UWHR 10-Q Quarterly Report Sept. 30, 2024

UWHR 10-Q Quarter ended Sept. 30, 2024

Exhibits

Exhibits

UWHARRIE CAPITAL CORP

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2024


☐	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)

Securities registered pursuant to Section 12(b) of the Act:

     
        Title of each class
       
        Trading
       
        Symbol(s)
       
        Name of each exchange on which registered

     
        None

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 6,964,145 shares of common stock outstanding as of November 4, 2024.

Table of Contents


		Page No.

Part I.	FINANCIAL INFORMATION	2

Item 1 -	Financial Statements (Unaudited)	2

	Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023	2

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2024 and 2023	3

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2024 and 2023	4

	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023	5

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023	6

	Notes to Consolidated Financial Statements	7

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4 -	Controls and Procedures	35

Part II.	OTHER INFORMATION	36

Item 1 -	Legal Proceedings	36

Item 1A -	Risk Factors	36

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3 -	Defaults Upon Senior Securities	36

Item 4 -	Mine Safety Disclosures	36

Item 5 -	Other Information	36

Item 6 -	Exhibits	37

	Signatures	38

Uwharrie Capital Corp and Subsidiaries

Consolidated Balance Sheets

Part I. Financia l Information

Item 1. Financ ial Statements.


	September 30, 2024 (Unaudited)			December 31, 2023*
	(dollars in thousands)
ASSETS
Cash and due from banks	$	8,115		$	7,407
Interest-earning deposits with banks		115,783			56,027
Cash and cash equivalents		123,898			63,434
Securities available for sale, at fair value (amortized cost $ 357,787 and $ 369,301 respectively)		332,645			336,714
Securities held to maturity, at amortized cost (fair value $ 24,888 and $ 25,736 respectively)		26,843			28,600
Less allowance for credit losses on securities held to maturity		( 66	)		( 56	)
Net securities held to maturity		26,777			28,544
Equity securities, at fair value		355			302
Loans held for sale		4,787			4,695
Loans held for investment		647,125			592,071
Less allowance for credit losses on loans		( 5,736	)		( 5,561	)
Net loans held for investment		641,389			586,510
Premises and equipment, net		14,722			15,089
Interest receivable		4,821			4,393
Restricted stock		1,729			1,672
Bank-owned life insurance		7,901			7,793
Deferred income tax benefit		6,991			8,910
Loan servicing assets		3,982			4,287
Mortgage banking derivatives		1,173			852
Other assets		9,889			9,396
Total assets	$	1,181,059		$	1,072,591

LIABILITIES
Deposits:
Demand noninterest-bearing	$	288,278		$	269,998
Interest checking and money market accounts		431,230			417,318
Savings deposits		94,562			101,193
Time deposits, $250,000 and over		131,992			78,046
Other time deposits		131,749			115,158
Total deposits		1,077,811			981,713
Short-term borrowed funds		1,419			1,379
Long-term debt		29,142			29,104
Mortgage banking derivatives		28			288
Other liabilities		11,538			10,666
Total liabilities		1,119,938			1,023,150

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 6,964,323 and 7,124,438 at September 30, 2024 and December 31, 2023, respectively		8,705			8,905
Common stock dividend distributable		174			—
Additional paid-in capital		12,735			12,876
Undivided profits		48,217			42,105
Accumulated other comprehensive loss		( 19,365	)		( 25,100	)
Total Uwharrie Capital Corp shareholders’ equity		50,466			38,786
Noncontrolling interest		10,655			10,655
Total shareholders’ equity		61,121			49,441
Total liabilities and shareholders’ equity	$	1,181,059		$	1,072,591

(*) Derived from audited consolidated financial statements

See accompanying notes

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Income (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
	(in thousands, except share and per share data)
Interest Income
Loans, including fees	$	9,966		$	7,645		$	28,045		$	21,001
Investment securities:
Investment securities, taxable		3,066			2,764			8,998			7,879
Investment securities, non-taxable		307			317			929			1,010
Equity Securities		5			5			15			15
Interest-earning deposits with banks and federal funds sold		780			979			2,116			3,230
Total interest income		14,124			11,710			40,103			33,135
Interest Expense
Interest checking and money market accounts		1,763			1,564			4,953			4,471
Savings deposits		136			120			410			288
Time deposits, $250,000 and over		1,431			723			3,435			1,515
Other time deposits		1,328			781			3,686			1,742
Short-term borrowed funds		69			11			206			30
Long-term debt		339			334			1,001			1,000
Total interest expense		5,066			3,533			13,691			9,046
Net interest income		9,058			8,177			26,412			24,089
Provision for (recovery of) credit losses on:
Loans		( 223	)		599			182			990
Securities held to maturity		—			—			10			( 5	)
Unfunded loan commitments		( 7	)		—			( 21	)		—
Total provision for (recovery of) credit losses		( 230	)		599			171			985
Net interest income after provision for (recovery of) credit losses		9,288			7,578			26,241			23,104

Noninterest Income
Service charges on deposit accounts		283			272			818			785
Other service fees and commissions		991			875			2,819			2,586
Interchange and card transaction fees, net		267			291			877			910
Loss on sale/call of securities		—			—			( 148	)		( 42	)
Realized/unrealized gain (loss) on equity securities		31			( 4	)		53			7
Income from mortgage banking		861			957			2,301			2,542
Supplemental executive retirement plan loss		( 66	)		( 20	)		( 112	)		( 38	)
Other income		162			148			476			437
Total noninterest income		2,529			2,519			7,084			7,187
Noninterest Expense
Salaries and employee benefits		5,152			4,822			15,511			14,498
Net occupancy expense		454			460			1,308			1,345
Equipment expense		217			195			642			578
Data processing costs		177			103			610			511
Loan costs		58			88			142			286
Professional fees and services		252			268			778			705
Marketing and donations		383			313			1,088			1,037
Electronic banking expense		107			140			320			410
Software amortization and maintenance		344			311			1,003			914
FDIC insurance		126			119			375			353
Supplemental executive retirement plan loss		( 66	)		( 20	)		( 112	)		( 38	)
Other noninterest expense		616			591			1,869			1,758
Total noninterest expense		7,820			7,390			23,534			22,357
Income before income taxes		3,997			2,707			9,791			7,934
Income taxes		962			558			2,160			1,608
Net income	$	3,035		$	2,149		$	7,631		$	6,326
Consolidated net income	$	3,035		$	2,149		$	7,631		$	6,326
Less: net income attributable to noncontrolling interest		( 142	)		( 142	)		( 424	)		( 422	)
Net income attributable to common shareholders		2,893			2,007			7,207			5,904
Net income per common share
Basic	$	0.40		$	0.27		$	1.00		$	0.80
Diluted	$	0.40		$	0.27		$	1.00		$	0.80
Weighted average common shares outstanding
Basic		7,161,235			7,340,640			7,220,350			7,353,615
Diluted		7,161,235			7,340,640			7,220,350			7,353,615

See accompanying notes

Uw harrie Capital Corp and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
	(dollars in thousands)
Net income	$	3,035		$	2,149		$	7,631		$	6,326
Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities		8,987			( 8,351	)		7,445			( 5,376	)
Related tax effect		( 2,064	)		1,918			( 1,710	)		1,223
Reclassification of loss recognized in net income		—			—			—			42
Related tax effect		—			—			—			( 8	)
Total other comprehensive income (loss)		6,923			( 6,433	)		5,735			( 4,119	)
Comprehensive income (loss)		9,958			( 4,284	)		13,366			2,207
Less: Comprehensive income attributable to noncontrolling interest		( 142	)		( 142	)		( 424	)		( 422	)
Comprehensive income (loss) attributable to Uwharrie Capital Corp	$	9,816		$	( 4,426	)	$	12,942		$	1,785

See accompanying notes

Uwharrie Capital Corp and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)


	Number of Common Shares Issued			Common Stock			Common Stock Dividend Distributable		Additional Paid-in Capital			Undivided Profits			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total
	(dollars in thousands, except share data)
Balance, June 30, 2023		7,057,847		$	8,823		$	—	$	12,521		$	39,012		$	( 29,451	)	$	10,655		$	41,560
Net Income		—			—			—		—			2,007			—			142			2,149
2 % stock dividend declaration		—			—			176		863			( 1,039	)		—			—			—
Repurchase of common stock		( 8,337	)		( 11	)		—		( 53	)		—			—			—			( 64	)
Other comprehensive loss		—			—			—		—			—			( 6,433	)		—			( 6,433	)
Record preferred stock dividend series B (noncontrolling interest)		—			—			—		—			—			—			( 105	)		( 105	)
Record preferred stock dividend series C (noncontrolling interest)		—			—			—		—			—			—			( 37	)		( 37	)
Balance, September 30, 2023		7,049,510		$	8,812		$	176	$	13,331		$	39,980		$	( 35,884	)	$	10,655		$	37,070

Balance, June 30, 2024		7,068,577		$	8,836		$	—	$	12,510		$	46,419		$	( 26,288	)	$	10,655		$	52,132
Net Income		—			—			—		—			2,893			—			142			3,035
2 % stock dividend declaration		—			—			174		921			( 1,095	)		—			—			—
Repurchase of common stock		( 104,254	)		( 131	)		—		( 696	)		—			—			—			( 827	)
Other comprehensive income		—			—			—		—			—			6,923			—			6,923
Record preferred stock dividend series B (noncontrolling interest)		—			—			—		—			—			—			( 105	)		( 105	)
Record preferred stock dividend series C (noncontrolling interest)		—			—			—		—			—			—			( 37	)		( 37	)
Balance, September 30, 2024		6,964,323		$	8,705		$	174	$	12,735		$	48,217		$	( 19,365	)	$	10,655		$	61,121


	Number of Common Shares Issued			Common Stock			Common Stock Dividend Distributable		Additional Paid-in Capital			Undivided Profits			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total
	(dollars in thousands, except share data)
Balance, December 31, 2022		7,075,125		$	8,844		$	—	$	12,633		$	37,030		$	( 31,765	)	$	10,655		$	37,397
Cumulative effect of change in accounting principle		—			—			—		—			( 1,915	)		—			—		$	( 1,915	)
Net Income		—			—			—		—			5,904			—			422			6,326
2 % stock dividend declaration		—			—			176		863			( 1,039	)		—			—			—
Repurchase of common stock		( 25,615	)		( 32	)		—		( 165	)		—			—			—			( 197	)
Other comprehensive income		—			—			—		—			—			( 4,119	)		—			( 4,119	)
Record preferred stock dividend Series B (noncontrolling interest)		—			—			—		—			—			—			( 311	)		( 311	)
Record preferred stock dividend Series C (noncontrolling interest)		—			—			—		—			—			—			( 111	)		( 111	)
Balance, September 30, 2023		7,049,510		$	8,812		$	176	$	13,331		$	39,980		$	( 35,884	)	$	10,655		$	37,070

