<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file Number 0-22062
UWHARRIE CAPITAL CORP
(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1814206
(State of incorporation) (I.R.S Employer Identification No.)
167 North Second Street
Albemarle, North Carolina 28001
(Address of principal executive offices)
Issuer's telephone number, including area code: (704) 983-6181
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 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 X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Title of Each Class Outstanding at April 30, 1998
- ------------------- -----------------------------
Common stock, par value $1.25 per share 2,290,913 shares
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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UWHARRIE CAPITAL CORP AND SUBSIDIARY
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets, March 31, 1998 and 1997 (Unaudited) 3
Consolidated Statements of Income for the Three Months Ended
March 31, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Changes in Shareholders' Equity for the
Three Months Ended March 31, 1998 and 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security Holders 11
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT 27 Financial Data Schedule for the Three Months Ended March 31, 1998 13
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
- -----------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets (Unaudited)
(In Thousands)
March 31,
1998 1997
--------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,587 $ 5,043
Securities available for sale:
U.S. Treasury 4,012 4,963
U.S. Government agencies and corporations 15,637 14,320
State and political subdivisions 5,781 5,938
Other securities 1,082 1,284
--------------- --------------
Total securities 26,512 26,505
--------------- --------------
Loans 113,365 103,908
Less: Allowance for loan losses 1,113 1,057
--------------- --------------
Loans, net 112,252 102,851
--------------
---------------
Premises and equipment, net 2,332 2,197
Interest receivable 974 877
Other assets 1,201 1,198
--------------- --------------
Total assets $ 147,858 $ 138,671
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 14,783 $ 12,720
Money market and NOW accounts 27,826 30,027
Savings deposits 33,843 28,812
Time deposits $100,000 and over 9,059 7,736
Other time deposits 33,309 33,171
--------------- --------------
Total deposits 118,820 112,466
--------------- --------------
Federal funds purchased 1,600 2,200
Securities sold under repurchase agreements 4,801 4,331
Commercial paper 1,851 -
Other short-term borrowed funds 2,200 -
Long-term debt 4,975 7,725
Interest payable 161 186
Other liabilities 558 380
--------------- --------------
Total liabilities 134,966 127,288
--------------- --------------
Shareholders' equity:
Common stock, par value $1.25 per share;
authorized 6,000,000; issued and outstanding:
2,290,353 shares at March 31, 1998
2,170,964 shares at March 31, 1997 2,863 2,713
Surplus 5,560 4,569
Undivided profits 4,156 4,046
Unrealized gain (loss) on securities available for sale, net
of related tax effect 313 55
--------------- --------------
Total shareholders' equity 12,892 11,383
--------------- --------------
Total liabilities and shareholders' equity $ 147,858 $ 138,671
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
3
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<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
- --------------------------------------------------------------------------------------------------
(In Thousands) Three Months Ended
March 31,
1998 1997
------------- -------------
<S> <C> <C>
INTEREST INCOME:
Interest on loans $ 2,438 $ 2,203
Interest on securities:
U.S. Treasury 74 64
U.S. Government agencies and corporations 235 232
State and political subdivisions 85 86
Other 20 20
Other interest income 7 7
------------- -------------
Total interest income 2,859 2,612
INTEREST EXPENSE:
Interest on deposits and borrowed funds 1,245 1,166
------------- -------------
NET INTEREST INCOME 1,614 1,446
Provision for loan losses 14 38
------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,600 1,408
------------- -------------
NONINTEREST INCOME:
Service charges on deposit accounts 227 216
Other service fees and commissions 121 127
Other income - 12
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Total noninterest income 348 355
------------- -------------
NONINTEREST EXPENSE:
Salaries, wages and employee benefits 794 662
Occupancy expenses 75 55
Equipment expense 106 100
Data processing 105 122
Other expenses 410 384
------------- -------------
Total noninterest expense 1,490 1,323
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INCOME BEFORE INCOME TAXES 458 440
Provision for Income Taxes 140 132
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NET INCOME $ 318 $ 308
============= =============
Earnings Per Share $ .14 $ .14
Shares used in computing net income per share 2,290,353 2,170,964
See Notes to Consolidated Financial Statements.
</TABLE>
4
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<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
For The Three Months Ended March 31, 1998 and 1997 (Unaudited)
Net
Unrealized Gain
(In Thousands) Common Undivided (Loss) on Securities
Stock Surplus Profits Available for Sale
--------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 2,719 $ 4,594 $ 3,738 $ 253
Repurchase of common stock (6) (25) - -
Net income - - 308 -
Net decrease in market value of
securities available for sale - - - (198)
--------------- -------------- -------------- -----------------
Balance, March 31, 1997 $ 2,713 $ 4,569 $ 4,046 $ 55
=============== ============== ============== =================
- ---------------------------------------------- --------------- ---- -------------- --- -------------- --- -----------------
Balance, December 31, 1997 $ 2,853 $ 5,524 $ 3,838 $ 319
Stock options exercised 10 36 - -
Net income - - 318 -
Net decrease in market value of
securities available for sale - - - (6)
=============== ============== ============== =================
Balance, March 31, 1998 $ 2,863 $ 5,560 $ 4,156 $ 313
=============== ============== ============== =================
</TABLE>
See Notes to Consolidated Financial Statements.
