U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - KSB
( Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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( ) 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 0-22062
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UWHARRIE CAPITAL CORP
167 North Second Street
Albemarle, North Carolina 28001
(704) 983-6181
North Carolina 56-1814206
(State of incorporation) (IRS Employer Identification No.)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $1.25 Par Value
The Registrant has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the Registrant's
knowledge, in the definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
The Registrant's revenues for the year ended December 31, 1998 were $13,418,148.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the sale price of the common stock in recent transactions
was $27,176,199. Shares of common stock held by each executive officer and
director have been excluded in that such persons are deemed to be affiliates.
As of February 12, 1999, the Registrant had 4,941,127 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1998 Annual Report to Shareholders are incorporated
by reference into Part II of this report. Portions of the Registrant's
definitive Proxy Statement dated March 30, 1999, are incorporated by reference
into Part III.
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Transitional Small Business Disclosure Format (check one) Yes ( ) No ( X )
<PAGE>
FORM 10-KSB CROSS REFERENCE INDEX
As indicated below, portions of (i) the Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1998, and (ii) the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
April 27, 1999, filed with the Securities and Exchange Commission via EDGAR are
incorporated by reference into Parts II and III of this report.
Key
AR Annual Report to Shareholders for the fiscal year ended December
31, 1998.
Proxy Proxy Statement dated March 30, 1999 for the Annual Meeting of
Shareholders to be held April 27, 1999.
10-KSB 10-KSB for the year ended December 31, 1998
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<CAPTION>
Document
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PART I
<S> <C> <C>
Item 1. Business.............................................................................. Page 3 10-KSB
Item 2. Properties............................................................................ Page 9 10-KSB
Item 3. Legal Proceedings..................................................................... Page 10 10-KSB
Item 4. Submission of Matters to a Vote of Security Holders................................... Page 10 10-KSB
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................................... Page 4 AR
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................... Page 29 AR
Item 7. Financial Statements and Supplementary Data.......................................... Page 6 AR
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................................... Page 10 10-KSB
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of Exchange Act............................... Page 5 Proxy
Item 10. Executive Compensation............................................................... Page 7 Proxy
Item 11. Security Ownership of Certain Beneficial Owners and Management....................... Page 2 Proxy
Item 12. Certain Relationships and Related Transactions....................................... Page 9 Proxy
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Index to Exhibits........................................................... Page 14 10-KSB
(b) No Reports on Form 8-K were filed for the three months
ended December 31, 1998
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Uwharrie Capital Corp (the "Company") is a North Carolina bank holding company.
The Company was organized on July 1, 1993 to become the bank holding company for
the Bank of Stanly (the "Bank"), a North Carolina commercial bank chartered on
September 28, 1983 and its two wholly-owned subsidiaries, The Strategic Alliance
Corporation ("Strategic Alliance") and BOS Agency, Inc. ("BOS Agency"). The Bank
also owns a 50% interest in Corporate Data Services Inc., a North Carolina
corporation that provides operations and data processing services. The Company,
the Bank and its subsidiaries are located in Stanly County, their primary
service area, but intend to prudently expand their service area to include the
entire Uwharrie Lakes Region.
The Company is community oriented, emphasizing the well being of the people in
its region above financial gain in directing its corporate decisions. In order
to best serve its community, the Company believes it must remain a strong,
viable, independent financial institution. This means that the Company must
evolve with today's quickly changing financial services industry. In 1993, the
Company implemented its current strategy to remain a strong independent
community financial institution that is competitive with larger institutions and
allows its service area to enjoy the benefits of a local financial institution
and the strength its capital investment provides the community. This strategy
consists of developing and expanding the Company's technological capabilities
while recruiting and maintaining a workforce sensitive to the financial services
needs of its customers. This strategy has provided the Company with the capacity
to grow and leverage the high cost of delivering competitive services.
At December 31, 1998 the Company and related subsidiaries had 66 full-time and
36 part-time employees.
BUSINESS OF THE BANK
The Bank is a North Carolina chartered commercial bank which was incorporated in
1983 and commenced banking operations on January 26, 1984. The Bank's main
banking office is located at 167 North Second Street, Albemarle, North Carolina,
and it operates four other banking offices located in Stanly County, North
Carolina. The Bank is the only commercial bank headquartered in Stanly County
and is owned predominately by residents of Stanly County and the immediately
surrounding area.
Its operations are primarily retail oriented and directed to individuals and
small to medium-sized businesses located in its market area, and its deposits
and loans are derived primarily from customers in its geographical market. The
Bank provides most traditional commercial and consumer banking services,
including personal and commercial checking and savings accounts, money market
accounts, certificates of deposit, individual retirement accounts, and related
business and individual banking services. The Bank's lending activities include
commercial loans and various consumer-type loans to individuals, including
installment loans, mortgage loans, equity lines of credit and overdraft checking
credit. The Bank also issues Visa(R) Check Card, an electronic banking card,
which functions as a point-of-sale card and allows its customers to access their
deposit accounts at three branches of the Bank and at the automatic teller
machines of other banks linked to the HONOR(R) or CIRRUS(R) networks. The Bank
is licensed to offer MasterCard(R) credit cards. The Bank does not provide the
services of a trust department.
NON-BANK SUBSIDIARIES
The Bank has two wholly-owned subsidiaries, BOS Agency, Inc. ("BOS Agency") and
The Strategic Alliance Corporation ("Strategic Alliance"). BOS Agency was formed
during 1987 and engages in the sale of various insurance products, including
annuities, life insurance, long-term care, disability insurance and Medicare
supplements. Strategic Alliance was formed during 1989 as BOS Financial
Corporation
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and, during 1993, adopted its current name. It is registered with the Securities
and Exchange Commission and licensed by the National Association of Securities
Dealers ("NASD") as a securities broker-dealer.
Strategic Alliance and BOS Agency provide investment management and insurance
products, respectively. Strategic Alliance offers a full range of financial and
investment services to its customers in the Uwharrie Lakes Region through its
marketing division. BOS Agency serves the risk management needs of customers and
brings life insurance, long-term health care, Medicare supplement and other
insurance industry products to customers' financial portfolios.
DATA PROCESSING JOINT VENTURE
During 1992 the Bank entered into a joint venture agreement with two other banks
to form Corporate Data Services, Inc. ("CDS"), a North Carolina corporation that
provides operations and data processing services for community banks. The Bank's
ownership in this venture increased from one-third to one-half during 1995 due
to a merger involving one of the owners and the subsequent forfeiture of their
stock. The Bank's investment in CDS at December 31, 1998 amounted to $240,000.
COMPETITION
The Bank's primary geographic market is Stanly County, North Carolina.
Commercial banking in North Carolina is extremely competitive, due in large part
to statewide branching. The Company encounters significant competition from a
number of sources, including other bank holding companies, commercial banks,
thrift and savings and loan institutions, credit unions, and other financial
institutions and financial intermediaries. In Stanly County, five other
commercial banks presently operate a total of 14 banking offices, one savings
bank operates two offices and a credit union operates one office in the county.
Among commercial banks, the Bank competes in its market area with some of the
largest banking organizations in the state, several of which have hundreds of
branches in North Carolina and billions of dollars in assets. Moreover,
competition is not limited to financial institutions based in North Carolina.
The enactment of federal legislation authorizing nationwide interstate banking
has greatly increased the size and financial resources of some of the Company's
competitors. Consequently, some competitors have substantially higher lending
limits due to their greater total capitalization, and may perform functions for
their customers that the Company currently does not offer. As a result, the
Company could encounter increased competition in the future that may limit its
ability to maintain or increase its market share or otherwise materially and
adversely affect its business, results of operations and financial condition.
The Bank depends on its reputation as a community bank in its local market,
direct customer contact, its ability to make credit and other business decisions
locally, and personalized service to counter these competitive disadvantages.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS.
The Company's success is dependent to a significant extent upon economic
conditions in Stanly County and more generally, in the Uwharrie Lakes Region. In
addition, the banking industry in general is affected by economic conditions
such as inflation, recession, unemployment and other factors beyond the Bank's
control. Economic recession over a prolonged period or other economic
dislocation in Stanly County and the Uwharrie Lakes Region could cause increases
in non-performing assets and impair the values of real estate collateral,
thereby causing operating losses, diminishing liquidity and eroding capital.
Although management believes its loan policy and review process results in sound
and consistent credit decisions on its loans, there can be no assurance that
future adverse changes in the economy in the Bank's market area would not have a
material adverse effect on the Bank's financial condition, results of operations
or cash flows.
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IMPACT OF TECHNOLOGICAL ADVANCES; UPGRADE TO COMPANY'S INFRASTRUCTURE
The banking industry is undergoing, and management believes will continue to
undergo, technological changes with frequent introductions of new
technology-driven products and services. In addition to improving customer
services, the effective use of technology increases efficiency and enables
financial institutions to reduce costs. The Company's future success will
depend, in part, on its ability to address the needs of its customers by using
technology to provide products and services that will satisfy customer demands
for convenience as well as enhance efficiencies in the Company's operations.
Management believes that keeping pace with technological advances is critical
for the Company in light of its strategy to continue its sustained pace of
growth. As a result, the Company intends to continue to upgrade its internal
systems, both through the efficient use of technology (including software
applications) and by strengthening its policies and procedures. At the same
time, the Company anticipates that it will expand its array of technology-based
products to its customers.
INTERSTATE BANKING AND BRANCHING
Federal law permits adequately capitalized and managed bank holding companies to
acquire control of the assets of banks in any state (the "Interstate Banking
Law"). Acquisitions are subject to anti-trust provisions that cap at 10% the
portions of the total deposits of insured depository institutions in the United
States that a single bank holding company may control, and generally cap at 30%
the portion of the total deposits in any state that a single bank holding
company may control. Under certain circumstances, states have the authority to
increase or decrease the 30% cap, and states may set minimum age requirements of
up to five years on target banks within their borders.
Beginning June 1, 1997, and subject to certain conditions, the Interstate
Banking Law also permits interstate branching by allowing a bank to merge with a
bank located in a different state. A state may accelerate the effective date for
interstate mergers by adopting a law authorizing such transactions prior to June
1, 1997, or it can "opt out" and thereby prohibit interstate branching by
enacting legislation to that effect prior to that date. The Interstate Banking
Law also permits banks to establish branches in other states by opening new
branches or acquiring existing branches of other banks if the laws of those
other states specifically permit that form of interstate branching. North
Carolina has adopted statutes which, subject to conditions contained therein,
specifically authorize out-of-state bank holding companies and banks to acquire
or merge with North Carolina banks and to establish or acquire branches in North
Carolina. South Carolina, Tennessee and Virginia have similar laws and
interstate mergers or branching has occurred or has been applied for among these
three states and North Carolina.
SUPERVISION AND REGULATION
The business and operations of the Company and its Subsidiary Bank are subject
to extensive federal and state governmental regulation and supervision.
Registrant is a bank holding company registered with the Board of Governors of
the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and is subject to supervision and
examinations by and the regulations and reporting requirements of the Federal
Reserve. Under the BHCA, the activities of the Company and the Bank are limited
to banking, managing or controlling banks, furnishing services to or performing
services for their subsidiaries or engaging in any other activity which the
Federal Reserve determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
The BHCA prohibits the Company from acquiring direct or indirect control of more
than 5% of the outstanding voting stock or substantially all of the assets of
any financial institution, or merging or consolidating with another bank holding
or savings bank holding company, without prior approval of the Federal Reserve.
Additionally, the BHCA prohibits the Company from engaging in, or acquiring
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ownership or control of more than 5% of the outstanding voting stock of any
company engaged in a non-banking activity unless such activity is determined by
the Federal Reserve to be so closely related to banking as to be properly
incident thereto. In approving an application by the Company to engage in a
non-banking activity, the Federal Reserve must consider whether that activity
can reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices.
There are a number of obligations and restrictions imposed by law on a bank
holding company and its insured depository institution subsidiaries that are
designed to minimize potential loss to depositors and the FDIC insurance funds.
For example, if a bank holding company's insured depository institution
subsidiary becomes "undercapitalized," the bank holding company is required to
guarantee (subject to certain limits) the subsidiary's compliance with the terms
of any capital restoration plan filed with its appropriate federal banking
agency.
Also, a bank holding company is required to serve as a source of financial
strength to its depository institution subsidiaries and to commit resources to
support such institutions in circumstances where it might not do so absent such
policy. Under the BHCA, the Federal Reserve has the authority to require a bank
holding company to terminate any activity or to relinquish control of a nonbank
subsidiary upon the Federal Reserve's determination that such activity or
control constitutes a serious risk to the financial soundness and stability of a
depository institution subsidiary of the bank holding company.
As a result of its ownership of a North Carolina-chartered commercial bank, the
Company also is registered with and subject to regulation by the North Carolina
Commissioner of Banks (the "Commissioner") under the state's bank holding
company laws. The Commissioner has asserted authority to examine North Carolina
bank holding companies and their affiliates.
The Bank is a North Carolina commercial bank and its deposits are insured by the
FDIC. The Bank is subject to supervision and examination by and the regulations
and reporting requirements of the Commissioner and the FDIC. The Bank also is a
member of the Federal Home Loan Bank System (the "FHLB System").
The Bank is subject to legal limitations on the amounts of dividends it is
permitted to pay. Prior approval of the Commissioner is required if the total of
all dividends declared by the Bank in any calendar year exceeds its net profits
(as defined by statute) for the preceding two calendar years, less any required
transfers to surplus. As an insured depository institution, the Bank also is
prohibited from making capital distributions, including the payment of
dividends, if after making such distribution, it would become "undercapitalized"
(as such term is defined in the Federal Deposit Insurance Act).
