Uwharrie Capital Corp.
03/05/2026 | Press release | Distributed by Public on 03/05/2026 12:38
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis ofFinancial Condition and Results of Operations.
A discussion and analysis of the Company's operating results and financial condition are presented in the following narrative and financial tables. This discussion is intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto appearing on pages 31through 69of this Annual Report. References to changes in assets and liabilities represent end-of-period balances unless otherwise noted. Statements contained in this Annual Report, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary because of market and other factors. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents periodically filed by the Company with the SEC. Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "should," "might," "planned," "estimated," "potential," and similar words. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, results of operations and business of the Company that are subject to various factors, which could cause actual results to differ materially from these estimates. These factors include, but are not limited to: increases in our past due loans and provision for credit losses that may result from local and/or broader economic effects, including constraints on the availability of credit that may impact our borrowers; declines in general economic conditions, including increased stress in the financial markets; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products and services. Any use of "we" or "our" in the following discussion refers to the Company on a consolidated basis.
Financial Condition at December 31, 2025 and December 31, 2024
The Company's total assets increased $67.5 million from $1.13 billion at December 31, 2024 to $1.20 billion at December 31, 2025. Cash and cash equivalents increased $21.1 million during the same period as a result of growth in customer deposits.
Investment securities consist of securities available for sale and securities held to maturity. Total investment securities increased $20.0 million, or 5.5%, from $359.7 million at December 31, 2024 to $379.7 million at December 31, 2025. At December 31, 2025, the Company had net unrealized losses on securities available for sale of $21.5 million, compared to net unrealized losses of $32.1 million at December 31, 2024. The allowance for credit losses on securities held to maturity was $68,000 at December 31, 2024. During 2025, a recovery of $23,000 was recorded against the allowance for credit losses on securities held to maturity bringing the balance to $45,000, with an amortized cost basis of $22.0 million, at December 31, 2025.
During 2025, the unrealized gain on equity securities decreased by $31,000, resulting in a fair value of $303,000 at December 31, 2025, compared to a fair value of $334,000 at December 31, 2024.
Loans held for sale increased $4.5 million from December 31, 2024 to $9.0 million at December 31, 2025. Loans held for investment increased $23.2 million, or 3.5%, from $666.4 million at December 31, 2024 to $689.6 million at December 31, 2025. The Company experienced net growth in all loan sectors with the exception of loans categorized as "Real Estate 1-4 Family Construction," "Consumer," and "Commercial - Other".
The allowance for credit losses on loans was $5.8 million at December 31, 2024, which represented 0.87% of the total loans held for investment. At December 31, 2025, the allowance for credit losses on loans was $6.4 million, or 0.93% of total loans held for investment. Additional discussion regarding the allowance is included in the Asset Quality section below.
Other changes in the Company's consolidated assets are primarily related to deferred tax assets, which decreased $2.1 million from $9.0 million at December 31, 2024 to $6.8 million at December 31, 2025 as a result of the improvement in fair value of the available for sale securities portfolio. Annual Company contributions, supplemented by positive market adjustments, increased the balance of supplemental executive retirement plans ("SERPs"), included in Other Assets, by $855,000 during 2025. Also included in Other Assets, accounts receivable increased $376,000 during the same period as a result of larger payments receivable on U.S. government agency securities.
Customer deposits, our primary funding source, experienced a $50.5 million increase during the year, increasing from $1.03 billion to $1.08 billion at December 31, 2025, a 4.9% increase. The overall increase in deposits is attributable to organic deposit growth. During 2025, demand noninterest-bearing checking accounts decreased $2.8 million and interest checking and money market accounts increased $26.3 million. Savings deposits increased $12.1 million and time deposits increased $14.9 million during the twelve-month period ended December 31, 2025.
Borrowings consist of both short-term and long-term borrowed funds. The Company has access to both short-term and long-term advances from the Federal Home Loan Bank. At December 31, 2025 and 2024, there were no outstanding Federal Home Loan Bank advances. During 2025, the Company's net borrowings decreased by $1.5 million due to the closing of a master note account that carried a balance of $1.1 million. Short-term borrowings consisted of $25,000 in master notes, and long-term borrowings consisted solely of junior subordinated debt securities totaling $29.0 million, net of unamortized debt issuance costs of $154,000, at December 31, 2025.
Other changes in the Company's liabilities are related to an increase of $558,000 in other liabilities from December 31, 2024 to December 31, 2025 resulting primarily from an increase in SERP balances, which increased $855,000 for the year. This increase was largely offset by a decrease of $428,000 in lease liability as leases approach expiration.
At December 31, 2025, total shareholders' equity was $75.6 million, an increase of $17.9 million from December 31, 2024. Net income for the year ended December 31, 2025 was $11.4 million. Improvement in the unrealized loss position on our available for sale securities portfolio contributed $8.2 million to the increase in shareholders' equity during the same period. During the twelve-month period ended December 31, 2025, the Company repurchased 110,939 shares of common stock at a total cost of $1.1 million, and the Company paid $565,000 in dividends attributable to noncontrolling interest. See Note 1 (Significant Accounting Policies) to the Company's Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest. At December 31, 2025, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.
Results of Operations for the Years Ended December 31, 2025 and 2024
Net Income and Net Income Available to Common Shareholders
Uwharrie Capital Corp reported net income of $11.4 million for the twelve months ended December 31, 2025, compared to $9.9 million for the twelve months ended December 31, 2024, an increase of $1.4 million. Net income available to common shareholders was $10.8 million, or $1.49 per common share, for the year ended December 31, 2025, compared to net income available to common shareholders of $9.3 million, or $1.26 per common share, for the year ended December 31, 2024. Net income available to common shareholders is net income less any dividends paid on the aforementioned noncontrolling interest.
