<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file Number 0-22062
UWHARRIE CAPITAL CORP
(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1814206
(State of incorporation) (I.R.S Employer Identification No.)
167 North Second Street
Albemarle, North Carolina 28001
(Address of principal executive offices)
Issuer's telephone number, including area code: (704) 983-6181
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No_____
-----
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Title of Each Class Outstanding at October 31, 2000
------------------- -------------------------------
Common stock, par value $1.25 per share 5,579,004 shares outstanding
Transitional Small Business Disclosure Format (check one):
Yes _____ No X
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UWHARRIE CAPITAL CORP AND SUBSIDIARIES
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part 1 Financial Information
Item 1 Financial Statements
Consolidated Statements of Financial Condition
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the Three Months and the
Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Changes in Shareholders' Equity for the
Nine Months Ended September 30, 2000 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II Other Information
Item 4 Submission of Matters to Vote of Security Holders 14
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 14
Exhibit 27 Financial Data Schedule for the Nine Months Ended September 30, 2000 15
</TABLE>
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
--------------------------------------------------------------------------------------------------------------------------
(In thousands) September 30, December 31,
2000 1999 (*)
ASSETS (unaudited)
------------------- -------------------
<S> <C> <C>
Cash and due from banks $ 5,347 $ 7,316
Interest-bearing deposits with banks 780 383
Securities available for sale:
U.S. Treasury 994 1,988
U.S. Government agencies 19,231 17,081
State and political subdivisions 14,657 14,004
Other securities 3,745 2,654
------------------- -------------------
Total securities 38,627 35,727
------------------- -------------------
Federal funds sold - -
Loans (Note 2) 171,773 140,095
Less: Allowance for loan losses 1,028 1,003
------------------- -------------------
Loans, net 170,745 139,092
------------------- -------------------
Premises and equipment, net 4,170 3,358
Interest receivable 1,467 1,104
Other assets 4,569 5,737
------------------- -------------------
Total assets $225,705 $192,717
=================== ===================
LIABILITIES
Deposits:
Demand deposits $ 17,420 $ 17,063
Money market and NOW accounts 30,568 32,442
Savings deposits 40,533 34,001
Time deposits $100,000 and over 18,377 18,484
Other time deposits 44,249 32,833
------------------- -------------------
Total deposits 151,147 134,823
------------------- -------------------
Federal funds purchased 5,000 2,725
Securities sold under repurchase agreements 3,116 2,856
Commercial paper 3,958 2,958
Other short-term borrowed funds 18,500 13,200
Long-term debt 23,804 18,251
Interest payable 392 220
Other liabilities 1,205 623
------------------- -------------------
Total liabilities 207,122 175,656
------------------- -------------------
Off balance sheet items, commitments and contingencies (Note 4)
SHAREHOLDERS' EQUITY
Common stock, $1.25 par value: 20,000,000 shares authorized;
issued and outstanding: 5,581,229 and 5,545,607 shares, respectively 6,977 6,932
Additional paid-in capital 6,206 6,319
Common stock subscriptions receivable (49) (204)
Common stock acquired by ESOP (1,168) (1,168)
Undivided profits 6,578 5,406
Accumulated other comprehensive income (loss) 39 (224)
------------------- -------------------
Total shareholders' equity 18,583 17,061
------------------- -------------------
Total liabilities and shareholders' equity $225,705 $192,717
=================== ===================
</TABLE>
See accompanying notes.
(*) Derived from audited financial statements.