Under current federal laws, certain transactions between a depository
institution and its affiliates are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a depository institution is any company or
entity that controls, is controlled by or is under common control with the
institution, and in a holding company context, the parent holding company of a
depository institution and any companies which are controlled by such parent
holding company are affiliates of the depository institution. Generally,
Sections 23A and 23B (i) limit the extent to which a depository institution or
its subsidiaries may engage in covered transactions with any one affiliate, and
(ii) require that such transactions be on terms and under circumstances
substantially the same, or at least as favorable, to the institution or the
subsidiary as those provided to a nonaffiliate.
The Bank is subject to various other state and federal laws and regulations,
including state usury laws, laws relating to fiduciaries, consumer credit and
equal credit, fair reporting laws and laws relating to branch banking. As an
insured institution, the Bank is prohibited from engaging as a principal in
activities that are not permitted for national banks unless (i) the FDIC
determines that the activity would
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pose no significant risk to the appropriate deposit insurance fund and (ii) the
institution is and continues to be in compliance with all applicable capital
standards. Insured institutions also are prohibited from directly acquiring or
retaining any equity investment of a type or in an amount not permitted for
national banks.
The Federal Reserve, the FDIC and the Commissioner all have broad powers to
enforce laws and regulations applicable to the Company and the Bank and to
require corrective action of conditions affecting the safety and soundness of
the Bank. Among others, these powers include cease and desist orders, the
imposition of civil penalties and the removal of officers and directors. The
Company and the Bank in the past have not had, and do not foresee in the future,
any significant regulatory compliance problems.
CAPITAL REQUIREMENTS
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines which require a minimum ratio of total capital to
risk-weighted assets of 8%. At least half of the total capital is required to be
composed of common equity, retained earnings and a limited amount of qualifying
perpetual preferred stock, less certain intangibles ("Tier I capital"). In
addition to the risk-based capital guidelines, the Federal Reserve has adopted a
minimum leverage capital ratio under which a bank holding company must maintain
a level of Tier I capital to average total consolidated assets of at least 3% in
the case of a bank holding company which has the highest regulatory examination
rating and is not contemplating significant growth or expansion. All other bank
holding companies are expected to maintain a leverage capital ratio of at least
1% to 2% above the stated minimum.
The Bank also is subject to capital requirements imposed by the FDIC. Under the
FDIC's regulations, insured institutions that receive the highest rating during
the examination process and are not anticipating or experiencing any significant
growth are required to maintain a minimum leverage ratio of 3% of Tier I capital
to average total consolidated assets. All other insured institutions are
required to maintain a minimum ratio of 1% or 2% above the stated minimum, with
a minimum leverage ratio of not less than 4%. The FDIC also requires the Bank to
have a ratio of total capital to risk-weighted assets of at least 8%.
SAFETY AND SOUNDNESS STANDARDS
The FDIA, as amended by the FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1995, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest risk exposure, asset growth, asset
quality, earnings, stock valuation and compensation, fees and benefits and such
other operational and managerial standards as the agencies deem appropriate. The
federal bank regulatory agencies have adopted, effective August 9, 1996, a set
of guidelines prescribing safety and soundness standards pursuant to FDICIA, as
amended.
The guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director, or principal stockholder. The federal
banking agencies determined that stock valuation standards were not appropriate.
In addition, the agencies adopted regulations that authorize, but do not
require, an agency to order an institution that has been given notice by an
agency that it is not satisfying any of such safety and soundness standards to
submit a compliance plan. If, after being so notified, an institution fails to
submit an acceptable compliance plan, the agency must issue an
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order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized association is
subject under the prompt correction action provisions of FDICIA. If an
institution fails to comply with such an order, the agency may seek to enforce
such order in judicial proceedings and to impose civil money penalties.
COMMUNITY REINVESTMENT ACT
The Bank is subject to the provisions of the Community Reinvestment Act (CRA).
Under the terms of the CRA, the appropriate federal bank regulatory agency is
required, in connection with the examination of a bank, to assess such bank's
record in meeting the credit needs of the community served by that bank,
including low and moderate-income neighborhoods. The regulatory agency's
assessment of the bank's record is made available to the public. Such an
assessment is required of any bank, which has applied for any application for a
domestic deposit-taking branch, relocation of a main office, branch or ATM,
merger or consolidation with or acquisition of assets or assumption of
liabilities of a federally insured depository institution.
Under CRA regulations, banks with assets of less than $250,000,000 that are
independent or affiliated with a holding company with total banking assets of
less than $1 billion, are subject to streamlined small bank performance
standards and much less stringent data collection and reporting requirements
than larger banks. The agencies emphasize that small banks are not exempt from
CRA requirements. The streamlined performance method for small banks focuses on
the bank's loan-to-deposit ratio, adjusted for seasonal variations and as
appropriate, other lending-related activities, such as loan originations for
sale to secondary markets or community development lending or qualified
investments; the percentage of loans and, as appropriate, other lending-related
activities located in the bank's assessment areas; the bank's record of lending
to and, as appropriate, other lending-related activities for borrowers of
different income levels and businesses and farms of different sizes; the
geographic distribution of the bank's loans given its assessment areas, capacity
to lend, local economic conditions, and lending opportunities; and the bank's
record of taking action, if warranted, in response to written complaints about
its performance in meeting the credit needs of its assessment areas.
Regulatory agencies will assign a composite rating of "outstanding,"
"satisfactory," "needs to improve," or "substantial noncompliance" to the
institution using the foregoing ground rules. A bank's performance need not fit
each aspect of a particular rating profile in order for the bank to receive that
rating; exceptionally strong performance with respect to some aspects may
compensate for weak performance in others, and the bank's overall performance
must be consistent with safe and sound banking practices and generally with the
appropriate rating profile. To earn an outstanding rating, the bank first must
exceed some or all of the standards mentioned above. The agencies may assign a
"needs to improve" or "substantial noncompliance" rating depending on the degree
to which the bank has failed to meet the standards mentioned above.
The regulation further states that the agencies will take into consideration
these CRA ratings when considering any application and that a bank's record of
performance may be the basis for denying or conditioning approval of an
application.
CHANGE OF CONTROL
State and federal law restricts the amount of voting stock of a bank holding
company or a bank that a person may acquire without the prior approval of
banking regulators. The overall effect of such laws is to make it more difficult
to acquire a bank holding company or bank by tender offer or similar means than
it might be to acquire control of another type of corporation.
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Pursuant to North Carolina law, no person may, directly or indirectly, purchase
or acquire voting stock of any bank holding company or bank which would result
in the change of control of that entity unless the Commissioner first shall have
approved such proposed acquisition. A person will be deemed to have acquired
"control" of a bank holding company or bank if he, she or it, directly or
indirectly, (i) owns, controls or has the power to vote 10% or more of the
voting stock of the bank holding company or bank, or (ii) possesses the power to
direct or cause the direction of its management and policy.
Federal law imposes additional restrictions on acquisitions of stock in bank
holding companies and FDIC-insured banks. Under the federal Change in Bank
Control Act and the regulations thereunder, a person or group acting in concert
must give advance notice to the Federal Reserve Board or the FDIC before
directly or indirectly acquiring the power to direct the management or policies
of, or to vote 25% or more of any class of voting securities of, any bank
holding company or federally-insured bank. Upon receipt of such notice, the
federal regulator either may approve or disapprove the acquisition. The Change
in Bank Control Act generally creates a rebuttable presumption of a change in
control if a person or group acquires ownership or control of or the power to
vote 10% or more of any class of a bank holding company or bank's voting
securities; the bank or bank holding company has a class of securities that are
subject to registration under the Securities Exchange Act of 1934; and,
following such transaction, no other person owns a greater percentage of that
class of securities.
GOVERNMENT MONETARY POLICY AND ECONOMIC CONTROLS
As a bank holding company whose primary asset is the ownership of the capital
stock of a commercial bank, the Company is directly affected by the government
monetary policy and the economy in general. The actions and policies of the FRB
which acts as the nation's central bank can directly affect money supply and, in
general, affect banks' lending activities by increasing or decreasing their
costs and availability of funds. An important function of the FRB is to regulate
the national supply of bank credit in order to combat recession and curb
inflationary pressures. Among the instruments of monetary policy used by the FRB
to implement these objectives are open market operations in U.S. Government
securities, changes in the discount rate and surcharge, if any, on member bank
borrowings, and changes in reserve requirements against bank deposits. These
methods are used in varying combinations to influence overall growth of bank
loans, investments and deposits, and interest rates charged on loans or paid for
deposits. The Bank is not a member of the Federal Reserve System but is subject
to reserve requirements imposed by the Federal Reserve on non-member banks. The
monetary policies of the FRB have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to do so in
the future.
ITEM 2. PROPERTIES
The Company's executive office is located at 134 North First Street and the
Bank's Main Office is located at 167 North Second Street, both in Albemarle,
North Carolina. The Bank has leased a portion of the Main Office facility since
it opened in 1984, and its administrative and executive offices occupy an
adjoining building, purchased in 1991. The Bank purchased a commercial building
and parking lot adjacent to its Main Office in Albemarle in 1988, which it holds
for future expansion.
The Company leases a facility at 130-132 North First Street in Albemarle, which
is sub-leased to a local non-profit organization and to the Bank's subsidiary,
The Strategic Alliance Corporation. The Bank owns its other banking locations at
710 North First Street in Albemarle, which houses the Village Branch opened in
June 1984; its East Albemarle Branch at 800 Highway 24-27 Bypass in Albemarle
acquired in 1988; a branch office located at 107 S. Main Street in Norwood
acquired in 1987; and, a branch located at 624 N. Main Street in Oakboro opened
in 1993.
All of the Bank's existing offices are freestanding, fully equipped and have
adequate parking and drive-up banking facilities, with the exception of the Main
Office which does not have a drive-up facility.
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ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Bank, nor any of their properties are subject to any
legal proceedings other than ordinary routine litigation incidental to their
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the
fourth quarter of 1998.
PART II
ITEMS 5 THROUGH 7.
Incorporated by reference to the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1998.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEMS 9 THROUGH 12.
Incorporated by reference to the Company's definitive proxy statement dated
March 30, 1999.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS.
The following consolidated financial statements of the Registrant are
incorporated herein by reference from the indicated pages of the
Registrant's 1998 Annual Report to Shareholders.
(2) FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules are omitted as substantially all the
required information is contained in the Registrant's consolidated
financial statements listed above which are incorporated herein by
reference or is not applicable.
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(3) EXHIBITS.
The following exhibits are filed herewith or incorporated herein by
reference.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
3 (a) * Registrant's Articles of Incorporation
3 (b) * Registrant's By-laws
10 * Incentive Stock Option Plan, as amended * *
13 1998 Annual Report to Shareholders (filed
herewith)
21 Subsidiary of the Registrant (filed herewith)
27 Financial Data Schedule (filed herewith)
99 Registrant's definitive proxy statement * * *
* Incorporated by reference from exhibits to Registrant's
Registration Statement on Form S-4 (Reg. No. 33-58882)
* * Denotes a management contract or compensatory plan or
arrangement.
* * * To be filed with the Commission pursuant to Rule 14a-6(b).
(B) REPORTS ON FORM 8-K.
The Registrant did not file a Current Report on Form 8-K during the three
months ended December 31, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 23, 1998 By: / s /
----------------------------
Roger L. Dick, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ March 23, 1998
- ----------------------------------------------
Roger L. Dick, President and
Chief Executive Officer
/s/ March 23, 1998
- ----------------------------------------------
Barbara S. Williams, Senior Vice President
(Principal Financial and Accounting Officer)
/s/ March 23, 1998
- ----------------------------------------------
William S. Aldridge, Jr., Director
/s/ March 23, 1998
- ----------------------------------------------
Cynthia H. Beane, Director
/s/ March 23, 1998
- ----------------------------------------------
Joe S. Brooks, Director
/s/ March 23, 1998
- ----------------------------------------------
Ronald T. Burleson, Director
/s/ March 23, 1998
- ----------------------------------------------
Bill C. Burnside, D.D.S., Director
/s/ March 23, 1998
- ----------------------------------------------
Gail C. Burris, Director
12
<PAGE>
/s/ March 23, 1998
- ----------------------------------------------
G. Chad Efird, Director
/s/ March 23, 1998
- ----------------------------------------------
David M. Jones, D.V.M., Director
/s/ March 23, 1998
- ----------------------------------------------
James F. Link, D.V.M., Director
/s/ March 23, 1998
- ----------------------------------------------
W. Chester Lowder, Director
/s/ March 23, 1998
- ----------------------------------------------
Buren Mullins, Director
/s/ March 23, 1998
- ----------------------------------------------
John P. Murray, M.D., Director
/s/ March 23, 1998
- ----------------------------------------------
Kent E. Newport, Director
/s/ March 23, 1998
- ----------------------------------------------
Catherine A. Pickler, Director
/s/ March 23, 1998
- ----------------------------------------------
George T. Reaves, Director
/s/ March 23, 1998
- ----------------------------------------------
A. James Russell, Director
/s/ March 23, 1998
- ----------------------------------------------
B.A. Smith, Jr., Director
/s/ March 23, 1998
- ----------------------------------------------
Douglas V. Waddell, Director
13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
13 1998 Annual Report to Shareholders
21 Subsidiary of the Registrant
27 Financial Data Schedule
- --------------------------------------------------------------------------------
14
Uwharrie Capital Corp
1998
ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
[ This page left blank intentionally]
2
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Description of Business
Uwharrie Capital Corp (the "Company") is a North Carolina bank holding company.
The Company was organized on July 1, 1993 to become the bank holding company for
the Bank of Stanly (the "Bank"), a North Carolina commercial bank chartered on
September 28, 1983 and its two wholly-owned subsidiaries, The Strategic Alliance
Corporation ("Strategic Alliance") and BOS Agency, Inc. ("BOS Agency"). The Bank
also owns a 50% interest in Corporate Data Services Inc., a North Carolina
corporation that provides operations and data processing services. The Company,
the Bank and its subsidiaries are located in Stanly County, their primary
service area, but intend to prudently expand their service area to include the
entire Uwharrie Lakes Region.