5
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<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1998 and 1997 (In Thousands)
1998 1997
----------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 318 $ 308
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 68 63
Amortization (accretion) of security premiums and discounts, net 9 (1)
Provision for loan losses 14 38
Deferred income taxes - (7)
Loss on foreclosed properties 14 -
Changes in assets and liabilities:
Interest receivable (44) (19)
Other assets (24) (69)
Income taxes receivable (8) -
Interest payable (10) 9
Other liabilities 53 13
--------------- -----------------
Net cash provided by operating activities 390 335
----------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities available for sale 1,575 2,421
Purchase of securities available for sale (4,260) (4,030)
Net decrease (increase) in loans 594 (3,086)
Proceeds from sale of foreclosed properties 34 -
Capital expenditures (56) (143)
----------------- ---------------
Net cash used in investing activities (2,113) (4,838)
----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW and savings accounts 2,140 6,888
Net increase (decrease) in time deposits (225) 979
Net increase (decrease) in securities sold under repurchase agreements 754 (3,824)
Net increase in federal funds 200 2,200
Net decrease in other borrowings/notes payable (1,111) (1,549)
Proceeds from issuance of common stock 46 -
Repurchases of common stock - (31)
----------------- ---------------
Net cash provided by financing activities 1,804 4,663
----------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 81 160
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,506 4,883
----------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,587 $ 5,043
================= ===============
Supplemental disclosures of cash flow information:
Interest paid $ 1,255 $ 1,156
Income taxes paid $ 32 $ 92
</TABLE>
See Notes to Consolidated Financial Statements.
6
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UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 - ACCOUNTING POLICIES
The financial statements and accompanying notes are presented on a consolidated
basis including Uwharrie Capital Corp (the "Company"), it's Subsidiary, Bank of
Stanly ("the Bank") and the Bank's subsidiaries. Bank of Stanly consolidates the
Strategic Alliance Corporation and BOS Agency, Inc. each of which are
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 and all
material adjustments necessary for a fair presentation of results of interim
periods have been made. The results of operations for the interim periods are
not necessarily indicative of the results which may be expected for an entire
year. Management is not aware of economic events, outside influences or changes
in concentrations of business that would require additional clarification or
disclosure in the consolidated financial statements. Certain prior period
amounts have been reclassified to conform to current period classifications.
NOTE 2 - LOANS
<TABLE>
<CAPTION>
Loans outstanding at period end:
March 31,
(In Thousands) 1998 1997
--------------- --------------
<S> <C> <C>
Real estate loans $ 85,612 $ 78,659
Commercial and industrial 16,275 14,275
Loans to individuals for household, family and other
consumer expenditures 11,408 10,949
All other loans 70 25
=============== ==============
Total $ 113,365 $ 103,908
=============== ==============
Summary of transactions in the allowance for loan losses for the three-month periods ended:
March 31,
(In Thousands) 1998 1997
-------------- ---------------
Beginning balance 1,125 $ 1,050
Charge-offs:
Commercial loans - 12
Consumer loans 41 24
Real estate loans - -
-------------- ---------------
Gross charge-offs 41 36
-------------- ---------------
Recoveries:
Commercial loans - -
Consumer loans 15 5
Real estate loans - -
-------------- ---------------
Gross recoveries 15 5
-------------- ---------------
Net charge-offs 26 31
Provision for loan losses 14 38
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Ending balance 1,113 1,057
============== ===============
Percentage of gross loans .98% 1.02%
Ratio of net charge-offs to average loans during the period .02% .03%
</TABLE>
7
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NOTE 3 - STANDBY LETTERS OF CREDIT
At March 31, 1998 and 1997 the Company had outstanding letters of credit
totaling $763 thousand and $283 thousand, respectively.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Uwharrie Capital Corp, (the Company) was incorporated as Stanly Capital Corp
under the laws of the State of North Carolina as a one bank holding company for
Bank of Stanly (the Bank) in July 1993. The Company changed its name to Uwharrie
Capital Corp in April 1997 to broaden its community perspective and expand its
vision beyond its current service area in Stanly County to the Uwharrie Lakes
region, consisting of a contiguous seven county area in our state.
