Equibles

10-Q

UWHARRIE CAPITAL CORP (UWHR)

10-Q 2025-08-05 For: 2025-06-30
View Original
Added on April 06, 2026

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 June 30, 2025

OR

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

For the transition period from to .

COMMISSION FILE NUMBER 000-22062

UWHARRIE CAPITAL CORP

(Exact name of registrant as specified in its charter)

North Carolina 56-1814206
(State or Other Jurisdiction of<br><br>Incorporation or Organization) (I.R.S. Employer<br><br>Identification No.)
132 NORTH FIRST STREET<br><br>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<br><br>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: 7,011,513 shares of common stock outstanding as of August 4, 2025.

Table of Contents

Page No.
Part I. FINANCIAL INFORMATION 2
Item 1 - Financial Statements (Unaudited) 2
Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024 2
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2025 and 2024 3
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2025 and 2024 4
Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2025 and 2024 5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024 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. Financial Information

Item 1. Financial Statements.

December 31, 2024*
ASSETS
Cash and due from banks 10,676 $ 9,713
Interest-earning deposits with banks 62,598 42,554
Cash and cash equivalents 73,274 52,267
Securities available for sale, at fair value (amortized cost 368,917 and 365,088 respectively) 340,985 332,986
Securities held to maturity, at amortized cost (fair value 21,047 and 24,561 respectively) 23,753 26,813
Less allowance for credit losses on securities held to maturity (54 ) (68 )
Net securities held to maturity 23,699 26,745
Equity securities, at fair value 325 334
Loans held for sale 9,147 4,561
Loans held for investment 677,556 666,377
Less allowance for credit losses on loans (6,231 ) (5,824 )
Net loans held for investment 671,325 660,553
Premises and equipment, net 14,054 14,479
Interest receivable 4,300 4,355
Restricted stock 1,749 1,709
Bank-owned life insurance 8,008 7,938
Deferred income tax benefit 8,036 8,983
Loan servicing assets 3,828 3,903
Mortgage banking derivatives 1,076 795
Other assets 9,948 9,200
Total assets 1,169,754 $ 1,128,808
LIABILITIES
Deposits:
Demand noninterest-bearing 291,431 $ 272,355
Interest checking and money market accounts 394,855 395,079
Savings deposits 102,666 92,954
Time deposits, 250,000 and over 127,984 133,335
Other time deposits 145,428 136,513
Total deposits 1,062,364 1,030,236
Short-term borrowed funds 1,132 1,414
Long-term debt 29,200 29,161
Mortgage banking derivatives 170 —
Other liabilities 11,484 10,318
Total liabilities 1,104,350 1,071,129
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 7,013,052 and 7,077,941 at June 30, 2025 and December 31, 2024, respectively 8,766 8,847
Additional paid-in capital 12,038 12,553
Undivided profits 55,448 50,351
Accumulated other comprehensive loss (21,503 ) (24,727 )
Total Uwharrie Capital Corp shareholders’ equity 54,749 47,024
Noncontrolling interest 10,655 10,655
Total shareholders’ equity 65,404 57,679
Total liabilities and shareholders’ equity 1,169,754 $ 1,128,808

All values are in US Dollars.

(*) Derived from audited consolidated financial statements

See accompanying notes

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Income (Unaudited)

Six Months Ended June 30,
2024 2025 2024
Interest Income
Loans, including fees 10,479 $ 9,285 $ 20,704 $ 18,079
Investment securities:
Investment securities, taxable 2,876 3,011 5,653 5,932
Investment securities, non-taxable 314 310 619 622
Equity Securities 5 5 10 10
Interest-earning deposits with banks and federal funds sold 662 710 1,152 1,336
Total interest income 14,336 13,321 28,138 25,979
Interest Expense
Interest checking and money market accounts 1,609 1,591 3,169 3,190
Savings deposits 138 135 272 274
Time deposits, 250,000 and over 1,217 1,146 2,560 2,004
Other time deposits 1,306 1,225 2,624 2,358
Short-term borrowed funds 11 76 23 137
Long-term debt 324 332 655 662
Total interest expense 4,605 4,505 9,303 8,625
Net interest income 9,731 8,816 18,835 17,354
Provision for (recovery of) credit losses on:
Loans 242 410 530 405
Securities held to maturity (14 ) — (14 ) 10
Unfunded loan commitments 26 21 19 (14 )
Total provision for credit losses 254 431 535 401
Net interest income after provision for credit losses 9,477 8,385 18,300 16,953
Noninterest Income
Service charges on deposit accounts 263 267 522 535
Other service fees and commissions 989 897 1,970 1,828
Interchange and card transaction fees, net 308 322 557 610
Loss on sale/call of securities — — — (148 )
Realized/unrealized gain (loss) on equity securities 14 (19 ) (9 ) 22
Income from mortgage banking 1,027 606 2,078 1,440
Supplemental executive retirement plan gain (loss) 373 (34 ) 124 (46 )
Other income 110 187 223 314
Total noninterest income 3,084 2,226 5,465 4,555
Noninterest Expense
Salaries and employee benefits 5,711 5,145 11,131 10,359
Net occupancy expense 433 429 897 854
Equipment expense 207 218 411 425
Data processing costs 228 203 441 433
Loan costs 69 51 158 84
Professional fees and services 267 262 537 526
Marketing and donations 359 339 718 705
Electronic banking expense 123 113 234 213
Software amortization and maintenance 356 329 720 659
FDIC insurance 134 126 263 249
Supplemental executive retirement plan gain (loss) 373 (34 ) 124 (46 )
Other noninterest expense 720 651 1,274 1,253
Total noninterest expense 8,980 7,832 16,908 15,714
Income before income taxes 3,581 2,779 6,857 5,794
Income taxes 757 566 1,480 1,198
Net income 2,824 $ 2,213 $ 5,377 $ 4,596
Consolidated net income 2,824 $ 2,213 $ 5,377 $ 4,596
Less: net income attributable to noncontrolling interest (141 ) (141 ) (280 ) (282 )
Net income attributable to common shareholders 2,683 2,072 5,097 4,314
Net income per common share
Basic 0.38 $ 0.29 $ 0.72 $ 0.60
Diluted 0.38 $ 0.29 $ 0.72 $ 0.60
Weighted average common shares outstanding
Basic 7,047,162 7,235,539 7,061,434 7,250,231
Diluted 7,047,162 7,235,539 7,061,434 7,250,231

All values are in US Dollars.

See accompanying notes

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2025 2024 2025 2024
(dollars in thousands)
Net income $ 2,824 $ 2,213 $ 5,377 $ 4,596
Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities 1,070 (97 ) 4,171 (1,542 )
Related tax effect (245 ) 22 (947 ) 354
Total other comprehensive income (loss) 825 (75 ) 3,224 (1,188 )
Comprehensive income 3,649 2,138 8,601 3,408
Less: Comprehensive income attributable to noncontrolling interest (141 ) (141 ) (280 ) (282 )
Comprehensive income attributable to Uwharrie Capital Corp $ 3,508 $ 1,997 $ 8,321 $ 3,126

See accompanying notes

Uwharrie Capital Corp and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

Number of<br>Common<br>Shares<br>Issued Common<br>Stock Additional<br>Paid-in<br>Capital Undivided<br>Profits Accumulated<br>Other<br>Comprehensive<br>Income (Loss) Noncontrolling<br>Interest Total
(dollars in thousands, except share data)
Balance, March 31, 2024 7,103,003 $ 8,879 $ 12,735 $ 44,347 $ (26,213 ) $ 10,655 $ 50,403
Net Income — — — 2,072 — 141 2,213
Repurchase of common stock (34,426 ) (43 ) (225 ) — — — (268 )
Other comprehensive loss — — — — (75 ) — (75 )
Record preferred stock dividend series B <br>     (noncontrolling interest) — — — — — (104 ) (104 )
Record preferred stock dividend series C <br>     (noncontrolling interest) — — — — — (37 ) (37 )
Balance, June 30, 2024 7,068,577 $ 8,836 $ 12,510 $ 46,419 $ (26,288 ) $ 10,655 $ 52,132
Balance, March 31, 2025 7,061,777 $ 8,827 $ 12,427 $ 52,765 $ (22,328 ) $ 10,655 $ 62,346
Net Income — — — 2,683 — 141 2,824
Repurchase of common stock (48,725 ) (61 ) (389 ) — — — (450 )
Other comprehensive income — — — — 825 — 825
Record preferred stock dividend series B <br>     (noncontrolling interest) — — — — — (103 ) (103 )
Record preferred stock dividend series C <br>     (noncontrolling interest) — — — — — (38 ) (38 )
Balance, June 30, 2025 7,013,052 $ 8,766 $ 12,038 $ 55,448 $ (21,503 ) $ 10,655 $ 65,404
Number of<br>Common<br>Shares<br>Issued Common<br>Stock Additional<br>Paid-in<br>Capital Undivided<br>Profits Accumulated<br>Other<br>Comprehensive<br>Income (Loss) Noncontrolling<br>Interest Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(dollars in thousands, except share data)
Balance, December 31, 2023 7,124,438 $ 8,905 $ 12,876 $ 42,105 $ (25,100 ) $ 10,655 $ 49,441
Net Income — — — 4,314 — 282 4,596
Repurchase of common stock (55,861 ) (69 ) (366 ) — — — (435 )
Other comprehensive loss — — — — (1,188 ) — (1,188 )
Record preferred stock dividend Series B<br>   (noncontrolling interest) — — — — — (208 ) (208 )
Record preferred stock dividend Series C<br>   (noncontrolling interest) — — — — — (74 ) (74 )
Balance, June 30, 2024 7,068,577 $ 8,836 $ 12,510 $ 46,419 $ (26,288 ) $ 10,655 $ 52,132
Balance, December 31, 2024 7,077,941 $ 8,847 $ 12,553 $ 50,351 $ (24,727 ) $ 10,655 $ 57,679
Net Income — — — 5,097 — 280 5,377
Repurchase of common stock (64,889 ) (81 ) (515 ) — — — (596 )
Other comprehensive income — — — — 3,224 — 3,224
Record preferred stock dividend Series B<br>   (noncontrolling interest) — — — — — (206 ) (206 )
Record preferred stock dividend Series C<br>   (noncontrolling interest) — — — — — (74 ) (74 )
Balance, June 30, 2025 7,013,052 $ 8,766 $ 12,038 $ 55,448 $ (21,503 ) $ 10,655 $ 65,404

