10-Q 1 d172816d10q.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

COMMISSION FILE NUMBER 000-22062

 

 

UWHARRIE CAPITAL CORP

(Exact name of registrant as specified in its charter)

 

 

 

NORTH CAROLINA   56-1814206

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

132 NORTH FIRST STREET

ALBEMARLE, NORTH CAROLINA

  28001
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s Telephone number, including area code: (704) 983-6181

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 6,981,817 shares of common stock outstanding as of April 25, 2016.

 

 

 


Table of Contents

Table of Contents

 

         Page No.  

Part I.

  FINANCIAL INFORMATION   

Item 1 -

  Financial Statements (Unaudited)   
 

Consolidated Balance Sheets March 31, 2016 and December 31, 2015

     3   
 

Consolidated Statements of Income for the Three Months Ended March 31, 2016 and 2015

     4   
 

Consolidated Statements of Comprehensive Income for the Three Months Ended March  31, 2016 and 2015

     5   
 

Consolidated Statements of Changes in Shareholders’ Equity Three Months Ended March  31, 2016

     6   
 

Consolidated Statements of Cash Flows Three Months Ended March 31, 2016 and 2015

     7   
 

Notes to Consolidated Financial Statements

     8   

Item 2 -

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      29   

Item 3 -

  Quantitative and Qualitative Disclosures about Market Risk      36   

Item 4 -

  Controls and Procedures      36   

Part II.

  OTHER INFORMATION   

Item 1 -

  Legal Proceedings      37   

Item 1A -

  Risk Factors      37   

Item 2 -

  Unregistered Sales of Equity Securities and Use of Proceeds      38   

Item 3 -

  Defaults Upon Senior Securities      38   

Item 4 -

  Mine Safety Disclosures      38   

Item 5 -

  Other Information      38   

Item 6 -

  Exhibits      38   
  Exhibit Index      41   

 

-2-


Table of Contents

Uwharrie Capital Corp and Subsidiaries

Consolidated Balance Sheets

Part I. FINANCIAL INFORMATION

Item 1 - Financial Statements

     March 31,
2016
(Unaudited)
    December 31,
2015*
 
     (dollars in thousands)  

ASSETS

    

Cash and due from banks

   $ 5,802      $ 7,038   

Interest-earning deposits with banks

     40,693        61,895   

Securities available for sale, at fair value

     94,829        89,258   

Securities held to maturity, at amortized cost (fair value $12,371 and $11,242, respectively)

     12,179        11,242   

Loans held for sale

     5,278        5,922   

Loans:

    

Loans held for investment

     322,428        320,132   

Less allowance for loan losses

     (2,810     (2,884
  

 

 

   

 

 

 

Net loans held for investment

     319,618        317,248   
  

 

 

   

 

 

 

Premises and equipment, net

     14,584        14,666   

Interest receivable

     1,548        1,564   

Restricted stock

     1,052        1,040   

Bank owned life insurance

     6,792        6,762   

Other real estate owned

     4,944        4,994   

Prepaid assets

     980        764   

Other assets

     10,094        9,809   
  

 

 

   

 

 

 

Total assets

   $ 518,393      $ 532,202   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Demand noninterest-bearing

   $ 101,353      $ 92,524   

Interest checking and money market accounts

     236,305        252,345   

Savings deposits

     40,639        40,436   

Time deposits, $250,000 and over

     7,945        8,148   

Other time deposits

     68,227        74,280   
  

 

 

   

 

 

 

Total deposits

     454,469        467,733   
  

 

 

   

 

 

 

Short-term borrowed funds

     3,519        5,758   

Long-term debt

     9,543        9,547   

Interest payable

     164        168   

Other liabilities

     6,530        5,682   
  

 

 

   

 

 

 

Total liabilities

     474,225        488,888   
  

 

 

   

 

 

 

Off balance sheet items, commitments and contingencies (Note 9)

    

SHAREHOLDERS’ EQUITY

    

Common stock, $1.25 par value: 20,000,000 shares authorized; shares issued and outstanding 6,981,817 and 6,983,017

     8,727        8,729   

Additional paid-in capital

     12,304        12,308   

Undivided profits

     12,256        11,893   

Accumulated other comprehensive income(loss)

     278        (212
  

 

 

   

 

 

 

Total Uwharrie Capital shareholders’ equity

     33,565        32,718   

Noncontrolling interest

     10,603        10,596   
  

 

 

   

 

 

 

Total shareholders’ equity

     44,168        43,314   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 518,393      $ 532,202   
  

 

 

   

 

 

 

 

(*) Derived from audited consolidated financial statements

See accompanying notes

 

-3-


Table of Contents

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Income (Unaudited)

 

     Three Months Ended
March 31,
 
     2016     2015  
    

(in thousands, except share and

per share data)

 

Interest Income

    

Loans, including fees

   $ 3,898      $ 3,910   

Investment securities

    

US Treasury

     11        84   

US Government agencies and corporations

     316        333   

State and political subdivisions

     123        82   

Interest-earning deposits with banks and federal funds sold

     88        37   
  

 

 

   

 

 

 

Total Interest income

     4,436        4,446   
  

 

 

   

 

 

 

Interest Expense

    

Interest checking and money market accounts

     72        70   

Savings deposits

     11        11   

Time deposits, $250,000 and over

     18        11   

Other time deposits

     113        207   

Short-term borrowed funds

     21        12   

Long-term debt

     136        135   
  

 

 

   

 

 

 

Total interest expense

     371        446   
  

 

 

   

 

 

 

Net interest income

     4,065        4,000   

Provision for (recovery of) loan losses

     (58     (62
  

 

 

   

 

 

 

Net interest income after provision for (recovery of) loan losses

     4,123        4,062   
  

 

 

   

 

 

 

Noninterest Income

    

Service charges on deposit accounts

     306        330   

Other service fees and commissions

     1,128        982   

Gain on sale of securities (includes reclassification of $205,000 and $225,000 from accumulated other comprehensive income)

     205        225   

Income from mortgage loan sales

     700        501   

Other income

     142        57   
  

 

 

   

 

 

 

Total noninterest income

     2,481        2,095   
  

 

 

   

 

 

 

Noninterest Expense

    

Salaries and employee benefits

     3,563        3,092   

Net occupancy expense

     257        284   

Equipment expense

     169        167   

Data processing costs

     180        176   

Office supplies and printing

     42        49   

Foreclosed real estate expense

     77        141   

Professional fees and services

     192        151   

Marketing and donations

     201        193   

Electronic banking expense

     311        251   

Software amortization and maintenance

     155        150   

FDIC insurance

     86        102   

Other noninterest expense

     688        491   
  

 

 

   

 

 

 

Total noninterest expenses

     5,921        5,247   
  

 

 

   

 

 

 

Income before income taxes

     683        910   

Income taxes (includes reclassification of $79,000 and $87,000 from accumulated other comprehensive income)

     173        273   
  

 

 

   

 

 

 

Net income

   $ 510      $ 637   
  

 

 

   

 

 

 

Net income

   $ 510      $ 637   

Less: Net Income attributable to noncontrolling interest

     (147     (146
  

 

 

   

 

 

 

Net income attributable to Uwharrie Capital Corp

     363        491   

Dividends – preferred stock

     —          —     
  

 

 

   

 

 

 

Net income available to common shareholders

   $ 363      $ 491   
  

 

 

   

 

 

 

Net income per common share

    

Basic

   $ 0.05      $ 0.07   

Diluted

     0.05        0.07   

Weighted average common shares outstanding

    

Basic

     6,983,017        7,100,565   

Diluted

     6,983,017        7,100,565   

See accompanying notes

 

-4-


Table of Contents

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

     Three Months Ended
March 31,
 
     2016     2015  
     (in thousands)  

Net Income

   $ 510      $ 637   
  

 

 

   

 

 

 

Unrealized gain on available for sale securities

     948        554   

Related tax effect

     (332     (199

Reclassification of gain recognized in net income

     (205     (225

Related tax effect

     79        87   
  

 

 

   

 

 

 

Total other comprehensive income

     490        217   
  

 

 

   

 

 

 

Comprehensive income

     1,000        854   
  

 

 

   

 

 

 

Less: Comprehensive income attributable to noncontrolling interest

     (147     (146
  

 

 

   

 

 

 

Comprehensive income attributable to Uwharrie Capital Corp

   $ 853      $ 708   
  

 

 

   

 

 

 

See accompanying notes

 

-5-


Table of Contents

Uwharrie Capital Corp and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

 

     Number
Common
Shares
Issued
    Common
Stock
    Additional
Paid-in
Capital
    Undivided
Profits
     Accumulated
Other
Comprehensive
Income (Loss)
    Non
Controlling
Interest
    Total  
     (dollars in thousands, except share data)  

Balance, December 31, 2015

     6,983,017      $ 8,729      $ 12,308      $ 11,893       $ (212   $ 10,596      $ 43,314   

Net Income

     —          —          —          363         —          147        510   

Repurchase of common stock

     (1,200     (2     (4     —           —          —          (6

Other comprehensive Income

     —          —          —          —           490        —          490   

Record preferred stock dividend Series B (noncontrolling interest)

     —          —          —          —           —          (103     (103

Record preferred stock dividend Series C (noncontrolling interest)

     —          —          —          —           —          (37     (37
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance, March 31, 2016