The Bank engages in retail and commercial banking, with three banking offices in
the City of Albemarle, one office in the Town of Norwood, and one office in the
Town of Oakboro. Through its five branch locations in Stanly County, the Bank
provides a wide range of banking services including deposit accounts,
commercial, consumer, home equity and residential mortgage loans, safe deposit
boxes, and electronic banking services.
Depository services offered include personal and commercial checking, savings,
money market, certificates of deposit accounts and individual retirement
accounts all tailored to meet customers' needs. The Bank provides fixed and
variable rate loans, which include mortgage, home equity, lines of credit,
consumer and commercial loans. The Bank also offers 24-Hour Telephone Banking,
providing customers the convenience of access to account information, rate
information and accessibility of funds transfers between accounts. Other
services include MasterCard(R) credit cards and a Visa(R) Check Card which
functions as a point-of-sale (POS) and automated teller machine (ATM) card.
Customers can use the Check Card for purchases at any merchant accepting Visa
and at any ATM displaying the HONOR(R) and CIRRUS(R) networks regionally and
worldwide, respectively
Strategic Alliance and BOS Agency provide investment management and insurance
products, respectively. Strategic Alliance is a broker-dealer and member of the
National Association of Securities Dealers, Inc. ("NASD") and offers a full
range of financial and investment services to its customers in the Uwharrie
Lakes Region through its marketing division. BOS Agency serves the risk
management needs of customers and brings life insurance, long-term health care,
Medicare supplement and other insurance industry products to customers'
financial portfolios.
The Strategic Alliance Corporation. Member NASD/SIPC.
Products offered through Strategic Alliance are not FDIC insured, are not
obligations of Bank of Stanly, are not guaranteed by the Bank, and may involve
investment risk, including the possible loss of principal.
3
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Financial Highlights
Percent
(Dollars in thousands except per share amounts) 1998 1997 Increase
- -------------------------------------------------------------------- ------------------ -- ------------------ ---- --------------
<S> <C> <C> <C>
For the year:
Net Income $ 1,305 $ 1,186 10.1%
Net income per common share - basic (1): $ .28 $ .26 7.7%
Cash dividends paid (2):
Total - 6 N/A
Per common share - - N/A
Weighted average common shares outstanding - basic (1): 4,600,463 4,560,506 .9%
- -------------------------------------------------------------------- ------------------ -- ------------------ ---- --------------
At year-end:
Total assets $ 167,386 $ 145,704 14.9%
Total earning assets 158,807 138,015 15.1%
Loans, net of unearned income 132,301 113,985 16.1%
Total interest-bearing liabilities 134,729 118,617 1.7%
Shareholders' equity 15,698 12,534 25.2%
Book value per share (1) $ 3.14 $ 2.75 14.4%
- -------------------------------------------------------------------- ------------------ -- ------------------ ---- --------------
Averages for the year:
Total assets $ 153,006 $ 140,508 8.9%
Total earning assets 145,980 133,814 10.0%
Loans, net of unearned income 117,442 107,696 9.0%
Total interest-bearing liabilities 123,679 114,903 7.6%
Shareholders' equity 13,497 11,818 14.2%
- -------------------------------------------------------------------- ------------------ -- ------------------ ---- --------------
Financial Ratios (in percentage):
Return on average assets .85% .84%
Return on average shareholders' equity 9.67% 10.04%
Average equity to average assets 8.82% 8.41%
Net interest margin (fully tax equivalent basis) 4.71% 4.73%
Allowance as % of loans .88% .99%
Allowance as % of nonperforming loans 1,714.86% 348.76%
Allowance as % of nonperforming assets 764.71% 246.71%
Nonperforming assets to loans .12% .42%
Net charge-offs to average loans .06% .09%
Dividend payout ratio N/A N/A
- -------------------------------------------------------------------- ------------------ -- ------------------ ---- --------------
</TABLE>
1) Net income per share, book value per share, weighted average shares
outstanding and shares outstanding at year-end have been adjusted to
reflect the 100% stock dividend in 1998 and the 5% stock dividend issued
in 1997.
2) Includes cash paid in lieu of fractional shares on stock dividends.
* * * *
Market For The Company's Common Stock And Related Security Holder Matters
It is the philosophy of the Company to promote a strong local shareholder base;
therefore, the Company's common stock is neither listed nor traded on a
broker-dealer market. Management of the Company makes every reasonable effort to
match willing buyers with willing sellers as they become known for the purpose
of private negotiations for the purchase or sale of the Company's common stock.
In addition, Uwharrie Capital Corp has adopted a program of on-going open market
purchases of shares of the Company's stock. The combination of private trades
and Company purchases has provided adequate liquidity for the investors of
Uwharrie Capital Corp stock without the cost of brokerage fees.
Approximately 72,600 shares of stock were traded during 1998. The Company issued
a 100% stock dividend in 1998 and a 5% stock dividend in 1997. As of December
31, 1998, Uwharrie Capital Corp had 1,803 shareholders of record.
<PAGE>
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Uwharrie Capital Corp
Albemarle, North Carolina
We have audited the accompanying consolidated balance sheets of Uwharrie Capital
Corp and subsidiary (the "Company") as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Uwharrie Capital
Corp and subsidiary as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Sanford, North Carolina
January 15, 1999
5
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cash and due from banks $ 4,370,422 $ 4,322,571
Interest-bearing deposits with banks 481,408 183,511
Federal funds sold 1,950,000 -
Investment securities available for sale, at fair value 24,074,852 23,846,794
Loans 132,300,959 113,984,894
Less allowance for loan losses 1,170,185 1,124,970
--------------- ---------------
Net loans 131,130,774 112,859,924
Premises and equipment, net 3,026,293 2,343,737
Interest receivable 941,285 930,503
Other assets 1,411,321 1,216,914
--------------- ---------------
Total Assets $167,386,355 $145,703,954
=============== ===============
Liabilities and Shareholders' equity
Deposits
Demand, noninterest-bearing $ 16,136,838 $ 13,871,742
Money market and NOW accounts 27,919,823 28,569,039
Savings accounts 34,862,577 31,870,829
Time deposits, $100,000 and over 26,607,783 9,045,532
Other time deposits 33,719,175 33,548,182
--------------- ----------------
Total deposits 139,246,196 116,905,324
Federal funds purchased and securities sold under
repurchase agreements 3,510,821 5,447,330
Other short-term borrowed funds 1,284,000 2,562,058
Long-term debt 6,825,257 7,574,509
Interest payable 189,400 171,031
Other liabilities 633,071 509,566
--------------- ----------------
Total Liabilities 151,688,745 133,169,818
--------------- ----------------
Commitments (Note 10)
Shareholders' equity
Common stock, $1.25 par value
6,000,000 shares authorized; shares issued and
outstanding and subscribed of 5,003,107 and
2,282,078, respectively 6,253,885 2,852,598
Common stock subscriptions receivable (256,898) -
Additional paid-in capital 4,193,526 5,524,178
Undivided profits 5,143,724 3,838,263
Accumulated other comprehensive income 363,373 319,097
--------------- ----------------
Total Shareholders' Equity 15,697,610 12,534,136
--------------- ----------------
Total Liabilities And Shareholders' Equity $167,386,355 $145,703,954
=============== ================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Consolidated Statements Of Income
Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Interest Income
<S> <C> <C>
Loans, including fees $10,145,545 $ 9,377,504
Investment securities
U. S. Treasury 319,062 287,738
U. S. Government agencies and corporations 903,250 906,045
State and political subdivisions 325,289 340,017
Other 76,615 72,747
Interest-bearing deposits with banks and federal funds sold 128,443 34,391
--------------- -------------
Total Interest Income 11,898,204 11,018,442
--------------- -------------
Interest Expense
Time deposits, $100,000 and over 836,741 432,098
Other interest-bearing deposits 3,650,128 3,538,597
Federal funds purchased and securities sold under repurchase
agreements 200,058 255,575
repurchase agreements
Other short-term borrowed funds 107,176 177,689
Long-term debt 397,705 474,818
--------------- -------------
Total Interest Expense 5,191,808 4,878,777
--------------- -------------
Net Interest Income 6,706,396 6,139,665
Provision for loan losses 119,280 183,300
--------------- -------------
Net Interest Income After Provision For Loan Losses 6,587,116 5,956,365
--------------- -------------
Noninterest Income
Service charges on deposit accounts 952,438 911,106
Other service fees and commissions 510,813 482,653
Gains (losses) on securities sold (8,051) 22,965
Other income 64,744 74,416
--------------- -------------
Total Noninterest Income 1,519,944 1,491,140
--------------- -------------
Noninterest Expense
Salaries and employee benefits 3,361,494 2,920,471
Net occupancy expense 282,626 262,287
Equipment expense 472,776 412,405
Data processing costs 466,567 496,194
Other operating expense 1,630,875 1,630,332
--------------- -------------
Total Noninterest Expense 6,214,338 5,721,689
--------------- -------------
Income before income taxes 1,892,722 1,725,816
Income taxes 587,261 539,896
---------------
-------------
Net Income $ 1,305,461 $ 1,185,920
=============== =============
Net Income Per Common Share
Basic $ .28 $ .26
Diluted .28 .25
Weighted Average Shares Outstanding
Basic 4,600,463 4,560,506
Diluted 4,717,657 4,663,804
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Consolidated Statements Of Changes In Shareholders' Equity
Years ended December 31, 1998 and 1997
Additional Common Stock
Common Stock Paid-in Subscriptions
Shares Amount Capital Receivable
------- ------- -------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 2,174,982 $ 2,718,728 $ 4,593,661 $ -
Comprehensive income
Net income - - - -
Other comprehensive income,
net of tax
Net increase (decrease) in fair
value of securities available
for sale - - - -
Total comprehensive income
Common stock issued pursuant to:
5% Stock dividend 107,962 134,953 944,667 -
Stock options exercised 3,152 3,940 10,952 -
Repurchase of common stock (4,018) (5,023) (25,102) -
Dividends paid - fractional shares - - - -
--------- ----------- ----------- -----------
Balance at December 31, 1997 2,282,078 $ 2,852,598 $ 5,524,178 $ -
========== ============ ============ ===========
Balance at January 1, 1998 2,282,078 $ 2,852,598 $ 5,524,178 $ -
Comprehensive income
Net income - - - -
Other comprehensive income,
net of tax
Net increase (decrease) in fair
value of securities available
for sale - - - -
Total comprehensive income
Common stock issued pursuant to:
Sale of common stock 427,205 534,006 1,568,648 (268,840)
100% Stock dividend 2,294,746 2,868,433 (2,868,433) -
Stock options exercised 23,319 29,149 72,208 -
Repurchase of common stock (24,241) (30,301) (103,075) -
Collections of subscriptions receivable - - - 11,942
--------- ----------- ----------- -----------
Balance at December 31, 1998 5,003,107 $ 6,253,885 $ 4,193,526 $ (256,898)
========== ============ ============ ===========
<CAPTION>
Accumulated
Other
Undivided Comprehensive
Profits Income Total
-------- ------- -----
<S> <C> <C> <C>
Balance at January 1, 1997 $ 3,738,055 $ 252,961 $ 11,303,405
Comprehensive income
Net income 1,185,920 - 1,185,920
Other comprehensive income,
net of tax
Net increase (decrease) in fair
value of securities available
for sale - 66,136 66,136
---------
Total comprehensive income 1,252,056
---------
Common stock issued pursuant to:
5% Stock dividend (1,079,620) - -
Stock options exercised - - 14,892
Repurchase of common stock - - (30,125)
Dividends paid - fractional shares (6,092) - (6,092)
------------ ---------- ------------
Balance at December 31, 1997 $ 3,838,263 $ 319,097 $ 12,534,136
============ ========== ============
Balance at January 1, 1998 $ 3,838,263 $ 319,097 $ 12,534,136
Comprehensive income
Net income 1,305,461 - 1,305,461
Other comprehensive income,
net of tax
Net increase (decrease) in fair
value of securities available
for sale - 44,276 44,276
---------
Total comprehensive income 1,349,737
---------
Common stock issued pursuant to:
Sale of common stock - - 1,833,814
100% Stock dividend - - -
Stock options exercised - - 101,357
Repurchase of common stock - - (133,376)
Collections of subscriptions receivable - - 11,942
------------ ---------- ------------
Balance at December 31, 1998 $ 5,143,724 $ 363,373 $ 15,697,610
============ ========== ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Consolidated Statements Of Cash Flows
Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Operating Activities
<S> <C> <C>
Net income $ 1,305,461 $ 1,185,920
Adjustments to reconcile net income to net cash provided by operations:
Depreciation 289,904 257,360
Amortization (accretion) of security premiums (discounts) 8,996 (10,524)
Provision for loan losses 119,280 183,300
Deferred income tax expense 46,065 5,329
Net realized (gain) loss on available for sale securities 8,051 (22,965)
Gain on sale of mortgage loans (20,650) -
Loss on sale of foreclosed properties 14,288 -
Net change in interest receivable (10,782) (72,709)
Net change in other assets (242,906) (222,596)
Net change in interest payable 18,369 (5,011)
Net change in accrued and other liabilities 48,989 86,869
--------------- ---------------
Net Cash Provided By Operating Activities 1,585,065 1,384,973
--------------- ---------------
Investing Activities
Net (increase) decrease in interest-bearing deposits with banks (297,897) 115,983
Net increase in federal funds sold (1,950,000) -
Proceeds from sales of securities available for sale 1,460,718 3,339,581
Proceeds from maturities of securities available for sale 5,620,203 2,490,823
Purchase of securities available for sale (2,992,918) (4,314,639)
Net increase in loans (25,734,546) (13,289,105)
Proceeds from sales of loans 3,104,684 -
Purchase of premises and equipment (972,460) (483,848)
Proceeds from sales of foreclosed real estate 34,211 48,498
--------------- ---------------
Net Cash Used By Investing Activities (21,728,005) (12,092,707)
--------------- ---------------
Financing Activities
Net increase in deposit accounts 22,340,872 12,305,860
Net increase (decrease) in federal funds purchased (1,400,000) 1,400,000
Net decrease in securities sold under repurchase agreements (536,509) (4,108,815)
Net decrease in other short-term borrowed funds (1,278,058) (437,942)
Proceeds from long-term advances from Federal Home Loan Bank 2,000,000 2,000,000
Repayment of long-term advances from Federal Home Loan Bank (2,749,251) (691,151)
Repurchases of common stock (133,376) (30,125)
Proceeds from issuance of common stock 1,935,171 14,892
Collections of common stock subscriptions receivable 11,942 -
Dividends paid - (6,092)
---------------
---------------
Net Cash Provided By Financing Activities 20,190,791 10,446,627
--------------- ---------------
Increase (decrease) in cash and due from banks 47,851 (261,107)
Cash and due from banks at beginning of year 4,322,571 4,583,678
--------------- ---------------
Cash And Due From Banks At End Of Year $ 4,370,422 $ 4,322,571
=============== ===============
Supplemental Disclosures of Cash Flow Information
Interest paid $ 5,173,440 $ 4,883,788
Income taxes paid 579,000 539,878
Supplemental Schedule of Non-Cash Investing and Financing Activities
Loans transferred to foreclosed real estate - 48,498
Increase in fair value of securities available for sale, net of deferred
taxes; 1998 - $28,451, 1997 - $42,497 44,276 66,136
Loans securitized into investment securities 4,260,381 -
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
9
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 - Significant Accounting Policies
Nature of Business
Uwharrie Capital Corp ("the Company") was incorporated under North Carolina law
for the purpose of becoming the holding company for Bank of Stanly ("the Bank").