See accompanying notes

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30,
2025 2024
(dollars in thousands)
Cash flows from operating activities
Net income $ 5,377 $ 4,596
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 537 537
Right of use asset amortization 197 192
Provision for for credit losses 535 401
Loss on call of securities held to maturity — 148
Gain on sale of mortgage loans (980 ) (526 )
Gain on sale of OREO (83 ) —
Realized/unrealized (gain) loss on equity securities 9 (22 )
Net amortization of premium on investment securities available for sale 896 886
Net amortization of premium on investment securities held to maturity 60 66
Amortization of loan servicing assets 601 611
Originations and purchases of mortgage loans for sale (84,680 ) (51,641 )
Proceeds from sales of mortgage loans for sale 81,074 53,251
Mortgage banking derivatives (111 ) (140 )
Loan servicing assets (526 ) (413 )
Accrued interest receivable 55 (295 )
Prepaid assets (70 ) (149 )
Cash surrender value of life insurance (70 ) (71 )
Miscellaneous other assets (621 ) (312 )
Accrued interest payable (37 ) 153
Miscellaneous other liabilities 1,184 631
Net cash provided by operating activities 3,347 7,903
Cash flows from investing activities
Proceeds from maturities, calls and paydowns of securities available for sale 23,609 19,225
Proceeds from maturities, calls and paydowns of securities held to maturity 3,000 1,134
Purchase of investment securities available for sale (28,333 ) (35,703 )
Purchase of investments in other assets (57 ) (350 )
Proceeds from distributions of investments in other assets — 97
Net change in restricted stock (40 ) (37 )
Net increase in loans (11,408 ) (44,725 )
Purchase of premises and equipment (270 ) (173 )
Proceeds from sale of OREO 189 —
Net cash used by investing activities (13,310 ) (60,532 )
Cash flows from financing activities
Net increase in deposit accounts 32,128 42,362
Net increase (decrease) in federal funds purchased and other short-term borrowings (282 ) 5,021
Repurchase of common stock, net (596 ) (435 )
Dividends paid on preferred stock (noncontrolling interest) (280 ) (282 )
Net cash provided by financing activities 30,970 46,666
Increase (decrease) in cash and cash equivalents 21,007 (5,963 )
Cash and cash equivalents, beginning of period 52,267 63,434
Cash and cash equivalents, end of period $ 73,274 $ 57,471
Supplemental disclosures of cash flow information
Interest paid $ 9,301 $ 8,430
Income taxes paid 1,771 1,535
Supplemental schedule of non-cash activities
Net change in fair value of securities available for sale, net of tax $ 3,224 $ (1,188 )
Loans transferred to foreclosed real estate 106 —

See accompanying notes

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Basis of Presentation

The financial statements and accompanying notes are presented on a consolidated basis including Uwharrie Capital Corp (the “Company”) and its subsidiaries, Uwharrie Bank (the “Bank”), Uwharrie Investment Advisors, Inc. (“UIA”), and Uwharrie Mortgage, Inc. The Bank consolidates its subsidiaries, The Strategic Alliance Corporation (“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 2024 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 6, 2025. 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.

The allowance for credit losses calculation utilizes a forecast model for the collectively assessed population. Effective June 30, 2025, after multiple periods of parallel modeling using the National Unemployment Rate and the NC Unemployment rate as indices, compared to the National Unemployment Rate and the 10-Year T-Bill which had previously been utilized for this purpose, a change in estimate was incorporated into the model. The change in estimate incorporated more recent data to enhance and maintain reliable results.

In conjunction with this change, it was also necessary to update the framework we use for establishing qualitative reserves, which has likewise been modified to use new indices and metrics. The change in estimate of the forecast model for the collectively assessed population also increased the maximum potential allowance allocated to the qualitative factors. While these changes altered the overall composition of the allowance model, the overall impact is not material.

Accounting Changes and Reclassifications

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, 2024 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, 2024.

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 six months ended June 30, 2025 and 2024:

For the Six Months Ended June 30,
2024 2025 2024
Beginning balance (22,328 ) $ (26,213 ) $ (24,727 ) $ (25,100 )
Other comprehensive income (loss) before reclassifications,   net of (245), 22, (947) and 354 tax effect, respectively 825 (75 ) 3,224 (1,188 )
Amounts reclassified from accumulated other comprehensive loss,   net of 0, 0, 0, and 0 tax effect, respectively — — — —
Net current-period other comprehensive income (loss) 825 (75 ) 3,224 (1,188 )
Ending balance (21,503 ) $ (26,288 ) $ (21,503 ) $ (26,288 )

All values are in US Dollars.

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

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 June 30, 2025 or December 31, 2024. The number of shares and earnings per share for the 2024 periods have been adjusted for the 2% stock dividend declared on October 15, 2024.

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.

Note 5 – Investment and Equity Securities

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

June 30, 2025 Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Fair<br>Value
(dollars in thousands)
Securities available for sale:
U.S. Treasury $ 25,872 $ — $ 2,167 $ 23,705
U.S. government agencies 46,654 139 739 46,054
GSE - Mortgage-backed securities and CMOs 172,709 592 9,931 163,370
Asset-backed securities 21,974 238 137 22,075
State and political subdivisions 95,708 63 15,817 79,954
Corporate bonds 6,000 — 173 5,827
Total securities available for sale $ 368,917 $ 1,032 $ 28,964 $ 340,985
June 30, 2025 Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Fair<br>Value Allowance for <br>Credit Losses Net Carrying<br>Amount
--- --- --- --- --- --- --- --- --- --- --- --- ---
(dollars in thousands)
Securities held to maturity:
State and political subdivisions $ 11,753 $ — $ 1,680 $ 10,073 $ — $ 11,753
Corporate bonds 12,000 — 1,026 10,974 54 11,946
Total securities held to maturity $ 23,753 $ — $ 2,706 $ 21,047 $ 54 $ 23,699
December 31, 2024 Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Fair<br>Value
--- --- --- --- --- --- --- --- ---
(dollars in thousands)
Securities available for sale:
U.S. Treasury $ 32,961 $ — $ 3,067 $ 29,894
U.S. government agencies 42,667 97 1,035 $ 41,729
GSE - Mortgage-backed securities and CMOs 165,561 198 12,970 $ 152,789
Asset-backed securities 23,215 407 44 $ 23,578
State and political subdivisions 94,684 5 15,436 $ 79,253
Corporate bonds 6,000 — 257 $ 5,743
Total securities available for sale $ 365,088 $ 707 $ 32,809 $ 332,986
December 31, 2024 Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Fair<br>Value Allowance for <br>Credit Losses Net Carrying<br>Amount
--- --- --- --- --- --- --- --- --- --- --- --- ---
(dollars in thousands)
Securities held to maturity:
State and political subdivisions $ 11,813 $ — $ 1,078 $ 10,735 $ — $ 11,813
Corporate bonds 15,000 — 1,174 13,826 68 14,932
Total securities held to maturity $ 26,813 $ — $ 2,252 $ 24,561 $ 68 $ 26,745

The Company owned Federal Reserve Bank (FRB) stock reported at cost of $959,000 at June 30, 2025 and December 31, 2024. The Company owned Federal Home Loan Bank (FHLB) stock reported at cost of $789,000 and $750,000 at June 30, 2025 and December 31, 2024, 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 June 30, 2025.

There is no allowance for credit losses on available for sale securities. The following table shows a rollforward of the allowance for credit losses on held to maturity securities for the six months ended June 30, 2025.

State and political subdivisions Corporate bonds Total
(dollars in thousands)
Balance, December 31, 2024 $ — $ 68 $ 68
Recovery of credit losses — (14 ) (14 )
Charge-offs of securities — — —
Recoveries — — —
Balance, June 30, 2025 $ — $ 54 $ 54

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 June 30, 2025.

