EX-13 2 d852585dex13.htm EX-13 EX-13

Exhibit 13

Uwharrie Capital Corp

2014

ANNUAL REPORT TO SHAREHOLDERS

 

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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Description of Business

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

The Bank engages in retail and commercial banking, with six banking offices in Stanly County, North Carolina. The Bank provides a wide range of banking services including deposit accounts, commercial, consumer, home equity and residential mortgage loans, safe deposit boxes, and electronic banking services.

On January 19, 2000, the Company completed its acquisition of Anson Bancorp, Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North Carolina savings bank charter and became a wholly-owned subsidiary of Uwharrie Capital Corp as Anson Bank & Trust Co. (“Anson”) and provided financial services to customers through one banking office in Anson County until September 1, 2013 when it was consolidated with and into the Bank. The former Anson office is now operated by the Bank.

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

The Company and its subsidiaries are located in Stanly County, Anson County and Cabarrus County. However, the Company intends to prudently expand its service area to include the entire Uwharrie Lakes Region of North Carolina.

Depository services offered by the Bank include personal and commercial checking, savings, money market, certificates of deposit accounts and individual retirement accounts, all tailored to meet customers’ needs. The bank provides fixed and variable rate loans, which include mortgage, home equity, lines of credit, consumer and commercial loans. The bank also offers internet banking, mobile banking, and 24-hour telephone banking, providing customers the convenience of access to account information, rate information and accessibility of funds transfers between accounts. Other services include MasterCard® credit cards and a Visa® check card which functions as a point-of-sale (POS) and automated teller machine (ATM) card. Customers can use the check card for purchases at virtually any merchant accepting Visa® and ATMs displaying the STAR® or CIRRUS® networks regionally and worldwide, respectively.

Strategic Investment Advisors Inc. provides portfolio management services to its customers. The Strategic Alliance Corporation (Strategic Alliance®) is a registered broker-dealer with the Financial Industry Regulatory Authority (FINRA). BOS Agency provides insurance products and is licensed in the state of North Carolina. Through Strategic Investment Group, a DBA for financial consultants registered with Private Client Services LLC., securities and insurance products are offered including fixed annuities, long-term care, Medicare supplement products and life insurance products. Group insurance products are offered through an arrangement with Burchfield Insurance Group, Inc.

Strategic Investment Group: Securities and insurance products are offered through Private Client Services, LLC, 2225 Lexington Rd , Louisville, KY 40206, ph: 502-451-0600, Member FINRA and SIPC. Private Client Services, LLC and Uwharrie Capital Corp along with its affiliates and/or subsidiaries are separate, distinct, and unaffiliated entities. It is important to note that securities and insurance products are; NOT BANK DEPOSITS – NOT INSURED BY THE FDIC OR ANY FEDERAL GOVERNMENT AGENCY – NOT OBLICATIONS OF OR GUARANTEED BY ANY FINANCIAL INSTITUTION – SUBJECT TO RISK AND MAY LOSE VALUE.

Uwharrie Bank, Member FDIC, Equal Housing Lender.

 

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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Financial Highlights

 

                 Percent  
                 Increase  
(Dollars in thousands, except per share amounts)    2014     2013     (Decrease)  

For the year:

      

Net income

   $ 1,679      $ 954        76.00

Net income (loss) available to common shareholders

   $ 1,088      $ 151        620.53

Basic net income (loss) per common share (1)

   $ 0.15      $ 0.02        665.00

Diluted net income (loss) per common share (1)

   $ 0.15      $ 0.02        665.00

Weighted average common shares outstanding (diluted)

     7,300,988        7,422,286        -1.63

At year-end:

      

Total assets

   $ 518,464      $ 517,320        0.22

Total earning assets

     473,157        472,075        0.23

Loans held for investment

     310,853        307,348        1.14

Total interest-bearing liabilities

     390,609        395,887        -1.33

Shareholders’ equity

     42,262        40,509        4.33

Book value per common share (1)

   $ 4.55      $ 3.94        15.45

Averages for the year:

      

Total assets

   $ 513,676      $ 527,693        -2.66

Total earning assets

     470,948        485,219        -2.94

Loans held for investment

     309,338        317,274        -2.50

Total interest-bearing liabilities

     386,237        407,857        -5.30

Shareholders’ equity

     41,681        43,994        -5.26

Financial ratios (in percentage):

      

Return on average assets

     0.33     0.18  

Return on average shareholders’ equity

     4.03     2.17  

Average equity to average assets

     8.11     8.34  

Net interest margin (fully tax equivalent basis)

     3.60     3.52  

Allowance as % of loans at year-end

     1.20     1.66  

Allowance as % of nonperforming loans

     166.43     108.02  

Nonperforming loans to total loans

     0.72     1.53  

Nonperforming assets to total assets

     1.56     2.30  

Net loan charge-offs (recoveries) to average loans

     0.31     0.55  

 

(1) Net income per share, book value per share and shares outstanding at year-end for 2013 have been adjusted to reflect the 2% stock dividend in 2014.

Market for the Company’s Common Stock and Related Security Holder Matters

It is the philosophy of Uwharrie Capital Corp to promote a strong base of local shareholders. While bid and asked prices for the Company’s common stock are quoted on the OTCQB marketplace operated by OTC Markets Group Inc. under the symbol UWHR, trading is sporadic with trades also taking place in privately negotiated transactions. Management makes every reasonable effort to match willing buyers with willing sellers as they become known for the purpose of private negotiations for the purchase and sale of the Company’s common stock.

Shareholders needing information about purchasing or selling shares of Uwharrie Capital Corp should contact Tamara M. Singletary or Lisa E. Hartsell, Investor Relations at Uwharrie Capital Corp, 132 N. First Street, Post Office Box 338, Albemarle, NC 28002.

The Board of Directors adopts a dividend policy on an annual basis. For 2014, Uwharrie Capital Corp declared a 2% stock dividend on its outstanding common stock. There was not a dividend declared in 2013. The Board of Directors will determine an appropriate dividend, if any, on an annual basis, consistent with the capital needs of the Company.

 

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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Uwharrie Capital Corp

Albemarle, North Carolina

We have audited the accompanying consolidated balance sheets of Uwharrie Capital Corp and Subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Uwharrie Capital Corp and Subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

/s/ Dixon Hughes Goodman LLP

Asheville, North Carolina

February 27, 2015

 

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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2014 and 2013

 

 

 

     2014     2013  
     (dollars in thousands)  

ASSETS

    

Cash and due from banks

   $ 6,807      $ 7,947   

Interest-earning deposits with banks

     43,984        64,447   

Securities available for sale, at fair value

     112,824        100,280   

Securities held to maturity, at amortized cost (fair value $5,450,000)

     5,496        —     

Loans held for sale

     2,147        1,139   

Loans:

    

Loans held for investment

     310,853        307,348   

Less allowance for loan losses

     (3,738     (5,095
  

 

 

   

 

 

 

Net loans held for investment

     307,115        302,253   
  

 

 

   

 

 

 

Premises and equipment, net

     14,858        13,781   

Interest receivable

     1,747        1,747   

Restricted stock

     1,038        1,184   

Bank owned life insurance

     6,645        6,516   

Other real estate owned

     5,865        7,170   

Prepaid assets

     969        490   

Other assets

     8,969        10,366   
  

 

