Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
A discussion and analysis of the Company’s operating results and financial condition are presented in the following narrative and financial tables. This discussion is intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto appearing on pages 31 through 69 of this Annual Report. References to changes in assets and liabilities represent end-of-period balances unless otherwise noted. Statements contained in this Annual Report, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary because of market and other factors. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents periodically filed by the Company with the SEC. Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “might,” “planned,” “estimated,” “potential,” and similar words. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, results of operations and business of the Company that are subject to various factors, which could cause actual results to differ materially from these estimates. These factors include, but are not limited to: increases in our past due loans and provision for credit losses that may result from local and/or broader economic effects, including constraints on the availability of credit that may impact our borrowers; declines in general economic conditions, including increased stress in the financial markets; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. Any use of “we” or “our” in the following discussion refers to the Company on a consolidated basis.
Financial Condition at December 31, 2025 and December 31, 2024
The Company’s total assets increased $67.5 million from $1.13 billion at December 31, 2024 to $1.20 billion at December 31, 2025. Cash and cash equivalents increased $21.1 million during the same period as a result of growth in customer deposits.
Investment securities consist of securities available for sale and securities held to maturity. Total investment securities increased $20.0 million, or 5.5%, from $359.7 million at December 31, 2024 to $379.7 million at December 31, 2025. At December 31, 2025, the Company had net unrealized losses on securities available for sale of $21.5 million, compared to net unrealized losses of $32.1 million at December 31, 2024. The allowance for credit losses on securities held to maturity was $68,000 at December 31, 2024. During 2025, a recovery of $23,000 was recorded against the allowance for credit losses on securities held to maturity bringing the balance to $45,000, with an amortized cost basis of $22.0 million, at December 31, 2025.
During 2025, the unrealized gain on equity securities decreased by $31,000, resulting in a fair value of $303,000 at December 31, 2025, compared to a fair value of $334,000 at December 31, 2024.
Loans held for sale increased $4.5 million from December 31, 2024 to $9.0 million at December 31, 2025. Loans held for investment increased $23.2 million, or 3.5%, from $666.4 million at December 31, 2024 to $689.6 million at December 31, 2025. The Company experienced net growth in all loan sectors with the exception of loans categorized as “Real Estate 1-4 Family Construction,” “Consumer,” and “Commercial - Other”.
The allowance for credit losses on loans was $5.8 million at December 31, 2024, which represented 0.87% of the total loans held for investment. At December 31, 2025, the allowance for credit losses on loans was $6.4 million, or 0.93% of total loans held for investment. Additional discussion regarding the allowance is included in the Asset Quality section below.
Other changes in the Company’s consolidated assets are primarily related to deferred tax assets, which decreased $2.1 million from $9.0 million at December 31, 2024 to $6.8 million at December 31, 2025 as a result of the improvement in fair value of the available for sale securities portfolio. Annual Company contributions, supplemented by positive market adjustments, increased the balance of supplemental executive retirement plans (“SERPs”), included in Other Assets, by $855,000 during 2025. Also included in Other Assets, accounts receivable increased $376,000 during the same period as a result of larger payments receivable on U.S. government agency securities.
Customer deposits, our primary funding source, experienced a $50.5 million increase during the year, increasing from $1.03 billion to $1.08 billion at December 31, 2025, a 4.9% increase. The overall increase in deposits is attributable to organic deposit growth. During 2025, demand noninterest-bearing checking accounts decreased $2.8 million and interest checking and money market accounts increased $26.3 million. Savings deposits increased $12.1 million and time deposits increased $14.9 million during the twelve-month period ended December 31, 2025.
Borrowings consist of both short-term and long-term borrowed funds. The Company has access to both short-term and long-term advances from the Federal Home Loan Bank. At December 31, 2025 and 2024, there were no outstanding Federal Home Loan Bank advances. During 2025, the Company’s net borrowings decreased by $1.5 million due to the closing of a master note account that carried a balance of $1.1 million. Short-term borrowings consisted of $25,000 in master notes, and long-term borrowings consisted solely of junior subordinated debt securities totaling $29.0 million, net of unamortized debt issuance costs of $154,000, at December 31, 2025.
Other changes in the Company’s liabilities are related to an increase of $558,000 in other liabilities from December 31, 2024 to December 31, 2025 resulting primarily from an increase in SERP balances, which increased $855,000 for the year. This increase was largely offset by a decrease of $428,000 in lease liability as leases approach expiration.
At December 31, 2025, total shareholders’ equity was $75.6 million, an increase of $17.9 million from December 31, 2024. Net income for the year ended December 31, 2025 was $11.4 million. Improvement in the unrealized loss position on our available for sale securities portfolio contributed $8.2 million to the increase in shareholders’ equity during the same period. During the twelve-month period ended December 31, 2025, the Company repurchased 110,939 shares of common stock at a total cost of $1.1 million, and the Company paid $565,000 in dividends attributable to noncontrolling interest. See Note 1 (Significant Accounting Policies) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest. At December 31, 2025, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.
Results of Operations for the Years Ended December 31, 2025 and 2024
Net Income and Net Income Available to Common Shareholders
Uwharrie Capital Corp reported net income of $11.4 million for the twelve months ended December 31, 2025, compared to $9.9 million for the twelve months ended December 31, 2024, an increase of $1.4 million. Net income available to common shareholders was $10.8 million, or $1.49 per common share, for the year ended December 31, 2025, compared to net income available to common shareholders of $9.3 million, or $1.26 per common share, for the year ended December 31, 2024. Net income available to common shareholders is net income less any dividends paid on the aforementioned noncontrolling interest.
Net Interest Income
As with most financial institutions, the primary component of earnings for our subsidiary bank is net interest income. Net interest income is the difference between interest income, principally from the loan and investment securities portfolios, and interest expense, principally on customer deposits and wholesale borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as levels of noninterest bearing liabilities and capital.
Net interest income increased $2.9 million to a total of $38.9 million for the twelve months ended December 31, 2025 from the $35.9 million reported for the comparative period in 2024. The average yield on our interest-earning assets increased 4 basis points to 5.19%, while the average rate paid for interest-bearing liabilities decreased 10 basis points to 2.33%. These changes resulted in a net increase of 13 basis points in our interest rate spread, from 2.73% in 2024 to 2.86% in 2025. Our net interest margin for 2025 was 3.50%, compared to 3.40% in 2024. As a part of the loan agreements, a portion of the Company’s loan portfolio has interest rate floors and caps. The interest rate floor feature allows the Company to maintain a more favorable interest margin despite a decline in rates; however, the interest rate cap could hurt the margin in a rising rate environment. Financial Table 1 presents a detailed analysis of the components of the Company’s net interest income, while Financial Table 2 summarizes the effects on net interest income from changes in interest rates and in the dollar volume of the components of interest-earning assets and interest-bearing liabilities. Financial Table 1 and Table 2, as well other Financial Tables referenced here appear at the end of this discussion and analysis.
Provision for Credit Losses
The net provision for credit losses was $726,000 for the twelve months ended December 31, 2025, compared to a net provision of $528,000 for the same period in 2024. There were net loan charge-offs of $160,000 for the twelve months ended December 31, 2025, as compared to net loan charge-offs of $270,000 during the same period of 2024. Refer to the Asset Quality section below for further information.
Noninterest Income
The Company generates most of its revenue from net interest income; however, diversification of our revenue sources is a key strategic initiative to our long-term success. Noninterest income increased 15.6%, from $9.7 million in 2024, to $11.3 million in 2025, an increase of $1.5 million. This improvement is primarily related to an increase of $1.1 million in income from mortgage banking, driven by increased mortgage production during 2025. Positive market value adjustments on supplemental executive retirement plans totaling $293,000 and an increase of $325,000 in other service fees and commissions also contributed to the overall increase.
Noninterest Expense
Noninterest expense for the year ended December 31, 2025 was $34.8 million compared to $32.4 million for 2024, an increase of $2.4 million. Salaries and employee benefits, the largest component of noninterest expense, increased $1.6 million, from $20.8 million for the twelve months ended December 31, 2024 to $22.4 million for the twelve months ended December 31, 2025 due to wage increases and more commissions paid on greater mortgage production during 2025. Additionally, positive market value adjustments on supplemental executive retirement plans contributed $293,000 to the increase in noninterest expense. Financial Table 5 reflects the additional breakdown of other noninterest expense.
Income Tax Expense
The Company had income tax expense of $3.3 million for 2025 at an effective tax rate of 22.26% compared to income tax expense of $2.9 million for 2024 with an effective tax rate of 22.35%. The year-over-year decrease in the effective tax rate is due, in part, to a $44,000 charge to income tax expense during 2025, compared to a charge of $63,000 during the twelve-month period ended December 31, 2024, as a result of revaluing the North Carolina deferred tax asset for unrealized losses on the available for sale securities portfolio. Income taxes computed at the statutory rate are affected primarily by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank owned life insurance.
Results of Operations for the Years Ended December 31, 2024 and 2023
Results of operations for the years ended December 31, 2024 and 2023 can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 6, 2025.
Asset Quality
The Company’s allowance for credit losses on loans is established through charges to earnings in the form of a provision for credit losses. The allowance is increased by provisions charged to operations and recoveries of amounts previously charged off and is reduced by recovery of provisions and loans charged off. Management continuously evaluates the adequacy of the allowance for credit losses. In evaluating the adequacy of the allowance, management considers the following: the growth, composition and industry diversification of the portfolio; historical loan loss experience; current delinquency levels; adverse situations that may affect a borrower’s ability to repay; estimated value of any underlying collateral; prevailing economic conditions; and other relevant factors.
The allowance for credit losses on loans represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company’s credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loan’s credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrower’s risk grade accordingly.
Previously, the Company individually reviewed loans that do not share the same risk characteristics as other loans and were determined to be collateral dependent. Beginning in the last quarter of 2025, the Company expanded its individual review process to include loans that do not share the same risk characteristics as loans in the collectively assessed population, regardless of collateral dependence. Individually assessed loans determined to be collateral dependent are evaluated based on the fair value of the underlying collateral, as repayment is expected to be derived through the operation or sale of the collateral. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are measured using the fair value of collateral at the reporting date, adjusted for selling costs as appropriate. Loans that are not deemed collateral dependent are assigned a probability of default based on default history. If the loan has defaulted, it will be assigned a 100% probability of default; otherwise, it will be assigned a probability of default based on the Company’s historical experience, which is higher than the forecasted probability of applied in the collectively assessed portfolio. This evaluation is inherently subjective, as it requires material estimates, including internal and external appraisal services. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for credit on loans and may require additions for estimated based upon judgments different from those of management.
The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company evaluates credit risk in the Consumer segment based upon consumer credit scores and collateral and the Commercial segment based upon loan risk grade and collateral. The allowance for credit losses for each segment is calculated using a Non-Discounted Cash Flow methodology. Management uses a risk-grading program designed to evaluate the credit risk in the loan portfolio. In this program, risk grades are initially assigned by loan officers and then reviewed and monitored by credit administration. This process includes the maintenance of an internally classified loan list that is designed to help management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses on loans. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower’s ability to repay, the borrower’s payment history, and the current delinquent status.
Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.
At December 31, 2025, the level of our individually evaluated loans was $5.0 million, and the allowance for credit losses related to individually evaluated loans was $179,000. The allowance, expressed as a percentage of gross loans held for investment, increased six basis points from 0.87% at December 31, 2024 to 0.93% at December 31, 2025. During the second quarter of 2025, the Company implemented a change in estimate of the allowance model which altered the allocation of these percentages between the collectively assessed population and qualitative factors. The collectively assessed portion decreased from 0.75% at December 31, 2024 to 0.53% at December 31, 2025, and the qualitative factors portion increased from 0.12% to 0.40% over the same period. The ratio of nonaccrual loans to total loans increased from 0.03% at December 31, 2024 to 0.05% at December 31, 2025, and was related to the $185,000 increase in nonaccrual loans. Four loans totaling $360,000 were converted to nonaccrual during 2025. These additions were offset by paydowns of $46,000, two loans that were charged off for $88,000, and one loan totaling $40,000 that was moved to other real estate owned and the underlying collateral was subsequently sold.
The Company held no other real estate owned at December 31, 2025 and December 31, 2024.
As of December 31, 2025, management believed the level of the allowance for credit losses on loans was appropriate in light of the risk inherent in the loan portfolio. While management believes that it uses the best information available to establish the allowance for credit losses on loans, future adjustments may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the Company’s loan portfolio, will not require an adjustment to the allowance for credit losses on loans. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance is adequate or that increases will not be necessary, should the quality of any loans deteriorate because of the factors discussed herein. Any material increase in the allowance for credit losses on loans may adversely affect the Company’s financial condition, results of operations and the value of its securities.
The following table shows the comparison of nonperforming assets as of December 31, 2025 and 2024:
Nonperforming Assets
(dollars in thousands)
At December 31,
Nonperforming Assets:
Accruing loans past due 90 days or more
Nonaccrual loans
Other real estate owned
Total nonperforming assets
Allowance for credit losses on loans
Nonaccrual loans to total loans
Allowance for credit losses on loans to total loans
Allowance for credit losses on loans to nonaccrual loans
Capital Resources
The Company continues to maintain capital ratios intended to support its asset growth. The federal bank regulatory agencies have implemented regulatory capital rules known as “Basel III.” The Basel III rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, a minimum ratio of total capital to risk-weighted assets of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. There is also a capital conservation buffer that requires banks to hold common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.5% to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees. The Company’s accumulated other comprehensive income or loss, resulting from unrealized gains and losses, net of income tax, on investment securities available for sale, is excluded from regulatory capital.
Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is exempt from Basel III. As of December 31, 2025, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under applicable capital adequacy rules.
In 2013, the Company’s subsidiary bank issued a total of $10.7 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at a rate of 5.30%. The offering raised $10.7 million less issuance costs of $136,000. The preferred stock has no voting rights.
During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $1,000 per security with a required minimum investment of $50,000. The offering raised $10.0 million, of which $9.5 million was outstanding at December 31, 2025. These securities have a final maturity date of September 30, 2029 and became redeemable by the Company on September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. All proceeds of this private placement qualify as and are included in the calculation of Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. At December 31, 2025, $5.7 million of the subordinated debt issued in 2019 qualifies as Tier 2 capital.
During the third quarter of 2021, the Company issued $12.0 million and $8.0 million of 10-year and 15-year fixed-to-floating rate subordinated debt securities, respectively. At December 31, 2025, $11.8 million and $8.0 million remained outstanding of the 10-year and 15-year subordinated notes, respectively. The 10-year subordinated notes mature on September 3, 2031, though they are redeemable at the Company’s option on or after September 3, 2026, and initially pay interest quarterly at an annual rate of 3.5%. From and including September 3, 2026 to but excluding September 3, 2031, or up to any early redemption date, the interest rate on the 10-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month secured overnight financing rate (“SOFR”) plus 283 basis points payable quarterly in arrears. The 15-year subordinated notes mature on September 3, 2036, though they are redeemable at the Company’s option on or after September 3, 2031, and initially pay interest quarterly at an annual rate of 4.0%. From and including September 3, 2031 to but excluding September 3, 2036, or up to any early redemption date, the interest rate on the 15-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month SOFR plus 292 basis points payable quarterly in arrears. The subordinated debt has been structured to qualify as and is included in the calculation of the Company’s Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 3, 2026 and September 3, 2031 for the 10-year and 15-year subordinated notes, respectively.
Proceeds of the Company’s aforementioned securities that have been invested in its subsidiary bank qualify for Tier 1 capital treatment for the Bank and are included as such in its year end capital ratios.
The Company expects to continue to exceed required minimum capital ratios without altering current operations or strategy. Note 14 (Shareholders’ Equity and Regulatory Matters) to the Notes to Consolidated Financial Statements presents additional information regarding the Company’s and its subsidiary bank’s capital ratios.
Dividends
The Board of Directors of Uwharrie Capital Corp declared a 3.0% stock dividend in 2025 and a 2.0% stock dividend in 2024 and 2023. All references in this Annual Report to net income per share and weighted average common and common equivalent shares outstanding reflect the effects of these stock dividends.
Liquidity
The objective of the Company’s liquidity management policy is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on any opportunities for expansion. Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature and to fund new loans and investments as opportunities arise. Liquidity is managed primarily by the selection of asset mix and the maturity mix of liabilities. The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flows generated by investments. Maturities and the marketability of securities provide a source of liquidity to meet deposit fluctuations. Maturities of the securities portfolio are presented in Financial Table 3. Growth in deposits is typically the primary source of funds for loan growth. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 40.5% and 38.8% of total deposits at December 31, 2025 and 2024, respectively.
The Company and its subsidiary bank have multiple funding sources, in addition to deposits, that can be used to increase liquidity and provide additional financial flexibility. At December 31, 2025, these sources are the subsidiary bank’s established federal funds lines with correspondent banks aggregating $38.0 million, with available credit of $38.0 million; an established borrowing relationship with the Federal Home Loan Bank, with available credit of $162.2 million; and access to borrowings from the Federal Reserve Bank discount window, with available credit of $33.8 million. The Company also has a $3.0 million line of credit with TIB The Independent BankersBank, N.A. The line is held by the holding company and is secured with 100% of the outstanding common shares of the Company’s subsidiary bank. As of December 31, 2025, $3.0 million remains available for use on the line of credit.
The following table summarizes the Company’s interest-earning cash and cash equivalents as of the periods indicated.
December 31, 2025
December 31, 2024
(dollars in thousands)
Interest-earning cash and cash equivalents
Interest-earning cash and cash equivalents as a percent of:
Total loans held for investment
Total earning assets
Total deposits
At December 31, 2025, short-term borrowings totaled $25,000. Long-term debt at that date consisted solely of $29.0 million of junior subordinated debt, net of issuance costs. Other contractual obligations of the Company exist in the form of operating leases and deposits. Obligations for operating leases and deposits totaled $768,000 and $1.1 billion, respectively, at December 31, 2025. Note 7 (Leases) and Note 8 (Deposits) to the Notes to Consolidated Financial Statements provide additional information, including maturities, regarding these obligations.
The Company has various financial instruments (outstanding commitments) with off-balance sheet risk that are issued in the normal course of business to meet the financing needs of its customers. See Note 12 (Commitments and Contingencies) to the Company’s Notes to Consolidated Financial Statements for more information regarding these commitments and contingent liabilities.
Management believes that the Company’s current sources of funds provide adequate liquidity for its current cash flow needs.
Critical Accounting Policies
A critical accounting policy is one that is both very important to the portrayal of the Company’s financial condition and results, and requires management’s most difficult, subjective and/or complex judgments. What makes these judgments difficult, subjective and/or complex is the need to make estimates about the effects of matters that are inherently uncertain. Refer to Note 1 (Significant Accounting Policies) in Notes to Consolidated Financial Statements for more information about these and other accounting policies utilized by the Company.
Allowance for Credit Losses
The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance is a critical accounting estimate in the financial statements as it provides, by reference, an indication of the quality of the loan portfolio. Estimating credit losses is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Additional measurement uncertainty in the estimate is due, in part, to the large amount of data evaluated, the long-term nature of the underlying assets and the analysis of economic indicators. Regulatory examiners may require the Company to
recognize adjustments to the allowance for credit losses based on their judgment about information available to them at the time of their assessment.
On a regular basis, the allowance for credit losses is evaluated both individually and collectively by loan segments. The Company measures expected credit losses for loans on a collective basis when similar risk characteristics exist. However, loans that do not share the same risk characteristics as loans in the collectively assessed population are individually reviewed. Appropriately dividing the loan portfolio into different segments with similar risk characteristics aids in providing a more accurate estimation of the portfolio’s expected credit losses. The Company’s methodology for estimating lifetime credit losses is well documented and supported by internal controls, and validation of the process is performed on a recurring basis.
Interest Rate Sensitivity
Net Interest Income (“Margin”) is the single largest component of revenue for the Company. Margin is the difference between the yield on earning assets and interest paid on interest-bearing liabilities. Margin can vary over time as interest rates change. The variance fluctuates based on both the timing (repricing) and magnitude of maturing assets and liabilities.
To identify interest rate sensitivity, a common measure is a gap analysis, which reflects the difference or “gap” between rate sensitive assets and liabilities over various periods. While management reviews this information, it has implemented the use of an income simulation model, which calculates expected future Margin based on projected interest-earning assets, interest-bearing liabilities and forecasted interest rates along with multiple other forecasted assumptions. Management believes this provides a more relevant view of interest rate risk sensitivity than the traditional gap analysis because the gap analysis ignores optionality embedded in the balance sheet, such as prepayments or changes based on interest rates. The income simulation model allows a comparison of flat, rising and falling rate scenarios to determine the interest rate sensitivity of earnings in varying interest rate environments.
The Company models immediate rising and declining rate shocks of up to 4% (in 1% intervals) on its subsidiary bank, using a static balance sheet for a two-year horizon, as preferred by regulators. The most recent consolidated 2% rate shock projections for a one-year horizon indicates a negative impact of 9.19% on Margin in a rates-down scenario and a positive impact of 0.92% in a rates-up scenario. Based on the most recent twelve-month forecast, the subsidiary bank is more asset-sensitive and may experience some negative impact to earnings should interest rates decrease. The Bank has the potential to benefit from an increasing interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the potential benefit.
The principal goals for asset liability management for the Company are to maintain adequate levels and sources of liquidity and to manage interest rate risk. Interest rate risk management attempts to balance the effects of interest rate changes on both interest-sensitive assets and interest-sensitive liabilities to protect Margin from wide fluctuations as a result of changes in market interest rates. To that end, management has recommended and the Board of Directors has approved policy limits that minimize the downside risk from interest rate shifts. The aforementioned ratios are within those stated limits of -18% for the respective modeled scenarios at the subsidiary bank and combined. Managing interest rate risk is an important factor to the long-term viability of the Company since Margin is such a large component of earnings. The Company’s Asset Liability Management Committee (ALCO) monitors market changes in interest rates and assists with the pricing of loans and deposit products while considering funding source needs, asset growth projections, and necessary operating liquidity.
Financial Table 1
Average Balances and Net Interest Income Analysis
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
Non-taxable securities (1)
Short-term investments
Equity Securities
Taxable loans (2)
Non-taxable loans (1)
Total interest-earning assets
Non-earning assets
Cash and due from banks
Premises and equipment, net
Interest receivable and other
Total non-earning assets
Total assets
Interest-bearing liabilities
Savings deposits
Interest checking & MMDA
Time deposits
Total deposits
Short-term borrowed funds
Long-term debt
Total interest-bearing liabilities
Noninterest liabilities
Transaction deposits
Interest payable and other
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Interest rate spread
Net interest income and net
interest margin
(1) Yields related to securities and loans exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2025, 2024 and 2023.
(2) Nonaccrual loans are included in loans, net of unearned income.
Financial Table 2
Volume and Rate Variance Analysis
2025 Versus 2024
2024 Versus 2023
Net
Net
(dollars in thousands)
Volume
Rate
Change
Volume
Rate
Change
Interest-earning assets
Taxable securities
Non-taxable securities
Short-term investments
Equity securities
Taxable loans
Non-taxable loans
Total interest-earning assets
Interest-bearing liabilities
Savings deposits
Transaction and MMDA deposits
Other time deposits
Short-term borrowed funds
Long-term debt
Total interest-bearing liabilities
Net interest income
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.
Financial Table 3
Weighted Average Yield on Investment Securities
December 31, 2025
December 31, 2024
Weighted
Weighted
Average Yield (1)
Average Yield (1)
Securities available for sale
U.S. Treasury
Due within twelve months
Due after one but within five years
U.S. Government agencies
Due within twelve months
Due after one but within five years
Due after five but within ten years
Due after ten years
Mortgage-backed securities
Due within twelve months
Due after one but within five years
Due after five but within ten years
Due after ten years
Asset-backed securities
Due after ten years
State and political
Due within twelve months
Due after one but within five years
Due after five but within ten years
Due after ten years
Corporate Bonds
Due within twelve months
Due after one but within five years
Total Securities available for sale
Due within twelve months
Due after one but within five years
Due after five but within ten years
Due after ten years
(1) Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2025 and 2024.
Financial Table 3
Weighted Average Yield on Investment Securities (Continued)
December 31, 2025
December 31, 2024
Weighted
Weighted
Average Yield (1)
Average Yield (1)
Securities held to maturity
State and political
Due after five but within ten years
Due after ten years
Corporate Bonds
Due after one but within five years
Due after five but within ten years
Total Securities held to maturity
Due after one but within five years
Due after five but within ten years
Due after ten years
(1) Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2025 and 2024.
Financial Table 4
Noninterest Income
Year Ended December 31,
(dollars in thousands)
Income from mortgage banking
Asset management fees
Interchange and card transaction fees, net
Service charges on deposit accounts
Other banking fees
Brokerage commissions
Other gains (losses) from sale of assets
Investment securities losses
Supplemental executive retirement plan gain (loss)
Other noninterest income
Total noninterest income
Financial Table 5
Other Noninterest Expense
Year Ended December 31,
(dollars in thousands)
Director fees and expense
Dues and subscriptions
Postage
Shareholder relations expense
Telephone and data lines
Insurance
Employee education
Franchise and other taxes
Armored transport service
Office supplies and printing
Other
Total other noninterest expense
Financial Table 6
Loan Portfolio Composition
At December 31,
% of Total
% of Total
(dollars in thousands)
Amount
Loans
Amount
Loans
Loan type:
Commercial
Real estate - commercial
Real estate - construction
Real estate - residential
Consumer
Other
Total loans
Less:
Allowance for credit losses
Unearned net loan costs
Net loans
Financial Table 7
Selected Loan Maturities
December 31, 2025
Five to
One Year
One to
Fifteen
Over Fifteen
(dollars in thousands)
or Less
Five Years
Years
Years
Total
Commercial and agricultural
Real estate - construction
Total selected loans
Fixed rate loans
Sensitivity to rate changes:
Variable interest rates
Financial Table 8
Allocation of Charge-Offs and Recoveries
At December 31,
(dollars in thousands)
Net charge-offs (recoveries)
Average loans
Net charge-offs (recoveries) to average loans
Net charge-offs (recoveries)
Average loans
Net charge-offs (recoveries) to average loans
Commercial
Real estate - commercial
Other real estate construction
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loans
Other loans
Total
Financial Table 9
Allocation of the Allowance for Credit Losses
At December 31,
% of Total
% of Total
(dollars in thousands)
Amount
Loans (1)
Amount
Loans (1)
Commercial
Real estate - commercial
Other real estate construction
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loan
Other loans
Total loans
(1) Represents total of all outstanding loans in each category as a percent of total loans outstanding.