June 30, 2025 State and political subdivisions Corporate bonds Total
(dollars in thousands)
Aaa $ — $ — $ —
Aa1/Aa2/Aa3 11,144 — 11,144
A1/A2 — — —
BBB — — —
Not rated 609 12,000 12,609
Total $ 11,753 $ 12,000 $ 23,753

At June 30, 2025, the Company had no securities held to maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held to maturity classified as nonaccrual for the six months ended June 30, 2025.

The Company had no sales of securities available for sale during the six-month periods ended June 30, 2025 and 2024.

At June 30, 2025 and December 31, 2024, securities available for sale with a carrying amount of $151.1 million and $161.5 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

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

The following tables show the gross unrealized losses and estimated fair value of available for sale securities, for which an allowance has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2025 and December 31, 2024.

Less than 12 Months 12 Months or More Total
June 30, 2025 Number of Securities Fair Value Unrealized<br>Losses Number of Securities Fair Value Unrealized<br>Losses Fair Value Unrealized<br>Losses
(dollars in thousands)
Securities available for sale:
U.S. Treasury — $ — $ — 5 $ 23,705 $ 2,167 $ 23,705 $ 2,167
U.S. government agencies 4 4,240 29 27 20,437 710 24,677 739
GSE-Mortgage-backed securities and CMOs 15 33,637 289 57 88,561 9,642 122,198 9,931
Asset-backed securities 4 4,282 79 4 4,237 58 8,519 137
State and political subdivisions 8 7,604 266 56 68,808 15,551 76,412 15,817
Corporate bonds — — — 3 5,827 173 5,827 173
Total securities available for sale 31 $ 49,763 $ 663 152 $ 211,575 $ 28,301 $ 261,338 $ 28,964
Less than 12 Months 12 Months or More Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
December 31, 2024 Number of Securities Fair Value Unrealized<br> Losses Number of Securities Fair Value Unrealized<br>Losses Fair Value Unrealized<br>Losses
(dollars in thousands)
Securities available for sale
U.S. Treasury — $ — $ — 7 $ 29,894 $ 3,067 $ 29,894 $ 3,067
U.S. government agencies 9 9,956 134 24 19,995 901 29,951 1,035
GSE-Mortgage-backed securities and CMOs 19 32,580 313 57 97,798 12,657 130,378 12,970
Asset-backed securities 2 2,872 21 3 4,189 23 7,061 44
State and political subdivisions 5 7,773 253 57 70,169 15,183 77,942 15,436
Corporate bonds — — — 3 5,743 257 5,743 257
Total securities available for sale 35 $ 53,181 $ 721 151 $ 227,788 $ 32,088 $ 280,969 $ 32,809

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 June 30, 2025, the Company did not intend to sell and believed it was not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.

The following tables show contractual maturities of the investment portfolio as of June 30, 2025:

June 30, 2025
Amortized<br>Cost Estimated<br>Fair Value Book<br>Yield
(dollars in thousands)
Securities available for sale:
Due within twelve months 2,105 2,104 4.96 %
Due after one but within five years 68,425 64,074 1.93 %
Due after five but within ten years 50,143 45,141 2.62 %
Due after ten years 248,244 229,666 3.79 %
$ 368,917 $ 340,985 3.29 %
June 30, 2025
--- --- --- --- --- --- --- ---
Amortized<br>Cost Estimated<br>Fair Value Book<br>Yield
(dollars in thousands)
Securities held to maturity:
Due after one but within five years 3,000 2,951 8.52 %
Due after five but within ten years 11,620 10,516 4.02 %
Due after ten years 9,133 7,580 3.38 %
$ 23,753 $ 21,047 4.34 %

The portion of unrealized gains and losses for the three and six months ended June 30, 2025 and 2024 related to equity securities still held at the reporting date is calculated as follows:

Three Months Ended June 30, Six Months Ended June 30,
2025 2024 2025 2024
(dollars in thousands)
Gross proceeds from sales $ — $ — $ — $ —
Net gains (losses) recognized during the period on equity securities $ 14 $ (19 ) $ (9 ) $ 22
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 $ 14 $ (19 ) $ (9 ) $ 22

Note 6 – Loans Held for Investment

The composition of net loans held for investment by class as of June 30, 2025 and December 31, 2024 was as follows:

June 30, 2025 December 31, 2024
(dollars in thousands)
Commercial
Commercial $ 107,449 $ 104,872
Real estate - commercial 259,418 245,569
Other real estate construction loans 48,024 50,940
Other loans 4,804 6,408
Noncommercial
Real estate 1-4 family construction 21,245 27,789
Real estate - residential 154,807 150,667
Home equity 71,077 68,287
Consumer loans 9,959 11,020
676,783 665,552
Less:
Allowance for credit losses (6,231 ) (5,824 )
Deferred loan costs net 773 825
Loans held for investment, net $ 671,325 $ 660,553

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 six months ended June 30, 2025 and 2024.

Commercial Loans Noncommercial Loans
Commercial Real estate <br>commercial Other<br>real estate<br>construction Other<br>loans Real estate<br>1-4 family<br>construction Real estate<br>residential Home<br>equity Consumer Total
(dollars in thousands)
Balance, March 31, 2025 $ 1,699 $ 2,324 $ 340 $ 20 $ 57 $ 809 $ 652 $ 164 $ 6,065
Provision for (recovery of) credit losses (284 ) 37 69 (5 ) 42 455 (2 ) (70 ) 242
Charge-offs (97 ) — — — — — — (6 ) (103 )
Recoveries 15 — — — — — 1 11 27
Net (charge-offs) recoveries (82 ) — — — — — 1 5 (76 )
Balance, June 30, 2025 $ 1,333 $ 2,361 $ 409 $ 15 $ 99 $ 1,264 $ 651 $ 99 $ 6,231
Commercial Loans Noncommercial Loans
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Commercial Real estate <br>commercial Other<br>real estate<br>construction Other<br>loans Real estate<br>1-4 family<br>construction Real estate<br>residential Home<br>equity Consumer Total
(dollars in thousands)
Balance, March 31, 2024 $ 1,480 $ 2,033 $ 323 $ 11 $ 34 $ 855 $ 600 $ 187 $ 5,523
Provision for (recovery of) credit losses (63 ) 175 45 (1 ) 8 107 69 70 410
Charge-offs (17 ) — — — — — (1 ) (73 ) (91 )
Recoveries 54 — — — — — 1 11 66
Net (charge-offs) recoveries 37 — — — — — — (62 ) (25 )
Balance, June 30, 2024 $ 1,454 $ 2,208 $ 368 $ 10 $ 42 $ 962 $ 669 $ 195 $ 5,908
Commercial Loans Noncommercial Loans
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Commercial Real estate<br>commercial Other<br>real estate<br>construction Other<br>loans Real estate<br>1-4 family<br>construction Real estate<br>residential Home<br>equity Consumer Total
(dollars in thousands)
Balance, December 31, 2024 $ 1,528 $ 2,266 $ 412 $ 18 $ 56 $ 781 $ 588 $ 175 $ 5,824
Provision for (recovery of) credit losses (130 ) 95 (3 ) (3 ) 43 482 62 (16 ) 530
Charge-offs (113 ) — — — — — — (78 ) (191 )
Recoveries 48 — — — — 1 1 18 68
Net (charge-offs) recoveries (65 ) — — — — 1 1 (60 ) (123 )
Balance, June 30, 2025 $ 1,333 $ 2,361 $ 409 $ 15 $ 99 $ 1,264 $ 651 $ 99 $ 6,231
Commercial Loans Noncommercial Loans
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Commercial Real estate<br>commercial Other<br>real estate<br>construction Other<br>loans Real estate<br>1-4 family<br>construction Real estate<br>residential Home<br>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 ) 151 (21 ) 1 11 165 87 90 405
Charge-offs (17 ) — — — — — (1 ) (118 ) (136 )
Recoveries 57 — — — — 1 1 19 78
Net (charge-offs) recoveries 40 — — — — 1 — (99 ) (58 )
Balance, June 30, 2024 $ 1,454 $ 2,208 $ 368 $ 10 $ 42 $ 962 $ 669 $ 195 $ 5,908

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:

June 30, 2025 Loans<br>30-89 Days<br>Past Due Nonaccrual Loans Total Past<br>Due Loans Current<br>Loans Total<br>Loans Accruing Loans<br>90 Days or<br>More Past Due
(dollars in thousands)
Commercial $ — $ — $ — $ 107,448 $ 107,448 $ —
Real estate - commercial — — — 259,520 259,520 —
Other real estate construction — — — 48,024 48,024 —
Real estate 1-4 family construction — — — 21,245 21,245 —
Real estate - residential 534 204 738 154,741 155,479 —
Home equity 156 107 263 70,814 71,077 —
Consumer loans 23 — 23 9,936 9,959 —
Other loans — — — 4,804 4,804 —
Total $ 713 $ 311 $ 1,024 $ 676,532 $ 677,556 $ —
December 31, 2024 Loans<br>30-89 Days<br>Past Due Nonaccrual Loans Total Past<br>Due Loans Current<br>Loans Total<br>Loans Accruing Loans<br>90 Days or<br>More Past Due
--- --- --- --- --- --- --- --- --- --- --- --- ---
(dollars in thousands)
Commercial $ 9 $ 88 $ 97 $ 104,773 $ 104,870 $ —
Real estate - commercial 43 — 43 245,636 245,679 —
Other real estate construction — — — 50,940 50,940 —
Real estate 1-4 family construction — — — 27,789 27,789 —
Real estate - residential 429 64 493 150,891 151,384 —
Home equity 176 40 216 68,071 68,287 —
Consumer loan 42 — 42 10,978 11,020 —
Other loans — — — 6,408 6,408 —
Total $ 699 $ 192 $ 891 $ 665,486 $ 666,377 $ —

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 $0 at June 30, 2025 and December 31, 2024. The Company had no foreclosed residential real estate and no residential real estate in process of foreclosure at June 30, 2025. At December 31, 2024, the Company had no foreclosed residential real estate and $93,000 of residential real estate in process of foreclosure.