 

   

 

 

 

Total assets

   $ 518,464      $ 517,320   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Demand noninterest-bearing

   $ 80,069      $ 74,493   

Interest checking and money market accounts

     243,116        228,933   

Savings deposits

     39,091        41,512   

Time deposits, $100,000 and over

     38,912        44,690   

Other time deposits

     55,247        64,080   
  

 

 

   

 

 

 

Total deposits

     456,435        453,708   
  

 

 

   

 

 

 

Short-term borrowed funds

     4,685        5,509   

Long-term debt

     9,558        11,163   

Interest payable

     180        224   

Other liabilities

     4,783        4,491   
  

 

 

   

 

 

 

Total liabilities

     475,641        475,095   
  

 

 

   

 

 

 

Off balance sheet items, commitments and contingencies (Note 13)

    

Redeemable common stock held by the Employee Stock Ownership Plan (ESOP) (Note 17)

     561        1,716   

SHAREHOLDERS’ EQUITY

    

Common stock, $1.25 par value: 20,000,000 shares authorized; shares issued and outstanding 6,961,484 and 7,445,931

     8,702        9,307   

Additional paid-in capital

     11,712        11,922   

Unearned ESOP compensation

     —          (989

Undivided profits

     10,974        10,289   

Accumulated other comprehensive income (loss)

     305        (562
  

 

 

   

 

 

 

Total Uwharrie Capital shareholders’ equity

     31,693        29,967   

Noncontrolling interest

     10,569        10,542   
  

 

 

   

 

 

 

Total shareholders’ equity

     42,262        40,509   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 518,464      $ 517,320   
  

 

 

   

 

 

 

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

 

35


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2014, 2013 and 2012

 

 

 

     2014     2013     2012  
    

(dollars in thousands, except share

and per share data)

 

Interest Income

      

Loans, including fees

   $ 16,336      $ 17,573      $ 19,724   

Investment securities:

      

US Treasury

     361        397        581   

US Government agencies and corporations

     1,271        1,066        1,105   

State and political subdivisions

     321        252        324   

Interest-earning deposits with banks and federal funds sold

     168        177        137   
  

 

 

   

 

 

   

 

 

 

Total interest income

     18,457        19,465        21,871   
  

 

 

   

 

 

   

 

 

 

Interest Expense

      

Interest checking and money market accounts

     299        439        542   

Savings deposits

     57        171        197   

Time deposits $100,000 and over

     471        592        802   

Other time deposits

     526        708        1,008   

Short-term borrowed funds

     34        160        353   

Long-term debt

     573        664        796   
  

 

 

   

 

 

   

 

 

 

Total interest expense

     1,960        2,734        3,698   
  

 

 

   

 

 

   

 

 

 

Net interest income

     16,497        16,731        18,173   

Provision for (recovery of) loan losses

     (389     28        1,832   
  

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     16,886        16,703        16,341   
  

 

 

   

 

 

   

 

 

 

Noninterest Income

      

Service charges on deposit accounts

     1,467        1,627        1,723   

Other service fees and commissions

     3,928        3,399        3,178   

Gain (loss) on sale of securities (includes reclassification of ($2,000) and ($523,000) from accumulated comprehensive income)

     (2     (523     1,286   

Income from mortgage loan sales

     1,001        2,113        3,740   

Other income

     927        971        748   
  

 

 

   

 

 

   

 

 

 

Total noninterest income

     7,321        7,587        10,675   
  

 

 

   

 

 

   

 

 

 

Noninterest Expense

      

Salaries and employee benefits

     12,051        12,423        12,891   

Net occupancy expense

     1,107        1,098        1,155   

Equipment expense

     680        734        733   

Data processing costs

     729        784        889   

Office supplies and printing

     273        358        334   

Foreclosed real estate expense

     1,246        1,647        2,994   

Professional fees and services

     847        680        588   

Marketing and donations

     762        728        691   

Electronic banking expense

     939        999        951   

Software amortization and maintenance

     535        541        576   

FDIC insurance

     425        518        693   

Goodwill Impairment

     —          —          987   

Other noninterest expense

     2,286        2,484        2,765   
  

 

 

   

 

 

   

 

 

 

Total noninterest expense

     21,880        22,994        26,247   
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     2,327        1,296        769   

Income taxes (includes reclassification of ($1,000 and $202,000) from accumulated other comprehensive income, respectively)

     648        342        365   
  

 

 

   

 

 

   

 

 

 

Net income

   $ 1,679      $ 954      $ 404   
  

 

 

   

 

 

   

 

 

 

Consolidated net income

   $ 1,679      $ 954      $ 404   

Less: Net income attributable to noncontrolling interest

     (591     (478     —     
  

 

 

   

 

 

   

 

 

 

Net income attributable to Uwharrie Capital Corp

     1,088        476        404   

Dividends on preferred stock

     —          (325     (645
  

 

 

   

 

 

   

 

 

 

Net Income (loss) available to common shareholders

   $ 1,088      $ 151      $ (241
  

 

 

   

 

 

   

 

 

 

Net income (loss) per common share

      

Basic

   $ 0.15      $ 0.02      $ (0.03
  

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.15      $ 0.02      $ (0.03
  

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

      

Basic

     7,300,988        7,422,286        7,519,100   

Diluted

     7,300,988        7,422,286        7,519,100   

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

 

36


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2014, 2013 and 2012

 

 

 

     2014     2013     2012  
     (dollars in thousands)  

Net Income

   $ 1,679      $ 954      $ 404   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

      

Unrealized gains (losses) on available for sale securities

     1,311        (3,662     2,356   

Related tax effect

     (445     1,292        (859

Reclassification of losses (gains) recognized in net income

     2        523        (1,286

Related tax effect

     (1     (202     496   
  

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     867        (2,049     707   
  

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     2,546        (1,095     1,111   

Less: Comprehensive income attributable to noncontrolling interest

     (591     (478     —     
  

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Uwharrie Capital

   $ 1,955      $ (1,573   $ 1,111   
  

 

 

   

 

 

   

 

 

 

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

 

37


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years Ended December 31, 2014, 2013 and 2012

 

 

 

    Number of
Common
Shares
Issued
    Preferred
Stock
Series A
    Preferred
Stock
Series B
    Discount on
Preferred
Stock
    Common
Stock
    Additional
Paid-in
Capital
    Unearned
ESOP
Compensation
    Undivided
Profits
    Accumulated
Other
Comprehensive
Income (Loss)
    Noncontrolling
Interest
    Total  
    (dollars in thousands, except share data)  

Balance, December 31, 2011

    7,593,929      $ 10,000      $ 500      $ (200   $ 9,492      $ 12,661      $ (772   $ 10,379      $ 2,194      $ —        $ 44,254   

Net Income

    —          —          —          —          —          —          —          404        —          —          404   

Repurchase of common stock

    (90,260     —          —          —          (113     (191     —          —          —          —          (304

Retirement of common stock

    (1,173     —          —          —          (1     1        —          —          —          —          —     

Other comprehensive loss

    —          —          —          —          —          —          —          —          (707     —          (707

Release of ESOP shares

    —          —          —          —          —          (39     87        —          —          —          48   

Increase in ESOP notes receivable

    —          —          —          —          —          —          (190     —          —          —          (190