Balance, December 31, 2023		7,124,438		$	8,905		$	—	$	12,876		$	42,105		$	( 25,100	)	$	10,655		$	49,441
Net Income		—			—			—		—			7,207			—			424			7,631
2 % stock dividend declaration		—			—			174		921			( 1,095	)		—			—			—
Repurchase of common stock		( 160,115	)		( 200	)		—		( 1,062	)		—			—			—			( 1,262	)
Other comprehensive income		—			—			—		—			—			5,735			—			5,735
Record preferred stock dividend Series B (noncontrolling interest)		—			—			—		—			—			—			( 313	)		( 313	)
Record preferred stock dividend Series C (noncontrolling interest)		—			—			—		—			—			—			( 111	)		( 111	)
Balance, September 30, 2024		6,964,323		$	8,705		$	174	$	12,735		$	48,217		$	( 19,365	)	$	10,655		$	61,121

See accompanying notes

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended September 30,
	2024			2023
	(dollars in thousands)
Cash flows from operating activities
Net income	$	7,631		$	6,326
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		832			828
Right of use asset amortization		289			282
Provision for credit losses		171			985
Loss on sale of securities available for sale		—			42
Loss on call of securities held to maturity		148			—
(Gain) loss on sale of premises and equipment		8			( 70	)
Gain on sale of mortgage loans		( 589	)		( 690	)
Realized/unrealized gain on equity securities		( 53	)		( 7	)
Net amortization of premium on investment securities available for sale		1,303			1,430
Net amortization of premium on investment securities held to maturity		95			107
Amortization of loan servicing assets		927			933
Originations and purchases of mortgage loans for sale		( 77,728	)		( 60,803	)
Proceeds from sales of mortgage loans for sale		78,225			59,683
Mortgage banking derivatives		( 581	)		( 886	)
Loan servicing assets		( 622	)		( 432	)
Accrued interest receivable		( 428	)		( 680	)
Prepaid assets		30			( 523	)
Cash surrender value of life insurance		( 108	)		( 104	)
Miscellaneous other assets		( 188	)		( 469	)
Accrued interest payable		58			219
Miscellaneous other liabilities		835			788
Net cash provided by operating activities		10,255			6,959
Cash flows from investing activities
Proceeds from sale of investment securities available for sale		—			11,329
Proceeds from maturities, calls and paydowns of securities available for sale		47,940			19,833
Proceeds from maturities, calls and paydowns of securities held to maturity		1,514			1,053
Purchase of investment securities available for sale		( 37,729	)		( 41,384	)
Purchase of investments in other assets		( 350	)		( 300	)
Proceeds from distributions of investments in other assets		224			—
Net change in restricted stock		( 57	)		( 244	)
Net increase in loans		( 55,061	)		( 81,659	)
Purchase of premises and equipment		( 735	)		( 1,497	)
Proceeds from sale of premises and equipment		31			78
Net cash used by investing activities		( 44,223	)		( 92,791	)
Cash flows from financing activities
Net increase in deposit accounts		96,098			50,433
Net increase (decrease) in federal funds purchased and other short-term borrowings		40			( 113	)
Repayment of long-term borrowings		( 20	)		( 580	)
Repurchase of common stock, net		( 1,262	)		( 197	)
Dividends paid on preferred stock (noncontrolling interest)		( 424	)		( 422	)
Net cash provided by financing activities		94,432			49,121
Increase (decrease) in cash and cash equivalents		60,464			( 36,711	)
Cash and cash equivalents, beginning of period		63,434			114,581
Cash and cash equivalents, end of period	$	123,898		$	77,870
Supplemental disclosures of cash flow information
Interest paid	$	13,570		$	8,764
Income taxes paid		2,312			1,762
Supplemental schedule of non-cash activities
Net change in fair value of securities available for sale, net of tax	$	5,735		$	( 4,119	)
Loans transferred to foreclosed real estate		—			142

See accompanying notes

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financ ial 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 (“TSAC”), BOS Agency, Inc. (“BOS Agency”) 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 additional 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 2023 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 6, 2024. This Quarterly Report should be read in conjunction with such Annual Report.

Use of Estimates

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses.

Accounting Changes and Reclassifications

Certain amounts in the 2023 financial statements have been reclassified to conform to the 2024 presentation. The provision for credit losses on unfunded loan commitments has been reclassified from other noninterest expense for periods prior to 2024. The reclassification is immaterial and did not have an impact on net income or shareholders’ equity.

Certain revisions have been made to previously issued financial statements for the year ended December 31, 2023 presented on Form 10-K. The carrying value and estimated fair value for securities held to maturity disclosed in Note 11 as of December 31, 2023 were revised due to an error in the calculation. These revisions did not change the securities reported in total assets and had no effect on net income.

We evaluated the effects of this error to our previously issued financial statements in accordance with SEC Staff Accounting Bulletin No. 99 and determined that the error was not material to the financial statements and disclosures previously reported on Form 10-K for the year ended December 31, 2023.

The Company’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the audited financial statements for the year ended December 31, 2023 and are contained in the Company’s Annual Report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2023.

Note 2 – Comprehensive Income (Loss)

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

The following table presents the changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2024 and 2023:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2024			2023			2024			2023
	(dollars in thousands)
Beginning balance	$	( 26,288	)	$	( 29,451	)	$	( 25,100	)	$	( 31,765	)
Other comprehensive income (loss) before reclassifications, net of ($ 2,064 ), $ 1,918 , ($ 1,710 ) and $ 1,223 tax effect, respectively		6,923			( 6,433	)		5,735			( 4,153	)
Amounts reclassified from accumulated other comprehensive loss, net of $ 0 , $ 0 , $ 0 , and ($ 8 ) tax effect, respectively		—			—			—			34
Net current-period other comprehensive income (loss)		6,923			( 6,433	)		5,735			( 4,119	)
Ending balance	$	( 19,365	)	$	( 35,884	)	$	( 19,365	)	$	( 35,884	)

Note 3 – Noncontrolling Interest

In 2013, the Company’s subsidiary bank issued a total of $ 10.7 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30 %. The preferred stock has no voting rights . This capital is presented as noncontrolling interest in the consolidated balance sheets. Dividends declared on this preferred stock are presented as earnings allocated to the noncontrolling interest in the consolidated statements of income.

Note 4 – Per Share Data

On October 15, 2024 , the Company's Board of Directors declared a 2 % stock dividend payable November 18, 2024 to shareholders of record on October 28, 2024 . All information in the accompanying consolidated financial statements regarding earnings per share and weighted average number of shares outstanding has been computed giving effect to this stock dividend. The weighted average number of shares outstanding and earnings per share for the 2023 periods have also been adjusted for the 2 % stock dividend declared on October 17, 2023 .

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 no stock options outstanding at September 30, 2024 or December 31, 2023.

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.

The weighted average number of common shares outstanding was 7,161,235 for the three-month period ended September 30, 2024 compared to 7,340,640 for the three-month period ended September 30, 2023 . For the nine-month period ended September 30, 2024, the weighted average number of common shares outstanding was 7,220,350 compared to 7,353,615 for the nine-month period ended September 30, 2023.

Note 5 – Investment and Equity Securities

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


September 30, 2024	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)
Securities available for sale:
U.S. Treasury	$	32,998	$	—	$	2,531	$	30,467
U.S. government agencies		42,799		135		828		42,106
GSE - Mortgage-backed securities and CMOs		155,821		822		10,489		146,154
Asset-backed securities		25,287		386		44		25,629
State and political subdivisions		94,882		190		12,462		82,610
Corporate bonds		6,000		—		321		5,679
Total securities available for sale	$	357,787	$	1,533	$	26,675	$	332,645


September 30, 2024	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses		Net Carrying Amount
	(dollars in thousands)
Securities held to maturity:
State and political subdivisions	$	11,843	$	—	$	751	$	11,092	$	—	$	11,843
Corporate bonds		15,000		—		1,204		13,796		66		14,934
Total securities held to maturity	$	26,843	$	—	$	1,955	$	24,888	$	66	$	26,777


December 31, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)
Securities available for sale:
U.S. Treasury	$	54,984	$	—	$	3,479	$	51,505
U.S. government agencies		43,921		66		969		43,018
GSE - Mortgage-backed securities and CMOs		137,346		170		13,729		123,787
Asset-backed securities		31,469		244		200		31,513
State and political subdivisions		95,581		15		14,196		81,400
Corporate bonds		6,000		—		509		5,491
Total securities available for sale	$	369,301	$	495	$	33,082	$	336,714


December 31, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses		Net Carrying Amount
	(dollars in thousands)
Securities held to maturity:
U.S. government agencies	$	133	$	—	$	1	$	132	$	—	$	133
State and political subdivisions		13,467		—		985		12,482		—		13,467
Corporate bonds		15,000		—		1,878		13,122		56		14,944
Total securities held to maturity	$	28,600	$	—	$	2,864	$	25,736	$	56	$	28,544

The Company owned Federal Reserve Bank (FRB) stock reported at cost of $ 959,000 at September 30, 2024 and December 31, 2023 . The Company owned Federal Home Loan Bank (FHLB) stock reported at cost of $ 770,000 and $ 712,000 at September 30, 2024 and December 31, 2023, respectively. The investments in FRB stock and FHLB stock are required investments related to the Company’s membership in, and borrowings with, these banks and are classified as restricted stock on the consolidated balance sheet. These investments are carried at cost since there is no ready market and redemption has historically been made at par value. The Company estimated that the fair value approximated cost and that these investments were not impaired at September 30, 2024.

There is no allowance for credit losses on available for sale securities. The following table shows a rollforward of the allowance for credit losses on held to maturity securities for the nine months ended September 30, 2024.


	State and political subdivisions		Corporate bonds		Total
	(dollars in thousands)
Balance, December 31, 2023	$	—	$	56	$	56
Provision for credit losses		—		10		10
Charge-offs of securities		—		—		—
Recoveries		—		—		—
Balance, September 30, 2024	$	—	$	66	$	66

On a quarterly basis, the Company monitors the credit quality of the debt securities held to maturity through the use of credit ratings. For unrated securities, primarily corporate bonds consisting of subordinated debt of bank holding companies, individual financial reports are reviewed quarterly. Capital, profitability, liquidity and other ratios are reviewed to assist in determining credit quality.

The following table summarizes the credit ratings of debt securities held to maturity, presented at amortized cost, by major security type at September 30, 2024.


