s ability to declare and pay dividends. The Company can offer no assurance that the board of directors will declare or pay cash dividends in any future period.
Recent Sales of Unregistered Securities
In March 2014, the Company completed a private placement of fixed rate junior subordinated debt securities in an aggregate amount of $9.5 million. The debt securities have a final maturity date of March 31, 2014 and may be redeemed by the Company after March 31, 2019. The debt securities pay interest quarterly at an annual fixed rate of 5.75%. The debt securities were issued in a transaction not involving a public offering and were therefore exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) of that act and Rule 506(b) of Regulation D promulgated thereunder.
Securities Authorized for Issuance under Equity Compensation Plans
See Item 12 of this Report for disclosure regarding securities authorized for issuance and equity compensation plans required by Item 201(d) of Regulation S-K
14
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth information with respect to shares of common stock repurchased by the Company during each of the three months in the quarterly period ended December 31, 2016.
|
|
(a) Total Number of Shares Purchased |
|
|
(b) Average Price Paid per Share |
|
|
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Program (1) |
|
|
(d) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans |
|
||||
October 1, 2016 Through October 31, 2016 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
November 1, 2016 Through November 30, 2016 |
|
|
2,361 |
|
|
$ |
4.91 |
|
|
|
— |
|
|
$ |
— |
|
December 1, 2016 Through December 31, 2016 |
|
|
9,968 |
|
|
$ |
5.02 |
|
|
|
— |
|
|
$ |
— |
|
Total |
|
|
12,329 |
|
|
$ |
5.00 |
|
|
|
— |
|
|
$ |
— |
|
|
(1) |
Trades of the Company’s 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 not required for smaller reporting companies.
Incorporated by reference to the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2016.
Item not required for smaller reporting companies.
Incorporated by reference to the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2016.
None.
Evaluation of Disclosure Controls and Procedures
At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15.
Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective (1) to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Principal Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief
15
Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Management has made a comprehensive review, evaluation and assessment of the Company’s internal control over financial reporting as of December 31, 2016. In making its assessment of internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission’s (“COSO”) 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 management’s assessment pursuant to the COSO 2013 Internal Control Integrated Framework, the Company believes that, as of December 31, 2016, the Company’s internal control over financial reporting is effective.
Date: March 1, 2017 |
|
|
|
/s/ Roger L. Dick |
|
|
|
|
Roger L. Dick |
|
|
|
|
Chief Executive Officer |
|
|
|||
Date: March 1, 2017 |
|
|
|
/s/ R. David Beaver, III |
|
|
|
|
R. David Beaver, III |
|
|
|
|
Principal Financial Officer |
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to applicable Securities and Exchange Commission rules.
Changes in Internal Control over Financial Reporting
Management of the Company has evaluated, with the participation of the Company’s Chief Executive Officer and Principal Financial Officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter of 2016. In connection with such evaluation, the Company has determined that there have been no changes in internal control over financial reporting during the fourth quarter of 2016 that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
Incorporated by reference to the Company’s definitive proxy statement for the 2017 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 Company’s Code of Ethics is available at www.uwharrie.com.
Incorporated by reference to the Company’s definitive proxy statement for the 2017 Annual Meeting of Shareholders.
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Incorporated by reference to the Company’s definitive proxy statement for the 2017 Annual Meeting of Shareholders.
16
The following table sets forth information with respect to certain equity compensation plans at December 31, 2016.
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 |
|
|
13,116 |
|
|
$ |
5.03 |
|
|
|
— |
|
Equity compensation plans not approved by security holders |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|||
Total |
|
|
13,116 |
|
|
$ |
5.03 |
|
|
|
— |
|
A description of the Company’s equity compensation plans is presented in Note 16 to the Company’s consolidated financial statements incorporated by reference into Item 8 of this report.
Incorporated by reference to the Company’s definitive proxy statement for the 2017 Annual Meeting of Shareholders.
Incorporated by reference to the Company’s definitive proxy statement for the 2017 Annual Meeting of Shareholders.
The following documents are filed as part of this report:
|
1. |
Financial statements from the Registrant’s Annual Report to stockholders for the fiscal year ended December 31, 2016, which are incorporated herein by reference: |
Consolidated Balance Sheets as of December 31, 2016 and 2015.
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014.
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2016, 2015 and 2014.
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014.
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 |
17
Exhibit Number |
|
Description of Exhibit |
|
|
|
3(a) |
|
Registrant’s Articles of Incorporation (filed herewith) |
|
|
|
3(b) |
|
Registrant’s By-laws (filed herewith) |
|
|
|
3(c) |
|
Articles of Amendment effective November 1, 1999 (filed herewith) |
|
|
|
3(d) |
|
Articles of Amendment effective May 31, 2000 (filed herewith) |
|
|
|
3(e) |
|
Articles of Amendment effective December 19, 2008 (1) |
|
|
|
4(a) |
|
Form of common stock certificate (filed herewith) |
|
|
|
4(b) |
|
Form of certificate for the Series A Preferred stock (1) |
|
|
|
4(c) |
|
Form of certificate for the Series B Preferred stock (1) |
|
|
|
4(d) |
|
Form of Security Holders Agreement (2) |
|
|
|
10(a) |
|
2006 Incentive Stock Option Plan, a compensatory plan (3) |
|
|
|
10(b) |
|
2006 Employee Stock Purchase Plan, a compensatory plan (3) |
|
|
|
10(c) |
|
Nonqualified Deferred Compensation Plan and Executive Supplemental Retirement Plan Agreement between Uwharrie Capital Corp and Roger L. Dick, a compensatory plan (4) |
|
|
|
10(d) |
|
Nonqualified Deferred Compensation Plan and Executive Supplemental Retirement Plan Agreement between Uwharrie Capital Corp and Brendan P. Duffey, a compensatory plan (4) |
|
|
|
10(e) |
|
Nonqualified Deferred Compensation Plan and Executive Supplemental Retirement Plan Agreement between Uwharrie Capital Corp and R. David Beaver, III, a compensatory plan (filed herewith) |
|
|
|
10(f) |
|
Change of Control Severance Agreement dated January 1, 2015, between the Registrant and R. David Beaver, III, a compensatory plan (5) |
|
|
|
10(g) |
|
2015 Stock Grant Plan (6) |
|
|
|
13 |
|
2016 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) |
|
|
|
101 |
|
Interactive data files providing financial information from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016, in XBRL (eXtensible Business Reporting Language) |
|
|
|
(1) |
|
Incorporated by reference to Registrant’s current report on Form 8-K, filed with the Securities and Exchange Commission on December 29, 2008. |
|
|
|
(2) |
|
Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011. |
|
|
|
(3) |
|
Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
|
|
|
(4) |
|
Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Securities Exchange Commission on February 27, 2009. |
|
|
|
(5) |
|
Incorporated by reference to Registrant’s Current Report on Form 8-K dated December 31, 2008. |
|
|
|
(6) |
|
Incorporated by reference to Registrant’s Current Report on Form 8-K dated June 30, 2015. |
|
|
|
(7) |
|
Incorporated by reference to Registrant’s Registration Statement on Form S-8 dated October 27, 2015. |
|
|
|
18
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 1, 2017 |
Roger L. Dick, Chief Executive Officer |
|
|
|
|
|
|
|
||
/s/ R. David Beaver, III |
|
|
|
March 1, 2017 |
R. David Beaver, III, Principal Financial Officer and Principal Accounting Officer |
|
|
|
|
|
|
|
||
/s/ W. Stephen Aldridge, III |
|
|
|
March 1, 2017 |
W. Stephen Aldridge, III, Director |
|
|
|
|
|
|
|
||
/s/ Nadine B. Bowers |
|
|
|
March 1, 2017 |
Nadine B. Bowers, Director |
|
|
|
|
|
|
|
||
/s/ Joe S. Brooks |
|
|
|
March 1, 2017 |
Joe S. Brooks, Director |
|
|
|
|
|
|
|
||
/s/ Ronald T. Burleson |
|
|
|
March 1, 2017 |
Ronald T. Burleson, Director |
|
|
|
|
|
|
|
||
/s/ Bill C. Burnside, DDS |
|
|
|
March 1, 2017 |
Bill C. Burnside, DDS, Director |
|
|
|
|
|
|
|
||
/s/ James O. Campbell |
|
|
|
March 1, 2017 |
James O. Campbell, Director |
|
|
|
|
|
|
|
||
/s/ Raymond R. Cranford, Jr. |
|
|
|
March 1, 2017 |
Raymond R. Cranford, Jr. Director |
|
|
|
|
|
|
|
||
/s/ Tara G. Eudy |
|
|
|
March 1, 2017 |
Tara G. Eudy, Director |
|
|
|
|
|
|
|
||
/s/ Thomas M. Hearne, Jr. |
|
|
|
March 1, 2017 |
Thomas M. Hearne, Jr., Director |
|
|
|
|
|
|
|
||
/s/ Harvey H. Leavitt, III |
|
|
|
March 1, 2017 |
Harvey H. Leavitt, III, Director |
|
|
|
|
|
|
|
|
|
/s/ Samuel M. Leder |
|
|
|
March 1, 2017 |
Samuel M. Leder, Director |
|
|
|
|
|
|
|
|
|
/s/ W. Chester Lowder |
|
|
|
March 1, 2017 |
W. Chester Lowder, Director |
|
|
|
|
|
|
|
|
|
/s/ Cynthia L. Mynatt |
|
|
|
March 1, 2017 |
Cynthia L. Mynatt, Director |
|
|
|
|
19
|
|
|
|
|
/s/ James E. Nance |
|
|
|
March 1, 2017 |
James E. Nance, Director |
|
|
|
|
|
|
|
|
|
/s/ Frank A. Rankin, III |
|
|
|
March 1, 2017 |
Frank A. Rankin, III, Director |
|
|
|
|
|
|
|
|
|
/s/ S. Todd Swaringen |
|
|
|
March 1, 2017 |
S. Todd Swaringen, Director |
|
|
|
|
|
|
|
|
|
/s/ Dusty W. West |
|
|
|
March 1, 2017 |
Dusty W. West, Director |
|
|
|
|
20
Exhibit Index
Exhibit Number |
|
Description |
|
|
|
3(a) |
|
Registrant’s Articles of Incorporation (filed herewith) |
|
|
|
3(b) |
|
Registrant’s By-laws (filed herewith) |
|
|
|
3(c) |
|
Articles of Amendment effective November 1, 1999 (filed herewith) |
|
|
|
3(d) |
|
Articles of Amendment effective May 31, 2000 (filed herewith) |
|
|
|
3(e) |
|
Articles of Amendment effective December 19, 2008 (1) |
|
|
|
4(a) |
|
Form of common stock certificate (filed herewith) |
|
|
|
4(b) |
|
Form of certificate for the Series A Preferred stock (1) |
|
|
|
4(c) |
|
Form of certificate for the Series B Preferred stock (1) |
|
|
|
4(d) |
|
Form of Security Holders Agreement (2) |
|
|
|
10(a) |
|
2006 Incentive Stock Option Plan, a compensatory plan (3) |
|
|
|
10(b) |
|
2006 Employee Stock Purchase Plan, a compensatory plan (3) |
|
|
|
10(c) |
|
Nonqualified Deferred Compensation Plan and Executive Supplemental Retirement Plan Agreement between Uwharrie Capital Corp and Roger L. Dick, a compensatory plan (4) |
|
|
|
10(d) |
|
Nonqualified Deferred Compensation Plan and Executive Supplemental Retirement Plan Agreement between Uwharrie Capital Corp and Brendan P. Duffey, a compensatory plan (4) |
|
|
|
10(e) |
|
Nonqualified Deferred Compensation Plan and Executive Supplemental Retirement Plan Agreement between Uwharrie Capital Corp and R. David Beaver, III, a compensatory plan (filed herewith) |
|
|
|
10(f) |
|
Change of Control Severance Agreement dated January 1, 2015, between the Registrant and R. David Beaver, III, a compensatory plan (5) |
|
|
|
10(g) |
|
2015 Stock Grant Plan (6) |
|
|
|
13 |
|
2016 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) |
|
|
|
101 |
|
Interactive data files providing financial information from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016, in XBRL (eXtensible Business Reporting Language) |
|
|
|
(1) |
|
Incorporated by reference to Registrant’s current report on Form 8-K, filed with the Securities and Exchange Commission on December 29, 2008. |
|
|
|
(2) |
|
Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011. |
|
|
|
(3) |
|
Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
|
|
|
(4) |
|
Incorporated by reference to Registrant’s Current Report on Form 8-K, filed with the Securities Exchange Commission on February 27, 2009. |
|
|
|
(5) |
|
Incorporated by reference to Registrant’s Current Report on Form 8-K dated December 31, 2008. |
|
|
|
(6) |
|
Incorporated by reference to Registrant’s Current Report on Form 8-K dated June 30, 2015. |
|
|
|
(7) |
|
Incorporated by reference to Registrant’s Registration Statement on Form S-8 dated October 27, 2015. |
|
|
|
21
Exhibit 13
Uwharrie Capital Corp
2016
ANNUAL REPORT TO SHAREHOLDERS
22
[This page left blank intentionally]
23
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 Charlotte Metropolitan and Uwharrie Lakes Regions 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 SIPC. 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.
24
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Financial Highlights
(Dollars in thousands, except per share amounts) |
|
2016 |
|
|
2015 |
|
|
Percent Increase (Decrease) |
|
|||
For the year: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,211 |
|
|
$ |
2,007 |
|
|
|
10.16 |
% |
Net income (loss) available to common shareholders |
|
$ |
1,618 |
|
|
$ |
1,415 |
|
|
|
14.35 |
% |
Basic net income (loss) per common share (1) |
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
|
15.00 |
% |
Diluted net income (loss) per common share (1) |
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
|
15.00 |
% |
Weighted average common shares outstanding (diluted) |
|
|
7,097,075 |
|
|
|
7,193,712 |
|
|
|
(1.34 |
)% |
At year-end: |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
548,230 |
|
|
$ |
532,202 |
|
|
|
3.01 |
% |
Total earning assets |
|
|
496,264 |
|
|
|
482,527 |
|
|
|
2.85 |
% |
Loans held for investment |
|
|
341,829 |
|
|
|
320,132 |
|
|
|
6.78 |
% |
Total interest-bearing liabilities |
|
|
394,789 |
|
|
|
390,514 |
|
|
|
1.09 |
% |
Shareholders’ equity |
|
|
43,525 |
|
|
|
43,314 |
|
|
|
0.49 |
% |
Book value per common share (1) |
|
$ |
4.67 |
|
|
$ |
4.59 |
|
|
|
1.74 |
% |
Averages for the year: |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
534,296 |
|
|
$ |
521,699 |
|
|
|
2.41 |
% |
Total earning assets |
|
|
490,467 |
|
|
|
479,331 |
|
|
|
2.32 |
% |
Loans held for investment |
|
|
334,317 |
|
|
|
316,020 |
|
|
|
5.79 |
% |
Total interest-bearing liabilities |
|
|
380,826 |
|
|
|
382,461 |
|
|
|
(0.43 |
)% |
Shareholders’ equity |
|
|
44,283 |
|
|
|
43,123 |
|
|
|
2.69 |
% |
Financial ratios (in percentage): |
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.41 |
% |
|
|
0.38 |
% |
|
|
|
|
Return on average shareholders’ equity |
|
|
4.99 |
% |
|
|
4.65 |
% |
|
|
|
|
Average equity to average assets |
|
|
8.29 |
% |
|
|
8.27 |
% |
|
|
|
|
Net interest margin (fully tax equivalent basis) |
|
|
3.51 |
% |
|
|
3.47 |
% |
|
|
|
|
Allowance as % of loans at year-end |
|
|
0.78 |
% |
|
|
0.90 |
% |
|
|
|
|
Allowance as % of nonperforming loans |
|
|
186.69 |
% |
|
|
368.23 |
% |
|
|
|
|
Nonperforming loans to total loans |
|
|
0.42 |
% |
|
|
0.24 |
% |
|
|
|
|
Nonperforming assets to total assets |
|
|
1.03 |
% |
|
|
1.09 |
% |
|
|
|
|
Net loan charge-offs (recoveries) to average loans |
|
|
0.03 |
% |
|
|
0.07 |
% |
|
|
|
|
(1) |
Net income per share, book value per share and shares outstanding at year-end for 2015 have been adjusted to reflect the 2% stock dividend in 2016. |
Market for the Company’s 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 Company’s common stock are quoted on the OTC Pink marketplace through www.otcmarkets.com, 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 Company’s 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 2016, 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.
25
[This page left blank intentionally]
26
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, 2016 and 2015, 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, 2016. These consolidated financial statements are the responsibility of the Company’s 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 Company’s 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 Company’s 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, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
/s/ Dixon Hughes Goodman LLP
Charlotte, North Carolina
March 1, 2017
27
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2016 and 2015
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
9,422 |
|
|
$ |
7,038 |
|
Interest-earning deposits with banks |
|
|
36,546 |
|
|
|
61,895 |
|
Securities available for sale, at fair value |
|
|
105,899 |
|
|
|
89,258 |
|
Securities held to maturity (fair value $11,934 and $11,242, respectively) |
|
|
11,990 |
|
|
|
11,242 |
|
Loans held for sale |
|
|
5,823 |
|
|
|
5,922 |
|
Loans: |
|
|
|
|
|
|
|
|
Loans held for investment |
|
|
341,829 |
|
|
|
320,132 |
|
Less allowance for loan losses |
|
|
(2,707 |
) |
|
|
(2,884 |
) |
Net loans held for investment |
|
|
339,122 |
|
|
|
317,248 |
|
Premises and equipment, net |
|
|
14,173 |
|
|
|
14,666 |
|
Interest receivable |
|
|
1,629 |
|
|
|
1,564 |
|
Restricted stock |
|
|
1,052 |
|
|
|
1,040 |
|
Bank owned life insurance |
|
|
6,897 |
|
|
|
6,762 |
|
Other real estate owned |
|
|
4,176 |
|
|
|
4,994 |
|
Prepaid assets |
|
|
826 |
|
|
|
764 |
|
Other assets |
|
|
10,675 |
|
|
|
9,809 |
|
Total assets |
|
$ |
548,230 |
|
|
$ |
532,202 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Demand noninterest-bearing |
|
$ |
103,138 |
|
|
$ |
92,524 |
|
Interest checking and money market accounts |
|
|
272,968 |
|
|
|
252,345 |
|
Savings deposits |
|
|
42,452 |
|
|
|
40,436 |
|
Time deposits, $250,000 and over |
|
|
7,472 |
|
|
|
8,148 |
|
Other time deposits |
|
|
59,689 |
|
|
|
74,280 |
|
Total deposits |
|
|
485,719 |
|
|
|
467,733 |
|
Short-term borrowed funds |
|
|
2,674 |
|
|
|
5,758 |
|
Long-term debt |
|
|
9,534 |
|
|
|
9,547 |
|
Interest payable |
|
|
151 |
|
|
|
168 |
|
Other liabilities |
|
|
6,627 |
|
|
|
5,682 |
|
Total liabilities |
|
|
504,705 |
|
|
|
488,888 |
|
Off balance sheet items, commitments and contingencies (Note 13) |
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Common stock, $1.25 par value: 20,000,000 shares authorized; shares issued and outstanding 7,050,315 and 6,983,017, respectively |
|
|
8,813 |
|
|
|
8,729 |
|
Additional paid-in capital |
|
|
12,540 |
|
|
|
12,308 |
|
Undivided profits |
|
|
12,867 |
|
|
|
11,893 |
|
Accumulated other comprehensive loss |
|
|
(1,318 |
) |
|
|
(212 |
) |
Total Uwharrie Capital shareholders’ equity |
|
|
32,902 |
|
|
|
32,718 |
|
Noncontrolling interest |
|
|
10,623 |
|
|
|
10,596 |
|
Total shareholders’ equity |
|
|
43,525 |
|
|
|
43,314 |
|
Total liabilities and shareholders’ equity |
|
$ |
548,230 |
|
|
$ |
532,202 |
|
The accompanying notes are an integral part of the consolidated financial statements.
28
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2016, 2015 and 2014
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands, except share |
|
|||||||||
|
|
and per share data) |
|
|||||||||
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
15,900 |
|
|
$ |
15,725 |
|
|
$ |
16,336 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury |
|
|
46 |
|
|
|
212 |
|
|
|
361 |
|
US Government agencies and corporations |
|
|
1,296 |
|
|
|
1,315 |
|
|
|
1,271 |
|
State and political subdivisions non-taxable |
|
|
467 |
|
|
|
410 |
|
|
|
321 |
|
State and political subdivisions taxable |
|
|
33 |
|
|
|
— |
|
|
|
— |
|
Interest-earning deposits with banks and federal funds sold |
|
|
304 |
|
|
|
185 |
|
|
|
168 |
|
Total interest income |
|
|
18,046 |
|
|
|
17,847 |
|
|
|
18,457 |
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking and money market accounts |
|
|
310 |
|
|
|
278 |
|
|
|
299 |
|
Savings deposits |
|
|
47 |
|
|
|
44 |
|
|
|
57 |
|
Time deposits $250,000 and over |
|
|
58 |
|
|
|
69 |
|
|
|
49 |
|
Other time deposits |
|
|
308 |
|
|
|
728 |
|
|
|
948 |
|
Short-term borrowed funds |
|
|
37 |
|
|
|
64 |
|
|
|
34 |
|
Long-term debt |
|
|
550 |
|
|
|
550 |
|
|
|
573 |
|
Total interest expense |
|
|
1,310 |
|
|
|
1,733 |
|
|
|
1,960 |
|
Net interest income |
|
|
16,736 |
|
|
|
16,114 |
|
|
|
16,497 |
|
Provision for (recovery of) loan losses |
|
|
(88 |
) |
|
|
(620 |
) |
|
|
(389 |
) |
Net interest income after provision for loan losses |
|
|
16,824 |
|
|
|
16,734 |
|
|
|
16,886 |
|
Noninterest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
1,189 |
|
|
|
1,293 |
|
|
|
1,467 |
|
Other service fees and commissions |
|
|
4,294 |
|
|
|
4,117 |
|
|
|
3,928 |
|
Gain (loss) on sale of securities (includes reclassification of $544, $536, and ($2) from accumulated comprehensive income in 2016, 2015 and 2014, respectively) |
|
|
544 |
|
|
|
536 |
|
|
|
(2 |
) |
Income from mortgage loan sales |
|
|
3,795 |
|
|
|
2,306 |
|
|
|
1,001 |
|
Other income |
|
|
509 |
|
|
|
318 |
|
|
|
529 |
|
Total noninterest income |
|
|
10,331 |
|
|
|
8,570 |
|
|
|
6,923 |
|
Noninterest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
14,522 |
|
|
|
13,186 |
|
|
|
12,051 |
|
Net occupancy expense |
|
|
1,189 |
|
|
|
1,139 |
|
|
|
1,107 |
|
Equipment expense |
|
|
646 |
|
|
|
678 |
|
|
|
680 |
|
Data processing costs |
|
|
705 |
|
|
|
734 |
|
|
|
729 |
|
Office supplies and printing |
|
|
161 |
|
|
|
217 |
|
|
|
273 |
|
Foreclosed real estate expense |
|
|
501 |
|
|
|
713 |
|
|
|
848 |
|
Professional fees and services |
|
|
703 |
|
|
|
594 |
|
|
|
847 |
|
Marketing and donations |
|
|
941 |
|
|
|
852 |
|
|
|
762 |
|
Electronic banking expense |
|
|
1,170 |
|
|
|
1,083 |
|
|
|
939 |
|
Software amortization and maintenance |
|
|
697 |
|
|
|
578 |
|
|
|
535 |
|
FDIC insurance |
|
|
269 |
|
|
|
375 |
|
|
|
425 |
|
Other noninterest expense |
|
|
2,545 |
|
|
|
2,342 |
|
|
|
2,286 |
|
Total noninterest expense |
|
|
24,049 |
|
|
|
22,491 |
|
|
|
21,482 |
|
Income before income taxes |
|
|
3,106 |
|
|
|
2,813 |
|
|
|
2,327 |
|
Income taxes (includes reclassification of (($210), ($207), and $1) from accumulated other comprehensive income, respectively) |
|
|
895 |
|
|
|
806 |
|
|
|
648 |
|
Net income |
|
$ |
2,211 |
|
|
$ |
2,007 |
|
|
$ |
1,679 |
|
Consolidated net income |
|
$ |
2,211 |
|
|
$ |
2,007 |
|
|
$ |
1,679 |
|
Less: Net income attributable to noncontrolling interest |
|
|
(593 |
) |
|
|
(592 |
) |
|
|
(591 |
) |
Net income attributable to Uwharrie Capital Corp |
|
|
1,618 |
|
|
|
1,415 |
|
|
|
1,088 |
|
Dividends on preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net Income available to common shareholders |
|
$ |
1,618 |
|
|
$ |
1,415 |
|
|
$ |
1,088 |
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
$ |
0.14 |
|
Diluted |
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
$ |
0.14 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
7,096,969 |
|
|
|
7,193,712 |
|
|
|
7,595,948 |
|
Diluted |
|
|
7,097,075 |
|
|
|
7,193,712 |
|
|
|
7,595,948 |
|
The accompanying notes are an integral part of the consolidated financial statements.
29
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2016, 2015and 2014
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Net Income |
|
$ |
2,211 |
|
|
$ |
2,007 |
|
|
$ |
1,679 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available for sale securities |
|
|
(1,131 |
) |
|
|
(248 |
) |
|
|
1,311 |
|
Related tax effect |
|
|
359 |
|
|
|
60 |
|
|
|
(445 |
) |
Reclassification of losses (gains) recognized in net income |
|
|
(544 |
) |
|
|
(536 |
) |
|
|
2 |
|
Related tax effect |
|
|
210 |
|
|
|
207 |
|
|
|
(1 |
) |
Total other comprehensive income (loss) |
|
|
(1,106 |
) |
|
|
(517 |
) |
|
|
867 |
|
Comprehensive income |
|
|
1,105 |
|
|
|
1,490 |
|
|
|
2,546 |
|
Less: Comprehensive income attributable to noncontrolling interest |
|
|
(593 |
) |
|
|
(592 |
) |
|
|
(591 |
) |
Comprehensive income attributable to Uwharrie Capital |
|
$ |
512 |
|
|
$ |
898 |
|
|
$ |
1,955 |
|
The accompanying notes are an integral part of the consolidated financial statements.
30
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended December 31, 2016, 2015 and 2014
|
|
Number of Common Shares Issued |
|
|
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, 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 |
) |
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 |
) |
Balance, December 31, 2015 |
|
|
6,983,017 |
|
|
$ |
8,729 |
|
|
$ |
12,308 |
|
|
$ |
— |
|
|
$ |
11,893 |
|
|
$ |
(212 |
) |
|
$ |
10,596 |
|
|
$ |
43,314 |
|
Net Income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,618 |
|
|
|
— |
|
|
|
593 |
|
|
|
2,211 |
|
Repurchase of common stock |
|
|
(69,938 |
) |
|
|
(87 |
) |
|
|
(235 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(322 |
) |
2% stock dividend |
|
|
137,236 |
|
|
|
171 |
|
|
|
467 |
|
|
|
— |
|
|
|
(638 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cash paid – fractional shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,106 |
) |
|
|
— |
|
|
|
(1,106 |
) |
Record preferred stock dividend series B (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(417 |
) |
|
|
(417 |
) |
Record preferred stock dividend series C (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(149 |
) |
|
|
(149 |
) |
Balance, December 31, 2016 |
|
|
7,050,315 |
|
|
$ |
8,813 |
|
|
$ |
12,540 |
|
|
$ |
— |
|
|
$ |
12,867 |
|
|
$ |
(1,318 |
) |
|
$ |
10,623 |
|
|
$ |
43,525 |
|
The accompanying notes are an integral part of the consolidated financial statements.