Net Interest Income
As with most financial institutions, the primary component of earnings for our subsidiary bank is net interest income. Net interest income is the difference between interest income, principally from the loan and investment securities portfolios, and interest expense, principally on customer deposits and wholesale borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as levels of noninterest bearing liabilities and capital.
Net interest income increased $2.9 million to a total of $38.9 million for the twelve months ended December 31, 2025 from the $35.9 million reported for the comparative period in 2024. The average yield on our interest-earning assets increased 4 basis points to 5.19%, while the average rate paid for interest-bearing liabilities decreased 10 basis points to 2.33%. These changes resulted in a net increase of 13 basis points in our interest rate spread, from 2.73% in 2024 to 2.86% in 2025. Our net interest margin for 2025 was 3.50%, compared to 3.40% in 2024. As a part of the loan agreements, a portion of the Company's loan portfolio has interest rate floors and caps. The interest rate floor feature allows the Company to maintain a more favorable interest margin despite a decline in rates; however, the interest rate cap could hurt the margin in a rising rate environment. Financial Table 1 presents a detailed analysis of the components of the Company's net interest income, while Financial Table 2 summarizes the effects on net interest income from changes in interest rates and in the dollar volume of the components of interest-earning assets and interest-bearing liabilities. Financial Table 1 and Table 2, as well other Financial Tables referenced here appear at the end of this discussion and analysis.
Provision for Credit Losses
The net provision for credit losses was $726,000 for the twelve months ended December 31, 2025, compared to a net provision of $528,000 for the same period in 2024. There were net loan charge-offs of $160,000 for the twelve months ended December 31, 2025, as compared to net loan charge-offs of $270,000 during the same period of 2024. Refer to the Asset Quality section below for further information.
Noninterest Income
The Company generates most of its revenue from net interest income; however, diversification of our revenue sources is a key strategic initiative to our long-term success. Noninterest income increased 15.6%, from $9.7 million in 2024, to $11.3 million in 2025, an increase of $1.5 million. This improvement is primarily related to an increase of $1.1 million in income from mortgage banking, driven by increased mortgage production during 2025. Positive market value adjustments on supplemental executive retirement plans totaling $293,000 and an increase of $325,000 in other service fees and commissions also contributed to the overall increase.
Noninterest Expense
Noninterest expense for the year ended December 31, 2025 was $34.8 million compared to $32.4 million for 2024, an increase of $2.4 million. Salaries and employee benefits, the largest component of noninterest expense, increased $1.6 million, from $20.8 million for the twelve months ended December 31, 2024 to $22.4 million for the twelve months ended December 31, 2025 due to wage increases and more commissions paid on greater mortgage production during 2025. Additionally, positive market value adjustments on supplemental executive retirement plans contributed $293,000 to the increase in noninterest expense. Financial Table 5 reflects the additional breakdown of other noninterest expense.
Income Tax Expense
The Company had income tax expense of $3.3 million for 2025 at an effective tax rate of 22.26% compared to income tax expense of $2.9 million for 2024 with an effective tax rate of 22.35%. The year-over-year decrease in the effective tax rate is due, in part, to a $44,000 charge to income tax expense during 2025, compared to a charge of $63,000 during the twelve-month period ended December 31, 2024, as a result of revaluing the North Carolina deferred tax asset for unrealized losses on the available for sale securities portfolio. Income taxes computed at the statutory rate are affected primarily by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank owned life insurance.
Results of Operations for the Years Ended December 31, 2024 and 2023
Results of operations for the years ended December 31, 2024 and 2023 can be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 6, 2025.
Asset Quality
The Company's allowance for credit losses on loans is established through charges to earnings in the form of a provision for credit losses. The allowance is increased by provisions charged to operations and recoveries of amounts previously charged off and is reduced by recovery of provisions and loans charged off. Management continuously evaluates the adequacy of the allowance for credit losses. In evaluating the adequacy of the allowance, management considers the following: the growth, composition and industry diversification of the portfolio; historical loan loss experience; current delinquency levels; adverse situations that may affect a borrower's ability to repay; estimated value of any underlying collateral; prevailing economic conditions; and other relevant factors.
The allowance for credit losses on loans represents management's estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company's credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loan's credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrower's risk grade accordingly.
Previously, the Company individually reviewed loans that do not share the same risk characteristics as other loans and were determined to be collateral dependent. Beginning in the last quarter of 2025, the Company expanded its individual review process to include loans that do not share the same risk characteristics as loans in the collectively assessed population, regardless of collateral dependence. Individually assessed loans determined to be collateral dependent are evaluated based on the fair value of the underlying collateral, as repayment is expected to be derived through the operation or sale of the collateral. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are measured using the fair value of collateral at the reporting date, adjusted for selling costs as appropriate. Loans that are not deemed collateral dependent are assigned a probability of default based on default history. If the loan has defaulted, it will be assigned a 100% probability of default; otherwise, it will be assigned a probability of default based on the Company's historical experience, which is higher than the forecasted probability of default applied in the collectively assessed portfolio. This evaluation is inherently subjective, as it requires material estimates, including internal and external appraisal services. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for credit 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 December 31, 2025, the level of our individually evaluated loans was $5.0 million, and the allowance for credit losses related to individually evaluated loans was $179,000. The allowance, expressed as a percentage of gross loans held for investment, increased six basis points from 0.87% at December 31, 2024 to 0.93% at December 31, 2025. During the second quarter of 2025, the Company implemented a change in estimate of the allowance model which altered the allocation of these percentages between the collectively assessed population and qualitative factors. The collectively assessed portion decreased from 0.75% at December 31, 2024 to 0.53% at December 31, 2025, and the qualitative factors portion increased from 0.12% to 0.40% over the same period. The ratio of nonaccrual loans to total loans increased from 0.03% at December 31, 2024 to 0.05% at December 31, 2025, and was related to the $185,000 increase in nonaccrual loans. Four loans totaling $360,000 were converted to nonaccrual during 2025. These additions were offset by paydowns of $46,000, two loans that were charged off for $88,000, and one loan totaling $40,000 that was moved to other real estate owned and the underlying collateral was subsequently sold.