     6,981,817      $ 8,727      $ 12,304      $ 12,256       $ 278      $ 10,603      $ 44,168   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

See accompanying notes

 

-6-


Table of Contents

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 

     Three Months Ended
March 31,
 
     2016     2015  
     (dollars in thousands)  

Cash flows from operating activities

    

Net income

   $ 510      $ 637   

Adjustments to reconcile net income to net cash

    

Provided (used) by operating activities:

    

Depreciation

     222        239   

Net amortization of security premiums/discounts AFS

     218        307   

Net amortization of security premiums/discounts HTM

     37        33   

Net amortization of mortgage servicing rights

     171        166   

Impairment of foreclosed real estate

     34        45   

Recovery of loan losses

     (58     (62

Net realized gain on sales / calls available for sales securities

     (205     (225

Income from mortgage loan sales

     (700     (501

Proceeds from sales of loans held for sale

     17,003        14,747   

Origination of loans held for sale

     (15,659     (12,500

Increase in cash surrender value of life insurance

     (30     (30

Loss / (gain) on sales of foreclosed real estate

     (27     22   

Net change in interest receivable

     16        205   

Net change in other assets

     (532     48   

Net change in interest payable

     4        1   

Net change in other liabilities

     848        489   
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,852        3,621   
  

 

 

   

 

 

 

Cash flows from investing activities

    

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

     14,749        11,953   

Proceeds from sales, maturities and calls of securities held to maturity

     53        31   

Purchase of securities available for sale

     (19,590     (4,412

Purchase of securities held to maturity

     (1,027     (6,034

Net decrease in loans

     (2,312     2,273   

Purchase of premises and equipment

     (140     (74

Proceeds from sales of foreclosed real estate

     43        562   

Investment in other assets

     (394     (10

Net change in restricted stock

     (12     (1
  

 

 

   

 

 

 

Net cash provided (used) by investing activities

     (8,630     4,288   
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net decrease in deposit accounts

     (13,264     (4,584

Net increase (decrease) in short-term borrowed funds

     (2,239     105   

Net decrease in long-term debt

     (4     (2

Repurchase of common stock

     (6     (41

Dividend and discount accretion on noncontrolling interest

     (147     (146
  

 

 

   

 

 

 

Net cash used by financing activities

     (15,660     (4,668
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (22,438     3,241   

Cash and cash equivalents, beginning of period

     68,933        50,791   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 46,495      $ 54,032   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow Information

    

Interest paid

   $ 375      $ 445   

Income taxes paid

     —          —     

Supplemental Schedule of Non-Cash Activities

    

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

   $ 490      $ 217   

Mortgage servicing rights capitalized

     171        149   

Net Change in ESOP liability

     —          (67

See accompanying notes

 

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Table of Contents

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Basis of Presentation

The financial statements and accompanying notes are presented on a consolidated basis including Uwharrie Capital Corp (the “Company”) and its subsidiaries, Uwharrie Bank (the “Bank”), Uwharrie Investment Advisors, Inc. (“UIA”), and Uwharrie Mortgage Inc. The Bank consolidates its subsidiaries, the Strategic Alliance Corporation, BOS Agency, Inc. and Gateway Mortgage, Inc., each of which is wholly-owned by the Bank.

The information contained in the consolidated financial statements is unaudited. In the opinion of management, the consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) and material adjustments necessary for a fair presentation of results of interim periods, all of which are of a normal recurring nature, have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for an entire year. Management is not aware of economic events, outside influences or changes in concentrations of business that would require additional clarification or disclosure in the consolidated financial statements.

The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to consolidated financial statements filed as part of the Company’s 2015 Annual Report on Form 10-K. This Quarterly Report should be read in conjunction with such Annual Report.

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.

Note 2 – Comprehensive Income

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

 

-8-


Table of Contents

The following table presents the changes in accumulated other comprehensive income for the three months ended March 31, 2016 and 2015:

 

     Unrealized holding gains (losses)
on available-for-sale  Securities (net)
 
     Three months
ended
March 31,
2016
     Three months
ended
March 31,
2015
 
     (dollars in thousands)  

Beginning Balance

   $ (212    $ 305   

Other comprehensive income (loss) before reclassifications, net of $332,000 and $199,000 tax effect, respectively

     616         355   

Amounts reclassified from accumulated other comprehensive income, net of $79,000 and $87,000 tax effect

     (126      (138
  

 

 

    

 

 

 

net current-period other comprehensive loss

     490         217   
  

 

 

    

 

 

 

Ending Balance

   $ 278       $ 522   
  

 

 

    

 

 

 

Note 3 – 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.

Note 4 – Per Share Data

Basic and diluted net income per common share is computed based on the weighted average number of shares outstanding during each period after retroactively adjusting for stock dividends. Diluted net income per common share 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 net income of the Company. The Company had stock options outstanding covering 12,859 shares of common stock at both March 31, 2016 and December 31, 2015. All of these options were anti-dilutive.

Basic and diluted net income per common share have been computed based upon net income available to common shareholders as presented in the accompanying consolidated statements of income divided by the weighted average number of common shares outstanding or assumed to be outstanding.

 

-9-


Table of Contents

The computation of basic and dilutive earnings per share is summarized below:

 

     Three Months Ended
March 31,
 
     2016      2015  

Weighted average number of common shares outstanding

     6,983,017         7,100,565   

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

     6,983,017         7,100,565   
  

 

 

    

 

 

 

Note 5 – Investment Securities

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

 

March 31, 2016

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

Securities available for sale

           

U.S. Treasury

   $ 4,024       $ 32       $ —         $ 4,056   

U.S. Government agencies

     40,504         171         69         40,606   

GSE—Mortgage-backed securities and CMO’s

     30,920         137         208         30,849   

State and political subdivisions

     13,898         434         —           14,332   

Corporate bonds

     5,062         1         77         4,986   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 94,408       $ 775       $ 354       $ 94,829   
  

 

 

    

 

 

    

 

 

    

 

 

 

March 31, 2016

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

Securities held to maturity

           

U.S. Government agencies

   $ 1,851       $ 12       $ —         $ 1,863   

State and political subdivisions

     7,009         142         —           7,151   

Corporate bonds

     3,319         38         —           3,357   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 12,179       $ 192       $ —         $ 12,371   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2015

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

Securities available for sale

           

U.S. Treasury

   $ 4,026       $ —         $ 14       $ 4,012   

U.S. Government agencies

     36,159         99         188         36,070   

GSE—Mortgage-backed securities and CMO’s

     30,269         53         549         29,773   

State and political subdivisions

     13,691         351         3         14,039   

Corporate bonds

     5,435         —           71         5,364   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 89,580       $ 503       $ 825       $ 89,258   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

-10-


Table of Contents

December 31, 2015

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

Securities held to maturity

           

U.S. Government agencies

   $ 1,911       $ —         $ 5       $ 1,906   

State and political subdivisions

     5,993         30         5         6,018   

Corporate bonds

     3,338         —           20         3,318   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 11,242       $ 30       $ 30       $ 11,242   
  

 

 

    

 

 

    

 

 

    

 

 

 

At both March 31, 2016 and December 31, 2015, the Company owned Federal Reserve Bank stock reported at cost of $508,000 and $507,000, respectively. Also at March 31, 2016 and December 31, 2015, the Company owned Federal Home Loan Bank Stock (FHLB) of $544,000 and $533,000, respectively. The investments in Federal Reserve stock and FHLB stock are required investments related to the Company’s membership in, and borrowings with, these banks and classified as restricted stock on the consolidated balance sheet. These investments are carried at cost since there is no ready market and redemption has historically been made at par value. The Company estimated that the fair value approximated cost and that these investments were not impaired at March 31, 2016.

Results from sales and calls of securities available for sale for the three month period ended March 31, 2016 and March 31, 2015 are as follows:

 

     Three Months Ended
March 31,
 
     2016      2015  
     (dollars in thousands)  

Gross proceeds from sales

   $ 10,246       $ 5,143   
  

 

 

    

 

 

 

Gross realized gains from sales/calls

   $ 205       $ 225   

Gross realized losses from sales/calls

     —           —     
  

 

 

    

 

 

 

Net realized gains

   $ 205       $ 225   
  

 

 

    

 

 

 

At March 31, 2016 and December 31, 2015, securities available for sale with a carrying amount of $56.1 million and $68.8 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 March 31, 2016 and December 31, 2015. We believe these unrealized losses on investment securities are a result of a volatile market and fluctuations in market prices due to a rise in interest rates, which will adjust if rates decline. Management does not believe these fluctuations are a reflection of the credit quality of the investments. At March 31, 2016, the unrealized losses on available for sale securities less than twelve months related to four government agency bonds, six government sponsored enterprise (GSE) mortgage backed securities and one corporate bond. The Company had six government agency bonds, five GSE mortgage backed securities and one corporate bond that had been in a loss position for more than twelve months. At March 31, 2016, the unrealized losses on held to maturity securities related to one government agency security, ten state and political subdivision bonds and two corporate bonds. At December 31, 2015, the unrealized losses on available for sale securities less than twelve months related to one U.S. Treasury, five government agency bonds, eight government sponsored enterprise (GSE) mortgage backed securities, two corporate bonds and one state and political subdivision bond. The Company had six government agency bonds, four GSE mortgage backed securities and one corporate bond that had been in a loss position for more than twelve months. At December 31, 2015, the unrealized losses on held to maturity securities related to one government agency security, two corporate bonds and two state and political subdivision bonds.