31
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2016, 2015 and 2014
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,211 |
|
|
$ |
2,007 |
|
|
$ |
1,679 |
|
Adjustments to reconcile net income to net cash Provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
1,003 |
|
|
|
908 |
|
|
|
922 |
|
Net amortization of security premiums/discounts AFS |
|
|
990 |
|
|
|
975 |
|
|
|
1,050 |
|
Net amortization of security premiums/discounts HTM |
|
|
138 |
|
|
|
134 |
|
|
|
2 |
|
Net amortization of mortgage servicing rights |
|
|
751 |
|
|
|
689 |
|
|
|
709 |
|
Impairment of foreclosed real estate |
|
|
272 |
|
|
|
425 |
|
|
|
647 |
|
Provision for (recovery of) loan losses |
|
|
(88 |
) |
|
|
(620 |
) |
|
|
(389 |
) |
Deferred income taxes |
|
|
92 |
|
|
|
336 |
|
|
|
593 |
|
Net realized (gains) loss on sales / calls available for sale securities |
|
|
(544 |
) |
|
|
(536 |
) |
|
|
2 |
|
Income from mortgage loan sales |
|
|
(3,795 |
) |
|
|
(2,306 |
) |
|
|
(1,001 |
) |
Proceeds from sales of loans held for sale |
|
|
118,417 |
|
|
|
65,101 |
|
|
|
39,012 |
|
Origination of loans held for sale |
|
|
(115,505 |
) |
|
|
(66,570 |
) |
|
|
(39,019 |
) |
(Gain) loss on sale of premises, equipment and other assets |
|
|
3 |
|
|
|
(1 |
) |
|
|
(142 |
) |
Increase in cash surrender value of life insurance |
|
|
(135 |
) |
|
|
(117 |
) |
|
|
(129 |
) |
Gain on sales of foreclosed real estate |
|
|
(41 |
) |
|
|
(140 |
) |
|
|
(398 |
) |
Release of ESOP Shares |
|
|
— |
|
|
|
— |
|
|
|
21 |
|
Net change in interest receivable |
|
|
(65 |
) |
|
|
183 |
|
|
|
— |
|
Net change in other assets |
|
|
(761 |
) |
|
|
(1,535 |
) |
|
|
(1,029 |
) |
Net change in interest payable |
|
|
(17 |
) |
|
|
(12 |
) |
|
|
(44 |
) |
Net change in other liabilities |
|
|
945 |
|
|
|
899 |
|
|
|
349 |
|
Net cash provided by operating activities |
|
|
3,871 |
|
|
|
(180 |
) |
|
|
2,835 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales, maturities, calls and paydowns of securities available for sale |
|
|
30,734 |
|
|
|
47,253 |
|
|
|
18,839 |
|
Proceeds from sales, maturities, calls and paydowns of securities held to maturity |
|
|
141 |
|
|
|
154 |
|
|
|
— |
|
Purchase of securities available for sale |
|
|
(49,496 |
) |
|
|
(24,910 |
) |
|
|
(31,122 |
) |
Purchase of securities held to maturity |
|
|
(1,027 |
) |
|
|
(6,034 |
) |
|
|
(5,498 |
) |
Net increase in loans |
|
|
(22,101 |
) |
|
|
(11,331 |
) |
|
|
(5,445 |
) |
Proceeds from sale of premises, equipment and other assets |
|
|
547 |
|
|
|
1 |
|
|
|
368 |
|
Purchase of premises and equipment |
|
|
(657 |
) |
|
|
(716 |
) |
|
|
(2,225 |
) |
Proceeds from sales of foreclosed real estate |
|
|
899 |
|
|
|
2,404 |
|
|
|
2,028 |
|
Net change in restricted stock |
|
|
(12 |
) |
|
|
(2 |
) |
|
|
146 |
|
Net cash provided (used) by investing activities |
|
|
(40,972 |
) |
|
|
6,819 |
|
|
|
(22,909 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposit accounts |
|
|
17,986 |
|
|
|
11,298 |
|
|
|
2,727 |
|
Net decrease in short-term borrowed funds |
|
|
(3,084 |
) |
|
|
1,073 |
|
|
|
(824 |
) |
Net decrease in long-term debt |
|
|
(13 |
) |
|
|
(11 |
) |
|
|
(1,605 |
) |
Repurchase of common stock, net |
|
|
(322 |
) |
|
|
(429 |
) |
|
|
(1,401 |
) |
Dividends on preferred stock |
|
|
(425 |
) |
|
|
(423 |
) |
|
|
(422 |
) |
Cash paid for fractional shares |
|
|
(6 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
Net cash provided (used) by financing activities |
|
|
14,136 |
|
|
|
11,503 |
|
|
|
(1,529 |
) |
Increase (decrease) in cash and cash equivalents |
|
|
(22,965 |
) |
|
|
18,142 |
|
|
|
(21,603 |
) |
Cash and cash equivalents, beginning of year |
|
|
68,933 |
|
|
|
50,791 |
|
|
|
72,394 |
|
Cash and cash equivalents, end of year |
|
$ |
45,968 |
|
|
$ |
68,933 |
|
|
$ |
50,791 |
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
1,327 |
|
|
$ |
1,745 |
|
|
$ |
2,004 |
|
Income taxes paid |
|
|
641 |
|
|
|
459 |
|
|
|
41 |
|
Supplemental schedule of non-cash activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of securities available for sale, net of tax |
|
|
(1,106 |
) |
|
|
(517 |
) |
|
|
867 |
|
Loans transferred to foreclosed real estate |
|
|
315 |
|
|
|
1,818 |
|
|
|
972 |
|
Company financed sales of other real estate owned |
|
|
(256 |
) |
|
|
(26 |
) |
|
|
(65 |
) |
Mortgage servicing rights capitalized |
|
|
982 |
|
|
|
657 |
|
|
|
386 |
|
Preferred stock dividend accrued |
|
|
(142 |
) |
|
|
(142 |
) |
|
|
(142 |
) |
Net change in ESOP liability |
|
|
— |
|
|
|
(561 |
) |
|
|
1,155 |
|
The accompanying notes are an integral part of the consolidated financial statements.
32
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. In Stanly County Uwharrie has six branch locations that provide a wide range of deposit accounts, commercial, consumer, home equity and residential mortgage loans, safe deposit boxes and automated banking.
In 1987, Uwharrie established a wholly-owned subsidiary, BOS Agency, Inc. (“BOS Agency”), which engages in insurance product sales. In 1989, Uwharrie established a second wholly-owned subsidiary, BOS Financial Corporation, for the purpose of conducting business as a “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.
33
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
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, 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.
34
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
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 estimated loss scenario by FDIC call report codes. Together, these 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.
35
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
Foreclosed Real Estate
Real estate properties acquired through foreclosure or other proceedings are initially recorded at fair value less costs to sell upon foreclosure, establishing a new cost basis. Annually, valuations are performed and the foreclosed property is adjusted to the lower of cost or fair value of the properties, less costs to sell. Any write-down at the time of transfer to foreclosed properties is charged to the allowance for loan losses. Subsequent write-downs are charged to noninterest expense, and costs related to the improvement of the property are capitalized if the fair value less cost to sell will allow it. If not, these costs are expensed also.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Land is carried at cost. Additions and major replacements or betterments which extend the useful lives of premises and equipment are capitalized. Maintenance, repairs and minor improvements are expensed as incurred. Depreciation is computed principally by the straight-line method over estimated useful lives, except in the case of leasehold improvements, which are amortized over the term of the leases, if shorter. Useful lives range from five to seven years for furniture, fixtures and equipment, to ten to thirty-nine years for leasehold improvements and buildings, respectively. Upon retirement or other disposition of the assets, the cost and the related accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.
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, 2016, 2015 and 2014.
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.
36
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
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; and 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. 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.
37
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
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, 2016, 2015 and 2014:
|
|
Year ended December 31, |
|
|||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Beginning Balance |
|
$ |
(212 |
) |
|
$ |
305 |
|
|
$ |
(562 |
) |
Other comprehensive income (loss) before reclassifications, net of $359, $60 and ($445) tax effect, respectively |
|
|
(772 |
) |
|
|
(188 |
) |
|
|
866 |
|
Amounts reclassified from accumulated other comprehensive income, net of ($210), ($207), and $1 tax effect, respectively |
|
|
(334 |
) |
|
|
(329 |
) |
|
|
1 |
|
Net current-period other comprehensive loss |
|
|
(1,106 |
) |
|
|
(517 |
) |
|
|
867 |
|
Ending Balance |
|
$ |
(1,318 |
) |
|
$ |
(212 |
) |
|
$ |
305 |
|
Earnings per Common Share
The Company had stock options outstanding covering 13,116 shares of common stock at both December 31, 2016 and 2015. All of these options were dilutive because the strike price was lower 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 Employee Stock Ownership Plan (“ESOP”) effect is the average of the unallocated ESOP shares.
On October 18, 2016, the Company’s Board of Directors declared a 2% stock dividend payable on November 23, 2016 to shareholders of record on November 9, 2016. 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:
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
Weighted average number of common shares used in computing basic net income per common share |
|
|
7,096,969 |
|
|
|
7,193,712 |
|
|
|
7,640,615 |
|
Effect of ESOP shares |
|
|
— |
|
|
|
— |
|
|
|
(44,667 |
) |
Adjusted weighted average number of common shares used in computing basic net income per common share |
|
|
7,096,969 |
|
|
|
7,193,712 |
|
|
|
7,595,948 |
|
Effect of dilutive stock options |
|
|
106 |
|
|
|
— |
|
|
|
— |
|
Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per common share |
|
|
7,097,075 |
|
|
|
7,193,712 |
|
|
|
7,595,948 |
|
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.
38
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
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 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.
39
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
In February 2016, the FASB issued ASU 2016-02, “Leases, Topic 842 (“ASU 2016-02”)”. This ASU increases the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The key difference between existing standards and this ASU is the requirement for lessees to recognize on their balance sheet all lease contracts with lease terms greater than 12 months, including operating leases. Both a right-of-use asset, representing the right to use the leased asset, and a lease liability, representing the contractual obligation, are required to be recognized on the balance sheet of the lessee at lease commencement. Further, this ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar to the current operating and capital leases classifications. The distinction between these two classifications under the new standard does not relate to balance sheet treatment, but relates to treatment in the statements of income and cash flows. Lessor guidance remains largely unchanged with the exception of how a lessor determines the appropriate lease classification for each lease to better align the lessor guidance with revised lessee classification guidance. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the new standard, which we anticipate we will adopt during the first quarter of 2019.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Entities will apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently assessing the impact of the new guidance on the Company’s consolidated financial statements.
From time to time the FASB issues exposure drafts of proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.
Reclassification
Certain amounts in the 2015 and 2014 financial statements have been reclassified to conform to the 2016 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, 2016 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
4,017 |
|
|
$ |
— |
|
|
$ |
3 |
|
|
$ |
4,014 |
|
U.S. Government agencies |
|
|
58,506 |
|
|
|
28 |
|
|
|
863 |
|
|
|
57,671 |
|
GSE - Mortgage-backed securities and CMO’s |
|
|
26,195 |
|
|
|
39 |
|
|
|
586 |
|
|
|
25,648 |
|
State and political subdivisions |
|
|
14,123 |
|
|
|
71 |
|
|
|
658 |
|
|
|
13,536 |
|
Corporate bonds |
|
|
5,054 |
|
|
|
14 |
|
|
|
38 |
|
|
|
5,030 |
|
Total securities available for sale |
|
$ |
107,895 |
|
|
$ |
152 |
|
|
$ |
2,148 |
|
|
$ |
105,899 |
|
40
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Investment Securities (Continued)
December 31, 2016 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
1,754 |
|
|
$ |
— |
|
|
$ |
17 |
|
|
$ |
1,737 |
|
State and political subdivisions |
|
|
6,974 |
|
|
|
7 |
|
|
|
60 |
|
|
|
6,921 |
|
Corporate bonds |
|
|
3,262 |
|
|
|
14 |
|
|
|
— |
|
|
|
3,276 |
|
Total securities held to maturity |
|
$ |
11,990 |
|
|
$ |
21 |
|
|
$ |
77 |
|
|
$ |
11,934 |
|
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 CMO’s |
|
|
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 |
|
December 31, 2015 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair 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 |
|
At both December 31, 2016 and December 31, 2015, the Company owned Federal Reserve Bank stock reported at cost of $507,000. Also at December 31, 2016 and December 31, 2015, the Company owned Federal Home Loan Bank Stock (FHLB) of $545,000 and $533,000, 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, 2016.
Results from sales and calls of securities available for sale for the years ended December 31, 2016, 2015 and 2014 are as follows:
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Gross proceeds from sales and calls |
|
$ |
20,225 |
|
|
$ |
32,780 |
|
|
$ |
11,592 |
|
Realized gains from sales |
|
$ |
544 |
|
|
$ |
536 |
|
|
$ |
28 |
|
Realized losses from sales |
|
|
— |
|
|
|
— |
|
|
|
(30 |
) |
Net realized gains (losses) |
|
$ |
544 |
|
|
$ |
536 |
|
|
$ |
(2 |
) |
At December 31, 2016, 2015 and 2014 securities available for sale with a carrying amount of $96.8 million, $68.8 million and $84.7 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
41
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, 2016 and December 31, 2015. 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, 2016, the unrealized losses on available for sale securities less than twelve months related to one U.S. Treasury, seventeen government agency bonds, ten government sponsored enterprise (GSE) mortgage backed securities, one corporate bonds and seven 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, 2016, the unrealized losses on held to maturity securities related to one government agency security and eight state and political subdivision bonds. At December 31, 2015, the unrealized losses on available for sale securities related to one United States Treasury note, eleven government agency bonds, twelve GSE mortgage backed securities, three corporate bonds and one state and political subdivision bond. 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.
December 31, 2016 |
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||||||||||||
Securities available for sale temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
4,014 |
|
|
$ |
3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,014 |
|
|
$ |
3 |
|
U.S. Gov’t agencies |
|
|
48,192 |
|
|
|
807 |
|
|
|
4,164 |
|
|
|
56 |
|
|
|
52,356 |
|
|
|
863 |
|
GSE-Mortgage-backed securities and CMO’s |
|
|
16,250 |
|
|
|
395 |
|
|
|
5,251 |
|
|
|
191 |
|
|
|
21,501 |
|
|
|
586 |
|
State and political |
|
|
9,994 |
|
|
|
658 |
|
|
|
— |
|
|
|
— |
|
|
|
9,994 |
|
|
|
658 |
|
Corporate bonds |
|
|
1,999 |
|
|
|
27 |
|
|
|
800 |
|
|
|
11 |
|
|
|
2,799 |
|
|
|
38 |
|
Total securities available for sale |
|
$ |
80,449 |
|
|
$ |
1,890 |
|
|
$ |
10,215 |
|
|
$ |
258 |
|
|
$ |
90,664 |
|
|
$ |
2,148 |
|
December 31, 2016 |
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||||||||||||
Held to maturity temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Gov’t agencies |
|
$ |
1,895 |
|
|
$ |
17 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,895 |
|
|
$ |
17 |
|
State and political |
|
|
6,056 |
|
|
|
60 |
|
|
|
— |
|
|
|
— |
|
|
|
6,056 |
|
|
|
60 |
|
Total securities held to maturity |
|
$ |
7,951 |
|
|
$ |
77 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,951 |
|
|
$ |
77 |
|
December 31, 2015 |
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||||||||||||
Securities available for sale temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
4,013 |
|
|
$ |
14 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,013 |
|
|
$ |
14 |
|
U.S. Gov’t agencies |
|
|
16,692 |
|
|
|
128 |
|
|
|
5,048 |
|
|
|
60 |
|
|
|
21,740 |
|
|
|
188 |
|
GSE-Mortgage-backed securities and CMO’s |
|
|
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 |
|
42
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Investment Securities (Continued)
December 31, 2015 |
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||||||||||||
Held to maturity temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Gov’t 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 |
|
The Company has six government agency securities, four GSE mortgage backed securities and one corporate bond that have been in a loss position for more than twelve months that are in the investments available for sale portfolio at December 31, 2016. 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, 2016, 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, 2016:
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
||
|
|
(dollars in thousands) |
|
|||||
Due within one year |
|
$ |
— |
|
|
$ |
— |
|
Due after one but within five years |
|
|
50,029 |
|
|
|
49,608 |
|
Due after five but within ten years |
|
|
28,586 |
|
|
|
28,132 |
|
Due after ten years |
|
|
15,075 |
|
|
|
14,445 |
|
Mortgage backed securities |
|
|
26,195 |
|
|
|
25,648 |
|
|
|
$ |
119,885 |
|
|
$ |
117,833 |
|
The mortgage-backed securities are shown separately as they are not due at a single maturity date.
43
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, 2016 and 2015 is as follows:
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
Commercial |
|
|
|
|
|
|
|
|
Commercial |
|
$ |
55,752 |
|
|
$ |
52,311 |
|
Real estate - commercial |
|
|
109,752 |
|
|
|
101,198 |
|
Other real estate construction loans |
|
|
26,718 |
|
|
|
17,692 |
|
Noncommercial |
|
|
|
|
|
|
|
|
Real estate 1-4 family construction |
|
|
5,625 |
|
|
|
5,629 |
|
Real estate - residential |
|
|
81,700 |
|
|
|
83,379 |
|
Home equity |
|
|
50,815 |
|
|
|
49,420 |
|
Consumer loans |
|
|
9,711 |
|
|
|
8,982 |
|
Other loans |
|
|
1,687 |
|
|
|
1,481 |
|
|
|
|
341,760 |
|
|
|
320,092 |
|
Less: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(2,707 |
) |
|
|
(2,884 |
) |
Deferred loan costs, net |
|
|
69 |
|
|
|
40 |
|
Loans held for investment, net |
|
$ |
339,122 |
|
|
$ |
317,248 |
|
Although the subsidiary bank loan portfolio is diversified, there is a concentration of mortgage real estate loans, primarily 1 to 4 family residential and construction mortgage loans and home equity loans, which represent 40.42% of total loans. Additionally, there is concentration in commercial loans secured primarily by real estate, shopping center locations, commercial land development, commercial buildings, equipment, and general commercial loans that represent 56.24% 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 $6.1 million and $5.5 million at December 31, 2016 and 2015, respectively. There were no loans 90 days past due and still accruing at December 31, 2016 or at December 31, 2015.
Restructured loans at December 31, 2016 totaled $4.6 million and are included in the impaired loan total, compared to $4.7 million which were included in impaired loans at December 31, 2015. The carrying value of foreclosed properties held as other real estate was $4.2 million and $5.0 million at December 31, 2016 and 2015, respectively. The Company had $1.3 million in foreclosed residential real estate and $680,000 of residential real estate in process of foreclosure at December 31, 2016.
The Company had loans of $160.8 million and $135.9 million pledged to borrowings at Federal Home Loan Bank and the Federal Reserve Bank at December 31, 2016 and 2015, 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.
Note 4 - Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31, 2016, 2015 and 2014 are presented below:
Commercial |
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Balance, beginning of year |
|
$ |
1,310 |
|
|
$ |
1,716 |
|
|
$ |
2,665 |
|
Provision (recovery) charged to operations |
|
|
175 |
|
|
|
(527 |
) |
|
|
(302 |
) |
Charge-offs |
|
|
(146 |
) |
|
|
(89 |
) |
|
|
(749 |
) |
Recoveries |
|
|
65 |
|
|
|
210 |
|
|
|
102 |
|
Net (charge-offs) |
|
|
(81 |
) |
|
|
121 |
|
|
|
(647 |
) |
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance, end of year |
|
$ |
1,404 |
|
|
$ |
1,310 |
|
|
$ |
1,716 |
|
44
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
Non-Commercial |
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Balance, beginning of year |
|
$ |
1,574 |
|
|
$ |
2,022 |
|
|
$ |
2,430 |
|
Provision (recovery) charged to operations |
|
|
(263 |
) |
|
|
(93 |
) |
|
|
(87 |
) |
Charge-offs |
|
|
(244 |
) |
|
|
(500 |
) |
|
|
(482 |
) |
Recoveries |
|
|
236 |
|
|
|
145 |
|
|
|
161 |
|
Net (charge-offs) |
|
|
(8 |
) |
|
|
(355 |
) |
|
|
(321 |
) |
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance, end of year |
|
$ |
1,303 |
|
|
$ |
1,574 |
|
|
$ |
2,022 |
|
Total |
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Balance, beginning of year |
|
$ |
2,884 |
|
|
$ |
3,738 |
|
|
$ |
5,095 |
|
Provision (recovery) charged to operations |
|
|
(88 |
) |
|
|
(620 |
) |
|
|
(389 |
) |
Charge-offs |
|
|
(390 |
) |
|
|
(589 |
) |
|
|
(1,231 |
) |
Recoveries |
|
|
301 |
|
|
|
355 |
|
|
|
263 |
|
Net (charge-offs) |
|
|
(89 |
) |
|
|
(234 |
) |
|
|
(968 |
) |
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance, end of year |
|
$ |
2,707 |
|
|
$ |
2,884 |
|
|
$ |
3,738 |
|
The following table shows period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at December 31, 2016 and 2015:
December 31, 2016 |
|
Individually Evaluated |
|
|
Collectively Evaluated |
|
|
Total |
|
|||||||||||||||
|
|
Reserve |
|
|
Loans |
|
|
Reserve |
|
|
Loans |
|
|
Reserve |
|
|
Loans |
|
||||||
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||||||||||||
Commercial |
|
$ |
16 |
|
|
$ |
1,993 |
|
|
$ |
1,388 |
|
|
$ |
190,229 |
|
|
$ |
1,404 |
|
|
$ |
192,222 |
|
Non-Commercial |
|
|
123 |
|
|
|
4,096 |
|
|
|
1,180 |
|
|
|
145,511 |
|
|
|
1,303 |
|
|
|
149,607 |
|
Total |
|
$ |
139 |
|
|
$ |
6,089 |
|
|
$ |
2,568 |
|
|
$ |
335,740 |
|
|
$ |
2,707 |
|
|
$ |
341,829 |
|
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 |
|
45
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
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, 2016 |
|
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 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
55,752 |
|
|
$ |
55,752 |
|
|
$ |
— |
|
Real estate - commercial |
|
|
— |
|
|
|
392 |
|
|
|
392 |
|
|
|
109,360 |
|
|
|
109,752 |
|
|
|
— |
|
Other real estate construction |
|
|
106 |
|
|
|
190 |
|
|
|
296 |
|
|
|
26,422 |
|
|
|
26,718 |
|
|
|
— |
|
Real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,625 |
|
|
|
5,625 |
|
|
|
— |
|
Real estate - residential |
|
|
510 |
|
|
|
846 |
|
|
|
1,356 |
|
|
|
80,413 |
|
|
|
81,769 |
|
|
|
— |
|
Home equity |
|
|
66 |
|
|
|
22 |
|
|
|
88 |
|
|
|
50,727 |
|
|
|
50,815 |
|
|
|
— |
|
Consumer loan |
|
|
36 |
|
|
|
— |
|
|
|
36 |
|
|
|
9,675 |
|
|
|
9,711 |
|
|
|
— |
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,687 |
|
|
|
1,687 |
|
|
|
— |
|
Total |
|
$ |
718 |
|
|
$ |
1,450 |
|
|
$ |
2,168 |
|
|
$ |
339,661 |
|
|
$ |
341,829 |
|
|
$ |
— |
|
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 |
|
|
$ |
— |
|
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.
46
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, 2016 and 2015 is as follows:
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
Commercial |
|
$ |
— |
|
|
$ |
34 |
|
Real estate - commercial |
|
|
392 |
|
|
|
— |
|
Other real estate construction |
|
|
190 |
|
|
|
195 |
|
Real estate 1 – 4 family construction |
|
|
— |
|
|
|
— |
|
Real estate – residential |
|
|
846 |
|
|
|
541 |
|
Home equity |
|
|
22 |
|
|
|
13 |
|
Consumer loans |
|
|
— |
|
|
|
— |
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
$ |
1,450 |
|
|
$ |
783 |
|
Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. During 2016, nonperforming loans increased from $783,000 at December 31, 2015 to $1.5 million at December 31, 2016, an increase of $667,000. There were three main relationships driving the increase in nonaccruals; one was due to a company’s principal filing bankruptcy and two were in extended processes of foreclosure.