Regulatory approval was initially sought in March 1993, and was subsequently
received. On July 1,1993, the Bank became a wholly-owned subsidiary of the
Company whereby the common stock of the Bank was deemed shares of the Company.
Bank of Stanly was incorporated on September 28, 1983, under the laws of the
State of North Carolina and began operations on January 26, 1984, in Albemarle,
North Carolina. Deposits with the Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC"); thus, the Bank is under regulation of both the
FDIC and the North Carolina State Banking Commission. Through its five branch
locations in Stanly County, the Bank provides a wide range of deposit accounts,
commercial, consumer, home equity and residential mortgage loans, safe deposit
boxes and automated banking.
In 1987, the Bank established a wholly-owned subsidiary, BOS Agency, Inc. ("BOS
Agency"), which engages in investment and insurance product sales. In 1989, the
Bank established a second wholly-owned subsidiary, BOS Financial Corporation,
for the purpose of conducting business as a broker/dealer in securities. During
1993, BOS Financial Corporation changed its name to The Strategic Alliance
Corporation ("Strategic Alliance") and was licensed as a broker/dealer by the
National Association of Securities Dealers.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the
Bank and its wholly-owned subsidiaries, BOS Agency and Strategic Alliance. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 losses on loans.
Cash Equivalents
For the purpose of presentation in the consolidated statements of cash flows,
cash and cash equivalents are defined as those amounts included in the balance
sheet caption "Cash and due from banks."
Securities Held To Maturity
Securities classified as held to maturity are debt securities the Company has
both the intent and ability to hold to maturity regardless of changes in market
conditions, liquidity needs or changes in general economic conditions. These
securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method over their contractual
lives.
10
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 - Significant Accounting Policies (Continued)
Securities Available for Sale
Available-for-sale securities consist of bonds and notes not classified as
trading securities nor as held-to-maturity securities. Unrealized holding gains
and losses on available-for-sale securities are reported as a net amount in
other comprehensive income. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method. Declines in
the fair value of individual held-to-maturity and available-for-sale securities
below their cost that are other than temporary would result in write-downs of
the individual securities to their fair value. Such write-downs would be
included in earnings as realized losses. Premiums and discounts are recognized
in interest income using the interest method over the period to maturity.
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off are reported at their outstanding principal
adjusted for any charge-offs, the allowance for loan losses, and any deferred
fees or costs on originated loans and unamortized premiums or discounts on
purchased loans. Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the related loan.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
Allowance for Loan Losses
The provision for loan losses is based upon management's estimate of the amount
needed to maintain the allowance for loan losses at an adequate level. In making
the evaluation of the adequacy of the allowance for loan losses, management
gives consideration to current and anticipated economic conditions, statutory
examinations of the loan portfolio by regulatory agencies, delinquency
information and management's internal review of the loan portfolio. Loans are
considered impaired when it is probable that all amounts due under the
contractual terms of the loan will not be collected. The measurement of impaired
loans that are collateral dependent is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
or upon the fair value of the collateral if readily determinable. If the
recorded investment in the loan exceeds the measure of fair value, a valuation
allowance is established as a component of the allowance for loan losses. While
management uses the best information available to make evaluations, future
adjustments to the allowance may be necessary if conditions differ substantially
from the assumptions used in making the evaluations. In addition, regulatory
examiners may require the Bank to recognize changes to the allowance for loan
losses based on their judgments about information available to them at the time
of their examination.
Foreclosed Real Estate
Real estate properties acquired through foreclosure or other proceedings are
initially recorded at fair value upon foreclosure, establishing a new cost
basis. After foreclosure, valuations are performed and the foreclosed property
is adjusted to the lower of cost or fair market value of the properties, less
costs to sell. Any write-down at the time of transfer to foreclosed properties
is charged to the allowance for loan losses. Subsequent write-downs are charged
to other expenses. Property is evaluated regularly to ensure that the recorded
amount is supported by its current fair market value.
11
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 - Significant Accounting Policies (Continued)
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Land is
carried at cost. Additions and major replacements or betterments which extend
the useful lives of premises and equipment are capitalized. Maintenance, repairs
and minor improvements are expensed as incurred. Depreciation is computed
principally by the straight-line method over estimated useful lives, except in
the case of leasehold improvements, which are amortized over the term of the
leases, if shorter. Useful lives range from five years for furniture and
fixtures to ten to thirty years for leasehold improvements and buildings,
respectively. Upon retirement or other disposition of the assets, the cost and
the related accumulated depreciation are removed from the accounts and any gains
or losses are reflected in income.
Federal Home Loan Bank Stock
As a requirement for membership, the Bank invests in stock of the Federal Home
Loan Bank of Atlanta ("FHLB"). This investment is carried at cost.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company currently accounts for its stock-based compensation
plans using the accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Since the Company is not
required to adopt the fair value based recognition provisions prescribed under
SFAS No. 123, it has elected only to comply with the disclosure requirements set
forth in the Statement, which includes disclosing pro forma net income as if the
fair value based method of accounting had been applied. (See Note 13.)
Income Taxes
The Company and its subsidiaries file a consolidated Federal income tax return
and separate North Carolina income tax returns. The provision for income taxes
in the accompanying financial statements is provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the consolidated
balance sheets, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. Statement No.
107 excludes certain financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying market value nor liquidation value of the Company.
12
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 - Significant Accounting Policies (Continued)
Fair Value of Financial Instruments (Continued)
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
Carrying amounts approximate fair values for the following
instruments:
Cash and due from banks
Interest-bearing deposits with banks
Federal funds sold
ccrued interest receivable and payable
Variable rate loans that reprice frequently where no
significant change in credit risk has occurred
Variable rate money market, demand, NOW and savings accounts
Variable rate time deposits
Federal funds purchased and securities sold under repurchase
agreements
Short-term borrowed funds
Quoted market prices, where available, or if not available,
based on quoted market prices of comparable instruments for the
following:
Securities available for sale
Discounted cash flows using interest rates currently being
offered on instruments with similar terms and with similar
credit quality:
Long-term debt
All loans, except variable rate loans described above
Fixed rate time deposits
Investment in Joint Venture
During 1992, the Company entered into a joint venture agreement to form
Corporate Data Services, Inc. ("CDS"), a company that provides operations and
data processing services for community banks. The Company had a 50% ownership
interest at December 31, 1998 and 1997. The Company utilizes the equity method
to account for its ownership in the joint venture.
Earnings per Common Share
Effective with periods ended December 31, 1997, the Company has implemented
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This Statement simplifies the standards for computing earnings per share
previously found in Accounting Principles Board ("APB") Opinion No. 15,
"Earnings per Share," and makes them comparable to international earnings per
share ("EPS") standards. It replaces the presentation of primary EPS with the
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and it is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS 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 earnings of the entity. SFAS No. 128
requires restatement of earnings per share data for all prior periods presented.
13
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 1 - Significant Accounting Policies (Continued)
Earnings per Common Share (Continued)
Basic and dilutive earnings per share have been computed based upon net income
as presented in the accompanying statements of income divided by the weighted
average number of common shares outstanding, or assumed to be outstanding, after
retroactively adjusting for the two-for-one stock split as summarized below.
1998 1997
------------------ ------------------
<S> <C> <C>
Weighted average number of common shares used
in computing basic earnings per share 4,600,463 4,560,506
Effect of dilutive stock options 117,194 103,298
------------------ ------------------
Weighted average number of common shares and
dilutive potential common shares used in
computing diluted earnings per share 4,717,657 4,663,804
================== ==================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 2 - Investment Securities
Carrying amounts and fair values of securities available for sale are summarized
below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
- ----------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 4,981,102 $ 27,318 $ - $ 5,008,420
U.S. Government agencies and
corporations 1,002,153 6,987 - 1,009,140
State and political subdivisions 5,151,310 375,172 - 5,526,482
Mortgage-backed securities 11,284,446 152,219 - 11,436,665
-------------- ------------- -------------- ----------------
Total debt securities 22,419,011 561,696 - 22,980,707
FHLB and other stock 1,058,973 35,172 - 1,094,145
-------------- ------------- -------------- ----------------
Total securities available for sale $ 23,477,984 $ 596,868 $ - $24,074,852
============== ============= ============== ================
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
- ----------------- -----------------------------------------------------------------------
U.S. Treasury securities $ 4,990,027 $ 20,263 $ 5,010,290
$
-
U.S. Government agencies and
corporations 1,003,542 - 10,302 993,240
State and political subdivisions 5,434,737 357,607 - 5,792,344
Mortgage-backed securities 10,835,374 136,571 - 10,971,945
-------------- ------------- -------------- ----------------
Total debt securities 22,263,680 514,441 10,302 22,767,819
FHLB and other stock 1,058,973 20,002 - 1,078,975
-------------- ------------- -------------- ----------------
Total securities available for sale $ 23,322,653 $ 534,443 $ 10,302 $23,846,794
============== ============= ============== ================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 2 - Investment Securities (Continued)
At December 31, 1998 and 1997, there were no debt securities being held to
maturity.
An analysis of the unrealized holding gains and the related income tax effects
as of and for the years ended December 31, 1998 and 1997 is as follows:
Unrealized Deferred Income Tax Net Increase in
Holding Gain Liability Shareholders' Equity
---------------- ------------------- --------------------
<S> <C> <C> <C>
Balance, December 31, 1996 $ 415,508 $ (162,547) $ 252,961
Increase in valuation allowance 108,633 (42,497) 66,136
---------------- ---------------- ----------------
Balance, December 31, 1997 524,141 (205,044)
Increase in valuation allowance 72,727 (28,451) 44,276
---------------- ---------------- ----------------
Balance, December 31, 1998 $ 596,868 $ (233,495) $ 363,373
================ ================ ================
The amortized cost and fair value of securities available for sale at December 31, 1998,
by contractual maturities, are as follows:
After After
In One One Year Five Years After
Year Through Through Ten
Amortized Cost or Less Five Years Ten Years Years Total
- -------------- -------------- -------------- ------------- --------------- --------------
U.S. Treasury $3,981,313 $ 999,789 $ - $ - $4,981,102
U.S. Agency - 1,002,153 - - 1,002,153
State and political 75,070 1,343,933 1,627,719 2,104,588 5,151,310
Mortgage-backed securities 637,450 2,376,036 2,542,284 5,728,676 11,284,446
-------------- -------------- -------------- --------------- --------------
Total $4,693,833 $5,721,911 $4,170,003 $7,833,264 $22,419,011
============== ============== ============== =============== ==============
Fair Value
U.S. Treasury $3,995,920 $1,012,500 $ - $ - $ 5,008,420
U.S. Agency - 1,009,140 - - 1,009,140
State and political 76,186 1,414,317 1,735,050 2,300,929 5,526,482
Mortgage-backed securities 643,937 2,412,762 2,563,640 5,816,326 11,436,665
-------------- -------------- -------------- --------------- --------------
Total $4,716,043 $5,848,719 $4,298,690 $8,117,255 $22,980,707
============== ============== ============== =============== ==============
After After
In One One Year Five Years After
Weighted Year Through Through Ten
Average Yields or Less Five Years Ten Years Years Total
- -------------- ---------------- ---------------- ----------------- ----------------- ----------------
U.S. Treasury 6.13% 5.64% 6.03%
U.S. Agency - 5.47% - - 5.47%
State and political (1) 9.92% 9.58% 9.64% 9.46% 9.55%
Mortgage-backed securities 8.12% 6.51% 6.91% 6.64% 6.75%
---------------- ---------------- ---------------- ---------------- ----------------
Total 6.46% 6.90% 7.98% 7.39% 7.18%
================ ================ ================ ================ ================
</TABLE>
(1) Yield on tax exempt bonds computed on a tax-equivalent basis.