Financial Table 10
Maturities of Time Deposits
December 31, 2025
3 Months
Over 3 Months
Over 1 Year
Over
or Less
to 1 Year
to 3 Years
3 Years
Total
(dollars in thousands)
U.S. time deposits in amounts in excess of the FDIC insurance limit
Other time deposits
Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk.
Item not required for smaller reporting companies.
Item 8. Financial Statemen ts and Supplementary Data.
Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors
Uwharrie Capital Corp and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Uwharrie Capital Corp and Subsidiaries (the “Company”) as of December 31, 2025, and 2024, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses on Loans
As described in Notes 1 and 4 to the consolidated financial statements, the Company’s allowance for credit losses (ACL) on loans was $6.4 million at December 31, 2025. The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist, evaluating credit risk in the Consumer segment based on consumer credit scores and collateral and the Commercial segment based upon loan risk grade and collateral. The allowance for credit losses for each segment is calculated using a non‑discounted cash flow methodology that incorporates macroeconomic forecasts to project expected losses. A third-party forecast is utilized to project defaults for two years followed by a one‑year reversion period to the historical long‑run average economic forecast for the remainder of the portfolio life. Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation model.
We identified the Company’s estimate of the ACL, and more specifically, the overall application of the qualitative reserve framework, as a critical audit matter. The principal considerations for our determination included the use of professionals with specialized skills and knowledge and the high degree of auditor judgment required to evaluate management’s application of the qualitative reserve framework, and in particular, the cumulative effect of key qualitative considerations and key assumptions not fully reflected in quantitative model outputs, due to the inherent estimation uncertainty involved.
The following are the primary procedures we performed to address this critical audit matter:
We obtained an understanding of the Company’s process and evaluated the design and implementation of internal controls related to management’s development of the ACL, including those specifically related to the overall application of the qualitative reserve framework.
We tested management’s process for developing the ACL, including the application of the qualitative reserve framework, through:
Assessing the appropriateness and reasonableness of the qualitative framework, including key judgments and assumptions applied by management.
Evaluating the relevance and reliability of key data used in developing the qualitative reserve and the appropriateness of qualitative adjustments, including testing the completeness and accuracy of the data used and mathematical accuracy of the calculations significant to the estimate.
Evaluating, with the support of our internal specialists, the conceptual soundness of certain aspects of the model methodology. We also tested the appropriateness of key inputs and assumptions used in these models by agreeing a sample of inputs to supporting documentation.
We evaluated the reasonableness of the overall qualitative ACL amount, considering past performance of the Company's loan portfolio, trends in credit quality, and peer-bank information.
/s/ Forvis Mazars, LLP
We have served as the Company’s auditor since 1996.
Charlotte, North Carolina
March 5, 2026
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED B ALANCE SHEETS
December 31, 2025 and 2024
(dollars in thousands)
ASSETS
Cash and due from banks
Interest-earning deposits with banks
Cash and cash equivalents
Securities available for sale, at fair value (amortized cost $ 379,272 and $ 365,088 , respectively)
Securities held to maturity, at amortized cost (fair value $ 20,208 and $ 24,561 , respectively)
Less allowance for credit losses on securities held to maturity
Net securities held to maturity
Equity securities, at fair value
Loans held for sale
Loans held for investment
Less allowance for credit losses on loans
Net loans held for investment
Premises and equipment, net
Interest receivable
Prepaid expenses
Restricted stock
Bank-owned life insurance
Deferred income tax
Loan servicing assets
Mortgage banking derivatives
Other assets
Total assets
LIABILITIES
Deposits:
Demand noninterest-bearing
Interest checking and money market accounts
Savings deposits
Time deposits, $250,000 and over
Other time deposits
Total deposits
Short-term borrowed funds
Long-term debt
Mortgage banking derivatives
Other liabilities
Total liabilities
Off balance sheet items, commitments and contingencies (Note 12)
SHAREHOLDERS’ EQUITY
Common stock, $ 1.25 par value: 20,000,000 shares authorized; shares issued and
outstanding 7,175,297 and 7,077,941 , at December 31, 2025 and 2024, respectively
Additional paid-in capital
Undivided profits
Accumulated other comprehensive loss
Total Uwharrie Capital Corp shareholders’ equity
Noncontrolling interest
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of the consolidated financial statements.
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STAT EMENTS OF INCOME
Years Ended December 31, 2025, 2024 and 2023
(dollars in thousands, except share and per share data)
Interest Income
Loans, including fees
Investment securities:
Investment securities, taxable
Investment securities, non-taxable
Equity securities
Interest-earning deposits with banks and federal funds sold
Total interest income
Interest Expense
Interest checking and money market accounts
Savings deposits
Time deposits, $250,000 and over
Other time deposits
Short-term borrowed funds
Long-term debt
Total interest expense
Net interest income
Provision for (recovery of) credit losses
Loans
Securities held to maturity
Unfunded loan commitments
Total provision for credit losses
Net interest income after provision for credit losses
Noninterest Income
Service charges on deposit accounts
Other service fees and commissions
Interchange and card transaction fees, net
Loss on sale/call of securities
Realized/unrealized gain (loss) on equity securities
Income from mortgage banking
Supplemental executive retirement plan gain (loss)
Other income
Total noninterest income
Noninterest Expense
Salaries and employee benefits
Net occupancy expense
Equipment expense
Data processing costs
Loan costs
Professional fees and services
Marketing and donations
Electronic banking expense
Software amortization and maintenance
FDIC insurance
Supplemental executive retirement plan gain (loss)
Other noninterest expense
Total noninterest expense
Income before income taxes
Income taxes
Net income
Consolidated net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Uwharrie Capital Corp and common shareholders
Net income per common share
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
The accompanying notes are an integral part of the consolidated financial statements.
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2025, 2024 and 2023
(dollars in thousands)
Net Income
Other comprehensive income:
Unrealized gain on available for sale securities
Related tax effect
Reclassification of loss recognized in net income
Related tax effect
Total other comprehensive income
Comprehensive income
Less: Comprehensive income attributable to noncontrolling interest
Comprehensive income attributable to Uwharrie Capital Corp
The accompanying notes are an integral part of the consolidated financial statements.
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHA NGES IN SHAREHOLDERS’ EQUITY
Years Ended December 31, 2025, 2024 and 2023
Number of
Common
Shares
Issued
Common
Stock
Additional
Paid-in
Capital
Undivided
Profits
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interest
Total
(dollars in thousands, except share data)
Balance, December 31, 2022
Cumulative effect of change in accounting principle
Net Income
Repurchase of common stock
2.0 % stock dividend
Cash paid – fractional shares
Other comprehensive income
Record preferred stock dividend series B (noncontrolling interest)
Record preferred stock dividend series C (noncontrolling interest)
Balance, December 31, 2023
Net Income
Repurchase of common stock
2.0 % stock dividend
Cash paid – fractional shares
Other comprehensive income
Record preferred stock dividend series B (noncontrolling interest)
Record preferred stock dividend series C (noncontrolling interest)
Balance, December 31, 2024
Net Income
Repurchase of common stock
3.0 % stock dividend
Cash paid – fractional shares
Other comprehensive income
Record preferred stock dividend series B (noncontrolling interest)
Record preferred stock dividend series C (noncontrolling interest)
Balance, December 31, 2025
The accompanying notes are an integral part of the consolidated financial statements.
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEM ENTS OF CASH FLOWS
Years Ended December 31, 2025, 2024 and 2023
(dollars in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Right of use asset amortization
Provision for credit losses
Loss on sale of securities available for sale
Loss on call of securities held to maturity
Gain on sale of mortgage loans
(Gain) loss on sale of premises and equipment
Gain on sale of OREO
OREO write-down
Realized/unrealized (gain) loss on equity securities
Net amortization of premium on investment securities available for sale
Net amortization of premium on investment securities held to maturity
Amortization of loan servicing rights
Originations and purchases of mortgage loans for sale
Proceeds from sale of mortgage loans for sale
Mortgage banking derivatives
Loan servicing assets
Accrued interest receivable
Prepaid assets
Cash surrender value of life insurance
Miscellaneous other assets
Deferred income taxes
Accrued interest payable
Miscellaneous other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Proceeds from sale of investment securities available for sale
Proceeds from maturities, calls and paydowns of securities available for sale
Proceeds from maturities, calls and paydowns of securities held to maturity
Purchase of investment securities available for sale
Purchase of investments in other assets
Proceeds from distributions of investments in other assets
Proceeds from redemptions of restricted stock
Purchases of restricted stock
Net increase in loans
Purchase of premises and equipment
Proceeds from sale of premises, equipment and other assets
Proceeds from sale of OREO
Net cash used by investing activities
Cash flows from financing activities
Net increase in deposit accounts
Net increase (decrease) in federal funds purchased and other short-term borrowings
Repayment of long-term borrowings
Repurchase of common stock, net
Dividends paid on preferred stock (noncontrolling interest)
Cash paid for fractional shares
Net cash provided by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures of cash flow information
Interest paid
Income taxes paid
Supplemental schedule of non-cash activities
Net change in fair value of securities available for sale, net of tax
Loans transferred to foreclosed real estate
The accompanying notes are an integral part of the consolidated financial statements.
Note 1 - Significan t Accounting Policies
Nature of Business
Uwharrie Capital Corp (the “Company”) was incorporated under North Carolina law for the purpose of becoming the holding company for Bank of Stanly (“Stanly”). On July 1, 1993, Stanly became a wholly owned subsidiary of the Company through a one-for- one exchange of the common stock of Stanly for common stock of the Company. On September 1, 2013, Bank of Stanly changed its name to Uwharrie Bank (“Uwharrie” or the “Bank”).
Uwharrie was incorporated on September 28, 1983, under the laws of the State of North Carolina and began operations on January 26, 1984 in Albemarle, North Carolina. Deposits with Uwharrie are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). Uwharrie is under regulation of the Federal Reserve, the FDIC and the North Carolina Commissioner of Banks. In North Carolina, Uwharrie has ten branch locations that provide a wide range of deposit accounts, commercial, consumer, home equity and residential mortgage loans, safe deposit boxes and automated banking.
In 1987, Uwharrie established a wholly owned subsidiary, BOS Agency, Inc. (“BOS Agency”), which engages in insurance product sales. In 1989, Uwharrie established a second wholly owned subsidiary, BOS Financial Corporation, for the purpose of conducting business as a securities broker-dealer. During 1993, BOS Financial Corporation changed its name to The Strategic Alliance Corporation (“Strategic Alliance”) and was registered as a broker-dealer and is regulated by the Financial Industry Regulatory Authority (“FINRA”).
The Company formed a new subsidiary, Strategic Investment Advisors, Inc. (“SIA”), during 1998 to provide investment advisory and asset management services. This subsidiary is registered as an investment advisor with the Securities and Exchange Commission. During 2015, SIA changed its name to Uwharrie Investment Advisors, Inc. (“UIA”).
On January 19, 2000 , the Company completed its acquisition of Anson BanCorp, Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North Carolina savings bank charter and became a wholly owned subsidiary of Uwharrie Capital Corp as Anson Bank & Trust Company (“Anson”), operating out of its main office branch in Wadesboro, North Carolina. Anson was consolidated into Uwharrie Bank effective September 1, 2013.
On August 4, 2000 , Uwharrie acquired another subsidiary, Gateway Mortgage, Inc. (“Gateway”), a mortgage origination company. This company is currently inactive and does not affect the Company’s consolidated financial statements.
On April 10, 2003 , the Company capitalized a new wholly owned subsidiary bank, Cabarrus Bank & Trust Company (“Cabarrus”), located in Concord, North Carolina. As of that date, Cabarrus purchased two branch offices located in Cabarrus County from Uwharrie to begin its operation. Cabarrus operated as a commercial bank and provided a full range of banking services. Cabarrus was consolidated into Uwharrie Bank effective September 1, 2013.
On April 7, 2004 , Uwharrie Mortgage, Inc. was established as a subsidiary of the Company to serve in the capacity of trustee and substitute trustee under deeds of trust.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, Uwharrie, UIA and Uwharrie’s subsidiaries, BOS Agency and Strategic Alliance. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses.
The allowance for credit losses calculation utilizes a forecast model for the collectively assessed population. Effective June 30, 2025, after multiple periods of parallel modeling using the national unemployment rate and the NC unemployment rate as indices, compared to the national unemployment rate and the 10-Year T-Bill which had previously been utilized for this purpose, a change in estimate was incorporated into the model. The change in estimate incorporated more recent data to enhance and maintain reliable results.
Note 1 - Significant Accounting Policies (Continued)
In conjunction with this change, it was also necessary to update the framework we used for establishing qualitative reserves, which has likewise been modified to use new indices and metrics. The change in estimate of the forecast model for the collectively assessed population also increased the maximum potential allowance allocated to the qualitative factors. While these changes altered the overall composition of the allowance model, the overall impact is not material.