Reclass of redeemable ESOP stock

    —          —          —          —          —          (235     —          —          —          —          (235

Stock compensation expense

    —          —          —          —          —          4        —          —          —          —          4   

Record preferred stock dividend and discount accretion

    —          —          —          100        —          —          —          (645     —          —          (545
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2012

    7,502,496      $ 10,000      $ 500      $ (100   $ 9,378      $ 12,201      $ (875   $ 10,138      $ 1,487      $ —        $ 42,729   

Net Income

    —          —          —          —          —          —          —          476        —          478        954   

Repurchase of common stock

    (56,565     —          —          —          (71     (98     —          —          —          —          (169

Other comprehensive loss

    —          —          —          —          —          —          —          —          (2,049     —          (2,049

Release of ESOP shares

    —          —          —          —          —          (49     94        —          —          —          45   

Increase in ESOP notes receivable

    —          —          —          —          —          —          (208     —          —          —          (208

Reclass to mezzanine capital

    —          —          —          —          —          (132     —          —          —          —          (132

Repayment of preferred stock series A

    —          (10,000     (500     —          —          —          —          —          —          —          (10,500

Issuance of preferred stock (noncontrolling interest)

    —          —          —          —          —          —          —          —          —          10,655        10,655   

Record costs of preferred stock (noncontrolling interest)

    —          —          —          —          —          —          —          —          —          (137     (137

Record preferred stock dividend (noncontrolling interest)

    —          —          —          —          —          —          —          —          —          (454     (454

Record preferred stock dividend and discount accretion

    —          —          —          100        —          —          —          (325     —          —          (225
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2013

    7,445,931      $ —        $ —        $ —        $ 9,307      $ 11,922      $ (989   $ 10,289      $ (562   $ 10,542      $ 40,509   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

38


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Continued

Years Ended December 31, 2014, 2013 and 2012

 

 

 

    Number of
Common
Shares
Issued
    Preferred
Stock
Series A
    Preferred
Stock
Series B
    Discount on
Preferred
Stock
    Common
Stock
    Additional
Paid-in
Capital
    Unearned
ESOP
Compensation
    Undivided
Profits
    Accumulated
Other
Comprehensive
Income (Loss)
    Noncontrolling
Interest
    Total  
    (dollars in thousands, except share data)  

Balance, December 31, 2013

    7,445,931      $ —        $ —        $ —        $ 9,307      $ 11,922      $ (989   $ 10,289      $ (562   $ 10,542      $ 40,509   

Net Income

    —          —          —          —          —          —          —          1,088        —          591        1,679   

Repurchase of common stock

    (374,130     —          —          —          (468     (942     —          —          —          —          (1,410

2% stock dividend

    142,129        —          —          —          178        221        —          (399     —          —          —     

Cash paid – fractional shares

    —          —          —          —          —          —          —          (4     —          —          (4

Other comprehensive income

    —          —          —          —          —          —          —          —          867        —          867   

Release of ESOP shares

    —          —          —          —          —          5        16        —          —          —          21   

Repayment of ESOP notes receivable

    (252,446     —          —          —          (315     (649     973        —          —          —          9   

Reclass from mezzanine capital

    —          —          —          —          —          1,155        —          —          —          —          1,155   

Record preferred stock dividend series B (noncontrolling interest)

    —          —          —          —          —          —          —          —          —          (416     (416

Record preferred stock dividend series C (noncontrolling interest)

    —          —          —          —          —          —          —          —          —          (148     (148
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2014

    6,961,484      $ —        $ —        $ —        $ 8,702      $ 11,712      $ —        $ 10,974      $ 305      $ 10,569      $ 42,262   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

39


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2014, 2013 and 2012

 

 

 

     2014     2013     2012  
     (dollars in thousands)  

Cash flows from operating activities

      

Net income

   $ 1,679      $ 954      $ 404   

Adjustments to reconcile net income to net cash Provided (used) by operating activities:

      

Depreciation

     922        914        954   

Net amortization of security premiums/discounts AFS

     1,050        1,420        1,334   

Net amortization of security premiums/discounts HTM

     2        —          —     

Impairment of goodwill

     —          —          987   

Net amortization of mortgage servicing rights

     709        801        831   

Impairment of foreclosed real estate

     647        921        2,365   

Provision for (recovery of) loan losses

     (389     28        1,832   

Deferred income taxes

     593        438        (1,134

Stock compensation

     —          —          4   

Net realized (gains) loss on sales / calls available for sale securities

     2        523        (1,286

Income from mortgage loan sales

     (1,001     (2,113     (3,740

Proceeds from sales of loans held for sale

     39,012        77,544        126,189   

Origination of loans held for sale

     (39,019     (71,197     (125,864

Gain on sale of premises, equipment and other assets

     (142     (233     (252

Increase in cash surrender value of life insurance

     (129     (122     (223

Gain on sales of foreclosed real estate

     (398     (290     55   

Release of ESOP Shares

     21        45        48   

Net change in interest receivable

     —          6        331   

Net change in other assets

     (663     (810     (3,655

Net change in interest payable

     (44     (46     (31

Net change in other liabilities

     349        424        431   
  

 

 

   

 

 

   

 

 

 

Net cash provided (used) by operating activities

     3,201        9,207        (420
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

      

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

     18,839        32,969        57,274   

Purchase of securities available for sale

     (31,122     (46,693     (61,369

Purchase of securities held to maturity

     (5,498     —          —     

Net (increase) decrease in loans

     (5,445     16,282        32,739   

Proceeds from sale of premises, equipment and other assets

     368        949        5,169   

Purchase of premises and equipment

     (2,225     (488     (830

Proceeds from sales of foreclosed real estate

     2,028        4,731        1,844   

Investment in other assets

     (366     (357     (346

Net change in restrictive stock

     146        1,081        1,024   
  

 

 

   

 

 

   

 

 

 

Net cash provided (used) by investing activities

     (23,275     8,474        35,505   
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

      

Net increase (decrease) in deposit accounts

     2,727        (3,904     26,274   

Net decrease in short-term borrowed funds

     (824     (13,181     (2,101

Net decrease in long-term debt

     (1,605     (1,510     (12,560

Proceeds from preferred stock offering, net of costs

     —          3,136        7,382   

Repayment preferred stock, series A

     —          (10,500     —     

Increase in unearned ESOP compensation

     —          (208     (190

Repurchase of common stock, net

     (1,401     (169     (304

Dividend and discount accretion on preferred stock

     (422     (679     (545

Cash paid for fractional shares

     (4     —          —     
  

 

 

   

 

 

   

 

 

 

Net cash provided (used) by financing activities

     (1,529     (27,015     17,956   
  

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (21,603     (9,334     53,041   

Cash and cash equivalents, beginning of year

     72,394        81,728        28,687   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of year

   $ 50,791      $ 72,394      $ 81,728   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosures of cash flow information

      

Interest paid

   $ 2,004      $ 2,780      $ 3,729   

Income taxes paid

     41        648        270   

Supplemental schedule of non-cash activities

      

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

     867        (2,049     (707

Loans transferred to foreclosed real estate

     972        4,032        2,907   

Company financed sales of other real estate owned

     (65     (213     (188

Mortgage servicing rights capitalized

     386        763        1,237   

Preferred stock dividend accrued

     (142     (142     (68

Net change in ESOP liability

     1,155        132        235   

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

 

40


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies

Nature of Business

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

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

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

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

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

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

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, SIA and Uwharrie’s subsidiaries, BOS Agency and Strategic Alliance. All significant intercompany transactions and balances have been eliminated in consolidation.