15
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 2 - Investment Securities (Continued)
Results from sales of securities available for sale for the years ended December 31, 1998
and 1997 are as follows:
1998 1997
---- ----
<S> <C> <C>
Gross proceeds from sales $1,460,718 $3,339,581
=============== ==============
Realized gains from sales $ - $ 22,965
Realized losses from sales (8,051) -
--------------- --------------
Net realized gains (losses) $ (8,051) $ 22,965
=============== ==============
At December 31, 1998 and 1997, securities available for sale with a carrying
amount of $8,752,221 and $10,312,546, respectively, were pledged as collateral
on public deposits and for other purposes as required or permitted by law.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 3 - Loans
The composition of net loans as of December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ---------------------------------
Percent Percent
Amount of Total Amount of Total
---------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Commercial $16,254,896 12.40% $15,674,015 13.89%
Real estate - construction 3,799,739 2.90% 3,840,467 3.40%
Real estate - residential 64,207,255 48.96% 58,824,912 52.12%
Real estate - commercial 28,523,091 21.75% 24,102,199 21.36%
Consumer loans 19,469,404 14.85% 11,451,481 10.15%
Other loans 57,790 0.04% 100,068 0.09%
---------------- ------------- --------------- --------------
132,312,175 100.90% 113,993,142 101.01%
Deduct:
Allowance for loan losses (1,170,185) (0.89%) (1,124,970) (1.00%)
Unearned net loan fees (11,216) (0.01%) (8,248) (0.01%)
---------------- ------------- =============== --------------
Loans, net $131,130,774 100.00% $112,859,924 100.00%
================ ============= =============== ==============
</TABLE>
Although the Bank's loan portfolio is diversified, there is a concentration of
mortgage real estate loans, primarily one to four family residential mortgage
loans, which represent 48.96% of net loans. Commercial loans, secured primarily
by real estate, to finance manufacturing buildings, shopping center locations,
commercial buildings and equipment comprise 21.75% of net loans. There is not a
concentration of a particular type of credit in this group of commercial loans.
16
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 3 - Loans (Continued)
An analysis of fixed-rate loan maturities and repricing frequencies of
variable-rate loans as of December 31, 1998 follows:
Fixed-rate loans with a maturity of:
- ------------------------------------
<S> <C>
Three months or less $ 1,906,749
Over three months through twelve months 13,675,138
Over one year through five years 28,571,357
Over five years 27,643,047
----------------
Total fixed-rate loans 71,796,291
----------------
Variable-rate loans with a repricing frequency of:
- --------------------------------------------------
Three months or less 58,772,106
Over three months through twelve months 1,495,024
Over one year through five years 237,538
Over five years -
----------------
Total variable-rate loans 60,504,668
----------------
Total loans $132,300,959
================
Impaired loans consist of nonaccrual loans which totaled $68,238 and $322,567 at
December 31, 1998 and 1997, respectively, which had the effect of reducing net
income $5,738 in 1998 and $7,440 in 1997. Generally, when loans exceed 90 days
past due, they are placed in nonaccrual status. At December 31, 1998 and 1997,
loans past due 90 days and still accruing interest totaled $76,000 and $9,000,
respectively. At December 31, 1998 and 1997, the Company did not have any loans
for which terms had been modified in troubled debt restructuring.
The Company's loan policies are written to address each lending category,
specifically related to loan-to-value ratios and collateralization methods. This
takes into consideration economic and credit risk of lending areas and customers
associated with each category.
- ------------------------------------------------------------------------------------------------------------------------------------
Note 4 - Allowance For Loan Losses
Changes in the allowance for loan losses for the years ended December 31, 1998
and 1997 are listed below:
1998 1997
---- ----
Balance, beginning of year $ 1,124,970 $ 1,049,833
Charge offs:
Commercial 10,000 53,900
Real estate 22,000 16,300
Consumer 79,355 70,027
--------------- --------------
Total charge-offs 111,355 140,227
--------------- --------------
Recoveries:
Commercial - -
Real estate - -
Consumer 37,290 32,064
---------------
--------------
Total recoveries 37,290 32,064
--------------- --------------
Net charge-offs 74,065 108,163
Provision charged against income 119,280 183,300
--------------- --------------
Balance, end of year $ 1,170,185 $ 1,124,970
=============== ==============
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 4 - Allowance For Loan Losses (Continued)
Ratios relative to the allowance for loan losses, nonperforming loans and net
charge-offs for the years ended December 31, 1998 and 1997 are reflected below:
1998 1997
---- ----
<S> <C> <C>
Allowance for loan losses to total loans .88% .99%
Allowance for loan losses to non-performing loans 1,714.86 348.76
Nonperforming loans to average loans .06 .30
Net charge-offs to gross loans outstanding .06 .09
The method used for rating the loan portfolio provides for early detection of
problem loans, and an adequate loan loss provision is established quarterly for
loans considered to be loss, doubtful and substandard. This identification
process begins with loans previously identified by examiners and also includes
loans from management's assessment of credit reviews, payment history, loan to
value ratio and weakness in credit. Changes in the ratio of the allowance for
loans losses to total loans and nonperforming loans reflects this assessment.
The allocation of the allowance for loan losses applicable to each category of
loans at December 31, 1998 and 1997 is presented below:
1998 1997
------------------------------------------------ -----------------------------------------------
Percent of Percent Percent of Percent
Allowance of Loans Allowance of Loans
Amount of to Total to Gross Amount of to Total to Gross
Allowance Allowance Loans Allowance Allowance Loans
------------ ------------ ---------- ----------- ------------ -----------
Commercial $ 144,400 12.34% 12.28% $ 93,466 8.31% 13.75%
Real estate -
construction 19,759 1.69% 2.87% 19,970 1.78% 3.37%
Real estate -
residential 621,867 53.14% 48.53% 698,888 62.12% 51.60%
Real estate -
commercial 188,984 16.15% 21.56% 150,344 13.36% 21.14%
Consumer 124,114 10.61% 14.71% 108,407 9.64% 10.05%
Other loans 301 0.03% 0.05% 520 0.05% 0.09%
Unallocated 70,760 6.04% N/A 53,375 4.74% N/A
------------ ------------ ---------- ----------- ------------ -----------
Total $1,170,185 100.00% 100.00% $1,124,970 100.00% 100.00%
============ ============ ========== =========== ============ ===========
- ------------------------------------------------------------------------------------------------------------------------------------
Note 5 - Premises And Equipment
The major classes of premises and equipment and the total accumulated
depreciation at December 31, 1998 and 1997 are listed below:
1998 1997
---- ----
Land $ 670,703 $ 418,987
Buildings and improvements 2,176,530 1,991,372
Furniture and equipment 2,344,718 1,862,569
--------------- ---------------
5,191,951 4,272,928
Less accumulated depreciation 2,165,658 1,929,191
--------------- ---------------
$ 3,026,293 $ 2,343,737
=============== ===============
- ------------------------------------------------------------------------------------------------------------------------------------
18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 6 - Deposits
The composition of deposits at December 31, 1998 and 1997 is as follows:
1998 1997
-------------------------------- --------------------------------
Percentage Percentage
Amount of total Amount of total
--------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Demand deposits $ 16,136,838 12% $ 13,871,742 12%
Money market and NOW accounts 27,919,823 20% 28,569,039 24%
Savings 34,862,577 25% 31,870,829 27%
Time deposits, $100,000 and over 26,607,783 19% 9,045,532 8%
Other time deposits 33,719,175 24% 33,548,182 29%
--------------- ------------- --------------- ------------
$ 139,246,196 100% $116,905,324 100%
=============== ============= =============== ============
The maturities of fixed-rate time deposits at December 31, 1998 are reflected in
the table below.
Other
Time Deposits Time Deposits
$100,000 and Over
----------------------- ----------------
Remaining Maturities
Three months or less $13,889,345 $10,664,449
Three through twelve months 9,803,487 17,609,275
Over twelve months 2,914,951 5,445,451
--------------- ----------------
Total $26,607,783 $33,719,175
=============== ================
- ------------------------------------------------------------------------------------------------------------------------------------
Note 7 - Short-Term Borrowed Funds
The following tables set forth certain information regarding the amounts,
year-end weighted average rates, average balances, weighted average rate, and
maximum month-end balances for short-term borrowed funds, at and during 1998 and
1997.
1998 1997
-------------- -- ----------- -----------------------------
Amount Rate Amount Rate
-------------- ----------- -------------- -----------
At year-end
Federal funds purchased $ - - % $ 1,400,000 8.00%
Securities sold under agreement
to repurchase 3,510,821 3.93% 4,047,330 4.46%
Master notes 1,284,000 3.81% 2,562,058 4.42%
Short-term advances from FHLB - - % - - %
-------------- --------------
$ 4,794,821 3.90% $ 8,009,388 5.06%
============== ==============
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 7 - Short-Term Borrowed Funds (Continued)
1998 1997
--------------- -- -------------- --------------- ---- ------------
Amount Rate Amount Rate
--------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
Average for the year
Federal funds purchased $ 564,082 6.18% $ 1,058,900 5.92%
Securities sold under agreement
to repurchase 3,872,135 4.29% 4,553,482 4.24%
Master notes 1,689,967 4.66% 907,920 4.36%
Short-term advances from FHLB 592,055 5.75% 2,415,395 5.65%
--------------- ---------------
$ 6,718,239 4.67% $ 8,935,697 4.83%
=============== ===============
1998 1997
--------------- --------------
Maximum month-end balances
Federal funds purchased $2,175,000 $5,725,000
Securities sold under agreement
to repurchase 5,014,928 5,998,530
Master notes 2,352,399 2,658,883
Short-term advances from FHLB 2,500,000 8,400,000
Federal funds purchased represent unsecured overnight borrowings from other
financial institutions. Securities sold under agreement to repurchase represent
short-term borrowings collateralized by securities of the United States
government or its agencies.
The Bank has available lines of credit for federal funds in the amount of
$15,500,000.
- ------------------------------------------------------------------------------------------------------------------------------------
Note 8 - Long-Term Debt
Advances from the Federal Home Loan Bank of Atlanta ("FHLB") with original
maturities of one year or more consist of the following at December 31, 1998 and
1997:
Maturing
Year Ending Interest
December 31 Rate (%) 1998 1997
----------- -------- ---- ----
1999 6.07 - 6.94 $1,574,252 $2,599,252
2000 6.41 - 6.94 471,552 1,574,252
2001 5.80 - 6.94 1,346,552 471,552
2002 6.41 - 6.94 221,552 1,421,552
2003 6.41 - 6.94 125,000 371,552
Thereafter 6.41 - 7.53 3,086,349 1,136,349
--------------- ---------------
$6,825,257 $7,574,509
=============== ===============
Pursuant to collateral agreements with the FHLB, advances are collateralized by
all the Company's stock in FHLB and its qualifying first mortgage loans with
principal balances of $53,414,674 and $48,915,854 at December 31, 1998 and 1997,
respectively. Total credit available from the FHLB for short- or long-term
borrowing at December 31, 1998 was $30,000,000.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 9 - Income Tax Matters
The components of income tax expense for the years ended December 31 are
summarized as follows:
1998 1997
---- ----
<S> <C> <C>
Current tax expense $ 541,196 $ 534,567
Deferred tax expense 46,065 5,329
----------------
================
$587,261 $ 539,896
================ ================
The effective income tax rates for 1998 and 1997 were 31.0% and 31.3%,
respectively. The reasons for the differences between the effective rates and
income taxes computed at the statutory federal income tax rate of 34% for each
of those years are as follows:
1998 1997
---- ----
Income taxes at statutory federal rate $ 643,525 $ 586,777
Increases (decreases) resulting from:
Tax exempt interest, net (141,313) (133,013)
State income taxes, net of federal benefit 64,720 68,432
Other 20,329 17,700
---------------- ----------------
$ 587,261 $ 539,896
================ ================
Deferred tax assets and liabilities arising from temporary differences at
December 31, 1998 and 1997 are summarized as follows:
1998 1997
---- ----
Deferred tax assets relating to:
Bad debt reserves $ 365,861 $ 351,135
Deferred compensation 47,584 35,226
---------------- ----------------
Total deferred tax asset 413,445 386,361
---------------- ----------------
Deferred tax liabilities relating to:
Net unrealized gain on securities available for sale (233,495) (205,044)
Depreciation (73,011) (46,762)
Deferred loans fees and costs (172,543) (137,244)
Basis difference in equity investment (31,200) (31,200)
Other (21,931) (10,330)
---------------- ----------------
Total deferred tax liability (532,180) (430,580)
---------------- ----------------
Net deferred tax liability $ (118,735) $ (44,219)
================ ================
The net deferred tax liability is included in other liabilities on the
accompanying consolidated balance sheets.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 10 - Commitments And Contingencies
Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, lines of credit and
standby letters of credit. These instruments involve elements of credit risk in
excess of amounts recognized in the accompanying financial statements.
The Bank's risk of loss with the unfunded loans and lines of credit or standby
letters of credit is represented by the contractual amount of these instruments.
The Bank uses the same credit policies in making commitments under such
instruments as it does for on-balance sheet instruments. The amount of
collateral obtained, if any, is based on management's credit evaluation of the
borrower. 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. As of December 31, 1998 and 1997, outstanding
financial instruments whose contract amounts represent credit risk were as
follows:
1998 1997
------------------ ----------------
<S> <C> <C>
Commitments to extend credit $16,828,682 $ 14,476,645
Credit card commitments 3,863,616 3,086,572
Standby letters of credit 831,008 763,388
------------------ ----------------
$21,523,306 $18,326,605
================== ================
Contingencies
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the financial
statements.