3
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<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
(In thousands) Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 3,824 $ 2,840 $ 10,556 $ 8,300
Interest on securities:
U.S. Treasury 13 29 56 127
U.S. Government agencies 345 337 1,027 838
State and political subdivisions 205 78 604 235
Other securities 63 32 167 73
Other interest income 9 11 63 33
--------------- --------------- --------------- ---------------
Total interest income 4,459 3,327 12,473 9,606
INTEREST EXPENSE:
Interest on deposits 1,533 1,100 4,365 3,451
Interest borrowed funds 858 360 2,121 689
--------------- --------------- --------------- ---------------
Total interest expense 2,391 1,460 6,486 4,140
NET INTEREST INCOME 2,068 1,867 5,987 5,466
Provision for loan losses 48 - 80 80
--------------- --------------- ------------- --------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,020 1,867 5,907 5,386
--------------- --------------- ------------- --------------
NONINTEREST INCOME:
Service charges on deposit accounts 317 274 859 786
Other service fees and commissions 293 199 738 493
Other income(loss) 167 (56) 211 (31)
--------------- --------------- ------------- --------------
Total noninterest income 777 417 1,808 1,248
--------------- --------------- ------------- --------------
NONINTEREST EXPENSE:
Salaries, wages and employee benefits 1,308 944 3,471 2,811
Occupancy expenses 96 71 272 209
Equipment expense 157 143 440 413
Data processing 158 121 401 346
Other expenses 542 462 1,613 1,276
--------------- --------------- ------------- --------------
Total noninterest expense 2,261 1,741 6,197 5,055
--------------- --------------- ------------- --------------
INCOME BEFORE INCOME TAXES 536 543 1,518 1,579
Provision for income taxes 133 170 346 484
--------------- --------------- ------------- --------------
NET INCOME $ 403 $ 373 $ 1,172 $ 1,095
=============== =============== ============= ==============
Net Income Per Common Share
Basic $ .08 $ .07 $ .22 $ .21
Assuming dilution $ .07 $ .07 $ .21 $ .21
Weighted Average Shares Outstanding
Basic 5,341,489 5,287,206 5,325,349 5,249,464
Effect of dilutive stock options 94,575 138,538 127,647 80,085
--------------- --------------- ------------- --------------
Assuming dilution 5,436,064 5,425,744 5,452,996 5,329,549
=============== =============== ============= ==============
</TABLE>
See accompanying notes.
4
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<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity (unaudited)
------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Accumulated
Additional Common Stock Other
Common Paid-in Subscriptions ESOP Notes Undivided Comprehensive
Stock Capital Receivable Receivable Profits Income Total
----- ------- ---------- ---------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ 6,932 $ 6,319 $ (204) $ (1,168) $ 5,406 $ (224) $ 17,061
Comprehensive income
Net income - - - - 1,172 - 1,172
Net increase (decrease) in fair
value of securities
available
for sale - - - - - 263 263
------------
Total comprehensive income 1,435
------------
Common stock issued pursuant to:
Stock options exercised 133 189 - - - - 322
Repurchase of common stock (88) (302) - - - - (390)
Collections of subscriptions receivable - - 155 - - - 155
--------------------------------------------------------------------------------------------
Balance, September 30, 2000 $ 6,977 $ 6,206 $ (49) $ (1,168) $ 6,578 $ 39 $ 18,583
============================================================================================
</TABLE>
See accompanying notes.
