Exhibit 13
Uwharrie Capital Corp
2017
ANNUAL REPORT TO SHAREHOLDERS
23
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24
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 the Securities Investor Protection Corporation (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.
25
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Financial Highlights
(Dollars in thousands, except per share amounts) |
| 2017 |
|
| 2016 |
|
| Percent Increase (Decrease) |
| |||
For the year: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 1,611 |
|
| $ | 2,211 |
|
|
| (27.14 | )% |
Net income (loss) available to common shareholders |
| $ | 1,019 |
|
| $ | 1,618 |
|
|
| (37.02 | )% |
Basic net income (loss) per common share (1) |
| $ | 0.14 |
|
| $ | 0.22 |
|
|
| (36.36 | )% |
Diluted net income (loss) per common share (1) |
| $ | 0.14 |
|
| $ | 0.22 |
|
|
| (36.36 | )% |
Weighted average common shares outstanding (diluted) |
|
| 7,144,026 |
|
|
| 7,239,014 |
|
|
| (1.31 | )% |
At year-end: |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 576,358 |
|
| $ | 548,230 |
|
|
| 5.13 | % |
Total earning assets |
|
| 526,937 |
|
|
| 496,264 |
|
|
| 6.18 | % |
Loans held for investment |
|
| 356,871 |
|
|
| 341,829 |
|
|
| 4.40 | % |
Total interest-bearing liabilities |
|
| 410,152 |
|
|
| 394,789 |
|
|
| 3.89 | % |
Shareholders’ equity |
|
| 44,540 |
|
|
| 43,525 |
|
|
| 2.33 | % |
Book value per common share (1) |
| $ | 4.76 |
|
| $ | 4.58 |
|
|
| 3.93 | % |
Averages for the year: |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 572,630 |
|
| $ | 534,296 |
|
|
| 7.17 | % |
Total earning assets |
|
| 527,249 |
|
|
| 490,467 |
|
|
| 7.50 | % |
Loans held for investment |
|
| 348,980 |
|
|
| 334,317 |
|
|
| 4.39 | % |
Total interest-bearing liabilities |
|
| 402,774 |
|
|
| 380,826 |
|
|
| 5.76 | % |
Shareholders’ equity |
|
| 44,542 |
|
|
| 44,283 |
|
|
| 0.58 | % |
Financial ratios (in percentage): |
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
| 0.28 | % |
|
| 0.41 | % |
|
|
|
|
Return on average shareholders’ equity |
|
| 3.62 | % |
|
| 4.99 | % |
|
|
|
|
Average equity to average assets |
|
| 7.78 | % |
|
| 8.29 | % |
|
|
|
|
Net interest margin (fully tax equivalent basis) |
|
| 3.47 | % |
|
| 3.51 | % |
|
|
|
|
Allowance as % of loans at year-end |
|
| 0.69 | % |
|
| 0.79 | % |
|
|
|
|
Allowance as % of nonperforming loans |
|
| 239.80 | % |
|
| 186.66 | % |
|
|
|
|
Nonperforming loans to total loans |
|
| 0.29 | % |
|
| 0.42 | % |
|
|
|
|
Nonperforming assets to total assets |
|
| 0.59 | % |
|
| 1.03 | % |
|
|
|
|
Net loan charge-offs (recoveries) to average loans |
|
| — |
|
|
| 0.03 | % |
|
|
|
|
(1) | Net income per share, book value per share and shares outstanding at year-end for 2016 have been adjusted to reflect the 2% stock dividend in 2017. |
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 2017, 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.
26
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27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of Uwharrie Capital Corp
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Uwharrie Capital Corp and Subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Dixon Hughes Goodman LLP
We have served as the Company's auditor since 1996.
Charlotte, North Carolina
February 28, 2018
28
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2017 and 2016
| 2017 |
|
| 2016 |
| |||
|
| (dollars in thousands) |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 7,538 |
|
| $ | 9,422 |
|
Interest-earning deposits with banks |
|
| 62,865 |
|
|
| 36,546 |
|
Securities available for sale, at fair value |
|
| 95,743 |
|
|
| 105,899 |
|
Securities held to maturity (fair value $11,461 and $11,934, respectively) |
|
| 11,458 |
|
|
| 11,990 |
|
Loans held for sale |
|
| 4,414 |
|
|
| 5,823 |
|
Loans: |
|
|
|
|
|
|
|
|
Loans held for investment |
|
| 356,871 |
|
|
| 341,829 |
|
Less allowance for loan losses |
|
| (2,458 | ) |
|
| (2,707 | ) |
Net loans held for investment |
|
| 354,413 |
|
|
| 339,122 |
|
Premises and equipment, net |
|
| 14,728 |
|
|
| 14,173 |
|
Interest receivable |
|
| 1,709 |
|
|
| 1,629 |
|
Restricted stock |
|
| 1,067 |
|
|
| 1,052 |
|
Bank owned life insurance |
|
| 8,546 |
|
|
| 6,897 |
|
Other real estate owned |
|
| 2,349 |
|
|
| 4,176 |
|
Prepaid assets |
|
| 786 |
|
|
| 826 |
|
Other assets |
|
| 10,742 |
|
|
| 10,675 |
|
Total assets |
| $ | 576,358 |
|
| $ | 548,230 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Demand noninterest-bearing |
| $ | 113,762 |
|
| $ | 103,138 |
|
Interest checking and money market accounts |
|
| 289,953 |
|
|
| 272,968 |
|
Savings deposits |
|
| 45,698 |
|
|
| 42,452 |
|
Time deposits, $250,000 and over |
|
| 7,933 |
|
|
| 7,472 |
|
Other time deposits |
|
| 55,282 |
|
|
| 59,689 |
|
Total deposits |
|
| 512,628 |
|
|
| 485,719 |
|
Short-term borrowed funds |
|
| 1,752 |
|
|
| 2,674 |
|
Long-term debt |
|
| 9,534 |
|
|
| 9,534 |
|
Interest payable |
|
| 148 |
|
|
| 151 |
|
Other liabilities |
|
| 7,756 |
|
|
| 6,627 |
|
Total liabilities |
|
| 531,818 |
|
|
| 504,705 |
|
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 7,112,853 and 7,050,315, respectively |
|
| 8,891 |
|
|
| 8,813 |
|
Additional paid-in capital |
|
| 12,824 |
|
|
| 12,540 |
|
Undivided profits |
|
| 13,282 |
|
|
| 12,867 |
|
Accumulated other comprehensive loss |
|
| (1,107 | ) |
|
| (1,318 | ) |
Total Uwharrie Capital shareholders’ equity |
|
| 33,890 |
|
|
| 32,902 |
|
Noncontrolling interest |
|
| 10,650 |
|
|
| 10,623 |
|
Total shareholders’ equity |
|
| 44,540 |
|
|
| 43,525 |
|
Total liabilities and shareholders’ equity |
| $ | 576,358 |
|
| $ | 548,230 |
|
The accompanying notes are an integral part of the consolidated financial statements.
29
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2017, 2016 and 2015
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands, except share |
| |||||||||
|
| and per share data) |
| |||||||||
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
| $ | 16,569 |
|
| $ | 15,900 |
|
| $ | 15,725 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury |
|
| 28 |
|
|
| 46 |
|
|
| 212 |
|
US Government agencies and corporations |
|
| 1,507 |
|
|
| 1,296 |
|
|
| 1,315 |
|
State and political subdivisions non-taxable |
|
| 439 |
|
|
| 467 |
|
|
| 410 |
|
State and political subdivisions taxable |
|
| 47 |
|
|
| 33 |
|
|
| — |
|
Interest-earning deposits with banks and federal funds sold |
|
| 750 |
|
|
| 304 |
|
|
| 185 |
|
Total interest income |
|
| 19,340 |
|
|
| 18,046 |
|
|
| 17,847 |
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking and money market accounts |
|
| 413 |
|
|
| 310 |
|
|
| 278 |
|
Savings deposits |
|
| 49 |
|
|
| 47 |
|
|
| 44 |
|
Time deposits $250,000 and over |
|
| 67 |
|
|
| 58 |
|
|
| 69 |
|
Other time deposits |
|
| 185 |
|
|
| 308 |
|
|
| 728 |
|
Short-term borrowed funds |
|
| 16 |
|
|
| 37 |
|
|
| 64 |
|
Long-term debt |
|
| 547 |
|
|
| 550 |
|
|
| 550 |
|
Total interest expense |
|
| 1,277 |
|
|
| 1,310 |
|
|
| 1,733 |
|
Net interest income |
|
| 18,063 |
|
|
| 16,736 |
|
|
| 16,114 |
|
Recovery of loan losses |
|
| (236 | ) |
|
| (88 | ) |
|
| (620 | ) |
Net interest income after recovery of loan losses |
|
| 18,299 |
|
|
| 16,824 |
|
|
| 16,734 |
|
Noninterest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
| 1,169 |
|
|
| 1,189 |
|
|
| 1,293 |
|
Other service fees and commissions |
|
| 4,307 |
|
|
| 4,294 |
|
|
| 4,117 |
|
Gain (loss) on sale of securities (includes reclassification of $(14), $544, and $536 from accumulated comprehensive income in 2017, 2016 and 2015, respectively) |
|
| (14 | ) |
|
| 544 |
|
|
| 536 |
|
Income from mortgage loan sales |
|
| 3,345 |
|
|
| 3,795 |
|
|
| 2,306 |
|
Other income |
|
| 594 |
|
|
| 509 |
|
|
| 318 |
|
Total noninterest income |
|
| 9,401 |
|
|
| 10,331 |
|
|
| 8,570 |
|
Noninterest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 14,710 |
|
|
| 14,522 |
|
|
| 13,186 |
|
Net occupancy expense |
|
| 1,261 |
|
|
| 1,189 |
|
|
| 1,139 |
|
Equipment expense |
|
| 597 |
|
|
| 646 |
|
|
| 678 |
|
Data processing costs |
|
| 1,000 |
|
|
| 705 |
|
|
| 734 |
|
Office supplies and printing |
|
| 130 |
|
|
| 161 |
|
|
| 217 |
|
Foreclosed real estate expense |
|
| 293 |
|
|
| 501 |
|
|
| 713 |
|
Professional fees and services |
|
| 723 |
|
|
| 703 |
|
|
| 594 |
|
Marketing and donations |
|
| 977 |
|
|
| 941 |
|
|
| 852 |
|
Electronic banking expense |
|
| 1,245 |
|
|
| 1,170 |
|
|
| 1,083 |
|
Software amortization and maintenance |
|
| 787 |
|
|
| 697 |
|
|
| 578 |
|
FDIC insurance |
|
| 229 |
|
|
| 269 |
|
|
| 375 |
|
Other noninterest expense |
|
| 2,328 |
|
|
| 2,545 |
|
|
| 2,342 |
|
Total noninterest expense |
|
| 24,280 |
|
|
| 24,049 |
|
|
| 22,491 |
|
Income before income taxes |
|
| 3,420 |
|
|
| 3,106 |
|
|
| 2,813 |
|
Income taxes (includes reclassification of ( $4, ($210), and ($207)) from accumulated other comprehensive income, respectively) |
|
| 1,809 |
|
|
| 895 |
|
|
| 806 |
|
Net income |
| $ | 1,611 |
|
| $ | 2,211 |
|
| $ | 2,007 |
|
Consolidated net income |
| $ | 1,611 |
|
| $ | 2,211 |
|
| $ | 2,007 |
|
Less: Net income attributable to noncontrolling interest |
|
| (592 | ) |
|
| (593 | ) |
|
| (592 | ) |
Net income attributable to Uwharrie Capital Corp and common shareholders |
|
| 1,019 |
|
|
| 1,618 |
|
|
| 1,415 |
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.14 |
|
| $ | 0.22 |
|
| $ | 0.19 |
|
Diluted |
| $ | 0.14 |
|
| $ | 0.22 |
|
| $ | 0.19 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 7,138,635 |
|
|
| 7,238,908 |
|
|
| 7,337,586 |
|
Diluted |
|
| 7,139,373 |
|
|
| 7,239,014 |
|
|
| 7,337,586 |
|
The accompanying notes are an integral part of the consolidated financial statements.
30
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2017, 2016 and 2015
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Net Income |
| $ | 1,611 |
|
| $ | 2,211 |
|
| $ | 2,007 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available for sale securities |
|
| 696 |
|
|
| (1,131 | ) |
|
| (248 | ) |
Related tax effect |
|
| (340 | ) |
|
| 359 |
|
|
| 60 |
|
Reclassification of losses (gains) recognized in net income |
|
| 14 |
|
|
| (544 | ) |
|
| (536 | ) |
Related tax effect |
|
| (4 | ) |
|
| 210 |
|
|
| 207 |
|
Total other comprehensive income (loss) |
|
| 366 |
|
|
| (1,106 | ) |
|
| (517 | ) |
Comprehensive income |
|
| 1,977 |
|
|
| 1,105 |
|
|
| 1,490 |
|
Less: Comprehensive income attributable to noncontrolling interest |
|
| (592 | ) |
|
| (593 | ) |
|
| (592 | ) |
Comprehensive income attributable to Uwharrie Capital |
| $ | 1,385 |
|
| $ | 512 |
|
| $ | 898 |
|
The accompanying notes are an integral part of the consolidated financial statements.
31
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended December 31, 2017, 2016 and 2015
|
| Number of Common Shares Issued |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Undivided Profits |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Noncontrolling Interest |
|
| Total |
| |||||||
|
| (dollars in thousands, except share data) |
| |||||||||||||||||||||||||
Balance, December 31, 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 |
|
Net Income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,019 |
|
|
| — |
|
|
| 592 |
|
|
| 1,611 |
|
Tax Cuts and Jobs Act of 2017, reclassification from AOCI to retained earnings, tax effect |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 155 |
|
|
| (155 | ) |
|
| — |
|
|
| — |
|
Repurchase of common stock |
|
| (75,709 | ) |
|
| (95 | ) |
|
| (296 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (391 | ) |
2% stock dividend |
|
| 138,247 |
|
|
| 173 |
|
|
| 580 |
|
|
| (753 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Cash paid – fractional shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| (6 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 366 |
|
|
| — |
|
|
| 366 |
|
Record preferred stock dividend series B (noncontrolling interest) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (416 | ) |
|
| (416 | ) |
Record preferred stock dividend series C (noncontrolling interest) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (149 | ) |
|
| (149 | ) |
Balance, December 31, 2017 |
|
| 7,112,853 |
|
| $ | 8,891 |
|
| $ | 12,824 |
|
| $ | 13,282 |
|
| $ | (1,107 | ) |
| $ | 10,650 |
|
| $ | 44,540 |
|
The accompanying notes are an integral part of the consolidated financial statements.