The Company held no other real estate owned at December 31, 2025 and December 31, 2024.
As of December 31, 2025, management believed the level of the allowance for credit losses on loans was appropriate in light of the risk inherent in the loan portfolio. While management believes that it uses the best information available to establish the allowance for credit losses on loans, future adjustments may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the Company's loan portfolio, will not require an adjustment to the allowance for credit losses on loans. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance is adequate or that increases will not be necessary, should the quality of any loans deteriorate because of the factors discussed herein. Any material increase in the allowance for credit losses on loans may adversely affect the Company's financial condition, results of operations and the value of its securities.
The following table shows the comparison of nonperforming assets as of December 31, 2025 and 2024:
|
Nonperforming Assets |
||||||||
|
(dollars in thousands) |
||||||||
|
At December 31, |
||||||||
|
2025 |
2024 |
|||||||
|
Nonperforming Assets: |
||||||||
|
Accruing loans past due 90 days or more |
$ |
- |
$ |
- |
||||
|
Nonaccrual loans |
378 |
192 |
||||||
|
Other real estate owned |
- |
- |
||||||
|
Total nonperforming assets |
$ |
378 |
$ |
192 |
||||
|
Allowance for credit losses on loans |
$ |
6,420 |
$ |
5,824 |
||||
|
Nonaccrual loans to total loans |
0.05 |
% |
0.03 |
% |
||||
|
Allowance for credit losses on loans to total loans |
0.93 |
% |
0.87 |
% |
||||
|
Allowance for credit losses on loans to nonaccrual loans |
1698.41 |
% |
3033.33 |
% |
||||
Capital Resources
The Company continues to maintain capital ratios intended to support its asset growth. The federal bank regulatory agencies have implemented regulatory capital rules known as "Basel III." The Basel III rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, a minimum ratio of total capital to risk-weighted assets of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. There is also a capital conservation buffer that requires banks to hold common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.5% to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees. The Company's accumulated other comprehensive income or loss, resulting from unrealized gains and losses, net of income tax, on investment securities available for sale, is excluded from regulatory capital.
Pursuant to the Federal Reserve's Small Bank Holding Company Policy Statement, the Company is exempt from Basel III. As of December 31, 2025, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under applicable capital adequacy rules.
In 2013, the Company's subsidiary bank issued a total of $10.7 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at a rate of 5.30%. The offering raised $10.7 million less issuance costs of $136,000. The preferred stock has no voting rights.
During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $1,000 per security with a required minimum investment of $50,000. The offering raised $10.0 million, of which $9.5 million was outstanding at December 31, 2025. These securities have a final maturity date of September 30, 2029 and became redeemable by the Company on September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. All proceeds of this private placement qualify as and are included in the calculation of Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. At December 31, 2025, $5.7 million of the subordinated debt issued in 2019 qualifies as Tier 2 capital.
During the third quarter of 2021, the Company issued $12.0 million and $8.0 million of 10-year and 15-year fixed-to-floating rate subordinated debt securities, respectively. At December 31, 2025, $11.8 million and $8.0 million remained outstanding of the 10-year and 15-year subordinated notes, respectively. The 10-year subordinated notes mature on September 3, 2031, though they are redeemable at the Company's option on or after September 3, 2026, and initially pay interest quarterly at an annual rate of 3.5%. From and including September 3, 2026 to but excluding September 3, 2031, or up to any early redemption date, the interest rate on the 10-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month secured overnight financing rate ("SOFR") plus 283 basis points payable quarterly in arrears. The 15-year subordinated notes mature on September 3, 2036, though they are redeemable at the Company's option on or after September 3, 2031, and initially pay interest quarterly at an annual rate of 4.0%. From and including September 3, 2031 to but excluding September 3, 2036, or up to any early redemption date, the interest rate on the 15-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month SOFR plus 292 basis points payable quarterly in arrears. The subordinated debt has been structured to qualify as and is included in the calculation of the Company's Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 3, 2026 and September 3, 2031 for the 10-year and 15-year subordinated notes, respectively.
Proceeds of the Company's aforementioned securities that have been invested in its subsidiary bank qualify for Tier 1 capital treatment for the Bank and are included as such in its year end capital ratios.
The Company expects to continue to exceed required minimum capital ratios without altering current operations or strategy. Note 14 (Shareholders' Equity and Regulatory Matters) to the Notes to Consolidated Financial Statements presents additional information regarding the Company's and its subsidiary bank's capital ratios.
Dividends
The Board of Directors of Uwharrie Capital Corp declared a 3.0% stock dividend in 2025 and a 2.0% stock dividend in 2024 and 2023. All references in this Annual Report to net income per share and weighted average common and common equivalent shares outstanding reflect the effects of these stock dividends.