Financial Instruments With Concentration Of Credit Risk
The Bank makes commercial, agricultural, real estate mortgage, home equity and
consumer loans primarily in Stanly County. A substantial portion of the Bank's
customers' abilities to honor their contracts is dependent on the business
economy in Albemarle, North Carolina and surrounding areas. Although the Bank's
loan portfolio is diversified, there is a concentration of mortgage loans in the
portfolio. The Bank's policies for real estate lending require collateralization
with 20% equity or that the loan be underwritten to conform to Fannie-Mae
guidelines that would allow securitization and/or sale of the loans. Lending
policy for all loans requires that they be supported by sufficient cash flows.
Credit losses related to this real estate concentration are consistent with
credit losses experienced in the portfolio as a whole.
- ------------------------------------------------------------------------------------------------------------------------------------
Note 11 - Related Party Transactions
In the normal course of business, certain directors and executive officers of
the Company, including their immediate families and companies in which they have
a 10% or more beneficial interest, were loan customers. Loans to such groups
totaled $6,041,429 and $5,621,593 at December 31, 1998 and 1997 as summarized
below.
1998 1997
---- ----
Balance, beginning $ 5,621,593 $ 2,727,314
Loans made 6,343,993 9,445,168
Payments received (6,095,882) (6,892,743)
Changes in composition 171,725 341,854
--------------- ---------------
Balance, ending $ 6,041,429 $ 5,621,593
=============== ===============
At December 31, 1998, the Bank had pre-approved but unused credit lines totaling
approximately $1,135,000 to executive officers, directors and their affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 12 - Regulatory Matters
The Company and its subsidiary, Bank of Stanly, are subject to certain
requirements imposed by state and federal banking statutes and regulations.
These requirements, among other things, establish minimum levels of capital,
restrict the amount of dividends that may be distributed, and require that
reserves on deposit liabilities be maintained in the form of vault cash or
noninterest-bearing deposits with the Federal Reserve Bank.
North Carolina law prohibits Uwharrie Capital Corp from making any distributions
to shareholders, including the payment of cash dividends, which would render it
insolvent or unable to meet its obligations as they become due in the ordinary
course of business. At December 31, 1998, Uwharrie Capital Corp had consolidated
shareholders' equity of $15,697,610.
As a North Carolina banking corporation, the subsidiary bank may pay dividends
only out of undivided profits as determined pursuant to North Carolina General
Statutes Section 53-87. As of December 31, 1998, the Bank had undivided profits
of $7,074,729 and total capital of $13,758,784.
The Company and its subsidiary bank are subject to federal regulatory risk-based
capital guidelines for banks and bank holding companies. Both must meet specific
capital guidelines that involve quantitative measure of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices which measure Total and Tier 1 Capital to risk-weighted assets and
Tier 1 Capital to average assets. Quantitative measures established by
regulation to ensure capital adequacy and the Company's consolidated capital
ratios are set forth in the table below. The Company expects to meet or exceed
these minimums without altering current operations or strategy.
Adequately Well
Uwharrie Capital Corp Actual Capitalized Capitalized
------------------------------------------------------------------------------------------
As of December 31, 1998:
<S> <C> <C> <C>
Total Capital (to risk-weighted assets) 14.5% 8% 10%
Tier 1 Capital (to risk-weighted assets) 13.5% 4% 6%
Tier 1 Capital (to average assets) 9.5% 4% 5%
As of December 31, 1997:
Total Capital (to risk-weighted assets) 13.7% 8% 10%
Tier 1 Capital (to risk-weighted assets) 12.6% 4% 6%
Tier 1 Capital (to average assets) 8.5% 4% 5%
------------------------------------------------------------------------------------------
As of December 31, 1998, the most recent notification from the FDIC categorized
the bank subsidiary as adequately capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Bank's category.
For the reserve maintenance period in effect at December 31, 1998, the
subsidiary bank was required to maintain reserve balances in cash or on deposit
with the Federal Reserve Bank in the aggregate amount of $1,068,000 as reserves
on deposit liabilities.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 13 - Stock Matters
Employee Stock Plans
During 1996, the Company adopted the 1996 Employment Stock Option Plan ("SOP")
and the Employee Stock Purchase Plan ("SPP"), under which options to purchase
shares of the Company's common stock may be granted to officers and eligible
employees. Options granted under the SOP are exercisable in established
increments according to vesting schedules, and will expire if not exercised
within ten years of the date of grant. Options granted under the SPP were fully
vested at the date of grant and expired if not exercised by December 31, 1998.
Activity under all option plans, including the effects of the 100% and 5% stock
dividends issued in 1998 and 1997, respectively, are as follows:
1998 1997
---------------------------------- -----------------------------------
Weighted- Weighted-
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Options outstanding at the
beginning of the year 191,852 $ 5.86 140,820 $ 5.80
Options granted 90,754 5.63 47,220 7.31
Increase for stock dividend 179,167 - 6,964 -
Options exercised (23,319) 4.34 (3,152) 4.72
Forfeitures (12,851) 2.86 - -
------------- ----------------- -------------- -----------------
Options outstanding at the
end of the year 425,603 $ 3.51 191,852 $ 5.86
============= ================= ============== =================
Options exercisable at the
end of the year 255,678 $ 3.86 66,028 $ 5.71
============= ================= ============== =================
Weighted-average fair value
of options granted during
the year $ 2.01 $ 1.78
================= =================
</TABLE>
At December 31, 1998, there were options for 425,603 shares outstanding with a
weighted-average remaining term of eight years and an exercise price of between
$2.77 and $5.63 per share. At December 31, 1998, 255,678 optioned shares were
exercisable at prices between $2.77 and $5.63 per share for a total of $987,395.
When options are exercised, par value of the shares issued is recorded as an
addition to common stock, and the remainder of the proceeds is credited to
additional paid-in capital. No income or expense has been recognized in
connection with the grant or exercise of these options.
24
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 13 - Stock Matters (Continued)
Employee Stock Plans (Continued)
As permitted by SFAS No. 123, the Company has continued to apply APB Opinion No.
25 for measurement of stock-based compensation in the accompanying financial
statements. If the Company had used the fair value based method of accounting
for stock-based compensation, operating results for 1998 and 1997 would have
been affected as set forth below:
As Reported Pro Forma
---------------------------------- -----------------------------------
1998 1997 1998 1997
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Net Income $1,305,461 $ 1,185,920 $1,077,822 $1,118,920
Net Income Per Share:
Basic $ .28 $ .26 $ .23 $ .25
Assuming Dilution $ .28 $ .25 $ .23 $ .24
In determining the pro forma disclosures above, the fair value of options
granted was estimated on the date of grant using the Black-Scholes Option
Pricing Model using the following assumptions for 1998 and 1997, respectively; a
risk-free interest rate of 5.0% and 5.5%, a dividend yield of 0% and 2%, an
expected life equal to 60% and 70% of the term of the option, and a volatility
ratio of 20% and 20%. The effects of applying SFAS No. 123 in the above pro
forma disclosure are not indicative of future amounts. SFAS No.
123 does not apply to awards granted prior to 1995.
Stock Repurchase Program
On February 21, 1995, the Company's Board of Directors authorized and approved a
Stock Repurchase Program, to be reaffirmed annually, pursuant to which the
Company may repurchase shares of the Company's common stock for the primary
purpose of providing liquidity to its shareholders. During the years 1998 and
1997, the Company was authorized to purchase and retire shares up to an
aggregate purchase price of $900,000 annually. Pursuant to stock repurchase
authorizations and limitations, the Company purchased 24,241 shares during 1998
and 4,018 shares during 1997 with an aggregate purchase price of $133,376 and
$30,125, respectively.
- ------------------------------------------------------------------------------------------------------------------------------------
Note 14 - Employee and Director Benefit Plans
Employees' Savings Plus and Profit Sharing Plan
The Company has established an associate tax deferred savings plan under Section
401(k) of the Internal Revenue Code of 1986. All associates who are scheduled to
work 1,000 hours or more are eligible to participate upon completion of one year
of employment.
The Company's annual contribution to the plan was $127,160 in 1998 and $113,099 in 1997, determined as follows:
o One percent of each participant's compensation.
o A matching contribution equivalent to 100% of the first 5% of each
associate's compensation contributed to the plan.
o A discretionary contribution, subject to approval by the Board of
Directors, limited to an amount not to exceed the maximum amount
deductible for income tax purposes.
Directors' Deferred Compensation Plan
The Company has established a Directors Deferred Compensation Plan in accordance
with the laws of the State of North Carolina. Each Director may elect to defer
receipt for services rendered to the Company as a Director during the term of
his or her service by entering into a written deferred compensation election.
The balance in deferred directors compensation was $128,730 and $90,046 at
December 31, 1998 and 1997, respectively.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 15 - New Accounting Standards
Adoption of New Accounting Standards
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125," Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No. 125 requires the Company to recognize the financial and servicing
assets it controls and liabilities it has incurred, derecognize financial assets
when control has been surrendered, and derecognize liabilities when
extinguished. In December of 1996, the FASB issued SFAS No. 127, "Deferral of
the Effective Date of Certain Provisions of FASB Statement No. 125." The Company
adopted SFAS No. 127 on January 1, 1998 as required; the adoption did not affect
the Company's balance sheet or statements of income and changes in shareholders'
equity.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying comprehensive
income and its components (revenues, expenses, gains and losses) in financial
statements. In addition, SFAS No. 130 requires the Company to classify items of
other comprehensive income by their nature in a separate financial statement or
as a component of the statement of income or the statement of changes in
shareholders' equity and display the accumulated balance of other comprehensive
income separately in the shareholders' equity section of the balance sheet. The
Company adopted SFAS No. 130 on January 1, 1998 as required.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting operating results and certain other information by operating segments
in annual and interim financial statements of public companies. Operating
segments are components of a Company about which separate financial information
is available that is regularly evaluated by the chief operating decision
maker(s) in deciding how to allocate resources and assess performance. SFAS No.
131 sets criteria for reporting disclosures about a Company's products and
services, geographic areas and major customers. The Company adopted SFAS No. 131
on January 1, 1998 as required. The Company has only one segment, as that term
is defined in SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" - an amendment of FASB Statements
No. 87, 88, and 106. SFAS No. 132 revises employers' disclosures about pension
and other postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer considered useful. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997. The Company does not offer
defined benefit plans or other postretirement benefit plans to its employees;
therefore, the adoption of SFAS No. 132 in 1998 did not affect the Company's
financial statement disclosures.
Accounting Standards Issued but Not Yet Adopted
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that the Company recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. The Company will adopt SFAS No. 133 on
January 1, 2000, as required. Given that the Company has no investments in
derivative instruments, management of the Company believes that adoption of SFAS
No. 133 will not have a material impact on the Company's balance sheet or the
related statements of income and changes in shareholders' equity.
- --------------------------------------------------------------------------------
26
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Notes To Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 16 - Fair Values Of Financial Instruments And Interest Rate Risk
The following table reflects a comparison of carrying amounts and the estimated
fair value of the financial instruments as of December 31.
1998 1997
---------------------------- -----------------------------
Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value
------------------------------------------------- --- ----------- --- ------------ -- ----------- -- -------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks, interest-bearing deposits $ 6,800 $ 6,800 $ 4,506 $ 4,506
with banks, and federal funds sold
Securities available for sale 24,075 24,075 23,847 23,847
Variable rate loans 60,505 60,508 63,570 63,570
Other loans 71,796 72,447 50,415 51,024
----------- ------------ ----------- -------------
Total loans 132,301 132,955 113,985 114,594
----------- ------------ ----------- -------------
Accrued interest receivable 941 941 931 931
------------------------------------------------- --- ----------- --- ------------ -- ----------- -- -------------
Financial Liabilities
Deposits
Non-interest bearing $ 16,136 $ 16,136 $13,872 $ 13,872
Variable rate, payable on demand 62,783 62,783 60,440 60,440
Fixed-rate time certificates of deposit 60,327 60,433 42,593 42,642
----------- ------------ ----------- -------------
Total deposits 139,246 139,352 116,905 116,954
----------- ------------ ----------- -------------
Short-term borrowing 4,795 4,795 8,009 8,009
Long-term debt 6,825 6,772 7,575 7,575
Accrued interest payable 189 189 171 171
------------------------------------------------- --- ----------- --- ------------ -- ----------- -- -------------
At December 31, 1998, the 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, and, therefore, they were deemed to have no
current fair market value. See Note 10.
It should be noted that the estimated fair values disclosed in this 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.
Interest Rate Risk
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, fair
values of the Company's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However, borrowers
with fixed rate obligations are more likely to prepay in a falling rate
environment and less likely to prepay in a rising rate environment. Conversely,
depositors who are receiving fixed rates are more likely to withdraw funds
before maturity in a rising rate environment and less likely to do so in a
falling rate environment. Management monitors rates and maturities of assets and
liabilities and attempts to minimize interest rate risk by adjusting terms of
new loans and deposits and by investing in securities with terms that mitigate
the Company's overall interest rate risk.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Selected Financial Data
In Thousands Except Per Share And Shares Outstanding Information
- ------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest Income $ 11,898 $ 11,019 $ 10,040 $ 8,913 $ 7,692
Interest Expense 5,192 4,879 4,511 4,051 3,008
-------------- ------------- -------------- ------------ --------------
Net Interest Income 6,706 6,140 5,529 4,862 4,684
Provision for Loan Losses 119 183 137 77 181
Noninterest Income 1,519 1,491 1,361 1,183 270
Noninterest Expense 6,214 5,722 5,277 4,988 4,551
Income taxes 587 540 451 199 (38)
-------------- ------------- -------------- ------------ --------------
Net Income 1,305 $ 1,186 $ 1,025 $ 781 260
============== ============= ============== ============ ==============
Per Common Share
Net Income - Basic (1) $ .28 $ .26 $ .22 $ .17 $ .06
Net Income - Diluted (1) .28 .25 .22 .17 .06
Cash dividends N/A N/A .10 .09 .09
Book Value (1) 3.14
2.74 2.47 2.38 2.10
Weighted Average Shares
Outstanding:
Basic (1) 4,600,463 4,560,506 4,585,018 4,619,056 4,656,346
Diluted (1) 4,717,657 4,663,804 4,585,018 4,619,056 4,656,346
- -------------------------------------------- -------------- -- ------------- -- -------------- -- ------------ -- --------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Selected year-end balances
Assets $ 167,386 $ 145,704 $ 133,876 $ 120,839 $ 112,124
Loans 132,301 113,985 100,852 80,074
90,948
Securities 24,075 23,847 25,220 23,114 23,543
Deposits 139,246 116,905 104,599 93,235
95,794
Borrowed funds 11,620 15,584 17,421 13,275 8,886
Shareholders' equity 15,698 12,534 11,303 10,913 9,724
Selected average balances
Assets $ 153,006 $ 140,508 $ 128,193 $ 113,535 $108,972
Loans 117,442 97,201 75,657
107,696 82,630
Securities 26,322 25,577 23,594 23,916 25,833
Deposits 126,493 101,638 93,235
111,593 95,794
Borrowed funds 13,016 16,482 14,893 11,891 8,451
Shareholders' equity 13,497 11,818 11,123 10,445 10,278
</TABLE>
1) Net income per share, book value per share, weighted average shares
outstanding and shares outstanding at year-end for 1994 through 1997 have
been adjusted to reflect a 100% stock dividend issued in 1998, a 5% stock
dividend issued in 1997 and 3% stock dividends issued in 1996, 1995, and
1994.