32
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2017, 2016 and 2015
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 1,611 |
|
| $ | 2,211 |
|
| $ | 2,007 |
|
Adjustments to reconcile net income to net cash Provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 857 |
|
|
| 1,003 |
|
|
| 908 |
|
Net amortization of security premiums/discounts AFS |
|
| 850 |
|
|
| 990 |
|
|
| 975 |
|
Net amortization of security premiums/discounts HTM |
|
| 147 |
|
|
| 138 |
|
|
| 134 |
|
Net amortization of mortgage servicing rights |
|
| 733 |
|
|
| 751 |
|
|
| 689 |
|
Impairment of foreclosed real estate |
|
| 85 |
|
|
| 272 |
|
|
| 425 |
|
Recovery of loan losses |
|
| (236 | ) |
|
| (88 | ) |
|
| (620 | ) |
Deferred income taxes |
|
| 691 |
|
|
| 92 |
|
|
| 336 |
|
Net realized (gains) loss on sales / calls available for sale securities |
|
| 14 |
|
|
| (544 | ) |
|
| (536 | ) |
Proceeds from sales of loans held for sale |
|
| 97,360 |
|
|
| 114,622 |
|
|
| 62,795 |
|
Origination of loans held for sale |
|
| (96,684 | ) |
|
| (115,505 | ) |
|
| (66,570 | ) |
(Gain) loss on sale of premises, equipment and other assets |
|
| — |
|
|
| 3 |
|
|
| (1 | ) |
Increase in cash surrender value of life insurance |
|
| (124 | ) |
|
| (135 | ) |
|
| (117 | ) |
Gain on sales of foreclosed real estate |
|
| (35 | ) |
|
| (41 | ) |
|
| (140 | ) |
Prepaid Assets |
|
| 40 |
|
|
| (62 | ) |
|
| 205 |
|
Net change in interest receivable |
|
| (80 | ) |
|
| (65 | ) |
|
| 183 |
|
Net change in other assets |
|
| (602 | ) |
|
| (699 | ) |
|
| (1,740 | ) |
Net change in interest payable |
|
| (3 | ) |
|
| (17 | ) |
|
| (12 | ) |
Net change in other liabilities |
|
| 1,129 |
|
|
| 1,113 |
|
|
| 1,068 |
|
Net cash provided (used) by operating activities |
|
| 5,753 |
|
|
| 4,039 |
|
|
| (11 | ) |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales, maturities, calls and paydowns of securities available for sale |
|
| 16,185 |
|
|
| 30,734 |
|
|
| 47,253 |
|
Proceeds from sales, maturities, calls and paydowns of securities held to maturity |
|
| 385 |
|
|
| 141 |
|
|
| 154 |
|
Purchase of securities available for sale |
|
| (6,338 | ) |
|
| (49,496 | ) |
|
| (24,910 | ) |
Purchase of securities held to maturity |
|
| — |
|
|
| (1,027 | ) |
|
| (6,034 | ) |
Net increase in loans |
|
| (15,416 | ) |
|
| (22,101 | ) |
|
| (11,331 | ) |
Purchases of life insurance investment |
|
| (1,525 | ) |
|
| — |
|
|
| — |
|
Proceeds from sale of premises, equipment and other assets |
|
| — |
|
|
| 547 |
|
|
| 1 |
|
Purchase of premises and equipment |
|
| (1,730 | ) |
|
| (657 | ) |
|
| (716 | ) |
Proceeds from sales of foreclosed real estate |
|
| 2,138 |
|
|
| 899 |
|
|
| 2,404 |
|
Net change in restricted stock |
|
| (15 | ) |
|
| (12 | ) |
|
| (2 | ) |
Net cash provided (used) by investing activities |
|
| (6,316 | ) |
|
| (40,972 | ) |
|
| 6,819 |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposit accounts |
|
| 26,909 |
|
|
| 17,986 |
|
|
| 11,298 |
|
Net decrease in short-term borrowed funds |
|
| (410 | ) |
|
| (3,084 | ) |
|
| 1,073 |
|
Net decrease in long-term debt |
|
| (512 | ) |
|
| (13 | ) |
|
| (11 | ) |
Repurchase of common stock, net |
|
| (391 | ) |
|
| (322 | ) |
|
| (429 | ) |
Dividends on preferred stock |
|
| (592 | ) |
|
| (593 | ) |
|
| (592 | ) |
Cash paid for fractional shares |
|
| (6 | ) |
|
| (6 | ) |
|
| (5 | ) |
Net cash provided by financing activities |
|
| 24,998 |
|
|
| 13,968 |
|
|
| 11,334 |
|
Increase (decrease) in cash and cash equivalents |
|
| 24,435 |
|
|
| (22,965 | ) |
|
| 18,142 |
|
Cash and cash equivalents, beginning of year |
|
| 45,968 |
|
|
| 68,933 |
|
|
| 50,791 |
|
Cash and cash equivalents, end of year |
| $ | 70,403 |
|
| $ | 45,968 |
|
| $ | 68,933 |
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 1,280 |
|
| $ | 1,327 |
|
| $ | 1,745 |
|
Income taxes paid |
|
| 852 |
|
|
| 641 |
|
|
| 459 |
|
Supplemental schedule of non-cash activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of securities available for sale, net of tax |
|
| 366 |
|
|
| 1,106 |
|
|
| 517 |
|
Loans transferred to foreclosed real estate |
|
| 361 |
|
|
| 315 |
|
|
| 1,818 |
|
Company financed OREO |
|
| (356 | ) |
|
| (256 | ) |
|
| (26 | ) |
Mortgage servicing rights capitalized |
|
| 586 |
|
|
| 982 |
|
|
| 657 |
|
The accompanying notes are an integral part of the consolidated financial statements.
33
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 financial statements.
On April 10, 2003, the Company capitalized a new wholly-owned subsidiary bank, Cabarrus Bank & Trust Company (“Cabarrus”), located in Concord, North Carolina. As of that date, Cabarrus purchased two branch offices located in Cabarrus County from Uwharrie to begin its operation. Cabarrus operated as a commercial bank and provided a full range of banking services. Cabarrus was consolidated into Uwharrie Bank effective September 1, 2013.
On April 7, 2004 Uwharrie Mortgage, Inc. was established as a subsidiary of the Company to serve in the capacity of trustee and substitute trustee under deeds of trust.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, Uwharrie, UIA and Uwharrie’s subsidiaries, BOS Agency and Strategic Alliance. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses.
34
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 originates 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.
35
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, once a loan is deemed impaired, it will be evaluated individually for specific impairment.
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 within the loan portfolio and adds additional loss based on economic uncertainty and volatility. Specifically, the Company calculates probable losses on loans by computing a probability of loss and multiplying that by a loss given default derived from historical experience, thus deriving the estimated loss scenario by FDIC call report codes. Together, these components, as well as a reserve for qualitative factors based on management’s discretion of economic conditions and portfolio concentrations 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.
36
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.
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 2014 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, 2017, 2016 and 2015.
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.
37
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 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.
38
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, 2017, 2016 and 2015:
|
| Year ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Beginning Balance |
| $ | (1,318 | ) |
| $ | (212 | ) |
| $ | 305 |
|
Accumulated Other comprehensive income (loss) before reclassifications, net of ($185), $359 and $60 tax effect, respectively |
|
| 356 |
|
|
| (772 | ) |
|
| (188 | ) |
Amounts reclassified from accumulated other comprehensive income, net of $4, ($210), and ($207) tax effect, respectively |
|
| 10 |
|
|
| (334 | ) |
|
| (329 | ) |
Net current-period other comprehensive loss |
|
| 366 |
|
|
| (1,106 | ) |
|
| (517 | ) |
Tax Cuts and Jobs Act of 2017, reclassification from AOCI to retained earnings, tax effect |
|
| (155 | ) |
|
| — |
|
|
| — |
|
Ending Balance |
| $ | (1,107 | ) |
| $ | (1,318 | ) |
| $ | (212 | ) |
Earnings per Common Share
The Company had stock options outstanding covering 13,378 shares of common stock at December 31, 2017 and 13,116 at December 31, 2016. 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. On November 21, 2017, the Company’s Board of Directors declared a 2% stock dividend payable on December 27, 2017 to shareholders of record on December 15, 2017. 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:
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Weighted average number of common shares used in computing basic net income per common share |
|
| 7,138,635 |
|
|
| 7,238,908 |
|
|
| 7,337,586 |
|
Effect of dilutive stock options |
|
| 738 |
|
|
| 106 |
|
|
| — |
|
Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per common share |
|
| 7,139,373 |
|
|
| 7,239,014 |
|
|
| 7,337,586 |
|
39
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
Noncontrolling Interest
In January 2013 the Company’s subsidiary banks issued a total of $7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualified as Tier 1 capital at each bank and pays dividends at an annual rate of 5.30%. The preferred stock has no voting rights. This capital is presented as noncontrolling interest in the consolidated balance sheets. Dividends declared on this preferred stock are presented as earnings allocated to the noncontrolling interest in the consolidated statements of income. Effective September 1, 2013, the Fixed Rate Noncumulative Perpetual Preferred Stock, Series B was rolled into one issue under Uwharrie Bank in connection with the consolidation and name change.
During 2013, the Company’s subsidiary bank, Uwharrie Bank, raised $2.8 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series C. The preferred stock qualifies as Tier 1 capital at the bank and pays dividends at an annual rate of 5.30%. The preferred stock has no voting rights.
Recent Accounting Pronouncements
In January 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) state 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 periods within those fiscal years. The ASU only permits early adoption of the instrument-specific credit risk provision. The Company currently does not invest in equity securities, therefore the impact from the adoption of this standard is not expected to be material to the financial position or results of operations of the Company, but new disclosures on fair value will be implemented.
In February 2016, the FASB issued ASU 2016-02, “Leases, Topic 842”. 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. We currently have one property that we operate under a lease and a potential new property that will be under lease in 2018, both of which would be recorded in and the Consolidated Balance Sheets upon adoption.
40
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies (Continued)
In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent considerations (Reporting Revenue Gross versus Net)”. ASU 2016-08 updates the new revenue standard by clarifying the principal versus agent implementation guidance, but does not change the core principle of the new standard. The updates to the principal versus agent guidance: (i) require an entity to determine whether it is a principal or an agent for each distinct good or service (or a distinct bundle of goods or services) to be provided to the customer; (ii) illustrate how an entity that is a principal might apply the control principle to goods, services, or rights to services, when another party is involved in providing goods or services to a customer and (iii) Clarify that the purpose of certain specific control indicators is to support or assist in the assessment of whether an entity controls a good or service before it is transferred to the customer, provide more specific guidance on how the indicators should be considered, and clarify that their relevance will vary depending on the facts and circumstances. For public business entities, the effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09 which is effective for interim and annual periods beginning after December 15, 2017. 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. Our revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. We have analyzed the various revenue streams that are in scope with ASU 2016-08 and 2014-09 and concluded that our financials will not be impacted.
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 looking to outsource our current model with a CECL-ready vendor. We will evaluate the financial impact once our model is converted to the new vendor’s software package.
In February 2018, the FASB issued ASU 2018-2, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“AOCI”)”. ASU 2018-2 allows for a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company has early adopted this standard and the effects are presented in the financial statements. Retained earnings was increased by $155,000 and AOCI was reduced by $155,000 as a result of the adoption of this guidance.
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 2016 and 2015 financial statements have been reclassified to conform to the 2017 presentation. These reclassifications do not have a material impact on net income or shareholders’ equity.
41
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Investment Securities
Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:
December 31, 2017 |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
| 56,522 |
|
|
| 33 |
|
|
| 940 |
|
|
| 55,615 |
|
GSE - Mortgage-backed securities and CMO’s |
|
| 21,253 |
|
|
| 12 |
|
|
| 374 |
|
|
| 20,891 |
|
State and political subdivisions |
|
| 14,368 |
|
|
| 27 |
|
|
| 196 |
|
|
| 14,199 |
|
Corporate bonds |
|
| 5,042 |
|
|
| 7 |
|
|
| 11 |
|
|
| 5,038 |
|
Total securities available for sale |
| $ | 97,185 |
|
| $ | 79 |
|
| $ | 1,521 |
|
| $ | 95,743 |
|
December 31, 2017 |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
| $ | 1,348 |
|
| $ | — |
|
| $ | 9 |
|
| $ | 1,339 |
|
State and political subdivisions |
|
| 6,925 |
|
|
| 23 |
|
|
| 36 |
|
|
| 6,912 |
|
Corporate bonds |
|
| 3,185 |
|
|
| 25 |
|
|
| — |
|
|
| 3,210 |
|
Total securities held to maturity |
| $ | 11,458 |
|
| $ | 48 |
|
| $ | 45 |
|
| $ | 11,461 |
|
42
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 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 |
|
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 |
|
At December 31, 2017 and December 31, 2016, the Company owned Federal Reserve Bank stock reported at cost of $508,000 and $507,000, respectively. Also, at December 31, 2017 and December 31, 2016, the Company owned Federal Home Loan Bank Stock (FHLB) of $559,000 and $545,000, 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, 2017.
Results from sales and calls of securities available for sale for the years ended December 31, 2017, 2016 and 2015 are as follows:
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Gross proceeds from sales and calls |
| $ | 8,918 |
|
| $ | 20,225 |
|
| $ | 32,780 |
|
Realized gains from sales |
| $ | — |
|
| $ | 544 |
|
| $ | 536 |
|
Realized losses from sales |
|
| (14 | ) |
|
| — |
|
|
| — |
|
Net realized gains (losses) |
| $ | (14 | ) |
| $ | 544 |
|
| $ | 536 |
|
At December 31, 2017, 2016 and 2015 securities available for sale with a carrying amount of $75.5 million, $74.8 million and $68.8 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
43
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, 2017 and December 31, 2016. 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, 2017, the unrealized losses on available for sale securities less than twelve months related to six government agency bonds, four government sponsored enterprise (GSE) mortgage backed securities, one corporate bonds and one state and political subdivision bond. The Company had fifteen government agency bonds, twelve GSE mortgage backed securities and seven state and political subdivision bonds that had been in a loss position for more than twelve months. At December 31, 2017, the unrealized losses on held to maturity securities related to one government agency security and five state and political subdivision bonds. At December 31, 2016, the unrealized losses on available for sale securities related to one United States Treasury note, twenty-three government agency bonds, fourteen GSE mortgage backed securities, two corporate bonds and seven state and political subdivision bond. 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.
December 31, 2017 |
| 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. Gov’t agencies |
|
| 9,028 |
|
|
| 112 |
|
|
| 43,352 |
|
|
| 828 |
|
|
| 52,380 |
|
|
| 940 |
|
GSE-Mortgage-backed securities and CMO’s |
|
| 5,074 |
|
|
| 37 |
|
|
| 14,057 |
|
|
| 337 |
|
|
| 19,131 |
|
|
| 374 |
|
State and political |
|
| 1,182 |
|
|
| 1 |
|
|
| 10,317 |
|
|
| 195 |
|
|
| 11,499 |
|
|
| 196 |
|
Corporate bonds |
|
| 2,008 |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| 2,008 |
|
|
| 11 |
|
Total securities available for sale |
| $ | 17,292 |
|
| $ | 161 |
|
| $ | 67,726 |
|
| $ | 1,360 |
|
| $ | 85,018 |
|
| $ | 1,521 |
|
December 31, 2017 |
| 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 |
| $ | 1,338 |
|
| $ | 9 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,338 |
|
| $ | 9 |
|
State and political |
|
| 4,269 |
|
|
| 36 |
|
|
| — |
|
|
| — |
|
|
| 4,269 |
|
|
| 36 |
|
Total securities held to maturity |
| $ | 5,607 |
|
| $ | 45 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,607 |
|
| $ | 45 |
|
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 |
|
44
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Investment Securities (Continued)
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 |
|
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, 2017, 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, 2017:
|
| Amortized Cost |
|
| Estimated Fair Value |
| ||
|
| (dollars in thousands) |
| |||||
Due within one year |
| $ | 810 |
|
| $ | 820 |
|
Due after one but within five years |
|
| 51,122 |
|
|
| 50,336 |
|
Due after five but within ten years |
|
| 20,628 |
|
|
| 20,498 |
|
Due after ten years |
|
| 14,830 |
|
|
| 14,659 |
|
Mortgage backed securities |
|
| 21,253 |
|
|
| 20,891 |
|
|
| $ | 108,643 |
|
| $ | 107,204 |
|
The mortgage-backed securities are shown separately as they are not due at a single maturity date.
45
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, 2017 and 2016 is as follows:
|
| 2017 |
|
| 2016 |
| ||
|
| (dollars in thousands) |
| |||||
Commercial |
|
|
|
|
|
|
|
|
Commercial |
| $ | 54,912 |
|
| $ | 55,752 |
|
Real estate - commercial |
|
| 114,712 |
|
|
| 109,752 |
|
Other real estate construction loans |
|
| 40,186 |
|
|
| 26,718 |
|
Noncommercial |
|
|
|
|
|
|
|
|
Real estate 1-4 family construction |
|
| 5,024 |
|
|
| 5,625 |
|
Real estate - residential |
|
| 78,023 |
|
|
| 81,700 |
|
Home equity |
|
| 50,506 |
|
|
| 50,815 |
|
Consumer loans |
|
| 10,774 |
|
|
| 9,711 |
|
Other loans |
|
| 2,838 |
|
|
| 1,687 |
|
|
|
| 356,975 |
|
|
| 341,760 |
|
Less: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
| (2,458 | ) |
|
| (2,707 | ) |
Deferred loan costs, net |
|
| (104 | ) |
|
| 69 |
|
Loans held for investment, net |
| $ | 354,413 |
|
| $ | 339,122 |
|
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 37.41% 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 58.77% of total loans. There is not a concentration of a particular type of credit in this group of commercial loans.
Total recorded investment in impaired loans, which consisted of nonaccrual loans and other loans identified by management as impaired, totaled $5.6 million and $6.1 million at December 31, 2017 and 2016, respectively. There were no loans 90 days past due and still accruing at December 31, 2017 or at December 31, 2016.