The Bank was incorporated in 1983 and since commencement of its operations in
January 1984, has engaged in the retail and commercial banking business through
its five offices located in Stanly County, North Carolina. Bank of Stanly
competes with five other commercial banks, a savings bank and a credit union in
its service area, primarily for lending activities and deposit customers. The
Bank enjoys a good reputation as a community focused financial institution, and
has been successful in achieving substantial growth in a market that has not
displayed a significant amount of growth potential.
Results of operations and the Company's financial condition are presented in the
following narrative and incorporated tables. References to changes in assets and
liabilities represent end of period balances unless otherwise noted.
EARNINGS
The first quarter of 1998 reflected good operating results with net income of
$318 thousand or $.14 per share, an increase of 3.2% when compared to the first
quarter of 1997. This improvement can be primarily attributed to an increase in
net interest income due to growth in the loan portfolio and a relatively stable
net interest margin.
NET INTEREST INCOME
The largest contributor to earnings, net interest income, increased by $168
thousand or 11.6% for the three months ended March 31, 1998 compared to the same
period a year earlier. The major components of net interest income are income
earned on investments and loans less interest expense on deposits and
borrowings.
Income on loans of $2.4 million for the three month period, reflected an
improvement of 10.7% over the earnings of $2.2 million during the same period in
1997. Investment securities provided an additional $12 thousand in earnings in
1998 compared to 1997.
Interest expense on deposits, securities sold under repurchase agreements,
federal funds purchased and borrowed funds increased by $79 thousand or 6.8%
comparing these periods due to the higher levels of interest-bearing liabilities
needed to fund asset growth.
8
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The following chart reflects average interest-earning assets and
interest-bearing liabilities, associated income or expense, related rates and
the net interest spread for the three month periods ended March 31, 1998 and
1997.
<TABLE>
<CAPTION>
Rate/Yield Spread Table on Tax Equivalent Basis *
Average Level Income/Expense Rate/Yield
($ in thousands) 1998 1997 1998 1997 1998 1997
------------ ----------- ----------- ------------ ----------- -----------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans $ 112,457 $ 103,104 $ 2,438 $ 2,203 8.79% 8.67%
Securities * 26,149 25,868 460 448 7.13% 7.02%
Other 336 477 7 7 8.45% 5.95%
------------ ----------- ----------- ------------ ----------- -----------
Total interest-earning 138,942 129,449 2,905 2,658 8.48% 8.33%
assets
------------ ----------- ----------- ------------ ----------- -----------
Interest-bearing liabilities:
Interest-bearing deposits 105,416 94,632 1,058 936 4.07% 4.01%
Short-term borrowings 9,042 9,941 87 118 3.90% 4.81%
Long-term borrowings 6,272 7,201 100 112 6.47% 6.31%
------------ ----------- ----------- ------------ ----------- -----------
Total interest-bearing
liabilities 120,730 111,774 1,245 1,166 4.18% 4.23%
------------ ----------- ----------- ------------ ----------- -----------
Net interest spread $ 18,212 $ 17,675 $ 1,660 $ 1,492 4.30% 4.10%
============ =========== =========== ============ =========== ===========
</TABLE>
* An effective tax rate of 35% for 1998 and 1997 was used to adjust to a fully
tax-equivalent basis.
NONPERFORMING ASSETS
Nonperforming assets were $244 thousand at March 31, 1998, reflecting a decrease
of $219 thousand compared to 1997. The resulting ratios are favorable compared
to our state peers. Detail of nonperforming assets is presented below:
<TABLE>
<CAPTION>
(In Thousands) March 31,
1998 1997
--------------- ---------------
Nonaccrual loans:
<S> <C> <C>
Commercial $ - $ 23
Real estate 145 348
Consumer installment 14 7
--------------- ---------------
Total nonaccrual loans 159 378
Other real estate owned, net 85 85
--------------- ---------------
Total nonperforming assets $ 244 $ 463
=============== ===============
Nonperforming assets as a percentage
Total assets .17% .33%
Total loans .22% .45%
</TABLE>
9
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PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company uses a rating method to determine an adequate level of provision for
loan losses which additionally provides early detection of problem loans. This
identification process begins with management's assessment of credit reviews,
payment histories of borrowers, loan-to-value ratio, and identified weakness in
the credit. The loans are graded and management establishes a standard
percentage to reserve for each rating. Included in the calculation are loans
previously identified by examiners as loss, doubtful or substandard.
Charge-offs, net of recoveries, for the first three months of 1998 totaled $26
thousand, reflecting a relatively low ratio to average loans of .02%.
During the three month period ended March 31, 1998, a total of $14 thousand in
loan loss provision expense was recognized, compared to $38 thousand for this
period in 1997. The transactions in the allowance for loan losses are summarized
in Note 2 to the consolidated financial statements.
NONINTEREST INCOME AND EXPENSE
Total noninterest income from service charges and other fees produced earnings
of $348 thousand for this quarter compared to $355 thousand in the prior period,
a modest decrease of 2.0%.