September 30, 2024	State and political subdivisions		Corporate bonds		Total
	(dollars in thousands)
Aaa	$	—	$	—	$	—
Aa1/Aa2/Aa3		11,843		—		11,843
A1/A2		—		—		—
BBB		—		—		—
Not rated		—		15,000		15,000
Total	$	11,843	$	15,000	$	26,843

At September 30, 2024 , the Company had no securities held to maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held to maturity classified as nonaccrual for the nine months ended September 30, 2024.

Results from sales of securities available for sale for the three and nine-month periods ended September 30, 2024 and 2023, respectively, were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(dollars in thousands)
Gross proceeds from sales	$	—	$	—	$	—	$	11,329

Realized gains from sales	$	—	$	—	$	—	$	54
Realized losses from sales		—		—		—		( 96	)
Net realized gains (losses)	$	—	$	—	$	—	$	( 42	)

At September 30, 2024 and December 31, 2023 , securities available for sale with a carrying amount of $ 177.3 million and $ 137.1 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

We believe the unrealized losses on investment securities are a result of a volatile market and fluctuations in market prices due to a rise in interest rates, which will adjust if rates decline. Management does not believe these fluctuations are a reflection of the credit quality of the investments.

The following tables show the gross unrealized losses and estimated fair value of available for sale securities, for which an allowance has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2024 and December 31, 2023.


	Less than 12 Months						12 Months or More						Total
September 30, 2024	Number of Securities		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(dollars in thousands)
Securities available for sale:
U.S. Treasury		—	$	—	$	—		7	$	30,467	$	2,531	$	30,467	$	2,531
U.S. government agencies		9		12,101		151		23		19,618		677		31,719		828
GSE-Mortgage-backed securities and CMOs		2		4,469		20		58		95,138		10,469		99,607		10,489
Asset-backed securities		1		1,376		7		4		4,535		37		5,911		44
State and political subdivisions		—		—		—		57		73,116		12,462		73,116		12,462
Corporate bonds		—		—		—		3		5,679		321		5,679		321
Total securities available for sale		12	$	17,946	$	178		152	$	228,553	$	26,497	$	246,499	$	26,675


	Less than 12 Months						12 Months or More						Total
December 31, 2023	Number of Securities		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(dollars in thousands)
Securities available for sale
U.S. Treasury		—	$	—	$	—		9	$	51,505	$	3,479	$	51,505	$	3,479
U.S. government agencies		12		16,865		107		18		14,705		862		31,570		969
GSE-Mortgage-backed securities and CMOs		5		7,907		103		59		100,765		13,626		108,672		13,729
Asset-backed securities		2		1,711		5		7		10,140		195		11,851		200
State and political subdivisions		2		2,496		23		60		76,352		14,173		78,848		14,196
Corporate bonds		—		—		—		3		5,491		509		5,491		509
Total securities available for sale		21	$	28,979	$	238		156	$	258,958	$	32,844	$	287,937	$	33,082

Declines in the fair value of the available for sale investment portfolio are believed by management to be temporary in nature. When evaluating an investment for credit loss, management considers, among other things, the extent to which the fair value has been in a loss position; the financial condition of the issuer through the review of credit ratings and, if necessary, corporate financial statements; adverse conditions specifically related to the security such as past due principal or interest; underlying assets that collateralize the debt security; other economic conditions and demographics; and the intent and ability of the Company to hold the investment until the loss position is recovered. Any unrealized losses were largely due to increases in market interest rates over the yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. At September 30, 2024, the Company did not intend to sell and believed it was not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.

The following tables show contractual maturities of the investment portfolio as of September 30, 2024:


	September 30, 2024
	Amortized Cost		Estimated Fair Value		Book Yield
	(dollars in thousands)
Securities available for sale:
Due within twelve months		9,795		9,698		3.31	%
Due after one but within five years		54,982		50,980		1.95	%
Due after five but within ten years		58,326		52,985		2.52	%
Due after ten years		234,684		218,982		3.84	%
	$	357,787	$	332,645		3.32	%


	September 30, 2024
	Amortized Cost		Estimated Fair Value		Book Yield
	(dollars in thousands)
Securities held to maturity:
Due after five but within ten years		17,651		16,317		4.29	%
Due after ten years		9,192		8,571		3.39	%
	$	26,843	$	24,888		3.98	%

The portion of unrealized gains and losses for the three and nine months ended September 30, 2024 and 2023 related to equity securities still held at the reporting date is calculated as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2024		2023			2024		2023
	(dollars in thousands)
Gross proceeds from sales	$	—	$	—		$	—	$	—

Net gains (losses) recognized during the period on equity securities	$	31	$	( 4	)	$	53	$	7
Less: Net gains (losses) recognized from equity securities sold during the period		—		—			—		—
Unrealized gains (losses) recognized during the period on equity securities still held at the reporting date	$	31	$	( 4	)	$	53	$	7

Note 6 – Loans Held for Investment

The composition of net loans held for investment by class as of September 30, 2024 and December 31, 2023 was as follows:


	September 30, 2024			December 31, 2023
	(dollars in thousands)
Commercial
Commercial	$	104,336		$	102,366
Real estate - commercial		237,437			213,397
Other real estate construction loans		45,567			40,872
Other loans		6,021			6,214
Noncommercial
Real estate 1-4 family construction		23,403			12,481
Real estate - residential		151,484			143,697
Home equity		66,482			60,599
Consumer loans		11,582			11,581
		646,312			591,207
Less:
Allowance for credit losses		( 5,736	)		( 5,561	)
Deferred loan costs net		813			864

Loans held for investment, net	$	641,389		$	586,510

Note 7 – Allowance for Credit Losses on Loans

The following tables summarize the activity related to the allowance for credit losses on loans for the three and nine months ended September 30, 2024 and 2023.


	Commercial Loans											Noncommercial Loans
	Commercial			Real estate commercial			Other real estate construction			Other loans		Real estate 1-4 family construction		Real estate residential			Home equity			Consumer			Total
	(dollars in thousands)
Balance, June 30, 2024	$	1,454		$	2,208		$	368		$	10	$	42	$	962		$	669		$	195		$	5,908
Provision for (recovery of) credit losses		158			( 21	)		( 3	)		2		1		( 190	)		( 130	)		( 40	)		( 223	)
Charge-offs		( 20	)		—			—			—		—		—			—			( 22	)		( 42	)
Recoveries		62			—			—			—		—		1			—			30			93
Net recoveries		42			—			—			—		—		1			—			8			51
Balance, September 30, 2024	$	1,654		$	2,187		$	365		$	12	$	43	$	773		$	539		$	163		$	5,736


	Commercial Loans									Noncommercial Loans
	Commercial			Real estate commercial		Other real estate construction		Other loans		Real estate 1-4 family construction		Real estate residential		Home equity			Consumer			Total
	(dollars in thousands)
Balance, June 30, 2023	$	1,028		$	1,880	$	356	$	7	$	23	$	666	$	581		$	172		$	4,713
Provision for (recovery of) credit losses		361			84		62		3		3		59		( 13	)		39			598
Charge-offs		( 201	)		—		—		—		—		—		—			( 13	)		( 214	)
Recoveries		3			—		—		—		—		1		—			14			18
Net (charge-offs) recoveries		( 198	)		—		—		—		—		1		—			1			( 196	)
Balance, September 30, 2023	$	1,191		$	1,964	$	418	$	10	$	26	$	726	$	568		$	212		$	5,115


	Commercial Loans										Noncommercial Loans
	Commercial			Real estate commercial		Other real estate construction			Other loans		Real estate 1-4 family construction		Real estate residential			Home equity			Consumer			Total
	(dollars in thousands)
Balance, December 31, 2023	$	1,493		$	2,057	$	389		$	9	$	31	$	796		$	582		$	204		$	5,561
Provision for (recovery of) credit losses		79			130		( 24	)		3		12		( 25	)		( 43	)		50			182
Charge-offs		( 37	)		—		—			—		—		—			( 1	)		( 140	)		( 178	)
Recoveries		119			—		—			—		—		2			1			49			171
Net (charge-offs) recoveries		82			—		—			—		—		2			—			( 91	)		( 7	)
Balance, September 30, 2024	$	1,654		$	2,187	$	365		$	12	$	43	$	773		$	539		$	163		$	5,736


	Commercial Loans										Noncommercial Loans
	Commercial			Real estate commercial		Other real estate construction			Other loans		Real estate 1-4 family construction		Real estate residential		Home equity			Consumer			Total
	(dollars in thousands)
Balance, December 31, 2022	$	435		$	760	$	177		$	4	$	—	$	561	$	277		$	76		$	2,290
Cumulative effect of change in accounting principle		702			1,017		143			5		—		74		375			91			2,407
Provision for (recovery of) credit losses		585			187		140			1		26		89		( 92	)		54			990
Charge-offs		( 545	)		—		( 42	)		—		—		—		—			( 71	)		( 658	)
Recoveries		14			—		—			—		—		2		8			62			86
Net (charge-offs) recoveries		( 531	)		—		( 42	)		—		—		2		8			( 9	)		( 572	)
Balance, September 30, 2023	$	1,191		$	1,964	$	418		$	10	$	26	$	726	$	568		$	212		$	5,115

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


September 30, 2024	Loans 30-89 Days Past Due		Nonaccrual Loans		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 Days or More Past Due
	(dollars in thousands)
Commercial	$	—	$	375	$	375	$	103,958	$	104,333	$	—
Real estate - commercial		297		—		297		237,254		237,551		—
Other real estate construction		—		—		—		45,567		45,567		—
Real estate 1-4 family construction		—		—		—		23,403		23,403		—
Real estate - residential		292		142		434		151,752		152,186		—
Home equity		4		41		45		66,437		66,482		—
Consumer loans		3		—		3		11,579		11,582		—
Other loans		—		—		—		6,021		6,021		—
Total	$	596	$	558	$	1,154	$	645,971	$	647,125	$	—


December 31, 2023	Loans 30-89 Days Past Due		Nonaccrual Loans		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 Days or More Past Due
	(dollars in thousands)
Commercial	$	46	$	154	$	200	$	102,162	$	102,362	$	—
Real estate - commercial		588		488		1,076		212,447		213,523		—
Other real estate construction		—		—		—		40,872		40,872		—
Real estate 1-4 family construction		—		—		—		12,481		12,481		—
Real estate - residential		715		278		993		143,445		144,438		—
Home equity		115		181		296		60,304		60,600		—
Consumer loan		84		—		84		11,497		11,581		—
Other loans		—		—		—		6,214		6,214		—
Total	$	1,548	$	1,101	$	2,649	$	589,422	$	592,071	$	—

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 status 90 days or more until they are paid current or charged off.

The carrying value of foreclosed properties held as other real estate was $ 141,000 at September 30, 2024 and December 31, 2023. The Company had no foreclosed residential real estate and $ 93,000 of residential real estate in process of foreclosure at September 30, 2024. At December 31, 2023 , the Company had no foreclosed residential real estate and no residential real estate in process of foreclosure.