Restructured loans at both December 31, 2017 and December 31, 2016 totaled $4.6 million and are included in the impaired loan total. The carrying value of foreclosed properties held as other real estate was $2.3 million and $4.2 million at December 31, 2017 and 2016, respectively. The Company had $770,000 in foreclosed residential real estate and $65,000 of residential real estate in process of foreclosure at December 31, 2017.
The Company had loans of $175.7 million and $160.8 million pledged to borrowings at Federal Home Loan Bank and the Federal Reserve Bank at December 31, 2017 and 2016, 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, 2017, 2016 and 2015 are presented below:
Commercial |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Balance, beginning of year |
| $ | 1,404 |
|
| $ | 1,310 |
|
| $ | 1,716 |
|
Provision (recovery) charged to operations |
|
| (72 | ) |
|
| 175 |
|
|
| (527 | ) |
Charge-offs |
|
| (31 | ) |
|
| (146 | ) |
|
| (89 | ) |
Recoveries |
|
| 100 |
|
|
| 65 |
|
|
| 210 |
|
Net (charge-offs) |
|
| 69 |
|
|
| (81 | ) |
|
| 121 |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
Balance, end of year |
| $ | 1,401 |
|
| $ | 1,404 |
|
| $ | 1,310 |
|
46
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
Non-Commercial |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Balance, beginning of year |
| $ | 1,303 |
|
| $ | 1,574 |
|
| $ | 2,022 |
|
Provision (recovery) charged to operations |
|
| (164 | ) |
|
| (263 | ) |
|
| (93 | ) |
Charge-offs |
|
| (177 | ) |
|
| (244 | ) |
|
| (500 | ) |
Recoveries |
|
| 95 |
|
|
| 236 |
|
|
| 145 |
|
Net (charge-offs) |
|
| (82 | ) |
|
| (8 | ) |
|
| (355 | ) |
Other |
|
| — |
|
|
| — |
|
|
| — |
|
Balance, end of year |
| $ | 1,057 |
|
| $ | 1,303 |
|
| $ | 1,574 |
|
Total |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Balance, beginning of year |
| $ | 2,707 |
|
| $ | 2,884 |
|
| $ | 3,738 |
|
Provision (recovery) charged to operations |
|
| (236 | ) |
|
| (88 | ) |
|
| (620 | ) |
Charge-offs |
|
| (208 | ) |
|
| (390 | ) |
|
| (589 | ) |
Recoveries |
|
| 195 |
|
|
| 301 |
|
|
| 355 |
|
Net (charge-offs) |
|
| (13 | ) |
|
| (89 | ) |
|
| (234 | ) |
Other |
|
| — |
|
|
| — |
|
|
| — |
|
Balance, end of year |
| $ | 2,458 |
|
| $ | 2,707 |
|
| $ | 2,884 |
|
The following table shows period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at December 31, 2017 and 2016:
December 31, 2017 |
| Individually Evaluated |
|
| Collectively Evaluated |
|
| Total |
| |||||||||||||||
|
| Reserve |
|
| Loans |
|
| Reserve |
|
| Loans |
|
| Reserve |
|
| Loans |
| ||||||
|
| (dollars in thousands) |
|
|
|
|
|
|
|
|
| |||||||||||||
Commercial |
| $ | 22 |
|
| $ | 1,788 |
|
| $ | 1,379 |
|
| $ | 208,022 |
|
| $ | 1,401 |
|
| $ | 209,810 |
|
Non-Commercial |
|
| 172 |
|
|
| 3,781 |
|
|
| 885 |
|
|
| 143,280 |
|
|
| 1,057 |
|
|
| 147,061 |
|
Total |
| $ | 194 |
|
| $ | 5,569 |
|
| $ | 2,264 |
|
| $ | 351,302 |
|
| $ | 2,458 |
|
| $ | 356,871 |
|
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 |
|
47
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, 2017 |
| 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 |
| $ | — |
|
| $ | 34 |
|
| $ | 34 |
|
| $ | 54,878 |
|
| $ | 54,912 |
|
| $ | — |
|
Real estate - commercial |
|
| — |
|
|
| 377 |
|
|
| 377 |
|
|
| 114,335 |
|
|
| 114,712 |
|
|
| — |
|
Other real estate construction |
|
| — |
|
|
| 51 |
|
|
| 51 |
|
|
| 40,135 |
|
|
| 40,186 |
|
|
| — |
|
Real estate construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,024 |
|
|
| 5,024 |
|
|
| — |
|
Real estate - residential |
|
| 579 |
|
|
| 540 |
|
|
| 1,119 |
|
|
| 76,800 |
|
|
| 77,919 |
|
|
| — |
|
Home equity |
|
| 108 |
|
|
| 23 |
|
|
| 131 |
|
|
| 50,375 |
|
|
| 50,506 |
|
|
| — |
|
Consumer loan |
|
| 83 |
|
|
| — |
|
|
| 83 |
|
|
| 10,691 |
|
|
| 10,774 |
|
|
| — |
|
Other loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,838 |
|
|
| 2,838 |
|
|
| — |
|
Total |
| $ | 770 |
|
| $ | 1,025 |
|
| $ | 1,795 |
|
| $ | 355,076 |
|
| $ | 356,871 |
|
| $ | — |
|
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 |
|
| $ | — |
|
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.
48
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, 2017 and 2016 is as follows:
|
| 2017 |
|
| 2016 |
| ||
|
| (dollars in thousands) |
| |||||
Commercial |
| $ | 34 |
|
| $ | — |
|
Real estate - commercial |
|
| 377 |
|
|
| 392 |
|
Other real estate construction |
|
| 51 |
|
|
| 190 |
|
Real estate 1 – 4 family construction |
|
| — |
|
|
| — |
|
Real estate – residential |
|
| 540 |
|
|
| 846 |
|
Home equity |
|
| 23 |
|
|
| 22 |
|
Consumer loans |
|
| — |
|
|
| — |
|
Other loans |
|
| — |
|
|
| — |
|
|
| $ | 1,025 |
|
| $ | 1,450 |
|
Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. During 2017, nonperforming loans decreased from $1.5 million at December 31, 2016 to $1.0 million at December 31, 2017, a decrease of $425,000. The main relationship driving the decrease in nonaccruals is a loan that was sold during 2017.
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, 2017 and 2016:
December 31, 2017 |
| Pass |
|
| Watch |
|
| Sub- standard |
|
| Doubtful |
|
| Total |
| |||||
|
| (dollars in thousands) |
| |||||||||||||||||
Commercial |
| $ | 53,649 |
|
| $ | 1,215 |
|
| $ | 48 |
|
| $ | — |
|
| $ | 54,912 |
|
Real estate - commercial |
|
| 109,224 |
|
|
| 3,321 |
|
|
| 2,167 |
|
|
| — |
|
|
| 114,712 |
|
Other real estate construction |
|
| 38,082 |
|
|
| 1,713 |
|
|
| 391 |
|
|
| — |
|
|
| 40,186 |
|
Real estate 1 - 4 family construction |
|
| 5,024 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,024 |
|
Real estate - residential |
|
| 69,645 |
|
|
| 7,119 |
|
|
| 1,155 |
|
|
| — |
|
|
| 77,919 |
|
Home equity |
|
| 49,743 |
|
|
| 740 |
|
|
| 23 |
|
|
| — |
|
|
| 50,506 |
|
Consumer loans |
|
| 10,709 |
|
|
| 64 |
|
|
| 1 |
|
|
| — |
|
|
| 10,774 |
|
Other loans |
|
| 2,838 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,838 |
|
Total |
| $ | 338,914 |
|
| $ | 14,172 |
|
| $ | 3,785 |
|
| $ | — |
|
| $ | 356,871 |
|
49
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Allowance for Loan Losses (Continued)
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 |
|
The following tables show the breakdown between performing and nonperforming loans by class as of December 31, 2017 and 2016:
December 31, 2017 |
| Performing |
|
| Non- Performing |
|
| Total |
| |||
|
| (dollars in thousands) |
| |||||||||
Commercial |
| $ | 54,878 |
|
| $ | 34 |
|
| $ | 54,912 |
|
Real estate - commercial |
|
| 114,335 |
|
|
| 377 |
|
|
| 114,712 |
|
Other real estate construction |
|
| 40,135 |
|
|
| 51 |
|
|
| 40,186 |
|
Real estate 1 – 4 family construction |
|
| 5,024 |
|
|
| — |
|
|
| 5,024 |
|
Real estate – residential |
|
| 77,379 |
|
|
| 540 |
|
|
| 77,919 |
|
Home equity |
|
| 50,483 |
|
|
| 23 |
|
|
| 50,506 |
|
Consumer loans |
|
| 10,774 |
|
|
| — |
|
|
| 10,774 |
|
Other loans |
|
| 2,838 |
|
|
| — |
|
|
| 2,838 |
|
Total |
| $ | 355,846 |
|
| $ | 1,025 |
|
| $ | 356,871 |
|
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 |
|
50
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, 2017 and 2016:
|
| As of December 31, 2017 |
|
| Year Ended December 31, 2017 |
| ||||||||||||||||||
|
|
|
|
|
| Recorded |
|
| Recorded |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Unpaid |
|
| Investment |
|
| Investment |
|
|
|
|
|
| Average |
|
|
|
|
| ||||
|
| Principal |
|
| With No |
|
| With |
|
| Related |
|
| Recorded |
|
| Interest |
| ||||||
|
| Balance |
|
| Allowance |
|
| Allowance |
|
| Allowance |
|
| Investment |
|
| Income |
| ||||||
|
| (dollars in thousands) |
|
|
|
|
| |||||||||||||||||
Commercial |
| $ | 44 |
|
| $ | 10 |
|
| $ | 34 |
|
| $ | 10 |
|
| $ | 25 |
|
| $ | 2 |
|
Real estate - commercial |
|
| 1,593 |
|
|
| 1,305 |
|
|
| 288 |
|
|
| 9 |
|
|
| 1,650 |
|
|
| 72 |
|
Other real estate construction |
|
| 689 |
|
|
| 101 | �� |
|
| 50 |
|
|
| 3 |
|
|
| 208 |
|
|
| 5 |
|
Real estate 1 -4 family construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Real estate - residential |
|
| 3,701 |
|
|
| 1,319 |
|
|
| 2,382 |
|
|
| 171 |
|
|
| 3,762 |
|
|
| 179 |
|
Home equity |
|
| 35 |
|
|
| 22 |
|
|
| 13 |
|
|
| 1 |
|
|
| 66 |
|
|
| 1 |
|
Consumer loans |
|
| 45 |
|
|
| 45 |
|
|
| — |
|
|
| — |
|
|
| 53 |
|
|
| 4 |
|
Other loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 6,107 |
|
| $ | 2,802 |
|
| $ | 2,767 |
|
| $ | 194 |
|
| $ | 5,767 |
|
| $ | 263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
| ||||||
|
| As of December 31, 2016 |
|
| 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 |
|
51
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, 2017, 2016 and 2015, the following table presents a breakdown of the types of concessions made by loan class:
|
| Year Ended December 31, 2017 |
| |||||||||
|
|
|
|
|
| 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 |
|
| 1 |
|
| $ | 12 |
|
| $ | 10 |
|
Real estate - commercial |
|
| 2 |
|
|
| 178 |
|
|
| 173 |
|
Other real estate construction |
|
| — |
|
|
| — |
|
|
| — |
|
Real estate 1 – 4 family construction |
|
| — |
|
|
| — |
|
|
| — |
|
Real estate – residential |
|
| 6 |
|
|
| 708 |
|
|
| 675 |
|
Home equity |
|
| — |
|
|
| — |
|
|
| — |
|
Consumer loans |
|
| 1 |
|
|
| 9 |
|
|
| 5 |
|
Other loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 10 |
|
| $ | 907 |
|
| $ | 863 |
|
Total |
|
| 10 |
|
| $ | 907 |
|
| $ | 863 |
|
52
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Troubled Debt Restructures (Continued)
|
| 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 |
|
|
| 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 |
|
53
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Troubled Debt Restructures (Continued)
During the twelve months ended December 31, 2017 there was one TDR for which there was a payment default. There was one payment default in 2016 and no payment defaults on TDRs in and 2015. The outstanding balance of TDRs at December 31, 2017 is $4.6 million with $4.5 million still accruing compared to an outstanding balance at December 31, 2016 of $4.8 million with $4.6 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 $171,000 in the allowance for loan loss as of December 31, 2017, as a direct result of these TDRs. At December 31, 2016 and 2015 there was $98,000 and $177,000 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, 2017, 2016 and 2015:
|
| 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, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
Other |
|
| 6 |
|
|
| 217 |
|
|
| 10 |
|
|
| 863 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 15 |
|
Total |
|
| 6 |
|
| $ | 217 |
|
|
| 10 |
|
| $ | 863 |
|
|
| — |
|
| $ | — |
|
|
| 1 |
|
| $ | 15 |
|
|
| 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 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
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 $435.5 million and $436 million at December 31, 2017 and 2016, respectively. The carrying value of capitalized servicing rights, net of valuation allowances, is included in other assets. A summary of mortgage servicing rights follows:
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Beginning of year mortgage servicing rights: |
| $ | 2,271 |
|
| $ | 2,040 |
|
| $ | 2,072 |
|
Amounts capitalized |
|
| 587 |
|
|
| 982 |
|
|
| 657 |
|
Amortization |
|
| (733 | ) |
|
| (751 | ) |
|
| (689 | ) |
Impairment |
|
| — |
|
|
| — |
|
|
| — |
|
End of year |
| $ | 2,125 |
|
| $ | 2,271 |
|
| $ | 2,040 |
|
54
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) |
| |||
2018 |
| $ | 501 |
|
2019 |
|
| 434 |
|
2020 |
|
| 367 |
|
2021 |
|
| 300 |
|
2022 |
|
| 232 |
|
Thereafter |
|
| 291 |
|
Total |
| $ | 2,125 |
|
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, 20176 and 2016. The key assumptions used to value mortgage servicing rights were as follows:
|
| 2017 |
|
| 2016 |
| ||
Weighted average remaining life |
| 264 months |
|
| 262 months |
| ||
Weighted average discount rate |
|
| 13 | % |
|
| 14 | % |
Weighted average coupon |
|
| 3.94 | % |
|
| 3.89 | % |
Weighted average prepayment speed |
|
| 150 | % |
|
| 145 | % |
Note 7 - Premises and Equipment
The major classes of premises and equipment and the total accumulated depreciation at December 31, 2017 and 2016 are listed below:
|
| 2017 |
|
| 2016 |
| ||
|
| (dollars in thousands) |
| |||||
Land |
| $ | 3,150 |
|
| $ | 3,215 |
|
Building and improvements |
|
| 12,504 |
|
|
| 12,882 |
|
Furniture and equipment |
|
| 10,255 |
|
|
| 9,209 |
|
Total fixed assets |
|
| 25,909 |
|
|
| 25,306 |
|
Less accumulated depreciation |
|
| 11,181 |
|
|
| 11,133 |
|
Net fixed assets |
| $ | 14,728 |
|
| $ | 14,173 |
|
Depreciation expense was $857,000 for the year ended December 31, 2017 compared to $1.0 million and $908,000 for the comparable periods of 2016 and 2015, respectively.
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 lease payments of $12,656 are due for the first year. The payments then escalate 2.625% each year on the anniversary.
Uwharrie Bank is under contract to lease a facility, in early 2018, for a future branch in Charlotte, North Carolina. The lease has a ten-year term expiring in 2028 with two five-year renewal options. Monthly lease payments of $14,683 are due for the first year. The payments then escalate 2% each year on the anniversary.
Total rental expense related to the operating leases was $155,575, $89,369, and $25,529 for the years ended December 31, 2017, 2016 and 2015, respectively, and is included in net occupancy expense. A table detailing the lease expense associated with the aforementioned properties is below.