The composition of nonaccrual loans by class as of June 30, 2025 and December 31, 2024 was as follows:

Six Months Ended
June 30, 2025 June 30, 2025
Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Interest Income
(dollars in thousands)
Commercial $ — $ — $ — $ —
Real estate - commercial — — — —
Other real estate construction — — — —
Real estate 1-4 family construction — — — —
Real estate - residential — 204 204 9
Home equity — 107 107 —
Consumer loans — — — —
Other loans — — — —
$ — $ 311 $ 311 $ 9
Six Months Ended
--- --- --- --- --- --- --- --- ---
December 31, 2024 June 30, 2024
Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Interest Income
(dollars in thousands)
Commercial $ — $ 88 $ 88 $ —
Real estate - commercial — — — —
Other real estate construction — — — —
Real estate 1-4 family construction — — — —
Real estate - residential — 64 64 17
Home equity — 40 40 2
Consumer loans — — — —
Other loans — — — —
$ — $ 192 $ 192 $ 19

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 June 30, 2025 and December 31, 2024.

June 30, 2025 December 31, 2024
Amortized Cost Allowance for<br>Credit Losses Amortized Cost Allowance for<br>Credit Losses
(dollars in thousands)
Commercial $ — $ — $ — $ —
Real estate - commercial — — — —
Other real estate construction — — — —
Real estate 1-4 family construction — — — —
Real estate - residential 135 18 — —
Home equity — — — —
Consumer loans — — — —
Other loans — — — —
Total $ 135 $ 18 $ — $ —

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 June 30, 2025:

June 30, 2025 Term Loans by Year of Origination
2025 2024 2023 2022 2021 Prior Revolving Total
(dollars in thousands)
Commercial
Pass $ 20,865 $ 23,389 $ 19,271 $ 11,321 $ 9,293 $ 7,987 $ 15,238 $ 107,364
Watch 5 37 4 — — — 38 84
Special Mention — — — — — — — —
Substandard — — — — — — — —
Total commercial 20,870 23,426 19,275 11,321 9,293 7,987 15,276 107,448
Real estate - commercial
Pass 18,705 44,982 36,084 40,309 32,182 50,242 29,802 252,306
Watch — — 6,225 — — 58 — 6,283
Special Mention — — — — 544 28 — 572
Substandard — — — — — 359 — 359
Total real estate - commercial 18,705 44,982 42,309 40,309 32,726 50,687 29,802 259,520
Other real estate construction
Pass 3,624 18,370 13,379 3,183 1,575 4,354 3,539 48,024
Watch — — — — — — — —
Special Mention — — — — — — — —
Substandard — — — — — — — —
Total other real estate construction 3,624 18,370 13,379 3,183 1,575 4,354 3,539 48,024
Real estate 1-4 family construction
Pass 2,911 4,467 — — — — 13,867 21,245
Watch — — — — — — — —
Special Mention — — — — — — — —
Substandard — — — — — — — —
Total real estate 1-4 family construction 2,911 4,467 — — — — 13,867 21,245
Real estate - residential
Pass 10,952 12,782 18,479 18,969 11,798 13,262 67,294 153,536
Watch 323 — — — 202 696 — 1,221
Special Mention — — 102 — 119 64 — 285
Substandard — — — — — 437 — 437
Total real estate - residential 11,275 12,782 18,581 18,969 12,119 14,459 67,294 155,479
Home equity
Pass 2,797 7,188 4,751 6,307 3,264 9,095 37,258 70,660
Watch — — — 16 — 99 — 115
Special Mention — — 75 100 — 20 — 195
Substandard — — — — 107 — — 107
Total home equity 2,797 7,188 4,826 6,423 3,371 9,214 37,258 71,077
Consumer loans
Pass 1,093 1,415 682 266 16 406 6,016 9,894
Watch — 65 — — — — — 65
Special Mention — — — — — — — —
Substandard — — — — — — — —
Total consumer loans 1,093 1,480 682 266 16 406 6,016 9,959
Other loans
Pass — 636 — 1,598 937 1,471 162 4,804
Watch — — — — — — — —
Special Mention — — — — — — — —
Substandard — — — — — — — —
Total other loans — 636 — 1,598 937 1,471 162 4,804
Total Pass 60,947 113,229 92,646 81,953 59,065 86,817 173,176 667,833
Total Watch 328 102 6,229 16 202 853 38 7,768
Total Special Mention — — 177 100 663 112 — 1,052
Total Substandard — — — — 107 796 — 903
Total loans $ 61,275 $ 113,331 $ 99,052 $ 82,069 $ 60,037 $ 88,578 $ 173,214 $ 677,556

During the six months ended June 30, 2025, fifty-one loans totaling $5.5 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, 2024:

December 31, 2024 Term Loans by Year of Origination
2024 2023 2022 2021 2020 Prior Revolving Total
(dollars in thousands)
Commercial
Pass $ 25,634 $ 18,992 $ 14,319 $ 11,948 $ 2,292 $ 10,270 $ 20,964 $ 104,419
Watch 48 117 — — — — 182 347
Special Mention — — — — — — — —
Substandard — 15 — 88 — — — 103
Total commercial 25,682 19,124 14,319 12,036 2,292 10,270 21,146 104,869
Real estate - commercial
Pass 38,684 55,090 48,600 30,383 20,722 48,127 3,040 244,646
Watch — — — — — 63 — 63
Special Mention — — — 561 — 32 — 593
Substandard — — — — 113 264 — 377
Total real estate - commercial 38,684 55,090 48,600 30,944 20,835 48,486 3,040 245,679
Other real estate construction
Pass 22,447 15,004 4,981 2,287 3,211 2,172 795 50,897
Watch — — — — — 44 — 44
Special Mention — — — — — — — —
Substandard — — — — — — — —
Total other real estate construction 22,447 15,004 4,981 2,287 3,211 2,216 795 50,941
Real estate 1-4 family construction
Pass 19,845 7,944 — — — — — 27,789
Watch — — — — — — — —
Special Mention — — — — — — — —
Substandard — — — — — — — —
Total real estate 1-4 family construction 19,845 7,944 — — — — — 27,789
Real estate - residential
Pass 29,936 37,448 34,018 21,613 10,473 14,397 1,829 149,714
Watch — — — 204 365 490 — 1,059
Special Mention — 104 — 122 — 83 — 309
Substandard — — — — — 302 — 302
Total real estate - residential 29,936 37,552 34,018 21,939 10,838 15,272 1,829 151,384
Home equity
Pass 57 255 159 192 402 1,679 65,158 67,902
Watch — — — — — 84 140 224
Special Mention — — 100 — — 20 — 120
Substandard — — — — — 41 — 41
Total home equity 57 255 259 192 402 1,824 65,298 68,287
Consumer loans
Pass 3,934 1,944 985 170 70 320 3,586 11,009
Watch 11 — — — — — — 11
Special Mention — — — — — — — —
Substandard — — — — — — — —
Total consumer loans 3,945 1,944 985 170 70 320 3,586 11,020
Other loans
Pass 644 — 1,598 2,602 1,211 353 — 6,408
Watch — — — — — — — —
Special Mention — — — — — — — —
Substandard — — — — — — — —
Total other loans 644 — 1,598 2,602 1,211 353 — 6,408
Total Pass 141,181 136,677 104,660 69,195 38,381 77,318 95,372 662,784
Total Watch 59 117 — 204 365 681 322 1,748
Total Special Mention — 104 100 683 — 135 — 1,022
Total Substandard — 15 — 88 113 607 — 823
Total loans $ 141,240 $ 136,913 $ 104,760 $ 70,170 $ 38,859 $ 78,741 $ 95,694 $ 666,377

The following tables present gross charge-offs by origination date as of June 30, 2025 and December 31, 2024:

June 30, 2025 Gross Loan Charge-offs by Year of Origination
2025 2024 2023 2022 2021 Prior Revolving Total
(dollars in thousands)
Commercial
Commercial $ — $ 9 $ — $ 16 $ 88 $ — $ — $ 113
Real estate - commercial — — — — — — — —
Other real estate construction — — — — — — — —
Other loans — — — — — — — —
Noncommercial
Real estate 1-4 family construction — — — — — — — —
Real estate - residential — — — — — — — —
Home equity — — — — — — — —
Consumer loans — 29 5 2 — 2 40 78
Total charge-offs $ — $ 38 $ 5 $ 18 $ 88 $ 2 $ 40 $ 191
December 31, 2024 Gross Loan Charge-offs by Year of Origination
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
2024 2023 2022 2021 2020 Prior Revolving Total
(dollars in thousands)
Commercial
Commercial $ — $ 10 $ — $ 137 $ 164 $ — $ 10 $ 321
Real estate - commercial — — — — — — — —
Other real estate construction — — — — — — — —
Other loans — — — — — — — —
Noncommercial
Real estate 1-4 family construction — — — — — — — —
Real estate - residential — — — — — — — —
Home equity — — — — — 1 — 1
Consumer loans 12 51 7 12 7 4 65 158
Total charge-offs $ 12 $ 61 $ 7 $ 149 $ 171 $ 5 $ 75 $ 480

Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. At both June 30, 2025 and December 31, 2024 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 June 30, 2025 and December 31, 2024:

June 30, 2025 Performing Non-<br>Performing Total
(dollars in thousands)
Commercial $ 107,448 $ — $ 107,448
Real estate - commercial 259,520 — 259,520
Other real estate construction 48,024 — 48,024
Real estate 1-4 family construction 21,245 — 21,245
Real estate - residential 155,275 204 155,479
Home equity 70,970 107 71,077
Consumer loans 9,959 — 9,959
Other loans 4,804 — 4,804
Total $ 677,245 $ 311 $ 677,556
December 31, 2024 Performing Non-<br>Performing Total
--- --- --- --- --- --- ---
(dollars in thousands)
Commercial $ 104,782 $ 88 $ 104,870
Real estate - commercial 245,679 — 245,679
Other real estate construction 50,940 — 50,940
Real estate 1-4 family construction 27,789 — 27,789
Real estate - residential 151,320 64 151,384
Home equity 68,247 40 68,287
Consumer loans 11,020 — 11,020
Other loans 6,408 — 6,408
Total $ 666,185 $ 192 $ 666,377

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 six months ended June 30, 2025 or during the twelve months ended December 31, 2024. As such, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the six months ended June 30, 2025 or during the twelve months ended December 31, 2024 that subsequently defaulted. A default on a modified loan is defined as being past due 90 days or being out of compliance with the modification agreement. The Company closely monitors the performance of the loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

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 one to four years. Certain lease arrangements contain extension options which range from five to ten years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As of June 30, 2025, operating lease ROU assets were $912,000 and the operating lease liability was $985,000, compared to operating lease ROU assets of $1.1 million and an operating lease liability of $1.2 million at December 31, 2024. Lease costs associated with all leases was $106,000 and $212,000 for the three and six months ended June 30, 2025, respectively.

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

Six Months Ended June 30,
2025 2024
(in thousands except percent and period data)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 226 $ 221
Right-of-use assets obtained in exchange for new operating lease liabilities — —
Weighted-average remaining lease term - operating leases, in years 2.6 3.5
Weighted-average discount rate - operating leases 2.70 % 2.61 %

The table below summarizes the maturity of remaining lease liabilities:

June 30, 2025
(dollars in thousands)
2025 $ 230
2026 416
2027 260
2028 97
2029 20
Thereafter -
Total lease payments 1,023
Less: Interest (38 )
Present value of lease liabilities $ 985

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 June 30, 2025 and December 31, 2024, outstanding financial instruments whose contract amounts represent credit risk were approximately:

June 30, 2025 December 31, 2024
(dollars in thousands)
Commitments to extend credit $ 221,847 $ 224,708
Credit card commitments 26,344 26,715
Standby letters of credit 8,136 8,141
Total commitments $ 256,327 $ 259,564

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 $186,000 and $167,000 at June 30, 2025 and December 31, 2024, respectively, is separately classified on the balance sheet within Other Liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the six months ended June 30, 2025.

Total Allowance for Credit Losses - <br>Unfunded Loan Commitments
(dollars in thousands)
Balance, December 31, 2024 $ 167
Provision for credit losses 19
Balance, June 30, 2025 $ 186

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 June 30, 2025 and December 31, 2024:

June 30, 2025
(dollars in thousands)
Total Level 1 Level 2 Level 3
Securities available for sale:
U.S. Treasury $ 23,705 $ 23,705 $ — $ —
U.S. government agencies 46,054 — 46,054 —
GSE - Mortgage-backed securities and CMOs 163,370 — 163,370 —
Asset-backed securities 22,075 — 22,075 —
State and political subdivisions 79,954 — 79,954 —
Corporate bonds 5,827 — 5,827 —
Equity securities 325 325 — —
Mortgage banking derivatives 1,076 — 104 972
Total assets at fair value on a recurring basis $ 342,386 $ 24,030 $ 317,384 $ 972
Mortgage banking derivatives $ 170 $ — $ 170 $ —
Total liabilities at fair value on a recurring basis $ 170 $ — $ 170 $ —
December 31, 2024
--- --- --- --- --- --- --- --- ---
(dollars in thousands)
Total Level 1 Level 2 Level 3
Securities available for sale:
U.S. Treasury $ 29,894 $ 29,894 $ — $ —
U.S. government agencies 41,729 — 41,729 —
GSE - Mortgage-backed securities and CMOs 152,789 — 152,789 —
Asset-backed securities 23,578 — 23,578 —
State and political subdivisions 79,253 — 79,253 —
Corporate bonds 5,743 — 5,743 —
Equity securities 334 334 — —
Mortgage banking derivatives 795 — 204 591
Total assets at fair value on a recurring basis $ 334,115 $ 30,228 $ 303,296 $ 591
Mortgage banking derivatives $ — $ — $ — $ —
Total liabilities at fair value on a recurring basis $ — $ — $ — $ —

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

June 30, 2025
Mortgage banking derivatives:<br>Interest rate lock commitments Total
(dollars in thousands)
Balance at December 31, 2024 $ 591 $ 591
Change in fair value:
Included in income from mortgage banking 381 381
Change in observability of significant inputs:
Included in income from mortgage banking — —
Balance at June 30, 2025 $ 972 $ 972

The fair value of mortgage IRLCs at June 30, 2025 was calculated based on a notional amount of $33.6 million. Significant unobservable inputs are used to determine the fair value of these derivatives. At June 30, 2025, such inputs included anticipated margins to be earned based on market movement from the original lock date and a weighted average projected pull-through rate of 84.7% determined by loan product, loan stage, and loan purpose. The fair value of mortgage IRLCs at December 31, 2024 was calculated based on a notional amount of $32.4 million. Significant unobservable inputs were the same as those used for the six months ended June 30, 2025 and assumed a weighted average projected pull-through rate of 90.1% at December 31, 2024. Changes in interest rates and other assumptions could significantly change these estimated values.

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets, such as other real estate owned and individually evaluated loans, 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 June 30, 2025. There were no assets for which a nonrecurring fair value adjustment was required as of December 31, 2024.

June 30, 2025
(dollars in thousands)
Total Level 1 Level 2 Level 3
Individually evaluated loans $ 118 $ — $ — $ 118
Total assets at fair value on a nonrecurring basis $ 118 $ — $ — $ 118

The following table provides quantitative information about Level 3 fair value measurements:

June 30, 2025
Valuation Technique Unobservable Input General<br>Range
Nonrecurring measurements:
Individually evaluated loans Discounted appraisals Collateral discounts and estimated costs to sell 10 - 25%

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 June 30, 2025 and December 31, 2024 are based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price at which a liability could be settled. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following table do not represent market values of all assets and liabilities of the Company and should not be interpreted to represent the underlying value of the Company.