Cash and Cash Equivalents
For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet captions “Cash and due from banks” and “Interest-earning deposits with banks.”
Investment Securities Available for Sale
Investment securities available for sale consist of United States Treasuries, United States Government agency securities, Government Sponsored Enterprise (GSE) mortgage-backed securities and collateralized mortgage obligations (CMOs), Federal Family Education Loan Program (FFELP) student loan asset-backed securities, corporate bonds and state and political subdivision bonds. Gains and losses on the sale of available for sale securities are determined using the specific identification method and recorded on a trade basis. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the period to maturity.
Unrealized holding gains and losses on available for sale securities are reported in other comprehensive income, net of income taxes. Management evaluates all available for sale securities in an unrealized loss position on a quarterly basis, or more frequently if economic or market conditions warrant. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.
Investment Securities Held to Maturity
Investment securities held to maturity consist of corporate bonds and state and political subdivision bonds. The Company has both the intent and ability to hold the securities to maturity. These securities are reported at amortized cost.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Loans Held for Investment
The Company divides the loans it originates into two segments, commercial and noncommercial loans. Commercial loans are broken down into the following classes: commercial loans, real estate commercial loans, other real estate construction loans and other loans. Noncommercial loans are divided into the following classes: real estate 1-4 family construction loans, real estate 1-4 family residential loans, home equity loans and consumer loans. The ability of the Company’s borrowers to honor their contracts is largely dependent upon the real estate and general economic conditions in the Company’s market area. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for credit losses on loans, and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the effective interest method. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days 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 . The exception to this policy is credit card loans that remain in accrual status 90 days or more until they are paid current or charged off.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these impaired loans is accounted for on a cash basis until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Generally, a minimum of six months of sustained performance is required.
Note 1 - Significant Accounting Policies (Continued)
Allowance for Credit Losses
On January 1, 2023 , the Company adopted Accounting Standards Update (“ASU”) 2016-13 , “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC 326”). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities.
In concurrence with the adoption of CECL, the Company also adopted ASU 2022-02 , “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”) effective January 1, 2023 . The amendments in ASU 2022-02 enhanced disclosures for loan modifications made for borrowers experiencing financial difficulty and eliminated the Troubled Debt Restructurings (“TDR”) accounting guidance for financial institutions that have adopted CECL. See Note 4 (Allowance for Credit Losses on Loans) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the adoption of ASU 2022-02.
Allowance for Credit Losses – Available for Sale Securities
Management evaluates all available for sale securities in an unrealized loss position on a quarterly basis, or more frequently if economic or market conditions warrant. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.
If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the length of time and extent to which the security has been in a loss position, performance of any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled principal or interest payments and adverse conditions specifically related to the security. If the evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.
Changes in the allowance for credit loss are recorded as provision for (or recovery of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At December 31, 2025, there was no allowance for credit loss related to the available for sale securities portfolio. Accrued interest receivable on available for sale debt securities, included in interest receivable in the consolidated balance sheets, totaled $ 1.9 million at December 31, 2025 and was excluded from the estimate of credit losses.
Allowance for Credit Losses – Held to Maturity Securities
Management measures expected credit losses on held to maturity debt securities on a collective basis by major security type. Accrued interest receivable on held to maturity debt securities, included in interest receivable in the consolidated balance sheets, was excluded from the estimate of credit losses.
The estimate of expected credit losses is primarily based on the ratings assigned to the securities by debt rating agencies and the average of the annual historical loss rates associated with those ratings. The Company then multiplies those loss rates, as adjusted for any modifications to reflect current conditions and reasonable and supportable forecasts as considered necessary, by the remaining lives of each individual security to arrive at a lifetime expected loss amount. Management classifies the held to maturity portfolio into the following major security types: state and political subdivisions and corporate bonds. The state and political subdivisions securities held by the Company are highly rated by major rating agencies. As such, there was minimal allowance for credit losses recorded at December 31, 2025 and December 31, 2024 for state and political subdivisions securities.
Note 1 - Significant Accounting Policies (Continued)
Allowance for Credit Losses – Loans
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. Accrued interest receivable is excluded from the estimate of credit losses.
The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company evaluates credit risk in the Consumer segment based upon consumer credit scores and collateral and the Commercial segment based upon loan risk grade and collateral . The allowance for credit losses for each segment is calculated using a non-discounted cash flow methodology. The non-discounted cash flow methodology incorporates macroeconomic forecasts to project expected losses. Significant macroeconomic factors used in estimating the expected losses include the national unemployment rate and the NC unemployment rate. A third-party forecast is utilized to project defaults for two years followed by a one year reversion period to the historical long run average economic forecast for the remainder of the portfolio life.
Previously, the Company individually reviewed loans that do not share the same risk characteristics as other loans and were determined to be collateral dependent. Beginning in the last quarter of 2025, the Company expanded its individual review process to include loans that do not share the same risk characteristics as loans in the collectively assessed population, regardless of collateral dependence. Individually assessed loans determined to be collateral dependent are evaluated based on the fair value of the underlying collateral, as repayment is expected to be derived through the operation or sale of the collateral. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are measured using the fair value of collateral at the reporting date, adjusted for selling costs as appropriate. Loans that are not deemed collateral dependent are assigned a probability of default based on default history. If the loan has defaulted, it will be assigned a 100% probability of default; otherwise, it will be assigned a probability of default based on the Company’s historical experience, which is higher than the forecasted probability of applied in the collectively assessed portfolio.
Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.
Allowance for Credit Losses – Unfunded Loan Commitments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company records an allowance for credit losses on unfunded loan commitments, unless the commitments to extend credit are unconditionally cancellable, through a charge to provision for unfunded loan commitments, included in loan costs in the Company’s consolidated income statements. The allowance for credit losses on unfunded loan commitments is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded loan commitments is included in other liabilities on the Company’s consolidated balance sheets.
Loan Servicing Assets
The Company capitalizes mortgage and U.S. Small Business Administration (SBA) loan servicing rights when loans are sold and the loan servicing is retained. Servicing revenue is recognized in the statement of income as a component of other noninterest
income. The amortization of servicing rights is realized over the estimated period that net servicing revenues are expected to be
Note 1 - Significant Accounting Policies (Continued)
received. These projections are based on the amount and timing of estimated future cash flows. The amortization of servicing rights is
recognized in the statement of income as an offset to other noninterest income. Servicing assets are periodically evaluated for
impairment based upon their fair value. Fair value is based upon discounted cash flows using market-based assumptions. Impairment
is recognized through a valuation allowance and charged to other expense.
Mortgage Banking Derivatives
The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding, otherwise known as Interest Rate Lock Commitments (“IRLCs”). IRLCs on mortgage loans that will be held for resale are considered to be derivatives and must be accounted for at fair value on the balance sheet. Accordingly, such commitments are recorded at fair value in the mortgage banking derivatives asset or liability with changes in fair value recorded in income from mortgage banking within the consolidated statement of income. Fair value is based on anticipated margins determined by market movement from the original lock date and projected pull-through rates on each loan by loan product, loan stage, and loan purpose.
During the term of the IRLC, the Company is exposed to the risk that the interest rate will change from the rate quoted to the borrower. In an effort to mitigate interest rate risk, the Company enters into mortgage forward sales commitments on a mandatory basis for future delivery of residential mortgage loans after an interest rate lock is committed to the borrower. Mandatory commitments require that the loan must be delivered to the investor or a pair-off fee be paid. These forward commitments are recorded at fair value in the mortgage banking derivatives asset or liability, and changes in fair value are recorded to income from mortgage banking within the consolidated statement of income. The fair value of the forward commitments is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date.
The Company also enters into purchase and sale agreements of to-be-announced mortgage-backed securities trades (“TBAs”). A TBA trade is a contract to buy or sell mortgage-backed securities on a specific date while the underlying mortgages are not announced until just prior to settlement. These TBA trades provide an economic hedge against the effect of changes in interest rates resulting from IRLCs. TBAs are accounted for as derivatives under Accounting Standards Codification (“ASC”) 815, issued by the Financial Accounting Standards Board (“FASB”), when either of the following conditions exist: (i) when settlement of the TBA trade is not expected to occur at the next regular settlement date (which is typically the next month) or (ii) a mechanism exists to settle the contract on a net basis. As a result, these instruments are recorded at fair value in the mortgage banking derivatives asset or liability with changes in fair value recorded in income from mortgage banking within the consolidated statement of income. The fair value of the TBA trades is based on the gain or loss that would occur if the Company were to pair-off the trade at the measurement date.
The following table reflects the notional amount and fair value of mortgage banking derivatives included in the balance sheet at fair value as of December 31, 2025 and December 31, 2024.
Notional Amount
Fair Value
(dollars in thousands)
Balance at December 31, 2025
Included in mortgage banking derivatives asset:
Interest rate lock commitments
Forward sales commitments
Included in mortgage banking derivatives liability:
To-be-announced mortgage-backed securities trades
Balance at December 31, 2024
Included in mortgage banking derivatives asset:
Interest rate lock commitments
Forward sales commitments
To-be-announced mortgage-backed securities trades
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.
Note 1 - Significant Accounting Policies (Continued)
Foreclosed Real Estate
Real estate properties acquired through foreclosure or other proceedings are initially recorded at fair value less costs to sell upon foreclosure, establishing a new cost basis. Annually, valuations are performed and the foreclosed property is adjusted to the lower of cost or fair value of the properties, less costs to sell. Any write-down at the time of transfer to foreclosed properties is charged to the allowance for loan losses. Subsequent write-downs are charged to noninterest expense, and costs related to the improvement of the property are capitalized if the fair value less cost to sell will allow it. If not, these costs are expensed also.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Land is carried at cost. Additions and major replacements or betterments which extend the useful lives of premises and equipment are capitalized. Maintenance, repairs and minor improvements are expensed as incurred. Depreciation is computed principally by the straight-line method over estimated useful lives, except in the case of leasehold improvements, which are amortized over the term of the leases, if shorter. Useful lives range from five to seven years for furniture, fixtures and equipment, to ten to thirty-nine years for leasehold improvements and buildings, respectively. Upon retirement or other disposition of the assets, the cost and the related accumulated depreciation are removed from the accounts and any gains or losses are reflected in income. Right-of-use (“ROU”) assets that are recognized at the initial adoption of a lease arrangement are included in premises and equipment. More information regarding ROU assets can be found in Note 7 (Leases) to the Company’s Notes to Consolidated Financial Statements.
Restricted Stock
As a requirement for membership, the Bank invests in the stock of the Federal Home Loan Bank of Atlanta (“FHLB”) and Federal Reserve Bank (“FRB”). These investments are carried at cost. Due to the redemption provisions of these investments, the Company estimated that fair value approximates cost and that these investments were not impaired.
Stock-Based Compensation
The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). ASC 718 also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. As of December 31, 2025 and December 31, 2024, there are no outstanding awards.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return and separate North Carolina income tax returns. The Bank files a separate South Carolina income tax return. The provision for income taxes in the accompanying consolidated financial statements is provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold. The tax returns for the Company are subject to audit by federal and state taxing authorities for the 2022 fiscal year and thereafter. It is the Company’s policy to recognize interest and penalties associated with uncertain tax positions as components of other expenses in the income statement; however, if interest becomes a material amount, it would be reclassified as interest expense. There were no interest or accrued during the years ended December 31, 2025, 2024 or 2023.
Leases
Operating leases in which we are the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on our consolidated balance sheet. Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental collateralized borrowing rate at the lease commencement date. ROU assets are further adjusted for the lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in the net occupancy expense in the consolidated statement of income.
Note 1 - Significant Accounting Policies (Continued)
Revenue Recognition
For revenue not associated with financial instruments, loan servicing guarantees and lease contracts, we apply the following steps when recognizing revenue from contracts with customers: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations and (v) recognize revenue when the performance obligation is satisfied. Our contracts with customers are generally short term in nature, typically due within one year or less or cancellable by us or our customer upon a short notice period. Performance obligations for our customer contracts are generally satisfied at a single point in time, typically when the transaction is complete, or over time. For performance obligations satisfied over time, we primarily use the output method, directly measuring the value of the products/services transferred to the customer, to determine when performance obligations have been satisfied. We typically receive payment from customers and recognize revenue concurrent with the satisfaction of our performance obligations. In most cases, this occurs within a single financial reporting period. For payments received in advance of the satisfaction of performance obligations, revenue recognition is deferred until such time as the performance obligations have been . In cases where we have not received payment of our performance obligations, we accrue an estimate of the amount due in the period our performance obligations have been .
For contracts with variable components, only amounts for which collection is probable are accrued. We generally act in a principal capacity, on our own behalf, in most of our contracts with customers. In such transactions, we recognize revenue and the related costs to provide our services on a gross basis in our financial statements. In some cases, we act in an agent capacity, deriving revenue through assisting other entities in transactions with our customers. In such transactions, we recognize revenue and the related costs to provide our services on a net basis in our financial statements. These transactions primarily relate to insurance and brokerage commissions and fees derived from our customers’ use of various interchange and ATM/debit card/credit card networks. Network costs associated with debit card and credit card transactions are netted against the related fees from such transactions. For the twelve months ended December 31, 2025, gross interchange and card transaction fees totaled $ 3.1 million while related network costs totaled $ 2.1 million. On a net basis, we reported $ 1.1 million as interchange and card transaction fees in the accompanying Consolidated Statement of Income for the twelve months ended December 31, 2025. F or the twelve months ended December 31, 2024 and December 31, 2023, interchange and card transaction fees were $ 3.1 million and $ 3.0 million, respectively, on a gross basis while related network costs were $ 1.9 million and $ 1.7 million, respectively.