55
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ending December 31, |
| ||
(dollars in thousands) |
| ||
2018 | $ | 333 |
|
2019 |
| 349 |
|
2020 |
| 349 |
|
2021 |
| 309 |
|
2022 |
| 193 |
|
Thereafter |
| 980 |
|
Total | $ | 2,513 |
|
56
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 - Deposits
The composition of deposits at December 31, 2017 and 2016 is as follows:
|
| 2017 |
|
| 2016 |
| ||||||||||
|
| Amount |
|
| Percentage of Total |
|
| Amount |
|
| Percentage of Total |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Demand noninterest-bearing |
| $ | 113,762 |
|
|
| 22 | % |
| $ | 103,138 |
|
|
| 21 | % |
Interest checking and money market |
|
| 289,953 |
|
|
| 57 | % |
|
| 272,968 |
|
|
| 56 | % |
Savings |
|
| 45,698 |
|
|
| 8 | % |
|
| 42,452 |
|
|
| 9 | % |
Time deposits $250,000 and over |
|
| 7,933 |
|
|
| 2 | % |
|
| 7,472 |
|
|
| 2 | % |
Other time deposits |
|
| 55,282 |
|
|
| 11 | % |
|
| 59,689 |
|
|
| 12 | % |
Total |
| $ | 512,628 |
|
|
| 100 | % |
| $ | 485,719 |
|
|
| 100 | % |
The maturities of fixed-rate time deposits at December 31, 2017 are reflected in the table below:
|
| Time Deposits |
|
| Other |
| ||
Year ending December 31, |
| $250,000 and Over |
|
| Time Deposits |
| ||
|
| (dollars in thousands) |
| |||||
2018 |
|
| 4,400 |
|
|
| 32,625 |
|
2019 |
|
| 375 |
|
|
| 6,392 |
|
2020 |
|
| 1,210 |
|
|
| 6,494 |
|
2021 |
|
| 1,276 |
|
|
| 7,253 |
|
2022 |
|
| 672 |
|
|
| 2,518 |
|
Thereafter |
|
| — |
|
|
| — |
|
Total |
| $ | 7,933 |
|
| $ | 55,282 |
|
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 2017 and 2016:
|
| 2017 |
|
| 2016 |
| ||||||||||
|
| Amount |
|
| Rate |
|
| Amount |
|
| Rate |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
At year-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master notes and other short-term borrowing |
| $ | 1,752 |
|
|
| 0.50 | % |
| $ | 2,162 |
|
|
| 0.25 | % |
Notes payable |
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| 6.00 | % |
Short-term line of credit |
|
| — |
|
|
| — |
|
|
| 500 |
|
|
| 3.75 | % |
|
| $ | 1,752 |
|
|
| 0.50 | % |
| $ | 2,674 |
|
|
| 0.93 | % |
|
| 2017 |
|
| 2016 |
| ||||||||||
|
| Amount |
|
| Rate |
|
| Amount |
|
| Rate |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Average for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
| $ | 2 |
|
|
| 1.95 | % |
| $ | 2 |
|
|
| 1.48 | % |
Master notes and other short-term borrowing |
|
| 1,861 |
|
|
| 0.28 | % |
|
| 2,540 |
|
|
| 0.25 | % |
Notes payable |
|
| 6 |
|
|
| 5.81 | % |
|
| 12 |
|
|
| 6.31 | % |
Short-term line of credit |
|
| 275 |
|
|
| 3.58 | % |
|
| 803 |
|
|
| 3.67 | % |
|
| $ | 2,144 |
|
|
| 0.72 | % |
| $ | 3,357 |
|
|
| 1.09 | % |
57
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Short-Term Borrowed Funds (Continued)
|
| 2017 |
|
| 2016 |
| ||
|
| (dollars in thousands) |
| |||||
Maximum month-end balance |
|
|
|
|
|
|
|
|
Master notes and other short-term borrowing |
|
| 2,448 |
|
|
| 4,325 |
|
Notes payable |
|
| 12 |
|
|
| 12 |
|
Short-term line of credit |
|
| 1,000 |
|
|
| 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 subsidiary bank has combined available lines of credit for federal funds and Federal Reserve discount window availability in the amount of $59.7 million at December 31, 2017.
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 $79.9 million with remaining availability of $42.4 million at December 31, 2017. There were no long-term advances under this line at December 31, 2017 and at December 31, 2016. 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 $37.5 million at December 31, 2017.
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, 2017. 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, 2017, the scheduled maturities of these long-term borrowings are as follows:
Year ending December 31, |
| |||
(dollars in thousands) |
| |||
2018 |
| $ | — |
|
2019 |
|
| — |
|
2020 |
|
| — |
|
2021 |
|
| — |
|
2022 |
|
| — |
|
Thereafter |
|
| 9,534 |
|
Total |
| $ | 9,534 |
|
58
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 - Income Tax Matters
The significant components of income tax expense for the years ended December 31, 2017, 2016 and 2015 are summarized as follows:
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Current tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 1,022 |
|
| $ | 674 |
|
| $ | 389 |
|
State |
|
| 96 |
|
|
| 129 |
|
|
| 81 |
|
Total |
|
| 1,118 |
|
|
| 803 |
|
|
| 470 |
|
Deferred tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| 680 |
|
|
| 47 |
|
|
| 228 |
|
State |
|
| 11 |
|
|
| 45 |
|
|
| 108 |
|
Total |
|
| 691 |
|
|
| 92 |
|
|
| 336 |
|
Net provision for income taxes |
| $ | 1,809 |
|
| $ | 895 |
|
| $ | 806 |
|
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:
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Tax computed at the statutory federal rate |
| $ | 1,163 |
|
| $ | 1,056 |
|
| $ | 956 |
|
Increases (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt interest, net |
|
| (238 | ) |
|
| (298 | ) |
|
| (280 | ) |
State income taxes, net of federal benefit |
|
| 71 |
|
|
| 115 |
|
|
| 125 |
|
Revalue of deferred tax assets |
|
| 806 |
|
|
| — |
|
|
| — |
|
Other |
|
| 7 |
|
|
| 22 |
|
|
| 5 |
|
Provision for income taxes |
| $ | 1,809 |
|
| $ | 895 |
|
| $ | 806 |
|
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, 2017, 2016 and 2015 are as follows:
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Deferred tax assets relating to: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
| $ | 569 |
|
| $ | 974 |
|
| $ | 1,057 |
|
Deferred compensation |
|
| 936 |
|
|
| 1,243 |
|
|
| 1,080 |
|
Other |
|
| 173 |
|
|
| 396 |
|
|
| 555 |
|
Net unrealized loss on securities available for sale |
|
| 335 |
|
|
| 678 |
|
|
| 109 |
|
Total deferred tax assets |
|
| 2,013 |
|
|
| 3,291 |
|
|
| 2,801 |
|
Deferred tax liabilities relating to: |
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
| (213 | ) |
|
| (295 | ) |
|
| (319 | ) |
Deferred loans fees and costs |
|
| (148 | ) |
|
| (233 | ) |
|
| (213 | ) |
Loan servicing |
|
| (116 | ) |
|
| (193 | ) |
|
| (176 | ) |
Total deferred tax liabilities |
|
| (477 | ) |
|
| (721 | ) |
|
| (708 | ) |
Net recorded deferred tax asset |
| $ | 1,536 |
|
| $ | 2,570 |
|
| $ | 2,093 |
|
The net deferred tax asset is included in other assets on the accompanying consolidated balance sheets.
The Tax Act was enacted on December 22, 2017. The SEC issued Staff Accounting Bulletin No. 118 to address uncertainty in applying ASC Topic 740 in the reporting period in which the Tax Act was enacted. The Tax Act included a reduction to the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. Tax expense was increased in the fourth quarter by a provisional $806,000 to reflect the Tax Act changes. This increase includes $155,000 tax expense related to the revaluation of the deferred tax asset for items charged to AOCI. The revaluation of deferred tax assets related to items charged to AOCI was a component of 2017 income tax expense and recognized in continuing operations as required by ASC Topic 740. The ultimate impact may differ from this provisional amount due to additional analysis, changes in interpretations and assumptions, and additional regulatory guidance that may be issued. The provisional amount is expected to be finalized when the 2017 U.S. Corporate income tax return is filed in 2018.
59
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, 2017 and 2016, outstanding financial instruments whose contract amounts represent credit risk were as follows:
|
| 2017 |
|
| 2016 |
| ||
|
| (dollars in thousands) |
| |||||
Commitments to extend credit |
| $ | 112,637 |
|
| $ | 86,651 |
|
Credit card commitments |
|
| 10,405 |
|
|
| 9,870 |
|
Standby letters of credit |
|
| 1,360 |
|
|
| 1,628 |
|
|
| $ | 124,402 |
|
| $ | 98,149 |
|
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:
|
| 2017 |
|
| 2016 |
| ||
| (dollars in thousands) |
| ||||||
Balance, at beginning of the year |
| $ | 14,815 |
|
| $ | 19,208 |
|
Disbursements during the year |
|
| 620 |
|
|
| 3,798 |
|
Collections during the year |
|
| (6,743 | ) |
|
| (8,191 | ) |
Balance, at end of the year |
| $ | 8,692 |
|
| $ | 14,815 |
|
At December 31, 2017, the Company had approved, but unused lines of credit, totaling $3.7 million to executive officers and directors, and their related interests. In addition, at December 31, 2017, the Company had $7.9 million of deposits for executive officers and directors, and their related interest.
During 2017, the Company’s broker-dealer subsidiary (The Strategic Alliance Corp) brokered a private placement offering in the amount of $4.1 million, producing revenue in 2017 of $202,250. Certain officers and directors of the Company’s bank subsidiary, Uwharrie Bank, were involved with the transaction as investors in the private placement.
During 2015, the Company’s subsidiary, Uwharrie Bank, entered into a lease for a facility with an executive officer of Uwharrie Bank. 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. Total annual expense for the lease was $155,575, $89,369, and $25,529 for the years ended December 31, 2017, 2016, and 2015, respectively and is included in net occupancy expense.
60
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, 2017, the subsidiary bank was required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank in the aggregate amount of $1.7 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, 2017, 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, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ | 57,638 |
|
|
| 14.1 | % |
| $ | 32,814 |
|
|
| 8.0 | % |
| $ | 41,017 |
|
|
| 10.0 | % |
Uwharrie Bank |
|
| 56,211 |
|
|
| 13.8 | % |
|
| 32,596 |
|
|
| 8.0 | % |
|
| 40,746 |
|
|
| 10.0 | % |
Tier 1 Capital to Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
| 45,646 |
|
|
| 11.1 | % |
|
| 24,610 |
|
|
| 6.0 | % |
|
| 32,814 |
|
|
| 8.0 | % |
Uwharrie Bank |
|
| 53,753 |
|
|
| 13.2 | % |
|
| 24,447 |
|
|
| 6.0 | % |
|
| 32,596 |
|
|
| 8.0 | % |
Common Equity Tier 1 Capital to Risk Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
| 34,997 |
|
|
| 8.5 | % |
|
| 18,458 |
|
|
| 4.5 | % |
|
| 26,661 |
|
|
| 6.5 | % |
Uwharrie Bank |
|
| 43,104 |
|
|
| 10.6 | % |
|
| 18,336 |
|
|
| 4.5 | % |
|
| 26,485 |
|
|
| 6.5 | % |
Tier 1 Capital to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
| 45,646 |
|
|
| 7.8 | % |
|
| 23,271 |
|
|
| 4.0 | % |
|
| 29,089 |
|
|
| 5.0 | % |
Uwharrie Bank |
|
| 53,753 |
|
|
| 9.3 | % |
|
| 23,201 |
|
|
| 4.0 | % |
|
| 29,001 |
|
|
| 5.0 | % |
61
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 – Shareholders’ Equity and Regulatory Matters (Continued)
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|
|
|
|
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|
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|
|
|
|
|
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|
| 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 | % |
As of December 31, 2017, 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 2017 the Company repurchased 75,709 shares of outstanding common stock and repurchased 69,938 during 2016.
62
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, 2017, the SOP II had 13,378 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, 2017:
|
|
|
|
| Weighted |
|
|
|
|
| ||
|
|
|
|
|
| Average |
|
| Aggregate |
| ||
|
|
|
|
|
| Exercise |
|
| Intrinsic Value |
| ||
|
| Shares |
|
| Price |
|
| (in thousands) |
| |||
Options outstanding at the beginning of the year |
|
| 13,378 |
|
| $ | 4.93 |
|
| $ | — |
|
Options granted |
|
| — |
|
|
| — |
|
|
|
|
|
Options exercised |
|
| — |
|
|
| — |
|
|
|
|
|
Forfeitures |
|
| — |
|
|
| — |
|
|
|
|
|
Options outstanding at the end of the year |
|
| 13,378 |
|
| $ | 4.93 |
|
| $ | 3,972 |
|
Options exercisable at the end of the year |
|
| 13,378 |
|
| $ | 4.93 |
|
| $ | 3,972 |
|
Total options outstanding and exercisable at December 31, 2017 were 13,378 at an exercise price of $4.93 per share with a weighted average expected term of 0.12 years. At December 31, 2017, 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, 2017 and 2016 under the SOP II.
As of December 31, 2017, 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 2017, 2016 or 2015.
Note 17 - Employee and Director Benefit Plans
Employees’ 401(k) Retirement Plan
The Company has established an associate tax deferred savings plan under Section 401(k) of the Internal Revenue Code of 1986. All associates are eligible to make elective deferrals on the first day of the calendar month coincident or next following the date the associate attains the age of 18, completes one year of eligibility service and completes at least 1,000 hours of service and is 100% vested in the plan once they enroll.
The Company’s annual contribution to the plan was $361,936 in 2017, $355,648 in 2016 and $319,340 in 2015, 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. |
63
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17 - Employee and Director Benefit Plans (Continued)
Supplemental Executive Retirement Plan
The Company has implemented a non-qualifying deferred compensation plan for certain executive officers. Certain of the plan benefits will accrue and vest during the period of employment and will be paid in fixed monthly benefit payments for up to ten years upon separation from service. The plan also provides for payment of death benefits and for payment of disability benefits in the event the officer becomes permanently disabled prior to separation from service.
Effective December 31, 2008, this plan was amended and restated to comply with Section 409A of the Internal Revenue Code. The participants’ account liability balances as of December 31, 2008 could be transferred into a trust fund, where investments will be participant-directed.
The plan is structured as a defined contribution plan and the 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 2017, 2016 and 2015, $336,800, $336,800 and $331,800, respectively was expensed each year for benefits provided under the plans. The liability accrued for deferred compensation under the plan amounted to $4.0 million and $3.5 million at December 31, 2017 and 2016, respectively.
64
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 2017, 2016, and 2015, the expense associated with these policies was $10,346, $27,111, and $86,346 respectively.
The liability associated with the split-dollar life insurance policies is $771,000 and $760,000 at December 31, 2017 and 2016, 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 530,604 shares to be granted and at December 31, 2017, the availability under the SGP was 488,595 shares. During 2017 there were 8,734 shares granted at an expense of $50,000 compared to 13,809 shares granted at an expense of $55,000 in 2016 and 16,840 shares granted at an expense of $54,000 in 2015.
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, 2017 and December 31, 2016, 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, 2017 and December 31, 2016:
|
| Carrying |
|
| Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
December 31, 2017 |
| Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
|
| (dollars in thousands) |
|
|
|
|
| |||||||||||||
FINANCIAL ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 70,403 |
|
| $ | 70,379 |
|
| $ | 67,913 |
|
| $ | 2,466 |
|
| $ | — |
|
Securities available for sale |
|
| 95,743 |
|
|
| 95,743 |
|
|
| — |
|
|
| 95,743 |
|
|
| — |
|
Securities held to maturity |
|
| 11,458 |
|
|
| 11,461 |
|
|
| — |
|
|
| 11,461 |
|
|
| — |
|
Loans held for investment, net |
|
| 356,871 |
|
|
| 359,325 |
|
|
| — |
|
|
| — |
|
|
| 359,325 |
|
Loans held for sale |
|
| 4,414 |
|
|
| 4,414 |
|
|
| — |
|
|
| 4,414 |
|
|
| — |
|
Restricted stock |
|
| 1,067 |
|
|
| 1,067 |
|
|
| 1,067 |
|
|
| — |
|
|
| — |
|
Mortgage servicing rights |
|
| 2,125 |
|
|
| 3,310 |
|
|
| — |
|
|
| 3,310 |
|
|
| — |
|
Accrued interest receivable |
|
| 1,709 |
|
|
| 1,709 |
|
|
| — |
|
|
| — |
|
|
| 1,629 |
|
FINANCIAL LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ | 512,628 |
|
| $ | 481,300 |
|
| $ | — |
|
| $ | 481,300 |
|
| $ | — |
|
Short-term borrowings |
|
| 1,752 |
|
|
| 1,752 |
|
|
| — |
|
|
| 1,752 |
|
|
| — |
|
Long-term debt |
|
| 9,534 |
|
|
| 9,658 |
|
|
| — |
|
|
| — |
|
|
| 9,658 |
|
Accrued interest payable |
|
| 148 |
|
|
| 148 |
|
|
| — |
|
|
| — |
|
|
| 148 |
|
65
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, 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 |
|
|
| — |
|
|
| — |
|
Mortgage servicing rights |
|
| 2,271 |
|
|
| 3,313 |
|
|
| — |
|
|
| 3,313 |
|
|
| — |
|
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 debt |
|
| 9,534 |
|
|
| 9,673 |
|
|
| — |
|
|
| — |
|
|
| 9,673 |
|
Accrued interest payable |
|
| 151 |
|
|
| 151 |
|
|
| — |
|
|
| — |
|
|
| 151 |
|
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. |
| • | Mortgage servicing rights – The fair value disclosed for mortgage servicing rights is based on an independent market valuation and is recorded at Level 2. |
| • | 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, 2017, 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.