 

41


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

Use of Estimates

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

Cash and Cash Equivalents

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

Investment Securities Available for Sale

Investment securities available for sale consist of United States Treasuries, United States Government agencies, Government Sponsored Enterprise (GSE) mortgage backed securities and collateralized mortgage obligations (CMOs), corporate bonds and state and political subdivision bonds. Unrealized holding gains and losses on available for sale securities are reported as a net amount in other comprehensive income, net of income taxes. Gains and losses on the sale of available for sale securities are determined using the specific identification method. Declines in the fair value of individual available for sale securities below their cost that are other than temporary would result in write-downs of the individual securities, to their fair value. Such write-downs would be included in earnings as realized losses. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the period to maturity.

Investment Securities Held to Maturity

Investment securities held to maturity consist of United States Government agencies, and corporate bonds. 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. The allowance, if any, would not have a material impact on the financial statements.

Loans

The Company divides the loans it grants into two segments, commercial and noncommercial loans. Commercial loans are broken down into the following classes: commercial loans, real estate commercial loans and other real estate construction loans. Noncommercial loans are divided into the following classes: real estate 1-4 family construction, real estate 1-4 family residential loans, home equity loans, consumer loans and other loans. The ability of the Company’s borrowers to honor their contracts is largely dependent upon the real estate and

 

42


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

general economic conditions in the Company’s market area. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the effective interest method. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. The exception to this policy is credit card loans that remain in accrual status 90 days or more until they are paid current or charged off.

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

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses. The provision for loan losses is expensed to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company has different specific risks identified within the loan segments. Specific risks within the commercial loan segment arise with borrowers that are experiencing diminished operating cash flows, depreciated collateral values or prolonged sales and rental absorption periods. Concentrations within the portfolio if unmanaged, pose additional risk. Occasionally, the Company will purchase participation loans from other institutions and if not independently underwritten by the Bank, could carry additional risk. Generally, owner-occupied commercial real estate loans carry less risk than non-owner occupied. Specific risks within the non-commercial portfolio tend to be tied to economic factors including high unemployment and decreased real estate values. Risk to the Company is greater as home values deteriorate more rapidly than amortization in a loan, leaving little to no equity in properties, especially in junior lien positions. Concentration in the portfolio, such as home equity lines of credit, could pose additional risk if not appropriately managed.

The allowance for loan losses is evaluated both individually and collectively by loan class on a regular basis by management. Loans are collectively evaluated based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. Individually evaluated loans are based upon discounted cash flows or the underlying value of the collateral. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, regulatory examiners may require the Company to recognize adjustments to the allowance for loan losses based on their judgment about information available to them at the time of their assessment.

 

43


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Homogeneous loans are collectively evaluated by loan class for impairment. However, homogeneous loans will be evaluated individually for impairment if such a loan is deemed impaired.

Troubled debt restructure loans (TDR) are modifications of a loan when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. TDRs are considered to be impaired loans and are individually evaluated for impairment.

The portion of the Company’s allowance for loan loss model related to general reserves captures the mean loss of individual loans and the rare event of severe loss that can occur within the loan portfolio. Specifically, the Company calculates probable losses on loans by computing a probability of loss and expected loss scenario by FDIC call report codes. Together, these expected components, as well as a level of more extreme unexpected losses form the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations.

Mortgage Servicing Rights

The Company capitalizes mortgage servicing rights when loans are sold and the loan servicing is retained. The cost of servicing rights is amortized in proportion to and over the estimated period of net servicing revenues is expected to be received based on projections of the amount and timing of estimated future cash flows. The amortization of servicing rights is recognized in the statement of income as an offset to other noninterest income. Servicing assets are periodically evaluated for impairment based upon their fair value. Fair value is based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance and charged to other expense.

Transfers of Financial Assets

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

 

44


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

Foreclosed Real Estate

Real estate properties acquired through foreclosure or other proceedings are initially recorded at fair value upon foreclosure, establishing a new cost basis less costs to sell. 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 other expenses, and costs related to the improvement of the property are capitalized if the current fair value will allow it. If not, these costs are expensed also.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Land is carried at cost. Additions and major replacements or betterments which extend the useful lives of premises and equipment are capitalized. Maintenance, repairs and minor improvements are expensed as incurred. Depreciation is computed principally by the straight-line method over estimated useful lives, except in the case of leasehold improvements, which are amortized over the term of the leases, if shorter. Useful lives range from five to seven years for furniture, fixtures and equipment, to ten to thirty-nine years for leasehold improvements and buildings, respectively. Upon retirement or other disposition of the assets, the cost and the related accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.

Restricted Stock

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

Stock-Based Compensation

The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). ASC 718 also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. Excess tax benefits are reported as financing cash inflows in the consolidated statement of cash flows.

Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return and separate North Carolina income tax returns. The provision for income taxes in the accompanying consolidated financial statements is provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold. The tax returns for the Company are subject to audit for the 2011 fiscal year and thereafter. It is the Company’s policy to recognize interest and penalties associated with uncertain tax positions as components of other expenses in the income statement; however, if interest becomes a material amount, it would be reclassified as interest expense. There were no interest or penalties accrued during the years ended December 31, 2014, 2013 and 2012.

 

45


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

Fair Value of Financial Instruments

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

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

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

Prices for US Treasury securities are readily available in the active markets in which those securities are traded, and the resulting fair values are shown in the ‘Level 1 input’ column. Prices for government agency securities, mortgage-backed securities and for state, county and municipal securities are obtained for similar securities, and the resulting fair values are shown in the ‘Level 2 input’ column. Prices for all other non-marketable investments are determined based on various assumptions that are not observable. The fair values for these investment securities are shown in the ‘Level 3 input’ column. Non-marketable investment securities, which are carried at their purchase price, include those that may only be redeemed by the issuer. The changes in securities between Level 1 and Level 2 were related to the purchase and sale of several securities and not the transfer of securities.

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment by using one of several methods including collateral value, fair value of similar debt or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected

 

46


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

repayments or fair value of collateral exceed the recorded investments in such loans. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an internal assessment of fair value based upon market data issued or management determines the fair value of the underlying collateral is further impaired below the appraised value, the Company records the impaired loan as nonrecurring Level 3.

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. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an internal assessment of fair value based upon market data issued or management determines the fair value of the underlying collateral is further impaired below the appraised value, the Company records the impaired loan as nonrecurring Level 3.

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

Servicing assets are evaluated for impairment based upon the fair value. Fair value is determined based upon discounted cash flows using market-based assumptions. Servicing assets are recorded in Level 3.