Fair Value of Financial Instruments
ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.
ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which those assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. Fair values determined using Level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on Level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities for which identical or similar assets and liabilities are not actively traded in observable markets are based on Level 3 inputs, which are considered to be unobservable.
Among the Company’s assets and liabilities, investment securities available for sale and mortgage banking derivatives are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including other real estate owned, individually evaluated loans, loans held for sale, which are carried at the lower of cost or market, and loan servicing rights, where fair value is determined using similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Deposits, short-term borrowings and long-term obligations are not reported at fair value.
Prices for U.S. Treasury and marketable equity securities are readily available in the active markets in which those securities are traded, and the resulting fair values are classified as Level 1. Prices for government agency securities, mortgage-backed securities, asset-backed securities and state, county and municipal securities are obtained for similar securities, and the resulting fair values are classified as Level 2. Prices for all other non-marketable investments are determined based on various assumptions that are not observable. The fair values for these investment securities are classified as Level 3. Non-marketable investment securities, which are
Note 1 - Significant Accounting Policies (Continued)
carried at their purchase price, include those that may only be redeemed by the issuer. The changes in securities between Level 1 and Level 2 were related to the purchase and sale of several securities and not the transfer of securities.
Mortgage banking derivatives, which are comprised of interest rate lock commitments, mortgage forward sales commitments and to-be-announced mortgage-backed securities trades, are recorded at fair value on a recurring basis. Fair value of the IRLCs is based on projected pull-through rates and anticipated margins based on changes in market interest rates. The Company considers these to be Level 3 valuations. The fair value of mortgage forward sales commitments and TBAs is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date and is considered to be a Level 2 input.
The Company does not record loans at fair value on a recurring basis. The Company measures expected credit losses on loans held at amortized cost using the CECL model. Loans that do not share common risk characteristics with other loans are evaluated on an individual basis. For individually evaluated loans, expected credit losses are measured using one or more methods, which may include non-discounted cash flow analyses or the fair value of collateral. For collateral dependent loans, expected credit losses are measured based on the fair value of the collateral, less estimated costs to sell when foreclosure is probable. In certain circumstances, the fair value of collateral may exceed the amortized cost basis of the loan. If the fair value of collateral equals or exceeds the amortized cost basis of a collateral dependent loan, the measured expected credit loss is zero and no allowance is recorded for that loan. The Company generally determines the fair value of collateral using appraised values, which involve significant management judgment and are classified as Level 3 valuations within the fair value hierarchy.
Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at the estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charged to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations.
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate, based on secondary market prices. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. These loans are recorded in Level 2.
Comprehensive Income (Loss)
The Company reports as comprehensive income all changes in shareholders’ equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company’s only component of other comprehensive income (loss) is unrealized gains and losses, net of income tax, on investment securities available for sale.
The following table presents the changes in accumulated other comprehensive loss for the years ended December 31, 2025, 2024 and 2023:
Year ended December 31,
(dollars in thousands)
Beginning Balance
Accumulated other comprehensive income before reclassifications,
net of ($ 2,398 ), ($ 112 ) and ($ 1,993 ) tax effect, respectively
Amounts reclassified from accumulated other comprehensive income,
net of $ 0 , $ 0 , and ($ 8 ) tax effect, respectively
Net current-period other comprehensive income
Ending Balance
Earnings per Common Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The Company had no stock options outstanding at December 31, 2025, 2024 and 2023.
Note 1 - Significant Accounting Policies (Continued)
On October 28, 2025 , the Company’s Board of Directors declared a 3.0 % stock dividend payable on December 1, 2025 to shareholders of record on November 10, 2025 . All information presented in the accompanying consolidated financial statements regarding earnings per share and weighted average number of shares outstanding has been computed giving effect to this stock dividend.
The computation of weighted average shares used in the calculation of basic and dilutive earnings per share is summarized below:
Weighted average number of common shares and dilutive
potential common shares used in computing diluted net
income per common share
The Company had no outstanding dilutive securities at December 31, 2025, 2024 and 2023.
Noncontrolling Interest
In 2013, the Company’s subsidiary bank issued a total of $ 10.7 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C. The preferred stock qualifies as Tier 1 capital of the Bank and pays dividends at an annual rate of 5.30 %. The preferred stock has no voting rights . This capital is presented as noncontrolling interest in the consolidated balance sheets. Dividends declared on this preferred stock are presented as earnings allocated to the noncontrolling interest in the consolidated statements of income.
Segment Reporting
The Company operates in three operating segments: banking operations, mortgage banking, and wealth management. The Company’s operating segments are determined based on the nature of the products and services. The Executive Management Team (as defined in Note 18) has determined it is appropriate to aggregate the three operating segments into one reportable segment. See Note 18 (Segment Reporting) to the Company’s Notes to Consolidated Financial Statements for more information regarding segment reporting.
Recent Accounting Pronouncements
The Infla tion Reduction Act of 2022 (“IRA”) created a new nondeductible 1 % excise tax on repurchases of corporate stock by certain publicly traded corporations or their specified affiliates after December 31, 2022. The tax is imposed on the fair value of the stock of a covered corporation that is repurchased in a given year, less the fair market value of any stock issued in that year. A “covered corporation” is any domestic corporation whose stock is traded on an established securities market, such as an OTC market. The excise tax applies to all of the stock of a covered corporation regardless of whether the corporation has profits or losses. The IRA contains several exceptions to the excise tax, including, but not limited to, any repurchase of stock: in which the total value of the repurchased stock in a given year does not exceed $ 1,000,000 ; that is contributed to an employer-sponsored retirement plan or other similar stock compensation plan; or that is taxed as a dividend. The impact of the IRA on our consolidated financial statements is dependent on the extent of stock repurchases.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances income tax disclosure requirements. Under the new guidance, entities must disclose additional information in specified categories for federal, state and foreign income taxes with respect to the reconciliation of the effective tax rate to the statutory rate (rate reconciliation). Greater detail is also required about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. Additionally, the amendments require that entities must disaggregate income taxes paid, net of refunds received, for federal, state and foreign taxes and further disaggregate for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The quantitative threshold is equal to 5% or more of the amount
determined by multiplying pretax income (loss) from continuing operations by the applicable statutory rate. Public business entities must apply the guidance to annual periods beginning after December 15, 2024. ASU 2023-09 became effective for the Company on January 1, 2025 . Entities may apply the amendments prospectively or may elect retrospective application. The Company has adopted the ASU on a prospective basis as presented in Note 11 (Income Tax Matters) to the Company’s Notes to Consolidated Financial Statements. This adoption did not have a material impact on the Company’s financial statements.
Note 1 - Significant Accounting Policies (Continued)
In November 2024, the FASB issued ASU 2024-03 “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” requiring public business entities to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments should be applied prospectively. The Company is currently evaluating the impact of this ASU but does not expect it to have a material effect on its consolidated financial statements.
On July 4, 2025, President Trump signed into law the legislation formally titled “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14” and commonly referred to as the One Big Beautiful Bill (“the Act”). The Company is currently evaluating income tax implications of the Act. The Company does not expect the Act to have a material impact on the Company’s financial statements.
From time to time the FASB issues exposure drafts of proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.
Note 2 – Investment and Equity Securities
Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:
December 31, 2025
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(dollars in thousands)
Securities available for sale
U.S. Treasury
U.S. Government agencies
GSE - Mortgage-backed securities and CMOs
Asset-backed securities
State and political subdivisions
Corporate bonds
Total securities available for sale
December 31, 2025
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Allowance for
Credit Losses
Net Carrying
Amount
(dollars in thousands)
Securities held to maturity
State and political subdivisions
Corporate bonds
Total securities held to maturity
December 31, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(dollars in thousands)
Securities available for sale
U.S. Treasury
U.S. Government agencies
GSE - Mortgage-backed securities and CMOs
Asset-backed securities
State and political subdivisions
Corporate bonds
Total securities available for sale
Note 2 - Investment and Equity Securities (Continued)
December 31, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Allowance for
Credit Losses
Net Carrying
Amount
(dollars in thousands)
Securities held to maturity
State and political subdivisions
Corporate bonds
Total securities held to maturity
At December 31, 2025 and December 31, 2024, the Company owned Federal Reserve Bank (FRB) stock reported at cost of $ 959,000 . The Company owned Federal Home Loan Bank (FHLB) stock reported at cost of $ 819,000 and $ 750,000 at December 31, 2025 and December 31, 2024, respectively. The investments in Federal Reserve stock and FHLB stock are required investments related to the Company’s membership in, and borrowings with, these banks and are classified as restricted stock on the consolidated balance sheet. These investments are carried at cost since there is no ready market and redemption has historically been made at par value. The Company estimated the fair value approximated cost and that these investments were not impaired at December 31, 2025.
There is no allowance for credit losses on available for sale securities. The following table shows a rollforward of the allowance for credit losses on held to maturity securities for the year ended December 31, 2025.
State and political subdivisions
Corporate bonds
Total
Balance, December 31, 2024
Recovery of credit losses
Charge-offs of securities
Recoveries
Balance, December 31, 2025
On a quarterly basis, the Company monitors the credit quality of the debt securities held to maturity through the use of credit ratings. For unrated securities, primarily corporate bonds consisting of subordinated debt of bank holding companies, individual financial reports are reviewed quarterly. Capital, profitability, liquidity and other ratios are reviewed to assist in determining credit quality. The following table summarizes the credit ratings of debt securities held to maturity, presented at amortized cost, by major security type at December 31, 2025.
December 31, 2025
State and political subdivisions
Corporate bonds
Total
Aaa
BBB
Not rated
Total
At December 31, 2025, the Company had no securities held to maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held to maturity classified as nonaccrual for the year ended December 31, 2025.
Results from sales of securities available for sale for the years ended December 31, 2025, 2024 and 2023 are as follows:
(dollars in thousands)
Gross proceeds from sales
Realized gains from sales
Realized losses from sales
Net realized gains (losses)
Note 2 - Investment and Equity Securities (Continued)
At December 31, 2025 and 2024 securities available for sale with a carrying amount of $ 167.4 million and $ 161.5 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
We believe the unrealized losses on investment securities are a result of a volatile market and fluctuations in market prices due to a rise in interest rates, which will adjust if rates decline. Management does not believe these fluctuations are a reflection of the credit quality of the investments.
The following tables show the gross unrealized losses and estimated fair value of available for sale securities, for which an allowance has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2025 and 2024.
December 31, 2025
Less than 12 Months
12 Months or More
Total
Number of Securities
Fair Value
Unrealized
Losses
Number of Securities
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(dollars in thousands)
Securities available for sale
U.S. Treasury
U.S. Government agencies
GSE - Mortgage-backed securities and CMOs
Asset-backed securities
State and political subdivisions
Corporate bonds
Total securities available for sale
December 31, 2024
Less than 12 Months
12 Months or More
Total
Number of Securities
Fair Value
Unrealized
Losses
Number of Securities
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(dollars in thousands)
Securities available for sale
U.S. Treasury
U.S. Government agencies
GSE - Mortgage-backed securities and CMOs
Asset-backed securities
State and political subdivisions
Corporate bonds
Total securities available for sale
Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for credit loss, management considers, among other things, the length of time and the extent to which the fair value has been in a loss position; the financial condition of the issuer through the review of credit ratings and, if necessary, corporate financial statements; adverse conditions specifically related to the security such as past due principal or interest; underlying assets that collateralize the debt security; other economic conditions and demographics; and the intent and ability of the Company to hold the investment until the loss position is recovered. Any unrealized losses were largely due to increases in market interest rates over the
yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality.
At December 31, 2025, the Company did not intend to sell and believed it was not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.
Note 2 - Investment and Equity Securities (Continued)
The following tables show contractual maturities of the investment portfolio as of December 31, 2025:
Amortized
Cost
Estimated
Fair Value
(dollars in thousands)
Securities available for sale
Due within twelve months
Due after one but within five years
Due after five but within ten years
Due after ten years
Amortized
Cost
Estimated
Fair Value
(dollars in thousands)
Securities held to maturity
Due after one but within five years
Due after five but within ten years
Due after ten years
The portion of unrealized gains and losses for the twelve months ended December 31, 2025 and 2024 related to equity securities still held at the reporting date is calculated as follows:
Twelve Months Ended December 31,
(dollars in thousands)
Gross proceeds from sales
Net gains (losses) recognized during the period on equity securities
Less: Net gains (losses) recognized from equity securities sold during the period
Unrealized gains (losses) recognized during the period on equity securities still held at the reporting date
Note 3 – Loans Held for Investment
The composition of net loans held for investment by class as of December 31, 2025 and 2024 is as follows:
(dollars in thousands)
Commercial
Commercial
Real estate - commercial
Other real estate construction loans
Other loans
Noncommercial
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loans
Less:
Allowance for credit losses
Deferred loan fees, net
Loans held for investment, net
Note 3 – Loans Held for Investment (Continued)
Although the Bank’s loan portfolio is diversified, there is a concentration of mortgage real estate loans, primarily one-to-four family residential and home equity loa ns, which represents 33.7 % of total loans. Additionally, there is a concentration in commercial loans secured by real estate that represents 37.1 % of total loans. The commercial loan real estate portfolio is diversified and comprised of different types of real estate including, but not limited to, commercial buildings, commercial land development, multi-family housing, hotels, agriculture, and shopping center locations. There is not a concentration of a particular type of credit in this group of commercial loans. The Company’s loan policies are written to address loan-to-value ratios and collateralization methods with respect to each lending category. Consideration is given to the economic and credit risk of lending areas and customers associated with each category.