The composition of nonaccrual loans by class as of September 30, 2024 and December 31, 2023 was as follows:


							Nine Months Ended
	September 30, 2024						September 30, 2024
	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance		Total Nonaccrual Loans		Interest Income
	(dollars in thousands)
Commercial	$	—	$	375	$	375	$	5
Real estate - commercial		—		—		—		—
Other real estate construction		—		—		—		—
Real estate 1-4 family construction		—		—		—		—
Real estate - residential		—		142		142		19
Home equity		—		41		41		2
Consumer loans		—		—		—		—
Other loans		—		—		—		—
	$	—	$	558	$	558	$	26


							Nine Months Ended
	December 31, 2023						September 30, 2023
	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance		Total Nonaccrual Loans		Interest Income
	(dollars in thousands)
Commercial	$	—	$	154	$	154	$	—
Real estate - commercial		400		88		488		—
Other real estate construction		—		—		—		—
Real estate 1-4 family construction		—		—		—		—
Real estate - residential		181		97		278		7
Home equity		—		181		181		—
Consumer loans		—		—		—		—
Other loans		—		—		—		—
	$	581	$	520	$	1,101	$	7

A loan may be individually assessed for determining the allowance for credit losses when it is determined that it does not share similar risk characteristics with other loans. Loans that are on nonaccrual status will be reviewed to determine if they will be individually, rather than collectively, assessed. If the loan is deemed to be collateral dependent and the relationship’s outstanding balance is $ 100,000 or greater, it will be individually assessed. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans require an analysis of the collateral. The fair value of the collateral is discounted by liquidation costs. If the discounted fair value of the collateral is greater than the amortized loan balance, no allowance is required. Otherwise the difference between the balance and the collateral is charged off if deemed uncollectible.

The following table details the amortized cost of collateral dependent loans and any related allowance at September 30, 2024 and December 31, 2023.


	September 30, 2024				December 31, 2023
	Amortized Cost		Allowance for Credit Losses		Amortized Cost		Allowance for Credit Losses
	(dollars in thousands)
Commercial	$	280	$	187	$	147	$	95
Real estate - commercial		—		—		400		—
Other real estate construction		—		—		—		—
Real estate 1-4 family construction		—		—		—		—
Real estate - residential		—		—		172		—
Home equity		—		—		133		3
Consumer loans		—		—		—		—
Other loans		—		—		—		—
Total	$	280	$	187	$	852	$	98

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

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

Watch : Loans that are acceptable but show signs of weakness in either adequate sources of repayment or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss. These loans may deserve management’s attention.

Special Mention : Loans that exhibit potential weakness that deserves management’s close attention. Credits within this category exhibit risk that is increasing beyond the point where the loan would have been originally approved.

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

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

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

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of September 30, 2024:


September 30, 2024	Term Loans by Year of Origination
	2024		2023		2022		2021		2020		Prior		Revolving		Total
	(dollars in thousands)
Commercial
Pass	$	20,589	$	19,984	$	14,878	$	12,628	$	3,109	$	10,844	$	21,356	$	103,388
Watch		49		123		—		—		—		—		382		554
Special Mention		—		16		—		—		—		—		—		16
Substandard		—		—		—		155		220		—		—		375
Total commercial		20,638		20,123		14,878		12,783		3,329		10,844		21,738		104,333

Real estate - commercial
Pass		26,820		56,080		49,282		36,968		21,601		42,831		2,919		236,501
Watch		—		—		—		—		—		66		—		66
Special Mention		—		—		—		566		115		303		—		984
Substandard		—		—		—		—		—		—		—		—
Total real estate - commercial		26,820		56,080		49,282		37,534		21,716		43,200		2,919		237,551

Other real estate construction
Pass		16,975		14,662		5,078		2,334		3,251		2,222		1,000		45,522
Watch		—		—		—		—		—		45		—		45
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total other real estate construction		16,975		14,662		5,078		2,334		3,251		2,267		1,000		45,567

Real estate 1-4 family construction
Pass		11,864		11,539		—		—		—		—		—		23,403
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total real estate 1-4 family construction		11,864		11,539		—		—		—		—		—		23,403

Real estate - residential
Pass		26,970		37,895		35,432		22,591		10,581		15,449		1,516		150,434
Watch		—		—		—		205		370		497		—		1,072
Special Mention		—		105		—		122		—		311		—		538
Substandard		—		74		—		—		—		68		—		142
Total real estate - residential		26,970		38,074		35,432		22,918		10,951		16,325		1,516		152,186

Home equity
Pass		48		182		322		178		404		1,280		63,777		66,191
Watch		—		—		—		—		—		84		145		229
Special Mention		—		—		—		—		—		21		—		21
Substandard		—		—		—		—		—		41		—		41
Total home equity		48		182		322		178		404		1,426		63,922		66,482

Consumer loans
Pass		3,758		2,448		1,230		233		76		335		3,477		11,557
Watch		—		—		—		—		—		—		—		—
Special Mention		—		25		—		—		—		—		—		25
Substandard		—		—		—		—		—		—		—		—
Total consumer loans		3,758		2,473		1,230		233		76		335		3,477		11,582

Other loans
Pass		148		—		1,598		2,671		1,232		372		—		6,021
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total other loans		148		—		1,598		2,671		1,232		372		—		6,021

Total Pass		107,172		142,790		107,820		77,603		40,254		73,333		94,045		643,017
Total Watch		49		123		—		205		370		692		527		1,966
Total Special Mention		—		146		—		688		115		635		—		1,584
Total Substandard		—		74		—		155		220		109		—		558
Total loans	$	107,221	$	143,133	$	107,820	$	78,651	$	40,959	$	74,769	$	94,572	$	647,125

During the nine months ended September 30, 2024 , one hundred and two loans totaling $ 1.8 million were converted from revolving to term loans.

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2023:


December 31, 2023	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
	(dollars in thousands)
Commercial
Pass	$	23,611	$	21,731	$	16,587	$	5,868	$	2,553	$	10,634	$	20,089	$	101,073
Watch		183		22		—		—		—		—		914		1,119
Special Mention		16		—		—		—		—		—		—		16
Substandard		—		—		—		154		—		—		—		154
Total commercial		23,810		21,753		16,587		6,022		2,553		10,634		21,003		102,362

Real estate - commercial
Pass		51,543		46,563		38,267		23,031		15,727		33,949		2,844		211,924
Watch		—		—		—		—		74		—		—		74
Special Mention		—		—		588		121		171		157		—		1,037
Substandard		—		—		400		88		—		—		—		488
Total real estate - commercial		51,543		46,563		39,255		23,240		15,972		34,106		2,844		213,523

Other real estate construction
Pass		20,458		10,368		3,050		3,711		542		2,148		548		40,825
Watch		—		—		—		—		—		47		—		47
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total other real estate construction		20,458		10,368		3,050		3,711		542		2,195		548		40,872

Real estate 1-4 family construction
Pass		10,628		1,353		500		—		—		—		—		12,481
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total real estate 1-4 family construction		10,628		1,353		500		—		—		—		—		12,481

Real estate - residential
Pass		46,470		40,558		23,259		11,182		3,528		15,208		1,082		141,287
Watch		—		—		209		384		122		669		—		1,384
Special Mention		666		—		501		—		—		322		—		1,489
Substandard		—		—		—		196		—		82		—		278
Total real estate - residential		47,136		40,558		23,969		11,762		3,650		16,281		1,082		144,438

Home equity
Pass		173		134		95		407		94		1,309		57,800		60,012
Watch		—		—		109		—		19		130		149		407
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		181		—		181
Total home equity		173		134		204		407		113		1,620		57,949		60,600

Consumer loans
Pass		4,302		2,089		609		121		129		352		3,936		11,538
Watch		—		—		—		—		—		—		—		—
Special Mention		25		18		—		—		—		—		—		43
Substandard		—		—		—		—		—		—		—		—
Total consumer loans		4,327		2,107		609		121		129		352		3,936		11,581

Other loans
Pass		5		1,611		2,864		1,306		—		428		—		6,214
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total other loans		5		1,611		2,864		1,306		—		428		—		6,214

Total Pass		157,190		124,407		85,231		45,626		22,573		64,028		86,299		585,354
Total Watch		183		22		318		384		215		846		1,063		3,031
Total Special Mention		707		18		1,089		121		171		479		—		2,585
Total Substandard		—		—		400		438		—		263		—		1,101
Total loans	$	158,080	$	124,447	$	87,038	$	46,569	$	22,959	$	65,616	$	87,362	$	592,071

The following tables present gross charge-offs by origination date for the nine months ended September 30, 2024 and for the year ended December 31, 2023:


September 30, 2024	Gross Loan Charge-offs by Year of Origination
	2024		2023		2022		2021		2020		Prior		Revolving		Total
	(dollars in thousands)
Commercial
Commercial	$	—	$	—	$	10	$	—	$	17	$	—	$	—	$	27
Real estate - commercial		—		—		—		—		—		—		—		—
Other real estate construction		—		—		—		—		—		—		—		—
Other loans		—		—		—		—		—		—		—		—
Noncommercial
Real estate 1-4 family construction		—		—		—		—		—		—		—		—
Real estate - residential		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—
Consumer loans		—		51		5		12		7		2		74		151
Total charge-offs	$	—	$	51	$	15	$	12	$	24	$	2	$	74	$	178


December 31, 2023	Gross Loan Charge-offs by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
	(dollars in thousands)
Commercial
Commercial	$	—	$	49	$	—	$	159	$	315	$	71	$	9	$	603
Real estate - commercial		—		—		—		—		—		—		—		—
Other real estate construction		—		42		—		—		—		—		—		42
Other loans		—		—		—		—		—		—		—		—
Noncommercial
Real estate 1-4 family construction		—		—		—		—		—		—		—		—
Real estate - residential		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—
Consumer loans		—		34		4		3		—		4		64		109
Total charge-offs	$	—	$	125	$	4	$	162	$	315	$	75	$	73	$	754

Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. At both September 30, 2024 and December 31, 2023 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 September 30, 2024 and December 31, 2023:


September 30, 2024	Performing		Non- Performing		Total
	(dollars in thousands)
Commercial	$	103,958	$	375	$	104,333
Real estate - commercial		237,551		—		237,551
Other real estate construction		45,567		—		45,567
Real estate 1-4 family construction		23,403		—		23,403
Real estate - residential		152,044		142		152,186
Home equity		66,441		41		66,482
Consumer loans		11,582		—		11,582
Other loans		6,021		—		6,021
Total	$	646,567	$	558	$	647,125


December 31, 2023	Performing		Non- Performing		Total
	(dollars in thousands)
Commercial	$	102,208	$	154	$	102,362
Real estate - commercial		213,035		488		213,523
Other real estate construction		40,872		—		40,872
Real estate 1-4 family construction		12,481		—		12,481
Real estate - residential		144,160		278		144,438
Home equity		60,419		181		60,600
Consumer loans		11,581		—		11,581
Other loans		6,214		—		6,214
Total	$	590,970	$	1,101	$	592,071

Modifications to Borrowers Experiencing Financial Difficulty

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses due to the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. The Company rarely modifies loans by providing principal forgiveness. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Company will modify a loan by providing multiple types of concessions. Typically one type of concession is granted initially. If the borrower continues to experience financial difficulty, another concession may be granted. Types of concessions include term extensions beyond customary terms, capitalization of accrued interest, interest rate reductions to below current market rates, payment deferrals or principal forgiveness.