66
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, 2017 and 2016:
|
| December 31, 2017 |
| |||||||||||||
|
| (dollars in thousands) |
| |||||||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Gov’t |
|
| 55,615 |
|
|
| — |
|
|
| 55,615 |
|
|
| — |
|
Mortgage-backed securities and CMO’s |
|
| 20,891 |
|
|
| — |
|
|
| 20,891 |
|
|
| — |
|
State and political subdivisions |
|
| 14,199 |
|
|
| — |
|
|
| 14,199 |
|
|
| — |
|
Corporate bonds |
|
| 5,038 |
|
|
| — |
|
|
| 5,038 |
|
|
| — |
|
Total assets at fair value |
| $ | 95,743 |
|
| $ | — |
|
| $ | 95,743 |
|
| $ | — |
|
Total liabilities at fair value |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| 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 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
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, 2017 and December 31, 2016:
|
| December 31, 2017 |
| |||||||||||||
|
| (dollars in thousands) |
| |||||||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Impaired loans |
| $ | 2,624 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,624 |
|
Other real estate owned |
|
| 1,785 |
|
|
| — |
|
|
| — |
|
|
| 1,785 |
|
Total assets at fair value |
| $ | 4,409 |
|
| $ | — |
|
| $ | — |
|
| $ | 4,409 |
|
Total liabilities at fair value |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| 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 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Quantitative Information about Level 3 Fair Value Measurements
67
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, 2017 |
| 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, 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% |
At December 31, 2017 and 2016, 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, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (dollars in thousands) |
| |||||
Assets |
|
|
|
|
|
|
|
|
Cash and demand deposits |
| $ | 379 |
|
| $ | 269 |
|
Interest-earning deposits |
|
| 1,752 |
|
|
| 2,161 |
|
Investments in: |
|
|
|
|
|
|
|
|
Bank subsidiaries |
|
| 41,997 |
|
|
| 41,358 |
|
Nonbank subsidiaries |
|
| 376 |
|
|
| 494 |
|
Other assets |
|
| 1,440 |
|
|
| 1,316 |
|
Total assets |
| $ | 45,944 |
|
| $ | 45,598 |
|
Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
Master notes |
| $ | 1,752 |
|
| $ | 2,162 |
|
Short term debt |
|
| — |
|
|
| 500 |
|
Junior subordinated debentures |
|
| 9,534 |
|
|
| 9,534 |
|
Other liabilities |
|
| 768 |
|
|
| 501 |
|
Total liabilities |
|
| 12,054 |
|
|
| 12,697 |
|
Shareholders’ equity |
|
| 33,890 |
|
|
| 32,901 |
|
Total liabilities and shareholders’ equity |
| $ | 45,944 |
|
| $ | 45,598 |
|
68
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19 - Parent Company Financial Data (Continued)
Condensed Statements of Income
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Equity in undistributed earnings (loss) of subsidiaries |
| $ | 745 |
|
| $ | 375 |
|
| $ | 2,760 |
|
Dividends received from subsidiaries |
|
| 1,500 |
|
|
| 2,500 |
|
|
| — |
|
Interest income |
|
| 6 |
|
|
| 6 |
|
|
| 8 |
|
Other income |
|
| 93 |
|
|
| 77 |
|
|
| 81 |
|
Interest expense |
|
| (564 | ) |
|
| (585 | ) |
|
| (612 | ) |
Other operating expense |
|
| (436 | ) |
|
| (445 | ) |
|
| (555 | ) |
Income tax benefit |
|
| 267 |
|
|
| 283 |
|
|
| 325 |
|
Net income |
| $ | 1,611 |
|
| $ | 2,211 |
|
| $ | 2,007 |
|
Consolidated net income |
| $ | 1,611 |
|
| $ | 2,211 |
|
| $ | 2,007 |
|
Less: Net income attributable to noncontrolling interest |
|
| (592 | ) |
|
| (593 | ) |
|
| (592 | ) |
Net income attributable to Uwharrie Capital Corp |
|
| 1,019 |
|
|
| 1,618 |
|
|
| 1,415 |
|
Net Income (loss) available to common shareholders |
| $ | 1,019 |
|
| $ | 1,618 |
|
| $ | 1,415 |
|
Net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.14 |
|
| $ | 0.22 |
|
| $ | 0.19 |
|
Diluted |
| $ | 0.14 |
|
| $ | 0.22 |
|
| $ | 0.19 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 7,138,635 |
|
|
| 7,238,908 |
|
|
| 7,337,586 |
|
Diluted |
|
| 7,139,373 |
|
|
| 7,239,014 |
|
|
| 7,337,586 |
|
Condensed Statements of Cash Flows
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (dollars in thousands) |
| |||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 1,611 |
|
| $ | 2,211 |
|
| $ | 2,007 |
|
Adjustments to reconcile net income to net cash used by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed (earnings) loss of subsidiaries |
|
| (745 | ) |
|
| (375 | ) |
|
| (2,760 | ) |
(Increase) decrease in other assets |
|
| (124 | ) |
|
| 26 |
|
|
| (228 | ) |
Increase (decrease) in other liabilities |
|
| 267 |
|
|
| 338 |
|
|
| 14 |
|
Net cash provided (used) by operating activities |
|
| 1,009 |
|
|
| 2,200 |
|
|
| (967 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in master notes |
|
| (410 | ) |
|
| (1,234 | ) |
|
| (278 | ) |
Net (decrease) in short-term debt |
|
| (500 | ) |
|
| (1,850 | ) |
|
| 1,350 |
|
Net repayments of issuance of junior subordinated debentures |
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase of common stock, net |
|
| (391 | ) |
|
| (322 | ) |
|
| (429 | ) |
Cash paid for fractional shares |
|
| (7 | ) |
|
| (6 | ) |
|
| (5 | ) |
Net cash used by financing activities |
|
| (1,308 | ) |
|
| (3,412 | ) |
|
| 638 |
|
Net decrease in cash and cash equivalents |
|
| (299 | ) |
|
| (1,212 | ) |
|
| (329 | ) |
Cash and cash equivalents at beginning of year |
|
| 2,430 |
|
|
| 3,642 |
|
|
| 3,971 |
|
Cash and cash equivalents at end of year |
| $ | 2,131 |
|
| $ | 2,430 |
|
| $ | 3,642 |
|
69
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Selected Financial Data
Selected Financial Data
(dollars in thousands except ratios, per share and shares outstanding information)
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Summary of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | 19,340 |
|
| $ | 18,046 |
|
| $ | 17,847 |
|
| $ | 18,457 |
|
| $ | 19,465 |
|
Interest expense |
|
| 1,277 |
|
|
| 1,310 |
|
|
| 1,733 |
|
|
| 1,960 |
|
|
| 2,734 |
|
Net interest income |
|
| 18,063 |
|
|
| 16,736 |
|
|
| 16,114 |
|
|
| 16,497 |
|
|
| 16,731 |
|
Provision for (recovery of) loan losses |
|
| (236 | ) |
|
| (88 | ) |
|
| (620 | ) |
|
| (389 | ) |
|
| 28 |
|
Noninterest income |
|
| 9,401 |
|
|
| 10,331 |
|
|
| 8,570 |
|
|
| 6,923 |
|
|
| 7,297 |
|
Noninterest expense |
|
| 24,280 |
|
|
| 24,049 |
|
|
| 22,491 |
|
|
| 21,482 |
|
|
| 22,704 |
|
Income taxes |
|
| 1,809 |
|
|
| 895 |
|
|
| 806 |
|
|
| 648 |
|
|
| 342 |
|
Net income |
| $ | 1,611 |
|
| $ | 2,211 |
|
| $ | 2,007 |
|
| $ | 1,679 |
|
| $ | 954 |
|
Less: Net income attributable to noncontrolling interest |
|
| (592 | ) |
|
| (593 | ) |
|
| (592 | ) |
|
| (591 | ) |
|
| (478 | ) |
Less: Dividends on preferred stock |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (325 | ) |
Net Income (loss) available to common shareholders |
| $ | 1,019 |
|
| $ | 1,618 |
|
| $ | 1,415 |
|
| $ | 1,088 |
|
| $ | 151 |
|
Per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income – basic (1) |
| $ | 0.14 |
|
| $ | 0.22 |
|
| $ | 0.19 |
|
| $ | 0.14 |
|
| $ | 0.02 |
|
Net income (loss) – diluted (1) |
|
| 0.14 |
|
|
| 0.22 |
|
|
| 0.19 |
|
|
| 0.14 |
|
|
| 0.02 |
|
Book value (1) |
|
| 4.76 |
|
|
| 4.58 |
|
|
| 4.51 |
|
|
| 4.29 |
|
|
| 3.71 |
|
Weighted Average Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (1) |
|
| 7,138,635 |
|
|
| 7,238,908 |
|
|
| 7,337,586 |
|
|
| 7,747,867 |
|
|
| 7,876,589 |
|
Diluted (1) |
|
| 7,139,373 |
|
|
| 7,239,014 |
|
|
| 7,337,586 |
|
|
| 7,747,867 |
|
|
| 7,876,589 |
|
Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
| 0.28 | % |
|
| 0.41 | % |
|
| 0.38 | % |
|
| 0.33 | % |
|
| 0.18 | % |
Return on average equity |
|
| 3.62 | % |
|
| 4.99 | % |
|
| 4.65 | % |
|
| 4.03 | % |
|
| 2.17 | % |
Average equity to average assets |
|
| 7.78 | % |
|
| 8.29 | % |
|
| 8.27 | % |
|
| 8.11 | % |
|
| 8.34 | % |
Selected Year-end Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
| $ | 576,358 |
|
| $ | 548,230 |
|
| $ | 532,202 |
|
| $ | 518,464 |
|
| $ | 517,320 |
|
Loans held for investment |
|
| 356,871 |
|
|
| 341,829 |
|
|
| 320,132 |
|
|
| 310,853 |
|
|
| 307,348 |
|
Securities |
|
| 107,201 |
|
|
| 117,889 |
|
|
| 100,500 |
|
|
| 118,320 |
|
|
| 100,280 |
|
Deposits |
|
| 512,628 |
|
|
| 485,719 |
|
|
| 467,733 |
|
|
| 456,435 |
|
|
| 453,708 |
|
Borrowed funds |
|
| 11,286 |
|
|
| 12,208 |
|
|
| 15,305 |
|
|
| 14,243 |
|
|
| 16,672 |
|
Shareholders’ equity |
|
| 44,540 |
|
|
| 43,525 |
|
|
| 43,314 |
|
|
| 42,262 |
|
|
| 40,509 |
|
Selected Average Balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
| $ | 572,630 |
|
| $ | 534,296 |
|
| $ | 521,699 |
|
| $ | 513,676 |
|
| $ | 527,693 |
|
Loans held for investment |
|
| 348,980 |
|
|
| 334,317 |
|
|
| 316,485 |
|
|
| 309,338 |
|
|
| 317,274 |
|
Securities |
|
| 113,025 |
|
|
| 107,396 |
|
|
| 112,348 |
|
|
| 109,056 |
|
|
| 116,333 |
|
Deposits |
|
| 509,352 |
|
|
| 470,921 |
|
|
| 458,655 |
|
|
| 451,160 |
|
|
| 455,146 |
|
Borrowed funds |
|
| 11,679 |
|
|
| 12,898 |
|
|
| 14,432 |
|
|
| 14,782 |
|
|
| 22,340 |
|
Shareholders’ equity |
|
| 44,542 |
|
|
| 44,283 |
|
|
| 43,123 |
|
|
| 41,681 |
|
|
| 43,994 |
|
(1) | Net income per share, book value per share, weighted average shares outstanding and shares outstanding at year-end for years 2016 through 2013 have been adjusted to reflect the 2% stock dividends in 2017, 2016, and 2015. |
70
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 29-70 of this Annual Report. References to changes in assets and liabilities represent end-of-period balances unless otherwise noted. Statements contained in this Annual Report, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary because of market and other factors. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents 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, 2017 and December 31, 2016
The Company’s total assets increased $28.2 million from $548.2 million at December 31, 2016 to $576.4 million at December 31, 2017. This primary driver of this increase is a $15.0 million increase in loans held for investment and an increase in interest-earning deposits with banks of $26.3 million. These increases were offset by a decrease in securities available for sale of $10.2 million.
Cash and due from banks decreased $1.9 million, while interest-earning deposits with banks increased $26.3 million. Therefore, cash and cash equivalents increased $24.4 million during the year ended December 31, 2017 as a result of an increase in customer deposits held by the bank.
Investment securities consist of securities available for sale and securities held to maturity. Total investment securities decreased $10.7 million or 38.4%, from $117.9 million at December 31, 2016 to $107.2 million at December 31, 2017. During the year, as a result of the rising interest rate environment, management made the decision to sell $8.9 million of investment securities, including $4.9 million of US government agency bonds and a $4.0 million US Treasury bond. The Company realized a net loss of $14,000 on these transactions. However, the Company has reinvested $6.3 million of the proceeds from the 2017 sales into new securities with slightly longer durations. Additionally, these investments should provide higher yields to the portfolio as opposed to excess cash. The structure of the securities purchased should help mitigate the downside risk embedded in the current portfolio. In addition, there were four securities called during 2017 with aggregate book values of $774,000. The bonds were called at par, although two of the securities were held at a discount, which produced a slight gain on call of $1,500. At December 31, 2017, the Company had net unrealized losses on the securities available for sale of $1.4 million.
Loans held for investment increased $15.0 million from $341.8 million at December 31, 2016 to $356.9 million at December 31, 2017. The growth in the portfolio was spread across several loan portfolio classes with commercial other real estate construction experiencing the largest growth of $13.5 million or 50.4%. In addition, the commercial real estate, consumer class, and “other” class all experienced appreciable growth. Nevertheless, this growth was offset by declines in the commercial class, home equity class, 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 $3.7 million or 4.5%. Loans held for sale decreased by 24.2% or $1.4 million compared to the prior year. The allowance for loan loss was $2.5 million at December 31, 2017, which represents 0.69% of the loan portfolio, a decrease from 0.79% at December 31, 2016. The credit quality of consumer and commercial relationships continue to improve, which lowers the probability of default used to calculate the allowance for loan loss estimate, thus decreasing the allowance for loan loss as a percentage of the loan portfolio. Net charge offs decreased from $89,000 at December 31, 2016 to $13,000 at December 31, 2017.
Other changes in our consolidated assets are related to bank-owned life insurance, premises and equipment, and other real estate owned. Bank-owned life insurance increased $1.6 million due to the purchase of a $1.5 million insurance policy for an executive officer of the Company. Premises and equipment also increased $555,000 due to purchases of software and computer equipment in order to update and maintain systems for efficient performance. During 2017, other real estate owned declined $1.8 million, from $4.2 million at December 31, 2016 to $2.3 million at December 31, 2017. Throughout 2017, the Company sold twenty pieces of property totaling $2.1 million resulting in a net gain on the sale of other real estate owned of $35,000. Furthermore, during 2017, the Company had additional write-downs and changes in reserves of $85,000 from updated appraisals or evaluations. These declines were offset by
71
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
the addition of seven pieces of foreclosed property totaling $361,000. Customer deposits continued to be our principal funding source in 2017. At December 31, 2017, deposits from our customers totaled $512.6 million, an increase of $26.9 million from $485.7 million at December 31, 2016. During 2017, demand noninterest bearing checking increased $10.6 million, while interest checking and money market accounts and savings deposits increased $17.0 million and $3.2 million, respectively. These increases were offset by a decrease in time deposits over $250,000 of $4.4 million. Even though national interest rates have steadily increased, relatively speaking, we are still experiencing a low interest rate environment, which is resulting in customers residing in short term deposit products.