 

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Table of Contents
     Less than 12 Months      12 Months or More      Total  

March 31, 2016

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

Securities available for sale temporary impairment

  

U.S. Gov’t agencies

   $ 4,777       $ 12       $ 4,869       $ 57       $ 9,646       $ 69   

GSE-Mortgage-backed securities and CMO’s

     10,801         112         7,693         96         18,494         208   

Corporate bonds

     2,161         59         795         18         2,956         77   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 17,739       $ 183       $ 13,357       $ 171       $ 31,096       $ 354   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Less than 12 Months      12 Months or More      Total  

March 31, 2016

   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

   $ —         $ —         $ —         $ —         $ —         $ —     

State & political

     —           —           —           —           —           —     

Corporate bonds

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ —         $ —         $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Less than 12 Months      12 Months or More      Total  

December 31, 2015

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

Securities available for sale temporary impairment

  

U.S. Treasury

   $ 4,013       $ 14       $ —         $ —         $ 4,013       $ 14   

U.S. Gov’t agencies

     16,692         128         5,048         60         21,740         188   

GSE-Mortgage-backed securities and CMO’s

     15,620         290         7,230         259         22,850         549   

State & political

     465         3         —           —           465         3   

Corporate bonds

     4,566         55         798         16         5,364         71   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 41,356       $ 490       $ 13,076       $ 335       $ 54,432       $ 825   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Less than 12 Months      12 Months or More      Total  

December 31, 2015

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

Held to maturity temporary impairment

                 

U.S. Gov’t agencies

   $ 1,906       $ 5       $ —         $ —         $ 1,906       $ 5   

State & political

     3,318         5         —           —           3,318         5   

Corporate bonds

     1,312         20         —           —           1,312         20   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 6,536       $ 30       $ —         $ —         $ 6,536       $ 30   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company had six government agency securities, five GSE mortgage backed securities and one corporate bond that had been in a loss position for more than twelve months as of March 31, 2016. Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for other-than-temporary impairment management considers among other things, the length of time and the extent to which the fair value has been in a loss position, the financial condition of the issuer and the intent and the ability of the Company to hold the investment until the loss position is recovered.

Any unrealized losses were largely due to increases in market interest rates over the yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of quality but that the losses are temporary in nature. At March 31, 2016, the Company does not intend to sell and is not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.

 

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Table of Contents

The aggregate amortized cost and fair value of the available for sale securities portfolio at March 31, 2016 by remaining contractual maturity are as follows:

 

     March 31, 2016  
     Amortized
Cost
     Estimated
Fair Value
     Book
Yield
 
     (dollars in thousands)  

Securities available for sale

        

U. S. Treasury

        

Due after one but within five years

     4,024         4,056         1.13
  

 

 

    

 

 

    

 

 

 
     4,024         4,056         1.13
  

 

 

    

 

 

    

 

 

 

U.S. Government agencies

        

Due after one but within five years

     22,948         23,107         1.20

Due after five but within ten years

     7,491         7,500         1.95

Due after ten years

     10,065         9,999         1.66
  

 

 

    

 

 

    

 

 

 
     40,504         40,606         1.45
  

 

 

    

 

 

    

 

 

 

Mortgage-backed securities

        

Due after one but within five years

     3,009         3,001         1.58

Due after five but within ten years

     5,759         5,769         2.36

Due after ten years

     22,152         22,079         1.96
  

 

 

    

 

 

    

 

 

 
     30,920         30,849         2.00
  

 

 

    

 

 

    

 

 

 

State and political subdivisions

        

Due after one but within five years

     1,884         1,996         4.78

Due after five but within ten years

     3,537         3,577         3.97

Due after ten years

     8,477         8,759         3.77
  

 

 

    

 

 

    

 

 

 
     13,898         14,332         3.96
  

 

 

    

 

 

    

 

 

 

Corporate Bonds

        

Due after one but within five years

     2,843         2,825         2.15

Due after five but within ten years

     2,219         2,161         1.50
  

 

 

    

 

 

    

 

 

 
     5,062         4,986         1.87
  

 

 

    

 

 

    

 

 

 

Total Securities available for sale

        

Due after one but within five years

     34,708         34,985         1.49

Due after five but within ten years

     19,006         19,007         2.40

Due after ten years

     40,694         40,837         2.26
  

 

 

    

 

 

    

 

 

 
   $ 94,408       $ 94,829         2.01
  

 

 

    

 

 

    

 

 

 
     March 31, 2016  
     Amortized
Cost
     Estimated
Fair Value
     Book
Yield
 
     (dollars in thousands)  

Held to maturity

        

U. S. Government agencies

        

Due after five but within ten years

     1,851         1,863         2.49
  

 

 

    

 

 

    

 

 

 
     1,851         1,863         2.49
  

 

 

    

 

 

    

 

 

 

State and political subdivisions

        

Due after one but within five years

     1,530         1,554         2.24

Due after five but within ten years

     5,479         5,597         2.74
  

 

 

    

 

 

    

 

 

 
     7,009         7,151         2.63
  

 

 

    

 

 

    

 

 

 

Corporate Bonds

        

Due after one but within five years

     3,319         3,357         2.76
  

 

 

    

 

 

    

 

 

 
     3,319         3,357         2.76
  

 

 

    

 

 

    

 

 

 

Total Securities held for maturity

        

Due after one but within five years

     1,530         1,554         2.60

Due after five but within ten years

     10,649         10,817         2.68
  

 

 

    

 

 

    

 

 

 
   $ 12,179       $ 12,371         2.65
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Note 6 – Loans Held for Investment

The composition of net loans held for investment by class as of March 31, 2016 and December 31, 2015 are as follows:

 

     March 31,
2016
     December 31,
2015
 
     (dollars in thousands)  

Commercial

     

Commercial

   $ 55,531       $ 52,311   

Real estate—commercial

     100,298         101,198   

Other real estate construction loans

     18,026         17,692   

Noncommercial

     

Real estate 1-4 family construction

     4,365         5,629   

Real estate—residential

     83,427         83,379   

Home equity

     50,262         49,420   

Consumer loans

     8,998         8,982   

Other loans

     1,451         1,481   
  

 

 

    

 

 

 
     322,358         320,092   

Less:

     

Allowance for loan losses

     (2,810      (2,884

Deferred loan (fees) costs, net

     70         40   
  

 

 

    

 

 

 

Loans held for investment, net

   $ 319,618       $ 317,248   
  

 

 

    

 

 

 

Note 7 – Allowance for Loan Losses

The following table shows the change in the allowance for loss losses by loan segment for the three month period ended March 31, 2016 and 2015, respectively:

 

Commercial

   Three Months Ended
March 31,
 
     2016      2015  
     (dollars in thousands)  

Balance, beginning of period

   $ 1,310       $ 1,716   

Provision (recovery) charged to operations

     60         (61

Charge-offs

     (62      (40

Recoveries

     7         179   
  

 

 

    

 

 

 

Net (charge-offs)/recoveries

     (55      139   
  

 

 

    

 

 

 

Balance at end of period

   $ 1,315       $ 1,794   
  

 

 

    

 

 

 

Non-Commercial

   Three Months Ended
March 31,
 
     2016      2015  
     (dollars in thousands)  

Balance, beginning of period

   $ 1,574       $ 2,022   

Provision (recovery) charged to operations

     (118      (1

Charge-offs

     (16      (117

Recoveries

     55         31   
  

 

 

    

 

 

 

Net (charge-offs)/recoveries

     39         (86
  

 

 

    

 

 

 

Balance at end of period

   $ 1,495       $ 1,935   
  

 

 

    

 

 

 

 

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Table of Contents

Total

   Three Months Ended
March 31,
 
     2016      2015  
     (dollars in thousands)  

Balance, beginning of period

   $ 2,884       $ 3,738   

Provision (recovery) charged to operations

     (58      (62

Charge-offs

     (78      (157

Recoveries

     62         210   
  

 

 

    

 

 

 

Net (charge-offs)/recoveries

     (16      53   
  

 

 

    

 

 

 

Balance at end of period

   $ 2,810       $ 3,729   
  

 

 

    

 

 

 

The following table shows period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at March 31, 2016 and December 31, 2015:

 

March 31, 2016

                                        
    Individually Evaluated      Collectively Evaluated      Total  
    Reserve      Loans      Reserve      Loans      Reserve      Loans  
    (dollars in thousands)  

Commercial

  $ 18       $ 969       $ 1,297       $ 172,886       $ 1,315       $ 173,855   

Non-Commercial

    212         4,818         1,283         143,755         1,495         148,573   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  $ 230       $ 5,787       $ 2,580       $ 316,641       $ 2,810       $ 322,428   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2015

                                        
    Individually Evaluated      Collectively Evaluated      Total  
    Reserve      Loans      Reserve      Loans      Reserve      Loans  
    (dollars in thousands)  

Commercial

  $ 18       $ 1,019       $ 1,292       $ 170,182       $ 1,310       $ 171,201   

Non-Commercial

    163         4,459         1,411         144,472         1,574         148,931   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  $ 181       $ 5,478       $ 2,703       $ 314,654       $ 2,884       $ 320,132   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Past due loan information is used by management when assessing the adequacy of the allowance for loan losses. The following table summarizes the past due information of the loan portfolio by class:

 

March 31, 2016

                                         
     Loans
30-89 Days
Past Due
     Loans
90 Days
or More
Past due
     Total Past
Due Loans
     Current
Loans
     Total
Loans
     Accruing
Loans 90 or
More Days
Past Due
 
     (dollars in thousands)  

Commercial

   $ 45       $ —         $ 45       $ 55,486       $ 55,531       $ —     

Real estate – commercial

     237         22         259         100,039         100,298         —     

Other real estate construction

     109         194         303         17,723         18,026         —     

Real estate 1 – 4 family construction

     —           —           —           4,365         4,365         —     

Real estate – residential

     1,191         892         2,083         81,414         83,497         —     

Home equity

     126         52         178         50,084         50,262         —     

Consumer loans

     19         —           19         8,979         8,998         —     

Other loans

     —           —           —           1,451         1,451         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,727       $ 1,160       $ 2,887       $ 319,541       $ 322,428       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-15-


Table of Contents

December 31, 2015

 

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

Commercial

   $ 46       $ 34       $ 80       $ 52,231       $ 52,311       $ —     

Real estate – commercial

     74         —           74         101,124         101,198         —     

Other real estate construction

     110         195         305         17,387         17,692         —     

Real estate construction

     —           —           —           5,629         5,629         —     

Real estate – residential

     1,580         541         2,121         81,298         83,419         —     

Home equity

     75         13         88         49,332         49,420         —     

Consumer loan

     39         —           39         8,943         8,982         —     

Other loans

     —           —           —           1,481         1,481         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,924       $ 783       $ 2,707       $ 317,425       $ 320,132       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Once a loan becomes 90 days past due, the loan is automatically transferred to a nonaccrual status. The exception to this policy is credit card loans that remain in accruing 90 days or more until they are paid current or charged off. Also, mortgage loans that were originated for sale but were not sold and are being held in the loan portfolio remain in an accruing status until they are foreclosed.

The Company had $1.5 million in foreclosed residential real estate and $570,000 of residential real estate in process of foreclosure at March 31, 2016.

The composition of nonaccrual loans by class as of March 31, 2016 and December 31, 2015 is as follows:

 

     March 31,
2016
     December 31,
2015
 
     (dollars in thousands)  

Commercial

   $ —         $ 34   

Real estate – commercial

     22         —     

Other real estate construction

     194         195   

Real estate 1 – 4 family construction

     —           —     

Real estate – residential

     892         541   

Home equity

     52         13   

Consumer loans

     —           —     

Other loans

     —           —     
  

 

 

    

 

 

 
   $ 1,160       $ 783   
  

 

 

    

 

 

 

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. 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.

 

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Table of Contents

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

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

The tables below summarize risk grades of the loan portfolio by class at March 31, 2016 and December 31, 2015:

March 31, 2016

 

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

Commercial

   $ 54,677       $ 832       $ 22       $ —         $ 55,531   

Real estate—commercial

     95,632         2,141         2,525         —           100,298   

Other real estate construction

     15,516         1,976         534         —           18,026   

Real estate 1 – 4 family construction

     4,262         103         —           —           4,365   

Real estate—residential

     71,723         9,155         2,619         —           83,497   

Home equity

     48,695         1,512         55         —           50,262   

Consumer loans

     8,594         400         4         —           8,998   

Other loans

     1,451         —           —           —           1,451   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 300,550       $ 16,119       $ 5,759       $ —         $ 322,428   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2015

 

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

Commercial

   $ 52,096       $ 130       $ 85       $ —         $ 52,311   

Real estate—commercial

     97,506         1,161         2,531         —           101,198   

Other real estate construction

     15,163         1,994         535         —           17,692   

Real estate 1 – 4 family construction

     5,526         103         —           —           5,629   

Real estate—residential

     71,736         9,398         2,285         —           83,419   

Home equity

     48,195         1,209         16         —           49,420   

Consumer loans

     8,583         394         5         —           8,982   

Other loans

     1,481         —           —           —           1,481   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 300,286       $ 14,389       $ 5,457       $ —         $ 320,132   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. At both March 31, 2016 and December 31, 2015, there were no loans 90 days past due and still accruing. The following tables show the breakdown between performing and nonperforming loans by class at March 31, 2016 and December 31, 2015:

March 31, 2016

 

     Performing      Non-
Performing
     Total  
     (dollars in thousands)  

Commercial

   $ 55,531       $ —         $ 55,531   

Real estate—commercial

     100,276         22         100,298   

Other real estate construction

     17,832         194         18,026   

Real estate 1 – 4 family construction

     4,365         —           4,365   

Real estate—residential

     82,605         892         83,497   

Home equity

     50,210         52         50,262   

Consumer loans

     8,998         —           8,998   

Other loans

     1,451         —           1,451   
  

 

 

    

 

 

    

 

 

 

Total

   $ 321,268       $ 1,160       $ 322,428   
  

 

 

    

 

 

    

 

 

 

December 31, 2015

 

     Performing      Non-
Performing
     Total  
     (dollars in thousands)  

Commercial

   $ 52,277       $ 34       $ 52,311   

Real estate—commercial

     101,198         —           101,198   

Other real estate construction

     17,497         195         17,692   

Real estate 1 – 4 family construction

     5,629         —           5,629   

Real estate—residential

     82,878         541         83,419   

Home equity

     49,407         13         49,420   

Consumer loans

     8,982         —           8,982   

Other loans

     1,481         —           1,481   
  

 

 

    

 

 

    

 

 

 

Total

   $ 319,349       $ 783       $ 320,132   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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 specific calculation 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 at March 31, 2016 and December 31, 2015.

March 31, 2016

 

     Unpaid
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Related
Allowance
 
     (dollars in thousands)  

Commercial

   $ 97       $ 63       $ 34       $ 2   

Real estate—commercial

     620         326         294         9   

Other real estate construction

     840         196         106         7   

Real estate 1 – 4 family construction

     13         2         11         —     

Real estate—residential

     4,343         1,345         2,998         212   

Home equity

     28         28         —           —     

Consumer loans

     75         66         9         —     

Other loans

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,016       $ 2,026       $ 3,452       $ 230   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2015

 

     Unpaid
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Related
Allowance
 
     (dollars in thousands)  

Commercial

   $ 97       $ 80       $ 17       $ 2   

Real estate—commercial

     620         498         122         9   

Other real estate construction

     840         195         107         7   

Real estate 1 – 4 family construction

     13         —           13         —     

Real estate—residential

     4,343         1,507         2,836         163   

Home equity

     28         28         —           —     

Consumer loans

     75         75         —           —     

Other loans

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,016       $ 2,383       $ 3,095       $ 181   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

-19-


Table of Contents
     Three Months ended
March 31, 2016
     Three Months ended
March 31, 2015
 
     Average
Recorded
Investment
     Interest
Income
     Average
Recorded
Investment
     Interest
Income
 
     (dollars in thousands)  

Commercial

   $ 34       $ —         $ 79       $ 1   

Real estate—commercial

     635         10         1,780         16   

Other real estate construction

     300         1         339         1   

Real estate 1 – 4 family construction

     11         —           19         —     

Real estate—residential

     4,659         58         5,434         51   

Home equity

     67         —           60         1   

Consumer loans

     81         2         48         —     

Other loans

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,787       $ 71       $ 7,759       $ 70   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 8 - 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.

At March 31, 2016, the Company had $4.6 million in TDR’s outstanding, of which all were on an accruing basis with the exception of one loan for $230,000.

 

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Table of Contents

For the three months ended March 31, 2016 and 2015, the following table presents a breakdown of the types of concessions made by loan class:

 

     For the three months ended March 31, 2016  
     Number
of Contracts
     Pre-Modification
Outstanding Recorded
Investment
     Post-Modification
Outstanding Recorded
Investment
 
     (dollars in thousands)  

Other:

        

Commercial

     —         $ —         $ —     

Real estate—commercial

     —           —           —     

Other real estate construction

     —           —           —     

Real estate 1 – 4 family construction

     —           —           —     

Real estate—residential

     —           —           —     

Home equity

     —           —           —     

Consumer loans

     1         9         9   

Other loans

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total

     1       $ 9       $ 9   
  

 

 

    

 

 

    

 

 

 

 

     For the three months ended March 31, 2015  
     Number
of Contracts
     Pre-Modification
Outstanding Recorded
Investment
     Post-Modification
Outstanding Recorded
Investment
 
     (dollars in thousands)  

Other:

        

Commercial

     —         $ —         $ —     

Real estate—commercial

     —           —           —     

Other real estate construction

     —           —           —     

Real estate 1 – 4 family construction

     —           —           —     

Real estate—residential

     2         188         183   

Home equity

     —           —           —     

Consumer loans

     —           —           —     

Other loans

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total

     2       $ 188       $ 183   
  

 

 

    

 

 

    

 

 

 

During the twelve months ended March 31, 2016 and March 31, 2015, there were no TDRs for which there was a payment default.

A default on a TDR is defined as being past due 90 days or being out of compliance with the modification agreement. As previously mentioned, the Company considers TDRs to be impaired loans and has $173,000 in the allowance for loan loss as of March 31, 2016, as a direct result of these TDRs. At March 31, 2015, there was $331,000 in the allowance for loan loss related to TDRs.