5
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<TABLE>
<CAPTION>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
------------------------------------------------------------------------------------------------------------------------------------
(in thousands) Nine Months Ended
September 30, September 30,
2000 1999
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,172 $ 1,095
Adjustments to reconcile net income to net cash provided by operations:
Depreciation 302 254
Amortization of investment discounts and premiums, net 2 (13)
Provision for loan losses 80 80
(Gain) loss on sale of securities available for sale - (3)
(Gain) loss on sale of foreclosed real estate (3) -
(Gain) loss on sale of mortgage loans (166) -
Changes in assets and liabilities:
Interest receivable (327) (133)
Other assets 106 (495)
Interest payable 120 -
Accrued and other liabilities (577) 145
----------------- -----------------
Net cash provided by operating activities 709 930
----------------- -----------------
INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits with banks (396) -
Proceeds from sales of securities available for sale 2,358 455
Proceeds from maturities of securities available for sale 8,200 7,095
Purchase of securities available for sale (8,260) (13,830)
Net decrease in federal funds sold - 1,950
Net (increase) decrease in loans made to customers (25,519) (6,777)
Net cash paid for business acquired (3,214) -
Purchase of premises and equipment (472) (808)
Collection of receivables from securities sales 2,460 -
Proceeds from sale of mortgage loans 5,604 -
Proceeds from sale of foreclosed properties 32 -
----------------- -----------------
Net cash used in investing activities (19,207) (11,915)
----------------- -----------------
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 2,055 (5,423)
Net increase in federal funds purchased 2,275 1,600
Net increase (decrease) in securities sold under repurchase agreements 260 (223)
Net proceeds from long-term advances from Federal Home Loan Bank 5,553 11,453
Net increase in commercial paper 1,000 663
Net increase in other short-term borrowed funds 5,300 1,197
Proceeds from issuance of common stock 477 3,158
Net increase in common stock subscribed - (270)
Repurchases of common stock (391) (860)
Common stock acquired by ESOP - (1,200)
----------------- -----------------
Net cash provided by financing activities 16,529 10,095
----------------- -----------------
DECREASE IN CASH AND DUE FROM BANKS (1,969) (890)
Cash and due from banks at beginning of period 7,316 4,852
----------------- -----------------
Cash and due from banks at end of period $ 5,347 $ 3,962
================= =================
</TABLE>
See accompanying notes.
6
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UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
------------------------------------------------------
Note 1 - Basis of Presentation
The financial statements and accompanying notes are presented on a consolidated
basis including Uwharrie Capital Corp (the "Company"), it's subsidiaries, Bank
of Stanly ("Stanly"), Anson Bank & Trust Co. ("Anson"), and Strategic Investment
Advisors, Inc., (SIA). Bank of Stanly consolidates its two subsidiaries, the
Strategic Alliance Corporation and BOS Agency, Inc. each of which are wholly-
owned by Stanly.
The information contained in the consolidated financial statements is unaudited.
In the opinion of management, the consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and all
material adjustments necessary for a fair presentation of results of interim
periods, all of which are of a normal recurring nature, have been made. The
results of operations for the interim periods are not necessarily indicative of
the results which may be expected for an entire year. Management is not aware
of economic events, outside influences or changes in concentrations of business
that would require additional clarification or disclosure in the consolidated
financial statements. Certain prior period amounts have been reclassified to
conform to current period classifications.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to consolidated
financial statements filed as part of the Company's 1999 annual report on Form
10-KSB. This quarterly report should be read in conjunction with such annual
report.
Note 2 - Loans
<TABLE>
<CAPTION>
Loans outstanding at period end:
---------------------------------------------------------------------------------------------------------
(in thousands) September 30, December 31,
2000 1999
----------------- ----------------
<S> <C> <C>
Real estate loans $ 127,102 $ 99,961
Commercial and industrial 28,419 23,673
Loans to individuals for household, family and other
consumer expenditures 16,184 16,445
All other loans 68 16
----------------- ----------------
Total $ 171,773 $ 140,095
================ ================
</TABLE>
Note 3 - Per Share Data
In the fourth quarter of 1999, the Company's Board of Directors declared a 3%
stock dividend payable on November 19, 1999 to shareholders of record on
November 1, 1999. All information presented in the accompanying interim
consolidated financial statements regarding earnings per share and weighted
average number of shares outstanding has been computed giving effect to this
stock dividend.
Note 4 - Commitments and Contingencies
The subsidiary banks are parties 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 banks' risks of loss with the unfunded loans and lines of credit or standby
letters of credits is represented by the contractual amount of these
instruments. The banks use the same credit policies in making commitments
7
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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. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. Credit card commitments are unsecured. At September 30, 2000,
outstanding financial instruments whose contract amounts represent credit risk
were approximately (in thousands):
<TABLE>
<S> <C>
Commitments to extend credit $ 23,379
Credit card commitments 5,799
Standby letters of credit 1,998
------------
Total commitments $ 31,176
============
</TABLE>
Note 5 - Acquisition of Anson Bank & Trust Co.