Comprehensive Income

The Company reports as comprehensive income all changes in shareholders’ equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company’s only component of other comprehensive income is unrealized gains and losses, net of income tax, on investment securities available for sale. The following table presents the changes in accumulated other comprehensive income for the years ended December 31, 2014 and 2013:

 

     Year ended December 31,  
     2014      2013  
     (dollars in thousands)  

Beginning balance

   $ (562    $ 1,487   

Other comprehensive income (loss) before reclassifications, net of $(445,000) and $1,292,000 tax effect

     866         (2,370

Amounts reclassified from accumulated other comprehensive income, net of $1,000 and $202,000 tax effect

     1         321   
  

 

 

    

 

 

 

Net current-period other comprehensive income (loss)

     867         (2,049
  

 

 

    

 

 

 

Ending Balance

   $ 305       $ (562
  

 

 

    

 

 

 

 

47


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

As of December 31, 2014 and December 31, 2013, total accumulated other comprehensive income (loss) was $305,000 and ($562,000), respectively.

Earnings per Common Share

The Company had stock options outstanding covering 12,607 shares of common stock at December 31, 2014 and 94,341 shares of common stock at both December 31, 2013 and 2012. All of these options were anti-dilutive.

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The ESOP effect is the average of the unallocated ESOP shares.

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

 

     2014      2013      2012  

Weighted average number of common shares used in computing basic net income per common share

     7,343,921         7,633,365         7,652,546   

Effect of ESOP shares

     (42,933      (211,079      (133,446
  

 

 

    

 

 

    

 

 

 

Adjusted weighted average number of common shares used in computing basic net income per common share

     7,300,988         7,422,286         7,519,100   

Effect of dilutive stock options

     —           —           —     
  

 

 

    

 

 

    

 

 

 

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

     7,300,988         7,422,286         7,519,100   
  

 

 

    

 

 

    

 

 

 

During the first quarter of 2014, the board of directors of the Company voted to terminate the ESOP effective March 1, 2014. As of February 28, 2014, the ESOP held 740,530 shares, or 9.95% of the Company’s total outstanding shares of common stock, of which 252,446 shares were unallocated to participants in the ESOP.

The Company originally made a term loan to the ESOP in 1999. In addition, the Company established a $500,000 line of credit to the ESOP in 2010 and established a second $500,000 line of credit to the ESOP in 2013. The ESOP used the proceeds of the term loan and lines of credit to purchase shares of the Company’s common stock for the benefit of qualified employees. The unallocated shares of stock held by the ESOP were pledged as collateral for the term loan and lines of credit. As debt payments were made on the term loan and lines of credit, unallocated shares associated with those debt payments were released to the ESOP and allocated among participants.

 

48


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

In connection with the termination of the ESOP, the ESOP trustees transferred the 252,446 remaining unallocated shares to the Company in partial satisfaction of the outstanding balance on the term loan and lines of credit. The fair value of these unallocated shares was insufficient to repay the term loan and lines of credit in full. As a result, the Company forgave the remaining balance. Upon the transfer of the unallocated shares to the Company, these shares were cancelled and returned to the Company’s pool of authorized but unissued shares of common stock.

The Company filed a request for a favorable determination letter from the Internal Revenue Service as to the tax-qualified status of the ESOP on its termination.

The Company received the favorable determination letter dated September 5, 2014 from the Internal Revenue Service and during the fourth quarter of 2014 distributed the allocated shares to the participants.

Noncontrolling Interest

In January 2013 the Company’s subsidiary banks issued a total of $7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualified as Tier 1 capital at each bank and pays dividends at an annual rate of 5.30%. The preferred stock has no voting rights. This capital is presented as noncontrolling interest in the consolidated balance sheets. Dividends declared on this preferred stock are presented as earnings allocated to the noncontrolling interest in the consolidated statements of income. Effective September 1, 2013, the Fixed Rate Noncumulative Perpetual Preferred Stock, Series B was rolled into one issue under Uwharrie Bank in connection with the consolidation and name change.

During 2013, the Company’s subsidiary bank, Uwharrie Bank, raised $2.8 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series C. The preferred stock qualifies as Tier 1 capital at the bank and pays dividends at an annual rate of 5.30%. The preferred stock has no voting rights.

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-04, an update to ASC 310 “Receivables – Trouble Debt Restructurings by Creditors”. The amendments in this update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The update is effective for reporting periods beginning after December 15, 2014. The adoption of this update will not have a significant impact on the Company’s financial statements except for added disclosures.

 

49


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

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

Reclassification

Certain amounts in the 2013 financial statements have been reclassified to conform to the 2014 presentation. These reclassifications do not have a material impact on net income or shareholders’ equity.

Note 2 - Investment Securities

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

 

December 31, 2014

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
     (dollars in thousands)  

Securities available for sale

           

U.S. Treasury

   $ 19,030       $ 362       $ 6       $ 19,386   

U.S. Government agencies

     50,969         96         290         50,775   

GSE - Mortgage-backed securities and CMO’s

     27,748         133         309         27,572   

State and political subdivisions

     11,575         505         —           12,080   

Corporate bonds

     3,040         —           29         3,011   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 112,362       $ 1,096       $ 634       $ 112,824   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
     (dollars in thousands)  

Securities held to maturity

           

U.S. Government agencies

   $ 2,085       $ —         $ 32       $ 2,053   

Corporate bonds

     3,411         —           14         3,397   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 5,496       $ —         $ 46       $ 5,450   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2013

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
     (dollars in thousands)  

Securities available for sale

           

U.S. Treasury

   $ 20,992       $ 502       $ 208       $ 21,286   

U.S. Government agencies

     40,245         150         809         39,586   

GSE - Mortgage-backed securities and CMO’s

     32,557         116         953         31,720   

State and political subdivisions

     7,337         351         —           7,688   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 101,131       $ 1,119       $ 1,970       $ 100,280   
  

 

 

    

 

 

    

 

 

    

 

 

 

At both December 31, 2014 and 2013, the Company owned Federal Reserve Bank stock reported at cost of $506,000 and $467,000, respectively. Also at December 31, 2014 and 2013, the Company owned Federal Home Loan Bank Stock (FHLB) of $532,000 and $717,000, respectively. The investments in Federal Reserve stock and FHLB stock are required investments related to the Company’s membership and borrowings with these banks.

 

50


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 2 - Investment Securities (Continued)

 

Results from sales and calls of securities available for sale for the years ended December 31, 2014, 2013 and 2012 are as follows:

 

     2014      2013      2012  
     (dollars in thousands)  

Gross proceeds from sales and calls

   $ 11,592       $ 20,182       $ 42,889   
  

 

 

    

 

 

    

 

 

 

Realized gains from sales

   $ 28       $ 41       $ 1,398   

Realized losses from sales

     (30      (564      (112
  

 

 

    

 

 

    

 

 

 

Net realized gains (losses)

   $ (2    $ (523    $ 1,286   
  

 

 

    

 

 

    

 

 

 

At December 31, 2014, 2013 and 2012 securities available for sale with a carrying amount of $84.7 million, $63.1 million and $48.8 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2014 and 2013. The unrealized losses on investment securities are a result of temporary fluctuations in the market prices due to a rise in interest rates, which will adjust if rates decline in a volatile market and are in no way a reflection of the credit quality of the investments. At December 31, 2014, the unrealized losses on available for sale securities related to one United States Treasury note, thirteen government agency securities, eight government sponsored enterprise (GSE) mortgage backed securities and two corporate bonds. At December 31, 2014, the unrealized losses on held to maturity securities related to one government agency security and two corporate bonds. At December 31, 2013 the unrealized losses related to one United States Treasury note, thirteen government agency securities and ten government sponsored enterprise (GSE) mortgage backed securities.