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, 2016 and 2015:
December 31, 2016 |
|
Pass |
|
|
Watch |
|
|
Sub- standard |
|
|
Doubtful |
|
|
Total |
|
|||||
|
|
(dollars in thousands) |
|
|||||||||||||||||
Commercial |
|
$ |
54,906 |
|
|
$ |
827 |
|
|
$ |
19 |
|
|
$ |
— |
|
|
$ |
55,752 |
|
Real estate - commercial |
|
|
105,366 |
|
|
|
1,937 |
|
|
|
2,449 |
|
|
|
— |
|
|
|
109,752 |
|
Other real estate construction |
|
|
24,312 |
|
|
|
1,876 |
|
|
|
530 |
|
|
|
— |
|
|
|
26,718 |
|
Real estate 1 - 4 family construction |
|
|
5,625 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,625 |
|
Real estate - residential |
|
|
71,105 |
|
|
|
8,551 |
|
|
|
2,113 |
|
|
|
— |
|
|
|
81,769 |
|
Home equity |
|
|
49,818 |
|
|
|
973 |
|
|
|
24 |
|
|
|
— |
|
|
|
50,815 |
|
Consumer loans |
|
|
9,545 |
|
|
|
163 |
|
|
|
3 |
|
|
|
— |
|
|
|
9,711 |
|
Other loans |
|
|
1,687 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,687 |
|
Total |
|
$ |
322,364 |
|
|
$ |
14,327 |
|
|
$ |
5,138 |
|
|
$ |
— |
|
|
$ |
341,829 |
|
47
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
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 |
|
The following tables show the breakdown between performing and nonperforming loans by class as of December 31, 2016 and 2015:
December 31, 2016 |
|
Performing |
|
|
Non- Performing |
|
|
Total |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Commercial |
|
$ |
55,752 |
|
|
$ |
— |
|
|
$ |
55,752 |
|
Real estate - commercial |
|
|
109,360 |
|
|
|
392 |
|
|
|
109,752 |
|
Other real estate construction |
|
|
26,528 |
|
|
|
190 |
|
|
|
26,718 |
|
Real estate 1 – 4 family construction |
|
|
5,625 |
|
|
|
— |
|
|
|
5,625 |
|
Real estate – residential |
|
|
80,923 |
|
|
|
846 |
|
|
|
81,769 |
|
Home equity |
|
|
50,793 |
|
|
|
22 |
|
|
|
50,815 |
|
Consumer loans |
|
|
9,711 |
|
|
|
— |
|
|
|
9,711 |
|
Other loans |
|
|
1,687 |
|
|
|
— |
|
|
|
1,687 |
|
Total |
|
$ |
340,379 |
|
|
$ |
1,450 |
|
|
$ |
341,829 |
|
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 |
|
48
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
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, 2016 and 2015:
|
|
As of December 31, 2016 |
|
|
Year Ended December 31, 2016 |
|
||||||||||||||||||
|
|
|
|
|
|
Recorded |
|
|
Recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Unpaid |
|
|
Investment |
|
|
Investment |
|
|
|
|
|
|
Average |
|
|
|
|
|
||||
|
|
Principal |
|
|
With No |
|
|
With |
|
|
Related |
|
|
Recorded |
|
|
Interest |
|
||||||
|
|
Balance |
|
|
Allowance |
|
|
Allowance |
|
|
Allowance |
|
|
Investment |
|
|
Income |
|
||||||
|
|
(dollars in thousands) |
|
|
|
|
|
|||||||||||||||||
Commercial |
|
$ |
29 |
|
|
$ |
13 |
|
|
$ |
16 |
|
|
$ |
2 |
|
|
$ |
31 |
|
|
$ |
8 |
|
Real estate - commercial |
|
|
1,671 |
|
|
|
1,552 |
|
|
|
119 |
|
|
|
9 |
|
|
|
887 |
|
|
|
64 |
|
Other real estate construction |
|
|
831 |
|
|
|
190 |
|
|
|
103 |
|
|
|
5 |
|
|
|
296 |
|
|
|
6 |
|
Real estate 1 -4 family construction |
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
9 |
|
|
|
1 |
|
Real estate - residential |
|
|
3,994 |
|
|
|
2,072 |
|
|
|
1,922 |
|
|
|
123 |
|
|
|
4,434 |
|
|
|
201 |
|
Home equity |
|
|
35 |
|
|
|
35 |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
|
|
1 |
|
Consumer loans |
|
|
61 |
|
|
|
61 |
|
|
|
— |
|
|
|
— |
|
|
|
71 |
|
|
|
6 |
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
6,627 |
|
|
$ |
3,923 |
|
|
$ |
2,166 |
|
|
$ |
139 |
|
|
$ |
5,777 |
|
|
$ |
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|||||
|
|
As of December 31, 2015 |
|
|
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 |
|
49
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 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, 2016, 2015 and 2014, the following table presents a breakdown of the types of concessions made by loan class:
|
|
Year Ended December 31, 2016 |
|
|||||||||
|
|
|
|
|
|
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 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate 1 – 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate – residential |
|
|
4 |
|
|
|
482 |
|
|
|
328 |
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
4 |
|
|
$ |
482 |
|
|
$ |
328 |
|
Total |
|
|
4 |
|
|
$ |
482 |
|
|
$ |
328 |
|
50
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Troubled Debt Restructures (Continued)
|
|
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 |
|
|
$ |
46 |
|
|
$ |
44 |
|
Real estate - commercial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other real estate construction |
|
|
1 |
|
|
|
55 |
|
|
|
55 |
|
Real estate 1 – 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate – residential |
|
|
6 |
|
|
|
530 |
|
|
|
521 |
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other loans |
|
|
1 |
|
|
|
53 |
|
|
|
53 |
|
|
|
|
10 |
|
|
$ |
684 |
|
|
$ |
673 |
|
Total |
|
|
10 |
|
|
$ |
684 |
|
|
$ |
673 |
|
|
|
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 |
|
51
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Troubled Debt Restructures (Continued)
During the twelve months ended December 31, 2016 there was one TDR for which there was a payment default. There were no payment defaults on TDRs in 2015 and 2014. The outstanding balance of TDRs at December 31, 2016 is $4.8 million with $4.6 million still accruing compared to an outstanding balance at December 31, 2015 of $4.5 million with $4.2 million still accruing.
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 $98,000 in the allowance for loan loss as of December 31, 2016, as a direct result of these TDRs. At December 31, 2015 and 2014 there was $177,000 and $373,000 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, 2016, 2015 and 2014:
|
|
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, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
Other |
|
|
6 |
|
|
|
844 |
|
|
|
4 |
|
|
|
482 |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
419 |
|
Total |
|
|
6 |
|
|
$ |
844 |
|
|
|
4 |
|
|
$ |
482 |
|
|
|
— |
|
|
$ |
— |
|
|
|
4 |
|
|
$ |
419 |
|
|
|
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 |
|
|
|
684 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
— |
|
|
$ |
— |
|
|
|
10 |
|
|
$ |
684 |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
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 |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
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 $436 million and $406 million at December 31, 2016 and 2015, respectively. The carrying value of capitalized servicing rights, net of valuation allowances, is included in other assets. A summary of mortgage servicing rights follows:
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Beginning of year mortgage servicing rights: |
|
$ |
2,040 |
|
|
$ |
2,072 |
|
|
$ |
2,356 |
|
Amounts capitalized |
|
|
983 |
|
|
|
657 |
|
|
|
386 |
|
Amortization |
|
|
(752 |
) |
|
|
(689 |
) |
|
|
(709 |
) |
Impairment |
|
|
— |
|
|
|
— |
|
|
|
39 |
|
End of year |
|
$ |
2,271 |
|
|
$ |
2,040 |
|
|
$ |
2,072 |
|
52
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) |
|
|||
2017 |
|
$ |
536 |
|
2018 |
|
|
465 |
|
2019 |
|
|
393 |
|
2020 |
|
|
320 |
|
2021 |
|
|
248 |
|
Thereafter |
|
|
309 |
|
Total |
|
$ |
2,271 |
|
The amortization does not anticipate or pro-forma loan prepayments.
The fair value of mortgage servicing rights was $3.3 million at both December 31, 2016 and 2015. The key assumptions used to value mortgage servicing rights were as follows:
|
|
2016 |
|
|
2015 |
|
||
Weighted average remaining life |
|
262 months |
|
|
257 months |
|
||
Weighted average discount rate |
|
|
14 |
% |
|
|
10 |
% |
Weighted average coupon |
|
|
3.89 |
% |
|
|
3.95 |
% |
Weighted average prepayment speed |
|
|
145 |
% |
|
|
171 |
% |
Note 7 - Premises and Equipment
The major classes of premises and equipment and the total accumulated depreciation at December 31, 2016 and 2015 are listed below:
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
Land |
|
$ |
3,215 |
|
|
$ |
3,302 |
|
Building and improvements |
|
|
12,882 |
|
|
|
12,808 |
|
Furniture and equipment |
|
|
9,209 |
|
|
|
8,901 |
|
Total fixed assets |
|
|
25,306 |
|
|
|
25,011 |
|
Less accumulated depreciation |
|
|
11,133 |
|
|
|
10,345 |
|
Net fixed assets |
|
$ |
14,173 |
|
|
$ |
14,666 |
|
Note 8 – Leases
During 2015, Uwharrie Bank entered into a lease for a loan production office in Charlotte. This lease was a month-to-month lease with monthly rental payments of $2,888. In August 2016, this lease was expanded to a five-year lease period expiring in September of 2021 with two five-year renewal options at the expiration of the initial term. Monthly rental payments of $12,656 are due for the first year. The payments then escalate 2.625% each year on the anniversary.
Total rental expense related to the operating leases was $89,369, $25,529, and $16,230 for the years ended December 31, 2016, 2015 and 2014, respectively, and is included in net occupancy expense. A table detailing the lease expense associated with the aforementioned property is below.
Year ending December 31, |
|
||
(dollars in thousands) |
|
||
2017 |
$ |
156 |
|
2018 |
|
156 |
|
2019 |
|
156 |
|
2020 |
|
156 |
|
2021 |
|
117 |
|
Thereafter |
|
— |
|
Total |
$ |
741 |
|
53
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 - Deposits
The composition of deposits at December 31, 2016 and 2015 is as follows:
|
|
2016 |
|
|
2015 |
|
||||||||||
|
|
Amount |
|
|
Percentage of Total |
|
|
Amount |
|
|
Percentage of Total |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Demand noninterest-bearing |
|
$ |
103,138 |
|
|
|
21 |
% |
|
$ |
92,524 |
|
|
|
20 |
% |
Interest checking and money market |
|
|
272,968 |
|
|
|
56 |
% |
|
|
252,345 |
|
|
|
54 |
% |
Savings |
|
|
42,452 |
|
|
|
9 |
% |
|
|
40,436 |
|
|
|
8 |
% |
Time deposits $250,000 and over |
|
|
7,472 |
|
|
|
2 |
% |
|
|
8,148 |
|
|
|
2 |
% |
Other time deposits |
|
|
59,689 |
|
|
|
12 |
% |
|
|
74,280 |
|
|
|
16 |
% |
Total |
|
$ |
485,719 |
|
|
|
100 |
% |
|
$ |
467,733 |
|
|
|
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) |
|
|||||
2017 |
|
|
6,002 |
|
|
|
36,832 |
|
2018 |
|
|
555 |
|
|
|
6,730 |
|
2019 |
|
|
— |
|
|
|
3,488 |
|
2020 |
|
|
— |
|
|
|
4,451 |
|
2021 |
|
|
915 |
|
|
|
8,168 |
|
Thereafter |
|
|
— |
|
|
|
20 |
|
Total |
|
$ |
7,472 |
|
|
$ |
59,689 |
|
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 2016 and 2015:
|
|
2016 |
|
|
2015 |
|
||||||||||
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
At year-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master notes and other short term borrowing |
|
$ |
2,162 |
|
|
|
0.25 |
% |
|
$ |
3,396 |
|
|
|
0.25 |
% |
Notes payable |
|
|
12 |
|
|
|
6.00 |
% |
|
|
12 |
|
|
|
6.00 |
% |
Short-term line of credit |
|
|
500 |
|
|
|
3.75 |
% |
|
|
2,350 |
|
|
|
3.50 |
% |
|
|
$ |
2,674 |
|
|
|
0.93 |
% |
|
$ |
5,758 |
|
|
|
1.59 |
% |
|
|
2016 |
|
|
2015 |
|
||||||||||
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Average for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
$ |
2 |
|
|
|
1.48 |
% |
|
$ |
2 |
|
|
|
0.79 |
% |
Master notes and other short term borrowing |
|
|
2,540 |
|
|
|
0.25 |
% |
|
|
3,280 |
|
|
|
0.25 |
% |
Notes payable |
|
|
12 |
|
|
|
6.31 |
% |
|
|
18 |
|
|
|
6.00 |
% |
Short-term line of credit |
|
|
803 |
|
|
|
3.67 |
% |
|
|
1,598 |
|
|
|
3.51 |
% |
|
|
$ |
3,357 |
|
|
|
1.09 |
% |
|
$ |
4,898 |
|
|
|
1.32 |
% |
54
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Short-Term Borrowed Funds (Continued)
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
Maximum month-end balance |
|
|
|
|
|
|
|
|
Master notes and other short term borrowing |
|
|
4,325 |
|
|
|
4,736 |
|
Notes payable |
|
|
12 |
|
|
|
12 |
|
Short-term line of credit |
|
|
2,350 |
|
|
|
2,350 |
|
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 $500,000 outstanding at December 31, 2016. The line of credit has an interest rate of 3.75% and matures July 5, 2017. 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 $55.4 million at December 31, 2016.
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 $76.7 million with remaining availability of $54.2 million at December 31, 2016. There were no long-term advances under this line at December 31, 2016 and at December 31, 2015. 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 $22.5 million at December 31, 2016.
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.
As of December 31, 2016, the scheduled maturities of these long term borrowings are as follows:
Year ending December 31, |
|
|||
(dollars in thousands) |
|
|||
2017 |
|
$ |
— |
|
2018 |
|
|
— |
|
2019 |
|
|
9,534 |
|
2020 |
|
|
— |
|
2021 |
|
|
— |
|
Thereafter |
|
|
— |
|
Total |
|
$ |
9,534 |
|
55
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 - Income Tax Matters
The significant components of income tax expense (benefit) for the years ended December 31, 2016, 2015 and 2014 are summarized as follows:
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Current tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
674 |
|
|
$ |
389 |
|
|
$ |
11 |
|
State |
|
|
129 |
|
|
|
81 |
|
|
|
44 |
|
Total |
|
|
803 |
|
|
|
470 |
|
|
|
55 |
|
Deferred tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
47 |
|
|
|
228 |
|
|
|
458 |
|
State |
|
|
45 |
|
|
|
108 |
|
|
|
135 |
|
Total |
|
|
92 |
|
|
|
336 |
|
|
|
593 |
|
Net provision for income taxes |
|
$ |
895 |
|
|
$ |
806 |
|
|
$ |
648 |
|
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:
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Tax computed at the statutory federal rate |
|
$ |
1,056 |
|
|
$ |
956 |
|
|
$ |
791 |
|
Increases (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt interest, net |
|
|
(298 |
) |
|
|
(280 |
) |
|
|
(252 |
) |
State income taxes, net of federal benefit |
|
|
115 |
|
|
|
125 |
|
|
|
118 |
|
Other |
|
|
22 |
|
|
|
5 |
|
|
|
(9 |
) |
Provision for income taxes |
|
$ |
895 |
|
|
$ |
806 |
|
|
$ |
648 |
|
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, 2016, 2015 and 2014 are as follows:
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Deferred tax assets relating to: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
974 |
|
|
$ |
1,057 |
|
|
$ |
1,395 |
|
Deferred compensation |
|
|
1,243 |
|
|
|
1,080 |
|
|
|
975 |
|
Other |
|
|
396 |
|
|
|
555 |
|
|
|
701 |
|
Net unrealized loss on securities available for sale |
|
|
678 |
|
|
|
109 |
|
|
|
— |
|
Total deferred tax assets |
|
|
3,291 |
|
|
|
2,801 |
|
|
|
3,071 |
|
Deferred tax liabilities relating to: |
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on securities available for sale |
|
|
— |
|
|
|
— |
|
|
|
(157 |
) |
Premises and equipment |
|
|
(295 |
) |
|
|
(319 |
) |
|
|
(371 |
) |
Deferred loans fees and costs |
|
|
(233 |
) |
|
|
(213 |
) |
|
|
(198 |
) |
Loan servicing |
|
|
(193 |
) |
|
|
(176 |
) |
|
|
(182 |
) |
Total deferred tax liabilities |
|
|
(721 |
) |
|
|
(708 |
) |
|
|
(908 |
) |
Net recorded deferred tax asset |
|
$ |
2,570 |
|
|
$ |
2,093 |
|
|
$ |
2,163 |
|
The net deferred tax asset is included in other assets on the accompanying consolidated balance sheets.
56
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2016 and 2015, outstanding financial instruments whose contract amounts represent credit risk were as follows:
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
Commitments to extend credit |
|
$ |
86,651 |
|
|
$ |
82,417 |
|
Credit card commitments |
|
|
9,870 |
|
|
|
9,269 |
|
Standby letters of credit |
|
|
1,628 |
|
|
|
2,255 |
|
|
|
$ |
98,149 |
|
|
$ |
93,941 |
|
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.
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:
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
Balance, at beginning of the year |
|
$ |
19,208 |
|
|
$ |
21,720 |
|
Disbursements during the year |
|
|
3,798 |
|
|
|
4,722 |
|
Collections during the year |
|
|
(8,191 |
) |
|
|
(7,234 |
) |
Balance, at end of the year |
|
$ |
14,815 |
|
|
$ |
19,208 |
|
At December 31, 2016, the Company had approved, but unused lines of credit, totaling $3.4 million to executive officers and directors, and their related interests. In addition, at December 31, 2016, the Company had $12.3 million of deposits for executive officers and directors, and their related interest.
57
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2016, the subsidiary bank was required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank in the aggregate amount of $1.0 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, 2016, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
57,084 |
|
|
|
14.8 |
% |
|
$ |
30,910 |
|
|
|
8.0 |
% |
|
$ |
38,637 |
|
|
|
10.0 |
% |
Uwharrie Bank |
|
|
56,007 |
|
|
|
14.6 |
% |
|
|
30,691 |
|
|
|
8.0 |
% |
|
|
38,364 |
|
|
|
10.0 |
% |
Tier 1 Capital to Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
44,843 |
|
|
|
11.6 |
% |
|
|
23,182 |
|
|
|
6.0 |
% |
|
|
30,910 |
|
|
|
8.0 |
% |
Uwharrie Bank |
|
|
53,300 |
|
|
|
13.9 |
% |
|
|
23,018 |
|
|
|
6.0 |
% |
|
|
30,691 |
|
|
|
8.0 |
% |
Common Equity Tier 1 Capital to Risk Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
34,220 |
|
|
|
8.9 |
% |
|
|
17,387 |
|
|
|
4.5 |
% |
|
|
25,114 |
|
|
|
6.5 |
% |
Uwharrie Bank |
|
|
42,677 |
|
|
|
11.1 |
% |
|
|
17,264 |
|
|
|
4.5 |
% |
|
|
24,937 |
|
|
|
6.5 |
% |
Tier 1 Capital to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
44,843 |
|
|
|
8.4 |
% |
|
|
21,372 |
|
|
|
4.0 |
% |
|
|
26,715 |
|
|
|
5.0 |
% |
Uwharrie Bank |
|
|
53,300 |
|
|
|
10.0 |
% |
|
|
21,312 |
|
|
|
4.0 |
% |
|
|
26,640 |
|
|
|
5.0 |
% |
58
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 |
|
|
|
4.5 |
% |
|
|
23,325 |
|
|
|
6.5 |
% |
Uwharrie Bank |
|
|
42,741 |
|
|
|
12.0 |
% |
|
|
17,843 |
|
|
|
4.5 |
% |
|
|
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 |
% |
As of December 31, 2016, 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.
In January 2013, the Company’s subsidiary bank issued $7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualifies as Tier 1 capital at the subsidiary bank and pays dividends at a rate of 5.30%. The offering raised $7.9 million less issuance costs of $113,000.
During 2013, the Company’s subsidiary 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 raised $2.8 million in new capital less total issuance costs of $23,000.
The total net amount of capital raised from Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C issued at the subsidiary bank level is presented as noncontrolling interest in the consolidated balance sheets.
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 2016 the Company repurchased 69,938 shares of outstanding common stock and repurchased 114,377 during 2015.
59
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2016, the SOP II had 13,116 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, 2016:
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Aggregate |
|
||
|
|
|
|
|
|
Exercise |
|
|
Intrinsic Value |
|
||
|
|
Shares |
|
|
Price |
|
|
(in thousands) |
|
|||
Options outstanding at the beginning of the year |
|
|
13,116 |
|
|
$ |
5.03 |
|
|
$ |
— |
|
Options granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
Options exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
Forfeitures |
|
|
— |
|
|
|
— |
|
|
|
|
|
Options outstanding at the end of the year |
|
|
13,116 |
|
|
$ |
5.03 |
|
|
$ |
2,230 |
|
Options exercisable at the end of the year |
|
|
13,116 |
|
|
$ |
5.03 |
|
|
$ |
2,230 |
|
Total options outstanding and exercisable at December 31, 2016 were 13,116 at an exercise price of $5.03 per share with a weighted average expected term of 1.12 years. At December 31, 2016, there were no authorized shares of common stock reserved for future grants of options under the SOP II and the SPP II as the plans have expired.
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, 2016 and 2015 under the SOP II.
As of December 31, 2016, 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 2014, 2015 or 2016.
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 $355,648 in 2016, $319,340 in 2015 and $330,448 in 2014, 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. |
60
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17 - Employee and Director Benefit Plans (Continued)
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 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 had expense of approximately $ 45,693 as a contribution to the ESOP Plan during the first part of 2014.
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. The plans assets are maintained in a rabbi trust and are recorded at fair value with the corresponding liability adjusted to the same fair value.
During 2016, 2015 and 2014, $336,800, $331,800 and $316,800, respectively was expensed each year for benefits provided under the plans. The liability accrued for deferred compensation under the plan amounted to $4.1 million and $3.7 million at December 31, 2016 and 2015, respectively.
61
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17 - Employee and Director Benefit Plans (Continued)
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 2016, 2015, and 2014, the expense associated with these policies was $27,111, $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 its discretion, may choose to make grants or awards of Uwharrie Capital Corp common stock (the “Common Stock”) to employees, directors or independent contractors of the Company or its subsidiaries as an alternate form of compensation or as a performance bonus. Shares of 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 520,000 shares to be granted and at December 31, 2016, the availability under the SGP was 487,749 shares. During 2016 there were 13,809 shares granted at an expense of $55,029.
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, 2016 and December 31, 2015, 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, 2016 and December 31, 2015:
|
|
Carrying |
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
December 31, 2016 |
|
Value |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
|
(dollars in thousands) |
|
|
|
|
|
|||||||||||||
FINANCIAL ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
45,968 |
|
|
$ |
45,995 |
|
|
$ |
43,478 |
|
|
$ |
2,517 |
|
|
$ |
— |
|
Securities available for sale |
|
|
105,899 |
|
|
|
105,899 |
|
|
|
4,014 |
|
|
|
101,885 |
|
|
|
— |
|
Securities held to maturity |
|
|
11,990 |
|
|
|
11,934 |
|
|
|
— |
|
|
|
11,934 |
|
|
|
— |
|
Loans held for investment, net |
|
|
339,122 |
|
|
|
337,348 |
|
|
|
— |
|
|
|
— |
|
|
|
337,348 |
|
Loans held for sale |
|
|
5,823 |
|
|
|
5,685 |
|
|
|
— |
|
|
|
5,685 |
|
|
|
— |
|
Restricted stock |
|
|
1,052 |
|
|
|
1,052 |
|
|
|
1,052 |
|
|
|
— |
|
|
|
— |
|
Accrued interest receivable |
|
|
1,629 |
|
|
|
1,629 |
|
|
|
— |
|
|
|
— |
|
|
|
1,629 |
|
FINANCIAL LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
485,719 |
|
|
$ |
447,784 |
|
|
$ |
— |
|
|
$ |
447,784 |
|
|
$ |
— |
|
Short-term borrowings |
|
|
2,674 |
|
|
|
2,674 |
|
|
|
— |
|
|
|
2,674 |
|
|
|
— |
|
Long-term borrowings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Junior subordinated debt |
|
|
9,534 |
|
|
|
9,673 |
|
|
|
— |
|
|
|
— |
|
|
|
9,673 |
|
Accrued interest payable |
|
|
151 |
|
|
|
151 |
|
|
|
— |
|
|
|
— |
|
|
|
151 |
|
62
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 - Fair Values of Financial Instruments and Interest Rate Risk (Continued)
|
|
Carrying |
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
December 31, 2015 |
|
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 |
|
|
|
— |
|
|
|
— |
|
|
|
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 |
|
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, 2016, 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.
63
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, 2016 and 2015:
|
|
December 31, 2016 |
|
|||||||||||||
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury |
|
$ |
4,014 |
|
|
$ |
4,014 |
|
|
$ |
— |
|
|
$ |
— |
|
US Gov’t |
|
|
57,671 |
|
|
|
— |
|
|
|
57,671 |
|
|
|
— |
|
Mortgage-backed securities and CMO’s |
|
|
25,648 |
|
|
|
— |
|
|
|
25,648 |
|
|
|
— |
|
State and political subdivisions |
|
|
13,536 |
|
|
|
— |
|
|
|
13,536 |
|
|
|
— |
|
Corporate bonds |
|
|
5,030 |
|
|
|
— |
|
|
|
5,030 |
|
|
|
— |
|
Total assets at fair value |
|
$ |
105,899 |
|
|
$ |
4,014 |
|
|
$ |
101,885 |
|
|
$ |
— |
|
Total liabilities at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
December 31, 2015 |
|
|||||||||||||
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury |
|
$ |
4,012 |
|
|
$ |
4,012 |
|
|
$ |
— |
|
|
$ |
— |
|
US Gov’t |
|
|
36,070 |
|
|
|
— |
|
|
|
36,070 |
|
|
|
— |
|
Mortgage-backed securities and CMO’s |
|
|
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 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
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, 2016 and December 31, 2015:
|
|
December 31, 2016 |
|
|||||||||||||
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Impaired loans |
|
$ |
2,217 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,217 |
|
Other real estate owned |
|
|
3,130 |
|
|
|
— |
|
|
|
— |
|
|
|
3,130 |
|
Total assets at fair value |
|
$ |
5,347 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,347 |
|
Total liabilities at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
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 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Quantitative Information about Level 3 Fair Value Measurements
64
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 - Fair Values of Financial Instruments and Interest Rate Risk (Continued)
|
|
|
|
|
|
General |
December 31, 2016 |
|
Valuation Technique |
|
Unobservable Input |
|
Range |
Nonrecurring measurements: |
|
|
|
|
|
|
Impaired loans |
|
Discounted appraisals |
|
Collateral discounts and Estimated costs to sell |
|
0 – 25% |
|
|
Discounted cash flows |
|
Discount rates |
|
4%-8.75% |
OREO |
|
Discounted appraisals |
|
Collateral discounts and Estimated costs to sell |
|
0 – 10% |
|
|
|
|
|
|
General |
December 31, 2015 |
|
Valuation Technique |
|
Unobservable Input |
|
Range |
Nonrecurring measurements: |
|
|
|
|
|
|
Impaired loans |
|
Discounted appraisals |
|
Collateral discounts and Estimated costs to sell |
|
0 – 25% |
|
|
Discounted cash flows |
|
Discount rates |
|
4%-8.75% |
OREO |
|
Discounted appraisals |
|
Collateral discounts and Estimated costs to sell |
|
0 – 10% |
At December 31, 2016 and 2015, impaired loans were being evaluated with discounted expected cash flows and discounted appraisals were being used on collateral dependent loans.