For this same period, noninterest expenses increased by $167 thousand or 12.6%.
Salaries and benefits, the largest component of noninterest expense, increased
by $132 thousand due to the addition of an executive officer, normal salary
adjustments and increase in associated benefit costs. All other expenses as a
group increased by $35 thousand when comparing results of the first quarter of
1998 to the same three month period of 1997.
INCOME TAX EXPENSE
Income taxes computed at the statutory rate are reduced primarily by the
eligible amount of interest earned on state and municipal securities. Income tax
expense calculated to date in 1998 totals $140 thousand, an effective tax rate
of 30.6% compared to $132 thousand in 1997, reflecting an effective rate of
30.0% of pretax income.
FINANCIAL CONDITION AND CAPITAL RATIOS
As of March 31, 1998 total assets were $147.9 million, an improvement of 6.6%
over March 31, 1997. The Company has experienced steady growth of 9.1% in loans
which increased from $103.9 million at March 31, 1997 to $113.4 million on March
31, 1998, reflecting growth of 9.1%. Asset quality remains good as evidenced by
past due loan percentages, loan loss experience and management's rating of the
loan portfolio.
The Company continues to maintain strong capital ratios that will support
additional asset growth. As of March 31, 1998, the leverage ratio calculated
with regulatory Tier I capital as a percentage of average for the quarter assets
was 8.63%, which compares favorably to the regulatory capital requirement. Total
capital to risk weighted assets was 13.86% at March 31, 1998.
10
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LIQUIDITY
Liquidity, the ability to raise cash when needed without adversely impacting
profits, is managed primarily by the selection of asset mix and the maturity mix
of liabilities. Maturities and the marketability of securities and other funding
sources provide a source of liquidity to meet deposit withdrawals.
Other funding sources currently include $13.5 million in federal funds lines of
credit from correspondent banks and a $30 million line of credit from the
Federal Home Loan Bank, less current advance levels of borrowing from these
sources of $7.2 million. Growth in deposits is typically the primary source of
funding for loans, supported by credit available from the Federal Home Loan Bank
for short-term and long-term borrowings.
INTEREST RATE SENSITIVITY
The major component of income for Uwharrie Capital Corp is net interest income,
the difference between yield earned on assets and interest paid on liabilities.
This differential (or margin) can vary over time as changes in interest rates
occur. The volatility of changes in this differential can be measured by the
timing (or repricing) difference between maturing assets and liabilities.
To identify interest rate sensitivity, a common measure is a gap analysis which
reflects the difference or gap between rate sensitive assets and liabilities
over various time periods. While Management reviews this information, it has
implemented the use of a simulation model which calculates expected net interest
income based on projected interest-earning assets, interest-bearing liabilities
and interest rates and provides a more relevant view of interest rate risk than
traditional gap tables. The simulation allows comparison of flat, rising and
falling rate scenarios to determine sensitivity of earnings to changes in
interest rates.
The Asset Liability Management Committee monitors market changes in interest
rates and assists with pricing loans and deposit products consistent with
funding source needs and asset growth projections.
PART II
OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
There were no reports on Form 8-K filed with the Securities and
Exchange Commission during the first quarter of 1998.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned who is thereunto duly authorized.
UWHARRIE CAPITAL CORP
(Registrant)
Date April 30, 1998 By:
Roger L. Dick
President and Chief Executive Officer
Barbara S. Williams
Senior Vice President-Finance
12
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<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000898171
<NAME> UWHARRIE CAPITAL CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,587
<INT-BEARING-DEPOSITS> 104,037
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,512
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 113,365
<ALLOWANCE> 1,113
<TOTAL-ASSETS> 147,858
<DEPOSITS> 118,820
<SHORT-TERM> 10,452
<LIABILITIES-OTHER> 719
<LONG-TERM> 4,975
0
0
<COMMON> 2,863
<OTHER-SE> 10,029
<TOTAL-LIABILITIES-AND-EQUITY> 147,858
<INTEREST-LOAN> 2,438
<INTEREST-INVEST> 414
<INTEREST-OTHER> 7
<INTEREST-TOTAL> 2,859
<INTEREST-DEPOSIT> 1,037
<INTEREST-EXPENSE> 1,245
<INTEREST-INCOME-NET> 1,614
<LOAN-LOSSES> 14
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,490
<INCOME-PRETAX> 458
<INCOME-PRE-EXTRAORDINARY> 318
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 318
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<YIELD-ACTUAL> 4.85
<LOANS-NON> 159
<LOANS-PAST> 7
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,125
<CHARGE-OFFS> 41
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 1,113
<ALLOWANCE-DOMESTIC> 1,113
<ALLOWANCE-FOREIGN> 0
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</TABLE>