 

     Less than 12 Months      12 Months or More      Total  

December 31, 2014

   Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
     (dollars in thousands)                

Securities available for sale temporary impairment

                 

U.S. Treasury

   $ 3,143       $ 6       $ —         $ —         $ 3,143       $ 6   

U.S. Gov’t agencies

     9,690         23         17,776         267         27,466         290   

GSE-Mortgage-backed securities and CMO’s

     1,990         4         14,168         305         16,158         309   

Corporate bonds

     3,011         29         —           —           3,011         29   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 17,834       $ 62       $ 31,944       $ 572       $ 49,778       $ 634   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Less than 12 Months      12 Months or More      Total  

December 31, 2014

   Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
     (dollars in thousands)                

Held to maturity temporary impairment

                 

U.S. Gov’t agencies

   $ 2,053       $ 32       $ —         $ —         $ 2,053       $ 32   

Corporate bonds

     3,397         14         —           —           3,397         14   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 5,450       $ 46       $ —         $ —         $ 5,450       $ 46   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

51


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 2 - Investment Securities (Continued)

 

     Less than 12 Months      12 Months or More      Total  

December 31, 2013

   Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
            (dollars in thousands)                       

Securities available for sale temporary impairment

                 

U.S. Treasury

   $ 4,722       $ 208       $ —         $ —         $ 4,722       $ 208   

U.S. Gov’t agencies

     32,406         809         —           —           32,406         809   

GSE-Mortgage-backed securities and CMO’s

     18,947         809         3,849         144         22,796         953   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 56,075       $ 1,826       $ 3,849       $ 144       $ 59,924       $ 1,970   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company did have seven government agency securities and seven GSE mortgage backed securities that had been in a loss position for more than twelve months. Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for other-than-temporary impairment management considers among other things, the length of time and the extent to which the fair value has been in a loss position, the financial condition of the issuer and the intent and the ability of the Company to hold the investment until the loss position is recovered.

Any unrealized losses were largely due to increases in market interest rates over the yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of quality but that the losses are temporary in nature. At December 31, 2014, the Company does not intend to sell and is not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.

The following table shows contractual maturities of the entire investment portfolio as of December 31, 2014:

 

     Amortized      Estimated  
     Cost      Fair Value  
     (dollars in thousands)  

Due within one year

   $ 5,147       $ 5,175   

Due after one but within five years

     57,711         58,043   

Due after five but within ten years

     21,537         21,603   

Due after ten years

     5,715         5,881   

Mortgage backed securities

     27,748         27,572   
  

 

 

    

 

 

 
   $ 117,858       $ 118,274   
  

 

 

    

 

 

 

The mortgage-backed securities are shown separately as they are not due at a single maturity date.

 

52


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

Note 3 - Loans Held for Investment

The composition of net loans held for investment by class as of December 31, 2014 and 2013 is as follows:

 

     2014      2013  
     (dollars in thousands)  

Commercial

     

Commercial

   $ 47,418       $ 47,436   

Real estate – commercial

     92,517         95,922   

Other real estate construction loans

     22,362         17,583   

Noncommercial

     

Real estate 1 – 4 family construction

     3,888         3,418   

Real estate – residential

     89,374         87,463   

Home equity

     46,360         45,231   

Consumer loans

     8,460         9,623   

Other loans

     481         612   
  

 

 

    

 

 

 
     310,860         307,288   

Less:

     

Allowance for loan losses

     (3,738      (5,095

Deferred loan (fees) costs, net

     (7      60   
  

 

 

    

 

 

 

Loans held for investment, net

   $ 307,115       $ 302,253   
  

 

 

    

 

 

 

Although the subsidiary bank loan portfolio is diversified, there is a concentration of mortgage real estate loans, primarily 1 to 4 family residential mortgage loans, which represent 44.91% of total loans. Additionally, there is concentration in commercial loans secured primarily by real estate, shopping center locations, commercial land development, commercial buildings and equipment that represent 52.21% of total loans. There is not a concentration of a particular type of credit in this group of commercial loans.

Total recorded investment in impaired loans, which consisted of nonaccrual loans and other loans identified by management as impaired, totaled $7.6 million and $17.6 million at December 31, 2014 and 2013, respectively. There were no loans 90 days past due and still accruing at December 31, 2014 or at December 31, 2013.

Restructured loans at December 31, 2014 totaled $6.0 million and are included in the impaired loan total, compared to $6.4 million of which all $6.4 million were included in impaired loans at December 31, 2013. The carrying value of foreclosed properties held as other real estate was $5.9 million and $7.2 million at December 31, 2014 and 2013, respectively.

The Company had loans of $128.9 million and $150.4 million pledged to borrowings at Federal Home Loan Bank and the Federal Reserve Bank at December 31, 2014 and 2013, respectively.

The Company’s loan policies are written to address loan-to-value ratios and collateralization methods with respect to each lending category. Consideration is given to the economic and credit risk of lending areas and customers associated with each category.

 

53


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

Note 4 - Allowance for Loan Losses

Changes in the allowance for loan losses for the years ended December 31, 2014, 2013 and 2012 are presented below:

 

Commercial

   2014      2013      2012  
     (dollars in thousands)  

Balance, beginning of year

   $ 2,665       $ 2,791       $ 2,904   

Provision (recovery) charged to operations

     (302      784         985   

Charge-offs

     (749      (1,005      (1,167

Recoveries

     102         96         69   
  

 

 

    

 

 

    

 

 

 

Net (charge-offs)

     (647      (909      (1,098
  

 

 

    

 

 

    

 

 

 

Other

     —           (1      —     
  

 

 

    

 

 

    

 

 

 

Balance, end of year

   $ 1,716       $ 2,665       $ 2,791   
  

 

 

    

 

 

    

 

 

 

Non-Commercial

   2014      2013      2012  
     (dollars in thousands)  

Balance, beginning of year

   $ 2,430       $ 4,010       $ 3,911   

Provision (recovery) charged to operations

     (87      (756      847   

Charge-offs

     (482      (966      (824

Recoveries

     161         146         76   
  

 

 

    

 

 

    

 

 

 

Net (charge-offs)

     (321      (820      (748
  

 

 

    

 

 

    

 

 

 

Other

     —           (4      —     
  

 

 

    

 

 

    

 

 

 

Balance, end of year

   $ 2,022       $ 2,430       $ 4,010   
  

 

 

    

 

 

    

 

 

 

Total

   2014      2013      2012  
     (dollars in thousands)  

Balance, beginning of year

   $ 5,095       $ 6,801       $ 6,815   

Provision (recovery) charged to operations

     (389      28         1,832   

Charge-offs

     (1,231      (1,971      (1,991

Recoveries

     263         242         145   
  

 

 

    

 

 

    

 

 

 

Net (charge-offs)

     (968      (1,729      (1,846
  

 

 

    

 

 

    

 

 

 

Other

     —           (5      —     
  

 

 

    

 

 

    

 

 

 

Balance, end of year

   $ 3,738       $ 5,095       $ 6,801   
  

 

 

    

 

 

    

 

 

 

The following table shows period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at December 31, 2014 and 2013:

 