During 2017 the Company’s net borrowings decreased by $922,000. Borrowings consist of both short-term and long-term borrowed funds. The Company utilizes both short-term and long-term advances from the Federal Home Loan Bank. At December 31, 2017, there were no advances outstanding in the total borrowings of $12.2 million. The components of total borrowings include $9.5 million in junior subordinated long-term debt and $1.8 million in master notes.
Other liabilities increased from $6.6 million at December 31, 2016 to $7.8 million at December 31, 2017, an increase of $1.2 million driven by an increase in the value of the supplemental executive retirement plan referenced in Note 17 of the Notes to Consolidated Financial Statements included with this Annual Report.
At December 31, 2017, total shareholders’ equity was $44.5 million, an increase of $1.0 million from December 31, 2016. Net income for the period was $1.6 million. Unrealized losses on investment securities net of tax increased $366,000. The Company repurchased 75,709 outstanding shares of common stock at an aggregate repurchase price of $391,000. The Company also paid $592,000 in dividends attributed to noncontrolling interest. At December 31, 2017, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.
Results of Operations for the Years Ended December 31, 2017 and 2016
Earnings
Uwharrie Capital Corp reported net income of $1.6 million for the twelve months ended December 31, 2017, as compared to $2.2 million for the twelve months ended December 31, 2016, a decrease of $596,000. Net income available to common shareholders was $1.0 million or $0.14 per common share for the year ended December 31, 2017, compared to net income available to common shareholders of $1.6 million or $0.22 per common share for the year ended December 31, 2016. Net income available to common shareholders is net income less any dividends paid on the aforementioned noncontrolling interest.
Net Interest Income
As with most financial institutions, the primary component of earnings for our subsidiary bank is net interest income. Net interest income is the difference between interest income, principally from the loan and investment securities portfolios, and interest expense, principally on customer deposits and wholesale borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as levels of noninterest bearing liabilities and capital.
Net interest income increased $1.3 million to $18.1 million for 2017 compared to the $16.7 million earned in 2016. During 2017, growth in the volume of interest-earning assets outpaced the growth in interest-bearing liabilities by $1.0 million. The average yield on our interest-earning assets decreased 6 basis points to 3.71%, while the average rate paid for interest-bearing liabilities decreased two basis points. These decreases resulted in a net decrease of four basis points in our interest rate spread, from 3.43% in 2016 to 3.39% in 2017. Our net interest margin for 2017 was 3.47%, compared to 3.51% in 2016. As a part of the loan agreements, a portion of the Company’s loan portfolio has interest rate floors and caps. The interest rate floor feature allows the Company to maintain a more 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 80 presents a detailed analysis of the components of the Company’s net interest income, while Financial Table 2 on page 81 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.
72
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
The provision for loan losses was a recovery of ($236,000) and ($88,000) for the twelve months ended December 31, 2017 and 2016, respectively. There were net loan charge-offs of $13,000 for the twelve months ended December 31, 2017 as compared to net loan charge-offs of $89,000 during the same period of 2016. The continued decline in charge-offs and improvement in other credit quality metrics resulted in these recoveries of loan losses. Please refer to the “Asset Quality” discussion beginning on page 75 for further information.
Noninterest Income
The Company generates most of its revenue from net interest income; however, diversification of our earnings base is a key strategic initiative to our long-term success. Noninterest income decreased 9.0%, from $10.3 million in 2016, to $9.4 million in 2017, a decrease of $926,000. A driving factor contributing to this decrease was the decrease in income from mortgage loan sales of $450,000 to $3.3 million for 2017 compared to $3.8 million during 2016. During 2017, an increase in mortgage interest rates led to a decrease in refinances for the Company by 51% from December 31, 2016 to December 31, 2017. Additionally, although expansion in new markets has provided new home sale financing opportunities, total new home sale financings for the Company are only up 2% from December 31, 2016 to December 31, 2017, in line with industry expectations. Additionally, the Company had realized losses on the sale of investments in the amount of $14,000 for the twelve months ending December 31, 2017, as compared to realized gains of $544,000 for the same period in 2016.
Noninterest Expense
Noninterest expense for the year ended December 31, 2017 was $24.3 million compared to $24.0 million for the same period of 2016, an increase of $231,000. Salaries and employee benefits, the largest component of noninterest expense, increased $188,000, from $14.5 million for the period ending December 31, 2016 to $14.7 million for the same period in 2017. Several factors attribute to this increase, including but not limited to the expansion into new markets, increased regulation, and increased market/sales demand. Data processing costs increased $295,000 primarily from conversion costs recognized by the Company. In 2018, the Bank subsidiary is converting its core data processing system to improve operational efficiencies and gain control of future potential opportunities, while working to build a more flexible platform. The costs recognized in 2017 are de-conversion expenses related to the conversion off of the current core provider. Foreclosed real estate expense, another major component of noninterest expense, decreased $208,000, from $501,000 in 2016 to $293,000 during 2017. 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 $217,000 for the comparable twelve-month period. The table on page 84 reflects the additional breakdown of other noninterest expense.
Income Tax Expense
The Company had income tax expense of $1.8 million for 2017 at an effective tax rate of 52.83% compared to income tax expense of $895,000 in 2016 with an effective tax rate of 28.82%. 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 effective tax rate for 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act enacted on December 22, 2017, as more fully discussed below. Under ASC 740, Income Taxes, the effect of income tax law changes on deferred taxes should be recognized as a component of income tax expense related to continuing operations in the period in which the law is enacted. This requirement applies not only to items initially recognized in continuing operations, but also to items initially recognized in other comprehensive income.
The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changes U.S. tax law related to foreign operations, however, such changes do not currently impact us.
73
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Based upon our current 2018 projections, we expect that our effective tax rate for 2018 will be approximately twelve-hundred basis points lower under the new tax law than would have been the case prior to enactment; however, there can be no assurance as to the actual amount of any reduction because it will be dependent upon the nature and amount of future income and expenses as well as transactions with discrete tax effects.
Included in the provision for income taxes during 2017 was and estimated $806,000 write-down as a result of an adjustment in the Company’s net deferred tax assets. The adjustment was based on the aforementioned U.S. federal tax law enacted December 22, 2017. Based on the current year’s earnings and the new U.S. federal statutory income tax rate, the Company anticipates a tax expense savings of approximately $400,000 per year.
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 $0.22 per common share for the year ended December 31, 2016, compared to net income available to common shareholders of $1.4 million or $0.19 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 the loan and investment securities portfolios, and interest expense, principally on customer deposits and wholesale borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as levels of noninterest bearing liabilities and capital.
Net interest income increased $622,000 to $16.7 million for 2016 compared to the $16.1 million earned in 2015. During the year ended December 31, 2016, 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 changes resulted in a 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 80 presents a detailed analysis of the components of the Company’s net interest income, while Financial Table 2 on page 81 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. Please refer to the “Asset Quality” discussion beginning on page 75 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 20.55%, 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 by $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 was the driving force behind the growth in income from loan sales.
74
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Service charges on deposit accounts produced earnings of $1.2 million, a decrease of 8.0%. The primary contributing factor was a decrease in NSF (non-sufficient funds) fees due in large part to changes in regulations. Other noninterest income increased $191,000 or 60.1% for the comparable twelve-month period.
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 $13.2 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 in the mortgage operations department. Professional fees and services increased $109,000 for the twelve-month period. The expansion of the Company resulted in an increase of legal fees associated with legal counsel. 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 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 $241,000 compared to $333,000 for the same period in 2015. Electronic banking expense increased $87,000 for the comparable period in 2015 due to the increased usage of customer debit and credit cards. The increased expense also includes increased revenues found in other service fees and commissions. Other noninterest expense experienced an increase totaling $203,000 for the comparable twelve-month period. The table on page 84 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.
Asset Quality
The Company’s allowance for loan loss 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 loss. 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.
75
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
The allowance for loan loss represents management’s best estimate of an appropriate amount to provide for probable losses 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 loss, 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 loss 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 loss. 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 loss 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 loss may adversely affect the Company’s financial condition and results of operations.
At December 31, 2017, the levels of our impaired loans, which includes all loans in nonaccrual status, TDRs and other loans deemed by management to be impaired, were $5.6 million compared to $6.1 million at December 31, 2016, a net decrease of $520,000. Total nonaccrual loans, which are a component of impaired loans, decreased from $1.5 million at December 31, 2016 to $1.0 million at December 31, 2017. During 2017, ten relationships totaling $811,000 were added to impaired loans. These additions were offset by charging off two impaired relationships totaling $24,000, foreclosing four relationships in the amount of $525,000, six impaired relationships totaling $573,000 paying out, and several relationships with large non-contractual pay downs totaling $209,000.
The allowance expressed as a percentage of gross loans held for investment decreased ten basis points from 0.79% at December 31, 2016 to 0.69% at December 31, 2017. The collectively evaluated reserve allowance as a percentage of collectively evaluated loans was 0.76% at December 31, 2016 and 0.64% at December 31, 2017, while the individually evaluated allowance as a percentage of individually evaluated loans increased from 2.28% to 3.49% 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 captures the mean loss of individual loans within the loan portfolio and adds additional loss based on economic uncertainty and volatility. Specifically, the Company calculates probable losses on loans by computing a probability of loss and multiplying that by a loss given default derived from historical experience, thus deriving the estimated loss scenario by FDIC call report codes. Together, these components, as well as a reserve for qualitative factors based on management’s discretion of economic conditions and portfolio concentrations 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 758 to 761 during 2017. 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 $196,000 in 2017.
The ratio of nonperforming loans, which consist of nonaccrual loans and loans past due 90 days and still accruing, to total loans decreased from 0.42% at December 31, 2016, to 0.29% at December 31, 2017. The decrease is related to the growth in the loan portfolio paired with a $425,000 decline in nonaccrual loans for comparable periods.
Management believes the current level of the allowance for loan loss is appropriate in light of the risk inherent in the loan portfolio.
During 2017, other real estate owned decreased $1.8 million. The Company sold twenty pieces of foreclosed property totaling $2.1 million realizing a gain of $35,000. The Company also had write-downs and changes in reserves totaling $85,000 on the remaining existing property. However, the Company foreclosed on four loan relationships totaling $361,000 and added seven pieces of property to other real estate owned.
Troubled debt restructured loans at December 31, 2017 totaled $4.6 million compared to $4.8 million at December 31, 2017 and are included in impaired loans. At December 31, 2017, all troubled debt restructured loans were on an accruing basis with the exception of one relationship totaling $65,000 that was in nonaccrual.
76
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, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Nonperforming Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans past due 90 days or more |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Nonaccrual loans |
|
| 1,025 |
|
|
| 1,450 |
|
|
| 783 |
|
|
| 2,246 |
|
|
| 4,717 |
|
Other real estate owned |
|
| 2,349 |
|
|
| 4,176 |
|
|
| 4,994 |
|
|
| 5,865 |
|
|
| 7,170 |
|
Total nonperforming assets |
| $ | 3,374 |
|
| $ | 5,626 |
|
| $ | 5,777 |
|
| $ | 8,111 |
|
| $ | 11,887 |
|
Allowance for loan losses |
| $ | 2,458 |
|
| $ | 2,707 |
|
| $ | 2,884 |
|
| $ | 3,738 |
|
| $ | 5,095 |
|
Nonperforming loans to total loans |
|
| 0.29 | % |
|
| 0.42 | % |
|
| 0.24 | % |
|
| 0.72 | % |
|
| 1.53 | % |
Allowance for loan losses to total loans |
|
| 0.69 | % |
|
| 0.79 | % |
|
| 0.90 | % |
|
| 1.20 | % |
|
| 1.66 | % |
Nonperforming assets to total assets |
|
| 0.59 | % |
|
| 1.03 | % |
|
| 1.09 | % |
|
| 1.56 | % |
|
| 2.30 | % |
Allowance for loan losses to nonperforming loans |
|
| 239.80 | % |
|
| 186.69 | % |
|
| 368.23 | % |
|
| 166.48 | % |
|
| 108.02 | % |
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, 2017, 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 3Q 2013, the Company’s subsidiary bank raised an additional $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 2017. 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 2016 and 2015.
77
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
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 82, are supported by cash flows from mortgage-backed securities that have longer-term contractual maturities. Other funding sources at year-end 2017 included $28.0 million in federal funds lines of credit from correspondent banks and approximately $42.4 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 $31.7 million. Growth in deposits is typically the primary source of funding for loans, supported by long-term credit available from the Federal Home Loan Bank.
At December 31, 2017, short-term borrowings amounted to $1.8 million. 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, 2017.
|
| Payments Due by Period (in thousands) |
| |||||||||||||||||
|
|
|
|
|
| On Demand |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| or less |
|
|
|
|
|
|
|
|
|
| After |
| ||
|
| Total |
|
| than 1 year |
|
| 1-3 Years |
|
| 3-5 Years |
|
| 5 Years |
| |||||
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
| $ | 1,752 |
|
| $ | 1,752 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Long-term debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,534 |
|
Operating leases |
|
| 2,513 |
|
|
| 333 |
|
|
| 697 |
|
|
| 503 |
|
|
| 980 |
|
Total contractual cash obligations, excluding deposits |
|
| 4,265 |
|
|
| 2,085 |
|
|
| 697 |
|
|
| 503 |
|
|
| 10,514 |
|
Deposits |
|
| 512,628 |
|
|
| 486,437 |
|
|
| 14,472 |
|
|
| 11,719 |
|
|
| — |
|
Total contractual cash obligations, including deposits |
| $ | 516,893 |
|
| $ | 488,522 |
|
| $ | 15,169 |
|
| $ | 12,222 |
|
| $ | 10,514 |
|
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 loss 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 loss 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.
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
78
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
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 static balance sheet for a two-year horizon, as preferred by regulators. The most recent consolidated 2% rate shock projections for a one-year horizon, indicates a negative impact of (13.12%) on Net Interest Income (Margin) in rates down scenario and a positive impact of 6.89% on Net Interest Income (Margin) in a rates up scenario. Based on the most recent twelve-month forecast, the subsidiary bank is asset sensitive and may experience some negative impact to earnings should interest rates decline. While many interest-bearing assets would reprice in a declining interest rate environment; many liabilities are already approaching 0% interest rates. The subsidiary bank has the potential to benefit from a rising interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the upside potential.