The carrying value of foreclosed properties held as other real estate was $ 0 at December 31, 2025 and December 31, 2024. The Company had no residential real estate in process of foreclosure at December 31, 2025. At December 31, 2024, the Company had $ 93,000 of residential real estate in process of foreclosure.
Note 4 - Allowance for Credit Losses on Loans
The following tables summarize the activity related to the allowance for credit losses on loans for the years ended December 31, 2025 and 2024 .
Commercial Loans
Noncommercial Loans
(dollars in thousands)
Commercial
Real estate
commercial
Other
real estate
construction
Other
loans
Real estate
1-4 family
construction
Real estate
residential
Home
equity
Consumer
Total
Loans
Balance, December 31, 2024
Provision for (recovery of) credit losses
Charge-offs
Recoveries
Net (charge-offs) recoveries
Balance, December 31, 2025
Commercial Loans
Noncommercial Loans
(dollars in thousands)
Commercial
Real estate
commercial
Other
real estate
construction
Other
loans
Real estate
1-4 family
construction
Real estate
residential
Home
equity
Consumer
Total
Loans
Balance, December 31, 2023
Provision for (recovery of) credit losses
Charge-offs
Recoveries
Net (charge-offs) recoveries
Balance, December 31, 2024
Note 4 - Allowance for Credit Losses on Loans (Continued)
Past due loan information is used by management when assessing the adequacy of the allowance for credit losses. The following tables summarize the past due information of the loan portfolio by class as of the dates indicated:
December 31, 2025
Loans
30-89 Days
Past Due
Nonaccrual Loans
Total Past
Due Loans
Current
Loans
Total
Loans
Accruing Loans
90 Days or More
Past Due
(dollars in thousands)
Commercial
Real estate - commercial
Other real estate construction
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loans
Other loans
Total
December 31, 2024
Loans
30-89 Days
Past Due
Nonaccrual Loans
Total Past
Due Loans
Current
Loans
Total
Loans
Accruing Loans
90 Days or More
Past Due
(dollars in thousands)
Commercial
Real estate - commercial
Other real estate construction
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loans
Other loans
Total
Once a loan becomes 90 days past due, the loan is automatically transferred to a nonaccrual status. The exception to this policy is credit card loans that remain in accrual status 90 days or more until they are paid current or charged off.
The composition of nonaccrual loans by class as of December 31, 2025 and 2024 is as follows:
December 31, 2025
Twelve Months Ended
Nonaccrual Loans
Nonaccrual Loans
Total Nonaccrual
December 31, 2025
with No Allowance
with an Allowance
Loans
Interest Income
(dollars in thousands)
Commercial
Real estate - commercial
Other real estate construction
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loans
Other loans
Note 4 - Allowance for Credit Losses on Loans (Continued)
December 31, 2024
Twelve Months Ended
Nonaccrual Loans
Nonaccrual Loans
Total Nonaccrual
December 31, 2024
with No Allowance
with an Allowance
Loans
Interest Income
(dollars in thousands)
Commercial
Real estate - commercial
Other real estate construction
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loans
Other loans
Loans that are in nonaccrual status or 90 days or more past due and still accruing are considered to be nonperforming. At both December 31, 2025 and 2024, there were no loans 90 days or more past due and still accruing. The following tables show the breakdown between performing and nonperforming loans by class as of December 31, 2025 and 2024:
December 31, 2025
Performing
Nonperforming
Total
(dollars in thousands)
Commercial
Real estate - commercial
Other real estate construction
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loans
Other loans
Total
December 31, 2024
Performing
Nonperforming
Total
(dollars in thousands)
Commercial
Real estate - commercial
Other real estate construction
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loans
Other loans
Total
Note 4 - Allowance for Credit Losses on Loans (Continued)
Loans that do not share the same risk characteristics as loans in the collectively assessed population will be individually assessed. Individually assessed loans determined to be collateral dependent are evaluated based on the fair value of the underlying collateral, as repayment is expected to be derived through the operation or sale of the collateral. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are measured using the fair value of collateral at the reporting date, adjusted for selling costs as appropriate. Loans that are not deemed collateral dependent are assigned a probability of default based on default history. If the loan has defaulted, it will be assigned a 100% probability of default; otherwise, it will be assigned a probability of default based on the Company’s historical experience, which is higher than the forecasted probability of default applied in the collectively assessed portfolio.
The Company did no t have any individually assessed loans deemed to be collateral dependent at December 31, 2025 or 2024.
Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and to measure the adequacy of the allowance for credit losses on loans. In this program, risk grades are initially assigned by the loan officers and reviewed and monitored by the lenders and credit administration. The program has nine risk grades summarized in six categories as follows:
Pass : Loans that are pass grade credits include loans that are fundamentally sound, with risk factors that are reasonable and acceptable. They generally conform to policy with only minor exceptions; any major exceptions are clearly mitigated by other economic factors.
Watch : Loans that are acceptable but show signs of weakness in either adequate sources of repayment or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss. These loans may deserve management’s attention.
Special Mention : Loans that exhibit potential weakness that deserve management’s close attention. Credits within this category exhibit risk that is increasing beyond the point where the loan would have been originally approved.
Substandard : Loans that are considered substandard are loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or the value of the collateral pledged. All nonaccrual loans are graded as substandard.
Doubtful: Loans that are considered to be doubtful have all weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make the collection or liquidation in full on the basis of current existing facts, conditions and values highly questionable and improbable.
Loss: Loans that are considered to be a loss are considered to be uncollectible and of such little value that their continuance as bankable assets is not warranted.
Note 4 - Allowance for Credit Losses on Loans (Continued)
The following table presents the Compan y’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2025:
December 31, 2025
Term Loans by Year of Origination
Prior
Revolving
Total
(dollars in thousands)
Commercial
Pass
Watch
Special Mention
Substandard
Total commercial
Real estate - commercial
Pass
Watch
Special Mention
Substandard
Total real estate - commercial
Other real estate construction
Pass
Watch
Special Mention
Substandard
Total other real estate construction
Real estate 1-4 family construction
Pass
Watch
Special Mention
Substandard
Total real estate 1-4 family construction
Real estate - residential
Pass
Watch
Special Mention
Substandard
Total real estate - residential
Home equity
Pass
Watch
Special Mention
Substandard
Total home equity
Consumer loans
Pass
Watch
Special Mention
Substandard
Total consumer loans
Other loans
Pass
Watch
Special Mention
Substandard
Total other loans
Total Pass
Total Watch
Total Special Mention
Total Substandard
Total loans
During the year ended December 31, 2025, ninety-nine loans totaling $ 10.4 million were converted from revolving to term loans.
Note 4 - Allowance for Credit Losses on Loans (Continued)
The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2024:
December 31, 2024
Term Loans by Year of Origination
Prior
Revolving
Total
(dollars in thousands)
Commercial
Pass
Watch
Special Mention
Substandard
Total commercial
Real estate - commercial
Pass
Watch
Special Mention
Substandard
Total real estate - commercial
Other real estate construction
Pass
Watch
Special Mention
Substandard
Total other real estate construction
Real estate 1-4 family construction
Pass
Watch
Special Mention
Substandard
Total real estate 1-4 family construction
Real estate - residential
Pass
Watch
Special Mention
Substandard
Total real estate - residential
Home equity
Pass
Watch
Special Mention
Substandard
Total home equity
Consumer loans
Pass
Watch
Special Mention
Substandard
Total consumer loans
Other loans
Pass
Watch
Special Mention
Substandard
Total other loans
Total Pass
Total Watch
Total Special Mention
Total Substandard
Total loans
During the year ended December 31, 2024, one hundred and thirty-two totaling $ 2.5 million w ere converted from revolving to term loans.
Note 4 - Allowance for Credit Losses on Loans (Continued)
The following tables present gross charge-offs by origination date for the years ended December 31, 2025 and 2024:
December 31, 2025
Gross Loan Charge-offs by Year of Origination
Prior
Revolving
Total
(dollars in thousands)
Commercial
Commercial
Real estate - commercial
Other real estate construction
Other loans
Noncommercial
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loans
Total charge-offs
December 31, 2024
Gross Loan Charge-offs by Year of Origination
Prior
Revolving
Total
(dollars in thousands)
Commercial
Commercial
Real estate - commercial
Other real estate construction
Other loans
Noncommercial
Real estate 1-4 family construction
Real estate - residential
Home equity
Consumer loans
Total charge-offs
Modifications to Borrowers Experiencing Financial Difficulty
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses due to the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. The Company rarely modifies loans by providing principal forgiveness. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Company will modify a loan by providing multiple types of concessions. Typically one type of concession is granted initially. If the borrower continues to experience financial difficulty, another concession may be granted. Types of concessions include term extensions beyond customary terms, capitalization of accrued interest, interest rate reductions to below current market rates, payment deferrals or principal forgiveness.
There were no loans modified for borrowers experiencing financial difficulty during the twelve months ended December 31, 2025 or December 31, 2024. As such, the Company did no t have any loans made to borrowers experiencing financial difficulty that were modified during the twelve months ended December 31, 2025 or December 31, 2024 that subsequently defaulted. A default on a modified loan is defined as being past due 90 days or being out of compliance with the modification agreement. The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.
Note 5 – Loan Servicing Assets
The principal balance of loans serviced for others is not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage and other loans serviced for others were approximately $ 729.1 million and $ 720.8 million at December 31, 2025 and 2024, respectively. The carrying value of capitalized servicing rights, net of valuation allowances, is included in other assets. A summary of loan servicing rights follows:
(dollars in thousands)
Beginning of year servicing rights:
Amounts capitalized
Amortization
Impairment
End of year
Amortization expense is estimated as follows:
Year ending December 31,
(dollars in thousands)
Thereafter
Total
The amortization expense table above does not anticipate or pro-forma loan prepayments.
The fair value of loan servicing rights was $ 7.4 million at December 31, 2025 and $ 7.3 million at December 31, 2024. T he key assumptions used to value loan servicing rights were as follows:
Weighted average remaining life
282 months
284 months
Weighted average discount rate
Weighted average coupon
Weighted average prepayment speed
Note 6 - Premises and Equipment
The major classes of premises and equipment and the total accumulated depreciation at December 31, 2025 and 2024 are listed below:
(dollars in thousands)
Land
Building and improvements
ROU assets
Furniture and equipment
Total fixed assets
Less accumulated depreciation
Net fixed assets
Depreciation expense was $ 994,000 for the year ended December 31, 2025 and $ 1.1 million for the years ended December 31, 2024 and 2023, and is included in net occupancy expense, equipment expense and software amortization and maintenance expense.
See Note 7 (Leases) to the Company’s Notes to Consolidated Financial Statements for more information regarding ROU assets.
Note 7 – Leases
Operating leases in which we are the lessee are recorded as operating lease right of use (“ROU”) assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on our consolidated balance sheets. Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental collateralized borrowing rate at the lease commencement date. ROU assets are further adjusted for any lease incentives. Operating lease expense, which is composed of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in the net occupancy expense in the consolidated statements of income. We do not currently have any finance leases in which we are the lessee.
Our leases relate to four office locations, three of which are branch locations, with remaining terms of one to four years . Certain lease arrangements contain extension options which range from five to ten years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As of December 31, 2025, operating lease ROU assets were $ 713,000 and the lease liability was $ 768,000 . Operating lease ROU assets were $ 1.1 million and the lease liability was $ 1.2 million at December 31, 2024. The table below depicts information related to the Company’s leases:
Twelve Months Ended December 31,
(in thousands except percent and period data)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term - operating leases, in years
Weighted-average discount rate - operating leases
Total rental expense related to the operating leases was $ 455,000 , $ 445,000 , and $ 435,000 for the years ended December 31, 2025, 2024 and 2023, respectively, and is included in net occupancy expense.
A table detailing the lease payments associated with the aforementioned properties is below.
December 31,
(dollars in thousands)
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
Note 8 - Deposits
The composition of deposits at December 31, 2025 and 2024 is as follows:
Amount
Percentage
of Total
Amount
Percentage
of Total
(dollars in thousands)
Demand noninterest-bearing
Interest checking and money market
Savings
Time deposits $250,000 and over
Other time deposits
Total
Note 8 - Deposits (Continued)
The maturities of fixed-rate time deposits at December 31, 2025 are reflected in the table below:
Time Deposits
Other
Year ending December 31,
$250,000 and Over
Time Deposits
(dollars in thousands)
Thereafter
Total
Note 9 - Short-Term Borrowed Funds
The following tables set forth certain information regarding the amounts, year-end weighted average rates, average balances, weighted average rate, and maximum month-end balances for short-term borrowed funds, at and during 2025 and 2024:
Amount
Rate
Amount
Rate
(dollars in thousands)
At year-end
Master notes and other short-term borrowings
Amount
Rate
Amount
Rate
(dollars in thousands)
Average for the year
Federal funds purchased
Master notes and other short-term borrowings
Notes payable
(dollars in thousands)
Maximum month-end balance
Master notes and other short-term borrowings
Master notes represent an overnight investment in commercial paper issued by the Company to customers of its subsidiary bank, where an agreement is in place.