The following tables reflect a comparison of carrying amounts and the estimated fair value of the financial instruments as of June 30, 2025 and December 31, 2024:

June 30, 2025 Carrying<br>Value Estimated<br>Fair Value Level 1 Level 2 Level 3
(dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents $ 73,274 $ 73,274 $ 73,274 $ — $ —
Securities available for sale 340,985 340,985 23,705 317,280 —
Securities held to maturity 23,699 21,047 — 10,073 10,974
Equity securities 325 325 325 — —
Loans held for investment, net 671,325 642,928 — — 642,928
Loans held for sale 9,147 9,147 — 9,147 —
Restricted stock 1,749 1,749 1,749 — —
Loan servicing assets 3,828 7,447 — 7,447 —
Mortgage banking derivatives 1,076 1,076 — 104 972
Accrued interest receivable 4,300 4,300 — — 4,300
FINANCIAL LIABILITIES
Deposits $ 1,062,364 1,061,735 — 1,061,735 —
Short-term borrowings 1,132 1,132 — 1,132 —
Long-term borrowings 29,200 26,150 — — 26,150
Mortgage banking derivatives 170 170 — 170 —
Accrued interest payable 468 468 — — 468
December 31, 2024 Carrying<br>Value Estimated<br>Fair Value Level 1 Level 2 Level 3
--- --- --- --- --- --- --- --- --- --- ---
(dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents $ 52,267 $ 52,267 $ 52,267 $ — $ —
Securities available for sale 332,986 332,986 29,894 303,092 —
Securities held to maturity 26,745 24,561 — 10,735 13,826
Equity securities 334 334 334 — —
Loans held for investment, net 660,553 629,111 — — 629,111
Loans held for sale 4,561 4,561 — 4,561 —
Restricted stock 1,709 1,709 1,709 — —
Loan servicing assets 3,903 7,323 — 7,323 —
Mortgage banking derivatives 795 795 — 204 591
Accrued interest receivable 4,355 4,355 — — 4,355
FINANCIAL LIABILITIES
Deposits $ 1,030,236 $ 1,029,696 $ — $ 1,029,696 $ —
Short-term borrowings 1,414 1,414 — 1,414 —
Long-term borrowings 29,161 25,725 — — 25,725
Accrued interest payable 505 505 — — 505

At June 30, 2025 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 June 30, 2025 and December 31, 2024.

Notional Amount Fair Value
(dollars in thousands)
Balance at June 30, 2025
Included in mortgage banking derivative assets:
Interest rate lock commitments $ 33,610 $ 972
Forward sales commitments 5,474 104
Included in mortgage banking derivative liabilities:
To-be-announced mortgage-backed securities trades 38,500 170
Balance at December 31, 2024
Included in mortgage banking derivative assets:
Interest rate lock commitments $ 32,352 $ 591
Forward sales commitments 2,173 44
To-be-announced mortgage-backed securities trades 25,500 160

Note 13 – Recent Accounting Pronouncements and Other Changes

The Inflation Reduction Act of 2022 (“IRA”) created a new nondeductible 1% excise tax on repurchases of corporate stock by certain publicly traded corporations or their specified affiliates after December 31, 2022. The tax is imposed on the fair value of the stock of a covered corporation that is repurchased in a given year, less the fair market value of any stock issued in that year. A “covered corporation” is any domestic corporation whose stock is traded on an established securities market, such as an OTC market. The excise tax applies to all of the stock of a covered corporation regardless of whether the corporation has profits or losses. The IRA contains several exceptions to the excise tax, including, but not limited to, any repurchase of stock: in which the total value of the repurchased stock in a given year does not exceed $1,000,000; that is contributed to an employer-sponsored retirement plan or other similar stock compensation plan; or that is taxed as a dividend. The impact of the IRA on our consolidated financial statements is dependent on the extent of stock repurchases.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances income tax disclosure requirements. Under the new guidance, entities must disclose additional information in specified categories for federal, state and foreign income taxes with respect to the reconciliation of the effective tax rate to the statutory rate (rate reconciliation). Greater detail is also required about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. Additionally, the amendments require that entities must disaggregate income taxes paid, net of refunds received, for federal, state and foreign taxes and further disaggregate for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The quantitative threshold is equal to 5% or more of the amount determined by multiplying pretax income (loss) from continuing operations by the applicable statutory rate. Public business entities must apply the guidance to annual periods beginning after December 15, 2024. ASU 2023-09 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 does not expect the adoption of the ASU to have a material impact on the Company's financial statements.

In November 2024, the FASB issued ASU 2024-03 “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” requiring public business entities to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments should be applied prospectively. The Company is currently evaluating the impact of this ASU but does not expect it to have a material effect on its consolidated financial statements.

On July 4, 2025, President Trump signed into law the legislation formally titled “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14” and commonly referred to as the One Big Beautiful Bill (“the Act”). The Company is currently evaluating income tax implications of the Act. The Company does not expect the Act to have a material impact on the Company's financial statements.

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

Note 14 - Segment Reporting

The chief operating decision maker (“CODM”) of the Company is a group of individuals, also referred to as the Executive Management Team, consisting of the Chief Executive Officer, Chief Financial Officer, Chief Operations Officer and Chief Risk Officer. The Executive Management Team is responsible for allocating resources and assessing the performance of the Company.

Segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by the CODM. The Executive Management Team has identified three operating segments within the Company, each with a manager that reports directly to the CODM. The Company’s business operating segments are determined based on the nature of the products or services provided and reflect the manner in which financial information is currently evaluated by the Executive Management Team. The three operating segments of the Company are as follows:

Banking Operations - This segment provides financial products and services to consumer and commercial customers in the form of deposit products, loan products and cash management services through branches, online banking, mobile banking and telephone banking. This segment is also responsible for the management of the investment portfolio. Significant components of noninterest income for this segment are service charges on deposits and interchange fees on card transactions. Significant noninterest expense is salaries and employee benefits.

Mortgage Banking - This segment reflects Uwharrie Bank Mortgage, a division of the Bank that specializes in originating and

servicing one-to-four family residential mortgage loans which are primarily sold on the secondary market. Loans sold to Fannie Mae or Freddie Mac are sold with servicing rights retained. Significant noninterest income for this segment is gain or loss on the sale of loans. Significant noninterest expense is salaries and employee benefits.

Wealth Management - This segment reflects investment advisory, broker-dealer and insurance services of UIA, TSAC and BOS

Agency, respectively. Significant noninterest income for this segment is service fees and commissions. Significant noninterest expense is salaries and employee benefits.

While the CODM monitors each segment’s pre-tax, pre-provision profit or loss, the primary measure for allocating resources to the operating segments during the annual budgeting process is Net Income. This measure is also used to assess the performance of each segment, with a focus on net interest income, noninterest income, and noninterest expense. The CODM conducts monthly income review meetings, where budget-to-actual variances for Net Income and pre-tax, pre-provision profit or loss and its components are analyzed. The Company provides a broad range of financial services as described above and aims to provide one place for its customers to satisfy all of their financial services needs. As such, many customers are shared under the “Uwharrie” umbrella as are certain costs to conduct business. Management regularly reviews the different revenue streams, but is aware that shared resources and costs of key corporate functions may not be fully allocated among the operating segments. The Executive Management Team believes it is appropriate to aggregate the three operating segments into one reportable segment. A review of quantitative thresholds was performed, and the CODM has determined that the Company’s operations are not considered to constitute more than one reportable segment. Non-segment operations are classified as Other below and include assets and activity of the parent holding company. Management will continue to evaluate the operating segments for separate reporting as facts and circumstances change.

Banking, Mortgage and <br>Wealth Management Other Consolidated
(dollars in thousands)
For the Three Months Ended June 30, 2025
Interest income $ 14,331 $ 5 $ 14,336
Interest expense 4,270 335 4,605
Net interest income 10,061 (330 ) 9,731
Noninterest income 3,023 61 3,084
Noninterest expense 8,834 146 8,980
Pre-tax, pre-provision income 4,250 (415 ) 3,835
Provision for (recovery of) credit losses 254 — 254
Provision for income taxes 841 (84 ) 757
Net income (loss) $ 3,155 $ (331 ) $ 2,824
For the Six Months Ended June 30, 2025
Interest income $ 28,128 $ 10 $ 28,138
Interest expense 8,625 678 9,303
Net interest income 19,503 (668 ) 18,835
Noninterest income 5,393 72 5,465
Noninterest expense 16,631 277 16,908
Pre-tax, pre-provision income 8,265 (873 ) 7,392
Provision for (recovery of) credit losses 535 — 535
Provision for income taxes 1,656 (176 ) 1,480
Net income (loss) $ 6,074 $ (697 ) $ 5,377
Total assets as of June 30, 2025 $ 1,166,175 $ 3,579 $ 1,169,754
For the Three Months Ended June 30, 2024
Interest income $ 13,316 $ 5 $ 13,321
Interest expense 4,158 347 4,505
Net interest income 9,158 (342 ) 8,816
Noninterest income 2,218 8 2,226
Noninterest expense 7,699 133 7,832
Pre-tax, pre-provision income 3,677 (467 ) 3,210
Provision for (recovery of) credit losses 431 — 431
Provision for income taxes 660 (94 ) 566
Net income (loss) $ 2,586 $ (373 ) $ 2,213
For the Six Months Ended June 30, 2024
Interest income $ 25,969 $ 10 $ 25,979
Interest expense 7,934 691 8,625
Net interest income 18,035 (681 ) 17,354
Noninterest income 4,468 87 4,555
Noninterest expense 15,453 261 15,714
Pre-tax, pre-provision income 7,050 (855 ) 6,195
Provision for (recovery of) credit losses 401 — 401
Provision for income taxes 1,369 (171 ) 1,198
Net income (loss) $ 5,280 $ (684 ) $ 4,596
Total assets as of December 31, 2024 $ 1,123,764 $ 5,044 $ 1,128,808

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 June 30, 2025 and December 31, 2024.

During the six months ended June 30, 2025, the Company’s total assets increased $40.9 million, from $1.13 billion to $1.17 billion.