Liquidity
The objective of the Company's liquidity management policy is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on any opportunities for expansion. Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature and to fund new loans and investments as opportunities arise. Liquidity is managed primarily by the selection of asset mix and the maturity mix of liabilities. The Company's primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flows generated by investments. Maturities and the marketability of securities provide a source of liquidity to meet deposit fluctuations. Maturities of the securities portfolio are presented in Financial Table 3. Growth in deposits is typically the primary source of funds for loan growth. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 40.5% and 38.8% of total deposits at December 31, 2025 and 2024, respectively.
The Company and its subsidiary bank have multiple funding sources, in addition to deposits, that can be used to increase liquidity and provide additional financial flexibility. At December 31, 2025, these sources are the subsidiary bank's established federal funds lines with correspondent banks aggregating $38.0 million, with available credit of $38.0 million; an established borrowing relationship with the Federal Home Loan Bank, with available credit of $162.2 million; and access to borrowings from the Federal Reserve Bank discount window, with available credit of $33.8 million. The Company also has a $3.0 million line of credit with TIB The Independent BankersBank, N.A. The line is held by the holding company and is secured with 100% of the outstanding common shares of the Company's subsidiary bank. As of December 31, 2025, $3.0 million remains available for use on the line of credit.
The following table summarizes the Company's interest-earning cash and cash equivalents as of the periods indicated.
|
December 31, 2025 |
December 31, 2024 |
|||||||
|
(dollars in thousands) |
||||||||
|
Interest-earning cash and cash equivalents |
$ |
59,289 |
$ |
42,554 |
||||
|
Interest-earning cash and cash equivalents as a percent of: |
||||||||
|
Total loans held for investment |
8.6 |
% |
6.4 |
% |
||||
|
Total earning assets |
5.2 |
% |
4.0 |
% |
||||
|
Total deposits |
5.5 |
% |
4.1 |
% |
||||
At December 31, 2025, short-term borrowings totaled $25,000. Long-term debt at that date consisted solely of $29.0 million of junior subordinated debt, net of issuance costs. Other contractual obligations of the Company exist in the form of operating leases and deposits. Obligations for operating leases and deposits totaled $768,000 and $1.1 billion, respectively, at December 31, 2025. Note 7 (Leases) and Note 8 (Deposits) to the Notes to Consolidated Financial Statements provide additional information, including maturities, regarding these obligations.
The Company has various financial instruments (outstanding commitments) with off-balance sheet risk that are issued in the normal course of business to meet the financing needs of its customers. See Note 12 (Commitments and Contingencies) to the Company's Notes to Consolidated Financial Statements for more information regarding these commitments and contingent liabilities.
Management believes that the Company's current sources of funds provide adequate liquidity for its current cash flow needs.
Critical Accounting Policies
A critical accounting policy is one that is both very important to the portrayal of the Company's financial condition and results, and requires management's most difficult, subjective and/or complex judgments. What makes these judgments difficult, subjective and/or complex is the need to make estimates about the effects of matters that are inherently uncertain. Refer to Note 1 (Significant Accounting Policies) in Notes to Consolidated Financial Statements for more information about these and other accounting policies utilized by the Company.
Allowance for Credit Losses
The allowance for credit losses represents management's estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance is a critical accounting estimate in the financial statements as it provides, by reference, an indication of the quality of the loan portfolio. Estimating credit losses is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Additional measurement uncertainty in the estimate is due, in part, to the large amount of data evaluated, the long-term nature of the underlying assets and the analysis of economic indicators. Regulatory examiners may require the Company to
recognize adjustments to the allowance for credit losses based on their judgment about information available to them at the time of their assessment.
On a regular basis, the allowance for credit losses is evaluated both individually and collectively by loan segments. The Company measures expected credit losses for loans on a collective basis when similar risk characteristics exist. However, loans that do not share the same risk characteristics as loans in the collectively assessed population are individually reviewed. Appropriately dividing the loan portfolio into different segments with similar risk characteristics aids in providing a more accurate estimation of the portfolio's expected credit losses. The Company's methodology for estimating lifetime credit losses is well documented and supported by internal controls, and validation of the process is performed on a recurring basis.
Interest Rate Sensitivity
Net Interest Income ("Margin") is the single largest component of revenue for the Company. Margin is the difference between the yield on earning assets and interest paid on interest-bearing liabilities. Margin can vary over time as interest rates change. The variance fluctuates based on both the timing (repricing) and magnitude of maturing assets and liabilities.
To identify interest rate sensitivity, a common measure is a gap analysis, which reflects the difference or "gap" between rate sensitive assets and liabilities over various periods. While management reviews this information, it has implemented the use of an income simulation model, which calculates expected future Margin based on projected interest-earning assets, interest-bearing liabilities and forecasted interest rates along with multiple other forecasted assumptions. Management believes this provides a more relevant view of interest rate risk sensitivity than the traditional gap analysis because the gap analysis ignores optionality embedded in the balance sheet, such as prepayments or changes based on interest rates. The income simulation model allows a comparison of flat, rising and falling rate scenarios to determine the interest rate sensitivity of earnings in varying interest rate environments.
The Company models immediate rising and declining rate shocks of up to 4% (in 1% intervals) on its subsidiary bank, using a static balance sheet for a two-year horizon, as preferred by regulators. The most recent consolidated 2% rate shock projections for a one-year horizon indicates a negative impact of 9.19% on Margin in a rates-down scenario and a positive impact of 0.92% in a rates-up scenario. Based on the most recent twelve-month forecast, the subsidiary bank is more asset-sensitive and may experience some negative impact to earnings should interest rates decrease. The Bank has the potential to benefit from an increasing interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the potential benefit.