 

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Table of Contents

The following table presents the successes and failures of the types of modifications within the previous twelve months as of March 31, 2016 and 2015:

 

     Paid In Full      Paying as restructured      Converted to nonaccrual      Foreclosure/ Default  
     Number
of Loans
     Recorded
Investments
     Number
of Loans
     Recorded
Investments
     Number
of Loans
     Recorded
Investments
     Number
of Loans
     Recorded
Investments
 
     (dollars in thousands)  

March 31, 2016

                       

Below market Interest rate

     —         $ —           —         $ —           —         $ —           —         $ —     

Extended payment Terms

     —           —           —           —           —           —           —           —     

Forgiveness of Principal Other

     1         28         8         472         —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1       $ 28         8       $ 472         —         $ —           —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

March 31, 2015

                       

Below market Interest rate

     —         $ —           —         $ —           —         $ —           —         $ —     

Extended payment Terms

     —           —           1         50         —           —           —           —     

Forgiveness of Principal Other

     1         116         8         1,419         —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1       $ 116         9       $ 1,469         —         $ —           —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company has not committed to fund any additional disbursements for TDRs.

Note 9 - Commitments and Contingencies

The subsidiary bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, lines of credit and standby letters of credit. These instruments involve elements of credit risk in excess of amounts recognized in the accompanying financial statements.

The bank’s risk of loss with the unfunded loans and lines of credit or standby letters of credit is represented by the contractual amount of these instruments. The bank uses the same credit policies in making commitments under such instruments as it does for on-balance sheet instruments. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are unsecured.

At March 31, 2016, outstanding financial instruments whose contract amounts represent credit risk were approximately:

 

     (dollars in thousands)  

Commitments to extend credit

   $ 89,716   

Credit card commitments

     9,613   

Standby letters of credit

     2,336   
  

 

 

 

Total commitments

   $ 101,665   
  

 

 

 

 

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Table of Contents

Note 10 – Fair Value Disclosures

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

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

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

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

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment by using one of several methods including collateral value, fair value of similar debt or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected repayments or fair value of collateral exceed the recorded investments in such loans. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations.

Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at the estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charged to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations.

 

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Table of Contents

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.

The following table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015:

 

     March 31, 2016  
     (dollars in thousands)  
     Total      Level 1      Level 2      Level 3  

Securities available for sale:

           

US Treasury

   $ 4,056       $ 4,056       $ —         $ —     

US Government Agencies

     40,606         —           40,606         —     

GSE—Mortgage-backed securities and CMO’s

     30,849         —           30,849         —     

State and political subdivisions

     14,332         —           14,332         —     

Corporate bonds

     4,986         —           4,986         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 94,829       $ 4,056       $ 90,773       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2015  
     (dollars in thousands)  
     Total      Level 1      Level 2      Level 3  

Securities available for sale:

           

US Treasury

   $ 4,012       $ 4,012       $ —         $ —     

US Gov’t

     36,070         —           36,070         —     

Mortgage-backed securities and CMO’s

     29,773         —           29,773         —     

State and political subdivisions

     14,039         —           14,039         —     

Corporate bonds

     5,364         —           5,364         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 89,258       $ 4,012       $ 85,246       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

-24-


Table of Contents

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value less cost of sell at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of March 31, 2016 and December 31, 2015:

 

     March 31, 2016  
     (dollars in thousands)  
     Total      Level 1      Level 2      Level 3  

Impaired loans

   $ 3,417       $ —         $ —         $ 3,417   

Other real estate owned

     3,014         —           —           3,014   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 6,431       $ —         $ —         $ 6,431   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2015  
     (dollars in thousands)  
     Total      Level 1      Level 2      Level 3  

Impaired loans

   $ 3,108       $ —         $ —         $ 3,108   

Other real estate owned

     2,909         —           —           2,909   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 6,017       $ —         $ —         $ 6,017   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Quantitative Information about Level 3 Fair Value Measurements

March 31, 2016

 

    

Valuation Technique

  

Unobservable Input

  

General Range

Nonrecurring measurements:         

Impaired loans

   Discounted appraisals
Discounted cash flows
   Expected loss rates Discount rate    0 – 25% 4%-8.75%

OREO

   Discounted appraisals    Collateral discounts and Estimated costs to sell    0 – 10%

December 31, 2015

 

    

Valuation Technique

  

Unobservable Input

  

General Range

Nonrecurring measurements:         

Impaired loans

   Discounted appraisals
Discounted cash flows
   Expected loss rates Discount rates    0 – 25% 4%-8.75%

OREO

   Discounted appraisals    Collateral discounts and Estimated costs to sell    0 – 10%

At March 31, 2016, impaired loans were being evaluated with discounted expected cash flows and discounted appraisals were being used on collateral dependent loans.

Note 11 - Fair Values of Financial Instruments and Interest Rate Risk

ASC 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or non-recurring basis.

 

-25-


Table of Contents

The fair value estimates presented at March 31, 2016 and December 31, 2015 are based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price at which a liability could be settled. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following table do not represent market values of all assets and liabilities of the Company and should not be interpreted to represent the underlying value of the Company. The following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of March 31, 2016 and December 31, 2015:

March 31, 2016

 

     Carrying
Value
     Estimated
Fair Value
     Level 1      Level 2      Level 3  
            (dollars in thousands)         

FINANCIAL ASSETS

              

Cash and cash equivalents

   $ 46,495       $ 46,575       $ 42,511       $ 4,064       $ —     

Securities available for sale

     94,829         94,829         4,056         90,773         —     

Securities held to maturity

     12,179         12,371         —           12,371         —     

Loans held for investment, net

     319,618         316,749         —           —           316,749   

Loans held for sale

     5,278         5,278         —           5,278         —     

Restricted stock

     1,052         1,052         1,052         —           —     

Accrued interest receivable

     1,548         1,548         —           —           —     

FINANCIAL LIABILITIES

              

Deposits

   $ 454,469       $ 435,440       $ —         $ 435,440       $ —     

Short-term borrowings

     3,519         3,519         —           3,519         —     

Long-term borrowings

     9         9         —           9         —     

Junior subordinated debt

     9,534         9,684         —           —           9,684   

Accrued interest payable

     164         164         —           —           164   

December 31, 2015

 

     Carrying
Value
     Estimated
Fair Value
     Level 1      Level 2      Level 3  
            (dollars in thousands)         

FINANCIAL ASSETS

              

Cash and cash equivalents

   $ 68,933       $ 68,973       $ 65,198       $ 3,775       $ —     

Securities available for sale

     89,258         89,258         4,012         85,246         —     

Securities held to maturity

     11,242         11,242         —           11,242         —     

Loans held for investment, net

     317,248         313,649         —           —           313,649   

Loans held for sale

     5,922         5,922         —           5,922         —     

Restricted stock

     1,040         1,040         1,040         —           —     

Accrued interest receivable

     1,564         1,564         —           —           1,564   

FINANCIAL LIABILITIES

              

Deposits

   $ 467,733       $ 442,619       $ —         $ 442,619       $ —     

Short-term borrowings

     5,758         5,758         —           5,758         —     

Long-term borrowings

     13         13         —           13      

Junior subordinated debt

     9,534         9,688         —           —           9,688   

Accrued interest payable

     168         168         —           —           168   

 

-26-


Table of Contents

The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:

 

    Cash and cash equivalents – The carrying amount of cash and cash equivalents approximate their fair values due to the short period of time until their expected realization and are recorded in Level 1 with the exception of time deposits due from banks that are in Level 2.

 

    Securities available for sale – Securities available for sale are carried at fair value based on quoted and observable market prices and are recorded in Levels 1 and 2. Also see discussion in Note 5.

 

    Securities held to maturity – Securities held to maturity are carried at amortized cost and are recorded in Level 2.

 

    Loans – The fair value of loans is estimated based on discounted expected cash flows using the current interest rates at which similar loans would be made and carried in level 3. Loans held for sale, which represent current mortgage production forward sales not yet delivered, are valued based on secondary market prices. The fair value of loans does not consider the lack of liquidity and uncertainty in the market that would affect the valuation. Loans held for sale are recorded in Level 2.

 

    Restricted stock – It is not practicable to determine fair value of restricted stock which is comprised of Federal Home Loan Bank and Federal Reserve Bank stock due to restrictions placed on its transferability. These securities are presented at their carrying value and are recorded in Level 1 due to the redemption provisions of the Federal Home Loan Bank and the Federal Reserve Bank.

 

    Accrued interest receivable and payable – Both accrued interest receivable and payable are recorded in Level 3, as there are not active markets for these items.

 

    Deposits – The fair value of deposits is estimated based on discounted cash flow analyses using offered market rates and is recorded in Level 3. The fair value of deposits does not consider any customer related intangibles.

 

    Borrowings – The fair value disclosed for short-term borrowings, which are composed of overnight borrowings and debt due within one year approximate the carrying value for such debt and is recorded in Level 2. The estimated fair value for long-term borrowings are estimated based on discounted cash flow analyses using offered market rates. Total borrowings are carried in Level 2. Junior Subordinated debt is fair valued based on discounted cash flow analyses and is recorded in Level 3.

At March 31, 2016, the subsidiary bank had outstanding standby letters of credit and commitments to extend credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed; therefore, they were deemed to have no current fair value. See Note 9.