In 1999 the Company announced the signing of an agreement to acquire Anson
Bancorp, Inc. and its wholly-owned subsidiary, Anson Savings Bank. Anson Savings
Bank, a state chartered savings bank operated a full service banking location in
Wadesboro, North Carolina. The acquisition closed on January 19, 2000, with the
acquisition cost of approximately $10.2 million paid principally in cash. This
business combination is being accounted for using the purchase method.
At the date of closing, Anson Bancorp, Inc. had total consolidated assets of
approximately $24 million and customer deposits of approximately $14.5 million.
The savings bank retained its North Carolina savings bank charter and became a
wholly-owned subsidiary of Uwharrie Capital Corp as Anson Bank & Trust Co.
The Company recorded intangible assets of approximately $1,150,000 as a result
of this acquisition.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Quarterly Report on Form 10-QSB may contain certain forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, loan demand, real estate
values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
Overview of Operating Results
For both the three-month and nine-month periods ended September 30, 2000, the
Company's operating results have been impacted by certain significant factors.
The current year includes the operations of the Company's new wholly-owned
subsidiary, Anson Bank & Trust, the effects of a narrowing of the interest rate
spread and the impact on the provision for income taxes of the investment
portfolio restructuring undertaken at the end of 1999. Anson provided a
substantial part of the increase in net interest income, but the narrowing
interest rate margin has largely offset the effects of internally generated
growth. Anson also accounts for approximately one-half of the increase in non-
interest expenses. The Company has invested significantly to enable Anson to
achieve growth and long-term profitability, making current expenditures for
personnel, marketing and other costs and expenses that reduce Anson's current
profitability. Since acquisition, Anson has generated net losses of $24
thousand and $69 thousand, respectively, for the current three-month and nine-
month periods. While Anson has not contributed to the increase in profitability
in 2000, the portfolio restructuring clearly has, as the Company's income tax
provisions for both the three month and nine month periods is significantly
lower than for the corresponding prior year periods.
Comparison of Financial Condition at September 30, 2000 and December 31, 1999
As of September 30, 2000 total assets were $225.7 million, compared to $192.7
million at December 31, 1999, an increase of $33.0 million or 17.1%. This
increase was provided by growth in the loan and investment portfolios of $14.5
million and by the acquisition of Anson Bancorp, Inc., consummated on January
19, 2000, which contributed $24 million to the increase in assets. At year-end
1999, the Company's balance sheet reflected approximately $3 million in
additional cash on hand relative to anticipated cash needs for Y2K. Other assets
at that date included $2.5 million in net proceeds receivable from the sale and
purchase of securities with trade dates in December and settlements in January
2000. The effect of the disposition of these transactions reduced assets and
borrowings by approximately $5.5 million in the first quarter of 2000.
The Company has experienced steady growth in loans, which increased from $140.1
million at December 31, 1999 to $171.8 million on September 30, 2000, reflecting
an increase of $31.7 million. The acquisition of Anson provided $11.8 million
in loans and loan growth amounted to $19.9 million, an increase of 14.2%.
During the nine-month period ended September 30, 2000, deposits increased $16.3
million. The acquisition contributed $14.3 million and deposits grew by $2.0
million or 1.5%. Other funding sources and borrowings increased by $14.4
million during this period.
Shareholders' equity was $17.1 million at December 31, 1999 compared to $18.6
million at September 30, 2000, an increase of $1.5 million. This increase was
the result of net income of $1.1 million and improvement in the unrealized gain
(loss) on securities available for sale and stock repurchases. At September 30,
2000, the Company and its subsidiary banks exceeded all applicable regulatory
capital requirements.