The principal goals for asset liability management for the Company are to maintain adequate levels and sources of liquidity and to manage interest rate risk. Interest rate risk management attempts to balance the effects of interest rate changes on both interest-sensitive assets and interest-sensitive liabilities to protect Margin from wide fluctuations as a result of changes in market interest rates. To that end, management has recommended and the Board of Directors has approved policy limits that minimize the downside risk from interest rate shifts. The aforementioned ratios are within those stated limits of -18% for the respective modeled scenarios at the subsidiary bank and combined. Managing interest rate risk is an important factor to the long-term viability of the Company since Margin is such a large component of earnings. The Company's Asset Liability Management Committee (ALCO) monitors market changes in interest rates and assists with the pricing of loans and deposit products while considering funding source needs, asset growth projections, and necessary operating liquidity.
Financial Table 1
Average Balances and Net Interest Income Analysis
|
2025 |
2024 |
2023 |
||||||||||||||||||||||||||||||||||
|
Interest |
Average |
Interest |
Average |
Interest |
Average |
|||||||||||||||||||||||||||||||
|
Average |
Income/ |
Yield/ |
Average |
Income/ |
Yield/ |
Average |
Income |
Yield |
||||||||||||||||||||||||||||
|
(dollars in thousands) |
Balance |
Expense |
Rate (1) |
Balance |
Expense |
Rate (1) |
Balance |
Expense |
Rate (1) |
|||||||||||||||||||||||||||
|
Interest-earning assets |
||||||||||||||||||||||||||||||||||||
|
Taxable securities |
$ |
309,129 |
$ |
11,487 |
3.72 |
% |
$ |
308,335 |
$ |
11,866 |
3.85 |
% |
$ |
297,662 |
$ |
10,743 |
3.61 |
% |
||||||||||||||||||
|
Non-taxable securities (1) |
60,365 |
1,319 |
2.81 |
% |
57,719 |
1,234 |
2.74 |
% |
60,041 |
1,324 |
2.76 |
% |
||||||||||||||||||||||||
|
Short-term investments |
72,179 |
2,765 |
3.83 |
% |
69,986 |
3,231 |
4.62 |
% |
89,839 |
4,131 |
4.60 |
% |
||||||||||||||||||||||||
|
Equity Securities |
326 |
20 |
6.13 |
% |
331 |
20 |
6.04 |
% |
305 |
20 |
6.56 |
% |
||||||||||||||||||||||||
|
Taxable loans (2) |
665,916 |
41,712 |
6.26 |
% |
617,726 |
37,838 |
6.13 |
% |
531,211 |
29,159 |
5.49 |
% |
||||||||||||||||||||||||
|
Non-taxable loans (1) |
15,636 |
517 |
4.25 |
% |
16,970 |
534 |
4.03 |
% |
13,964 |
342 |
3.07 |
% |
||||||||||||||||||||||||
|
Total interest-earning assets |
1,123,551 |
57,820 |
5.19 |
% |
1,071,067 |
54,723 |
5.15 |
% |
993,022 |
45,719 |
4.65 |
% |
||||||||||||||||||||||||
|
Non-earning assets |
||||||||||||||||||||||||||||||||||||
|
Cash and due from banks |
7,105 |
7,307 |
7,418 |
|||||||||||||||||||||||||||||||||
|
Premises and equipment, net |
14,310 |
14,790 |
14,967 |
|||||||||||||||||||||||||||||||||
|
Interest receivable and other |
30,237 |
30,418 |
32,323 |
|||||||||||||||||||||||||||||||||
|
Total non-earning assets |
51,652 |
52,515 |
54,708 |
|||||||||||||||||||||||||||||||||
|
Total assets |
$ |
1,175,203 |
$ |
1,123,582 |
$ |
1,047,730 |
||||||||||||||||||||||||||||||
|
Interest-bearing liabilities |
||||||||||||||||||||||||||||||||||||
|
Savings deposits |
$ |
98,316 |
$ |
602 |
0.61 |
% |
$ |
96,778 |
$ |
550 |
0.57 |
% |
$ |
100,945 |
$ |
434 |
0.43 |
% |
||||||||||||||||||
|
Interest checking & MMDA |
409,587 |
6,650 |
1.62 |
% |
405,444 |
6,724 |
1.66 |
% |
440,087 |
6,124 |
1.39 |
% |
||||||||||||||||||||||||
|
Time deposits |
276,677 |
10,378 |
3.75 |
% |
238,576 |
9,977 |
4.18 |
% |
147,218 |
5,088 |
3.46 |
% |
||||||||||||||||||||||||
|
Total deposits |
784,580 |
17,630 |
2.25 |
% |
740,798 |
17,251 |
2.33 |
% |
688,250 |
11,646 |
1.69 |
% |
||||||||||||||||||||||||
|
Short-term borrowed funds |
698 |
25 |
3.58 |
% |
4,618 |
220 |
4.76 |
% |
1,077 |
46 |
4.27 |
% |
||||||||||||||||||||||||
|
Long-term debt |
29,177 |
1,313 |
4.50 |
% |
29,205 |
1,327 |
4.54 |
% |
29,216 |
1,331 |
4.56 |
% |
||||||||||||||||||||||||
|
Total interest-bearing liabilities |
814,455 |
18,968 |
2.33 |
% |
774,621 |
18,798 |
2.43 |
% |
718,543 |
13,023 |
1.81 |
% |
||||||||||||||||||||||||
|
Noninterest liabilities |
||||||||||||||||||||||||||||||||||||
|
Transaction deposits |
283,357 |
284,384 |
276,960 |
|||||||||||||||||||||||||||||||||
|
Interest payable and other |
11,151 |
11,503 |
11,902 |
|||||||||||||||||||||||||||||||||
|
Total liabilities |
1,108,963 |
1,070,508 |
1,007,405 |
|||||||||||||||||||||||||||||||||
|
Shareholders' equity |
66,240 |
53,074 |
40,325 |
|||||||||||||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
1,175,203 |
$ |
1,123,582 |
$ |
1,047,730 |
||||||||||||||||||||||||||||||
|
Interest rate spread |
2.86 |
% |
2.73 |
% |
2.84 |
% |
||||||||||||||||||||||||||||||
|
Net interest income and net |
$ |
38,852 |
3.50 |
% |
$ |
35,925 |
3.40 |
% |
$ |
32,696 |
3.34 |
% |
||||||||||||||||||||||||
(1)Yields related to securities and loans exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2025, 2024 and 2023.