The principal goals for asset liability management for the Company are to maintain adequate levels and sources of liquidity and to manage interest rate risk. Interest rate risk management attempts to balance the effects of interest rate changes on both interest-sensitive assets and interest-sensitive liabilities to protect Net Interest Income (Margin) from wide fluctuations as a result from changes in market interest rates. To that end, management has recommended and the board has approved policy limits that minimize
79
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
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
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||||||||||||||||||||||||
|
|
|
|
|
| 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 |
| $ | 95,831 |
|
|
| 1,582 |
|
|
| 1.65 | % |
| $ | 88,067 |
|
|
| 1,342 |
|
|
| 1.52 | % |
| $ | 96,867 |
|
|
| 1,527 |
|
|
| 1.58 | % |
Non-taxable securities (1) |
|
| 17,194 |
|
|
| 439 |
|
|
| 3.61 | % |
|
| 19,329 |
|
|
| 500 |
|
|
| 4.17 | % |
|
| 15,481 |
|
|
| 410 |
|
|
| 4.27 | % |
Short-term investments |
|
| 65,244 |
|
|
| 750 |
|
|
| 1.15 | % |
|
| 48,754 |
|
|
| 304 |
|
|
| 0.62 | % |
|
| 50,963 |
|
|
| 185 |
|
|
| 0.36 | % |
Taxable loans (2) |
|
| 340,547 |
|
|
| 16,301 |
|
|
| 4.79 | % |
|
| 321,164 |
|
|
| 15,516 |
|
|
| 4.83 | % |
|
| 301,837 |
|
|
| 15,299 |
|
|
| 5.07 | % |
Non-taxable loans (1) |
|
| 10,684 |
|
|
| 268 |
|
|
| 3.54 | % |
|
| 15,141 |
|
|
| 384 |
|
|
| 4.09 | % |
|
| 14,649 |
|
|
| 426 |
|
|
| 4.69 | % |
Total interest-earning assets |
|
| 529,500 |
|
|
| 19,340 |
|
|
| 3.71 | % |
|
| 492,455 |
|
|
| 18,046 |
|
|
| 3.77 | % |
|
| 479,797 |
|
|
| 17,847 |
|
|
| 3.83 | % |
Non-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
| 6,648 |
|
|
|
|
|
|
|
|
|
|
| 6,251 |
|
|
|
|
|
|
|
|
|
|
| 5,966 |
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
| 14,211 |
| �� |
|
|
|
|
|
|
|
|
| 14,443 |
|
|
|
|
|
|
|
|
|
|
| 14,779 |
|
|
|
|
|
|
|
|
|
Interest receivable and other |
|
| 22,271 |
|
|
|
|
|
|
|
|
|
|
| 21,147 |
|
|
|
|
|
|
|
|
|
|
| 21,157 |
|
|
|
|
|
|
|
|
|
Total non-earning assets |
|
| 43,130 |
|
|
|
|
|
|
|
|
|
|
| 41,841 |
|
|
|
|
|
|
|
|
|
|
| 41,902 |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 572,630 |
|
|
|
|
|
|
|
|
|
| $ | 534,296 |
|
|
|
|
|
|
|
|
|
| $ | 521,699 |
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
| $ | 44,923 |
|
| $ | 49 |
|
|
| 0.11 | % |
| $ | 41,657 |
|
| $ | 47 |
|
|
| 0.11 | % |
| $ | 39,393 |
|
| $ | 44 |
|
|
| 0.11 | % |
Interest checking & MMDA |
|
| 279,216 |
|
|
| 413 |
|
|
| 0.15 | % |
|
| 254,144 |
|
|
| 310 |
|
|
| 0.12 | % |
|
| 239,546 |
|
|
| 278 |
|
|
| 0.12 | % |
Time deposits |
|
| 66,955 |
|
|
| 252 |
|
|
| 0.38 | % |
|
| 72,127 |
|
|
| 366 |
|
|
| 0.51 | % |
|
| 89,091 |
|
|
| 797 |
|
|
| 0.89 | % |
Total deposits |
|
| 391,094 |
|
|
| 714 |
|
|
| 0.18 | % |
|
| 367,928 |
|
|
| 723 |
|
|
| 0.20 | % |
|
| 368,030 |
|
|
| 1,119 |
|
|
| 0.30 | % |
Short-term borrowed funds |
|
| 2,145 |
|
|
| 16 |
|
|
| 0.75 | % |
|
| 3,357 |
|
|
| 37 |
|
|
| 1.10 | % |
|
| 4,880 |
|
|
| 64 |
|
|
| 1.31 | % |
Long-term debt |
|
| 9,534 |
|
|
| 547 |
|
|
| 5.74 | % |
|
| 9,541 |
|
|
| 550 |
|
|
| 5.76 | % |
|
| 9,552 |
|
|
| 550 |
|
|
| 5.76 | % |
Total interest-bearing liabilities |
|
| 402,773 |
|
|
| 1,277 |
|
|
| 0.32 | % |
|
| 380,826 |
|
|
| 1,310 |
|
|
| 0.34 | % |
|
| 382,462 |
|
|
| 1,733 |
|
|
| 0.45 | % |
Noninterest liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction deposits |
|
| 118,258 |
|
|
|
|
|
|
|
|
|
|
| 102,993 |
|
|
|
|
|
|
|
|
|
|
| 90,625 |
|
|
|
|
|
|
|
|
|
Interest payable and other |
|
| 7,057 |
|
|
|
|
|
|
|
|
|
|
| 6,194 |
|
|
|
|
|
|
|
|
|
|
| 5,489 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 528,088 |
|
|
|
|
|
|
|
|
|
|
| 490,013 |
|
|
|
|
|
|
|
|
|
|
| 478,576 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
| 44,542 |
|
|
|
|
|
|
|
|
|
|
| 44,283 |
|
|
|
|
|
|
|
|
|
|
| 43,123 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
| $ | 572,630 |
|
|
|
|
|
|
|
|
|
| $ | 534,296 |
|
|
|
|
|
|
|
|
|
| $ | 521,699 |
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
| 3.39 | % |
|
|
|
|
|
|
|
|
|
| 3.43 | % |
|
|
|
|
|
|
|
|
|
| 3.38 | % |
Net interest income and net interest margin |
|
|
|
|
| $ | 18,063 |
|
|
| 3.47 | % |
|
|
|
|
| $ | 16,736 |
|
|
| 3.51 | % |
|
|
|
|
| $ | 16,114 |
|
|
| 3.47 | % |
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. |
80
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Volume and Rate Variance Analysis
|
| 2017 Versus 2016 |
|
| 2016 Versus 2015 |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
| Net |
| ||
(dollars in thousands) |
| Volume |
|
| Rate |
|
| Change |
|
| Volume |
|
| Rate |
|
| Change |
| ||||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities |
| $ | 123 |
|
| $ | 117 |
|
| $ | 240 |
|
| $ | (136 | ) |
| $ | (49 | ) |
| $ | (185 | ) |
Non-taxable securities |
|
| (55 | ) |
|
| (6 | ) |
|
| (61 | ) |
|
| 101 |
|
|
| (11 | ) |
|
| 90 |
|
Short-term investments |
|
| 146 |
|
|
| 300 |
|
|
| 446 |
|
|
| (11 | ) |
|
| 130 |
|
|
| 119 |
|
Taxable loans |
|
| 932 |
|
|
| (147 | ) |
|
| 785 |
|
|
| 957 |
|
|
| (740 | ) |
|
| 217 |
|
Non-taxable loans |
|
| (112 | ) |
|
| (4 | ) |
|
| (116 | ) |
|
| 13 |
|
|
| (55 | ) |
|
| (42 | ) |
Total interest-earning assets |
|
| 1,034 |
|
|
| 260 |
|
|
| 1,294 |
|
|
| 924 |
|
|
| (725 | ) |
|
| 199 |
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits |
|
| 4 |
|
|
| (2 | ) |
|
| 2 |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
Transaction and MMDA deposits |
|
| 34 |
|
|
| 69 |
|
|
| 103 |
|
|
| 17 |
|
|
| 15 |
|
|
| 32 |
|
Other time deposits |
|
| (23 | ) |
|
| (91 | ) |
|
| (114 | ) |
|
| (119 | ) |
|
| (312 | ) |
|
| (431 | ) |
Short-term borrowed funds |
|
| (11 | ) |
|
| (10 | ) |
|
| (21 | ) |
|
| (18 | ) |
|
| (9 | ) |
|
| (27 | ) |
Long-term debt |
|
| — |
|
|
| (3 | ) |
|
| (3 | ) |
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
Total interest-bearing liabilities |
|
| 4 |
|
|
| (37 | ) |
|
| (33 | ) |
|
| (118 | ) |
|
| (305 | ) |
|
| (423 | ) |
Net interest income |
| $ | 1,030 |
|
| $ | 297 |
|
| $ | 1,327 |
|
| $ | 1,042 |
|
| $ | (420 | ) |
| $ | 622 |
|
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.
81
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Investment Securities Portfolio Analysis
|
| December 31, 2017 |
|
| December 31, 2016 |
|
| December 31, 2015 |
| |||||||||||||||||||||||||||
|
|
|
|
|
| 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 | % |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,017 |
|
|
| 4,014 |
|
|
| 1.13 | % |
|
| 4,026 |
|
|
| 4,012 |
|
|
| 1.13 | % |
U.S. Government agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Due after one but within five years |
|
| 42,737 |
|
|
| 41,968 |
|
|
| 1.47 | % |
|
| 37,627 |
|
|
| 37,224 |
|
|
| 1.31 | % |
|
| 27,671 |
|
|
| 27,635 |
|
|
| 1.43 | % |
Due after five but within ten years |
|
| 8,678 |
|
|
| 8,558 |
|
|
| 1.91 | % |
|
| 14,453 |
|
|
| 14,082 |
|
|
| 1.93 | % |
|
| 2,193 |
|
|
| 2,199 |
|
|
| 1.05 | % |
Due after ten years |
|
| 5,107 |
|
|
| 5,089 |
|
|
| 1.79 | % |
|
| 6,425 |
|
|
| 6,365 |
|
|
| 1.48 | % |
|
| 6,295 |
|
|
| 6,236 |
|
|
| 1.23 | % |
|
|
| 56,522 |
|
|
| 55,615 |
|
|
| 1.57 | % |
|
| 58,505 |
|
|
| 57,671 |
|
|
| 1.48 | % |
|
| 36,159 |
|
|
| 36,070 |
|
|
| 1.37 | % |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
| 1,148 |
|
|
| 1,154 |
|
|
| 2.46 | % |
|
| 3,382 |
|
|
| 3,265 |
|
|
| 1.93 | % |
|
| 4,351 |
|
|
| 4,317 |
|
|
| 1.90 | % |
Due after five but within ten years |
|
| 6,659 |
|
|
| 6,582 |
|
|
| 2.03 | % |
|
| 6,961 |
|
|
| 6,846 |
|
|
| 2.18 | % |
|
| 8,545 |
|
|
| 8,489 |
|
|
| 2.32 | % |
Due after ten years |
|
| 13,446 |
|
|
| 13,155 |
|
|
| 1.94 | % |
|
| 15,853 |
|
|
| 15,537 |
|
|
| 1.93 | % |
|
| 17,373 |
|
|
| 16,967 |
|
|
| 1.89 | % |
|
|
| 21,253 |
|
|
| 20,891 |
|
|
| 2.00 | % |
|
| 26,196 |
|
|
| 25,648 |
|
|
| 2.00 | % |
|
| 30,269 |
|
|
| 29,773 |
|
|
| 2.01 | % |
State and political |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
| 810 |
|
|
| 820 |
|
|
| 5.95 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 471 |
|
|
| 473 |
|
|
| 5.77 | % |
Due after one but within five years |
|
| 1,863 |
|
|
| 1,866 |
|
|
| 3.37 | % |
|
| 2,597 |
|
|
| 2,638 |
|
|
| 4.04 | % |
|
| 3,304 |
|
|
| 3,423 |
|
|
| 3.86 | % |
Due after five but within ten years |
|
| 1,971 |
|
|
| 1,943 |
|
|
| 3.48 | % |
|
| 2,877 |
|
|
| 2,819 |
|
|
| 4.29 | % |
|
| 1,399 |
|
|
| 1,421 |
|
|
| 6.28 | % |
Due after ten years |
|
| 9,724 |
|
|
| 9,570 |
|
|
| 2.45 | % |
|
| 8,649 |
|
|
| 8,079 |
|
|
| 2.39 | % |
|
| 8,517 |
|
|
| 8,722 |
|
|
| 3.77 | % |
|
|
| 14,368 |
|
|
| 14,199 |
|
|
| 2.91 | % |
|
| 14,123 |
|
|
| 13,536 |
|
|
| 3.08 | % |
|
| 13,691 |
|
|
| 14,039 |
|
|
| 4.12 | % |
Corporate Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,400 |
|
|
| 2,399 |
|
|
| 1.19 | % |
Due after one but within five years |
|
| 2,827 |
|
|
| 2,821 |
|
|
| 2.15 | % |
|
| 2,836 |
|
|
| 2,798 |
|
|
| 2.15 | % |
|
| 814 |
|
|
| 798 |
|
|
| 1.79 | % |
Due after five but within ten years |
|
| 2,215 |
|
|
| 2,217 |
|
|
| 1.50 | % |
|
| 2,218 |
|
|
| 2,232 |
|
|
| 1.50 | % |
|
| 2,221 |
|
|
| 2,167 |
|
|
| 1.38 | % |
|
|
| 5,042 |
|
|
| 5,038 |
|
|
| 1.86 | % |
|
| 5,054 |
|
|
| 5,030 |
|
|
| 1.86 | % |
|
| 5,435 |
|
|
| 5,364 |
|
|
| 1.36 | % |
Total Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
| 810 |
|
|
| 820 |
|
|
| 5.95 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,871 |
|
|
| 2,872 |
|
|
| 1.94 | % |
Due after one but within five years |
|
| 48,575 |
|
|
| 47,809 |
|
|
| 1.61 | % |
|
| 50,459 |
|
|
| 49,939 |
|
|
| 1.56 | % |
|
| 40,166 |
|
|
| 40,185 |
|
|
| 1.66 | % |
Due after five but within ten years |
|
| 19,523 |
|
|
| 19,300 |
|
|
| 2.06 | % |
|
| 26,509 |
|
|
| 25,979 |
|
|
| 2.22 | % |
|
| 14,358 |
|
|
| 14,276 |
|
|
| 2.37 | % |
Due after ten years |
|
| 28,277 |
|
|
| 27,814 |
|
|
| 2.09 | % |
|
| 30,927 |
|
|
| 29,981 |
|
|
| 1.98 | % |
|
| 32,185 |
|
|
| 31,925 |
|
|
| 2.26 | % |
|
| $ | 97,185 |
|
| $ | 95,743 |
|
|
| 1.88 | % |
| $ | 107,895 |
|
| $ | 105,899 |
|
|
| 1.85 | % |
| $ | 89,580 |
|
| $ | 89,258 |
|
|
| 2.00 | % |
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. |
82
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Investment Securities Portfolio Analysis (Continued)
|
| December 31, 2017 |
|
| December 31, 2016 |
|
| December 31, 2015 |
| |||||||||||||||||||||||||||
|
|
|
|
|
| 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 |
| $ | 1,348 |
|
| $ | 1,339 |
|
|
| 2.49 | % |
| $ | 1,754 |
|
| $ | 1,737 |
|
|
| 2.49 | % |
| $ | 1,911 |
|
| $ | 1,906 |
|
|
| 2.39 | % |
|
|
| 1,348 |
|
|
| 1,339 |
|
|
| 2.49 | % |
|
| 1,754 |
|
|
| 1,737 |
|
|
| 2.49 | % |
|
| 1,911 |
|
|
| 1,906 |
|
|
| 2.39 | % |
State and political |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
| 3,694 |
|
|
| 3,681 |
|
|
| 2.28 | % |
|
| 2,952 |
|
|
| 2,935 |
|
|
| 2.21 | % |
|
| 1,944 |
|
|
| 1,953 |
|
|
| 2.27 | % |
Due after five but within ten years |
|
| 3,231 |
|
|
| 3,231 |
|
|
| 3.03 | % |
|
| 4,022 |
|
|
| 3,986 |
|
|
| 2.95 | % |
|
| 4,049 |
|
|
| 4,065 |
|
|
| 2.95 | % |
|
|
| 6,925 |
|
|
| 6,912 |
|
|
| 2.63 | % |
|
| 6,974 |
|
|
| 6,921 |
|
|
| 2.63 | % |
|
| 5,993 |
|
|
| 6,018 |
|
|
| 2.73 | % |
Corporate Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after five but within five years |
|
| 3,185 |
|
|
| 3,210 |
|
|
| 2.76 | % |
|
| 3,262 |
|
|
| 3,276 |
|
|
| 2.76 | % |
|
| 3,338 |
|
|
| 3,318 |
|
|
| 2.76 | % |
|
|
| 3,185 |
|
|
| 3,210 |
|
|
| 2.76 | % |
|
| 3,262 |
|
|
| 3,276 |
|
|
| 2.76 | % |
|
| 3,338 |
|
|
| 3,318 |
|
|
| 2.76 | % |
Total Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
| 3,694 |
|
|
| 3,681 |
|
|
| 2.51 | % |
|
| 2,952 |
|
|
| 2,935 |
|
|
| 2.50 | % |
|
| 1,944 |
|
|
| 1,953 |
|
|
| 2.58 | % |
Due after five but within ten years |
|
| 7,764 |
|
|
| 7,780 |
|
|
| 2.87 | % |
|
| 9,038 |
|
|