The subsidiary bank has combined available lines of credit for federal funds and Federal Reserve discount window availability in the amount of $ 71.8 million at December 31, 2025.
Note 10 - Long-Term Debt
The Company has a line of credit with the Federal Home Loan Bank secured by qualifying first lien and second lien mortgage loans and commercial real estate loans with eligible collateral value of $ 182.2 million with $ 162.2 million available for advances at December 31, 2025. The Company utilized a $ 20.0 million letter of credit with FHLB as collateral for public deposits at December 31, 2025. There were no long-term advances under this line at December 31, 2025 or at December 31, 2024. The Com pany also secured a $ 3.0 million line of credit with TIB The Independent BankersBank, N.A. during 2020. The line is secured with 100 % of the outstanding common shares of the Company’s subsidiary bank. As of December 31, 2025, there was no outstanding balance on the line of credit. This loan carries certain debt covenants, and as of December 31, 2025, the Company was in compliance with all of these covenants.
Note 10 - Long-Term Debt (Continued)
During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $ 1,000 per security with a required minimum investment of $ 50,000 . The offering raised $ 10.0 million, of wh ich $ 9.5 million was outstanding at December 31, 2025. These securities have a final maturity date of September 30, 2029 and became redeemable by the Company on September 30, 2024 . The junior subordin ated debt pays interest quarterly at an annual fixed rate of 5.25 %. All proceeds of this private placement qualified as and are included in the calculation of Tier 2 capital. Once the remaining term to maturity drops under five years , the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. At December 31, 2025, $ 5.7 million of the subordinated debt issued in 2019 qualifies as Tier 2 capital.
During the thi rd quarter of 2021, the Company issued $ 12.0 million and $ 8.0 million of 10-year and 15-year fixed-to-floating rate subordinated debt securities, respective l y. At December 31, 2025, $ 11.8 million a nd $ 8.0 million remained outstanding of the 10-year and 15-year subordinated notes, respectively. Th e 10-year subordinated notes mature on September 3, 2031 , though they are redeemable at the Company’s option on or after September 3, 2026, and initially pay interest quarterly at an annual rate of 3.5 %. From and including September 3, 2026 to but excluding September 3, 2031, or up to any early redemption date, the interest rate on the 10-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month secured overnight financing rate (“ SOFR ”) plus 283 basis points payable quarterly in arrears. The 15-year subordinated notes mature on September 3, 2036 , though they are redeemable at the Company’s option on or after September 3, 2031, and initially pay interest quarterly at an annual rate of 4.0 %. From and including September 3, 2031 to but excluding September 3, 2036, or up to any early redemption date, the interest rate on the 15-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month SOFR plus 292 basis points payable quarterly in arrears. The subordinated debt was structured to qualify as and is included in the calculation of the Company’s Tier 2 capital. Once the remaining term to maturity drops under five years , the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 3, 2026 and September 3, 2031 for the 10-year and 15-year subordinated notes, respectively.
Debt is reported net of unamortized debt issuance costs of $ 154,000 and $ 231,000 at December 31, 2025 and December 31, 2024, respectively.
As of December 31, 2025, the scheduled maturities of these long-term borrowings are as follows:
Year Ended December 31, 2025
(dollars in thousands)
Thereafter
Less: unamortized debt issuance costs
Total
Note 11 - Income Tax Matters
Cash paid for income taxes, net of refunds, disaggregated by taxing jurisdiction is summarized in the following table for the year ended December 31, 2025.
(dollars in thousands)
Federal
States
North Carolina
South Carolina
Foreign
Total
Note 11 - Income Tax Matters (Continued)
Pretax income is entirely related to domestic activities as the Company did not have any foreign operations.
The significant components of income tax expense for the years ended December 31, 2025, 2024 and 2023 are summarized as follows:
(dollars in thousands)
Current tax expense:
Federal
State
Total
Deferred tax expense (benefit):
Federal
State
Total
Net provision for income taxes from continuing operations
The Company did no t have any income tax expense (benefit) in foreign jurisdictions.
The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 21 % to income before taxes is summarized below in accordance with ASU 2023-09:
Amount
% of Pretax Income
(dollars in thousands)
Tax computed at the statutory federal rate
State income taxes, net of federal benefit (a)
Nontaxable or nondeductible items
Meals and entertainment
Tax exempt income on bank-owned life insurance policies
Tax exempt interest, net
Other
Other adjustments
Provision for income taxes
(a) State taxes in North Carolina make up the majority (greater than 50%) of the tax effect in this category.
The difference bet ween the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 21 % to income before taxes is summarized below before the adoption of ASU 2023-09:
(dollars in thousands)
Tax computed at the statutory federal rate
Increases (decreases) resulting from:
State income taxes, net of federal benefit
Meals and entertainment
Tax exempt income on bank-owned life insurance policies
Tax exempt interest, net
Other
Provision for income taxes
Note 11 - Income Tax Matters (Continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred taxes at December 31, 2025, 2024 and 2023 are as follows:
(dollars in thousands)
Deferred tax assets relating to:
Net unrealized loss on securities available for sale
Allowance for credit losses
Deferred compensation
Lease liability
Other
Total deferred tax assets
Deferred tax liabilities relating to:
Deferred loan fees and costs
ROU asset
Loan servicing
Premises and equipment
2016-01 unrealized gain
Total deferred tax liabilities
Net recorded deferred tax asset
The net deferred tax asset is included in deferred income tax benefit on the accompanying consolidated balance sheet. The Company has no uncertain tax positions. The Company is subject to U.S. federal income tax as well as income tax of North Carolina and South Carolina. The Company is no longer subject to examination by federal and state taxing authorities for years before 2022.
Note 12 - Commitments and Contingencies
Financial Instruments with Off-Balance Sheet Risk
The subsidiary bank is party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, lines of credit and standby letters of credit. These instruments involve elements of credit risk in excess of amounts recognized in the accompanying financial statements.
The Bank’s risk of loss with the unfunded loans and lines of credit or standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments under such instruments as it does for on-balance sheet instruments. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, real estate and time deposits with financial institutions. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are unsecured.
As of December 31, 2025 and 2024, outstanding financial instruments whose contract amounts represent credit risk were as follows:
(dollars in thousands)
Commitments to extend credit
Credit card commitments
Standby letters of credit
Total commitments
Note 12 - Commitments and Contingencies (Continued)
The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancelable. The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $ 160,000 and $ 167,000 at December 31, 2025 and December 31, 2024, respectively, is separately classified on the balance sheet within Other Liabilities.
The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the year ended December 31, 2025.
Total Allowance for Credit Losses -
Unfunded Loan Commitments
(dollars in thousands)
Balance, December 31, 2024
Recovery of credit losses
Balance, December 31, 2025
Contingencies
In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements.
Financial Instruments with Concentration of Credit Risk
The subsidiary bank makes commercial, agricultural, real estate mortgage, home equity and consumer loans primarily in Stanly, Anson, Cabarrus, Randolph and Mecklenburg counties in North Carolina. A substantial portion of the Company’s customers’ ability to honor their contracts is dependent on the economy in these counties.
Although the Company’s composition of loans is diversified, there is some concentration of mortgage real estate loans, primarily one-to-four family residential mortgage loans and commercial loans secured primarily by real estate, shopping center locations, commercial land development, commercial buildings and equipment in the total portfolio. The Bank’s policy is to abide by real estate loan-to-value margin limits corresponding to guidelines issued by the federal supervisory agencies on March 19, 1993. The Bank’s lending policy for all loans requires that they be supported by sufficient cash flows at the time of origination.
Note 13 - Related Party Transactions
The Company has granted loan s to certain directors and executive officers and their related interests. Such loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other borrowers and, in management’s opinion, do not involve more than the normal risk of collectability. All loans to directors and executive officers or their related interests are submitted to the Board of Directors for approval. A summary of loans to directors, executive officers and their related interests follows:
(dollars in thousands)
Balance, at beginning of the year
Disbursements during the year
Collections during the year
Balance, at end of the year
At December 31, 2025, the Company had approved, but unused lines of credit, totaling $ 11.3 million to executive officers and directors, and their related interests, compared to $ 5.3 million at December 31, 2024. In addition, at December 31, 2025, the Company had $ 34.5 million of deposits for executive officers and directors, and their related interests compared to $ 28.1 million at December 31, 2024. Preferred stock issued to directors, executive officers and their related interests wa s $ 1.2 million at December 31, 2025 and 2024. Additionally, certain directors own subordinated debt issued by the Company. The amount of related interest ownership of the Company’s subordinated debt was $ 685,000 at December 31, 2025 and 2024.
Note 14 – Shareholders’ Equity and Regulatory Matters
The Company and its banking subsidiary are subject to certain requirements imposed by state and federal banking statutes and regulations. These requirements, among other things, establish minimum levels of capital, restrict the amount of dividends that may be distributed, and require that reserves on deposit liabilities be maintained in the form of vault cash or deposits with the Federal Reserve Bank. For the reserve maintenance period in effect at December 31, 2025, there was no requirement of the Bank to maintain reserve balances in cash or on deposit with the Federal Reserve Bank as reserves on deposit liabilities.
The Company and its subsidiary bank are subject to federal regulatory risk-based capital guidelines for banks and bank holding companies. Each must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices which measure Total Capital, Tier 1 Capital and Common Equity Tier 1 Capital to risk-weighted assets and Tier 1 Capital to average assets. As of December 31, 2025, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under the capital adequacy rules.
Quantitative measures established by regulation to ensure capital adequacy and the Company’s consolidated capital ratios are set forth in the table below. The Company expects to meet or exceed these minimums without altering current operations or strategy.
Minimum
Minimum to Be Well
For Capital
Capitalized Under Prompt
Actual
Requirement
Corrective Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2025
(dollars in thousands)
Total Capital to Risk Weighted Assets:
Consolidated
Uwharrie Bank
Tier 1 Capital to Risk Weighted Assets:
Consolidated
Uwharrie Bank
Common Equity Tier 1 Capital to Risk Weighted Assets:
Consolidated
Uwharrie Bank
Tier 1 Capital to Average Assets:
Consolidated
Uwharrie Bank
Minimum
Minimum to Be Well
For Capital
Capitalized Under Prompt
Actual
Requirement
Corrective Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2024
(dollars in thousands)
Total Capital to Risk Weighted Assets:
Consolidated
Uwharrie Bank
Tier 1 Capital to Risk Weighted Assets:
Consolidated
Uwharrie Bank
Common Equity Tier 1 Capital to Risk Weighted Assets:
Consolidated
Uwharrie Bank
Tier 1 Capital to Average Assets:
Consolidated
Uwharrie Bank
As of December 31, 2025, the most recent notification from the Federal Deposit Insurance Corporation categorized the Company’s subsidiary bank as being well capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events since such notification that management believes would have changed the categorization.
Note 14 – Shareholders’ Equity and Regulatory Matters (Continued)
In January 2013, the Company’s subsidiary bank issued $ 7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualifies as Tier 1 capital at the subsidiary bank and pays dividends at a rate of 5.30 %. The preferred stock has no voting rights . The offering raised $ 7.9 million less issuance costs of $ 113,000 . During 2013, the Company’s subsidiary bank issued $ 2.8 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series C. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30 %. The preferred stock has no voting rights . The offering raised $ 2.8 million in new capital less total issuance costs of $ 23,000 . The total net amount of capital raised from Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C issued at the subsidiary bank level is presented as noncontrolling interest in the consolidated balance sheets.
During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $ 1,000 per security with a required minimum investment of $ 50,000 . The offering raised $ 10.0 million, of which $ 9.5 million was outstanding at December 31, 2024. These securities have a final maturity date of September 30, 2029 and became redeemable by the Company on September 30, 2024 . The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25 %. All proceeds of this private placement qualified as and are included in the calculation of Tier 2 capital. Once the remaining term to maturity drops under five years , the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. At December 31, 2025, $ 5.7 million of the subordinated debt issued in 2019 qualifies as Tier 2 capital.
During the third quarter of 2021, the Company issued $ 12.0 million and $ 8.0 million of 10-year and 15-year fixed-to-floating rate subordinated debt securities, respectively. At December 31, 2025, $ 11.8 million and $ 8.0 million remained outstanding of the 10-year and 15-year subordinated notes, respectively. The 10-year subordinated notes mature on September 3, 2031 , though they are redeemable at the Company’s option on or after September 3, 2026, and initially pay interest quarterly at an annual rate of 3.5 %. From and including September 3, 2026 to but excluding September 3, 2031, or up to any early redemption date, the interest rate on the 10-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month SOFR plus 283 basis points payable quarterly in arrears. The 15-year subordinated notes mature on September 3, 2036 , though they are redeemable at the Company’s option on or after September 3, 2031, and initially pay interest quarterly at an annual rate of 4.0 %. From and including September 3, 2031 to but excluding September 3, 2036, or up to any early redemption date, the interest rate on the 15-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month SOFR plus 292 basis points payable quarterly in arrears. The subordinated debt was structured to qualify as and is included in the calculation of the Company’s Tier 2 capital. Once the remaining term to maturity drops under five years , the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 3, 2026 and September 3, 2031 for the 10-year and 15-year subordinated notes, respectively. Proceeds of the Company’s aforementioned securities that have been invested in its subsidiary bank qualify for Tier 1 capital treatment for the Bank and are included as such in its year end capital ratios.