Cash and cash equivalents increased $21.0 million during the six months ended June 30, 2025, from $52.3 million to $73.3 million. The increase in cash and cash equivalents is the result of growth in deposits.

Investment securities consist of securities available for sale and securities held to maturity. For the six-month period ended June 30, 2025, investment securities increased $4.9 million from $359.8 million at December 31, 2024 to $364.7 million at June 30, 2025. At June 30, 2025, the Company had net unrealized losses on securities available for sale of $27.9 million, compared to net unrealized losses of $32.1 million at December 31, 2024, an improvement of $4.2 million. During the first six months of 2025, a $14,000 recovery was recorded against the allowance for credit losses on securities held to maturity, bringing the balance to $54,000 at June 30, 2025 compared to $68,000 at December 31, 2024. The amortized cost basis of securities held to maturity totaled $23.8 million and $26.8 million at June 30, 2025 and December 31, 2024, respectively.

At June 30, 2025, equity securities deteriorated in value from $334,000 at December 31, 2024 to $325,000 as a result of the decrease in value in the equity market.

Loans held for sale increased $4.6 million from December 31, 2024 to $9.1 million at June 30, 2025. Loans held for investment increased from $666.4 million at December 31, 2024 to $677.6 million at June 30, 2025, an increase of $11.2 million. The Company experienced a net decrease in loans categorized as “Other Real Estate - Construction,” “Real Estate - 1-4 Family Construction,” “Consumer,” and “Commercial - Other.” All other loan sectors experienced a net increase during the quarter ended June 30, 2025.

The allowance for credit losses on loans was $6.2 million at June 30, 2025, which represented 0.92% of total loans held for investment, compared to $5.8 million, or 0.87% of total loans held for investment, at December 31, 2024. 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 $947,000 from $9.0 million at December 31, 2024 to $8.0 million at June 30, 2025 as a result of the improvement in fair value of the available for sale securities portfolio. Mortgage banking derivatives increased $281,000 during the first six months of 2025, primarily related to an increase in the value of interest rate lock commitments (“IRLCs”). The value of IRLCs appreciated $381,000 during the six-month period ended June 30, 2025 as the notional amount of the mortgage pipeline increased $1.3 million. Annual Company contributions, enhanced by positive market adjustments, increased the balance of supplemental executive retirement plans (“SERP”) by $348,000 during the six months ended June 30, 2025.

Customer deposits, our primary funding source, experienced a $32.1 million increase during the six-month period ended June 30, 2025, increasing from $1.03 billion to $1.06 billion. The overall increase in deposits is attributable to organic deposit growth combined with higher yielding time deposit products. Demand noninterest-bearing checking accounts increased $19.1 million and time deposits increased $3.6 million during the six-month period ended June 30, 2025. Interest checking and money market accounts decreased $224,000 and savings deposits increased $9.7 million during the six months ended June 30, 2025.

Total short-term borrowings decreased $282,000 for the six-month period ended June 30, 2025. At June 30, 2025, the Company had $29.2 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 became redeemable by the Company on 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. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. Of the subordinated debt that remains outstanding at June 30, 2025, $27.3 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 June 30, 2025.

Other changes in the Company’s liabilities are related to an increase of $1.2 million in other liabilities from December 31, 2024 to June 30, 2025, $529,000 of which is related to the accrual of reserves for payables due throughout 2025. As with SERP assets mentioned above, SERP liabilities increased $348,000. Mortgage banking derivative liabilities increased in the form of to-be-announced mortgage-backed securities (“TBAs”) by $170,000 during the same period.

At June 30, 2025, total shareholders’ equity was $65.4 million, an increase of $7.7 million from December 31, 2024. Net income for the six-month period ended June 30, 2025 was $5.4 million, which positively contributed to shareholders’ equity. Improvement in the unrealized loss position of the available for sale securities portfolio also contributed to the increase in shareholders’ equity during the same six-month period. During the six months ended June 30, 2025, the Company repurchased 64,889 shares of common stock at a total cost of $596,000, and the Company paid $280,000 in dividends attributable to noncontrolling interest. See Note 3 (Noncontrolling Interest) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest.

Results of Operations for the Three Months Ended June 30, 2025 and 2024.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $2.8 million for the three months ended June 30, 2025, compared to $2.2 million for the three months ended June 30, 2024. Net income available to common shareholders was $2.7 million, or $0.38 per common share, for the three months ended June 30, 2025, compared to $2.1 million, or $0.29 per common share, for the three months ended June 30, 2024. 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 June 30, 2025 was $9.7 million, a $915,000 increase from the $8.8 million reported for the comparative period in 2024. During the second quarter of 2025, the average yield on our interest-earning assets increased 8 basis points to 5.22% from the same period in 2024, and the average rate we paid for our interest-bearing liabilities decreased 9 basis points to 2.31%. These changes resulted in an interest rate spread of 2.91% as of June 30, 2025, compared to 2.74% as of June 30, 2024. The Company’s net interest margin was 3.56% and 3.42% for the comparable periods in 2025 and 2024, respectively.

The following table presents average balance sheet and a net interest income analysis for the three months ended June 30, 2025 and 2024, respectively:

Average Balance Income/Expenses Rate/Yield
2025 2024 2025 2024 2025 2024
(dollars in thousands)
Interest-earning assets:
Taxable securities $ 307,652 $ 309,283 $ 2,876 $ 3,011 3.75 % 3.92 %
Non-taxable securities (1) 58,756 57,908 314 310 2.73 % 2.70 %
Short-term investments 62,577 57,206 662 710 4.24 % 4.99 %
Equity securities 311 343 5 5 6.45 % 5.86 %
Taxable loans 668,533 609,358 10,391 9,151 6.23 % 6.04 %
Non-taxable loans (1) 12,057 17,312 88 134 3.73 % 3.91 %
Total interest-earning assets 1,109,886 1,051,410 14,336 13,321 5.22 % 5.14 %
Interest-bearing liabilities:
Interest-bearing deposits 769,483 720,248 4,270 4,097 2.23 % 2.29 %
Short-term borrowed funds 1,233 6,283 11 76 3.58 % 4.87 %
Long-term debt 29,189 29,127 324 332 4.45 % 4.58 %
Total interest bearing liabilities 799,905 755,658 4,605 4,505 2.31 % 2.40 %
Net interest spread $ 309,981 $ 295,752 $ 9,731 $ 8,816 2.91 % 2.74 %
Net interest margin (1) (% of earning assets) 3.56 % 3.42 %
  • 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 $254,000 for the three months ended June 30, 2025, compared to a provision of $431,000 for the same period in 2024. There were net loan charge-offs of $76,000 for the three months ended June 30, 2025, as compared to net loan charge-offs of $24,000 during the same period of 2024. 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 $858,000 for the three-month period ended June 30, 2025, as compared to the same period in 2024. Income from mortgage banking increased $421,000 quarter-over-quarter, driven by increased loan pipeline volume. Income associated with market adjustments on supplemental executive retirement plans increased by $407,000 during the three months ended June 30, 2025, compared to the three months ended June 30, 2024.

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 June 30,
2025 2024
(dollars in thousands)
Income from debit card transactions $ 618 $ 592
Income from credit card transactions 174 177
Gross interchange and transaction fee income 792 769
Network costs - debit card 306 281
Network costs - credit card 178 166
Total $ 308 $ 322

Noninterest Expense

Noninterest expense for the three months ended June 30, 2025 increased by $1.1 million from the same period in 2024. Salaries and benefits, the largest component of noninterest expense, increased $566,000 due to wage increases and more commissions paid on increased production in the mortgage division during 2025. Expense associated with market adjustments on supplemental executive retirement plans increased by $407,000 during the three months ended June 30, 2025, compared to the three months ended June 30, 2024.

Total other noninterest expense increased $69,000 for the three months ended June 30, 2025, compared to the same period in 2024. The table below reflects the composition of other noninterest expense for the referenced periods.

Three Months Ended June 30,
2025 2024
(dollars in thousands)
Office supplies and printing $ 29 $ 17
Franchise and other taxes 57 26
Employee education 30 40
Shareholder relations expense 46 48
Telephone and data lines 43 53
Postage 70 57
Director fees and expense 78 65
Dues and subscriptions 114 93
Armored transport service 37 35
Other 216 217
Total $ 720 $ 651

Income Tax Expense

The Company had income tax expense of $757,000 for the three months ended June 31, 2025 at an effective tax rate of 21.1% compared to income tax expense of $566,000 with an effective tax rate of 20.4% in the comparable 2024 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 June 30, 2025, 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 2025 compared to 2024.