There were no loans modified for borrowers experiencing financial difficulty during the nine months ended September 30, 2024 . The following table shows the amortized cost basis of loans modified for borrowers experiencing financial difficulty, disaggregated by class of loans and type of concession granted, during the twelve months ended December 31, 2023.


	Payment Deferrals
	Amortized		% of Total
	Cost Basis		Loan Type			Financial Effect
	(dollars in thousands)
Real estate - residential	$	560		0.37	%	Provided additional payment deferral to borrowers in the form of interest-only payments
Total	$	560

The Company did no t have any loans made to borrowers experiencing financial difficulty that were modified during the twelve months ended December 31, 2023 that subsequently defaulted. A default on a modified loan is defined as being past due 90 days or being out of compliance with the modification agreement. The Company closely monitors the performance of the loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of loans that were modified during the twelve-month period ended December 31, 2023:


	Payment Status (Amortized Cost Basis)
			30-89 Days		90+ Days
	Current		Past Due		Past Due
	(dollars in thousands)
Real estate - residential	$	560	$	—	$	—
Total	$	560	$	—	$	—

Note 8 - Leases

Operating leases in which we are the lessee are recorded as operating lease right of use (“ROU”) assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on our consolidated balance sheets. Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental collateralized borrowing rate at the lease commencement date. ROU assets are further adjusted for any lease incentives. Operating lease expense, which is composed of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in the net occupancy expense in the consolidated statements of income. We do not currently have any finance leases in which we are the lessee.

Our leases relate to four office locations, three of which are branch locations, with remaining terms of two to five years . Certain lease arrangements contain extension options which range from five to ten years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As of September 30, 2024 , operating lease ROU assets were $ 1.2 million and the operating lease liability was $ 1.3 million, compared to operating lease ROU assets of $ 1.6 million and an operating lease liability of $ 1.7 million at September 30, 2023. Lease costs associated with all leases was $ 106,000 and $ 317,000 f or the three and nine months ended September 30, 2024, respectively.

The table below summarizes other information related to our operating leases:


	Nine Months Ended September 30,
	2024			2023
	(in thousands except percent and period data)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	333		$	325
Right-of-use assets obtained in exchange for new operating lease liabilities		—			—
Weighted-average remaining lease term - operating leases, in years		3.3			4.2
Weighted-average discount rate - operating leases		2.63	%		2.57	%

The table below summarizes the maturity of remaining lease liabilities:


	September 30, 2024
	(dollars in thousands)
2024	$	113
2025		455
2026		415
2027		260
2028		97
2029 and thereafter		20
Total lease payments		1,360
Less: Interest		( 60	)
Present value of lease liabilities		1,300

Note 9 - Commitments and Contingencies

The Company’s 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 unfunded loans and lines of credit or standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments under such instruments as it does for on-balance sheet instruments. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, real estate and time deposits with financial institutions. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are unsecured.

At September 30, 2024 and December 31, 2023, outstanding financial instruments whose contract amounts represent credit risk were approximately:


	September 30, 2024		December 31, 2023
	(dollars in thousands)
Commitments to extend credit	$	226,992	$	204,163
Credit card commitments		26,166		25,647
Standby letters of credit		8,141		7,878
Total commitments	$	261,299	$	237,688

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancelable. The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $ 163,000 and $ 184,000 at September 30, 2024 and December 31, 2023, respectively, is separately classified on the balance sheet within Other Liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the nine months ended September 30, 2024.


	Total Allowance for Credit Losses - Unfunded Loan Commitments
	(dollars in thousands)
Balance, December 31, 2023	$	184
Recovery of credit losses		( 21	)
Balance, September 30, 2024	$	163

Note 10 – Fair Value Disclosures

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

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

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

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

Mortgage banking derivatives, which are composed of interest rate lock commitments, or IRLCs, mortgage forward sales commitments and to-be-announced mortgage-backed securities trades (TBAs), are recorded at fair value on a recurring basis. Fair value of the IRLCs is based on projected pull-through rates and anticipated margins based on changes in market interest rates. The Company considers these to be Level 3 valuations. The fair value of mortgage forward sales commitments and TBAs is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date and is considered to be a Level 2 input.

The Company does not record loans at fair value on a recurring basis. However, certain nonaccrual loans are individually evaluated in connection with determining the allowance for credit losses. If the loan is deemed to be collateral dependent and the relationship’s outstanding balance is $ 100,000 or greater, it will be individually evaluated. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans require an analysis of the collateral. The fair value of the collateral is based on appraised values discounted by liquidation costs which the Company considers Level 3 valuations.

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

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate, based on secondary market prices. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. These loans are recorded in Level 2.

The following tables provide fair value information for assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:


	September 30, 2024
	(dollars in thousands)
	Total		Level 1		Level 2		Level 3
Securities available for sale:
U.S. Treasury	$	30,467	$	30,467	$	—	$	—
U.S. government agencies		42,106		—		42,106		—
GSE - Mortgage-backed securities and CMOs		146,154		—		146,154		—
Asset-backed securities		25,629		—		25,629		—
State and political subdivisions		82,610		—		82,610		—
Corporate bonds		5,679		—		5,679		—
Equity securities		355		355		—		—
Mortgage banking derivatives		1,173		—		89		1,084
Total assets at fair value on a recurring basis	$	334,173	$	30,822	$	302,267	$	1,084
Mortgage banking derivatives	$	28	$	—	$	28	$	—
Total liabilities at fair value on a recurring basis	$	28	$	—	$	28	$	—


	December 31, 2023
	(dollars in thousands)
	Total		Level 1		Level 2		Level 3
Securities available for sale:
U.S. Treasury	$	51,505	$	51,505	$	—	$	—
U.S. government agencies		43,018		—		43,018		—
GSE - Mortgage-backed securities and CMOs		123,787		—		123,787		—
Asset-backed securities		31,513		—		31,513		—
State and political subdivisions		81,400		—		81,400		—
Corporate bonds		5,491		—		5,491		—
Equity securities		302		302		—		—
Mortgage banking derivatives		852		—		46		806
Total assets at fair value on a recurring basis	$	337,868	$	51,807	$	285,255	$	806
Mortgage banking derivatives	$	288	$	—	$	288	$	—
Total liabilities at fair value on a recurring basis	$	288	$	—	$	288	$	—

The following table provides a rollforward for recurring Level 3 fair value measurements:


	September 30, 2024
	Mortgage banking derivatives: Interest rate lock commitments		Total
	(dollars in thousands)
Balance at December 31, 2023	$	806	$	806
Change in fair value:
Included in income from mortgage banking		278		278
Change in observability of significant inputs:
Included in income from mortgage banking		—		—
Balance at September 30, 2024	$	1,084	$	1,084

The fair value of mortgage IRLCs at September 30, 2024 was calculated based on a notional amount of $ 31.9 million. Significant unobservable inputs are used to determine the fair value of these derivatives. At September 30, 2024 , such inputs included anticipated margins to be earned based on market movement from the original lock date and a weighted average projected pull-through rate of 87.5 % determined by loan product, loan stage, and loan purpose. The fair value of mortgage IRLCs at December 31, 2023 was calculated based on a notional amount of $ 21.8 million. Significant unobservable inputs were the same as those used for the nine months ended September 30, 2024 and assumed a weighted average projected pull-through rate of 82.0 % at December 31, 2023. Changes in interest rates and other assumptions could significantly change these estimated values.

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value less cost to sell at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of September 30, 2024 and December 31, 2023:


	September 30, 2024
	(dollars in thousands)
	Total		Level 1		Level 2		Level 3

Individually evaluated loans	$	98	$	—	$	—	$	98
Total assets at fair value on a nonrecurring basis	$	98	$	—	$	—	$	98


	December 31, 2023
	(dollars in thousands)
	Total		Level 1		Level 2		Level 3

Individually evaluated loans	$	187	$	—	$	—	$	187
Total assets at fair value on a nonrecurring basis	$	187	$	—	$	—	$	187

Quantitative Information about Level 3 Fair Value Measurements

At September 30, 2024 , individually evaluated loans were being evaluated with discounted appraisals for individually evaluated nonaccrual loans deemed collateral dependent.

Note 11 – Fair Values of Financial Instruments

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

The fair value estimates presented at September 30, 2024 and December 31, 2023 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 tables reflect a comparison of carrying amounts and the estimated fair value of the financial instruments as of September 30, 2024 and December 31, 2023 :


September 30, 2024	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents	$	123,898	$	123,898	$	123,898	$	—	$	—
Securities available for sale		332,645		332,645		30,467		302,178		—
Securities held to maturity		26,777		24,888		—		11,092		13,796
Equity securities		355		355		355		—		—
Loans held for investment, net		641,389		614,579		—		—		614,579
Loans held for sale		4,787		4,787		—		4,787		—
Restricted stock		1,729		1,729		1,729		—		—
Loan servicing assets		3,982		7,102		—		7,102		—
Mortgage banking derivatives		1,173		1,173		—		89		1,084
Accrued interest receivable		4,821		4,821		—		—		4,821

FINANCIAL LIABILITIES
Deposits	$	1,077,811		1,077,125		—		1,077,125		—
Short-term borrowings		1,419		1,419		—		1,419		—
Long-term borrowings		29,142		25,349		—		—		25,349
Mortgage banking derivatives		28		28		—		28		—
Accrued interest payable		472		472		—		—		472


December 31, 2023	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents	$	63,434	$	63,434	$	63,434	$	—	$	—
Securities available for sale		336,714		336,714		51,505		285,209		—
Securities held to maturity		28,544		25,736		—		12,614		13,122
Equity securities		302		302		302		—		—
Loans held for investment, net		586,510		544,985		—		—		544,985
Loans held for sale		4,695		4,695		—		4,695		—
Restricted stock		1,672		1,672		1,672		—		—
Loan servicing assets		4,287		7,030		—		7,030		—
Mortgage banking derivatives		852		852		—		46		806
Accrued interest receivable		4,393		4,393		—		—		4,393

FINANCIAL LIABILITIES
Deposits	$	981,713	$	980,534	$	—	$	980,534	$	—
Short-term borrowings		1,379		1,379		—		1,379		—
Long-term borrowings		29,104		25,102		—		—		25,102
Mortgage banking derivatives		288		288		—		288		—
Accrued interest payable		414		414		—		—		414

At September 30, 2024 the Company’s 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, the fair value is the fee the Bank is expected to receive. This amount is deemed immaterial by management. See Note 9 (Commitments and Contingencies) to the Company's Notes to Consolidated Financial Statements.