| 8,999 |
|
|
| 2.81 | % |
|
| 9,298 |
|
|
| 9,289 |
|
|
| 2.77 | % |
|
| $ | 11,458 |
|
| $ | 11,461 |
|
|
| 2.65 | % |
| $ | 11,990 |
|
| $ | 11,934 |
|
|
| 2.65 | % |
| $ | 11,242 |
|
| $ | 11,242 |
|
|
| 2.68 | % |
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) |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Service charges on deposit accounts |
| $ | 1,169 |
|
| $ | 1,189 |
|
| $ | 1,293 |
|
Other banking fees |
|
| 2,218 |
|
|
| 2,125 |
|
|
| 2,110 |
|
Asset management fees |
|
| 1,481 |
|
|
| 1,574 |
|
|
| 1,737 |
|
Brokerage commissions |
|
| 608 |
|
|
| 595 |
|
|
| 270 |
|
Other noninterest income |
|
| 592 |
|
|
| 514 |
|
|
| 317 |
|
Income from mortgage loan sales |
|
| 3,345 |
|
|
| 3,795 |
|
|
| 2,306 |
|
Security gains (losses) |
|
| (14 | ) |
|
| 544 |
|
|
| 536 |
|
Other gains (losses) from sale of assets |
|
| 2 |
|
|
| (5 | ) |
|
| 1 |
|
Total noninterest income |
| $ | 9,401 |
|
| $ | 10,331 |
|
| $ | 8,570 |
|
83
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Other Noninterest Expense
|
| Year Ended December 31, |
| |||||||||
(dollars in thousands) |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Postage |
| $ | 199 |
|
| $ | 195 |
|
| $ | 184 |
|
Telephone and data lines |
|
| 166 |
|
|
| 168 |
|
|
| 156 |
|
Loan collection cost |
|
| 348 |
|
|
| 175 |
|
|
| 121 |
|
Shareholder relations expense |
|
| 167 |
|
|
| 129 |
|
|
| 140 |
|
Dues and subscriptions |
|
| 221 |
|
|
| 197 |
|
|
| 167 |
|
Other |
|
| 1,227 |
|
|
| 1,681 |
|
|
| 1,574 |
|
Total other noninterest expense |
| $ | 2,328 |
|
| $ | 2,545 |
|
| $ | 2,342 |
|
Financial Table 6
Loan Portfolio Composition
|
| At December 31, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||||||||||||
|
|
|
|
|
| % of Total |
|
|
|
|
|
| % of Total |
|
|
|
|
|
| % of Total |
| |||
(dollars in thousands) |
| Amount |
|
| Loans |
|
| Amount |
|
| Loans |
|
| Amount |
|
| Loans |
| ||||||
Loan type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 54,912 |
|
|
| 15.38 | % |
| $ | 55,752 |
|
|
| 16.31 | % |
| $ | 52,311 |
|
|
| 16.34 | % |
Real estate - construction |
|
| 45,210 |
|
|
| 12.66 | % |
|
| 32,344 |
|
|
| 9.46 | % |
|
| 23,321 |
|
|
| 7.29 | % |
Real estate - residential |
|
| 128,529 |
|
|
| 36.01 | % |
|
| 132,514 |
|
|
| 38.77 | % |
|
| 132,799 |
|
|
| 41.49 | % |
Real estate - commercial |
|
| 114,712 |
|
|
| 32.13 | % |
|
| 109,752 |
|
|
| 32.11 | % |
|
| 101,198 |
|
|
| 31.62 | % |
Consumer |
|
| 10,774 |
|
|
| 3.02 | % |
|
| 9,711 |
|
|
| 2.84 | % |
|
| 8,982 |
|
|
| 2.81 | % |
Other |
|
| 2,838 |
|
|
| 0.80 | % |
|
| 1,687 |
|
|
| 0.49 | % |
|
| 1,481 |
|
|
| 0.45 | % |
Total loans |
|
| 356,975 |
|
|
| 100.00 | % |
|
| 341,760 |
|
|
| 100.00 | % |
|
| 320,092 |
|
|
| 100.00 | % |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
| (2,458 | ) |
|
|
|
|
|
| (2,707 | ) |
|
|
|
|
|
| (2,884 | ) |
|
|
|
|
Unearned net loan fees |
|
| (104 | ) |
|
|
|
|
|
| 69 |
|
|
|
|
|
|
| 40 |
|
|
|
|
|
Net loans |
| $ | 354,413 |
|
|
|
|
|
| $ | 339,122 |
|
|
|
|
|
| $ | 317,248 |
|
|
|
|
|
|
| At December 31, |
| |||||||||||||
|
| 2014 |
|
| 2013 |
| ||||||||||
|
|
|
|
|
| % of Total |
|
|
|
|
|
| % of Total |
| ||
|
| Amount |
|
| Loans |
|
| Amount |
|
| Loans |
| ||||
Loan type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 47,418 |
|
|
| 15.25 | % |
| $ | 47,436 |
|
|
| 15.44 | % |
Real estate - construction |
|
| 26,250 |
|
|
| 8.44 | % |
|
| 21,001 |
|
|
| 6.83 | % |
Real estate - residential |
|
| 135,734 |
|
|
| 43.67 | % |
|
| 132,694 |
|
|
| 43.18 | % |
Real estate - commercial |
|
| 92,517 |
|
|
| 29.76 | % |
|
| 95,922 |
|
|
| 31.22 | % |
Consumer |
|
| 8,460 |
|
|
| 2.72 | % |
|
| 9,623 |
|
|
| 3.13 | % |
Other |
|
| 481 |
|
|
| 0.16 | % |
|
| 612 |
|
|
| 0.20 | % |
Total loans |
|
| 310,860 |
|
|
| 100.00 | % |
|
| 307,288 |
|
|
| 100.00 | % |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
| (3,738 | ) |
|
|
|
|
|
| (5,095 | ) |
|
|
|
|
Unearned net loan fees |
|
| (7 | ) |
|
|
|
|
|
| 60 |
|
|
|
|
|
Net loans |
| $ | 307,115 |
|
|
|
|
|
| $ | 302,253 |
|
|
|
|
|
84
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Selected Loan Maturities
|
| December 31, 2017 |
| |||||||||||||
|
| One Year |
|
| One to |
|
| Over Five |
|
|
|
|
| |||
(dollars in thousands) |
| or Less |
|
| Five Years |
|
| Years |
|
| Total |
| ||||
Commercial and agricultural |
| $ | 10,424 |
|
| $ | 17,501 |
|
| $ | 26,987 |
|
| $ | 54,912 |
|
Real estate – construction |
|
| 12,249 |
|
|
| 4,971 |
|
|
| 27,990 |
|
|
| 45,210 |
|
Total selected loans |
| $ | 22,673 |
|
| $ | 22,472 |
|
| $ | 54,977 |
|
| $ | 100,122 |
|
Fixed rate loans |
| $ | 12,086 |
|
| $ | 43,741 |
|
| $ | 47,238 |
|
| $ | 103,065 |
|
Sensitivity to rate changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rates |
| $ | 29,131 |
|
| $ | 15,998 |
|
| $ | 208,677 |
|
| $ | 253,806 |
|
Financial Table 8
Activity in the Allowance for Loan Loss
|
| At or for the Year Ended December 31, |
| |||||||||||||||||
(dollars in thousands) |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Allowance for loan losses at beginning of year |
| $ | 2,707 |
|
| $ | 2,884 |
|
| $ | 3,738 |
|
| $ | 5,095 |
|
| $ | 6,801 |
|
Provision for (recovery of) loan losses |
|
| (236 | ) |
|
| (88 | ) |
|
| (620 | ) |
|
| (389 | ) |
|
| 28 |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
Loan charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 16 |
|
|
| 76 |
|
|
| 34 |
|
|
| 8 |
|
|
| 571 |
|
Real estate |
|
| 107 |
|
|
| 172 |
|
|
| 427 |
|
|
| 1,140 |
|
|
| 1,225 |
|
Consumer |
|
| 85 |
|
|
| 142 |
|
|
| 128 |
|
|
| 83 |
|
|
| 175 |
|
Total charge-offs |
|
| 208 |
|
|
| 390 |
|
|
| 589 |
|
|
| 1,231 |
|
|
| 1,971 |
|
Recoveries of loans previously charged off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 75 |
|
|
| 19 |
|
|
| 16 |
|
|
| 81 |
|
|
| 14 |
|
Real estate |
|
| 82 |
|
|
| 209 |
|
|
| 278 |
|
|
| 138 |
|
|
| 180 |
|
Consumer |
|
| 38 |
|
|
| 73 |
|
|
| 61 |
|
|
| 44 |
|
|
| 48 |
|
Total recoveries |
|
| 195 |
|
|
| 301 |
|
|
| 355 |
|
|
| 263 |
|
|
| 242 |
|
Net charge-offs |
|
| 13 |
|
|
| 89 |
|
|
| 234 |
|
|
| 968 |
|
|
| 1,729 |
|
Allowance for loan losses at end of year |
| $ | 2,458 |
|
| $ | 2,707 |
|
| $ | 2,884 |
|
| $ | 3,738 |
|
| $ | 5,095 |
|
Net (charge-offs) recoveries as a percent of average loans |
|
| 0.00 | % |
|
| 0.03 | % |
|
| 0.07 | % |
|
| 0.31 | % |
|
| 0.55 | % |
Financial Table 9
Allocation of the Allowance for Loan Losses
|
| At December 31, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||||||||||||
|
|
|
|
|
| % of Total |
|
|
|
|
|
| % of Total |
|
|
|
|
|
| % of Total |
| |||
(dollars in thousands) |
| Amount |
|
| Loans (1) |
|
| Amount |
|
| Loans (1) |
|
| Amount |
|
| Loans (1) |
| ||||||
Commercial |
| $ | 770 |
|
|
| 15.38 | % |
| $ | 636 |
|
|
| 16.31 | % |
| $ | 478 |
|
|
| 16.34 | % |
Real estate - construction |
|
| 168 |
|
|
| 12.66 | % |
|
| 240 |
|
|
| 9.46 | % |
|
| 227 |
|
|
| 7.29 | % |
Real estate - residential |
|
| 971 |
|
|
| 36.01 | % |
|
| 1,103 |
|
|
| 38.77 | % |
|
| 1,338 |
|
|
| 41.49 | % |
Real estate - commercial |
|
| 497 |
|
|
| 32.13 | % |
|
| 553 |
|
|
| 32.11 | % |
|
| 653 |
|
|
| 31.62 | % |
Other |
|
| 52 |
|
|
| 3.02 | % |
|
| 175 |
|
|
| 2.84 | % |
|
| 188 |
|
|
| 2.81 | % |
Unallocated |
|
| — |
|
|
| 0.80 | % |
|
| — |
|
|
| 0.49 | % |
|
| — |
|
|
| 0.45 | % |
Total loans |
| $ | 2,458 |
|
|
| 100.00 | % |
| $ | 2,707 |
|
|
| 100.00 | % |
| $ | 2,884 |
|
|
| 100.00 | % |
85
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
|
| At December 31, |
| |||||||||||||
|
| 2014 |
|
| 2013 |
| ||||||||||
|
|
|
|
|
| % of Total |
|
|
|
|
|
| % of Total |
| ||
|
| Amount |
|
| Loans (1) |
|
| Amount |
|
| Loans (1) |
| ||||
Commercial |
| $ | 790 |
|
|
| 15.25 | % |
| $ | 722 |
|
|
| 15.44 | % |
Real estate – construction |
|
| 223 |
|
|
| 8.44 | % |
|
| 1,203 |
|
|
| 6.83 | % |
Real estate – residential |
|
| 1,775 |
|
|
| 43.67 | % |
|
| 2,025 |
|
|
| 43.18 | % |
Real estate – commercial |
|
| 738 |
|
|
| 29.76 | % |
|
| 890 |
|
|
| 31.22 | % |
Other |
|
| 212 |
|
|
| 2.72 | % |
|
| 255 |
|
|
| 3.13 | % |
Unallocated |
|
| — |
|
|
| 0.16 | % |
|
| — |
|
|
| 0.20 | % |
Total loans |
| $ | 3,738 |
|
|
| 100.00 | % |
| $ | 5,095 |
|
|
| 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
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||||||||||||
(dollars in thousands) |
| Amount |
|
| Rate |
|
| Amount |
|
| Rate |
|
| Amount |
|
| Rate |
| ||||||
At year-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master notes and other secured borrowings |
|
| 1,752 |
|
|
| 0.50 | % |
|
| 2,162 |
|
|
| 0.25 | % |
|
| 3,396 |
|
|
| 0.25 | % |
Notes payable |
|
| — |
|
|
| 0.00 | % |
|
| 12 |
|
|
| 6.00 | % |
|
| 12 |
|
|
| 6.00 | % |
Short-term line of credit |
|
| — |
|
|
| 0.00 | % |
|
| 500 |
|
|
| 3.75 | % |
|
| 2,350 |
|
|
| 3.50 | % |
|
| $ | 1,752 |
|
|
| 0.50 | % |
| $ | 2,674 |
|
|
| 0.93 | % |
| $ | 5,758 |
|
|
| 1.59 | % |
Average for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchase |
| $ | 2 |
|
|
| 1.95 | % |
| $ | 2 |
|
|
| 1.35 | % |
| $ | 2 |
|
|
| 0.79 | % |
Master notes and other secured borrowings |
|
| 1,861 |
|
|
| 0.28 | % |
|
| 2,540 |
|
|
| 0.25 | % |
|
| 3,280 |
|
|
| 0.25 | % |
Notes payable |
|
| 6 |
|
|
| 5.81 | % |
|
| 13 |
|
|
| 5.83 | % |
|
| 18 |
|
|
| 6.00 | % |
Short-term line of credit |
|
| 275 |
|
|
| 3.58 | % |
|
| 802 |
|
|
| 3.68 | % |
|
| 1,598 |
|
|
| 3.51 | % |
Short-term advances from FHLB |
|
| — |
|
|
| 0.00 | % |
|
| — |
|
|
| 0.00 | % |
|
| — |
|
|
| 0.00 | % |
|
| $ | 2,144 |
|
|
| 0.72 | % |
| $ | 3,357 |
|
|
| 1.09 | % |
| $ | 4,898 |
|
|
| 1.32 | % |
Maximum month-end balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master notes and other secured borrowings |
|
| 2,294 |
|
|
|
|
|
|
| 4,325 |
|
|
|
|
|
|
| 4,736 |
|
|
|
|
|
Notes payable |
|
| 12 |
|
|
|
|
|
|
| 12 |
|
|
|
|
|
|
| 12 |
|
|
|
|
|
Short-term line of credit |
|
| 1,000 |
|
|
|
|
|
|
| 2,350 |
|
|
|
|
|
|
| 2,350 |
|
|
|
|
|
Short-term advances from FHLB |
|
| — |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| — |
|
|
|
|
|
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 |
| $ | 188 |
|
| $ | 255 |
|
| $ | 3,957 |
|
| $ | 3,533 |
|
| $ | 7,933 |
|
Other Time Deposits |
|
| 10,297 |
|
|
| 9,485 |
|
|
| 12,843 |
|
|
| 22,657 |
|
|
| 55,282 |
|
|
| $ | 10,485 |
|
| $ | 9,740 |
|
| $ | 16,800 |
|
| $ | 26,190 |
|
| $ | 63,215 |
|
86
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition
And Results of Operations
Performance Ratios
|
| At December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Return on average assets |
|
| 0.28 | % |
|
| 0.41 | % |
|
| 0.38 | % |
|
| 0.33 | % |
|
| 0.18 | % |
Return on average equity |
|
| 3.62 | % |
|
| 4.99 | % |
|
| 4.65 | % |
|
| 4.03 | % |
|
| 2.17 | % |
Equity to average assets ratio |
|
| 7.78 | % |
|
| 8.29 | % |
|
| 8.27 | % |
|
| 8.11 | % |
|
| 8.34 | % |
87
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. |
Bill C. Burnside, DDS |
|
|
|
|
Board Chairman |
| Samuel M. Leder |
| S. Todd Swaringen |
Retired – General Dentist |
| Certified Public Accountant/ |
| Certified Public Accountant/ |
|
| Partner |
| Partner |
James O. Campbell |
| Potter & Company, P.A. |
| Beane Swaringen & |
Vice President of Construction Sales |
|
|
| Company, PLLC |
AvidXchange, Inc. |
| W. Chester Lowder |
|
|
|
| Director of Livestock Program |
|
|
Raymond R. Cranford, Jr. |
| Public Policy Division |
|
|
Owner and Vice President of Sales |
| NC Farm Bureau |
|
|
Crook Motor Co., Inc. |
| Federation, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officers | ||||
|
|
| ||
Roger L. Dick |
| Brendan P. Duffey |
| R. David Beaver, III |
President and |
| Chief Operating Officer and |
| Chief Financial Officer |
Chief Executive Officer |
| Chief Risk Officer |
| Uwharrie Capital Corp |
Uwharrie Capital Corp; |
| Uwharrie Capital Corp; |
| and Uwharrie Bank |
Chief Executive Officer |
| President |
|
|
Uwharrie Bank |
| Uwharrie Bank |
|
|
88