(2)Nonaccrual loans are included in loans, net of unearned income.
Financial Table 2
Volume and Rate Variance Analysis
|
2025 Versus 2024 |
2024 Versus 2023 |
|||||||||||||||||||||||
|
Net |
Net |
|||||||||||||||||||||||
|
(dollars in thousands) |
Volume |
Rate |
Change |
Volume |
Rate |
Change |
||||||||||||||||||
|
Interest-earning assets |
||||||||||||||||||||||||
|
Taxable securities |
$ |
30 |
$ |
(409 |
) |
$ |
(379 |
) |
$ |
398 |
$ |
725 |
$ |
1,123 |
||||||||||
|
Non-taxable securities |
57 |
28 |
85 |
(50 |
) |
(40 |
) |
(90 |
) |
|||||||||||||||
|
Short-term investments |
93 |
(559 |
) |
(466 |
) |
(915 |
) |
15 |
(900 |
) |
||||||||||||||
|
Equity securities |
- |
- |
- |
2 |
(2 |
) |
- |
|||||||||||||||||
|
Taxable loans |
2,985 |
889 |
3,874 |
5,024 |
3,655 |
8,679 |
||||||||||||||||||
|
Non-taxable loans |
(43 |
) |
26 |
(17 |
) |
84 |
108 |
192 |
||||||||||||||||
|
Total interest-earning assets |
3,122 |
(25 |
) |
3,097 |
4,543 |
4,461 |
9,004 |
|||||||||||||||||
|
Interest-bearing liabilities |
||||||||||||||||||||||||
|
Savings deposits |
9 |
43 |
52 |
(21 |
) |
137 |
116 |
|||||||||||||||||
|
Transaction and MMDA deposits |
68 |
(142 |
) |
(74 |
) |
(528 |
) |
1,128 |
600 |
|||||||||||||||
|
Other time deposits |
1,511 |
(1,110 |
) |
401 |
3,489 |
1,400 |
4,889 |
|||||||||||||||||
|
Short-term borrowed funds |
(164 |
) |
(31 |
) |
(195 |
) |
160 |
14 |
174 |
|||||||||||||||
|
Long-term debt |
(1 |
) |
(13 |
) |
(14 |
) |
(1 |
) |
(3 |
) |
(4 |
) |
||||||||||||
|
Total interest-bearing liabilities |
1,423 |
(1,253 |
) |
170 |
3,099 |
2,676 |
5,775 |
|||||||||||||||||
|
Net interest income |
$ |
1,699 |
$ |
1,228 |
$ |
2,927 |
$ |
1,444 |
$ |
1,785 |
$ |
3,229 |
||||||||||||
The above table analyzes the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to volume (changes in volume multiplied by the prior period's rate), (ii) changes attributable to rate (changes in rate multiplied by the prior period's volume), and (iii) net change (the sum of the previous columns). The change attributable to both rate and volume (changes in rate multiplied by changes in volume) has been allocated equally to the change attributable to volume and the change attributable to rate.
Financial Table 3
Weighted Average Yield on Investment Securities
|
December 31, 2025 |
December 31, 2024 |
|||||||
|
Weighted |
Weighted |
|||||||
|
Average Yield (1) |
Average Yield (1) |
|||||||
|
Securities available for sale |
||||||||
|
U.S. Treasury |
||||||||
|
Due within twelve months |
- |
2.02 |
% |
|||||
|
Due after one but within five years |
1.24 |
% |
1.24 |
% |
||||
|
1.24 |
% |
1.41 |
% |
|||||
|
U.S. Government agencies |
||||||||
|
Due within twelve months |
1.82 |
% |
- |
|||||
|
Due after one but within five years |
3.35 |
% |
3.53 |
% |
||||
|
Due after five but within ten years |
4.74 |
% |
5.34 |
% |
||||
|
Due after ten years |
4.60 |
% |
5.21 |
% |
||||
|
4.50 |
% |
4.98 |
% |
|||||
|
Mortgage-backed securities |
||||||||
|
Due within twelve months |
2.43 |
% |
6.94 |
% |
||||
|
Due after one but within five years |
1.78 |
% |
1.79 |
% |
||||
|
Due after five but within ten years |
2.08 |
% |
2.04 |
% |
||||
|
Due after ten years |
3.97 |
% |
3.77 |
% |
||||
|
3.51 |
% |
3.30 |
% |
|||||
|
Asset-backed securities |
||||||||
|
Due after ten years |
5.53 |
% |
6.29 |
% |
||||
|
5.53 |
% |
6.29 |
% |
|||||
|
State and political |
||||||||
|
Due within twelve months |
5.75 |
% |
5.62 |
% |
||||
|
Due after one but within five years |
3.88 |
% |
3.27 |
% |
||||
|
Due after five but within ten years |
1.87 |
% |
2.04 |
% |
||||
|
Due after ten years |
2.60 |
% |
2.25 |
% |
||||
|
2.48 |
% |
2.23 |
% |
|||||
|
Corporate Bonds |
||||||||
|
Due within twelve months |
1.05 |
% |
5.71 |
% |
||||
|
Due after one but within five years |
4.00 |
% |
2.53 |
% |
||||
|
2.53 |
% |
3.59 |
% |
|||||
|
Total Securities available for sale |
||||||||
|
Due within twelve months |
1.43 |
% |
3.18 |
% |
||||
|
Due after one but within five years |
1.91 |
% |
1.84 |
% |
||||
|
Due after five but within ten years |
2.73 |
% |
2.53 |
% |
||||
|
Due after ten years |
3.79 |
% |
3.77 |
% |
||||
|
3.30 |
% |
3.24 |
% |
|||||
(1)Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2025 and 2024.