Note 12 – Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers, Topic 606 (“ASU 2014-09”)”. The new standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and

 

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allocating the transaction price to each separate performance obligation. In August of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Topic 606: Deferral of the Effective Date, deferring the effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this new guidance recognized at the date of initial application. The Company is currently evaluating the provisions of ASU 2014-09 to determine the potential impact the new standard will have to the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02, “Consolidation, topic 810 (“ASU-2015-02”)”. The amendments to this standard improve targeted areas of consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard places more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE), and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. The amendments in this ASU are effective for fiscal years beginning after December 15, 2015 for public business entities, including interim periods within those fiscal years. We adopted the guidance effective in the first quarter of 2016. The initial adoption had no impact on our consolidated financial position and consolidated results of operations.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this ASU address certain aspects of recognition, measurement, presentation and disclosure. The amendments in this ASU (i) require equity investments to be measured at fair value with changes in fair value recognized in net income; (ii) simplify the impairment assessment of equity investments without readily determinable fair value; (iii) require public business entities to use exit prices, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (iv) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; (v) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the balance sheet; (vi) require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (vii) state that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets. The amendments in this ASU are effective for public business entities for fiscal periods beginning after December 15, 2017, including interim periods within those fiscal years. The ASU only permits early adoption of the instrument-specific credit risk provision. We are currently evaluating the impact of the new standard.

In February 2016, the FASB issued ASU 2016-02,” Leases, topic 842 (“ASU 2016-02”)”.This ASU increases the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The key difference between existing standards and this ASU is the requirement for lessees to recognize on their balance sheet all lease contracts with lease terms greater than 12 months, including operating leases. Both a right-of-use asset, representing the right to use the leased asset, and a lease liability, representing the contractual obligation, are required to be recognized on the balance sheet of the lessee at lease commencement. Further, this ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar to the current operating and capital leases classifications. The distinction between these two classifications under the new standard does not relate to balance sheet treatment, but relates to treatment in the statements of income and cash flows. Lessor guidance remains

 

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largely unchanged with the exception of how a lessor determines the appropriate lease classification for each lease to better align the lessor guidance with revised lessee classification guidance. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the new standard and we will adopt during the first quarter of 2019.

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

Reclassification

Certain amounts in the 2015 financial statements have been reclassified to conform to the 2016 presentation. These reclassifications do not have an impact on net income or shareholders’ equity.

Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. Any use of “we” or “our” in the following discussion refers to the Company on a consolidated basis.

Comparison of Financial Condition at March 31, 2016 and December 31, 2015.

During the three months ended March 31, 2016, the Company’s total assets decreased $13.8 million, from $532.2 million to $518.4 million.

Cash and cash equivalents decreased $22.4 million during the three months ended March 31, 2016. Cash and due from banks decreased $1.2 million, while interest-earning deposits with banks decreased $21.2 million. These decreases are directly related to the decline in deposits.

Investment securities consist of securities available for sale and securities held to maturity. Investment securities increased $6.5 million to $107.0 million for the period ended March 31, 2016. During the first three months of 2016, the Company, in a continued effort to reduce our extension risk in a rising interest rate environment, made the decision to sell $10.2 million of investment securities. The Company realized a gain of $205,000 on these transactions. The Company also had maturities of $2.9 million and normal reductions stemming from principal payments on mortgage backed securities. Also during the first three months of 2016, the Company purchased securities of $20.6 million. The Company is investing in lower duration securities as well as variable rate securities. These securities should provide better protection in a rising rate environment, and mitigate the downside risk embedded in the current portfolio and improve the yield on earning assets. At March 31, 2016, the Company had net unrealized gains on the securities available for sale of $421,000.

 

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Loans held for investment increased from $320.1 million to $322.4 million, an increase of $2.3 million. The commercial, real estate one-to-four family construction and consumer loan segments of the loan portfolio decreased during the first three months of 2016 with the real estate one-to-four family construction experiencing the largest decline of 22.5%, or $1.3 million. The Company experienced growth in the remaining segments of its loan portfolio during the first three months of 2016 with the commercial loan segment having the largest increase of 6.16%. Loans held for sale decreased 10.9%, or $644,000. The allowance for loan losses was $2.8 million at March 31, 2016, which represented 0.87% of the loan portfolio.

Other changes in our consolidated assets are related to premises and equipment, interest receivable, restricted stock, bank owned life insurance, other real estate owned, prepaid assets and other assets. Bank owned life insurance increased $30,000, while premises and equipment decreased $82,000. Accrued interest receivable declined $16,000. Restricted stock, which is comprised of Federal Home Loan Bank stock and Federal Reserve Bank stock, increased $12,000. Federal Home Loan Bank member institutions are required to increase or decrease their ownership as their utilization of FHLB borrowings change. The Company’s required ownership in FHLB stock increased $11,000, while the Company’s required ownership in Federal Reserve Bank stock increased $1,000 during the first three months of 2016. Other real estate owned decreased $50,000. During the three months ended March 31, 2016, the Company sold four pieces of property totaling $17,000. The Company recorded net valuation write-down adjustments of $33,000. Other assets increased $285,000.

Customer deposits, our primary funding source, experienced a $13.2 million decrease during the three month period ended March 31, 2016, decreasing from $467.7 million to $454.5 million. Demand noninterest bearing checking increased $8.8 million and savings deposits increased $203,000. These increases were offset by declines in interest checking and money market accounts of $16.0 million, time deposits of $250,000 and over of $203,000 and other time deposits of $6.1 million. The Company had one relationship totaling $8.4 million that due to an industry consolidation was closed out contributing to the overall decrease in deposits.

Total borrowings decreased $2.2 million for the period and consist of both short-term and long-term borrowed funds. The Company has a short term line of credit that decreased $800,000 and commercial paper experienced a decline of $1.4 million.

Other liabilities increased from $5.7 million at December 31, 2015 to $6.5 million at March 31, 2016, an increase of $848,000.

At March 31, 2016, total shareholders’ equity was $44.2 million, an increase of $854,000 from December 31, 2015. Net income for the three month period was $510,000. Unrealized gains and losses on investment securities, net of tax, increased $490,000. The Company also repurchased common stock totaling $6,000. The Company paid $140,000 in dividends attributed to noncontrolling interest.

Comparison of Results of Operations for the Three Months Ended March 31, 2016 and 2015.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $510,000 for the three months ended March 31, 2016, as compared to $637,000 for the three months ended March 31, 2015, a decrease of $127,000. Net income available to common shareholders was $363,000 or $0.05 per common share at March 31, 2016, compared to $491,000 or $0.07 per common share at March 31, 2015. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

 

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Net Interest Income

As with most financial institutions, the primary component of earnings for our subsidiary bank is net interest income. Net interest income is the difference between interest income, principally from loan and investment securities portfolios, and interest expense, principally on customer deposits and wholesale borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as by levels of noninterest-bearing liabilities and capital.

Net interest income for the three months ended March 31, 2016 was $4.1 million compared to $4.0 million for the three months ended March 31, 2015, an increase of $65,000. During the first quarter, the volume of interest-earning assets increased, outpacing the decline in volume of interest-bearing liabilities by $108,000. The average yield on our interest–earning assets decreased one basis point to 3.86%, while the average rate we paid for our interest-bearing liabilities decreased six basis points. A portion of the Company’s loan portfolio has interest rate floors and caps in place on the loans. The interest rate floor feature has allowed the Company to maintain a more favorable interest margin despite a decline in rates; however, the interest rate cap could hurt the margin in a rising rate environment. The aforementioned changes resulted in an increase of five basis points in our interest rate spread, from 3.41% in the first quarter of 2015 to 3.46% in the first quarter of 2016. Our net interest margin was 3.53% and 3.48% for the comparable periods in 2016 and 2015, respectively.

The following table presents average balance sheets and a net interest income analysis for the three months ended March 31, 2016 and 2015:

Average Balance Sheet and Net Interest Income Analysis

For the Three Months Ended March 31,

 

(dollars in thousands)  
     Average Balance      Income/Expenses      Rate/Yield  
     2016      2015      2016      2015      2016     2015  
Interest-earning assets:                 

Taxable securities

   $ 81,289       $ 108,721       $ 327       $ 417         1.62     1.54

Nontaxable securities (1)

     19,058         13,144         123         82         4.18     4.07

Short-term investments

     52,500         47,380         88         37         0.67     0.31

Taxable loans

     307,458         295,970         3,787         3,810         4.95     5.18

Non-taxable loans (1)

     16,987         12,959         111         100         4.24     5.02
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total interest-earning assets

     477,292         478,174         4,436         4,446         3.86     3.87
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Interest-bearing liabilities:

                

Interest-bearing deposits

     360,882         373,250         214         299         0.24     0.32

Short-term borrowed funds

     3,615         3,908         21         12         2.34     1.23

Long-term debt

     11,518         10,559         136         135         4.75     5.14
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total interest bearing liabilities

     376,015         387,717         371         446         0.40     0.46
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net interest spread

   $ 101,277       $ 90,457       $ 4,065       $ 4,000         3.46     3.41
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net interest margin (1)
(% of earning assets)

                 3.53     3.48
              

 

 

   

 

 

 

 

(1) Yields related to securities and loans exempt from income taxes are stated on a fully tax-equivalent basis, assuming a 34.00% tax rate.