Note 12 – Mortgage Banking Derivatives

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding, otherwise known as Interest Rate Lock Commitments (IRLCs). IRLCs on mortgage loans that will be held for resale are considered to be derivatives and must be accounted for at fair value on the balance sheet. Accordingly, such commitments are recorded at fair value in the mortgage banking derivatives asset or liability with changes in fair value recorded in income from mortgage banking within the consolidated statement of income. Fair value is based on anticipated margins determined by market movement from the original lock date and projected pull-through rates on a loan-by-loan basis based on loan product, loan stage, and loan purpose.

During the term of the IRLC, the Company is exposed to the risk that the interest rate will change from the rate quoted to the borrower. In an effort to mitigate interest rate risk, the Company also enters into mortgage forward sales commitments on a mandatory basis for future delivery of residential mortgage loans after an interest rate lock is committed to the borrower. Mandatory commitments require that the loan must be delivered to the investor or a pair-off fee be paid. These forward commitments are recorded at fair value in the mortgage banking derivatives asset or liability, and changes in fair value are recorded to income from mortgage banking within the consolidated statement of income. The fair value of the forward commitments is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date.

The Company also enters into purchase and sale agreements of to-be-announced mortgage-backed securities trades (TBAs). A TBA trade is a contract to buy or sell mortgage-backed securities on a specific date while the underlying mortgages are not announced until just prior to settlement. These TBA trades provide an economic hedge against the effect of changes in interest rates resulting from IRLCs. TBAs are accounted for as derivatives when either of the following conditions exist: (i) when settlement of the TBA trade is not expected to occur at the next regular settlement date (which is typically the next month) or (ii) a mechanism exists to settle the contract on a net basis. As a result, these instruments are recorded at fair value in the mortgage banking derivatives asset or liability with changes in fair value recorded in income from mortgage banking within the consolidated statement of income. The fair value of the TBA trades is based on the gain or loss that would occur if the Company were to pair-off the trade at the measurement date.

The following table reflects the notional amount and fair value of mortgage banking derivatives included in the balance sheet at fair value as of September 30, 2024 and December 31, 2023.


	Notional Amount		Fair Value
	(dollars in thousands)
Balance at September 30, 2024
Included in mortgage banking derivatives asset:
Interest rate lock commitments	$	31,886	$	1,084
Forward sales commitments		3,141		89
Included in mortgage banking derivatives liability:
To-be-announced mortgage-backed securities trades		28,000		28

Balance at December 31, 2023
Included in mortgage banking derivatives asset:
Interest rate lock commitments	$	21,791	$	806
Forward sales commitments		1,826		46
Included in mortgage banking derivatives liability:
To-be-announced mortgage-backed securities trades		23,000		288

Note 13 – Short-Term Borrowed Funds

During the first quarter of 2024, the Company borrowed $ 5.0 million through the FRB ’s Bank Term Funding Program ( “BTFP”). The BTFP was established as an additional source of liquidity against high-quality securities valued at par. The program offered loans of up to one year in length to banks pledging U.S. Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral. The borrowing was secured by three available for sale agency securities issued by the Small Business Administration with par value totaling $ 7.5 million. The note was set to mature on January 22, 2025 and charged interest at a rate of 4.93 %. On September 18, 2024 this short-term borrowing was paid off which resulted in a decrease of $ 5.0 million in short term liabilities for the quarter ended September 30, 2024.

Note 14 – Recent Accounting Pronouncements and Other Changes

ASC 848, “Reference Rate Reform,” was set forth to eliminate certain reference rates and introduce new reference rates that are based on a larger, more liquid population of observable transactions that are less vulnerable to manipulation. The reference rate reform discontinues the use of certain widely used reference rates such as the London Interbank Offered Rate, or LIBOR. In response to likely challenges arising from contract modifications due to reference rate reform, the Financial Accounting Standards Board (the “FASB”) issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” in March 2020 to provide optional expedients and exceptions for applying GAAP to contract modifications. As such, modifications to debt contracts may be accounted for as a continuation of the existing contract by prospectively adjusting the effective interest rate. This amendment could be applied beginning March 12, 2020 through a sunset date of December 31, 2022. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” These amendments extend the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision based on expectations of when LIBOR would cease being published. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief provided in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. ASU 2022-06 was effective upon issuance. The Company no longer holds or issues loan contracts that reference LIBOR. As of July 1, 2023, all loan contracts that previously referenced LIBOR had been modified. The Company does not anticipate a material financial impact as a result of these modifications.

ASU 2023-01 “Leases (Topic 842) – Common Control Arrangements” requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and conditions). ASU 2023-01 was effective January 1, 2024 and did not have a material impact on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments apply to all public entities that are required to report segment information in accordance with FASB ASC Topic 280, Segment Reporting. The amendments in the ASU are intended to improve disclosures about a public entity's reportable segments through enhanced disclosures about a segment's expenses. The amendments require, on an interim and annual basis, disclosures of significant expenses and other segment items that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, as well as any other key measure of performance used for segment management decisions. The amendments require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses key profitability measures in assessing segment performance and deciding how to allocate resources. The ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments retrospectively to all prior periods presented in the financial statements. Upon transition, segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the potential impacts related to the adoption of the ASU.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances income tax disclosure requirements. Under the new guidance, entities must disclose additional information in specified categories for federal, state and foreign income taxes with respect to the reconciliation of the effective tax rate to the statutory rate (rate reconciliation). Greater detail is also required about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. Additionally, the amendments require that entities must disaggregate income taxes paid, net of refunds received, for federal, state and foreign taxes and further disaggregate for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The quantitative threshold is equal to 5% or more of the amount determined by multiplying pretax income (loss) from continuing operations by the applicable statutory rate. Public business entities must apply the guidance to annual periods beginning after December 15, 2024. ASU 2023-09 is effective for the Company on January 1, 2025, though early adoption is permitted. Entities may apply the amendments prospectively or may elect retrospective application. The Company is currently evaluating the potential impacts related to the adoption of this ASU.

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.

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

Caution Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements generally relate to estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors that could cause actual results to differ materially from these estimates. These factors include, but are not limited to: increases in our past due loans and provision for credit losses that may result from local and/or broader economic effects, including the impacts of inflation and constraints on the availability of credit that may impact our borrowers; declines in general economic conditions, including increased stress in the financial markets; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. Any use of “we” or “our” in the following discussion refers to the Company on a consolidated basis.

Comparison of Financial Condition at September 30, 2024 and December 31, 2023.

During the nine months ended September 30, 2024, the Company’s total assets increased $108.5 million, from $1.07 billion to $1.18 billion.

Cash and cash equivalents increased $60.5 million during the nine months ended September 30, 2024, from $63.4 million to $123.9 million. The increase is related to continued growth in deposits.

Investment securities consist of securities available for sale and securities held to maturity. For the nine-month period ended September 30, 2024, investment securities decreased $5.8 million from $365.3 million at December 31, 2023 to $359.5 million at September 30, 2024. At September 30, 2024, the Company had net unrealized losses on securities available for sale of $25.1 million, compared to net unrealized losses of $32.6 million at December 31, 2023, an improvement of $7.4 million. The improvement in the fair value of available for sale securities offset $12.1 million in net paydowns and maturities during the nine months ended September 30, 2024. During the first nine months of 2024, a $10,000 provision was recorded against the allowance for credit losses on securities held to maturity bringing the balance to $66,000, with an amortized cost basis of $26.8 million, at September 30, 2024.

At September 30, 2024, equity securities improved in value from $302,000 at December 31, 2023 to $355,000 as a result of the increase in value in the equity market.

Loans held for sale increased $92,000 from December 31, 2023 to $4.8 million at September 30, 2024. Loans held for investment increased from $592.1 million at December 31, 2023 to $647.1 million at September 30, 2024, an increase of $55.1 million. The Company experienced a net increase in all loan sectors with the exception of loans categorized as “Commercial - Other."

The allowance for credit losses on loans was $5.7 million at September 30, 2024, which represented 0.89% of total loans held for investment, compared to $5.6 million, or 0.94% of total loans held for investment, at December 31, 2023. Additional discussion regarding the allowance is included in the Asset Quality section below.

Other changes in the Company’s consolidated assets are primarily related to deferred tax assets, which decreased $1.9 million from $8.9 million at December 31, 2023 to $7.0 million at September 30, 2024 as a result of the improvement in fair value of the available for sale security portfolio. Interest receivable increased $428,000 from $4.4 million as of December 31, 2023 to $4.8 million at September 30, 2024. This increase was attributable to the $55.1 million above-mentioned loan growth.

Customer deposits, our primary funding source, experienced a $96.1 million increase during the nine-month period ended September 30, 2024, increasing from $981.7 million to $1.08 billion. The overall increase in deposits is attributable to organic deposit growth combined with promotional time deposit offerings. Demand noninterest-bearing checking accounts increased $18.3 million, primarily from growth in commercial accounts, and time deposits increased $70.5 million during the nine-month period ended September 30, 2024. Interest checking and money market accounts increased $13.9 million and savings deposits decreased $6.6 million during the nine months ended September 30, 2024.

Total short-term borrowings increased $40,000 for the nine-month period ended September 30, 2024. At September 30, 2024, the Company had $29.1 million in long-term debt outstanding, which consists solely of its junior subordinated debt securities, net of unamortized debt issuance costs. During the third quarter of 2019, the Company issued $10.0 million in subordinated debt securities with a final maturity date of September 30, 2029 that may be redeemed on or after September 30, 2024. This junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. During the third quarter of 2021, the Company issued $12.0 million and $8.0 million of 10-year and 15-year fixed-to-floating rate subordinated debt securities, respectively. The 10-year subordinated notes mature

on September 3, 2031, though they are redeemable at the Company’s option on or after September 3, 2026, and initially pay interest quarterly at an annual rate of 3.5%. From and including September 3, 2026 to but excluding September 3, 2031, or up to any early redemption date, the interest rate on the 10-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month secured overnight financing rate (“SOFR”), plus 283 basis points payable quarterly in arrears. The 15-year subordinated notes mature on September 3, 2036, though they are redeemable at the Company’s option on or after September 3, 2031, and initially pay interest quarterly at an annual rate of 4.0%. From and including September 3, 2031 to but excluding September 3, 2036, or up to any early redemption date, the interest rate on the 15-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month SOFR plus 292 basis points payable quarterly in arrears. The subordinated debt has been structured to qualify as and is included in the calculation of the Company’s Tier 2 capital. Of the subordinated debt that remains outstanding at September 30, 2024, $27.2 million qualifies as Tier 2 capital. The Company also has a $3.0 million line of credit of which $3.0 million was available to use at September 30, 2024.