Financial Table 3
Weighted Average Yield on Investment Securities (Continued)
|
December 31, 2025 |
December 31, 2024 |
|||||||
|
Weighted |
Weighted |
|||||||
|
Average Yield (1) |
Average Yield (1) |
|||||||
|
Securities held to maturity |
||||||||
|
State and political |
||||||||
|
Due after five but within ten years |
2.68 |
% |
2.68 |
% |
||||
|
Due after ten years |
3.38 |
% |
3.35 |
% |
||||
|
3.23 |
% |
3.20 |
% |
|||||
|
Corporate Bonds |
||||||||
|
Due after one but within five years |
6.56 |
% |
8.65 |
% |
||||
|
Due after five but within ten years |
3.69 |
% |
4.34 |
% |
||||
|
5.17 |
% |
5.20 |
% |
|||||
|
Total Securities held to maturity |
||||||||
|
Due after one but within five years |
6.56 |
% |
8.65 |
% |
||||
|
Due after five but within ten years |
3.35 |
% |
4.04 |
% |
||||
|
Due after ten years |
3.38 |
% |
3.35 |
% |
||||
|
4.14 |
% |
4.32 |
% |
|||||
(1)Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2025 and 2024.
Financial Table 4
Noninterest Income
|
Year Ended December 31, |
||||||||||||
|
(dollars in thousands) |
2025 |
2024 |
2023 |
|||||||||
|
Income from mortgage banking |
$ |
3,872 |
$ |
2,781 |
$ |
3,159 |
||||||
|
Asset management fees |
2,581 |
2,329 |
1,980 |
|||||||||
|
Interchange and card transaction fees, net |
1,094 |
1,193 |
1,252 |
|||||||||
|
Service charges on deposit accounts |
1,060 |
1,091 |
1,056 |
|||||||||
|
Other banking fees |
934 |
1,035 |
982 |
|||||||||
|
Brokerage commissions |
613 |
439 |
481 |
|||||||||
|
Other gains (losses) from sale of assets |
15 |
(11 |
) |
204 |
||||||||
|
Investment securities losses |
- |
(148 |
) |
(42 |
) |
|||||||
|
Supplemental executive retirement plan gain (loss) |
631 |
338 |
(90 |
) |
||||||||
|
Other noninterest income |
459 |
689 |
486 |
|||||||||
|
Total noninterest income |
$ |
11,259 |
$ |
9,736 |
$ |
9,468 |
||||||
Financial Table 5
Other Noninterest Expense
|
Year Ended December 31, |
||||||||||||
|
(dollars in thousands) |
2025 |
2024 |
2023 |
|||||||||
|
Director fees and expense |
$ |
322 |
$ |
278 |
$ |
329 |
||||||
|
Dues and subscriptions |
444 |
356 |
285 |
|||||||||
|
Postage |
266 |
242 |
227 |
|||||||||
|
Shareholder relations expense |
199 |
184 |
213 |
|||||||||
|
Telephone and data lines |
182 |
196 |
198 |
|||||||||
|
Insurance |
155 |
149 |
151 |
|||||||||
|
Employee education |
140 |
157 |
141 |
|||||||||
|
Franchise and other taxes |
156 |
134 |
120 |
|||||||||
|
Armored transport service |
141 |
126 |
109 |
|||||||||
|
Office supplies and printing |
100 |
75 |
94 |
|||||||||
|
Other |
578 |
778 |
562 |
|||||||||
|
Total other noninterest expense |
$ |
2,683 |
$ |
2,675 |
$ |
2,429 |
||||||
Financial Table 6
Loan Portfolio Composition
|
At December 31, |
||||||||||||||||
|
2025 |
2024 |
|||||||||||||||
|
% of Total |
% of Total |
|||||||||||||||
|
(dollars in thousands) |
Amount |
Loans |
Amount |
Loans |
||||||||||||
|
Loan type: |
||||||||||||||||
|
Commercial |
$ |
110,088 |
15.98 |
% |
$ |
104,872 |
15.76 |
% |
||||||||
|
Real estate - commercial |
255,850 |
37.15 |
% |
245,569 |
36.90 |
% |
||||||||||
|
Real estate - construction |
76,700 |
11.14 |
% |
78,729 |
11.83 |
% |
||||||||||
|
Real estate - residential |
231,818 |
33.66 |
% |
218,954 |
32.90 |
% |
||||||||||
|
Consumer |
9,611 |
1.39 |
% |
11,020 |
1.65 |
% |
||||||||||
|
Other |
4,683 |
0.68 |
% |
6,408 |
0.96 |
% |
||||||||||
|
Total loans |
688,750 |
100.00 |
% |
665,552 |
100.00 |
% |
||||||||||
|
Less: |
||||||||||||||||
|
Allowance for credit losses |
(6,420 |
) |
(5,824 |
) |
||||||||||||
|
Unearned net loan costs |
812 |
825 |
||||||||||||||
|
Net loans |
$ |
683,142 |
$ |
660,553 |
||||||||||||