Stock Repurchase Program
On February 21, 1995, the Company’s Board of Directors authorized and approved a Stock Repurchase Program, to be reaffirmed annually, pursuant to which the Company may repurchase shares of the Company’s common stock for the primary purpose of providing liquidity to its shareholders. During 2025, the Company repurchased 110,939 shares of outstanding common stock and repurchased 184,478 and 90,017 shares of outstanding common stock during 2024 and 2023, respectively.
Note 15 - Employee and Director Benefit Plans
Employees’ 401(k) Retirement Plan
The Company has established an associate tax deferred savings plan under Section 401(k) of the Internal Revenue Code of 1986. All associates are eligible to make elective deferrals on the first day of the calendar month coincident or next following the date the associate attains the age of 18 and completes thirty days of eligible service. Employees are 100 % vested in the plan once they enroll.
Note 15 - Employee and Director Benefit Plans (Continued)
The Company’s annual contribution to the plan was $ 759,000 in 2025, $ 711,000 in 2024 and $ 665,000 in 2023, determined as follows:
The Company will contribute a safe harbor matching contribution in an amount equal to 100 % of the matched employee contributions that are not in excess of 5 % of compensation.
A discretionary contribution, subject to approval by the Board of Directors, limited to an amount not to exceed the maximum amount deductible for income tax purposes.
Supplemental Executive Retirement Plan
The Company has implemented a non-qualifying deferred compensation plan for certain executive officers. Certain of the plan benefits will accrue and vest during the period of employment and will be paid in fixed monthly benefit payments for up to ten years upon separation from service. The plan also provides for payment of death benefits and for payment of disability benefits in the event the officer becomes permanently disabled prior to separation from service.
Effective December 31, 2008, this plan was amended and restated to comply with Section 409A of the Internal Revenue Code. The participants’ account liability balances as of December 31, 2008 could be transferred into a trust fund, where investments will be participant-directed.
The plan is structured as a defined contribution plan and the Company’s expected annual funding contribution for the participants has been calculated through the participant’s expected retirement date. Under terms of the agreement, the Company has reserved the absolute right, at its sole discretion, to either fund or refrain from funding the plan. The plans assets are maintained in a rabbi trust and are recorded at fair value with the corresponding liability adjusted to the same fair value.
During 2025, $ 223,000 was expensed for benefits provided under the plans. Benefits provided under the plans were $ 223,000 for 2024 and 2023, respectively. The liability accrued for deferred compensation under the plan amounted to $ 6.0 million and $ 5.1 million at December 31, 2025 and 2024, respectively.
Split-Dollar Life Insurance
The Company has entered into Life Insurance Endorsement Method Split-Dollar Agreements with certain officers. Under these agreements, upon death of the officer, the Company first recovers the cash surrender value of the contract and then shares the remaining death benefits from insurance contracts, which are written with different carriers, with the designated beneficiaries of the officers. The death benefit to the officers’ beneficiaries is a multiple of base salary at the time of the agreements. The Company, as owner of the policies, retains an interest in the life insurance proceeds and a 100 % interest in the cash surrender value of the policies. During 2025, the income associated with these policies was $ 45,000 . During 2024, the income associated with these policies was $ 68,000 compared to income of $ 79,000 during 2023. The liability associated with the split-dollar life insurance policies is $ 620,000 and $ 664,000 at December 31, 2025 and 2024, respectively.
Stock Grant Plan
During 2015, the Company adopted the 2015 Stock Grant Plan (“SGP”), under which the Company, at its discretion, may choose to make grants or awards of Uwharrie Capital Corp common stock (the “Common Stock”) to employees, directors or independent contractors of the Company or its subsidiaries as an alternate form of compensation or as a performance bonus. Shares of the Company’s Common Stock to be used for Stock Grants under this Plan are outstanding shares purchased by a revocable trust formed by the Company (the “Trust”). Participants are 100 % vested in the shares purchased on their behalf as soon as the Trust’s purchase is completed. The Company recognizes expense for the value of the shares at the time they are purchased by the Trust. During 2025, there were 21,803 shares granted at an expense of $ 195,000 compared to 22,683 shares granted at an expense of $ 173,000 in 2024 and 23,576 shares granted at an expense of $ 183,000 in 2023.
Note 16 - Fair Values of Financial Instruments
ASC 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or non-recurring basis.
The fair value estimates presented at December 31, 2025 and December 31, 2024, are based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price at which a liability could be settled. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following table do not represent market values of all assets and liabilities of the Company and should not be interpreted to represent the underlying value of the Company. The following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of December 31, 2025 and December 31, 2024:
Carrying
Estimated
December 31, 2025
Value
Fair Value
Level 1
Level 2
Level 3
(dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents
Securities available for sale
Securities held to maturity, net
Equity securities
Loans held for investment, net
Loans held for sale
Restricted stock
Loan servicing assets
Mortgage banking derivatives
Accrued interest receivable
FINANCIAL LIABILITIES
Deposits
Short-term borrowings
Long-term debt
Mortgage banking derivatives
Accrued interest payable
Carrying
Estimated
December 31, 2024
Value
Fair Value
Level 1
Level 2
Level 3
(dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents
Securities available for sale
Securities held to maturity, net
Equity securities
Loans held for investment, net
Loans held for sale
Restricted stock
Loan servicing assets
Mortgage banking derivatives
Accrued interest receivable
FINANCIAL LIABILITIES
Deposits
Short-term borrowings
Long-term debt
Accrued interest payable
Note 16 - Fair Values of Financial Instruments (Continued)
At December 31, 2025, the subsidiary bank had outstanding standby letters of credit and commitments to extend credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed. The fair value is not material. See Note 12 (Commitments and Contingencies) to the Company’s Notes to Consolidated Financial Statements for more information regarding commitments and contingent liabilities.
The following table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024:
December 31, 2025
(dollars in thousands)
Total
Level 1
Level 2
Level 3
Securities available for sale:
U.S. Treasury
U.S. Government agencies
GSE - Mortgage-backed securities and CMOs
Asset-backed securities
State and political subdivisions
Corporate bonds
Equity securities
Mortgage banking derivatives
Total assets at fair value
Mortgage banking derivatives
Total liabilities at fair value
December 31, 2024
(dollars in thousands)
Total
Level 1
Level 2
Level 3
Securities available for sale:
U.S. Treasury
U.S. Government agencies
GSE - Mortgage-backed securities and CMOs
Asset-backed securities
State and political subdivisions
Corporate bonds
Equity securities
Mortgage banking derivatives
Total assets at fair value
Mortgage banking derivatives
Total liabilities at fair value
The following table provides a reconciliation for recurring Level 3 fair value measurements:
December 31, 2025
Mortgage banking derivatives:
Interest rate lock commitments
Total
(dollars in thousands)
Balance at December 31, 2023
Change in fair value:
Included in income from mortgage banking
Balance at December 31, 2024
Change in fair value:
Included in income from mortgage banking
Balance at December 31, 2025
Note 16 - Fair Values of Financial Instruments (Continued)
The fair value of mortgage IRLCs at December 31, 2025 was calculated based on a notional amount of $ 25.3 million. Significant unobservable inputs are used to determine the fair value of these derivatives. For the twelve months ended December 31, 2025, such inputs included anticipated margins to be earned based on market movement from the original lock date and a weighted average projected pull-through rate o f 88.5 % d etermined by loan product, loan stage, and loan purpose. The fair value of mortgage IRLCs at December 31, 2024 was calculated based on a notional amount of $ 32.4 million. Significant unobservable inputs were the same as those used for the twelve months ended December 31, 2024 and assumed a weighted average projected pull-through rate of 90.1 % at December 31, 2024. Changes in interest rates and other assumptions could significantly change these estimated values.
The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets, such as other real estate owned and individually evaluated loans deemed to be collateral dependent, that are measured at the lower of cost or market value that were recognized at fair value less cost to sell at the end of the period. There were no assets for which a nonrecurring fair value adjustment was required as of December 31, 2025 and 2024.
Note 17 - Parent Company Financial Data
The following is a summary of the condensed financial statements of Uwharrie Capital Corp:
Condensed Balance Sheets
December 31,
(dollars in thousands)
Assets
Cash and demand deposits
Interest-earning deposits
Equity securities
Investments in:
Bank subsidiaries
Nonbank subsidiaries
Other assets
Total assets
Liabilities and shareholders’ equity
Master notes
Long term debt
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Note 17 - Parent Company Financial Data (Continued)
Condensed Statements of Income
(dollars in thousands)
Equity in undistributed earnings of subsidiaries
Dividends received from subsidiaries
Interest income
Other income
Interest expense
Other operating expense
Income tax benefit
Net income
Consolidated net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Uwharrie Capital Corp
Net income available to common shareholders
Net income per common share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
Condensed Statements of Cash Flows
(dollars in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries
Realized/unrealized (gain) loss on equity securities
Amortization of debt issuance costs
(Increase) decrease in other assets
Increase (decrease) in other liabilities
Net cash provided by operating activities
Cash flows from financing activities
Net increase (decrease) in master notes
Net decrease in long-term debt
Repurchase of common stock, net
Cash paid for fractional shares
Net cash used by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note 18 - Segment Reporting
The chief operating decision maker (“CODM”) of the Company is a group of individuals, also referred to as the Executive Management Team, consisting of the Chief Executive Officer, Chief Financial Officer, Chief Operations Officer and Chief Risk Officer. The Executive Management Team is responsible for allocating resources and assessing the performance of the Company.
Segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by the CODM. The Executive Management Team has identified three operating segments within the Company, each with a manager that reports directly to the CODM. The Company’s business operating segments are determined based on the nature of the products or services provided and reflect the manner in which financial information is currently evaluated by the Executive Management Team. The three operating segments of the Company are as follows:
Banking Operations - This segment provides financial products and services to consumer and commercial customers in the form of deposit products, loan products and cash management services through branches, online banking, mobile banking and telephone banking. This segment is also responsible for the management of the investment portfolio. Significant components of noninterest income for this segment are service charges on deposits and interchange fees on card transactions. Significant noninterest expense is salaries and employee benefits.
Mortgage Banking - This segment reflects Uwharrie Bank Mortgage, a division of the Bank that specializes in originating and
servicing one-to-four family residential mortgage loans which are primarily sold on the secondary market. Loans sold to Fannie Mae or Freddie Mac are sold with servicing rights retained. Significant noninterest income for this segment is gain or loss on the sale of loans. Significant noninterest expense is salaries and employee benefits.
Wealth Management - This segment reflects investment advisory, broker-dealer and insurance services of UIA, TSAC and BOS
Agency, respectively. Significant noninterest income for this segment is service fees and commissions. Significant noninterest expense is salaries and employee benefits.
While the CODM monitors each segment’s pre-tax, pre-provision profit or loss, the primary measure for allocating resources to the operating segments during the annual budgeting process is Net Income. This measure is also used to assess the performance of each segment, with a focus on net interest income, noninterest income, and noninterest expense. The CODM conducts monthly income review meetings, where budget-to-actual variances for Net Income and pre-tax, pre-provision profit or loss and its components are analyzed. The Company provides a broad range of financial services as described above and aims to provide one place for its customers to satisfy all of their financial services needs. As such, many customers are shared under the “Uwharrie” umbrella as are certain costs to conduct business. Management regularly reviews the different revenue streams, but is aware that shared resources and costs of key corporate functions may not be fully allocated among the operating segments. The Executive Management Team believes it is appropriate to aggregate the three operating segments into one reportable segment. A review of quantitative thresholds was performed, and the CODM has determined that the Company’s operations are not considered to constitute more than one reportable segment. Non-segment operations are classified as Other below and include assets and activity of the parent holding company. Management will continue to evaluate the operating segments for separate reporting as facts and circumstances change.
Note 18 - Segment Reporting (Continued)
Banking, Mortgage and
Wealth Management
Other
Consolidated
(dollars in thousands)
For the Year Ended December 31, 2025
Interest income
Interest expense
Net interest income
Noninterest income
Noninterest expense
Pre-tax, pre-provision income
Provision for (recovery of) credit losses
Provision for income taxes
Net income (loss)
Total assets as of December 31, 2025
For the Year Ended December 31, 2024
Interest income
Interest expense
Net interest income
Noninterest income
Noninterest expense
Pre-tax, pre-provision income
Provision for (recovery of) credit losses
Provision for income taxes
Net income (loss)
Total assets as of December 31, 2024
For the year ended December 31, 2023
Interest income
Interest expense
Net interest income
Noninterest income
Noninterest expense
Pre-tax, pre-provision income
Provision for (recovery of) credit losses
Provision for income taxes
Net income (loss)
Total assets as of December 31, 2023