December 31, 2014                  
     Individually Evaluated      Collectively Evaluated      Total  
     Reserve      Loans      Reserve      Loans      Reserve      Loans  
     (dollars in thousands)                

Commercial

   $ 179       $ 2,125       $ 1,537       $ 160,172       $ 1,716       $ 162,297   

Non-Commercial

     277         5,436         1,745         143,120         2,022         148,556   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 456       $ 7,561       $ 3,282       $ 303,292       $ 3,738       $ 310,853   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
December 31, 2013                  
      Individually Evaluated      Collectively Evaluated      Total  
     Reserve      Loans      Reserve      Loans      Reserve      Loans  
     (dollars in thousands)                

Commercial

   $ 1,519       $ 8,700       $ 1,146       $ 152,241       $ 2,665       $ 160,941   

Non-Commercial

     868         8,853         1,562         137,554         2,430         146,407   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,387       $ 17,553       $ 2,708       $ 289,795       $ 5,095       $ 307,348   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

54


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

Note 4 - Allowance for Loan Losses (Continued)

The Company made two changes made to the allowance for loan loss general reserve during 2014. First, the process of assigning the probability of default to commercial loans was changed to be based on internally determined loan grades instead of the beacon credit scores of the related underlying individual guarantor or borrower. Second, it was decided that a more accurate and stable measure of the risk in the portfolio would be achieved by a “through the cycle” probability of default or the likelihood that the borrower would pay as agreed. The probabilities of default are sampled from the prior two years making the previous method of estimating default a severely lagging statistic. These changes increased the Allowance by approximately $1.3 million. Management believes these better quantify probable losses within the loan portfolio.

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

 

December 31, 2014                  
     Loans
30-89 Days
Past Due
     Loans
90 Days
or More
Past due
and Non -
Accrual
     Total Past
Due Loans
     Current
Loans
     Total
Loans
     Accruing
Loans 90 or
More Days
Past Due
 
            (dollars in thousands)                

Commercial

   $ 42       $ —         $ 42       $ 47,376       $ 47,418       $ —     

Real estate – commercial

     77         794         871         91,646         92,517         —     

Other real estate construction

     —           342         342         22,020         22,362         —     

Real estate construction

     —           —           —           3,888         3,888         —     

Real estate – residential

     1,673         1,097         2,770         86,597         89,367         —     

Home equity

     89         13         102         46,258         46,360         —     

Consumer loan

     123         —           123         8,337         8,460         —     

Other loans

     —           —           —           481         481         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,004       $ 2,246       $ 4,250       $ 306,603       $ 310,853       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
December 31, 2013                  
      Loans
30-89 Days
Past Due
     Loans
90 Days
or More
Past due
and Non -
Accrual
     Total Past
Due Loans
     Current
Loans
     Total
Loans
     Accruing
Loans 90 or
More Days
Past Due
 
            (dollars in thousands)                

Commercial

   $ 143       $ 204       $ 347       $ 47,089       $ 47,436       $ —     

Real estate – commercial

     165         1,064         1,229         94,693         95,922         —     

Other real estate construction

     145         1,637         1,782         15,801         17,583         —     

Real estate construction

     —           —           —           3,418         3,418         —     

Real estate – residential

     1,426         1,564         2,990         84,533         87,523         —     

Home equity

     207         248         455         44,776         45,231         —     

Consumer loan

     55         —           55         9,568         9,623         —     

Other loans

     —           —           —           612         612         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,141       $ 4,717       $ 6,858       $ 300,490       $ 307,348       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

55


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 4 - Allowance for Loan Losses (Continued)

 

The composition of nonaccrual loans by class as of December 31, 2014 and 2013 is as follows:

 

     2014      2013  
     (dollars in thousands)  

Commercial

   $ —         $ 204   

Real estate – commercial

     794         1,064   

Other real estate construction

     342         1,637   

Real estate 1-4 family construction

     —           —     

Real estate – residential

     1,097         1,564   

Home equity

     13         248   

Consumer loans

     —           —     

Other loans

     —           —     
  

 

 

    

 

 

 
   $ 2,246       $ 4,717   
  

 

 

    

 

 

 

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

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

Watch: Loans that are watch credits include loans on management’s watch list where a risk concern may be anticipated in the near future.

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

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

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

 

56


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 4 - Allowance for Loan Losses (Continued)

 

The tables below summarize risk grades of the loan portfolio by class as of December 31, 2014 and 2013:

 

December 31, 2014

                                  
                   Sub-                
     Pass      Watch      standard      Doubtful      Total  
            (dollars in thousands)                

Commercial

   $ 46,734       $ 614       $ 70       $ —         $ 47,418   

Real estate – commercial

     82,846         5,513         4,158         —           92,517   

Other real estate construction

     19,724         1,925         713         —           22,362   

Real estate 1-4 family construction

     3,888         —           —           —           3,888   

Real estate – residential

     75,859         10,090         3,418         —           89,367   

Home equity

     44,799         1,458         103         —           46,360   

Consumer loans

     8,175         277         8         —           8,460   

Other loans

     481         —           —           —           481   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 282,506       $ 19,877       $ 8,470       $ 0       $ 310,853   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
December 31, 2013               
                   Sub-                
     Pass      Watch      standard      Doubtful      Total  
            (dollars in thousands)                

Commercial

   $ 46,520       $ 635       $ 281       $ —         $ 47,436   

Real estate – commercial

     80,679         9,396         5,847         —           95,922   

Other real estate construction

     12,898         2,465         1,385         835         17,583   

Real estate 1-4 family construction

     3,418         —           —           —           3,418   

Real estate – residential

     70,407         12,911         4,205         —           87,523   

Home equity

     43,830         1,005         396         —           45,231   

Consumer loans

     9,216         361         46         —           9,623   

Other loans

     612         —           —           —           612   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 267,580       $ 26,773       $ 12,160       $ 835       $ 307,348   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. During 2014, nonperforming loans decreased from $4.7 million at December 31, 2013 to $2.2 million at December 31, 2014, a decrease of $2.5 million. There were several loans that were foreclosed on during 2014 with the related property being moved into other real estate owned.

 

57


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 4 - Allowance for Loan Losses (Continued)

 

The following tables show the breakdown between performing and nonperforming loans by class as of December 31, 2014 and 2013:

 

December 31, 2014         
            Non-         
     Performing      Performing      Total  
     (dollars in thousands)  

Commercial

   $ 47,418       $ —         $ 47,418   

Real estate – commercial

     91,723         794         92,517   

Other real estate construction

     22,020         342         22,362   

Real estate 1-4 family construction

     3,888         —           3,888   

Real estate – residential

     88,270         1,097         89,367   

Home equity

     46,347         13         46,360   

Consumer loans

     8,460         —           8,460   

Other loans

     481         —           481   
  

 

 

    

 

 

    

 

 

 

Total

   $ 308,607       $ 2,246       $ 310,853   
  

 

 

    

 

 

    

 

 

 
December 31, 2013         
            Non-         
     Performing      Performing      Total  
     (dollars in thousands)  

Commercial

   $ 47,232       $ 204       $ 47,436   

Real estate – commercial

     94,858         1,064         95,922   

Other real estate construction

     15,946         1,637         17,583   

Real estate 1-4 family construction

     3,418         —           3,418   

Real estate – residential

     85,959         1,564         87,523   

Home equity

     44,983         248         45,231   

Consumer loans

     9,623         —           9,623   

Other loans

     612         —           612   
  

 