28
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
- --------------------------------------------------------------------------------
Operating results and the Company's financial condition are presented in the
following narrative and financial tables. The comments are intended to
supplement and should be reviewed in conjunction with the consolidated financial
statements and related footnotes appearing on pages 6 - 27. References to
changes in assets and liabilities represent end of period balances unless
otherwise noted.
This annual report to shareholders contains certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and other business of Uwharrie Capital Corp that are subject to
various factors which could cause actual results to differ materially from those
estimates. Factors, which could influence the estimates, include changes in
national, regional and local market conditions, legislative and regulatory
conditions, and the interest rate environment.
Earnings Overview
Uwharrie Capital Corp (the "Company") recorded net earnings of $1.3 million for
the year ended December 31, 1998, an increase of 10.1% or $120 thousand as
compared with net income of $1.2 million in 1997. Basic earnings per share
reflected $.28 compared to $.26 for the prior year, after giving effect to the
100% stock dividend paid in 1998. Growth of 9.2% in net interest income,
supported by a 1.9% increase in non-interest revenues accounted for the earnings
increase.
During 1998 the Company experienced asset growth of $21.7 million, an increase
of 14.9%. Loans increased by $18.3 million or 16.1% resulting in a 15.1%
increase in earning assets. The asset growth was funded by deposit growth of
$22.3 million, representing an increase of 19.1% over the prior year. This
allowed the Company to maintain its interest margin, enhancing earnings, as
deposits typically reflect a lower cost of funds than other funding sources.
Net income for the years ended 1998 and 1997 and certain key financial
performance ratios are reflected below:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------- --------------- ---- ---------------
<S> <C> <C>
Net Income $1,305,461 $1,185,920
Return on average assets .85% .84%
Return on average equity 9.67% 10.04%
Average equity to average assets 8.82% 8.41%
---------------------------------------------------------- --------------- ---- ---------------
</TABLE>
Uwharrie Capital Corp has managed to achieve good performance while developing
its strategy to remain a strong, viable independent financial institution. In
1993, the Company began a program to develop and expand its technology
capabilities, which remains a focus today. This development has provided the
capacity to grow the organization and leverage the high cost of delivering
competitive services. Management believes this strategy will enable the Company
to remain competitive with larger institutions and allow its service area to
enjoy the benefits of a local financial institution and the strength its capital
investment provides to the community.
Net Interest Income
The Company's major source of revenue is net interest income, which is the
excess of interest income earned on loans and securities over interest expense
paid on deposits and borrowings. Net interest income, as reflected on the
consolidated income statement, increased $567 thousand or 9.2% for the year
ended December 31, 1998, as compared with the prior year. This improvement can
be attributed primarily to the increase in interest income generated by growth
in the loan portfolio. Yield on loans during 1998 was 8.64% compared to 8.71% in
1997; however, cost of funds also decreased and the margin remained stable.
29
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Securities available for sale produced income of $1.6 million and reflected a
yield of 6.84% on a tax equivalent basis, during the twelve months of 1998
compared to $1.6 million with a tax equivalent yield of 7.30%, during the same
period of 1997.
Interest expense on deposits increased by $516 thousand or 13.0% due to higher
balances. The weighted average rate paid on all interest-bearing deposits was
4.05% in 1998 compared to 4.03% in 1997.
Due to an increase of $22.3 million in deposits, dependence on other funding
decreased in 1998. Average short-term borrowed funds decreased by $2.2 million
and reflected an average cost of 4.57% compared to 4.85% in the prior year.
Average long-term debt, which decreased by $1.2 million, reflected a cost of
6.32% compared to 6.29% in the previous twelve months.
The Company's net interest margin, the difference between the tax-equivalent
yield on earning assets and the rate paid on funds to support those assets, was
stable during 1998 and 1997, reflecting margins of 4.71% and 4.73%,
respectively. A stable margin reflects the Company's ability to manage the mix
and pricing of its interest-bearing assets and liabilities to minimize the
effect of interest rate changes on its balance sheet and the resulting net
interest income. There were no wide swings in interest rates during 1998 or 1997
and rate changes in these periods did not significantly impact the margin. The
Company is pleased with this performance considering the competitive nature of
the financial services industry.
Financial Table 1 on Page 35 presents a detailed analysis of the components of
the Company's net interest income. This exhibit discloses the dollar change in
average assets and liabilities along with the associated changes in yields and
interest income and expense.
Balance Sheet Analysis
The Company's loan demand remained strong in 1998, primarily in mortgage and
commercial loans. Gross outstanding loans at December 31, 1998 totaled $132.3
million, $18.3 million greater than at December 31, 1997 representing an
increase of 16.1%.
Investment securities, including net unrealized gains, totaled $24.1 million at
December 31, 1998 compared to $23.8 million at this period end in 1997, an
increase of $228 thousand.
During 1998, the Company attracted deposit funds of $22.3 million, which
provided the primary funding for its balance sheet growth. Other funding sources
utilized during 1998 included securities sold under repurchase agreements,
Master Notes, federal funds purchased and advances from Federal Home Loan Bank.
At December 31, 1998 other funding sources totaled $11.6 million compared to
$15.6 million at the end of the prior year, a decrease of $4.0 million.
On December 31, 1998, the Company completed the sale of 427,205 shares of common
stock under its initial Subscription Offer dated September 21, 1998 generating
$1.8 million in additional capital, net of issuance costs. The Subscription
Offer, which designated maximum subscriptions of 850,000 shares, was extended
through March 31, 1999.
30
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Nonperforming Assets
Nonperforming assets, composed of nonaccrual loans and foreclosed real estate,
remain at a level below the peer group averages, reflective of the Company's
ongoing commitment to maintaining asset quality. Nonaccrual loans at December
31, 1998 were $68 thousand and represented .05% of outstanding loans compared
with $323 thousand reflecting a ratio of .28% at December 31, 1997. Foreclosed
real estate totaled $85 thousand at year-end 1998 and $133 thousand at year-end
1997.
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.
The transactions in the allowance for loan losses are summarized in the Note 4
to the consolidated financial statements. The ratio of net charge-offs to gross
loans outstanding is currently an excellent ratio compared to bank peers
reflecting .06% in 1998 and .09% in 1997. Provision expense during 1998 was $119
thousand compared to $183 thousand for the same period in 1997. The decrease in
the amount needed to fund the reserve in 1998, compared to 1997, can be
attributed to a decrease in the amount of net charge-offs, mix of the loan
portfolio, loan performance, and management assessment of risk in the portfolio.
Noninterest Income
The Company generates most of its revenue from net interest income; however,
noninterest income is an important revenue stream and is receiving growing focus
in the financial industry. Total noninterest income, exclusive of securities
gains (losses), increased by $60 thousand in the twelve months ended December
31, 1998 compared to 1997, an increase of 4.1%.
The main component, service charges on deposit accounts, amounted to $952
thousand in 1998 compared to $911 thousand in 1997, which represents an increase
of $41 thousand or 4.5%. The ratio of service charge income from the banking
subsidiary to average assets of .62% for 1998 is favorable compared to other
banks of similar size. Another factor with significant influence to this
category is the Bank's brokerage and insurance subsidiaries, which contributed
commission and fee income of $286 thousand in 1998 and $300 thousand in 1997.
Noninterest Expense
For the twelve months ended December 31, 1998 compared to the same period of
1997, noninterest expenses totaled $6.2 million and $5.7 million, respectively,
an increase of $493 thousand or 8.6%.
Personnel costs continue to be the largest component of noninterest expense,
increasing by $441 thousand or 15.1%, due to merit salary increases, additional
staff and associated benefits cost. Salaries and incentives totaled $2.8 million
in 1998 compared to $2.5 million in the prior year. Employee benefits were up by
$95 thousand.
31
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Occupancy expense increased by $20 thousand or 7.8% in 1998 compared to 1997,
due primarily to renovations and repairs in some offices. Data processing costs
decreased, reflecting expenses of $466 thousand and $496 thousand in the two
periods, respectively. Equipment expense includes the cost of depreciation and
maintenance associated with furniture, network computers, PC workstations, other
banking equipment and the amortization of technology related and other software.
These expenses, which totaled $472 thousand in 1998 and $412 thousand in 1997,
reflect an increase of $60 thousand or 14.6%.
Remaining combined categories of noninterest expense, including professional
fees, marketing, electronic banking delivery, director fees, insurance,
supplies, postage, telephone and other expenses remained relatively stable when
comparing the two periods. The most significant of these expenses are
professional fees and marketing. Expenses for professional fees, which include
accounting, outside services, consulting and legal expenses, increased by $21
thousand. Marketing, including the cost of advertising, sales promotion, public
relations, donations and business development, totaled $217 thousand in 1998
compared to $289 thousand in 1997.
Capital Resources
The Company continues to maintain strong capital ratios that support its asset
growth. As of December 31, 1998, capital as a percentage of total assets
reflected a ratio of 9.4%, which exceeds the Company's strategic goal of
maintaining this ratio at 8%. This compares to 8.6% at the end of 1997. The
capital position is maintained through the retention of earnings and controlled
growth. Enhancing the capital position in 1998 was the sale of common shares
through a Subscription Offer, which provided additional capital of $1.8 million.
Regulatory agencies divide capital into Tier I (consisting of shareholders'
equity less ineligible intangible assets) and Tier II (consisting of the
allowable portion of the reserve for loan losses and certain long-term debt) and
measure capital adequacy by applying both capital levels to a banking company's
risk-adjusted assets and off-balance sheet items. Regulatory requirements
presently specify that Tier I capital should exclude the market appreciation or
depreciation of securities available-for-sale arising from valuation adjustments
under FASB 115. In addition to these capital ratios, regulatory agencies have
established a Tier I leverage ratio which measures Tier I capital to average
assets less ineligible intangible assets.
Regulatory guidelines require a minimum of total capital to risk-adjusted assets
ratio of 8 percent with one-half consisting of tangible common shareholders'
equity and a minimum Tier I leverage ratio of 3 percent. Banks, which meet or
exceed a Tier I ratio of 6 percent, a total capital ratio of 10 percent and a
Tier I leverage ratio of 5 percent are considered well capitalized by regulatory
standards.
At December 31, 1998, the Company's Tier I to risk-adjusted assets ratio was
13.5% with total capital at 14.5% of risk-adjusted assets and Tier I leverage
ratio at 9.5%. The Company expects to continue to exceed these minimums without
altering current operations or strategy.
Dividends
During 1998 the Board of Directors of Uwharrie Capital Corp declared a stock
split in the form of a 100% stock dividend. In 1997 a 5% stock dividend was
issued, increasing each shareholder's investment in the Company.
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 for 1998 totaled $587 thousand, an effective tax rate of
31.0%. During 1997 the effective tax rate was 31.3%.
32
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying footnotes have been
prepared in accordance with generally accepted accounting principles ("GAAP"),
which require the measurement of financial position and operating results in
terms of historical dollars without consideration for changes in the relative
purchasing power of money over time due to inflation. The assets and liabilities
of the Company are primarily monetary in nature and changes in interest rates
have a greater impact on the Company's performance than do the effects of
inflation.
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 fluctuations. Maturities
in the securities portfolio, presented in Note 2, are supported by cash flows
from mortgage-backed securities that have longer-term contractual maturities.
Other funding sources at year-end included $15.5 million in federal funds lines
of credit from correspondent banks and a $30 million line of credit from the
Federal Home Loan Bank. The Company can also borrow from the Federal Reserve
Bank discount window. Growth in deposits is typically the primary source of
funding for loans, supported by long-term credit available from the Federal Home
Loan Bank.
At December 31, 1998, the Company had no borrowings from available federal funds
lines. Advances from the Federal Home Loan Bank at that date consisted of $6.8
million in long-term debt.
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. Gap analysis at December 31, 1998 is reflected in
Financial Table 3 at page 37. 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 principal goals of the Company's asset liability management are the
maintenance of adequate liquidity and the management of interest rate risk.
Interest rate risk management attempts to balance the effects of interest rate
changes on interest-sensitive assets and liabilities to protect net interest
income from wide fluctuations that could result from 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.
33
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Year 2000
The "Year 2000" issue confronting the Company and its customers, suppliers,
customers' suppliers and competitors centers on the potential inability of
computer systems to recognize the Year 2000. If not adequately addressed, the
Year 2000 matter could result in a significant adverse impact on products,
services and the competitive condition of the Company.