Results of Operations for the Six Months Ended June 30, 2025 and 2024.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $5.4 million for the six months ended June 30, 2025, as compared to $4.6 million for the six months ended June 30, 2024, an increase of $781,000. Net income available to common shareholders was $5.1 million, or $0.72 per common share, for the six months ended June 30, 2025, compared to $4.3 million, or $0.60 per common share, for the six months ended June 30, 2024. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Net Interest Income

Net interest income for the six months ended June 30, 2025 was $18.8 million, a $1.5 million increase from the $17.4 million reported for the comparative period in 2024. During the first six months of 2025, the average yield on our interest-earning assets increased 13 basis points to 5.20% from the same period in 2024, and the average rate we paid for our interest-bearing liabilities increased 4 basis points to 2.35%. These changes resulted in a higher interest rate spread of 2.85% as of June 30, 2025, compared to 2.76% as of June 30, 2024. The Company’s net interest margin was 3.49% and 3.40% for the comparable periods in 2025 and 2024, respectively.

The following table presents average balance sheet and a net interest income analysis for the six months ended June 30, 2025 and 2024, respectively:

Average Balance Income/Expenses Rate/Yield
2025 2024 2025 2024 2025 2024
(dollars in thousands)
Interest-earning assets:
Taxable securities $ 304,914 $ 308,501 $ 5,653 $ 5,932 3.74 % 3.87 %
Non-taxable securities (1) 58,970 57,855 619 622 2.69 % 2.71 %
Short-term investments 59,935 57,411 1,152 1,336 3.88 % 4.68 %
Equity securities 323 322 10 10 6.24 % 6.25 %
Taxable loans 661,407 598,320 20,485 17,815 6.25 % 5.99 %
Non-taxable loans (1) 14,158 17,397 219 264 3.96 % 3.83 %
Total interest-earning assets 1,099,707 1,039,806 28,138 25,979 5.20 % 5.07 %
Interest-bearing liabilities:
Interest-bearing deposits 768,887 714,866 8,625 7,826 2.26 % 2.20 %
Short-term borrowed funds 1,326 5,679 23 137 3.50 % 4.85 %
Long-term debt 29,179 29,118 655 662 4.53 % 4.57 %
Total interest-bearing liabilities 799,392 749,663 9,303 8,625 2.35 % 2.31 %
Net interest spread $ 300,315 $ 290,143 $ 18,835 $ 17,354 2.85 % 2.76 %
Net interest margin (1) (% of earning assets) 3.49 % 3.40 %
  • 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 $535,000 for the six months ended June 30, 2025, compared to a provision of $401,000 for the same period in 2024. There were net loan charge-offs of $123,000 for the six months ended June 30, 2025, as compared to net loan charge-offs of $58,000 during the same period of 2024. 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 $910,000 for the six-month period ended June 30, 2025, as compared to the same period in 2024. The primary factor contributing to the overall improvement in noninterest income was an increase of $638,000 in income from mortgage banking. This improvement is the result of an increased loan pipeline and improved pricing on loans. The 2024 period included a loss of $148,000 on the call of a held to maturity security under early redemption provisions, compared to no losses from sales or calls of securities during the 2025 period. Another factor contributing to the overall increase was a $170,000 increase in income associated with market adjustments on supplemental executive retirement plans during the six months ended June 30, 2025, compared to the six months ended June 30, 2024.

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:

Six Months Ended June 30,
2025 2024
(dollars in thousands)
Income from debit card transactions $ 1,185 $ 1,152
Income from credit card transactions 346 350
Gross interchange and transaction fee income 1,531 1,502
Network costs - debit card 602 569
Network costs - credit card 372 323
Total $ 557 $ 610

Noninterest Expense

Noninterest expense for the six months ended June 30, 2025 increased by $1.2 million from the same period in 2024, to $16.9 million. Salaries and employee benefits contributed $772,000 to the increase in noninterest expense due to wage increases and more commissions paid on increased production in the mortgage division during the first six months of 2025.

Total other noninterest expense increased $21,000 for the six months ended June 30, 2025, compared to the same period in 2024. The table below reflects the composition of other noninterest expense for the referenced periods.

Six Months Ended June 30,
2025 2024
(dollars in thousands)
Office supplies and printing $ 57 $ 37
Franchise and other taxes 90 62
Employee education 61 73
Shareholder relations expense 93 96
Telephone and data lines 94 102
Postage 133 117
Director fees and expense 160 143
Dues and subscriptions 215 175
Armored transport service 70 65
Other 301 383
Total $ 1,274 $ 1,253

Income Tax Expense

The Company had income tax expense of $1.5 million for the six months ended June 30, 2025 at an effective tax rate of 21.6% compared to income tax expense of $1.2 million with an effective tax rate of 20.7% in the comparable 2024 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 six months ended June 30, 2025, 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 2025 compared to 2024.

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 when it is determined that it does not share similar risk characteristics with other loans and with total relationship exposure greater than or equal to $100,000 that are determined to be collateral dependent. 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 June 30, 2025, the level of our individually assessed loans, which includes all collateral dependent loans in nonaccrual status with total relationship exposure greater than or equal to $100,000, was $136,000. The allowance for credit losses related to individually evaluated loans was $18,000 at June 30, 2025.

The allowance, expressed as a percentage of gross loans held for investment, increased five basis points from 0.87% at December 31, 2024 to 0.92% at June 30, 2025. The change in estimate of the allowance model 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 0.51% at June 30, 2025, and the qualitative factors portion increased from 0.12% to 0.41% over the same period. The increase in the allowance was driven by overall loan growth of $15.8 million, growth in commercial and industrial loans with higher loss given default rates and increases in the National unemployment rate forecasts. The ratio of nonaccrual loans to total loans increased from 0.03% at December 31, 2024 to 0.05% at June 30, 2025, and was related to the $119,000 increase in nonaccrual loans. Three loans totaling $260,000 were converted to nonaccrual during the first half of 2025, offset by paydowns of $13,000, two loans totaling $88,000 that were charged off, and one loan totaling $40,000 that was moved to other real estate owned and subsequently sold.

Other real estate owned was $0 at June 30, 2025 and December 31, 2024.

As of June 30, 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 at June 30, 2025 and December 31, 2024:

Nonperforming Assets

(dollars in thousands)

June 30, 2025 December 31, 2024
(dollars in thousands)
Nonperforming assets:
Accruing loans past due 90 days or more $ — $ —
Nonaccrual loans 311 192
Other real estate owned — —
Total nonperforming assets $ 311 $ 192
Allowance for credit losses on loans $ 6,231 $ 5,824
Nonaccrual loans to total loans 0.05 % 0.03 %
Allowance for credit losses on loans to total loans 0.92 % 0.87 %
Allowance for credit losses on loans to nonaccrual loans 2003.54 % 3033.33 %

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 39.2% and 38.8% of total deposits at June 30, 2025 and December 31, 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 June 30, 2025, 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 $174.9 million; and access to borrowings from the FRB discount window, with available credit of $28.1 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 June 30, 2025, $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.

June 30, 2025 December 31, 2024
(dollars in thousands)
Interest-earning cash and cash equivalents 62,598 42,554
Interest-earning cash and cash equivalents as a percent of:
Total loans held for investment 9.2 % 6.4 %
Total earning assets 5.6 % 4.0 %
Total deposits 5.9 % 4.1 %

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 June 30, 2025, 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 June 30, 2025, the Company had $29.2 million, net of unamortized debt issuance costs of $192,000, in subordinated debt outstanding, of which $27.3 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 June 30, 2025, 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 2024 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 6, 2025.

Item 3. Quantitative and Qualitative 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 second quarter of 2025. 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.

Item 6. Exhibits.

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

Exhibit<br><br>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 June 30, 2025, in inline XBRL (eXtensible Business Reporting Language) (filed herewith)
104 Cover page interactive data file (formatted in inline XBRL and contained in Exhibit 101)

Signatures

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

UWHARRIE CAPITAL CORP
(Registrant)
Date: August 5, 2025 By: /s/ Roger L. Dick
Roger L. Dick
President and Chief Executive Officer
Date: August 5, 2025 By: /s/ Heather H. Almond
Heather H. Almond
Principal Financial Officer

EX-31.1

Exhibit 31.1

UWHARRIE CAPITAL CORP

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Rule 13a -14(a)

I, Roger L. Dick, certify that:

  • I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2025 of Uwharrie Capital Corp (the “registrant”);
  • Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  • Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  • The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:
  • Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  • Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  • Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  • Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  • The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  • All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  • Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2025 /s/ Roger L. Dick
Roger L. Dick
President and Chief Executive Officer

EX-31.2

Exhibit 31.2

UWHARRIE CAPITAL CORP

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Rule 13a -14(a)

I, Heather H. Almond, certify that:

  • I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2025 of Uwharrie Capital Corp (the “registrant”);
  • Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  • Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  • The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:
  • Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  • Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  • Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  • Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  • The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  • All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  • Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2025 /s/ Heather H. Almond
Heather H. Almond
Principal Financial Officer

EX-32

Exhibit 32

Certification pursuant to 18 U.S.C. 1350 as adopted pursuant

to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned each hereby certifies that, to his or her knowledge, (i) the Form 10-Q filed by Uwharrie Capital Corp (the “Issuer”) for the quarter ended June 30, 2025, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer on the dates and for the periods presented therein.

Date: August 5, 2025 /s/ Roger L. Dick
Roger L. Dick
President and Chief Executive Officer
Date: August 5, 2025 /s/ Heather H. Almond
Heather H. Almond
Principal Financial Officer

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