Provision and Allowance for Loan Losses

The provision for loan losses was a recovery of ($58,000) for the three months ending March 31, 2016 compared to a recovery of ($62,000) for the same period in 2015. There were net loan charge-offs of $16,000 for the three months ended March 31, 2016, as compared with net loan recoveries of ($53,000) during the same period of 2015. Refer to the Asset Quality discussion on page 33 for further information.

 

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Noninterest Income

The Company generates most of its revenue from net interest income; however, like all financial institutions, diversification of our revenue base is of major importance in our long term success. Total noninterest income increased $386,000 for the three month period ending March 31, 2016 as compared to the same period in 2015. The primary factor contributing to this growth was the increase in income from mortgage loan sales that increased $199,000 to $700,000 for the first quarter of 2016 as compared to $501,000 for the same period in 2015. During 2015, the Company expanded its mortgage operation into a neighboring market. This expansion and the increased volume was the driving force behind the growth in income from loan sales. Service charges on deposit accounts produced earnings of $306,000, a decrease of 7.2%. The primary contributing factor was a decrease in NSF (non-sufficient funds) fees due in large part to changes in regulations. Other service fees and commissions experienced a 14.9% or $146,000 increase during the first three months of 2016. This increase is primarily related to an increase of $112,000 in insurance and brokerage commissions and asset management fees .Also contributing to the increase was growth of $34,000 in other banking fees related to the growth in the customer base’s usage of the Company’s electronic banking products. The Company realized gains on the sale of investment securities during the three months ended March 31, 2016 of $205,000 as compared to realized gains of $225,000 for the same period in 2015.

Noninterest Expense

Noninterest expense for the quarter ended March 31, 2016 was $5.9 million compared to $5.2 million for the same period of 2015, an increase of $674,000. Salaries and employee benefits, the largest component of noninterest expense, increased $471,000 for the quarter ending March 31, 2016. The majority of this increase is attributable to the increase in staffing related to the expansion of the mortgage department during 2015. FDIC deposit insurance premiums declined $16,000 for the comparable periods. Foreclosed real estate expense also decreased $64,000 for the three months ending March 31, 2016 compared to the same period in 2015. Write-downs on properties held in other real estate owned are attributed to updated appraisals and the lowering of list prices. These write downs decreased from $45,000 for the three month period ending March 31, 2015 to $34,000 for the same period in 2016. The Company also had realized gains on the sale of other real estate owned of $27,000 for the three months ended March 31, 2016 compared to realized losses of ($22,000) for the same period in 2015. Other noninterest expense increased $197,000 for the comparable three month periods. The table below reflects the composition of other noninterest expense.

Other noninterest expense

 

     Three Months Ended
March 31,
 
     2016      2015  
     (in thousands)  

Postage

   $ 52       $ 46   

Telephone and data lines

     43         45   

Insurance expense

     111         129   

Shareholder relations expense

     33         55   

Dues and subscriptions

     42         38   

Other

     407         178   
  

 

 

    

 

 

 

Total

   $ 688       $ 491   
  

 

 

    

 

 

 

 

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Income Tax Expense

The Company had income tax expense of $173,000 for the three months ended March 31, 2016 resulting in an effective rate of 25.33% compared to income tax expense of $273,000 and an effective rate of 30.00% in the 2015 period. Income taxes computed at the statutory rate are reduced primarily by the eligible amount of interest earned on state and municipal securities, tax free municipal loans and income earned on bank owned life insurance. The corporate rate for the State of North Carolina was reduced from 5% in 2015 to 4% in 2016. This change coupled with an increase in the level of nontaxable income for the comparable periods resulted in the lower effective rate.

Asset Quality

The Company’s allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. The allowance is increased by provisions charged to operations, decreased by recoveries of amounts previously charged off and is reduced by recovery of provisions and loans charged off. Management continuously evaluates the adequacy of the allowance for loan losses. In evaluating the adequacy of the allowance, management considers the following: the growth, composition and industry diversification of the portfolio; historical loan loss experience; current delinquency levels; adverse situations that may affect a borrower’s ability to repay; estimated value of any underlying collateral; prevailing economic conditions and other relevant factors. The Company’s credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loan’s credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrower’s risk grade accordingly. For loans determined to be impaired, the allowance is based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the estimated fair value of the underlying collateral less the selling costs. This evaluation is inherently subjective, as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans, which may be susceptible to significant change. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require additions for estimated losses based upon judgments different from those of management.

Management uses a risk-grading program designed to evaluate the credit risk in the loan portfolio. In this program, risk grades are initially assigned by loan officers, then reviewed and monitored by credit administration. This process includes the maintenance of an internally classified loan list that is designed to help management assess the overall quality of the loan portfolio and the adequacy of the allowance for loan losses. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower’s ability to repay, the borrower’s payment history and the current delinquent status. Because of this process, certain loans are deemed as impaired and evaluated as an impaired loan.

The allowance for loan losses represents management’s best estimate of an appropriate amount to provide for probable credit risk inherent in the loan portfolio in the normal course of business. While management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance for loan losses in conformity with GAAP, there can be no assurance that banking regulators, in reviewing the Company’s portfolio, will not require an adjustment to the allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be

 

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predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary, should the quality of any loans deteriorate because of the factors discussed herein. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition and results of operations.

At March 31, 2016 the levels of our impaired loans, which includes all loans in nonaccrual status, TDRs and other loans deemed by management to be impaired, were $5.9 million compared to $5.5 million at December 31, 2015, a net increase of $309,000. Total nonaccrual loans, which are a component of impaired loans, increased from $783,000 at December 31, 2015 to $1.2 million at March 31, 2016. During the first quarter of 2016, five relationships totaling $420,000 were added to impaired loans. These additions were offset by two impaired relationships totaling $62,000 being charged off and net pay downs of $49,000.

The allowance expressed as a percentage of gross loans held for investment decreased three basis points from 0.90% at December 31, 2015 to 0.87% at March 31, 2016. The collectively evaluated reserve allowance as a percentage of collectively evaluated loans was 0.86% at December 31, 2015 and 0.81% at March 31, 2016, while the individually evaluated allowance as a percentage of individually evaluated loans increased from 3.31% to 3.97% for the same periods. The portion of the Company’s allowance for loan loss model related to general reserves is intended to capture the mean loss of individual loans and the rare event of severe loss that can occur within the loan portfolio. Specifically, the Company calculates probable losses on loans by computing a probability of loss and expected loss scenario by FDIC call report codes. Together, these expected components as well as a level of more extreme unexpected losses form the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations.

The Company assesses the probability of losses inherent in the loan portfolio using probability of default data, acquired from a third party vendor representing a one year loss horizon for each obligor. The Company updates the data inputs into the model; specifically the loss given default and the probability of defaults obtained from the vendor annually during the second quarter. The Company updates the credit scores that are one of the components used within the allowance model semi-annually, during the first and third quarters. The continued overall improvement in credit quality coupled with the continued trend of overall improvement in credit scores resulted in our average customer credit score increasing three points from 755 to 758 during the first quarter of 2016. The improvement in credit scores has been the major driver in the overall decrease in the allowance for loan losses. This improvement reduced the balance of the allowance by approximately $47,000. Also during the normal course of business, new loans being made have tended to have a significantly higher credit score than the loans that are paying off. This factor, coupled with continued modest recoveries on previously charged-off loans that are also a component of the model further contributed to the decrease.

Nonperforming loans, which consist of nonaccrual loans and loans past due 90 days and still accruing, to total loans increased from 0.24% at December 31, 2015, to 0.36% at March 31, 2016.

Management believes the current level of the allowance for loan losses is appropriate in light of the risk inherent in the loan portfolio.

Other real estate owned decreased $50,000 during the first quarter of 2016. The Company sold four pieces of foreclosed property totaling $17,000 realizing a gain of $27,000. Two of the properties sold had previously been written down to a zero basis. The Company also had write downs and changes in reserves totaling $33,000 on the remaining existing property. There were no loans foreclosed on during the first quarter.

Restructured loans at March 31, 2016 totaled $4.6 million compared to $4.5 million at December 31, 2015 and are included in impaired loans. At March 31, 2016, there was one restructured loan for $230,000 in nonaccrual status. The remainder of the restructured loan portfolio was all accruing.

 

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The following table shows the comparison of nonperforming assets at March 31, 2016 to December 31, 2015:

Nonperforming Assets

 

(dollars in thousands)  
     March 31,
2016
    December 31,
2015
 

Nonperforming assets:

    

Loans past due 90 days or more

   $ —        $ —     

Nonaccrual loans

     1,160        783   

Other real estate owned

     4,944        4,994   
  

 

 

   

 

 

 

Total nonperforming assets

   $ 6,104      $ 5,777   
  

 

 

   

 

 

 

Allowance for loans losses

   $ 2,810      $ 2,884   

Nonperforming loans to total loans

     0.36     0.24

Allowance for loan losses to total loans

     0.87     0.90

Nonperforming assets to total assets

     1.18     1.09

Allowance for loan losses to nonperforming loans

     242.27     368.23

Liquidity and Capital Resources

The objective of the Company’s liquidity management policy is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on any opportunities for expansion. Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature and to fund new loans and investments as opportunities arise.