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, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
Assets |
|
|
|
|
|
|
|
|
Cash and demand deposits |
|
$ |
269 |
|
|
$ |
246 |
|
Interest-earning deposits |
|
|
2,161 |
|
|
|
3,396 |
|
Investments in: |
|
|
|
|
|
|
|
|
Bank subsidiaries |
|
|
41,358 |
|
|
|
42,528 |
|
Nonbank subsidiaries |
|
|
494 |
|
|
|
648 |
|
Other assets |
|
|
1,316 |
|
|
|
1,342 |
|
Total assets |
|
$ |
45,598 |
|
|
$ |
48,160 |
|
Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
Master notes |
|
$ |
2,162 |
|
|
$ |
3,396 |
|
Short term debt |
|
|
500 |
|
|
|
2,350 |
|
Junior subordinated debentures |
|
|
9,534 |
|
|
|
9,534 |
|
Other liabilities |
|
|
501 |
|
|
|
163 |
|
Total liabilities |
|
|
12,697 |
|
|
|
15,443 |
|
Shareholders’ equity |
|
|
32,901 |
|
|
|
32,717 |
|
Total liabilities and shareholders’ equity |
|
$ |
45,598 |
|
|
$ |
48,160 |
|
65
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19 - Parent Company Financial Data (Continued)
Condensed Statements of Income
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Equity in undistributed earnings (loss) of subsidiaries |
|
$ |
375 |
|
|
$ |
2,760 |
|
|
$ |
1,456 |
|
Dividends received from subsidiaries |
|
|
2,500 |
|
|
|
— |
|
|
|
1,000 |
|
Interest income |
|
|
6 |
|
|
|
8 |
|
|
|
11 |
|
Other income |
|
|
77 |
|
|
|
81 |
|
|
|
87 |
|
Interest expense |
|
|
(585 |
) |
|
|
(612 |
) |
|
|
(583 |
) |
Other operating expense |
|
|
(445 |
) |
|
|
(555 |
) |
|
|
(624 |
) |
Income tax benefit |
|
|
283 |
|
|
|
325 |
|
|
|
332 |
|
Net income |
|
$ |
2,211 |
|
|
$ |
2,007 |
|
|
$ |
1,679 |
|
Consolidated net income |
|
$ |
2,211 |
|
|
$ |
2,007 |
|
|
$ |
1,679 |
|
Less: Net income attributable to noncontrolling interest |
|
|
(593 |
) |
|
|
(592 |
) |
|
|
(591 |
) |
Net income attributable to Uwharrie Capital Corp |
|
|
1,618 |
|
|
|
1,415 |
|
|
|
1,088 |
|
Net Income (loss) available to common shareholders |
|
$ |
1,618 |
|
|
$ |
1,415 |
|
|
$ |
1,088 |
|
Net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
$ |
0.14 |
|
Diluted |
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
$ |
0.14 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
7,096,969 |
|
|
|
7,193,712 |
|
|
|
7,595,948 |
|
Diluted |
|
|
7,097,075 |
|
|
|
7,193,712 |
|
|
|
7,595,948 |
|
Condensed Statements of Cash Flows
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,211 |
|
|
$ |
2,007 |
|
|
$ |
1,679 |
|
Adjustments to reconcile net income to net cash used by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed (earnings) loss of subsidiaries |
|
|
(375 |
) |
|
|
(2,760 |
) |
|
|
(1,456 |
) |
(Increase) decrease in other assets |
|
|
26 |
|
|
|
(228 |
) |
|
|
136 |
|
Increase (decrease) in other liabilities |
|
|
338 |
|
|
|
14 |
|
|
|
78 |
|
Net cash provided (used) by operating activities |
|
|
2,200 |
|
|
|
(967 |
) |
|
|
437 |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in master notes |
|
|
(1,234 |
) |
|
|
(278 |
) |
|
|
(324 |
) |
Net increase in short-term debt |
|
|
(1,850 |
) |
|
|
1,350 |
|
|
|
1,000 |
|
Net repayments of issuance of junior subordinated debentures |
|
|
— |
|
|
|
— |
|
|
|
(1,593 |
) |
Repurchase of common stock, net |
|
|
(322 |
) |
|
|
(429 |
) |
|
|
(1,401 |
) |
Cash paid for fractional shares |
|
|
(6 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
Net cash used by financing activities |
|
|
(3,412 |
) |
|
|
638 |
|
|
|
(2,322 |
) |
Net decrease in cash and cash equivalents |
|
|
(1,212 |
) |
|
|
(329 |
) |
|
|
(1,885 |
) |
Cash and cash equivalents at beginning of year |
|
|
3,642 |
|
|
|
3,971 |
|
|
|
5,856 |
|
Cash and cash equivalents at end of year |
|
$ |
2,430 |
|
|
$ |
3,642 |
|
|
$ |
3,971 |
|
66
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Selected Financial Data
Selected Financial Data
(dollars in thousands except ratios, per share and shares outstanding information)
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||||
Summary of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
18,046 |
|
|
$ |
17,847 |
|
|
$ |
18,457 |
|
|
$ |
19,465 |
|
|
$ |
21,871 |
|
Interest expense |
|
|
1,310 |
|
|
|
1,733 |
|
|
|
1,960 |
|
|
|
2,734 |
|
|
|
3,698 |
|
Net interest income |
|
|
16,736 |
|
|
|
16,114 |
|
|
|
16,497 |
|
|
|
16,731 |
|
|
|
18,173 |
|
Provision for (recovery of) loan losses |
|
|
(88 |
) |
|
|
(620 |
) |
|
|
(389 |
) |
|
|
28 |
|
|
|
1,832 |
|
Noninterest income |
|
|
10,331 |
|
|
|
8,570 |
|
|
|
6,923 |
|
|
|
7,297 |
|
|
|
10,731 |
|
Noninterest expense |
|
|
24,049 |
|
|
|
22,491 |
|
|
|
21,482 |
|
|
|
22,704 |
|
|
|
26,303 |
|
Income taxes |
|
|
895 |
|
|
|
806 |
|
|
|
648 |
|
|
|
342 |
|
|
|
365 |
|
Net income |
|
$ |
2,211 |
|
|
$ |
2,007 |
|
|
$ |
1,679 |
|
|
$ |
954 |
|
|
$ |
404 |
|
Less: Net income attributable to noncontrolling interest |
|
|
(593 |
) |
|
|
(592 |
) |
|
|
(591 |
) |
|
|
(478 |
) |
|
|
— |
|
Less: Dividends on preferred stock |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(325 |
) |
|
$ |
(645 |
) |
Net Income (loss) available to common shareholders |
|
$ |
1,618 |
|
|
$ |
1,415 |
|
|
$ |
1,088 |
|
|
$ |
151 |
|
|
$ |
(241 |
) |
Per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income – basic (1) |
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
$ |
0.14 |
|
|
$ |
0.02 |
|
|
$ |
(0.03 |
) |
Net income (loss) – diluted (1) |
|
|
0.23 |
|
|
|
0.20 |
|
|
|
0.14 |
|
|
|
0.02 |
|
|
|
(0.03 |
) |
Book value (1) |
|
|
4.67 |
|
|
|
4.60 |
|
|
|
4.37 |
|
|
|
3.79 |
|
|
|
4.07 |
|
Weighted Average Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (1) |
|
|
7,096,969 |
|
|
|
7,193,712 |
|
|
|
7,595,948 |
|
|
|
7,722,146 |
|
|
|
7,822,872 |
|
Diluted (1) |
|
|
7,097,075 |
|
|
|
7,193,712 |
|
|
|
7,595,948 |
|
|
|
7,722,146 |
|
|
|
7,822,872 |
|
Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.41 |
% |
|
|
0.38 |
% |
|
|
0.33 |
% |
|
|
0.18 |
% |
|
|
0.08 |
% |
Return on average equity |
|
|
4.99 |
% |
|
|
4.65 |
% |
|
|
4.03 |
% |
|
|
2.17 |
% |
|
|
0.90 |
% |
Average equity to average assets |
|
|
8.29 |
% |
|
|
8.27 |
% |
|
|
8.11 |
% |
|
|
8.34 |
% |
|
|
8.52 |
% |
Selected Year-end Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
548,230 |
|
|
$ |
532,202 |
|
|
$ |
518,464 |
|
|
$ |
517,320 |
|
|
$ |
545,007 |
|
Loans held for investment |
|
|
341,829 |
|
|
|
320,132 |
|
|
|
310,853 |
|
|
|
307,348 |
|
|
|
329,183 |
|
Securities |
|
|
117,889 |
|
|
|
100,500 |
|
|
|
118,320 |
|
|
|
100,280 |
|
|
|
91,638 |
|
Deposits |
|
|
485,719 |
|
|
|
467,733 |
|
|
|
456,435 |
|
|
|
453,708 |
|
|
|
457,612 |
|
Borrowed funds |
|
|
12,208 |
|
|
|
15,305 |
|
|
|
14,243 |
|
|
|
16,672 |
|
|
|
31,363 |
|
Shareholders’ equity |
|
|
43,525 |
|
|
|
43,314 |
|
|
|
42,262 |
|
|
|
40,509 |
|
|
|
42,729 |
|
Selected Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
534,296 |
|
|
$ |
521,699 |
|
|
$ |
513,676 |
|
|
$ |
527,693 |
|
|
$ |
526,361 |
|
Loans held for investment |
|
|
334,317 |
|
|
|
316,485 |
|
|
|
309,338 |
|
|
|
317,274 |
|
|
|
347,762 |
|
Securities |
|
|
107,396 |
|
|
|
112,348 |
|
|
|
109,056 |
|
|
|
116,333 |
|
|
|
102,686 |
|
Deposits |
|
|
470,921 |
|
|
|
458,655 |
|
|
|
451,160 |
|
|
|
455,146 |
|
|
|
440,274 |
|
Borrowed funds |
|
|
12,898 |
|
|
|
14,432 |
|
|
|
14,782 |
|
|
|
22,340 |
|
|
|
35,543 |
|
Shareholders’ equity |
|
|
44,283 |
|
|
|
43,123 |
|
|
|
41,681 |
|
|
|
43,994 |
|
|
|
44,868 |
|
(1) |
Net income per share, book value per share, weighted average shares outstanding and shares outstanding at year-end for years 2015 through 2012 have been adjusted to reflect the 2% stock dividends in 2014, 2015, and 2016. |
67
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion And Analysis of Financial Condition
And Results of Operations
A discussion and analysis of the Company’s operating results and financial condition are presented in the following narrative and financial tables. The comments are intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto appearing on pages 28-67 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 Company’s operations, pricing, products and services.
Financial Condition at December 31, 2016 and December 31, 2015
The Company’s total assets increased $16.0 million from $532.2 million at December 31, 2015 to $548.2 million at December 31, 2016. This increase resulted primarily from a $21.7 million increase in loans held for investment and an increase in available for sale securities of $16.6 million. These increases were offset by a decrease in cash and cash equivalents of $23.0 million.
Cash and cash equivalents decreased $23.0 million during the year ended December 31, 2016. Cash and due from banks increased $2.4 million, while interest-earning deposits with banks decreased $25.3 million. This decrease is directly related to the funding of loans held for sale.
Investment securities consist of securities available for sale and securities held to maturity. Investment securities increased $17.4 million or 25.3%, from $100.5 million at December 31, 2015 to $117.9 million combined at December 31, 2016. During the year, in an effort to improve our concentration risk in various sectors, management made the decision to sell $20.2 million of investment securities, including $10.2 million of US government agency bonds and $10.0 million of state and political subdivision bonds. There were no securities called during 2016. The Company realized a net gain of $544,000 on these transactions. The Company has reinvested the proceeds from both the 2016 sales and the 2015 sales. The new securities produce a slightly higher duration for the entire portfolio because lower duration securities were sold. These investments should provide additional yield as opposed to excess cash and are intended to help mitigate the downside risk embedded in the current portfolio. At December 31, 2016, the Company had net unrealized losses on the securities available for sale of $2.0 million.
Loans held for investment increased $21.7 million from $320.1 million at December 31, 2015 to $341.8 million at December 31, 2016. The growth in the portfolio was spread across several loan portfolio classes with commercial other real estate construction experiencing the largest growth of $9.0 million or 51.0%. The commercial class, commercial real estate, consumer class and home equity class all experienced appreciable growth. This growth was offset by declines in the real estate one-to-four family loan class and the one-to-four family construction class, with real estate one-to-four family seeing the greatest decline of $1.7 million or 2.0%. Loans held for sale decreased slightly by 1.7% or $99,000 compared to the prior year. The allowance for loan losses was $2.7 million at December 31, 2016, which represents 0.79% of the loan portfolio, a decrease from 0.90% at December 31, 2015. The decrease is a result of the credit quality of consumers continuing to improve, which lowers the probability of default used to calculate the allowance for loan loss estimate. Net chargeoffs decreased from $234,000 at December 31, 2015 to $89,000 at December 31, 2016. There was one large loan relationship driving the 2015 net charges with net chargeoffs of $120,000 by itself, which moved to other real estate owned in 2015.
Other changes in our consolidated assets are related to premises and equipment, bank owned life insurance, other real estate owned, and other assets. Bank owned life insurance increased $135,000 as improving market conditions contribute to higher earnings in these insurance products, while premises and equipment decreased $493,000, with $154,000 of the decline due to the sale of a bank owned property that was not in use. During 2016, other real estate owned declined $818,000, from $4.9 million at December 31, 2015 to $4.2 million at December 31, 2016. Throughout 2016, the Company sold twenty pieces of property totaling $899,000 resulting in a net gain on the sale of other real estate owned of $41,000. Also during 2016, the Company had additional write downs and changes in reserves of $241,000 resulting from new appraisals and evaluations. These declines were offset by the addition of five pieces of property
68
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
foreclosed on totaling $315,000. Other assets increased $866,000, with $569,000 of the increase due to an increase in deferred taxes for available for sale securities since the unrealized loss has increased from a loss position in 2015 of $322,000 to a loss position in 2016 of $2.0 million.
Customer deposits continued to be our principal funding source in 2016. At December 31, 2016, deposits from our customers totaled $485.7 million, an increase of $18.0 million from $467.7 million at December 31, 2015. Demand noninterest bearing checking increased $10.6 million, while interest checking and money market accounts and savings deposits increased $20.6 million and $2.0 million, respectively during 2016. These increases were offset by decreases in time deposits over $250,000 of $676,000 and other time deposits of $14.6 million during 2016. 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 2016 the Company’s net borrowings decreased by $3.1 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, 2016, there were no advances outstanding in the total borrowings of $12.2 million. During 2016, the Company put a line of credit in place. At December 31, 2016, there was $500,000 outstanding on this line, which is short-term borrowings. Other components of total borrowings include $9.5 million in junior subordinated long-term debt and $2.2 million in master notes and other secured short-term borrowings.
Other liabilities increased from $5.7 million at December 31, 2015 to $6.6 million at December 31, 2016, an increase of $945,000 driven by an increase in the value of the supplemental executive retirement plan referenced in Note 17.
At December 31, 2016, total shareholders’ equity was $43.5 million, an increase of $211,000 from December 31, 2015. Net income for the period was $2.2 million. Unrealized losses on investment securities net of tax increased $1.1 million. The Company repurchased 69,938 outstanding shares of common stock for an aggregate repurchase price of $322,000. The Company also has $593,000 in dividends attributed to noncontrolling interest. At December 31, 2016, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.
Results of Operations for the Years Ended December 31, 2016 and 2015
Earnings
Uwharrie Capital Corp reported net income of $2.2 million for the twelve months ended December 31, 2016, as compared to $2.0 million for the twelve months ended December 31, 2015, an increase of $204,000. Net income available to common shareholders was $1.6 million or $0.23 per common share for the year ended December 31, 2016, compared to net income available to common shareholders of $1.4 million or $0.20 per common share for the year ended December 31, 2015. 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 increased $622,000 to $16.7 million for 2016 compared to the $16.1 million earned in 2015. During the year ended December 31, 2016, our growth in the volume of interest-earning assets outpaced the decline in interest-bearing liabilities by $1.0 million. The average yield on our interest-earning assets decreased 6 basis points to 3.77%, while the average rate we paid for our interest-bearing liabilities decreased 11 basis points. These decreases resulted in an increase of 5 basis points in our interest rate spread, from 3.38% in 2015 to 3.43% in 2016. Our net interest margin for 2016 was 3.51%, compared to 3.47% in 2015. A portion of the Company’s 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 77 presents a detailed analysis of the components of the
69
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Company’s net interest income, while Financial Table 2 on page 78 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 ($88,000) and ($620,000) for the twelve months ended December 31, 2016 and 2015, respectively. There were net loan charge-offs of $89,000 for the twelve months ended December 31, 2016 as compared with net loan charge-offs of $234,000 during the same period of 2015. 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 72 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 20.6%, from $8.6 million in 2015, to $10.3 million in 2016, an increase of $1.8 million. The primary factor contributing to this growth was the increase in income from mortgage loan sales that increased $1.5 million to $3.8 million for 2016 compared to $2.3 million during 2015. During 2015, the Company expanded its mortgage operation into a neighboring market. This expansion continues to be the driving force behind the growth in income from loan sales. Service charges on deposit accounts produced earnings of $1.2 million, a decrease of 8.0%. The primary contributing factor continues to be a decrease in NSF (non-sufficient funds) fees. Other service fees and commissions experienced a 4.3% increase during 2016. This is related to an increase of $262,000 in other service fees and commissions originated from variable annuity sales from The Strategic Alliance Corp, the broker-dealer subsidiary of Uwharrie Bank. The Company had realized gains on the sale of investments in the amount of $544,000 for the twelve months ending December 31, 2016, as compared to realized gains of $536,000 for the same period in 2015.
Noninterest Expense
Noninterest expense for the year ended December 31, 2016 was $24.0 million compared to $22.5 million for the same period of 2015, an increase of $1.6 million. Salaries and employee benefits, the largest component of noninterest expense, increased $1.3 million, from $13.1 million for the period ending December 31, 2015 to $14.5 million for the same period in 2016. The majority of this increase was attributable to the expansion and increased production in the mortgage operations department. Professional fees and services increased $109,000 for the twelve-month period from outside professional fees and legal fees associated with guidance relating to expansion in various lines of business within the Company. 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 $89,000 from the prior year, while premiums paid for FDIC insurance decreased $106,000 for the same period. Foreclosed real estate expense, another major component of noninterest expense, decreased $212,000, from $713,000 in 2015 to $501,000 during 2016. The primary factor relating to this decrease was a reduction in properties held in other real estate owned. Other noninterest expense experienced an increase totaling $203,000 for the comparable twelve-month period. The table on page 81 reflects the additional breakdown of other noninterest expense.
Income Tax Expense
The Company had income tax expense of $895,000 for 2016 at an effective tax rate of 28.82% compared to income tax expense of $806,000 in 2015 with an effective tax rate of 28.65%. 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 5% in 2015 to 4% in 2016. The State further lowered the corporate income tax rate from 4% to 3% effective for tax years beginning on or after January 1, 2017. 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, 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
70
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
$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 $0.14 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 Company’s 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 77 presents a detailed analysis of the components of the Company’s net interest income, while Financial Table 2 on page 78 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 ($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 72 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 23.79%, from $6.9 million in 2014, to $8.6 million in 2015, an increase of $1.6 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 base’s usage of the Company’s 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.
Noninterest Expense
Noninterest expense for the year ended December 31, 2015 was $22.5 million compared to $21.5 million for the same period of 2014, an increase of $1.0 million. 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.
71
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
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 $135,000, from $848,000 in 2014 to $713,000 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 81 reflects the additional breakdown of other noninterest expense.
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.
Asset Quality
The Company’s 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 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 borrower’s ability to repay; estimated value of any underlying collateral; prevailing economic conditions and other relevant factors. The Company’s credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loan’s credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrower’s risk grade accordingly. For loans determined to be impaired, the 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 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 borrower’s ability to repay, the borrower’s 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 management’s 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 Company’s 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 Company’s financial condition and results of operations.
72
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
At December 31, 2016, the levels of our impaired loans, which includes all loans in nonaccrual status, TDRs and other loans deemed by management to be impaired, were $6.1 million compared to $5.5 million at December 31, 2015, a net increase of $611,000. Total nonaccrual loans, which are a component of impaired loans, increased from $783,000 at December 31, 2015 to $1.5 million at December 31, 2016. During 2016, thirteen relationships totaling $1.9 million were added to impaired loans. These additions were offset by three impaired relationships totaling $311,000 being charged off, one relationships in the amount of $230,000 being foreclosed and transferred to other real estate owned, six impaired relationships in the amount of $347,000 being paid off completely and several relationships with pay downs totaling $441,000.
The allowance expressed as a percentage of gross loans held for investment decreased eleven basis points from 0.90% at December 31, 2015 to 0.79% at December 31, 2016. The collectively evaluated reserve allowance as a percentage of collectively evaluated loans was 0.86% at December 31, 2015 and 0.76% at December 31, 2016, while the individually evaluated allowance as a percentage of individually evaluated loans decreased from 3.31% to 2.28% 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 Company’s 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 estimated loss scenario by FDIC call report codes. Together, these 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. 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 three points from 755 to 758 during 2016. 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 $326,000.
Nonperforming loans, which consist of nonaccrual loans and loans past due 90 days and still accruing, to total loans increased from 0.24% at December 31, 2015, to 0.42% at December 31, 2016. The increase is related to the $667,000 increase in nonaccrual loans.
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 $818,000 during 2016. The Company sold twenty pieces of foreclosed property totaling $949,000 realizing a gain of $41,000. The Company also had write downs and changes in reserves totaling $241,000 on the remaining existing property. The Company foreclosed on three loan relationships totaling $315,000 and added five pieces of property to other real estate owned.
Restructured loans at December 31, 2016 totaled $4.8 million compared to $4.5 million at December 31, 2015 and are included in impaired loans. At December 31, 2016, all restructured loans were on an accruing basis with the exception of one relationships totaling $153,000 that was in nonaccrual.
73
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s 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, |
|
|||||||||||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||||
Nonperforming Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans past due 90 days or more |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Nonaccrual loans |
|
|
1,450 |
|
|
|
783 |
|
|
|
2,246 |
|
|
|
4,717 |
|
|
|
9,480 |
|
Other real estate owned |
|
|
4,176 |
|
|
|
4,994 |
|
|
|
5,865 |
|
|
|
7,170 |
|
|
|
8,713 |
|
Total nonperforming assets |
|
$ |
5,626 |
|
|
$ |
5,777 |
|
|
$ |
8,111 |
|
|
$ |
11,887 |
|
|
$ |
18,193 |
|
Allowance for loan losses |
|
$ |
2,707 |
|
|
$ |
2,884 |
|
|
$ |
3,738 |
|
|
$ |
5,095 |
|
|
$ |
6,801 |
|
Nonperforming loans to total loans |
|
|
0.42 |
% |
|
|
0.24 |
% |
|
|
0.72 |
% |
|
|
1.53 |
% |
|
|
2.88 |
% |
Allowance for loan losses to total loans |
|
|
0.78 |
% |
|
|
0.90 |
% |
|
|
1.20 |
% |
|
|
1.66 |
% |
|
|
2.07 |
% |
Nonperforming assets to total assets |
|
|
1.03 |
% |
|
|
1.09 |
% |
|
|
1.56 |
% |
|
|
2.30 |
% |
|
|
3.34 |
% |
Allowance for loan losses to nonperforming loans |
|
|
186.69 |
% |
|
|
368.23 |
% |
|
|
166.48 |
% |
|
|
108.02 |
% |
|
|
71.74 |
% |
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, 2016, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under the new rules.
In January 2013, the Company’s subsidiary bank issued $7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualifies as Tier 1 capital at each bank and pays dividends at a rate of 5.30%. The offering raised $7.9 million less issuance costs of $113,000.
During 2013, the Company’s subsidiary 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 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 Company’s and its subsidiary banks’ capital ratios.
Dividends
The Board of Directors of Uwharrie Capital Corp declared a 2% stock dividend in 2016. 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 also a 2% stock dividend declared in 2015 and 2014.
74
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
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 80, are supported by cash flows from mortgage-backed securities that have longer-term contractual maturities. Other funding sources at year-end 2016 included $28.0 million in federal funds lines of credit from correspondent banks and approximately $54.2 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 $27.4 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, 2016, borrowings from federal funds lines and the issuance of commercial paper amounted to $2.2 million. The Company also had a short-term line of credit totaling $500,000 and a mortgage payable of 13,000. Long-term debt at that date consisted of junior subordinated debt of $9.5 million.
Management believes that the Company’s current sources of funds provide adequate liquidity for its current cash flow needs.
Contractual Obligations
The following table reflects the contractual obligations of the Company outstanding as of December 31, 2016.
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
2,674 |
|
|
$ |
2,674 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Long-term debt |
|
|
9,534 |
|
|
|
— |
|
|
|
9,534 |
|
|
|
— |
|
|
|
— |
|
Operating leases |
|
|
739 |
|
|
|
156 |
|
|
|
311 |
|
|
|
272 |
|
|
|
— |
|
Total contractual cash obligations, excluding deposits |
|
|
12,947 |
|
|
|
2,830 |
|
|
|
9,845 |
|
|
|
272 |
|
|
|
— |
|
Deposits |
|
|
485,719 |
|
|
|
461,393 |
|
|
|
10,773 |
|
|
|
13,534 |
|
|
|
19 |
|
Total contractual cash obligations, including deposits |
|
$ |
498,666 |
|
|
$ |
464,223 |
|
|
$ |
20,618 |
|
|
$ |
13,806 |
|
|
$ |
19 |
|
Critical Accounting Policy
A critical accounting policy is one that is both very important to the portrayal of the Company’s financial condition and results, and requires management’s most difficult, subjective and/or complex judgments. What makes these judgments difficult, subjective and/or complex is the need to make estimates about the effects of matters that are inherently uncertain. Refer to Note 1 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 management’s 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 borrower’s 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.
75
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
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.
Income Taxes
The calculation of the Company’s income tax expense is complex and requires the use of many estimates and judgments in its determination. Management’s determination of the realization of the net deferred tax asset is based upon management’s 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 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 (10.39%) on Net Interest Income (Margin) in a rates down scenario and a positive impact of 25.63% 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-
76
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
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 Company’s Asset Liability Management Committee (ALCO) monitors market changes in interest rates and assists with the pricing of loans and deposit products while considering the funding source needs, asset growth projections, and necessary operating liquidity.