Financial Table 7
Selected Loan Maturities
|
December 31, 2025 |
||||||||||||||||||||
|
Five to |
||||||||||||||||||||
|
One Year |
One to |
Fifteen |
Over Fifteen |
|||||||||||||||||
|
(dollars in thousands) |
or Less |
Five Years |
Years |
Years |
Total |
|||||||||||||||
|
Commercial and agricultural |
$ |
9,073 |
$ |
27,977 |
$ |
20,498 |
$ |
52,540 |
$ |
110,088 |
||||||||||
|
Real estate - construction |
24,615 |
5,431 |
15,575 |
31,079 |
76,700 |
|||||||||||||||
|
Total selected loans |
$ |
33,688 |
$ |
33,408 |
$ |
36,073 |
$ |
83,619 |
$ |
186,788 |
||||||||||
|
Fixed rate loans |
$ |
3,875 |
$ |
27,721 |
$ |
39,886 |
$ |
59,463 |
$ |
130,945 |
||||||||||
|
Sensitivity to rate changes: |
||||||||||||||||||||
|
Variable interest rates |
$ |
45,987 |
$ |
34,956 |
$ |
159,465 |
$ |
318,209 |
$ |
558,617 |
||||||||||
Financial Table 8
Allocation of Charge-Offs and Recoveries
|
At December 31, |
||||||||||||||||||||||||
|
2025 |
2024 |
|||||||||||||||||||||||
|
(dollars in thousands) |
Net charge-offs (recoveries) |
Average loans |
Net charge-offs (recoveries) to average loans |
Net charge-offs (recoveries) |
Average loans |
Net charge-offs (recoveries) to average loans |
||||||||||||||||||
|
Commercial |
$ |
15 |
$ |
108,026 |
0.01 |
% |
$ |
187 |
$ |
103,871 |
0.18 |
% |
||||||||||||
|
Real estate - commercial |
- |
252,899 |
- |
- |
231,577 |
- |
||||||||||||||||||
|
Other real estate construction |
- |
49,972 |
- |
- |
43,566 |
- |
||||||||||||||||||
|
Real estate 1-4 family construction |
- |
22,607 |
- |
- |
19,537 |
- |
||||||||||||||||||
|
Real estate - residential |
(3 |
) |
154,881 |
(0.002 |
)% |
(2 |
) |
149,600 |
(0.001 |
)% |
||||||||||||||
|
Home equity |
85 |
70,904 |
0.12 |
% |
- |
64,179 |
- |
|||||||||||||||||
|
Consumer loans |
63 |
9,797 |
0.64 |
% |
85 |
11,410 |
0.74 |
% |
||||||||||||||||
|
Other loans |
- |
5,164 |
- |
- |
6,134 |
- |
||||||||||||||||||
|
Total |
$ |
160 |
$ |
674,250 |
0.024 |
% |
$ |
270 |
$ |
629,874 |
0.043 |
% |
||||||||||||
Financial Table 9
Allocation of the Allowance for Credit Losses
|
At December 31, |
||||||||||||||||
|
2025 |
2024 |
|||||||||||||||
|
% of Total |
% of Total |
|||||||||||||||
|
(dollars in thousands) |
Amount |
Loans (1) |
Amount |
Loans (1) |
||||||||||||
|
Commercial |
$ |
1,479 |
23.04 |
% |
$ |
1,528 |
26.24 |
% |
||||||||
|
Real estate - commercial |
2,420 |
37.70 |
% |
2,266 |
38.91 |
% |
||||||||||
|
Other real estate construction |
487 |
7.59 |
% |
412 |
7.07 |
% |
||||||||||
|
Real estate 1-4 family construction |
83 |
1.29 |
% |
56 |
0.96 |
% |
||||||||||
|
Real estate - residential |
1,155 |
17.99 |
% |
781 |
13.41 |
% |
||||||||||
|
Home equity |
687 |
10.70 |
% |
588 |
10.10 |
% |
||||||||||
|
Consumer loan |
94 |
1.46 |
% |
175 |
3.00 |
% |
||||||||||
|
Other loans |
15 |
0.23 |
% |
18 |
0.31 |
% |
||||||||||
|
Total loans |
$ |
6,420 |
100.00 |
% |
$ |
5,824 |
100.00 |
% |
||||||||
(1)Represents total of all outstanding loans in each category as a percent of total loans outstanding.
Financial Table 10
Maturities of Time Deposits
|
December 31, 2025 |
||||||||||||||||||||
|
3 Months |
Over 3 Months |
Over 1 Year |
Over |
|||||||||||||||||
|
or Less |
to 1 Year |
to 3 Years |
3 Years |
Total |
||||||||||||||||
|
(dollars in thousands) |
||||||||||||||||||||
|
U.S. time deposits in amounts in excess of the FDIC insurance limit |
$ |
69,625 |
$ |
63,781 |
$ |
818 |
$ |
- |
$ |
134,224 |
||||||||||
|
Other time deposits |
66,107 |
79,115 |
4,424 |
926 |
150,572 |
|||||||||||||||
|
$ |
135,732 |
$ |
142,896 |
$ |
5,242 |
$ |
926 |
$ |
284,796 |
|||||||||||
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