Financial institution regulators have recently increased their focus on Year
2000 compliance issues, issuing guidance concerning the responsibilities of
senior management and directors. The Federal Financial Institutions Examination
Council ("FFIEC") has issued several interagency statements on Year 2000 Project
Management Awareness. These statements require financial institutions to examine
the Year 2000 implications of reliance on vendors, data exchange and potential
impact on customers, suppliers and borrowers. These statements also require each
federally regulated financial institution to survey its exposure, measure its
risk and prepare a plan in order to solve the Year 2000 issue. In addition, the
federal banking regulators have issued safety and soundness guidelines to be
followed by insured depository institutions, such as the Bank, to assure
resolution of any Year 2000 problems. The federal banking agencies have asserted
that Year 2000 testing and certification is a key safety and soundness issue in
conjunction with regulatory exams, and thus an institution's failure to address
appropriately the Year 2000 issue could result in supervisory action, including
such enforcement actions as the reduction of the institution's supervisory
ratings, the denial of applications for approval of a merger or acquisition, or
the imposition of civil money penalties.
In order to address the Year 2000 issue and to minimize its potential adverse
impact, the Company has undertaken a substantial multi-phased effort to identify
areas that will be affected by the Year 2000, assess their potential impact on
operations, monitor the progress of third party software vendors in addressing
the matter, test changes provided by these vendors, and develop contingency
plans for any critical systems which are not effectively reprogrammed. The plan
is divided into the five phases: (1) awareness, (2) assessment, (3) renovation,
(4) validation, and (5) implementation.
The Company has substantially completed the first four phases of the plan and
has made significant progress in the final phase. The Company outsources its
item and data processing operations to a service provider that is jointly owned
with another bank; therefore, Year 2000 compliance is also being closely
coordinated with that of the service provider. Prior to June 30, 1999, the
Company will have in place a Detailed Contingency Plan should any business
disruption occur due to circumstances beyond its control.
Further, the Company is undertaking efforts to ensure that significant vendor
and customer relationships are or will be Year 2000 compliant. There can be no
guarantee that the systems of other entities on which the Company either or
indirectly relies will be timely converted, or that a failure to convert by
another entity, or a conversion that is incompatible with the Company's systems,
would not have a material adverse effect on the Company in future periods.
The Company's management believes that all of its systems will be verified Year
2000 compliant. The Company estimates that it will incur Year 2000 compliance
costs of approximately $75,000, all of which will be charged to operations. In
addition to the estimated costs of its Year 2000 compliance, the Company
routinely makes annual investments in technology in its efforts to improve
customer service and to efficiently manage its product and service delivery
systems.
34
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Financial Tables
Financial Table 1
AVERAGE BALANCE SHEET AND NET INTEREST INCOME ANALYSIS
(In thousands)
1998 1997
---------------------------------------- ----------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (1) Balance Expense Rate (1)
---------------------------------------- ----------------------------------------
Interest Earning Assets
<S> <C> <C> <C> <C> <C> <C>
Taxable securities $ 20,733 $ 1,299 6.27 $ 19,822 $ 1,267 6.39%
Non-taxable securities 5,589 325 8.95 5,755 340 9.09%
Short-term investments 2,216 128 5.80 541 34 6.36%
Loans, gross (2) 117,442 10,146 8.64 107,696 9,378 8.71%
---------------------------------------- ----------------------------------------
Total interest-earning assets 145,980 11,898 8.27 133,814 11,019 8.37%
---------------------------------------- ----------------------------------------
Non-earning Assets
Cash and due from banks 3,827 3,799
Premises and equipment, net 2,537 2,311
Interest receivable and other 662 584
------------ -----------
Total non-earning assets 7,026 6,694
------------ -----------
Total assets $ 153,006 $ 140,508
============ ===========
Interest-bearing liabilities
Savings deposits $ 34,025 1,335 3.92 $ 29,505 1,204 4.07%
Transaction and MMDA deposits 28,164 624 2.21 28,195 644 2.28%
Other time deposits 48,474 2,528 5.21 40,721 2,123 5.21%
---------------------------------------- ----------------------------------------
Total deposits 110,663 4,487 4.05 98,421 3,971 4.03%
Short-term borrowed funds 6,718 307 4.57 8,936 433 4.85%
Long-term debt 6,298 398 6.32 7,546 475 6.29%
---------------------------------------- ----------------------------------------
Total interest-bearing liabilities 123,679 5,192 4.20 114,903 4,879 4.25%
---------------------------------------- ----------------------------------------
Noninterest liabilities
Transaction deposits, interest
payable and other 15,830 13,787
------------ -----------
Total liabilities 139,509 128,690
------------ -----------
Shareholders' equity 13,497 11,818
------------ -----------
Total liabilities and
shareholders' equity $ 153,006 $ 140,508
============ ===========
Interest rate spread 4.07% 4.12%
Net interest income and net
interest margin $6,706 4.71% $ 6,140 4.73%
========== ==========
</TABLE>
1) Yields related to securities and loans exempt from federal and/or state
income taxes are stated on a fully tax- equivalent basis, assuming a 35% tax
rate.
2) Nonaccrual loans are included in loans, net of unearned income.
35
<PAGE>
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Financial Tables
Financial Table 2
VOLUME AND RATE VARIANCE ANALYSIS
(In thousands)
1998 Compared to 1997
------------------------------------------
Income/ Variance
Expense Attributable to
Variance Volume Rate
------------------------------------------
Earning Assets
<S> <C> <C> <C>
Taxable securities $ 32 $ 57 $ (25)
Non-taxable securities (15) (10) (5)
Short-term investments 94 97 (3)
Loans, gross 768 840 (72)
----------- ------------ -----------
Total earning assets 879 984 (105)
----------- ------------ -----------
Interest-bearing liabilities
Savings deposits 131 177 (46)
Transaction and MMDA deposits (20) (1) (19)
Other time deposits 405 404 1
Short-term borrowed funds (126) (102) (24)
Long-term debt (77) (79) 2
----------- ------------ -----------
Total interest-bearing liabilities 313 399 86
----------- ------------ -----------
Net Interest Income $ 566 $ 585 $ (19)
=========== ============ ===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above table analyzes the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (I) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), and (iii) net change (the sum of the previous columns).
The change attributable to both rate and volume (changes in rate multiplied by
changes in volume) has been allocated equally to both the changes attributable
to volume and the changes attributable to rate.
36
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARY
Financial Tables
Financial Table 3
INTEREST RATE GAP
(Dollars in thousands)
<TABLE>
<CAPTION>
1 - 90 3 - 6 6 - 12 1 - 5 Non-sensitive
days months months years and over 5 yrs. Total
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-Earning Assets
<S> <C> <C> <C> <C> <C> <C>
Due from banks $ 481 $ - $ - $ - $ - $ 481
Federal funds sold 1,950 - - - - 1,950
Investment securities 2,096 1,072 1,548 5,848 12,417 22,981
FHLB and other stock - - - - 1,094 1,094
Variable rate loans 58,772 989 506 238 - 60,505
Fixed rate loans 1,907 2,871 10,804 28,571 27,643 71,796
-------------- -------------- -------------- --------------- --------------- ----------------
Total interest-earning assets 65,206 4,932 12,858 34,657 41,154 158,807
-------------- -------------- -------------- --------------- --------------- ---------------
Interest-Bearing
Liabilities
Deposits 66,390 16,846 10,566 21,716 7,592 123,110
Short-term borrowed funds 4,795 - - - - 4,795
Long-term debt 1,424 24 123 2,165 3,087 6,823
-------------- -------------- -------------- --------------- --------------- ----------------
Total interest-bearing
liabilities 72,609 16,870 10,689 23,881 10,679 134,728
-------------- -------------- -------------- --------------- --------------- ----------------
Interest sensitivity GAP per (7,403) (11,938) 2,169 10,776 30,475 24,079
period
Cumulative interest (7,403) (19,341) (17,172) (6,396) 24,079 24,079
sensitivity GAP
Ratios
Cumulative gap as a
percentage of total (4.66)% (12.18)% (10.81)% (4.03)% 15.16% 15.16%
interest-earning assets
Cumulative interest-earning
assets as a percentage of
total interest-bearing 89.80% 78.38% 82.86% 94.84% 117.87% 117.87%
liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
Board of Directors
William S. Aldridge, Jr.
Secretary-Treasurer
Manager and Co-owner
Stanly Funeral Home, Inc.
Cynthia H. Beane
Certified Public Accountant
Cynthia H. Beane, Proprietor
Joe S. Brooks
Partner
Brothers Precision Tool Company
Ronald T. Burleson
Partner
Thurman Burleson & Sons Farm
Bill C. Burnside, D.D.S.
Dentist and Owner
Bill C. Burnside, D.D.S
Gail C. Burris
Owner and Manager
Rosebriar Restaurant
G. Chad Efird
Retired - Technical Supervisor
David M. Jones, D.V.M.
Director of the North Carolina
Zoological Park in Asheboro
James F. Link, D.V.M.
Veterinarian and Owner
North Stanly Animal Clinic
W. Chester Lowder
Director of Dairy and Beef
Programs and Assistant Director
of Natural Resources
N.C. Farm Bureau Federation
President - Fork L. Farm, Inc.
Buren Mullis
Retired - Vice President and
General Manager
Sundrop Bottling Company, Inc.
John P. Murray, M.D.
Retired - Physician
Albemarle Ear, Nose and Throat
Kent E. Newport
President, KDC, Inc.
DBA Coy's Laundromat
Catherine A. Pickler
Homemaker and Community
Volunteer
George T. Reaves
Retired - Vice President Traffic and
Transportation
Collins & Aikman Corporation
A. James Russell
Construction Manager
J.T. Russell & Sons, Inc.
B. A. Smith, Jr.
Retired - Pilot and Base
Commander
United States Air Force
Douglas V. Waddell
Retired - Automotive Dept.
Manager
Sears Roebuck and Co.
- --------------------------------------------------------------------------------
BANK OF STANLY
Board of Directors
William F. Clayton
Cost Office Supervisor
Aluminum Company of America
W. Kermit Efird
President
Rocky River Springs Fish House, Inc.
James L. Harris
Retired - Specialty Sales Manager
Southwire Company
Eric M. Johnsen, M.D.
President, Physician
Stanly Family Care Clinic
Jerry L. Long
President, Secretary and Co-Owner
Long's Diamond Broker
Previously Long's Jeweler, Inc.
James R. Mauney, Sr.
Retired - President and Owner
Mauney Feed Mill
Pamela S. Morton
Principal
Endy Elementary School
Boyce E. Thompson
Treasurer
Stanly Fixtures Company, Inc.
38
<PAGE>
THE STRATEGIC ALLIANCE CORPORATION
Board of Directors
Jerry W. Almond, Sr.
President
Stanly Fixtures Company, Inc
Cletus J. Burns, Jr.
Manager - Finishing Department
Collins & Aikman Corporation
Robert L. Isenhour
Retired - Owner and Operator
Stanly Shale Products Division of Sanford
Joseph R. Kluttz, Jr.
President
Albemarle Insurance Agency, Inc.
James E. Nance
President and General Manager
Confederate Motors, Inc.
Michael E. Snyder, Sr.
Vice President of Research and Development
E. J. Snyder & Company, Inc.
Hugh E. Wallace
President and Owner
Anson Apparel Company
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS
Ronald B. Davis
President/Chief Executive Officer
Bank of Stanly
Roger L. Dick
President/Chief Executive Officer
Uwharrie Capital Corp
Susan B. Gibson
Vice President
Human Resources
Bank of Stanly
Jacqueline S. Jernigan
Executive Vice President
Retail Banking
Bank of Stanly
Dawn L. Melton
Executive Vice President
Technology
Uwharrie Capital Corp
Tamara M. Singletary
Executive Vice President - Investor
Relations and Corporate Secretary
Uwharrie Capital Corp
Christy D. Stoner
President/Chief Executive Officer
The Strategic Alliance Corporation
Thomas H. Swaringen
Executive Vice President
Credit Administration
Bank of Stanly
Barbara S. Williams
Senior Vice President
Finance
Uwharrie Capital Corp
O. David Williams, Jr.
Executive Vice President
Commercial Banking
Bank of Stanly
39
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
NAME OF SUBSIDIARY STATE OF INCORPORATION
------------------ ----------------------
Bank of Stanly North Carolina
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the 1998
Annual Report of the Registrant and is qualified in its entirety to reference to
such financial statements.
</LEGEND>
<CIK> 0000898171
<NAME> UWHARRIE CAPITAL CORP., 10KSB
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,852
<INT-BEARING-DEPOSITS> 123,109
<FED-FUNDS-SOLD> 1,950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,075
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 132,301
<ALLOWANCE> 1,170
<TOTAL-ASSETS> 167,386
<DEPOSITS> 139,246
<SHORT-TERM> 4,795
<LIABILITIES-OTHER> 822
<LONG-TERM> 6,825
0
0
<COMMON> 6,254
<OTHER-SE> 9,444
<TOTAL-LIABILITIES-AND-EQUITY> 167,386
<INTEREST-LOAN> 10,146
<INTEREST-INVEST> 1,675
<INTEREST-OTHER> 77
<INTEREST-TOTAL> 11,898
<INTEREST-DEPOSIT> 4,487
<INTEREST-EXPENSE> 5,192
<INTEREST-INCOME-NET> 6,706
<LOAN-LOSSES> 119
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 6,214
<INCOME-PRETAX> 1,893
<INCOME-PRE-EXTRAORDINARY> 1,305
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,305
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 4.71
<LOANS-NON> 68
<LOANS-PAST> 76
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,125
<CHARGE-OFFS> 111
<RECOVERIES> 37
<ALLOWANCE-CLOSE> 1,170
<ALLOWANCE-DOMESTIC> 1,170
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