Financial Table 1
Average Balances and Net Interest Income Analysis
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
|
Interest |
|
|
Average |
|
||||||
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income |
|
|
Yield |
|
|||||||||
(dollars in thousands) |
|
Balance |
|
|
Expense |
|
|
Rate (1) |
|
|
Balance |
|
|
Expense |
|
|
Rate (1) |
|
|
Balance |
|
|
Expense |
|
|
Rate (1) |
|
|||||||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities |
|
$ |
88,067 |
|
|
|
1,342 |
|
|
|
1.52 |
% |
|
$ |
96,867 |
|
|
|
1,527 |
|
|
|
1.58 |
% |
|
$ |
98,549 |
|
|
|
1,632 |
|
|
|
1.66 |
% |
Non-taxable securities (1) |
|
|
19,329 |
|
|
|
500 |
|
|
|
4.17 |
% |
|
|
15,481 |
|
|
|
410 |
|
|
|
4.27 |
% |
|
|
10,507 |
|
|
|
321 |
|
|
|
4.92 |
% |
Short-term investments |
|
|
48,754 |
|
|
|
304 |
|
|
|
0.62 |
% |
|
|
50,963 |
|
|
|
185 |
|
|
|
0.36 |
% |
|
|
52,554 |
|
|
|
168 |
|
|
|
0.32 |
% |
Taxable loans (2) |
|
|
321,164 |
|
|
|
15,516 |
|
|
|
4.83 |
% |
|
|
301,837 |
|
|
|
15,299 |
|
|
|
5.07 |
% |
|
|
295,004 |
|
|
|
15,903 |
|
|
|
5.39 |
% |
Non-taxable loans (1) |
|
|
15,141 |
|
|
|
384 |
|
|
|
4.09 |
% |
|
|
14,649 |
|
|
|
426 |
|
|
|
4.69 |
% |
|
|
14,974 |
|
|
|
433 |
|
|
|
4.66 |
% |
Total interest-earning assets |
|
|
492,455 |
|
|
|
18,046 |
|
|
|
3.77 |
% |
|
|
479,797 |
|
|
|
17,847 |
|
|
|
3.83 |
% |
|
|
471,588 |
|
|
|
18,457 |
|
|
|
4.01 |
% |
Non-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
6,251 |
|
|
|
|
|
|
|
|
|
|
|
5,966 |
|
|
|
|
|
|
|
|
|
|
|
5,898 |
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
14,443 |
|
|
|
|
|
|
|
|
|
|
|
14,779 |
|
|
|
|
|
|
|
|
|
|
|
14,806 |
|
|
|
|
|
|
|
|
|
Interest receivable and other |
|
|
21,147 |
|
|
|
|
|
|
|
|
|
|
|
21,157 |
|
|
|
|
|
|
|
|
|
|
|
21,384 |
|
|
|
|
|
|
|
|
|
Total non-earning assets |
|
|
41,841 |
|
|
|
|
|
|
|
|
|
|
|
41,902 |
|
|
|
|
|
|
|
|
|
|
|
42,088 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
534,296 |
|
|
|
|
|
|
|
|
|
|
$ |
521,699 |
|
|
|
|
|
|
|
|
|
|
$ |
513,676 |
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
$ |
41,657 |
|
|
$ |
47 |
|
|
|
0.11 |
% |
|
$ |
39,393 |
|
|
$ |
44 |
|
|
|
0.11 |
% |
|
$ |
38,751 |
|
|
$ |
57 |
|
|
|
0.15 |
% |
Interest checking & MMDA |
|
|
254,144 |
|
|
|
310 |
|
|
|
0.12 |
% |
|
|
239,546 |
|
|
|
278 |
|
|
|
0.12 |
% |
|
|
230,779 |
|
|
|
299 |
|
|
|
0.13 |
% |
Time deposits |
|
|
72,127 |
|
|
|
366 |
|
|
|
0.51 |
% |
|
|
89,091 |
|
|
|
797 |
|
|
|
0.89 |
% |
|
|
101,925 |
|
|
|
997 |
|
|
|
0.98 |
% |
Total deposits |
|
|
367,928 |
|
|
|
723 |
|
|
|
0.20 |
% |
|
|
368,030 |
|
|
|
1,119 |
|
|
|
0.30 |
% |
|
|
371,455 |
|
|
|
1,353 |
|
|
|
0.36 |
% |
Short-term borrowed funds |
|
|
3,357 |
|
|
|
37 |
|
|
|
1.10 |
% |
|
|
4,880 |
|
|
|
64 |
|
|
|
1.31 |
% |
|
|
4,830 |
|
|
|
34 |
|
|
|
0.70 |
% |
Long-term debt |
|
|
9,541 |
|
|
|
550 |
|
|
|
5.76 |
% |
|
|
9,552 |
|
|
|
550 |
|
|
|
5.76 |
% |
|
|
9,952 |
|
|
|
573 |
|
|
|
5.76 |
% |
Total interest-bearing liabilities |
|
|
380,826 |
|
|
|
1,310 |
|
|
|
0.34 |
% |
|
|
382,462 |
|
|
|
1,733 |
|
|
|
0.45 |
% |
|
|
386,237 |
|
|
|
1,960 |
|
|
|
0.51 |
% |
Noninterest liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction deposits |
|
|
102,993 |
|
|
|
|
|
|
|
|
|
|
|
90,625 |
|
|
|
|
|
|
|
|
|
|
|
79,705 |
|
|
|
|
|
|
|
|
|
Interest payable and other |
|
|
6,194 |
|
|
|
|
|
|
|
|
|
|
|
5,489 |
|
|
|
|
|
|
|
|
|
|
|
6,053 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
490,013 |
|
|
|
|
|
|
|
|
|
|
|
478,576 |
|
|
|
|
|
|
|
|
|
|
|
471,995 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
44,283 |
|
|
|
|
|
|
|
|
|
|
|
43,123 |
|
|
|
|
|
|
|
|
|
|
|
41,681 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
534,296 |
|
|
|
|
|
|
|
|
|
|
$ |
521,699 |
|
|
|
|
|
|
|
|
|
|
$ |
513,676 |
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.43 |
% |
|
|
|
|
|
|
|
|
|
|
3.38 |
% |
|
|
|
|
|
|
|
|
|
|
3.50 |
% |
Net interest income and net interest margin |
|
|
|
|
|
$ |
16,736 |
|
|
|
3.51 |
% |
|
|
|
|
|
$ |
16,114 |
|
|
|
3.47 |
% |
|
|
|
|
|
$ |
16,497 |
|
|
|
3.60 |
% |
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. |
77
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 2
Volume and Rate Variance Analysis
|
|
2016 Versus 2015 |
|
|
2015 Versus 2014 |
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Net |
|
||
(dollars in thousands) |
|
Volume |
|
|
Rate |
|
|
Change |
|
|
Volume |
|
|
Rate |
|
|
Change |
|
||||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities |
|
$ |
(136 |
) |
|
$ |
(49 |
) |
|
$ |
(185 |
) |
|
$ |
(27 |
) |
|
$ |
(78 |
) |
|
$ |
(105 |
) |
Non-taxable securities |
|
|
101 |
|
|
|
(11 |
) |
|
|
90 |
|
|
|
142 |
|
|
|
(53 |
) |
|
|
89 |
|
Short-term investments |
|
|
(11 |
) |
|
|
130 |
|
|
|
119 |
|
|
|
(5 |
) |
|
|
22 |
|
|
|
17 |
|
Taxable loans |
|
|
957 |
|
|
|
(740 |
) |
|
|
217 |
|
|
|
357 |
|
|
|
(961 |
) |
|
|
(604 |
) |
Non-taxable loans |
|
|
13 |
|
|
|
(55 |
) |
|
|
(42 |
) |
|
|
(9 |
) |
|
|
2 |
|
|
|
(7 |
) |
Total interest-earning assets |
|
|
924 |
|
|
|
(725 |
) |
|
|
199 |
|
|
|
458 |
|
|
|
(1,068 |
) |
|
|
(610 |
) |
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
|
|
1 |
|
|
|
(14 |
) |
|
|
(13 |
) |
Transaction and MMDA deposits |
|
|
17 |
|
|
|
15 |
|
|
|
32 |
|
|
|
11 |
|
|
|
(32 |
) |
|
|
(21 |
) |
Other time deposits |
|
|
(119 |
) |
|
|
(312 |
) |
|
|
(431 |
) |
|
|
(120 |
) |
|
|
(80 |
) |
|
|
(200 |
) |
Short-term borrowed funds |
|
|
(18 |
) |
|
|
(9 |
) |
|
|
(27 |
) |
|
|
1 |
|
|
|
29 |
|
|
|
30 |
|
Long-term debt |
|
|
(1 |
) |
|
|
1 |
|
|
|
0 |
|
|
|
(23 |
) |
|
|
— |
|
|
|
(23 |
) |
Total interest-bearing liabilities |
|
|
(118 |
) |
|
|
(305 |
) |
|
|
(423 |
) |
|
|
(130 |
) |
|
|
(97 |
) |
|
|
(227 |
) |
Net interest income |
|
$ |
1,042 |
|
|
$ |
(420 |
) |
|
$ |
622 |
|
|
$ |
588 |
|
|
$ |
(971 |
) |
|
$ |
(383 |
) |
The above table analyzes the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to volume (changes in volume multiplied by the prior period’s rate), (ii) changes attributable to rate (changes in rate multiplied by the prior period’s volume), and (iii) net change (the sum of the previous columns). The change attributable to both rate and volume (changes in rate multiplied by changes in volume) has been allocated equally to the change attributable to volume and the change attributable to rate.
78
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 3
Investment Securities Portfolio Analysis
|
|
December 31, 2016 |
|
|
December 31, 2015 |
|
|
December 31, 2014 |
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|||
|
|
Amortized |
|
|
Fair |
|
|
Book |
|
|
Amortized |
|
|
Fair |
|
|
Book |
|
|
Amortized |
|
|
Fair |
|
|
Book |
|
|||||||||
(dollars in thousands) |
|
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 |
|
$ |
4,017 |
|
|
$ |
4,014 |
|
|
|
1.13 |
% |
|
$ |
4,026 |
|
|
$ |
4,012 |
|
|
|
1.13 |
% |
|
$ |
19.030 |
|
|
$ |
19,386 |
|
|
|
1.86 |
% |
|
|
|
4,017 |
|
|
|
4,014 |
|
|
|
1.13 |
% |
|
|
4,026 |
|
|
|
4,012 |
|
|
|
1.13 |
% |
|
|
19,030 |
|
|
|
19,386 |
|
|
|
1.86 |
% |
U.S. Government agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,972 |
|
|
|
4,998 |
|
|
|
2.77 |
% |
Due after one but within five years |
|
|
37,627 |
|
|
|
37,224 |
|
|
|
1.31 |
% |
|
|
27,671 |
|
|
|
27,635 |
|
|
|
1.43 |
% |
|
|
36,292 |
|
|
|
36,116 |
|
|
|
1.30 |
% |
Due after five but within ten years |
|
|
14,453 |
|
|
|
14,082 |
|
|
|
1.93 |
% |
|
|
2,193 |
|
|
|
2,199 |
|
|
|
1.05 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Due after ten years |
|
|
6,425 |
|
|
|
6,365 |
|
|
|
1.48 |
% |
|
|
6,295 |
|
|
|
6,236 |
|
|
|
1.23 |
% |
|
|
9,705 |
|
|
|
9,661 |
|
|
|
0.96 |
% |
|
|
|
58,505 |
|
|
|
57,671 |
|
|
|
1.48 |
% |
|
|
36,159 |
|
|
|
36,070 |
|
|
|
1.37 |
% |
|
|
50,969 |
|
|
|
50,775 |
|
|
|
1.38 |
% |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
3,382 |
|
|
|
3,265 |
|
|
|
1.93 |
% |
|
|
4,351 |
|
|
|
4,317 |
|
|
|
1.90 |
% |
|
|
4,192 |
|
|
|
4,151 |
|
|
|
1.52 |
% |
Due after five but within ten years |
|
|
6,961 |
|
|
|
6,846 |
|
|
|
2.18 |
% |
|
|
8,545 |
|
|
|
8,489 |
|
|
|
2.32 |
% |
|
|
3,003 |
|
|
|
3,046 |
|
|
|
2.43 |
% |
Due after ten years |
|
|
15,853 |
|
|
|
15,537 |
|
|
|
1.93 |
% |
|
|
17,373 |
|
|
|
16,967 |
|
|
|
1.89 |
% |
|
|
20,553 |
|
|
|
20,375 |
|
|
|
2.00 |
% |
|
|
|
26,196 |
|
|
|
25,648 |
|
|
|
2.00 |
% |
|
|
30,269 |
|
|
|
29,773 |
|
|
|
2.01 |
% |
|
|
27,748 |
|
|
|
27,572 |
|
|
|
1.98 |
% |
State and political |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
471 |
|
|
|
473 |
|
|
|
5.77 |
% |
|
|
175 |
|
|
|
177 |
|
|
|
4.62 |
% |
Due after one but within five years |
|
|
2,597 |
|
|
|
2,638 |
|
|
|
4.04 |
% |
|
|
3,304 |
|
|
|
3,423 |
|
|
|
3.86 |
% |
|
|
2,389 |
|
|
|
2,541 |
|
|
|
4.96 |
% |
Due after five but within ten years |
|
|
2,877 |
|
|
|
2,819 |
|
|
|
4.29 |
% |
|
|
1,399 |
|
|
|
1,421 |
|
|
|
6.28 |
% |
|
|
3,296 |
|
|
|
3,481 |
|
|
|
4.89 |
% |
Due after ten years |
|
|
8,649 |
|
|
|
8,079 |
|
|
|
2.39 |
% |
|
|
8,517 |
|
|
|
8,722 |
|
|
|
3.77 |
% |
|
|
5,715 |
|
|
|
5,881 |
|
|
|
4.36 |
% |
|
|
|
14,123 |
|
|
|
13,536 |
|
|
|
3.08 |
% |
|
|
13,691 |
|
|
|
14,039 |
|
|
|
4.12 |
% |
|
|
11,575 |
|
|
|
12,080 |
|
|
|
4.64 |
% |
Corporate Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,400 |
|
|
|
2,399 |
|
|
|
1.19 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Due after one but within five years |
|
|
2,836 |
|
|
|
2,798 |
|
|
|
2.15 |
% |
|
|
814 |
|
|
|
798 |
|
|
|
1.79 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Due after five but within ten years |
|
|
2,218 |
|
|
|
2,232 |
|
|
|
1.50 |
% |
|
|
2,221 |
|
|
|
2,167 |
|
|
|
1.38 |
% |
|
|
3,040 |
|
|
|
3,011 |
|
|
|
1.24 |
% |
|
|
|
5,054 |
|
|
|
5,030 |
|
|
|
1.86 |
% |
|
|
5,435 |
|
|
|
5,364 |
|
|
|
1.36 |
% |
|
|
3,040 |
|
|
|
3,011 |
|
|
|
1.24 |
% |
Total Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,871 |
|
|
|
2,872 |
|
|
|
1.94 |
% |
|
|
5,147 |
|
|
|
5,175 |
|
|
|
2.83 |
% |
Due after one but within five years |
|
|
50,459 |
|
|
|
49,939 |
|
|
|
1.56 |
% |
|
|
40,166 |
|
|
|
40,185 |
|
|
|
1.66 |
% |
|
|
61,903 |
|
|
|
62,194 |
|
|
|
1.63 |
% |
Due after five but within ten years |
|
|
26,509 |
|
|
|
25,979 |
|
|
|
2.22 |
% |
|
|
14,358 |
|
|
|
14,276 |
|
|
|
2.37 |
% |
|
|
9,339 |
|
|
|
9,538 |
|
|
|
3.72 |
% |
Due after ten years |
|
|
30,927 |
|
|
|
29,981 |
|
|
|
1.98 |
% |
|
|
32,185 |
|
|
|
31,925 |
|
|
|
2.26 |
% |
|
|
35,973 |
|
|
|
35,917 |
|
|
|
2.03 |
% |
|
|
$ |
107,895 |
|
|
$ |
105,899 |
|
|
|
1.85 |
% |
|
$ |
89,580 |
|
|
$ |
89,258 |
|
|
|
2.00 |
% |
|
$ |
112,362 |
|
|
$ |
112,824 |
|
|
|
1.94 |
% |
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. |
79
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 3
Investment Securities Portfolio Analysis (Continued)
|
|
December 31, 2016 |
|
|
December 31, 2015 |
|
|
December 31, 2014 |
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|||
|
|
Amortized |
|
|
Fair |
|
|
Book |
|
|
Amortized |
|
|
Fair |
|
|
Book |
|
|
Amortized |
|
|
Fair |
|
|
Book |
|
|||||||||
(dollars in thousands) |
|
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 |
|
$ |
1,754 |
|
|
$ |
1,737 |
|
|
|
2.49 |
% |
|
$ |
1,911 |
|
|
$ |
1,906 |
|
|
|
2.39 |
% |
|
$ |
2,085 |
|
|
$ |
2,053 |
|
|
|
2.29 |
% |
|
|
|
1,754 |
|
|
|
1,737 |
|
|
|
2.49 |
% |
|
|
1,911 |
|
|
|
1,906 |
|
|
|
2.39 |
% |
|
|
2,085 |
|
|
|
2,053 |
|
|
|
2.29 |
% |
State and political |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
2,952 |
|
|
|
2,935 |
|
|
|
2.21 |
% |
|
|
1,944 |
|
|
|
1,953 |
|
|
|
2.27 |
% |
|
|
— |
|
|
|
— |
|
|
|
0.00 |
% |
Due after five but within ten years |
|
|
4,022 |
|
|
|
3,986 |
|
|
|
2.95 |
% |
|
|
4,049 |
|
|
|
4,065 |
|
|
|
2.95 |
% |
|
|
— |
|
|
|
— |
|
|
|
0.00 |
% |
|
|
|
6,974 |
|
|
|
6,921 |
|
|
|
2.63 |
% |
|
|
5,993 |
|
|
|
6,018 |
|
|
|
2.73 |
% |
|
|
— |
|
|
|
— |
|
|
|
0.00 |
% |
Corporate Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after five but within five years |
|
|
3,262 |
|
|
|
3,276 |
|
|
|
2.76 |
% |
|
|
3,338 |
|
|
|
3,318 |
|
|
|
2.76 |
% |
|
|
3,411 |
|
|
|
3,397 |
|
|
|
2.76 |
% |
|
|
|
3,262 |
|
|
|
3,276 |
|
|
|
2.76 |
% |
|
|
3,338 |
|
|
|
3,318 |
|
|
|
2.76 |
% |
|
|
3,411 |
|
|
|
3,397 |
|
|
|
2.76 |
% |
Total Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
2,952 |
|
|
|
2,935 |
|
|
|
2.50 |
% |
|
|
1,944 |
|
|
|
1,953 |
|
|
|
2.58 |
% |
|
|
— |
|
|
|
— |
|
|
|
0.00 |
% |
Due after five but within ten years |
|
|
9,038 |
|
|
|
8,999 |
|
|
|
2.81 |
% |
|
|
9,298 |
|
|
|
9,289 |
|
|
|
2.77 |
% |
|
|
5,496 |
|
|
|
5,450 |
|
|
|
2.58 |
% |
|
|
$ |
11,990 |
|
|
$ |
11,934 |
|
|
|
2.65 |
% |
|
$ |
11,242 |
|
|
$ |
11,242 |
|
|
|
2.68 |
% |
|
$ |
5,496 |
|
|
$ |
5,450 |
|
|
|
2.58 |
% |
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. |
Financial Table 4
Noninterest Income
|
|
Year Ended December 31, |
|
|||||||||
(dollars in thousands) |
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
Service charges on deposit accounts |
|
$ |
1,189 |
|
|
$ |
1,293 |
|
|
$ |
1,467 |
|
Other banking fees |
|
|
2,125 |
|
|
|
2,110 |
|
|
|
1,917 |
|
Asset management fees |
|
|
1,574 |
|
|
|
1,737 |
|
|
|
1,732 |
|
Brokerage commissions |
|
|
595 |
|
|
|
270 |
|
|
|
279 |
|
Other noninterest income |
|
|
514 |
|
|
|
317 |
|
|
|
388 |
|
Income from mortgage loan sales |
|
|
3,795 |
|
|
|
2,306 |
|
|
|
1,001 |
|
Security gains (losses) |
|
|
544 |
|
|
|
536 |
|
|
|
(2 |
) |
Other gains (losses) from sale of assets |
|
|
(5 |
) |
|
|
1 |
|
|
|
141 |
|
Total noninterest income |
|
$ |
10,331 |
|
|
$ |
8,570 |
|
|
$ |
6,923 |
|
80
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 5
Other Noninterest Expense
|
|
Year Ended December 31, |
|
|||||||||
(dollars in thousands) |
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
Postage |
|
$ |
195 |
|
|
$ |
184 |
|
|
$ |
184 |
|
Telephone and data lines |
|
|
168 |
|
|
|
156 |
|
|
|
145 |
|
Loan collection cost |
|
|
175 |
|
|
|
121 |
|
|
|
139 |
|
Shareholder relations expense |
|
|
129 |
|
|
|
140 |
|
|
|
234 |
|
Dues and subscriptions |
|
|
197 |
|
|
|
167 |
|
|
|
127 |
|
Other |
|
|
1,681 |
|
|
|
1,574 |
|
|
|
1,457 |
|
Total other noninterest expense |
|
$ |
2,545 |
|
|
$ |
2,342 |
|
|
$ |
2,286 |
|
Financial Table 6
Loan Portfolio Composition
|
|
At December 31, |
|
|||||||||||||||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||||||||||||||
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|||
(dollars in thousands) |
|
Amount |
|
|
Loans |
|
|
Amount |
|
|
Loans |
|
|
Amount |
|
|
Loans |
|
||||||
Loan type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
55,752 |
|
|
|
16.31 |
% |
|
$ |
52,311 |
|
|
|
16.34 |
% |
|
$ |
47,418 |
|
|
|
15.25 |
% |
Real estate - construction |
|
|
32,344 |
|
|
|
9.46 |
% |
|
|
23,321 |
|
|
|
7.29 |
% |
|
|
26,250 |
|
|
|
8.44 |
% |
Real estate - residential |
|
|
132,514 |
|
|
|
38.77 |
% |
|
|
132,799 |
|
|
|
41.49 |
% |
|
|
135,734 |
|
|
|
43.67 |
% |
Real estate - commercial |
|
|
109,752 |
|
|
|
32.11 |
% |
|
|
101,198 |
|
|
|
31.62 |
% |
|
|
92,517 |
|
|
|
29.76 |
% |
Consumer |
|
|
9,711 |
|
|
|
2.84 |
% |
|
|
8,982 |
|
|
|
2.81 |
% |
|
|
8,460 |
|
|
|
2.72 |
% |
Other |
|
|
1,687 |
|
|
|
0.49 |
% |
|
|
1,481 |
|
|
|
0.45 |
% |
|
|
481 |
|
|
|
0.16 |
% |
Total loans |
|
|
341,760 |
|
|
|
100.00 |
% |
|
|
320,092 |
|
|
|
100.00 |
% |
|
|
310,860 |
|
|
|
100.00 |
% |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(2,707 |
) |
|
|
|
|
|
|
(2,884 |
) |
|
|
|
|
|
|
(3,738 |
) |
|
|
|
|
Unearned net loan fees |
|
|
69 |
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
Net loans |
|
$ |
339,122 |
|
|
|
|
|
|
$ |
317,248 |
|
|
|
|
|
|
$ |
307,115 |
|
|
|
|
|
|
|
At December 31, |
|
|||||||||||||
|
|
2013 |
|
|
2012 |
|
||||||||||
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
||
|
|
Amount |
|
|
Loans |
|
|
Amount |
|
|
Loans |
|
||||
Loan type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
47,436 |
|
|
|
15.44 |
% |
|
$ |
41,390 |
|
|
|
12.58 |
% |
Real estate - construction |
|
|
21,001 |
|
|
|
6.83 |
% |
|
|
28,132 |
|
|
|
8.55 |
% |
Real estate - residential |
|
|
132,694 |
|
|
|
43.18 |
% |
|
|
142,444 |
|
|
|
43.28 |
% |
Real estate - commercial |
|
|
95,922 |
|
|
|
31.22 |
% |
|
|
103,304 |
|
|
|
31.39 |
% |
Consumer |
|
|
9,623 |
|
|
|
3.13 |
% |
|
|
12,986 |
|
|
|
3.95 |
% |
Other |
|
|
612 |
|
|
|
0.20 |
% |
|
|
822 |
|
|
|
0.25 |
% |
Total loans |
|
|
307,288 |
|
|
|
100.00 |
% |
|
|
329,078 |
|
|
|
100.00 |
% |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(5,095 |
) |
|
|
|
|
|
|
(6,801 |
) |
|
|
|
|
Unearned net loan fees |
|
|
60 |
|
|
|
|
|
|
|
105 |
|
|
|
|
|
Net loans |
|
$ |
302,253 |
|
|
|
|
|
|
$ |
322,382 |
|
|
|
|
|
81
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 7
Selected Loan Maturities
|
|
December 31, 2016 |
|
|||||||||||||
|
|
One Year |
|
|
One to |
|
|
Over Five |
|
|
|
|
|
|||
(dollars in thousands) |
|
or Less |
|
|
Five Years |
|
|
Years |
|
|
Total |
|
||||
Commercial and agricultural |
|
$ |
14,435 |
|
|
$ |
16,979 |
|
|
$ |
24,338 |
|
|
$ |
55,752 |
|
Real estate – construction |
|
|
10,848 |
|
|
|
3,214 |
|
|
|
18,282 |
|
|
|
32,344 |
|
Total selected loans |
|
$ |
25,283 |
|
|
$ |
20,193 |
|
|
$ |
42,620 |
|
|
$ |
88,096 |
|
Fixed rate loans |
|
$ |
15,918 |
|
|
$ |
57,058 |
|
|
$ |
51,337 |
|
|
$ |
124,313 |
|
Sensitivity to rate changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rates |
|
$ |
30,592 |
|
|
$ |
18,207 |
|
|
$ |
168,717 |
|
|
$ |
217,516 |
|
Financial Table 8
Activity in the Allowance for Loan Loss
|
|
At or for the Year Ended December 31, |
|
|||||||||||||||||
(dollars in thousands) |
|
2016 |
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||||
Allowance for loan losses at beginning of year |
|
$ |
2,884 |
|
|
$ |
3,738 |
|
|
$ |
5,095 |
|
|
$ |
6,801 |
|
|
$ |
6,815 |
|
Provision for (recovery of) loan losses |
|
|
(88 |
) |
|
|
(620 |
) |
|
|
(389 |
) |
|
|
28 |
|
|
|
1,832 |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5 |
) |
|
|
— |
|
Loan charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
76 |
|
|
|
34 |
|
|
|
8 |
|
|
|
571 |
|
|
|
322 |
|
Real estate |
|
|
172 |
|
|
|
427 |
|
|
|
1,140 |
|
|
|
1,225 |
|
|
|
1,427 |
|
Consumer |
|
|
142 |
|
|
|
128 |
|
|
|
83 |
|
|
|
175 |
|
|
|
242 |
|
Total charge-offs |
|
|
390 |
|
|
|
589 |
|
|
|
1,231 |
|
|
|
1,971 |
|
|
|
1,991 |
|
Recoveries of loans previously charged off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
19 |
|
|
|
16 |
|
|
|
81 |
|
|
|
14 |
|
|
|
43 |
|
Real estate |
|
|
209 |
|
|
|
278 |
|
|
|
138 |
|
|
|
180 |
|
|
|
66 |
|
Consumer |
|
|
73 |
|
|
|
61 |
|
|
|
44 |
|
|
|
48 |
|
|
|
36 |
|
Total recoveries |
|
|
301 |
|
|
|
355 |
|
|
|
263 |
|
|
|
242 |
|
|
|
145 |
|
Net charge-offs |
|
|
89 |
|
|
|
234 |
|
|
|
968 |
|
|
|
1,729 |
|
|
|
1,846 |
|
Allowance for loan losses at end of year |
|
$ |
2,707 |
|
|
$ |
2,884 |
|
|
$ |
3,738 |
|
|
$ |
5,095 |
|
|
$ |
6,801 |
|
Net (charge-offs) recoveries as a percent of average loans |
|
|
0.03 |
% |
|
|
0.07 |
% |
|
|
0.31 |
% |
|
|
0.55 |
% |
|
|
0.53 |
% |
Financial Table 9
Allocation of the Allowance for Loan Losses
|
|
At December 31, |
|
|||||||||||||||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||||||||||||||
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|||
(dollars in thousands) |
|
Amount |
|
|
Loans (1) |
|
|
Amount |
|
|
Loans (1) |
|
|
Amount |
|
|
Loans (1) |
|
||||||
Commercial |
|
$ |
636 |
|
|
|
23.49 |
% |
|
$ |
478 |
|
|
|
16.57 |
% |
|
$ |
790 |
|
|
|
21.13 |
% |
Real estate - construction |
|
|
240 |
|
|
|
8.87 |
% |
|
|
227 |
|
|
|
7.87 |
% |
|
|
223 |
|
|
|
5.97 |
% |
Real estate - residential |
|
|
1,103 |
|
|
|
40.75 |
% |
|
|
1,338 |
|
|
|
46.40 |
% |
|
|
1,775 |
|
|
|
47.50 |
% |
Real estate - commercial |
|
|
553 |
|
|
|
20.43 |
% |
|
|
653 |
|
|
|
22.64 |
% |
|
|
738 |
|
|
|
19.74 |
% |
Other |
|
|
175 |
|
|
|
6.46 |
% |
|
|
188 |
|
|
|
6.52 |
% |
|
|
212 |
|
|
|
5.66 |
% |
Unallocated |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
Total loans |
|
$ |
2,707 |
|
|
|
100.00 |
% |
|
$ |
2,884 |
|
|
|
100.00 |
% |
|
$ |
3,738 |
|
|
|
100.00 |
% |
82
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
|
|
At December 31, |
|
|||||||||||||
|
|
2013 |
|
|
2012 |
|
||||||||||
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
||
|
|
Amount |
|
|
Loans (1) |
|
|
Amount |
|
|
Loans (1) |
|
||||
Commercial |
|
$ |
722 |
|
|
|
14.17 |
% |
|
$ |
1,180 |
|
|
|
17.35 |
% |
Real estate – construction |
|
|
1,203 |
|
|
|
23.61 |
% |
|
|
719 |
|
|
|
10.57 |
% |
Real estate – residential |
|
|
2,025 |
|
|
|
39.75 |
% |
|
|
3,020 |
|
|
|
44.41 |
% |
Real estate – commercial |
|
|
890 |
|
|
|
17.47 |
% |
|
|
1,040 |
|
|
|
15.29 |
% |
Consumer |
|
|
— |
|
|
|
— |
% |
|
|
842 |
|
|
|
12.38 |
% |
Other |
|
|
255 |
|
|
|
5.00 |
% |
|
|
— |
|
|
|
— |
% |
Unallocated |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
Total loans |
|
$ |
5,095 |
|
|
|
100.00 |
% |
|
$ |
6,801 |
|
|
|
100.00 |
% |
(1) |
Represents total of all outstanding loans in each category as a percent of total loans outstanding. |
Financial Table 10
Short Term Borrowings
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||||||||||||||
(dollars in thousands) |
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
||||||
At year-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master notes and other secured borrowings |
|
|
2,162 |
|
|
|
0.25 |
% |
|
|
3,396 |
|
|
|
0.25 |
% |
|
|
3,674 |
|
|
|
0.25 |
% |
Notes payable |
|
|
12 |
|
|
|
6.00 |
% |
|
|
12 |
|
|
|
6.00 |
% |
|
|
11 |
|
|
|
6.00 |
% |
Short-term line of credit |
|
|
500 |
|
|
|
3.75 |
% |
|
|
2,350 |
|
|
|
3.50 |
% |
|
|
1,000 |
|
|
|
3.75 |
% |
|
|
$ |
2,674 |
|
|
|
0.93 |
% |
|
$ |
5,758 |
|
|
|
1.59 |
% |
|
$ |
4,685 |
|
|
|
1.70 |
% |
Average for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchase |
|
$ |
2 |
|
|
|
1.35 |
% |
|
$ |
2 |
|
|
|
0.79 |
% |
|
$ |
2 |
|
|
|
0.79 |
% |
Master notes and other secured borrowings |
|
|
2,540 |
|
|
|
0.25 |
% |
|
|
3,280 |
|
|
|
0.25 |
% |
|
|
4,250 |
|
|
|
0.44 |
% |
Notes payable |
|
|
13 |
|
|
|
5.83 |
% |
|
|
18 |
|
|
|
6.00 |
% |
|
|
11 |
|
|
|
6.00 |
% |
Short-term line of credit |
|
|
802 |
|
|
|
3.68 |
% |
|
|
1,598 |
|
|
|
3.51 |
% |
|
|
57 |
|
|
|
3.75 |
% |
Short-term advances from FHLB |
|
|
— |
|
|
|
0.00 |
% |
|
|
— |
|
|
|
0.00 |
% |
|
|
510 |
|
|
|
4.08 |
% |
|
|
$ |
3,357 |
|
|
|
1.09 |
% |
|
$ |
4,898 |
|
|
|
1.32 |
% |
|
$ |
4,830 |
|
|
|
1.86 |
% |
Maximum month-end balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master notes and other secured borrowings |
|
|
4,325 |
|
|
|
|
|
|
|
4,736 |
|
|
|
|
|
|
|
4,640 |
|
|
|
|
|
Notes payable |
|
|
12 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
Short-term line of credit |
|
|
2,350 |
|
|
|
|
|
|
|
2,350 |
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
Short-term advances from FHLB |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
1,500 |
|
|
|
|
|
Financial Table 11
Maturities of Time Deposits
|
|
|
|
|
|
Over 3 |
|
|
Over 6 |
|
|
|
|
|
|
|
|
|
||
|
|
3 Months |
|
|
Months to |
|
|
Months to |
|
|
Over |
|
|
|
|
|
||||
(dollars in thousands) |
|
or Less |
|
|
6 Months |
|
|
12 Months |
|
|
12 Months |
|
|
Total |
|
|||||
Time Deposits of $250,000 or more |
|
$ |
2,799 |
|
|
$ |
1,769 |
|
|
$ |
1,434 |
|
|
$ |
1,470 |
|
|
$ |
7,472 |
|
Other Time Deposits |
|
|
11,696 |
|
|
|
10,333 |
|
|
|
14,803 |
|
|
|
22,857 |
|
|
|
59,689 |
|
|
|
$ |
14,495 |
|
|
$ |
12,102 |
|
|
$ |
16,237 |
|
|
$ |
24,327 |
|
|
$ |
67,161 |
|
83
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Financial Table 12
Performance Ratios
|
|
At December 31, |
|
|||||||||||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||||
Return on average assets |
|
|
0.41 |
% |
|
|
0.38 |
% |
|
|
0.33 |
% |
|
|
0.18 |
% |
|
|
0.08 |
% |
Return on average equity |
|
|
4.99 |
% |
|
|
4.65 |
% |
|
|
4.03 |
% |
|
|
2.17 |
% |
|
|
0.90 |
% |
Equity to average assets ratio |
|
|
8.29 |
% |
|
|
8.27 |
% |
|
|
8.11 |
% |
|
|
8.34 |
% |
|
|
8.52 |
% |
84
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 |
|
Thomas M. Hearne, Jr. |
|
James E. Nance |
Retired – Senior Vice President |
|
Retired |
|
Founder and Managing Member |
Strategic Investment Advisors, Inc. |
|
Geopavement Engineer |
|
North State Acquisitions, LLC |
and Bank of Stanly |
|
North Carolina Department |
|
|
|
|
of Transportation |
|
Frank A. Rankin, III |
Joe S. Brooks |
|
|
|
Board Vice Chairman |
Owner and Manager |
|
Harvey H. Leavitt, III |
|
President and Owner |
Brothers Precision Tool Co. |
|
Owner and Operator |
|
Concord Engineering & |
|
|
Leavitt Funeral Home |
|
Surveying, Inc. |
Ronald T. Burleson |
|
|
|
|
Partner |
|
Samuel M. Leder |
|
S. Todd Swaringen |
Thurman Burleson & Sons Farm |
|
Certified Public Accountant/ |
|
Certified Public Accountant/ |
|
|
Partner |
|
Partner |
Bill C. Burnside, DDS |
|
Potter & Company, P.A. |
|
Beane Swaringen & |
Board Chairman |
|
|
|
Company, PLLC |
Retired – General Dentist |
|
W. Chester Lowder |
|
|
|
|
Director of Livestock Program |
|
Dusty W. West |
James O. Campbell |
|
Public Policy Division |
|
President and Owner |
Vice President of Construction Sales |
|
NC Farm Bureau |
|
Dean’s Ready Mixed, Inc. |
AvidXchange, Inc. |
|
Federation, Inc. |
|
|
|
|
|
|
|
Raymond R. Cranford, Jr. |
|
|
|
|
Owner and Vice President of Sales |
|
|
|
|
Crook Motor Co., 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 |
|
|
85
Exhibit 21
UWHARRIE CAPITAL CORP
SUBSIDIARIES OF THE REGISTRANT
At December 31, 2016
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 |
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, 2017 with respect to the consolidated financial statements of Uwharrie Capital Corp and Subsidiaries, which report appears in Uwharrie Capital Corp’s 2016 Annual Report on Form 10-K.
/s/ Dixon Hughes Goodman LLP
Charlotte, North Carolina
March 1, 2017
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:
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I have reviewed this report on Form 10-K of Uwharrie Capital Corp (the “registrant”); |
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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; |
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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; |
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The registrant’s 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: |
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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; |
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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; |
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Evaluated the effectiveness of the registrant’s 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 |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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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 registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 1, 2017 |
By: |
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/s/ Roger L. Dick |
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Roger L. Dick |