 

    

 

 

    

 

 

 

Total

   $ 302,631       $ 4,717       $ 307,348   
  

 

 

    

 

 

    

 

 

 

 

58


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 4 - Allowance for Loan Losses (Continued)

 

Loans are considered impaired when, based on current information and events it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. If a loan is deemed impaired, a valuation analysis is performed and a specific reserve is allocated if necessary. The tables below summarize the loans deemed impaired and the amount of specific reserves allocated by class as of December 31, 2014 and 2013 (unpaid principal balance was grossed up for chargeoffs):

 

                                 Year ended  
     As of December 31, 2014      December 31, 2014  
            Recorded      Recorded                       
     Unpaid      Investment      Investment             Average         
     Principal      With No      With      Related      Recorded      Interest  
     Balance      Allowance      Allowance      Allowance      Investment      Income  
            (dollars in thousands)                

Commercial

   $ 98       $ 68       $ 30       $ 30       $ 117       $ 7   

Real estate – commercial

     1,820         1,242         389         145         2,641         73   

Other real estate construction

     934         342         54         4         1,108         6   

Real estate 1 -4 family construction

     20         —           20         1         109         1   

Real estate – residential

     5,298         1,865         3,433         257         5,865         268   

Home equity

     49         30         19         19         73         2   

Consumer loans

     69         29         40         —           83         4   

Other loans

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,288       $ 3,576       $ 3,985       $ 456       $ 9,996       $ 361   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                 Year ended  
     As of December 31, 2013      December 31, 2013  
            Recorded      Recorded                       
     Unpaid      Investment      Investment             Average         
     Principal      With No      With      Related      Recorded      Interest  
     Balance      Allowance      Allowance      Allowance      Investment      Income  
            (dollars in thousands)                

Commercial

   $ 377       $ 291       $ 86       $ 67       $ 845       $ 21   

Real estate – commercial

     6,808         3,962         2,375         507         7,089         328   

Other real estate construction

     2,034         247         1,739         945         2,078         17   

Real estate 1 -4 family construction

     374         25         349         16         380         23   

Real estate – residential

     8,197         4,619         3,329         530         8,507         300   

Home equity

     415         58         357         279         819         8   

Consumer loans

     116         61         55         43         156         14   

Other loans

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,321       $ 9,263       $ 8,290       $ 2,387       $ 19,874       $ 711   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                 Year ended  
     As of December 31, 2012      December 31, 2012  
            Recorded      Recorded                       
     Unpaid      Investment      Investment             Average         
     Principal      With No      With      Related      Recorded      Interest  
     Balance      Allowance      Allowance      Allowance      Investment      Income  
            (dollars in thousands)                

Commercial

   $ 1,977       $ 388       $ 1,470       $ 616       $ 1,440       $ 66   

Real estate – commercial

     11,299         6,341         2,895         411         11,607         473   

Other real estate construction

     3,935         2,437         1,448         401         4,055         202   

Real estate 1 -4 family construction

     840         713         127         127         1,053         43   

Real estate – residential

     8,985         3,994         4,991         1,215         11,442         427   

Home equity

     1,068         521         547         159         1,200         32   

Consumer loans

     235         39         196         105         308         14   

Other loans

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 28,339       $ 14,433       $ 11,674       $ 3,034       $ 31,105       $ 1,257   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

59


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

Note 5 - Troubled Debt Restructures

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. The Company offers various types of concessions when modifying loans to troubled borrowers, however, forgiveness of principal is rarely granted. Concessions offered are term extensions, capitalizing accrued interest, reducing interest rates to below current market rates or a combination of any of these. Combinations from time to time may include allowing a customer to be placed on interest-only payments. The presentations below in the “other” category are TDR’s with a combination of concessions. At the time of a TDR, additional collateral or a guarantor may be requested.

Loans modified as TDRs are typically already on nonaccrual status and in some cases, partial chargeoffs may have already been taken against the outstanding loan balance. The Company classifies TDR loans as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis. An allowance is based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan is deemed to be collateral dependent.

For the twelve months ended December 31, 2014, 2013 and 2012, the following table presents a breakdown of the types of concessions made by loan class:

 

     Year ended December 31, 2014  
            Pre-Modification      Post-Modification  
     Number      Outstanding Recorded      Outstanding Recorded  
     of Contracts      Investment      Investment  
            (dollars in thousands)         

Extend payment terms:

        

Commercial

     —         $ —         $ —     

Real estate – commercial

     —           —           —     

Other real estate construction

     —           —           —     

Real estate 1-4 family construction

     —           —           —     

Real estate – residential

     —           —           —     

Home equity

     —           —           —     

Consumer loans

     1         32         32   

Other loans

     —           —           —     
  

 

 

    

 

 

    

 

 

 
     1       $ 32       $ 32   
  

 

 

    

 

 

    

 

 

 

Other:

        

Commercial

     —         $ —         $ —     

Real estate – commercial

     3         424         424   

Other real estate construction

     —           —           —     

Real estate 1-4 family construction

     —           —           —     

Real estate – residential

     6         870         870   

Home equity

     —           —           —     

Consumer loans

     —           —           —     

Other loans

     —           —           —     
  

 

 

    

 

 

    

 

 

 
     9       $ 1,294       $ 1,294   
  

 

 

    

 

 

    

 

 

 

Total

     10       $ 1,326       $ 1,326   
  

 

 

    

 

 

    

 

 

 

 

60


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 5 - Troubled Debt Restructures (Continued)

 

     Year ended December 31, 2013  
            Pre-Modification      Post-Modification  
     Number      Outstanding Recorded      Outstanding Recorded  
     of Contracts      Investment      Investment  
            (dollars in thousands)         

Extend payment terms:

        

Commercial

     —         $ —         $ —     

Real estate – commercial

     —           —           —     

Other real estate construction

     —           —           —     

Real estate 1-4 family construction

     —           —           —     

Real estate – residential

     —           —           —     

Home equity

     —           —           —     

Consumer loans

     —           —           —     

Other loans

     —           —           —     
  

 

 

    

 

 

    

 

 

 
     —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Other:

        

Commercial

     —         $ —         $ —     

Real estate – commercial

     1         356         341   

Other real estate construction

     —           —           —     

Real estate 1-4 family construction

     —           —           —     

Real estate – residential

     8         895         875   

Home equity

     1         18         18   

Consumer loans

     —           —           —     

Other loans

     —           —           —     
  

 

 

    

 

 

    

 

 

 
     10       $ 1,269       $ 1,234   
  

 

 

    

 

 

    

 

 

 

Total

     10       $ 1,269       $ 1,234   
  

 

 

    

 

 

    

 

 

 

 

61


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 5 - Troubled Debt Restructures (Continued)

 

     Year ended December 31, 2012  
            Pre-Modification      Post-Modification  
     Number      Outstanding Recorded      Outstanding Recorded  
     of Contracts      Investment      Investment  
            (dollars in thousands)         

Extend payment terms:

        

Commercial

     1       $ 33       $ 32   

Real estate – commercial

     —           —           —     

Other real estate construction

     1         49         49   

Real estate 1-4 family construction

     —           —           —     

Real estate – residential

     2         30         30   

Home equity