The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flow generated by investments. Growth in deposits is typically the primary source of funds for loan growth. The Company and its subsidiary bank have multiple funding sources, in addition to deposits, that can be used to increase liquidity and provide additional financial flexibility. These sources are the subsidiary bank’s established federal funds lines with correspondent banks aggregating $28.0 million at March 31, 2016, with available credit of $28.0 million; established borrowing relationships with the Federal Home Loan Bank, with available credit of $51.2 million; access to borrowings from the Federal Reserve Bank discount window, with available credit of $19.4 million and the issuance of commercial paper. The Company has also secured long-term debt from other sources. Total debt from these sources aggregated $13.1 million at March 31, 2016, compared to $15.3 million at December 31, 2015.

Banks and bank holding companies, as regulated institutions, must meet required levels of capital. The Federal Reserve, the primary federal regulator of the Company and its subsidiary bank, has adopted minimum capital regulations or guidelines that categorize components and the level of risk associated with various types of assets.

 

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The Company continues to maintain capital ratios that support its asset growth. Bank regulatory agencies approved regulatory capital guidelines (“Basel III”) aimed at strengthening existing capital requirements for banking organizations. Under the final rules, minimum requirements increase for both the quantity and quality of capital held by the Company. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.00% to 6.00%, require a minimum ratio of total capital to risk-weighted assets of 8.00%, and require a minimum Tier 1 leverage ratio of 4.00%. A new capital conservation buffer, comprised of common equity Tier 1 capital, was also established above the regulatory minimum capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by an additional 0.625% until reaching its final level of 2.50% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. The final rules also revise the definition and calculation of Tier 1 capital, total capital, and risk-weighted assets.

The phase-in period for the final rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance of all the final rules’ requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019. As of March 31, 2016, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under the new rules.

As previously discussed, the Company’s subsidiary bank has a net total of $10.6 million in outstanding fixed Rate Noncumulative Perpetual Preferred Stock. The preferred stock qualifies as Tier 1 capital at the bank and will pay dividends at an annual rate of 5.30%. The net total of $10.5 million is presented as noncontrolling interest at the Company level and does qualify as Tier 1 capital at the Company. At March 31, 2016, the Company had $9.5 million in subordinated debt outstanding that qualifies as Tier 2 capital. The Company has made all interest and dividend payments in a timely manner.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s primary market risk is interest rate risk. Interest rate risk is the result of differing maturities or repricing intervals of interest-earning assets and interest-bearing liabilities and the fact that rates on these financial instruments do not change uniformly. These conditions may impact the earnings generated by the Company’s interest earning assets or the cost of its interest-bearing liabilities, thus directly impacting the Company’s overall earnings. The Company’s management actively monitors and manages interest rate risk. One way this is accomplished is through the development of and adherence to the Company’s asset/liability policy. This policy sets forth management’s strategy for matching the risk characteristics of the Company’s interest-earning assets and liabilities so as to mitigate the effect of changes in the rate environment. In management’s opinion, the Company’s market risk profile has not changed significantly since December  31, 2015.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act (“Exchange Act”) Rule 13a- 15.

 

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Based upon that evaluation, the principal executive officer and principal financial officer concluded that in their opinion, the Company’s disclosure controls and procedures were effective (1) to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

Management of the Company has evaluated, with the participation of the Company’s principal executive officer and principal financial officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a -15(f) and 15d – 15(f) of the Exchange Act) during the first quarter of 2016. In connection with such evaluation, the Company has determined that there were no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal control over financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensuring that the Company’s systems evolve with its business.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Neither the Company nor its subsidiaries, nor any of their properties are subject to any material legal proceedings. From time to time, the Company’s subsidiary bank is engaged in ordinary routine litigation incidental to its business.

Item 1A. Risk Factors

Disclosure under this item is not required for smaller reporting companies.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information with respect to shares of common stock repurchased by the Company during the three months ended March 31, 2016.

 

     (a) Total
Number of
Shares
Purchased
     (b) Average
Price Paid per
Share
     (c) Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or Program
(1)
     (d) Maximum
Dollar Value of
Shares that May
Yet Be
Purchased Under
the Plans (2)(3)
 

January 1, 2016 Through January 31, 2016

     —         $ —           —         $ —     

February 1, 2016 Through February 28, 2016

     —         $ —           —         $ —     

March 1, 2016 Through March 31, 2016

     1,200       $ 4.36         —         $ —     

Total

     1,200       $ 4.36         —         $ —     

Trades of the Company’s stock occur in the Over-the-Counter Bulletin Board market from time to time. The Company also has in place a Stock Repurchase Plan that provides liquidity to its shareholders in the event a willing buyer is not available to purchase shares that are offered for sale. The Company is under no obligation to purchase shares offered; however, it will accommodate such offers as its Stock Repurchase Plan allows.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None.

Item 6. Exhibits

 

Exhibit
Number

  

Description of Exhibit

3.1    Registrant’s Articles of Incorporation (1)
3.2    Registrant’s By-laws (6)
3.2    Articles of Amendment dated December 19, 2008 (5)
4.1    Form of stock certificate (1)
4.2    Form of Security Holders Agreement (7)
10.1    Incentive Stock Option Plan, as amended (1)
10.2    Employee Stock Ownership Plan and Trust (2)
10.3    2006 Incentive Stock Option Plan (3)
10.4    2006 Employee Stock Purchase Plan (3)
10.5    Amendment to the Employee Stock Ownership Plan and Trust (4)

 

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10.6

   Relocation Assistance Agreement dated February 9, 2009, between the Registrant and Brendan P. Duffey (6)

10.7

   Nonqualified Deferred Compensation Plan and Supplemental Retirement Plan Agreement dated December 31, 2008, between the Registrant and Roger L. Dick, Brendan P. Duffey, Christy D. Stoner and R. David Beaver, III (6)(8)

10.8

   Change in Control Agreement dated January 1, 2015, between the Registrant and R. David Beaver, III (8)

10.9

   2015 Stock Grant Plan (9)

31.1

   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith)

31.2

   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith)

32

   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

101

   Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, in XBRL (eXtensible Business Reporting Language) are filed herewith

(1)

   Incorporated by reference from exhibits to Registrant’s Registration Statement on Form S-4 (Reg. No. 33-58882).

(2)

   Incorporated by reference to Registrant’s Annual Report on Form 10-KSB for the Fiscal year ended 1999.

(3)

   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2007.

(4)

   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2008.

(5)

   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2009.

(6)

   Incorporated by reference to Registrant’s Annual Report on Form 10-K for the Fiscal year ended 2009.

(7)

   Incorporated by reference to Registrant’s Annual Report on Form 10-Q for the Quarter ended June 30, 2011.

(8)

   Incorporated by reference to Registrant’s Current Report on Form 8-K dated June 30, 2015.

(9)

   Incorporated by reference to Registrant’s Registration Statement on Form S-8 dated October 27, 2015.

 

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   

UWHARRIE CAPITAL CORP

(Registrant)

Date: May 3, 2016     By: /s/ Roger L. Dick                     
    Roger L. Dick
    President and Chief Executive Officer

 

   

UWHARRIE CAPITAL CORP

(Registrant)

Date: May 3, 2016     By: /s/ R. David Beaver, III          
    R. David Beaver, III
    Principal Financial Officer

 

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EXHIBIT INDEX

 

Exhibit
Number

  

Description of Exhibit

3.1    Registrant’s Articles of Incorporation (1)
3.2    Registrant’s By-laws (6)
3.3    Articles of Amendment dated December 19, 2008 (5)
4.1    Form of stock certificate (1)
4.2    Form of Security Holders Agreement (7)
10.1    Incentive Stock Option Plan, as amended (1)
10.2    Employee Stock Ownership Plan and Trust (2)
10.3    2006 Incentive Stock Option Plan (3)
10.4    2006 Employee Stock Purchase Plan (3)
10.5    Amendment to the Employee Stock Ownership Plan and Trust (4)
10.6    Relocation Assistance Agreement dated February 9, 2009, between the Registrant and Brendan P. Duffey (6)
10.7    Nonqualified Deferred Compensation Plan and Supplemental Retirement Plan Agreement dated December 31, 2008, between the Registrant and Roger L. Dick, Brendan P. Duffey, Christy D. Stoner and R. David Beaver, III (6)(8)
10.8    Change in Control Agreement dated January 1, 2015, between the Registrant and R. David Beaver, III (8)
10.9    2015 Stock Grant Plan (9)
31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith)
31.2    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith)
32    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101    Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, in XBRL (eXtensible Business Reporting Language) are filed herewith
(1)    Incorporated by reference from exhibits to Registrant’s Registration Statement on Form S-4 (Reg. No. 33-58882).
(2)    Incorporated by reference to Registrant’s Annual Report on Form 10-KSB for the Fiscal year ended 1999.

 

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(3)    Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2007.
(4)    Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2008.
(5)    Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2009.
(6)    Incorporated by reference to Registrant’s Annual Report on Form 10-K for the Fiscal year ended 2009.
(7)    Incorporated by reference to Registrant’s Annual Report on Form 10-Q for the Quarter ended June 30, 2011.
(8)    Incorporated by reference to Registrant’s Current Report on Form 8-K dated June 30, 2015.
(9)    Incorporated by reference to Registrant’s Registration Statement on Form S-8 dated October 27, 2015.

 

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