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Chief Executive Officer |
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:
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I have reviewed this report on Form 10-K of Uwharrie Capital Corp (the “registrant”); |
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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; |
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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; |
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The registrant’s 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: |
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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; |
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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; |
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Evaluated the effectiveness of the registrant’s 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 |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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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 registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 1, 2017 |
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/s/ R. David Beaver, III |
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R. David Beaver, III |
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Principal Financial Officer |
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, 2016, 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 1, 2017 |
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/s/ Roger L. Dick |
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Roger L. Dick |
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Chief Executive Officer |
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Date: March 1, 2017 |
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/s/ R. David Beaver, III |
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R. David Beaver, III |
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Principal Financial Officer |
Exhibit 3a
93 053 5081 |
ARTICLES OF INCORPORATION |
0-0320669 |
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The undersigned entity hereby makes and acknowledges these Articles of Incorporation for the purpose of forming a of North Carolina as contained in Chapter 55 of the General Statutes of North Carolina, entitled “North Carolina Business Corporation Act,” and the several amendments thereto, and to that end hereby sets forth the following:
ARTICLE I
The name of the corporation is Stanly Capital Corp (herein referred to as the “Corporation”).
ARTICLE II
The Corporation shall have authority to issue a total of 6,000,000 shares of capital stock which shall consist of common Stock, $1.25 par value per share, all of the one class.
ARTICLE III
The street address of the initial registered office of the Corporation is 167 North Second Street, Albemarle, Stanly County, North Carolina 28001; the mailing address of the initial registered office of the Corporation is Post Office Box 338, Albemarle, Stanly County, North Carolina 28002-0338; and, the name of the initial registered agent at such address is Roger L. Dick.
ARTICLE IV
The name of the incorporator is Bank of Stanly, and the address of the incorporator is 167 North Second Street, Albemarle, North Carolina 28001.
ARTICLE V
To the fullest extent permitted by the North Carolina Business Corporation Act as it exists or may hereafter be amended, no person who is serving or who has served as a director of the Corporation shall be personally liable to the Corporation or any of its shareholders or otherwise for monetary damages for breach of any duty as a director. No amendment or repeal of this article, nor the adoption of any provision to these Articles of Incorporation inconsistent with this article, shall eliminate or reduce the protection granted herein with respect to any matter that occurred prior to such amendment, repeal, or adoption.
ARTICLE VI
Section 6.1. Approval of Certain Transactions. Except as otherwise provided herein, approval by the Corporation’s shareholders of any of the transactions listed in Section 6.2 below shall require sixty-six and two-thirds percent (66 2/3%) of all votes entitled to be cast on such matter and, if separate voting by any one or more voting groups is required, by that percentage of the votes entitled to be cast on such matter by each such voting group. However, if in the case of any such transaction applicable law shall require a greater vote of the Corporation’s shareholders for the approval of such transaction, or shall allow such transaction to be effected without the approval of the Corporation’s shareholders or of any voting group, then to that extent this Section 6.1 shall not apply to such transaction.
Section 6.2. Covered Transactions. Except to the extent provided therein, the requirements of Section 6.1 above shall apply to:
(a) The merger of the Corporation with or into any other corporation, whether or not the Corporation is the surviving entity in such merger;
(b) The acquisition of all of the outstanding shares of any one or more classes or series of the Corporation’s capital stock pursuant to a share exchange;
(c) The sale, lease, exchange or other disposition of all, or substantially all, of the Corporation’s property and assets otherwise than in the usual and regular course of its business; or
(d) Any proposal to dissolve the corporation.
ARTICLE VII
In connection with the exercise of its or their judgment in determining what is in the best interests of the Corporation and its shareholders, the Board of Directors of the Corporation, any committee of the Board of Directors, or any individual directors may, but shall not be required to, in addition to considering the long-term and short-term interests of the shareholders, consider any of the following factors and any other factors which it or they deem relevant: (a) the social and economic effects of the matter to be considered on the Corporation and its subsidiaries, its and their employees, depositors, customers, and creditors, and the communities in which the Corporation and its subsidiaries operate or are located; and (b) when evaluating a business combination or a proposal by another Person or Persons to make a business combination or a tender or exchange offer or any other proposal relating to a potential change of control of the Corporation (i) the business and financial condition and earnings prospects of the acquiring Person or Persons, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition, and other likely financial obligations of the acquiring Person or Persons, and the possible effect of such conditions upon the Corporation and its subsidiaries and the communities in which the corporation and its subsidiaries operate or are located, (ii) the competence, experience, and integrity of the acquiring Person or Persons and its or their management, and (iii) the prospects for successful conclusion of the business combination, offer or proposal. The provisions of this Article VII shall be deemed solely to grant discretionary authority to the directors and shall not be deemed to provide to any constituency the right to be considered. As used in this Article VII, the term “Person” means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity; and, when two or more Persons act as a partnership, limited partnership, syndicate, or other group acting in concert for the purpose of acquiring, holding, voting or disposing of securities of the Corporation, such partnership, limited partnership, syndicate or group shall also be deemed a “Person” for purposes of this Article VII.
THIS the 16th day of February, 1993.
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BANK OF STANLY |
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By: |
/s/ Roger L. Dick |
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Roger L. Dick |
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President |
Prepared by and return to:
William R. Lathan, Jr.
For the firm of
Ward and Smith, P.A.
1001 College Court
Post Office Box 867
New Bern, North Carolina 28563-0867
Telephone: (919) 633-1000
84-0661(P)
2/09/93
RWH\CYD
WSMAIN\38988.
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Exhibit 3b
BYLAWS
OF
UWHARRIE CAPITAL CORP
(Approved by the UCC Board of Directors 9-17-2013)
uwharrie.214
OF
UWHARRIE CAPITAL CORP
ARTICLE I
MISSION AND OBJECTIVES
Section 1.Mission
Section 2.Objectives
ARTICLE II
OFFICES
Section 1.Principal Office
Section 2.Registered Office
Section 3.Other Offices
ARTICLE III
MEETINGS OF SHAREHOLDERS
Section 1.Place of Meetings
Section 2.Annual Meeting
Section 3.Substitute Annual Meeting
Section 4.Special Meetings
Section 5.Notice of Meetings
Section 6.Shareholders’ List
Section 7.Voting Groups
Section 8.Quorum
Section 9.Proxies
Section 10.Voting of Shares
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ARTICLE IV
BOARD OF DIRECTORS
Section 1.General Powers
Section 2.Number and Qualifications |
Section 3. Accountabilities of Directors
Section 4.Classification of Directors
Section 5.Nominations
Section 6.Election
Section 7.Terms of Directors
Section 8.Removal
Section 9.Attendance Requirement
Section 10.Vacancies
Section 11.Chairman and Vice Chairman of the Board
Section 12.Compensation
Section 13.Advisory Directors
ARTICLE V
MEETINGS AND COMMITTEES OF DIRECTORS
Section 1.Regular Meetings
Section 2.Special Meetings
Section 3.Notice of Meetings
Section 4.Waiver of Notice
Section 5.Quorum
Section 6.Manner of Acting
Section 7.Presumption of Assent
Section 8.Action Without Meeting
Section 9.Committees of the Board
Section 10.Executive Committee
Section 11.Audit Committee
Section 12.Nominating Committee
Section 13.Human Resources & Compensation Committee
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ARTICLE VI
OFFICERS
Section 1.Officers of the Corporation
Section 2.Appointment and Term
Section 3.Compensation of Officers
Section 4.Removal
Section 5. Resignation
Section 6.Chief Executive Officer
Section 7.President
Section 8.Vice Presidents
Section 9.Secretary
Section 10.Assistant Secretaries
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1.Contracts
Section 2.Loans
Section 3.Checks and Drafts
Section 4.Deposits
ARTICLE VIII
SHARES AND THEIR TRANSFER
Section 1.Certificates for Shares
Section 2.Stock Transfer Books
Section 3.Lost Certificates
Section 4.Fixing Record Date
Section 5.Holder of Record
Section 6.Shares Held by Nominees
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GENERAL PROVISIONS
Section 1.Distributions
Section 2.Seal
Section 3.Fiscal Year
Section 4.Amendments
Section 5.Definitions
ARTICLE X
INDEMNIFICATION
Section 1.Indemnification
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uwharrie.214
OF
UWHARRIE CAPITAL CORP
ARTICLE I
MISSION AND OBJECTIVES
Section 1. Mission. The Corporation will seek to enhance the well-being of the communities it serves by aggressively identifying and, through its subsidiaries, filling the needs for financial and other related services, and by fairly rewarding its supporters.
Section 2. Objectives. In carrying out its mission, the Corporation will:
(a)Maintain control of the Corporation and its subsidiaries for and by the people of the communities it serves, through the maintenance of a broad local shareholder base;
(b)Be guided by a large and well-chosen Board of Directors which represents the various interests and needs for financial and other related services in its market area;
(c)Maintain for itself and its subsidiaries a highly professional and sensitive staff that is genuinely dedicated to the spirit of the Corporation’s founding philosophy;
(d)Utilize state of the art technology while maintaining an understanding of the need for a balance between the use of technology and the need for close customer contact;
(e)Maintain flexibility in organizational structures, policies and procedures in order to cope effectively with the changing market environment and conditions in the financial services industry;
(f)Provide for the rendering of high quality services to customers of the Corporation and its subsidiaries;
(g)Provide a good return to shareholders on their investments in the Corporation; and
(h)Operate, and cause its subsidiaries to operate, on the high ideals upon which the Corporation was founded and within the letter and spirit of laws applicable to and rules and regulations of those agencies which have duly constituted authority over the Corporation and its subsidiaries.
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The Board of Directors and management of the Corporation shall have the authority to interpret and shall hold full responsibility for making operational each of the above objectives. Management shall always strive to achieve a balanced approach to these objectives, and, through efficient operations, provide fair rewards to its supporters.
The Corporation and its people will strive to fulfill the Corporation’s unique mission as a community-based financial services organization.
ARTICLE II
OFFICES
Section 1. Principal Office. The principal office of the Corporation shall be located at such place as the Board of Directors may fix from time to time.
Section 2. Registered Office. The registered office of the Corporation required by law to be maintained in the State of North Carolina may be, but need not be, identical with the principal office.
Section 3. Other Offices. The Corporation may have offices at such places, either within or without the State of North Carolina, as the Board of Directors may designate or as the affairs of the Corporation may require from time to time.
ARTICLE III
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of shareholders shall be held at the principal office of the Corporation, or at such other place, either within or without the State of North Carolina, as shall in each case be fixed by the Chief Executive Officer, the President, the Secretary, or the Board of Directors and designated in the notice of the meeting.
Section 2. Annual Meeting. The annual meeting of the shareholders shall be held during the first five calendar months following the end of the Corporation’s fiscal year, on any day (except Saturday, Sunday, or a legal holiday) during that period as shall be determined by the Board of Directors, for the purpose of electing directors of the Corporation and for the transaction of such other business as may be properly brought before the meeting.
Section 3. Substitute Annual Meeting. If the annual meeting shall not be held within the time designated by these Bylaws, a substitute annual meeting may be called in accordance with
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the provisions of Section 4 of this Article III. A meeting so called shall be designated and treated for all purposes as the annual meeting.
Section 4. Special Meetings. Special meetings of the shareholders may be called at any time by the Chief Executive Officer, the President, the Secretary, the Chairman of the Board of Directors, or by the Board of Directors, and shall be called by the Board of Directors upon the written request of the holders of not less than one-tenth of all the votes entitled to be cast on any issue proposed to be considered at the meeting.
Section 5. Notice of Meetings. Written notice stating the date, time and place of the meeting shall be given not less than ten nor more than sixty days before the date of any shareholders’ meeting, either by personal delivery, or by telegraph, teletype, or other form of wire or wireless communication, or by facsimile transmission or by mail or private carrier, by or at the direction of the Board of Directors, the Chief Executive Officer, the President, the Secretary, the Chairman of the Board of Directors or other person calling the meeting, to each shareholder entitled to vote at such meeting, provided that such notice must be given to all shareholders with respect to any meeting at which a merger or share exchange is to be considered and in such other instances as required by law. If mailed, such notice shall be deemed to be effective when deposited in the United States mail, correctly addressed to the shareholder at the shareholder’s address as it appears on the current record of shareholders of the Corporation, with postage thereon prepaid.
In the case of a special meeting, the notice of meeting shall include a description of the purpose or purposes for which the meeting is called; but, in the case of an annual or substitute annual meeting, the notice of meeting need not include a description of the purpose or purposes for which the meeting is called unless such a description is required by the provisions of the North Carolina Business Corporation Act.
When a meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before adjournment and if a new record date is not fixed for the adjourned meeting; but, if a new record date is fixed for the adjourned meeting (which must be done if the new date is more than 120 days after the date of the original meeting), notice of the adjourned meeting must be given as provided in this section to persons who are shareholders as of the new record date.
Section 6. Shareholders’ List. Before each meeting of shareholders, the Secretary of the Corporation shall prepare an alphabetical list of the shareholders entitled to notice of such meeting. The list shall be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each shareholder. The list shall be kept on file at the principal office of the Corporation, or at a place identified in the meeting notice in the city where the meeting will be held, for the period beginning two business days after notice of the meeting is given and continuing through the meeting, and shall be available for inspection by any shareholder, his agent or attorney, at any time during regular business hours. The list shall also be available at the meeting and shall be subject to inspection by any shareholder, his agent or attorney, at any time during the meeting or any adjournment thereof.
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Section 7. Voting Groups. All shares of one or more classes or series that under the articles of incorporation or the North Carolina Business Corporation Act are entitled to vote and be counted together collectively on a matter at a meeting of shareholders constitute a voting group. All shares entitled by the articles of incorporation or the North Carolina Business Corporation Act to vote generally on a matter are for that purpose a single voting group. Classes or series of shares shall not be entitled to vote separately by voting group unless expressly authorized by the articles of incorporation or specifically required by law.
Section 8. Quorum. Shares entitled to vote as a separate voting group may take action on a matter at the meeting only if a quorum of those shares exists. A majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders, such meeting may be adjourned from time to time by a vote of a majority of the votes cast on the motion to adjourn; and, subject to the provisions of Section 5 of this Article III, at any adjourned meeting any business may be transacted which might have been transacted at the original meeting if a quorum exists with respect to the matter proposed.
Section 9. Proxies. Shares may be voted either in person or by one or more proxies authorized by a written appointment of proxy signed by the shareholder or by his duly authorized attorney in fact. An appointment of a proxy is valid for eleven months from the date of its execution, unless a different period is expressly provided in the appointment form.
Section 10. Voting of Shares. Subject to the provisions of the articles of incorporation, each outstanding share shall be entitled to one vote on each matter voted on at a meeting of shareholders.
Except in the election of directors as governed by the provisions of Section 5 of Article IV, if a quorum exists, action on a matter by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater vote is required by law or the articles of incorporation or these Bylaws.
Absent special circumstances, shares of the Corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation in which the corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation; provided that this provision does not limit the power of the Corporation or such second corporation to vote shares held by it in a fiduciary capacity.
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BOARD OF DIRECTORS
Section 1. General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, the Board of Directors.
Section 2. Number and Qualifications. The number of directors constituting the Board of Directors shall be not less than twelve (12) nor more than twenty-one (21) as from time to time may be fixed or changed within said minimum and maximum by a majority of the full Board of Directors. Directors must be shareholders of the Corporation owning at the time of their initial election or appointment and during their tenure as a director, shares of the Corporation having a fair market value of at least $5,000. Such calculation of fair market value shall be made at the time of such person’s appointment or election and at the end of each fiscal year. At least three-fourths of the directors of the Corporation shall be residents of communities served by the Corporation and its subsidiaries. Otherwise, directors need not be residents of the State of North Carolina.
In carrying out the Corporation’s mission, it shall be guided by a well-chosen rotating Board of Directors which represents the various interests and needs for financial services in the communities served. The following qualifications apply:
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Support the principles upon which the corporation was founded. |
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Satisfy such requirements established by regulatory agencies and applicable law. |
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Be supportive of the goals of the Corporation as established by the Board of Directors. |
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Support the Corporation and subsidiary companies by doing business with them; also, directors shall take an active role in business development efforts for the corporation. |
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Maintain satisfactory attendance requirements. |
(refer to “Attendance” section for further details)
6. Possess good character, judgment and business sense.
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Be knowledgable and attuned to the needs and changing conditions of communities served. |
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Be an involved citizen and leader in one’s community; take opportunities to be an enthusiastic ambassador in behalf of our corporation in one’s community. |
Every director shall, within thirty days of his/her election, take and subscribe an oath that he/she will diligently and honestly perform his/her duties in such office; and that he/she is the owner in good faith of the shares of stock of the Corporation required to qualify him/her for such
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office, standing in his/her own name on its books, and a copy of the Oath shall be kept on file in the Corporation.
Every director shall also, within thirty days of his/her election, read and sign the Corporation’s Secrecy Agreement and Code of Business Conduct & Ethics declaring and pledging upon honor that he/she will observe the strictest secrecy and ethical business conduct on all matters of the Corporation and any subsidiary company during service on and after the director leaves the service of the Board of Directors.
Section 3. Accountabilities of Directors. In carrying out the Corporation’s mission, it shall be guided by a well-chosen rotating Board of Directors which represents the various interests and needs for financial services in the communities served. The following accountabilities apply:
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Participate in the strategic planning process. |
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Review Corporation’s role in the communities served. |
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Provide leadership in planning the overall affairs of the Corporation. |
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Provide continuity of the Corporation as a sound institution with adequate capital, skilled management, well-defined policies and sound financial condition. |
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Attend and actively participate in Board and committee meetings. |
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Review Board meeting minutes. |
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Review management reports, operating and capital budgets. |
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Review examination reports and regulatory correspondence. |
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Familiarization with various policy guidelines. |
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Review insider transactions. |
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Review internal controls, common ratios and performance measures. |
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Protect shareholders, customers, and creditors through internal control, independent audits and insurance coverage. |
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Provide knowledge and guidance to Board and Management by virtue of their personal activities, knowledge or circumstances about individuals or companies doing business or proposing to do business with the Corporation. No director shall withhold information he/she possesses which could potentially result in financial harm to the Corporation and its subsidiaries or any related entity. |
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14. Consider effective Board composition and size and make appropriate
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Consider amendments to the Certification of Incorporation and Bylaws and make appropriate recommendations. |
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Act to remove ineffective Board members. |
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Utilize best efforts in the performance of Board service. |
Section 4. Classification of Directors. The Directors shall be divided into three classes, as nearly equal in number as may be, to serve in the first instance for terms of one, two, and three years, respectively, and thereafter the successors in each class of directors shall be elected to serve for terms of three years. In the event of any increase or decrease in the number of directors, the additional or eliminated directorships shall be so classified or chosen that all classes of directors shall remain or become as nearly equal in number as may be.