Other changes in the Company’s liabilities are related to an increase of $872,000 in other liabilities from December 31, 2023 to September 30, 2024 resulting primarily from accrual of reserves for payables due throughout 2024.

At September 30, 2024, total shareholders’ equity was $61.1 million, an increase of $11.7 million from December 31, 2023. Net income for the nine-month period ended September 30, 2024 was $7.6 million, which positively contributed to our shareholders’ equity. Additionally, improvement in the unrealized loss position on our available for sale securities portfolio contributed $5.7 million to the increase in shareholders' equity during the same nine-month period. During the nine months ended September 30, 2024, the Company repurchased 160,115 shares of common stock at a total cost of $1.3 million, and the Company paid $424,000 in dividends attributable to noncontrolling interest during the same period. See Note 3 (Noncontrolling Interest) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest. On October 15, 2024, the Company's Board of Directors declared a 2% stock dividend payable on November 18, 2024 to shareholders of record on October 28, 2024. All information presented in this discussion and analysis and in the interim consolidated financial statements regarding earnings per share and weighted average number of shares outstanding has been computed giving effect to this stock dividend.

Results of Operations for the Three Months Ended September 30, 2024 and 2023.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $3.0 million for the three months ended September 30, 2024, as compared to $2.1 million for the three months ended September 30, 2023. Net income available to common shareholders was $2.9 million, or $0.40 per common share, for the three months ended September 30, 2024 compared to $2.0 million, or $0.27 per common share, for the three months ended September 30, 2023. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Net Interest Income

Net interest income for the three months ended September 30, 2024 was $9.1 million, an $881,000 increase from the $8.2 million reported for the comparative period in 2023. During the third quarter of 2024, the average yield on our interest-earning assets increased 48 basis points to 5.18% from the same period in 2023, and the average rate we paid for our interest-bearing liabilities increased 60 basis points to 2.55%. These changes resulted in a lower interest rate spread of 2.63% as of September 30, 2024, compared to 2.76% as of September 30, 2023. The Company’s net interest margin was 3.34% and 3.30% for the comparable periods in 2024 and 2023, respectively.

The following table presents average balance sheet and a net interest income analysis for the three months ended September 30, 2024 and 2023, respectively:


	Average Balance				Income/Expenses				Rate/Yield
	2024		2023		2024		2023		2024			2023
	(dollars in thousands)
Interest-earning assets:
Taxable securities	$	314,789	$	299,584	$	3,066	$	2,764		3.87	%		3.66	%
Non-taxable securities (1)		57,538		58,470		307		317		2.66	%		2.69	%
Short-term investments		76,883		86,467		780		979		4.04	%		4.49	%
Equity securities		324		303		5		5		6.14	%		6.55	%
Taxable loans		627,215		538,215		9,836		7,570		6.24	%		5.58	%
Non-taxable loans (1)		16,466		13,325		130		75		3.93	%		2.80	%
Total interest-earning assets		1,093,215		996,364		14,124		11,710		5.18	%		4.70	%
Interest-bearing liabilities:
Interest-bearing deposits		755,728		689,896		4,659		3,188		2.45	%		1.83	%
Short-term borrowed funds		5,723		976		70		11		4.87	%		4.47	%
Long-term debt		29,429		29,076		338		334		4.57	%		4.56	%
Total interest bearing liabilities		790,880		719,948		5,067		3,533		2.55	%		1.95	%
Net interest spread	$	302,335	$	276,416	$	9,057	$	8,177		2.63	%		2.76	%
Net interest margin (1) (% of earning assets)										3.34	%		3.30	%

(1)

Yields related to securities and loans exempt from income taxes are stated on a fully tax-equivalent basis, assuming a 21% effective tax rate.

Provision for (Recovery of) Credit Losses

The recovery of credit losses was $230,000 for the three months ended September 30, 2024, compared to a provision of $599,000 for the same period in 2023. There were net loan recoveries of $51,000 for the three months ended September 30, 2024, as compared to net loan charge-offs of $196,000 during the same period of 2023. Refer to the Asset Quality section below for further information.

Noninterest Income

The Company places significant emphasis on diversification of revenue sources rather than relying solely upon interest income. Total noninterest income increased by $10,000 for the three-month period ended September 30, 2024, as compared to the same period in 2023. Other service fees and commissions contributed $116,000 to the increase in total noninterest income. The increase in noninterest income was offset by a decrease in income from mortgage banking of $96,000.

Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Interchange and card transaction fees consist of income from check card usage, point-of-sale income from PIN-based debit card transactions, ATM service fees, and credit card usage. A comparison of gross interchange and card transaction fees and net of associated network costs for the reported periods is presented in the table below:


	Three Months Ended September 30,
	2024		2023
	(dollars in thousands)
Income from debit card transactions	$	587	$	579
Income from credit card transactions		174		168
Gross interchange and transaction fee income		761		747
Network costs - debit card		313		279
Network costs - credit card		181		177
Total	$	267	$	291

Noninterest Expense

Noninterest expense for the three months ended September 30, 2024 increased by $430,000 from the same period in 2023. Salaries and benefits, the largest component of noninterest expense, increased $330,000 due to wage increases during the 2024 period.

Total other noninterest expense increased $25,000 for the three months ended September 30, 2024, compared to the same period in 2023. The table below reflects the composition of other noninterest expense for the referenced periods.


	Three Months Ended September 30,
	2024		2023
	(dollars in thousands)
Office supplies and printing	$	19	$	21
Franchise and other taxes		28		19
Employee education		33		27
Shareholder relations expense		48		44
Telephone and data lines		51		49
Postage		61		57
Director fees and expense		67		78
Dues and subscriptions		90		79
Other		219		217
Total	$	616	$	591

Income Tax Expense

The Company had income tax expense of $962,000 for the three months ended September 30, 2024 at an effective tax rate of 24.1% compared to income tax expense of $558,000 with an effective tax rate of 20.6% in the comparable 2023 period. Income taxes computed at the statutory rate are primarily affected by the state income tax expense offset by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank-owned life insurance. For the three months ended September 30, 2024, the effective tax rate increased due to the increase in interest expense disallowance resulting from compliance
with the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”). The larger disallowance is due to greater projected interest expense for 2024 compared to 2023 and an adjustment in the TEFRA calculation to differentiate between bank qualified and non-bank qualified bonds.

Results of Operations for the Nine Months Ended September 30, 2024 and 2023.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $7.6 million for the nine months ended September 30, 2024, as compared to $6.3 million for the nine months ended September 30, 2023, an increase of $1.3 million. Net income available to common shareholders was $7.2 million, or $1.00 per common share, for the nine months ended September 30, 2024, compared to $5.9 million, or $0.80 per common share, for the nine months ended September 30, 2023. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Net Interest Income

Net interest income for the nine months ended September 30, 2024 was $26.4 million, a $2.3 million increase from the $24.1 million reported for the comparative period in 2023. During the first nine months of 2024, the average yield on our interest-earning assets increased 57 basis points to 5.11% from the same period in 2023, and the average rate we paid for our interest-bearing liabilities increased 70 basis points to 2.40%. These changes resulted in a lower interest rate spread of 2.71% as of September 30, 2024, compared to 2.84% as of September 30, 2023. The Company’s net interest margin was 3.38% and 3.32% for the comparable periods in 2024 and 2023, respectively.

The following table presents average balance sheet and a net interest income analysis for the nine months ended September 30, 2024 and 2023, respectively:


	Average Balance				Income/Expenses				Rate/Yield
	2024		2023		2024		2023		2024			2023
	(dollars in thousands)
Interest-earning assets:
Taxable securities	$	310,912	$	297,875	$	8,998	$	7,879		3.87	%		3.54	%
Non-taxable securities (1)		57,475		60,656		929		1,010		4.08	%		2.79	%
Short-term investments		63,949		96,732		2,116		3,230		4.42	%		4.46	%
Equity securities		323		307		15		15		6.20	%		6.53	%
Taxable loans		608,021		516,158		27,651		20,791		6.07	%		5.39	%
Non-taxable loans (1)		17,085		12,684		394		210		5.82	%		2.77	%
Total interest-earning assets		1,057,765		984,412		40,103		33,135		5.11	%		4.54	%
Interest-bearing liabilities:
Interest-bearing deposits		728,587		680,713		12,484		8,016		2.29	%		1.57	%
Short-term borrowed funds		5,694		977		206		30		4.83	%		4.11	%
Long-term debt		29,222		29,257		1,001		1,000		4.58	%		4.57	%
Total interest-bearing liabilities		763,503		710,947		13,691		9,046		2.40	%		1.70	%
Net interest spread	$	294,262	$	273,465	$	26,412	$	24,089		2.71	%		2.84	%
Net interest margin (1) (% of earning assets)										3.38	%		3.32	%

(1)

Yields related to securities and loans exempt from income taxes are stated on a fully tax-equivalent basis, assuming a 21% effective tax rate.

Provision for Credit Losses

The provision for credit losses was $171,000 for the nine months ended September 30, 2024, compared to a provision of $985,000 for the same period in 2023. There were net loan charge-offs of $7,000 for the nine months ended September 30, 2024, as compared to net loan charge-offs of $572,000 during the same period of 2023. Refer to the Asset Quality section below for further information.

Noninterest Income

The Company places significant emphasis on diversification of revenue sources rather than relying solely upon interest income. Total noninterest income decreased by $103,000 for the nine-month period ended September 30, 2024, as compared to the same period in 2023. The primary factor contributing to the overall decline in noninterest income was a decrease of $241,000 in income from mortgage banking. This decrease is the result of a decline in the unclosed mortgage pipeline from December 31, 2023 to September 30, 2024.


	Nine Months Ended September 30,
	2024		2023
	(dollars in thousands)
Income from debit card transactions	$	1,739	$	1,710
Income from credit card transactions		524		507
Gross interchange and transaction fee income		2,263		2,217
Network costs - debit card		882		823
Network costs - credit card		504		484
Total	$	877	$	910

Noninterest Expense

Noninterest expense for the nine months ended September 30, 2024 increased by $1.2 million from the same period in 2023, to $23.5 million. Salaries and employee benefits contributed $1.0 million to the increase in noninterest expense due to salary increases and more commissions paid on increased mortgage production during the 2024 period.