Section 5. Nominations. Nominations for election to the Board of Directors may be made at any meeting of shareholders at which directors are to be elected by the Nominating Committee of the Board of Directors or, subject to the conditions described below, by any holder of shares entitled to be voted at that meeting in the election of directors. To be eligible for consideration at the meeting of shareholders, all nominations other than those made by the Nominating Committee shall be in writing and must be delivered to the Chief Executive Officer, President or Secretary of the Corporation not less than thirty (30) days before any fiscal year end.
Section 6. Election. Except as provided in Section 7 of this Article IV, the directors shall be elected at the annual meeting of shareholders. Those persons who receive the highest number of votes at a meeting at which a quorum is present shall be deemed to have been elected.
Section 7. Terms of Directors. Each initial director shall hold office until the first shareholders’ meeting at which directors are elected, or until such director’s death, resignation, or removal. The term of each other director shall be for the number of years for which he is elected as set forth in Section 3 of this Article IV, or until such director’s death, resignation, or removal. The term of a director elected to fill a vacancy expires at the next shareholders’ meeting at which directors are elected, at which time such director or any other person may be nominated for election for a term (a “Special Term”) equal to the remainder, if any, of the unexpired term which such director was initially elected to fill. A decrease in the number of directors does not shorten an incumbent director’s term. Despite the expiration of a director’s term, such director shall continue to serve until a successor shall be elected and qualifies or until there is a decrease in the number of directors.
No director may be elected to more than three consecutive three-year terms without a break in tenure; provided, that, in addition to said three consecutive three-year terms and without a break in tenure, any director may also serve any portion of an unexpired term or any Special Term to which such director may have been appointed or elected.
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Section 8. Removal. Any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the vote in favor of such removal of the holders of at least a majority of the voting power of the Corporation’s outstanding shares entitled to be voted generally in the election of directors. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. A director may not be removed by the shareholders at a meeting unless the notice of the meeting states that the purpose, or one of the purposes, of the meeting is removal of the director. If any directors are so removed, new directors may be elected at the same meeting.
Section 9. Attendance Requirement. Each director each year shall attend at least seventy-five percent (75%) of the aggregate number of all regular and special meetings of the Board of Directors and meetings of committees of the Board of which such director is a member. If during any calendar year any director fails to satisfy the above attendance requirement, then such director shall automatically be deemed to have resigned from the Board of Directors as of the end of such calendar year.
Section 10. Vacancies. Any vacancy occurring in the Board of Directors, including without limitation a vacancy resulting from an increase in the number of directors or from the failure by the shareholders to elect the full authorized number of directors, may be filled by the shareholders or by the Board of Directors, whichever group shall act first. If the directors remaining in office do not constitute a quorum, the directors may fill the vacancy by the affirmative vote of a majority of the remaining directors or by the sole remaining director. If the vacant office was held by a director elected by a voting group, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy.
Section 11. Chairman and Vice Chairman of the Board. There may be a Chairman of the Board of Directors elected by the directors from their number at any meeting of the Board. The Chairman shall serve in such position at the pleasure of the Board of Directors and shall preside at all meetings of the Board of Directors and shareholders, serve as Chairman of the Executive Committee and an ex officio member of all other committees of the Board of Directors, and perform such other duties as may be directed by the Board. He/she shall hold office as Chair until the regular annual meeting of the Board of Directors next succeeding his/her election and is eligible to hold the position of Chairperson of the Board of Directors for a maximum of four one (1) year terms, to be elected annually by the Board.
In like fashion, the directors may elect from their number a Vice Chairman of the Board of Directors who shall preside at meetings of directors or shareholders in the absence of the Chairman and perform such other duties as may be directed by the Board.
In the absence of the Chairman and Vice Chairman, the Chief Executive Officer or President shall preside at meetings of directors or shareholders.
Section 12. Compensation. The Board of Directors may provide for the compensation of directors for their services as such and for the payment or reimbursement of any or all expenses incurred by them in connection with such services.
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Section 13.Advisory Directors. The Board of Directors may appoint any shareholder of the Corporation to serve as an advisory director with duties as specified by the Board. However, any shareholder appointed as an advisory director shall not have the right to vote on any matters brought before the Board of Directors.
ARTICLE V
MEETINGS AND COMMITTEES OF DIRECTORS
Section 1. Regular Meetings. A regular meeting of the Board of Directors shall be held immediately after, and at the same place as, the annual meeting of shareholders. In addition, the Board of Directors may provide, by resolution, the time and place, either within or without the State of North Carolina for the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Chief Executive Officer or the President, or by any four or more directors. Such a meeting may be held either within or without the State of North Carolina, as fixed by the person or persons calling the meeting.
Section 3. Notice of Meetings. Regular meetings of the Board of Directors may be held without notice. The person or persons calling a special meeting of the Board of Directors shall, at least two days before the meeting, give or cause to be given notice thereof by any usual means of communication. Such notice need not specify the purpose for which the meeting is called. Any duly convened regular or special meeting may be adjourned by the directors to a later time without further notice.
Section 4. Waiver of Notice. Any director may waive notice of any meeting before or after the meeting. The waiver must be in writing, signed by the director entitled to the notice, and be delivered to the Corporation for inclusion in the minutes or filing with the corporate records. A director's attendance at or participation in a meeting waives any required notice of such meeting unless the director at the beginning of the meeting, or promptly upon arrival, objects to holding the meeting or to transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.
Section 5. Quorum. Unless the articles of incorporation or these Bylaws provide otherwise, a majority of the number of directors fixed by or pursuant to these Bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, or if no number is so fixed, a majority of the number of directors in office immediately before the meeting begins shall constitute a quorum.
Section 6. Manner of Acting. Except as otherwise provided in the articles of incorporation or these Bylaws, including Section 9 of this Article V, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
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Section 7. Presumption of Assent. A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless (a) he objects at the beginning of the meeting, or promptly upon his arrival, to holding it or transacting business at the meeting, or (b) his dissent or abstention from the action taken is entered in the minutes of the meeting, or (c)he files written notice of his dissent or abstention with the presiding officer of the meeting before its adjournment or with the Corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.
Section 8. Action Without Meeting. Action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if the action is taken by all members of the Board. The action must be evidenced by one or more written consents signed by each director before or after such action, describing the action taken, and included in the minutes or filed with the corporate records.
Section 9. Committees of the Board. The Board of Directors may create such committees of the Board as it shall consider appropriate. Subject to the other provisions of these Bylaws, the Chairman and other members of each standing or other such committee shall be appointed by the Chairman of the Board, subject to the approval of the Board of Directors. The creation of a committee of the Board and appointment of members to it must be approved by the greater of (a)a majority of all the directors in office when the action is taken, or (b) the number of directors required to take action pursuant to Section 6 of this Article V. Each committee of the Board must have two or more members and shall have such duties and authority as may be described in these Bylaws or otherwise specified by the Board of Directors. Each committee member shall serve at the pleasure of the Board of Directors. The provisions in these Bylaws governing meetings, actions without meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors shall also apply to any committees of the Board established pursuant to these Bylaws.
Section 10. Executive Committee. There may be a standing committee of the Board of Directors to be known as the Executive Committee and consisting of the Chairman and Vice Chairman of the Board and Chairmen of each standing committee of the Board. Additionally, non-voting members shall consist of the President and Chief Executive Officer of the Corporation and others as designated.. The Chairman of the Board shall act as Chairman of the Executive Committee. Except as limited by Section 9 of this Article V or otherwise limited by law, the Executive Committee is empowered to act for and on behalf of the Board of Directors in any and all matters in the interim between meetings of the Board. Within the powers conferred upon it, action by the Executive Committee shall be as binding upon the Corporation as if performed by the full Board. Such actions shall be reported to the Board for review at its next meeting following such action. The committee shall meet as often as it considers necessary and advisable.
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Section 11. Audit Committee. There shall be a standing committee of the Board of Directors known as the Audit Committee and consisting of not fewer than three directors. The Audit Committee may sit as a joint committee with the audit committee of any subsidiary bank’s board of directors. The Audit Committee shall superintend examinations of the assets and the liabilities and the internal audit program of the Corporation and its subsidiaries, cause outside audits to be performed on the financial statements of the Corporation, and shall make periodic reports to the Board and oversee the audit function and regulatory compliance.
Section 12. Nominating Committee. There shall be a standing committee of the Board of Directors appointed by the Chairman to be known as the Nominating Committee and consisting of not fewer than three directors. The Nominating Committee shall recommend to the Board a slate of nominees for election as directors at meetings of shareholders. In performing this function, the Nominating Committee shall be mindful of the varied constituencies which make up the market of the Corporation and its subsidiaries. In making appointments to the Nominating Committee, the Chairman shall give consideration to representation based upon gender, race, occupation and geographic representation reflected on the entire Board of Directors.
Section 13. Human Resources & Compensation Committee. There shall be a standing committee of the Board of Directors to be known as the Human Resources & Compensation Committee and shall consist of the entire Board of Directors, unless it is deemed necessary that a smaller group is needed. The Human Resources & Compensation Committee is authorized to make recommendations to the Board relating to total compensation of all officers and to establish personnel policies for the Corporation and its subsidiaries. This committee shall also administer the Corporation’s stock option plans by approving all stock options that are issued and establishing price. The committee is responsible for the overall review of stock plans as a part of associates’ compensation.
ARTICLE VI
OFFICERS
Section 1. Officers of the Corporation. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Secretary, and such Vice Presidents, Assistant Vice Presidents, Assistant Secretaries, and other officers as may from time to time be appointed by or under the authority of the Board of Directors. Any two or more offices may be held by the same person, but no officer may act in more than one capacity where action of two or more officers is required.
Section 2. Appointment and Term. The officers of the Corporation shall be appointed by the Board of Directors or by a duly appointed officer authorized by the Board of Directors to appoint one or more officers or assistant officers. Each officer shall hold office until his death, resignation, retirement, removal, disqualification, or his successor shall have been appointed.
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Section 3. Compensation of Officers. The compensation of all officers of the Corporation shall be fixed by or under the authority of the Board of Directors, and no officer shall serve the Corporation in any other capacity and receive compensation therefor unless such additional compensation has been duly authorized. The appointment of an officer does not itself create contract rights.
Section 4. Removal. Any officer may be removed by the Board at any time with or without cause; but such removal shall not itself affect the officer's contract rights, if any, with the Corporation except to the extent, if any, specified in any such contract.
Section 5. Resignation. An officer may resign at any time by communicating his or her resignation to the Corporation, orally or in writing. A resignation is effective when communicated unless it specifies in writing a later effective date. If a resignation is made effective at a later date that is accepted by the Corporation, the Board of Directors may fill the pending vacancy before the effective date if the Board provides that the successor does not take office until the effective date. An officer's resignation does not affect the Corporation's contract rights, if any, with the officer except to the extent, if any, specified in any such contract.
Section 6. Chief Executive Officer. The Chief Executive Officer shall be the principal executive officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. He shall sign, with the Secretary, an Assistant Secretary, or any other proper officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed, and in general he shall perform all duties incident to the office of the Chief Executive Officer and such other duties as may be prescribed by the Board of Directors from time to time. The Chief Executive Officer shall be entitled to attend all regular and special meetings and meetings of committees of the Board of Directors. No meeting shall be held without allowing the Chief Executive Officer to be present.
Section 7. President. In the absence of the Chief Executive Officer, or in the event of his death, inability or refusal to act, the President, unless otherwise determined by the Board of Directors, shall perform the duties of the Chief Executive Officer, and when so acting shall have all the powers of and be subject to all of the restrictions upon the Chief Executive Officer. The President may sign, with the Secretary and Assistant Secretary, certificates for shares of the Corporation and any other instruments which may be signed by the Chief Executive Officer, and shall perform such other duties as from time to time may be prescribed by the Board of Directors. The President shall be entitled to attend all regular and special meetings and meetings of committees of the Board of Directors.
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Section 8. Vice Presidents. In the absence of the President or in the event of his death, inability or refusal to act, the Vice Presidents, in the order of their length of service as such, unless otherwise determined by the Board of Directors, shall perform the duties as the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President (or Assistant Vice President) may sign, with the Secretary or an Assistant Secretary, certificates for shares of the Corporation or any other instruments which may be signed by the Chief Executive Officer or President, and shall perform such other duties as from time to time may be prescribed by the Chief Executive Officer, the President or Board of Directors.
Section 9. Secretary. The Secretary shall: (a) keep the minutes of the meetings of shareholders, of the Board of Directors, and of all committees in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) maintain and authenticate the records of the Corporation and be custodian of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized; (d) sign with the Chief Executive Officer, the President, or a Vice President, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (e) maintain or cause to be maintained, and have general charge of, the stock transfer books of the Corporation; (f) prepare or cause to be prepared shareholder lists prior to each meeting of shareholders as required by law; (g) attest the signature or certify the incumbency or signature of any officer of the Corporation; and (h) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned by the Chief Executive Officer, the President or by the Board of Directors.
Section 10. Assistant Secretaries. In the absence of the Secretary or in the event of his death, inability or refusal to act, the Assistant Secretaries, unless otherwise determined by the Board of Directors, each may perform the duties of the Secretary, and when so acting shall have all the powers of and be subject to all the restrictions upon the Secretary. They shall perform such other duties as may be prescribed by the Secretary, by the Chief Executive Officer, by the President, or by the Board of Directors. Any Assistant Secretary may sign, with the Chief Executive Officer, the President, or a Vice President, certificates for shares of the Corporation.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authorization may be general or confined to specific instances. Also, the Board of Directors may limit, condition, restrict or deny such authority to any officer or officers, or any agent or agents.
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Section 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Board of Directors. Such authority may be general or confined to specific instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for the payment of money, issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such depositories as may be selected by or under the authority of the Board of Directors.
ARTICLE VIII
SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. The Board of Directors may authorize the issuance of some or all of the shares of the Corporation's classes or series without issuing certificates to represent such shares. If shares are represented by certificates, the certificates shall be in such form as required by law and as determined by the Board of Directors. Certificates shall be signed, either manually or in facsimile, by the Chief Executive Officer, the President or a Vice President, and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified and entered into the stock transfer books of the Corporation. When shares are represented by certificates, the Corporation shall issue and deliver, to each shareholder to whom such shares have been issued or transferred, certificates representing the shares owned by him. When shares are not represented by certificates, then within a reasonable time after the issuance or transfer of such shares, the Corporation shall send the shareholder to whom such shares have been issued or transferred a written statement of the information required by law to be on certificates.
Section 2. Stock Transfer Books. The Corporation shall keep or cause to be kept a book or set of books, to be known as the stock transfer books of the Corporation, containing the name of each shareholder of record, together with such shareholder’s address and the number and class or series of shares held by him. Transfers of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney authorized to effect such transfer by power of attorney duly executed and filed with the Secretary, and on surrender for cancellation of the certificate for such shares (if the shares are represented by certificates).
Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation claimed to have been lost or destroyed, upon receipt of an affidavit of such fact from the person claiming the certificate to have been lost or destroyed. When authorizing such issuance of a new certificate, the Board of
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Directors shall require that the owner of such lost or destroyed certificate, or his legal representative, give the Corporation a bond in such sum and with such surety or other security as the Board may direct as indemnity against any claims that may be made against the Corporation with respect to the certificate claimed to have been lost or destroyed, except where the Board of Directors by resolution finds that in the judgment of the directors the circumstances justify omission of a bond.
Section 4. Fixing Record Date. The Board of Directors may fix a future date as the record date for one or more voting groups in order to determine the shareholders entitled to notice of a shareholders’ meeting, to demand a special meeting, to vote, or to take any other action. Such record date may not be more than seventy days before the meeting or action requiring a determination of shareholders. A determination of shareholders entitled to notice of or to vote at a shareholders’ meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.
If no record date is fixed by the Board of Directors for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, the close of business on the day before the first notice of the meeting is delivered to shareholders shall be the record date for such determination of shareholders.
The Board of Directors may fix a date as the record date for determining shareholders entitled to a distribution or share dividend. If no record date is fixed by the Board of Directors for such determination, it is the date the Board of Directors authorizes the distribution or share dividend.
Section 5. Holder of Record. Except as otherwise required by law, the Corporation may treat the person in whose name the shares stand of record on its books as the absolute owner of the shares and the person exclusively entitled to receive notification and distributions, to vote, and to otherwise exercise the rights, powers, and privileges of ownership of such shares.
Section 6. Shares Held by Nominees. The Corporation shall recognize the beneficial owner of shares registered in the name of a nominee as the owner and shareholder of such shares for certain purposes if the nominee in whose name such shares are registered files with the Secretary a written certificate in a form prescribed by the Corporation, signed by the nominee, indicating the following: (i) the name, address and taxpayer identification number of the nominee, (ii) the name, address and taxpayer identification number of the beneficial owner; (iii) the number and class or series of shares registered in the name of the nominee as to which the beneficial owner shall be recognized as the shareholder, and (iv) the purposes for which the beneficial owner shall be recognized as the shareholder.
The purposes for which the Corporation shall recognize the beneficial owner as the shareholder may include the following: (i) receiving notice of, voting at, and otherwise participating in shareholders’ meetings; (ii) executing consents with respect to the shares; (iii) exercising dissenters’ rights under Article 13 of the Business Corporation Act; (iv) receiving distributions and share dividends with respect to the shares; (v) exercising inspection rights; (vi)
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receiving reports, financial statements, proxy statements, and other communications from the Corporation; (vii) making any demand upon the Corporation required or permitted by law; and (viii) exercising any other rights or receiving any other benefits of a shareholder with respect to the shares.
The certificate shall be effective ten (10) business days after its receipt by the Corporation and until it is changed by the nominee, unless the certificate specifies a later effective time or an earlier termination date.
If the certificate affects less than all of the shares registered in the name of the nominee, the Corporation may require the shares affected by the certificate to be registered separately on the books of the Corporation and be represented by a share certificate that bears a conspicuous legend stating that there is a nominee certificate in effect with respect to the shares represented by that share certificate.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Distributions. The Board of Directors may from time to time authorize, and the Corporation may grant, distributions and share dividends to its shareholders pursuant to law and subject to the provisions of its articles of incorporation.
Section 2. Seal. The corporate seal of the Corporation shall consist of two concentric circles between which is the name of the Corporation and in the center of which is inscribed SEAL; and such seal, as impressed on the margin hereof, is hereby adopted as the corporate seal of the Corporation.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by the Board of Directors.
Section 4. Amendments. Except as otherwise provided in the articles of incorporation or by law, these Bylaws may be amended or repealed and new bylaws may be adopted by the Board of Directors
No bylaw adopted, amended, or repealed by the shareholders shall be readopted, amended, or repealed by the Board of Directors, unless the articles of incorporation or a bylaw adopted by the shareholders authorizes the Board of Directors to adopt, amend, or repeal that particular bylaw or the bylaws generally.
Section 5. Definitions. Unless the context otherwise requires, terms used in these Bylaws shall have the meanings assigned to them in the North Carolina Business Corporation Act to the extent defined therein.
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INDEMNIFICATION
Section 1. Indemnification. Any person who at any time serves or has served as a director or officer of the Corporation, or who, while serving as a director or officer of the Corporation, serves or has served at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a trustee or administrator under an employee benefit plan, shall have a right to be indemnified by the Corporation to the fullest extent permitted by law against (a) reasonable expenses, including reasonable attorneys' fees, incurred by him in connection with any threatened, pending or completed civil, criminal, administrative, investigative or arbitrative action, suit, or proceeding (and any appeal therein), whether or not brought by or on behalf of the Corporation, seeking to hold him liable by reason of the fact that he is or was acting in such capacity, and (b) reasonable payments made by him in satisfaction of any judgment, money decree, fine (including an excise tax assessed with respect to an employee benefit plan) or penalty for which he may have become liable in any such action, suit or proceeding, or in connection with a settlement approved by the Board of Directors of any such action, suit or proceeding.
The Board of Directors of the Corporation shall take all such action as may be necessary and appropriate to authorize the Corporation to pay the indemnification required by this Bylaw, including, without limitation, making a good faith determination as to whether indemnification is legally permissible in the circumstances and a good faith evaluation of the manner in which the claimant for indemnity acted and of the reasonable amount of indemnity due him. The Board of Directors may appoint a committee or special counsel to make such determination and evaluation. To the extend needed, the Board shall give notice to, and seek approval by, the shareholders of the Corporation for any decision to indemnify.
Any person who at any time after the adoption of this Bylaw serves or has served in the aforesaid capacity for or on behalf of the Corporation shall be deemed to be doing or to have done so in reliance upon, and as consideration for, the right of indemnification provided herein. Such right shall inure to the benefit of the legal representatives of any such person and shall not be exclusive of any other rights to which such person may be entitled apart from the provisions of this Bylaw.
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Exhibit 3c
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CORP ID# 0320669 |
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FILED |
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NOV 1 1999 11:25 AM |
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ARTICLES OF AMENDMENT |
Effective |
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OF |
ELAINE F. MARSHALL |
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UWHARRIE CAPITAL CORP |
SECRETARY OF STATE |
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NORTH CAROLINA |
The undersigned corporation hereby submits these Articles of Amendment for the purpose of amending its Articles of Incorporation:
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1. |
The name of the corporation is Uwharrie Capital Corp. |
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2. |
The Articles of Incorporation of the corporation are hereby amended by deleting Article II thereof and inserting in lieu thereof the following Article II. |
“The Corporation shall have authority to issue a total of 20,000,000 shares of capital stock which shall consist of Common Stock, $1.25 par value per share, all of one class.”
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3. |
The foregoing amendment was adopted on the 27th day of April, 1999 by shareholder action pursuant to Section 55-10-06 of the General Statutes of North Carolina. |
This the 21st day of October, 1999.
UWHARRIE CAPITAL CORP |
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BY: |
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/s/ Roger L. Dick |
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Roger L. Dick |
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President and Chief Executive Officer |
Prepared by and return to:
Anthony Gaeta, Jr., P.A.
808 Salem Woods Drive, Suite 201
Raleigh, NC 27615
Telephone: (919) 845-2558
uwharrie.151
Exhibit 3d
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SOSID: 0320669 |
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ARTICLES OF AMENDMENT |
Date Filed: 5/31/2000 12:49 PM |
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OF |
Elaine F. Marshall |
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UWHARRIE CAPITAL CORP |
North Carolina Secretary of State |
The undersigned corporation hereby submits these Articles of Amendment for the purpose of amending its Articles of Incorporation:
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1. |
The name of the corporation is Uwharrie Capital Corp. |
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2. |
The Articles of Incorporation of the corporation are hereby amended by deleting Article II thereof and inserting in lieu thereof the following Article II. |
“The Corporation shall have the authority to issue a total of 30,000,000 shares of capital stock divided into 20,000,000 shares of common stock, all of one class, with each share having a par value of $1.25 and 10,000,000 shares of preferred stock. The shares of preferred stock may be divided into two or more series by the Board of Directors with each series having such relative rights, privileges, preferences and limitations as the Board of Directors of the Corporation may and hereby is authorized to determine.”
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3. |
The foregoing amendment was adopted on the 2nd day of May, 2000 by shareholder action pursuant to Section 55-10-06 of the General Statutes of North Carolina. |
This the 4th day of May, 2000.
UWHARRIE CAPITAL CORP |
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BY: |
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/s/ Roger L. Dick |
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Roger L. Dick |
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Chief Executive Officer |
Prepared by and return to:
Anthony Gaeta, Jr., P.A.
808 Salem Woods Drive, Suite 201
Raleigh, NC 27615
Telephone: (919) 845-2558
uwharrie.207
Exhibit 4a
Exhibit 10e
Uwharrie Capital Corp
NONQUALIFIED DEFERRED COMPENSATION PLAN
Executive Supplemental Retirement Plan Agreement
This document is drafted with the intent that it comply with Internal Revenue Code Section 409A and regulations promulgated thereunder.
Uwharrie Capital Corp, a North Carolina corporation, hereby adopts this Uwharrie Capital Corp Nonqualified Deferred Compensation Plan (the “Plan”) for the benefit of a select group of management or highly compensated employees. This Plan is an unfunded arrangement and is intended to be exempt from the participation, vesting, funding, and fiduciary requirements set forth in Title I of the Employee Retirement Income Security Act of 1974, as amended. It is intended to comply with Internal Revenue Code Section 409A.
This Agreement is made and entered into this 4th day of January 2, 2015 by and between Uwharrie Capital Corp and Roy David Beaver III, an Eligible Employee and shall amend and restate the Executive Supplemental Retirement Plan Agreement effective June 3, 2004.
Amendment I Effective January 1, 2016
This Agreement was amended and approved by the Uwharrie Capital Corp Board of Directors on December 15, 2015 to reflect an annual contribution increase of $5,000.00 per year to be made effective on January 1, 2016. The total contribution beginning with Plan year 2016 is reflected in the Contribution Schedule included herein. Modification of the Contribution Schedule constitutes the entirety of the amended revisions.
1
The sum of all the bookkeeping accounts as may be established for each Participant.
An administrative committee appointed by the Board. The Plan Administrator shall serve as the agent for the Employer with respect to the Trust. The Plan Administrator will be comprised of 1) the Uwharrie Capital Corp Chief Executive Officer, 2) the Uwharrie Capital Corp Director of Administration, 3) the Uwharrie Capital Corp Vice President of Human Resources 4) the Uwharrie Capital Corp Board Chair and 5) the Chair of the Uwharrie Capital Corp Human Resources Committee.
The Board of Directors of the Employer.
Provided that such term shall be interpreted within the meaning of regulations promulgated under Code Section 409A, a “Change-in-Control” of the Employer (which, for purpose of this Section 1.4 shall mean Uwharrie Capital Corp but not any of its affiliates or subsidiaries) shall mean the first to occur of any of the following:
(a)the date that any one person or persons acting as a group acquires ownership of Employer stock constituting more than fifty percent (50%) of the total fair market value or total voting power of the Employer;
(b)the date that any one person or persons acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of the stock of the Employer possessing thirty percent (30%) or more of the total voting power of the stock of the Employer;
(c)the date that any one person or persons acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Employer that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the Employer immediately prior to such acquisition; or
(d)the date that a majority of members of the Employer’s Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or elections.
The Internal Revenue Code of 1986, as amended.
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The Participant’s earned income, including Salary, Bonus, Performance-based Compensation, Stock Units and other remuneration from the Employer as may be included by the Administrator.
Provided that such term shall be interpreted within the meaning of regulations promulgated under Code Section 409A, a Participant shall be considered to have incurred a Disability if: (i) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; (ii) the Participant is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Participant’s Employer; or (iii) determined to be totally disabled by the Social Security Administration.
January 1, 2005
An Employee shall be considered an Eligible Employee if such Employee is a member of a “select group of management or highly compensated employees,” within the meaning of Sections 201, 301 and 401 of ERISA, and is designated as an Eligible Employee by the Administrator. The Administrator may at any time, in its sole discretion, change the eligible criteria for an Eligible Employee or determine that one or more Participants will cease to be an Eligible Employee. The designation of an Employee as an Eligible Employee in any year shall not confer upon such Employee any right to be designated as an Eligible Employee in any future Plan Year.
Any person employed by the Employer.
Uwharrie Capital Corp and its subsidiaries and affiliates.
1.12Employer Discretionary Contribution
A discretionary contribution made by the Employer that is credited to one or more Participant’s Accounts.
1.13Employer Supplemental Contribution
A contribution made by the Employer that is credited to one or more Participant’s Accounts.
3
The Employee Retirement Income Security Act of 1974, as amended.
1.15Investment Fund
Each investment(s) which serves as a means to measure value, increases or decreases with respect to a Participant’s Accounts.
An Eligible Employee who is a Participant as provided in Article 2.
For the initial Plan Year, Effective Date through December 31, 2008. For each year thereafter, January 1 through December 31.
Retirement shall mean a Participant’s Separation from Service on, or subsequent to, the Participant attaining their applicable retirement age as provided for in their employment agreement, Uwharrie Capital Corp Executive and Director Supplemental Retirement Plan or as defined by the Plan Administrator upon participation in this Plan, as applicable. In the event the Participant has not been provided with a retirement age, such Participant's retirement age shall be attainment of sixty-five (65) years of age.
Provided that such term shall be interpreted within the meaning of regulations promulgated under Code Section 409A, a Participant shall incur a Separation from Service with the Service Recipient due to death, retirement or other termination of employment with the Service Recipient unless the employment relationship is treated as continuing intact while the individual is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the individual retains a right to reemployment with the Service Recipient under an applicable statute or by contract. Upon a sale or other disposition of the assets of the Employer to an unrelated purchaser, the Administrator reserves the right, to the extent permitted by Code section 409A to determine whether Participants providing services to the purchaser after and in connection with the purchase transaction have experienced a Separation from Service.
Provided that such term shall be interpreted within the meaning of regulations promulgated under Code Section 409A, Service Recipient shall mean the Employer or person for whom the services are performed and with respect to whom the legally binding right to compensation arises, and all persons with whom such person would be considered a single employer under Code Section 414(b) (employees of controlled group of corporations), and all persons with whom such person would be considered a single employer under Code Section 414(c) (employees of partnerships, proprietorships, etc., under common control).
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Share shall mean a share of the Employer’s common stock, no par value.
1.22Specified Employee
Provided that such term shall be interpreted within the meaning of regulations promulgated under Code Section 409A, a “Specified Employee” shall mean a participant who is considered a key employee on the Identification Date, as defined in Code Section 416(i) without regard to section 416(i)(5) and such other requirements imposed under Code Section 409A(a)(2)(B)(i) and regulations there under for the period beginning April 1 of the year subsequent to the Identification Date and ending March 31 of the following year. The Identification Date for this Plan is December 31 of each year.
1.23Stock Units
Stock Units shall mean Shares of the Employer’s Company Stock, to be included as an Investment Fund option for the Participant’s Account.
1.24Trust
The agreement between the Employer and the Trustee under which the assets of the Plan are held, administered and managed, which shall conform to the terms of Rev. Proc. 92-64.
John R. Morgan , or such other successor that shall become trustee pursuant to the terms of the Plan.
1.26Years of Service
A Participant’s Years of Service shall be measured by employment during a twelve (12) month period commencing with the Participant’s date of hire and anniversaries thereof.
2.1Commencement of Participation
Each Eligible Employee shall become a Participant at the earlier of the date on which an Employer Supplemental or Employer Discretionary Contribution is first credited to his or her Account.
2.2Loss of Eligible Employee Status
Amounts credited to the Account of a Participant who is no longer an Eligible Employee shall continue to be held pursuant to the terms of the Plan and shall be distributed as provided in Article 6.
Article 3 - Contributions
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3.1Employer Supplemental Contribution
The Employer shall make an Employer Supplemental Contribution to the Account of some or all of the Participants. For Participants in the prior Employer Executive and Director Supplemental Retirement Plan, Employer Supplemental Contributions shall mirror those contributions provided for in the Employer Executive and Director Supplemental Retirement Plan Agreement. For Participants who were not in the Employer Executive and Director Supplemental Retirement Plan Agreement the amount of the Employer Supplemental Contribution shall be determined by the Employer annually and communicated to the Participant(s). Such Employer Supplemental Contribution shall be credited to the Participant’s Retirement Account to which contributions are being credited for the Plan Year. Employer Supplemental Contributions shall be credited to a Participant’s Account as soon as administratively feasible following the close of each Plan Year.
3.2Employer Discretionary Contributions
The Employer reserves the right to make discretionary contributions to some or all Participants’ Accounts in such amount and in such manner as may be determined by the Employer. Such Employer Discretionary Contribution, at the option of the Employer, in accounts established by the Administrator. The Employer, in its sole discretion, may determine which account will be credited with each Employer Discretionary Contribution. In the event the Employer does not designate which Participant account shall be credited, such Employer Discretionary Contributions shall be credited to the Participant’s Retirement account. Employer Discretionary Contributions, if any, shall be credited to a Participant’s Account, and if applicable transferred to the Trust, at such time as the Employer shall determine.
4.1Vesting of Employer Discretionary Contributions
A Participant shall have a vested right to the portion of his or her Account attributable to Employer Discretionary Contribution(s) and any earnings or losses on the investment of such Employer Discretionary Contribution(s) according to such vesting schedule as the Employer shall determine at the time an Employer Discretionary Contribution is made.
4.2Vesting of Employer Supplemental Contributions
A Participant shall have a vested right to the portion of his or her Account attributable to Employer Supplemental Contribution(s) and any earnings or losses on the investment of such Employer Supplemental Contribution(s) according to such vesting schedule as the Employer shall determine at the time an Employer Supplemental Contribution is made. For Participants in the prior Employer Executive and Director Supplemental Retirement Plan, Employer Supplemental Contributions shall vest in accordance with the vesting schedule as provided for in the Employer Executive and Director Supplemental Retirement Plan.
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4.3Vesting due to Certain Events
(a) A participant who incurs a Separation from Service due to Retirement shall be fully vested in the amounts credited to his or her Account as of the date of Retirement.
(b) A Participant who incurs a Separation from Service due to Disability shall be fully vested in the amounts credited to his or her Account as of the date of Disability.
(c) Upon a Participant’s death, the Participant shall be fully vested in the amounts credited to his or her Account.
(d)Upon a Change-in-Control, all Participants shall be fully vested in the amounts credited to their Accounts as of the date of the Change-in-Control.
(e)Upon termination of employment prior to attaining Normal Retirement Age, the participant shall be fully vested in the amounts credited to his or her account.
Article 5 – Accounts
5.1Investments, Gains and Losses
(a) |
As applicable, a Participant may change his or her selection of Investment Funds no more than six (6) times each Plan Year with respect to his or her Account by filing a new election in accordance with procedures established by the Administrator. An election shall be effective as soon as administratively feasible following the date the change is submitted on a form prescribed by the Administrator. |
(b) |
Notwithstanding the foregoing, any Stock Units shall be deemed to be invested in Shares at all times. |
Each Participant shall designate in his or her election the timing of his or her distribution as described in the accompanying election form. Notwithstanding anything to the contrary contained herein provided, no acceleration of the time or schedule of payments under the Plan shall occur except as permitted under both this Plan and Code Section 409A. If the Participant fails to properly designate the time and form of a distribution, the Participant’s Account shall be paid in a lump sum.
6.2Distributions Upon Retirement
If the Participant has a Separation from Service due to Retirement, the Participant’s Retirement Account shall be distributed as soon as administratively feasible, but no later than ninety (90) days after the first day of the seventh month following Participant’s Retirement.
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Distribution shall be made either in a lump-sum payment or in substantially equal annual installments, over a period of up to ten (10) years as elected by the Participant.
6.3Substantially Equal Annual Installments
(a)The amount of the substantially equal payments shall be determined by multiplying the Participant’s Account by a fraction, the denominator of which in the first year of payment equals the number of years over which benefits are to be paid, and the numerator of which is one (1). The amounts of the payments for each succeeding year shall be determined by multiplying the Participant’s Account as of the applicable anniversary of the payout by a fraction, the denominator of which equals the number of remaining years over which benefits are to be paid, and the numerator of which is one (1). Installment payments made pursuant to this Section 6.3 shall be made as soon as administratively feasible, but no later than ninety (90) days following the anniversary of the distribution event.
(b)For purposes of the Plan pursuant to Code Section 409A and regulations thereunder, a series of annual installments from a particular account shall be considered a single payment.
6.4Distributions due to other Separation from Service
Upon a Participant’s Separation from Service for any reason other than Retirement, death or Disability, all vested amounts credited to his or her Account shall be paid to the Participant in a lump-sum, as soon as administratively feasible, but no later than ninety (90) days, following the date of Separation from Service, subject to Section 6.8 (Distributions to Specified Employees).
6.5Distributions upon Separation from Service due to Disability
Upon a Participant’s Separation from Service due to Disability, all amounts credited to his or her Account shall be paid to the Participant in a lump sum, as soon as administratively feasible but no later than ninety (90) days following the date of Separation from Service due to Disability, subject to Section 6.8 (Distributions to Specified Employees).
Upon the death of a Participant, all amounts credited to his or her Account shall be paid, as soon as administratively feasible but no later than ninety (90) days following Participant’s date of death, to his or her beneficiary or beneficiaries, as determined under Article 7 hereof, in a lump sum.
6.7Changes to Distribution Elections
A Participant will be permitted to elect to change the form or timing of the distribution of the balance of his or her Account to the extent permitted and in accordance with the requirements of Code Section 409A(a)(4)(C), including the requirement that (i) a redeferral election may not take effect until at least twelve (12) months after such election is filed with the Employer, (ii) an election to further defer a distribution (other than a
8
distribution upon death, Disability or an unforeseeable emergency) must result in the first distribution subject to the election being made at least five (5) years after the previously elected date of distribution, and (iii) any redeferral election affecting a distribution at a fixed date must be filed with the Employer at least twelve (12) months before the first scheduled payment under the previous fixed date distribution election. Once an account begins distribution, no such changes to distributions shall be permitted.
6.8Distributions to Specified Employee
Notwithstanding anything herein to the contrary, if any Participant is a Specified Employee upon a Separation from Service for any reason other than death, distributions to such Participant shall not commence until the first day of the seventh month following the date of Separation from Service (or, if earlier, the date of death of the Participant). If distributions are to be made in annual installments, the second installment and all those thereafter will be made on the applicable anniversaries of the Participant’s Separation from Service.
The Administrator may permit such acceleration of the time or schedule of a payment under the arrangement to an individual other than a Participant as may be necessary to fulfill a domestic relations order (as defined in Code Section 414(p)(1)(B)).
Notwithstanding any provision to the contrary, if the balance of a Participant’s Account at the time of a distribution event or at the time of a scheduled installment payment is $25,000 or less, then the Participant shall be paid his or her Account or sub-account as a single lump sum.
All distributions shall be made in the form of cash, with the exception of Stock Units and related earnings, which shall be paid in the form of Shares (with any fractional Shares paid in cash). Distribution of real property (real estate or assets other than cash or securities).will be made by transfer of title.
6.12Distributions Upon a Change-in-Control
Notwithstanding any distribution election to the contrary, if a Change-in-Control occurs and a Participant incurs a Separation from Service during the period beginning on the date of the Change-in-Control and ending on the second anniversary of the Change-in-Control, then the remaining amount of the Participant’s vested Account shall be paid to the Participant or his or her beneficiary in a single lump-sum payment as soon as administratively possible, but no earlier than the first business day of the seventh month following the Participant’s Separation from Service (or, if earlier, upon the Participant’s death).
9
Each Participant may from time to time designate one or more persons (who may be any one or more members of such person’s family or other persons, administrators, trusts, foundations or other entities) as his or her beneficiary under the Plan. Such designation shall be made in a form prescribed by the Administrator. Each Participant may at any time and from time to time, change any previous beneficiary designation, without notice to or consent of any previously designated beneficiary, by amending his or her previous designation in a form prescribed by the Administrator. If the beneficiary does not survive the Participant (or is otherwise unavailable to receive payment), or if no beneficiary is validly designated, then the amounts payable under this Plan shall be paid to the Participant’s estate. If more than one person is the beneficiary of a deceased Participant, each such person shall receive a pro rata share of any death benefit payable unless otherwise designated in the applicable form. If a beneficiary who is receiving benefits dies, all benefits that were payable to such beneficiary shall then be payable to the estate of that beneficiary.
All Participants and beneficiaries shall have the obligation to keep the Administrator informed of their current address until such time as all benefits due have been paid. If a Participant or beneficiary cannot be located by the Administrator exercising due diligence, then, in its sole discretion, the Administrator may presume that the Participant or beneficiary is deceased for purposes of the Plan and all unpaid amounts (net of due diligence expenses) owed to the Participant or beneficiary shall be paid accordingly or, if a beneficiary cannot be so located, then such amounts may be forfeited. Any such presumption of death shall be final, conclusive and binding on all parties.
8.1Prohibition Against Funding
Should any investment be acquired in connection with the liabilities assumed under this Plan, it is expressly understood and agreed that the Participants and beneficiaries shall not have any right with respect to, or claim against, such assets nor shall any such purchase be construed to create a trust of any kind or a fiduciary relationship between the Employer and the Participants, their beneficiaries or any other person. Any such assets shall be and remain a part of the general, unpledged, unrestricted assets of the Employer, subject to the claims of its general creditors. It is the express intention of the parties hereto that this arrangement shall be unfunded for tax purposes and for purposes of Title I of the ERISA. Each Participant and beneficiary shall be required to look to the provisions of this Plan and to the Employer itself for enforcement of any and all benefits due under this Plan, and to the extent any such person acquires a right to receive payment under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Employer. The Employer or the Trust shall be designated the owner and beneficiary of any investment acquired in connection with its obligation under this Plan.
8.2Deposits in Trust
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Notwithstanding Section 8.1, or any other provision of this Plan to the contrary, the Employer may deposit into the Trust any amounts it deems appropriate to pay the benefits under this Plan. The amounts so deposited may include all contributions made pursuant to Employer Supplemental Contributions and any Employer Discretionary Contributions.
Article 9 - Claims Administration
If a Participant, beneficiary or his or her representative is denied all or a portion of an expected Plan benefit for any reason and the Participant, beneficiary or his or her representative desires to dispute the decision of the Administrator, he or she must file a written notification of his or her claim with the Administrator.
Upon receipt of any written claim for benefits, the Administrator shall be notified and shall give due consideration to the claim presented. If any Participant or beneficiary claims to be entitled to benefits under the Plan and the Administrator determines that the claim should be denied in whole or in part, the Administrator shall, in writing, notify such claimant within ninety (90) days (forty-five (45) days if the claim is on account of Disability) of receipt of the claim that the claim has been denied. The Administrator may extend the period of time for making a determination with respect to any claim for a period of up to ninety (90) days (thirty (30) days if claim is on account of Disability), provided that the Administrator determines that such an extension is necessary because of special circumstances and notifies the claimant, prior to the expiration of the initial ninety (90) day (or forty-five (45) day) period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If the claim is denied to any extent by the Administrator, the Administrator shall furnish the claimant with a written notice setting forth:
(a)the specific reason or reasons for denial of the claim;
(b)a specific reference to the Plan provisions on which the denial is based;
(c)a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and
(d)an explanation of the provisions of this Article.
Under no circumstances shall any failure by the Administrator to comply with the provisions of this Section 9.2 be considered to constitute an allowance of the claimant’s claim.
11
A claimant who has a claim denied wholly or partially under Section 9.2 may appeal to the Administrator for reconsideration of that claim. A request for reconsideration under this Section must be filed by written notice within sixty (60) days (one-hundred and eighty (180) days if the claim is on account of Disability) after receipt by the claimant of the notice of denial under Section 9.2.
Upon receipt of an appeal the Administrator shall promptly take action to give due consideration to the appeal. Such consideration may include a hearing of the parties involved, if the Administrator feels such a hearing is necessary. In preparing for this appeal the claimant shall be given the right to review pertinent documents and the right to submit in writing a statement of issues and comments. After consideration of the merits of the appeal the Administrator shall issue a written decision which shall be binding on all parties. The decision shall specifically state its reasons and pertinent Plan provisions on which it relies. The Administrator’s decision shall be issued within sixty (60) days (forty-five (45) days if the claim is on account of Disability) after the appeal is filed, except that the Administrator may extend the period of time for making a determination with respect to any claim for a period of up one-hundred and twenty (120) days (ninety (90) days if the claim is on account of Disability), provided that the Administrator determines that such an extension is necessary because of special circumstances and notifies the claimant, prior to the expiration of the initial one-hundred and twenty (120) day (or, if the claim is on account of Disability, initial ninety (90) day) period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. Under no circumstances shall any failure by the Administrator to comply with the provisions of this Section 9.4 be considered to constitute an allowance of the claimant’s claim.
In the case of a claim on account of Disability: (i) the review of the denied claim shall be conducted by an employee who is neither the individual who made the initial determination or a subordinate of such person; and (ii) no deference shall be given to the initial determination. For issues involving medical judgment, the employee must consult with an independent health care professional who may not be the health care professional who rendered the initial claim.
The Administrator may designate any other person of its choosing to make any determination otherwise required under this Article. Any person so designated shall have the same authority and discretion granted to the Administrator hereunder.
Article 10 - General Provisions
(a)The Administrator is expressly empowered to limit the amount of Compensation that may be deferred; to deposit amounts into the Trust in accordance with Section 8.2 hereof; to interpret the Plan, and to determine all questions arising in the
12
administration, interpretation and application of the Plan; to employ actuaries, accountants, counsel, and other persons it deems necessary in connection with the administration of the Plan; to request any information from the Employer it deems necessary to determine whether the Employer would be considered insolvent or subject to a proceeding in bankruptcy; and to take all other necessary and proper actions to fulfill its duties as Administrator.
(b)The Administrator shall not be liable for any actions by it hereunder, unless due to its own negligence, willful misconduct or lack of good faith.
(c)The Administrator shall be indemnified and saved harmless by the Employer from and against all personal liability to which it may be subject by reason of any act done or omitted to be done in its official capacity as Administrator in good faith in the administration of the Plan and Trust, including all expenses reasonably incurred in its defense in the event the Employer fails to provide such defense upon the request of the Administrator. The Administrator is relieved of all responsibility in connection with its duties hereunder to the fullest extent permitted by law, short of breach of duty to the beneficiaries.
Benefits or payments under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Participant or the Participant’s beneficiary, whether voluntary or involuntary, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber, attach or garnish the same shall not be valid, nor shall any such benefit or payment be in any way liable for or subject to the debts, contracts, liabilities, engagement or torts of any Participant or beneficiary, or any other person entitled to such benefit or payment pursuant to the terms of this Plan, except to such extent as may be required by law. If any Participant or beneficiary or any other person entitled to a benefit or payment pursuant to the terms of this Plan becomes bankrupt or attempts to anticipate, alienate, sell, transfer, assign, pledge, encumber, attach or garnish any benefit or payment under this Plan, in whole or in part, or if any attempt is made to subject any such benefit or payment, in whole or in part, to the debts, contracts, liabilities, engagements or torts of the Participant or beneficiary or any other person entitled to any such benefit or payment pursuant to the terms of this Plan, then such benefit or payment, in the discretion of the Administrator, shall cease and terminate with respect to such Participant or beneficiary, or any other such person.
Participation in this Plan shall not be construed to confer upon any Participant the legal right to be retained in the employ of the Employer, or give a Participant or beneficiary, or any other person, any right to any payment whatsoever, except to the extent of the benefits provided for hereunder. Each Participant shall remain subject to discharge to the same extent as if this Plan had never been adopted.
13
If the Administrator determines that any person to whom a benefit is payable under this Plan is incompetent by reason of physical or mental disability, the Administrator shall have the power to cause the payments becoming due to such person to be made to another for his or her benefit without responsibility of the Administrator or the Employer to see to the application of such payments. Any payment made pursuant to such power shall, as to such payment, operate as a complete discharge of the Employer, the Administrator and the Trustee.
10.5Identity
If, at any time, any doubt exists as to the identity of any person entitled to any payment hereunder or the amount or time of such payment, the Administrator shall be entitled to hold such sum until such identity or amount or time is determined or until an order of a court of competent jurisdiction is obtained. The Administrator shall also be entitled to pay such sum into court in accordance with the appropriate rules of law. Any expenses incurred by the Employer, Administrator, and Trust incident to such proceeding or litigation shall be charged against the Account of the affected Participant.
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The benefits of each Participant or beneficiary hereunder shall be in addition to any benefits paid or payable to or on account of the Participant or beneficiary under any other pension, disability, annuity or retirement plan or policy whatsoever.
All expenses incurred in the administration of the Plan, whether incurred by the Employer or the Plan, shall be paid by the Employer.
Should the Employer be considered insolvent (as defined by the Trust), the Employer, through its Board and chief executive officer, shall give immediate written notice of such to the Administrator of the Plan and the Trustee. Upon receipt of such notice, the Administrator or Trustee shall cease to make any payments to Participants who were Employees of the Employer or their beneficiaries and shall hold any and all assets attributable to the Employer for the benefit of the general creditors of the Employer.
The Employer may, at any time, in its sole discretion, amend or modify the Plan in whole or in part, except that no such amendment or modification shall have any retroactive effect to reduce any amounts allocated to a Participant’s Accounts, and provided that such amendment or modification complies with Code Section 409A and related regulations thereunder.
The Employer further reserves the right to suspend the Plan in whole or in part, except that no such suspension shall have any retroactive effect to reduce any amounts
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allocated to a Participant’s Accounts, and provided that the distribution of the vested Participant Accounts shall not be accelerated but shall be paid at such time and in such manner as determined under the terms of the Plan immediately prior to suspension as if the Plan had not been suspended.
The Employer further reserves the right to terminate the Plan in whole or in part, in the following manner, except that no such termination shall have any retroactive effect to reduce any amounts allocated to a Participant’s Accounts, and provided that such termination complies with Code Section 409A and related regulations thereunder:
(a)The Employer, in its sole discretion, may terminate the Plan and distribute all vested Participants’ Accounts no earlier than twelve (12) calendar months from the date of the Plan termination and no later than twenty-four (24) calendar months from the date of the Plan termination, provided however that all other similar arrangements are also terminated by the Employer for any affected Participant and no other similar arrangements are adopted by the Employer for any affected Participant within a three (3) year period from the date of termination; or
(b)The Employer may decide, in its sole discretion, to terminate the Plan in the event of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court, provided that the Participants vested Account balances are distributed to Participants and are included in the Participants’ gross income in the latest of: (i) the calendar year in which the termination occurs; (ii) the calendar year in which the amounts deferred are no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which payment is administratively practicable.
10.12Plan Termination due to a Change-in-Control
The Employer may decide, in its discretion, to terminate the Plan in the event of a Change-in-Control and distribute all vested Participants Account balances no earlier than thirty (30) days prior to the Change-in-Control and no later than twelve (12) months after the effective date of the Change-in-Control, provided however that the Employer terminates all other similar arrangements for any affected Participant.
All questions of interpretation, construction or application arising under or concerning the terms of this Plan shall be decided by the Administrator, in its sole and final discretion, whose decision shall be final, binding and conclusive upon all persons.
This Plan shall be governed by, construed and administered in accordance with the applicable provisions of ERISA, Code Section 409A, and any other applicable federal law, provided, however, that to the extent not preempted by federal law this Plan shall be governed by, construed and administered under the laws of the State of North Carolina, other than its laws respecting choice of law.
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If any provision of this Plan is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provision of this Plan and this Plan shall be construed and enforced as if such provision had not been included therein. If the inclusion of any Employee (or Employees) as a Participant under this Plan would cause the Plan to fail to comply with the requirements of sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, or Code Section 409A, then the Plan shall be severed with respect to such Employee or Employees, who shall be considered to be participating in a separate arrangement.
The Article headings contained herein are inserted only as a matter of convenience and for reference and in no way define, limit, enlarge or describe the scope or intent of this Plan nor in any way shall they affect this Plan or the construction of any provision thereof.
Capitalized terms shall have meanings as defined herein. Singular nouns shall be read as plural, masculine pronouns shall be read as feminine, and vice versa, as appropriate.
The Employer may, to the extent permitted by applicable law, deduct from and setoff against any amounts payable to a Participant from this Plan such amounts as may be owed by a Participant to the Employer, although the Participant shall remain liable for any part of the Participant’s payment obligation not satisfied through such deduction and setoff; provided, however, that this setoff may occur only at the date on which the amount would otherwise be distributed to the Participant as required by Code Section 409A. By electing to participate in the Plan and deferring compensation hereunder, the Participant agrees to any deduction or setoff under this Section 10.18 which is allowed by law.
Contribution Schedule
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• |
Employer Supplemental Contributions for the benefit of Roy David Beaver III will be credited as follows until attainment of the designated Retirement age of 67. |
|
• |
The elected Account Distribution upon Retirement will be (check one): |
x |
Lump Sum |
Installments over ___________ (# years) |
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• |
Beneficiary designation as indicated on attached form. |
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12/31/2015End of year Age 3215,000.00
12/31/2016End of year Age 3320,000.00
12/31/2017End of year Age 3420,000.00
12/31/2018End of year Age 3520,000.00
12/31/2019End of year Age 3620,000.00
12/31/2020End of year Age 3720,000.00
12/31/2021End of year Age 3820,000.00
12/31/2022End of year Age 3920,000.00
12/31/2023End of year Age 4020,000.00
12/31/2024End of year Age 4120,000.00
12/31/2025End of year Age 4220,000.00
12/31/2026End of year Age 4320,000.00
12/31/2027End of year Age 4420,000.00
12/31/2028End of year Age 4520,000.00
12/31/2029End of year Age 4620,000.00
12/31/2030End of year Age 4720,000.00
12/31/2031End of year Age 4820,000.00
12/31/2032End of year Age 4920,000.00
12/31/2033End of year Age 5020,000.00
12/31/2034End of year Age 5120,000.00
12/31/2035End of year Age 5220,000.00
12/31/2036End of year Age 5320,000.00
12/31/2037End of year Age 5420,000.00
12/31/2038End of year Age 5520,000.00
12/31/2039End of year Age 5620,000.00
12/31/2040End of year Age 5720,000.00
12/31/2041End of year Age 5820,000.00
12/31/2042End of year Age 5920,000.00
12/31/2043End of year Age 6020,000.00
12/31/2044End of year Age 6120,000.00
12/31/2045End of year Age 6220,000.00
12/31/2046End of year Age 6320,000.00
12/31/2047End of year Age 6420,000.00
12/31/2048End of year Age 6520,000.00
12/31/2049End of year Age 6620,000.00
12/31/2050End of year Age 6720,000.00
IN WITNESS WHEREOF, Uwharrie Capital Corp has caused this instrument to be executed by its duly authorized officer, effective as of this 11th day of March, 2015.
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Uwharrie Capital Corp
/s/ Roy David Beaver IIIBy: /s/ Mike Massey
Roy David Beaver IIITitle: SVP Director of Administration
ATTEST:
By: /s/ Susan B. Gibson
Title: VP, Human Resources
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