Total other noninterest expense increased $111,000 for the nine months ended September 30, 2024, compared to the same period in 2023. The table below reflects the composition of other noninterest expense for the referenced periods.


	Nine Months Ended September 30,
	2024		2023
	(dollars in thousands)
Office supplies and printing	$	56	$	67
Franchise and other taxes		89		91
Employee education		107		110
Shareholder relations expense		144		132
Telephone and data lines		154		147
Postage		178		169
Director fees and expense		210		246
Dues and subscriptions		265		220
Other		666		576
Total	$	1,869	$	1,758

Income Tax Expense

The Company had income tax expense of $2.2 million for the nine months ended September 30, 2024 at an effective tax rate of 22.1% compared to income tax expense of $1.6 million with an effective tax rate of 20.3% in the comparable 2023 period. Income taxes computed at the statutory rate are primarily affected by the state income tax expense offset by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank-owned life insurance. For the nine months ended September 30, 2024, the effective tax rate increased due to the increase in interest expense disallowance resulting from compliance with the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”). The larger disallowance is due to greater projected interest expense for 2024 compared to 2023 and an adjustment in the TEFRA calculation to differentiate between bank qualified and non-bank qualified bonds.

Asset Quality

The Company’s allowance for credit losses on loans is established through charges to earnings in the form of a provision for credit losses. The allowance is increased by provisions charged to operations and recoveries of amounts previously charged off and is reduced by recovery of provisions and loans charged off. Management continuously evaluates the adequacy of the allowance for credit losses. In evaluating the adequacy of the allowance, management considers the following: the growth, composition and industry diversification of the portfolio; historical loan loss experience; current delinquency levels; adverse situations that may affect a borrower’s ability to repay; estimated value of any underlying collateral; prevailing economic conditions; and other relevant factors.

The allowance for credit losses on loans represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company’s credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loan’s credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrower’s risk grade accordingly.

The Company individually reviews loans with total relationship exposure greater than or equal to $100,000 that are determined to be collateral dependent. These collateral dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate. This evaluation is inherently subjective, as it requires material estimates, including internal and external appraisal services. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for credit losses on loans and may require additions for estimated losses based upon judgments different from those of management.

The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company
evaluates credit risk in the Consumer segment based upon consumer credit scores and collateral and the Commercial segment based
upon loan risk grade and collateral. The allowance for credit losses for each segment is calculated using a Non-Discounted Cash Flow methodology. Management uses a risk-grading program designed to evaluate the credit risk in the loan portfolio. In this program, risk grades are initially assigned by loan officers and then reviewed and monitored by credit administration. This process includes the maintenance of an internally classified loan list that is designed to help management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses on loans. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower’s ability to repay, the borrower’s payment history, and the current delinquent status.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

At September 30, 2024, the level of our individually assessed loans, which includes all loans in nonaccrual status with total relationship exposure of more than $100,000 of collateral dependency, was $285,000. The allowance for credit losses related to individually evaluated loans was $187,000 at September 30, 2024.

The allowance, expressed as a percentage of gross loans held for investment, decreased five basis points from 0.94% at December 31, 2023 to 0.89% at September 30, 2024. The primary driver of the reduction in allowance was the decline in the 10-Year T-Bill forecast which is utilized in the regression model for our probability of default forecast. The ratio of nonaccrual loans to total loans decreased from 0.19% at December 31, 2023 to 0.09% at September 30, 2024, and was related to the $543,000 decrease in nonaccrual loans. Four loans totaling $449,000 were paid off and one loan totaling $16,000 was removed from nonaccrual during the first nine months of 2024, offset by four loans totaling $204,000 that were converted to nonaccrual. Principal payments in the amount of $282,000 were received during the same period.

Other real estate owned was $141,000 at September 30, 2024 and December 31, 2023.

As of September 30, 2024, management believed the level of the allowance for credit losses on loans was appropriate in light of the risk inherent in the loan portfolio. While management believes that it uses the best information available to establish the allowance for credit losses on loans, future adjustments may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the Company’s loan portfolio, will not require an adjustment to the allowance for credit losses on loans. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance is adequate or that increases will not be necessary, should the quality of any loans deteriorate because of the factors discussed herein. Any material increase in the allowance for credit losses on loans may adversely affect the Company’s financial condition, results of operations and the value of its securities.

The following table shows the comparison of nonperforming assets at September 30, 2024 and December 31, 2023:

Nonperforming Assets

(dollars in thousands)


	September 30, 2024			December 31, 2023
	(dollars in thousands)
Nonperforming assets:
Accruing loans past due 90 days or more	$	—		$	—
Nonaccrual loans		558			1,101
Other real estate owned		141			141
Total nonperforming assets	$	699		$	1,242
Allowance for credit losses on loans	$	5,736		$	5,561
Nonaccrual loans to total loans		0.09	%		0.19	%
Allowance for credit losses on loans to total loans		0.89	%		0.94	%
Allowance for credit losses on loans to nonaccrual loans		1,028.91	%		504.90	%

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. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 42.2% of total deposits at September 30,

2024 and 36.5% of total deposits at December 31, 2023. The Company and its subsidiary bank have multiple funding sources, in addition to deposits, that can be used to increase liquidity and provide additional financial flexibility. At September 30, 2024, these sources were the subsidiary bank’s established federal funds lines with correspondent banks aggregating $38.0 million, with available credit of $38.0 million; an established borrowing relationship with the FHLB, with available credit of $136.3 million; and access to borrowings from the FRB discount window, with available credit of $29.0 million. The Company also has a $3.0 million line of credit with TIB The Independent BankersBank, N.A. The line is held by the holding company and is secured with 100% of the outstanding common shares of the Company’s subsidiary bank. As of September 30, 2024, $3.0 million remained available for use on the line of credit.

The following table summarizes the Company’s interest-earning cash and cash equivalents as of the periods indicated.


	September 30, 2024			December 31, 2023
	(dollars in thousands)
Interest-earning cash and cash equivalents		115,783			56,027
Interest-earning cash and cash equivalents as a percent of:
Total loans held for investment		17.9	%		9.5	%
Total earning assets		10.3	%		5.5	%
Total deposits		10.7	%		5.7	%

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.

The Company continues to maintain capital ratios that support its asset growth. The federal bank regulatory agencies have implemented regulatory capital rules known as “Basel III.” The Basel III rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, a minimum ratio of total capital to risk-weighted assets of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. There is also a capital conservation buffer that requires banks to hold common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.5% to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees. The Company’s accumulated other comprehensive income or loss, resulting from unrealized gains and losses, net of income tax, on investment securities available for sale, is excluded from regulatory capital.

As of September 30, 2024, the Company’s subsidiary bank continued to exceed minimum capital standards and remained well-capitalized under the applicable rules.

The Company’s subsidiary bank has a net total of $10.7 million in outstanding Fixed Rate Noncumulative Perpetual Preferred Stock. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30%. The net total of $10.7 million is presented as noncontrolling interest at the Company level and qualifies as Tier 1 capital at the Company. At September 30, 2024, the Company had $29.1 million, net of unamortized debt issuance costs, in subordinated debt outstanding, of which $27.2 million qualifies as Tier 2 capital at the Company level. The Company has made all interest and dividend payments in a timely manner.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements include transactions, agreements or other contractual arrangements to which an unconsolidated entity of the Company is a party and pursuant to which the Company has obligations, including an obligation to provide guarantees on behalf of an unconsolidated entity, or retains an interest in assets transferred to an unconsolidated entity. We currently have no off-balance sheet arrangements of this kind.

Derivative financial instruments include futures contracts, forward contracts, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in significant derivative activities through September 30, 2024, with the exception of mortgage banking derivatives. See Note 12 (Mortgage Banking Derivatives) to the Company’s Notes to Consolidated Financial Statements for additional discussion of mortgage banking derivatives.

Contractual Obligations

The timing and amount of our contractual obligations has not changed materially since our 2023 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 6, 2024.

Item 3. Quantitative and Qualitat ive Disclosures About Market Risk.

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

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.

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 third quarter of 2024. 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 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. Ri sk Factors.

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

Item 2. Unregistered Sales of Equi ty 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 September 30, 2024.


	(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 (in thousands) of Shares that May Yet Be Purchased Under the Plans
July 1, 2024 Through July 31, 2024		43,297	$	7.97		—	$	—
August 1, 2024 Through August 31, 2024		16,444	$	7.80		—	$	—
September 1, 2024 Through September 30, 2024		44,513	$	7.92		—	$	—
Total		104,254	$	7.92		—	$	—

(1)

Trades of the Company’s common stock are quoted on the OTCQX 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 Upo n Senior Securities.

None.

Item 4. Mine Safe ty Disclosures.

Not applicable.

Item 5. Ot her Information.

None .

Item 6. Exhibits.

Set forth below is the exhibit index for this quarterly report:


Exhibit Number		Description of Exhibit

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 (furnished herewith)
101		Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024, in inline XBRL (eXtensible Business Reporting Language) (filed herewith)
104		Cover page interactive data file (formatted in inline XBRL and contained in Exhibit 101)

Signat ures

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:	November 5, 2024	By:	/s/ Roger L. Dick
		Roger L. Dick
		President and Chief Executive Officer

Date:	November 5, 2024	By:	/s/ Heather H. Almond
		Heather H. Almond
		Principal Financial Officer

TABLE OF CONTENTS

Part I Item 1. Financial Statements Item 1. Financ Note 1 Basis Of Presentation Note 2 Comprehensive Income (loss)Note 3 Noncontrolling Interest Note 4 Per Share Data Note 5 Investment and Equity Securities Note 6 Loans Held For Investment Note 7 Allowance For Credit Losses on Loans Note 8 - Leases Note 9 - Commitments and Contingencies Note 10 Fair Value Disclosures Note 11 Fair Values Of Financial Instruments Note 12 Mortgage Banking Derivatives Note 13 Short-term Borrowed Funds Note 14 Recent Accounting Pronouncements and Other Changes Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 2. Management S Discussion and Analysis Of Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 3. Quantitative and Qualitat Item 4. Controls and Procedures Item 4. Controls Part II. Other Information Part II. Other Item 1. Legal Proceedings Item 1. Legal Item 1A. Risk Factors Item 1A. Ri Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 2. Unregistered Sales Of Equi Item 3. Defaults Upon Senior Securities Item 3. Defaults Upo Item 4. Mine Safety Disclosures Item 4. Mine Safe Item 5. Other Information Item 5. Ot Item 6. Exhibits

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 (furnished herewith)

September 30, 2024

Valuation Technique

Unobservable Input

General
Range

Nonrecurring measurements:

Individually evaluated loans

Discounted appraisals

Collateral discounts and estimated costs to sell