Comparison of results of operations for the three months ended September 30,
2000 and 1999
9
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Earnings
The third quarter of 2000 reflected good operating results with net income of
$403 thousand, an increase of 8.0% when compared to earnings of $373 in the
third quarter of 1999. This improvement can be attributed to an increase in net
interest income due to growth and the acquisition of Anson, improvement in fee
income, lower effective tax rate and net gains recognized on sale of conforming
mortgage loans.
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. Income from net interest income increased by
$201 thousand or 10.8% when comparing the three-month periods presented,
attributable to increased volume of interest earning assets.
Noninterest Income and Expense
Income from service charges and fees produced earnings of $610 thousand and $473
thousand for the third quarters of 2000 and 1999, respectively, an increase of
29.0%.
The increase in other income of $167 thousand, compared to the prior third
quarter includes gains from the sale of conforming mortgage loans.
For this same period, noninterest expenses amounted to $2.3 million compared to
$1.7 million, an increase of $520 thousand or 29.9%. This can be attributed
mainly to an increase of $364 thousand in salaries and benefits, the largest
component of noninterest expense, which represented 70% of the total increase.
The personnel costs increased due to additional staff to support the Company's
growth, accrual of management incentive, normal salary adjustments and
associated benefit costs, including the acquisition of Anson. All other
expenses as a group increased by $156 thousand when comparing results of the
third quarter of 2000 to the same period in 1999.
Comparison of results of operations for the nine months ended September 30, 2000
and 1999
Earnings
Earnings for the nine months ended September 30, 2000 were $1,172 thousand
compared to $1,095 thousand during this period in 1999, an increase of 7.0%.
This improvement can be attributed to an increase in net interest income due to
growth and the acquisition of Anson, improvement in fee income, lower effective
tax rate and net gains recognized on sale of conforming mortgage loans.
Net Interest Income
Net interest income increased $521 thousand or 9.5% when comparing the nine-
month periods presented, which is attributable to an increased volume of
interest earning assets. The net interest margin, on a tax equivalent basis,
decreased from 4.73% in the nine months of 1999 compared to 4.26% in the current
nine-month period. Factors that contributed to the decline in this ratio were:
rising interest rates, competitive markets for deposit funding, interest expense
on parent company debt relative to the acquisition of Anson, which carries a
higher rate than the overnight funding costs of its subsidiary banks, and an
increase in other borrowings.
The average rate paid on interest-bearing liabilities increased from 4.11% in
1999 to 4.85% in 2000. Interest-bearing deposits, as a percent of total
interest-bearing liabilities was 74.7% at September 30, 2000 compared to
10
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88.5% at September 30, 1999. Other funding sources increased during this period
and represents 25.3% of interest-bearing liabilities in 2000 compared to 11.5%
in 1999. This has a negative impact on margin as other funding sources generally
carry a higher cost than blended deposit sources.
The following table presents average balance sheets and a net interest income
analysis for the nine months ended September 30, 2000 and 1999.
Average Balance Sheet and Net Interest Income Analysis
For the Nine Months Ended September 30,
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Level Income/Expense Rate/Yield
($ in thousands) 2000 1999 2000 1999 2000 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $157,029 $129,428 $10,336 $8,187 8.79% 8.46%
Nontaxable loans (2) 5,102 2,790 220 113 8.86% 8.33%
Taxable securities 24,319 21,469 1,250 1,038 6.87% 6.46%
Nontaxable securities (2) 14,115 5,352 604 235 8.78% 9.03%
Other (3) 1,175 800 63 33 7.16% 5.51%
--------- --------- --------- --------- --------- ---------
Total interest-earning assets 201,740 159,839 12,473 9,606 8.55% 8.19%
--------- --------- --------- --------- --------- ---------
Interest-bearing liabilities:
Interest-bearing deposits 133,453 119,221 4,365 3,451 4.37% 3.87%
Short-term borrowings 23,864 8,357 1,118 361 6.26% 5.78%
Long-term borrowings 21,440 7,165 1,003 328 6.25% 6.12%
--------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities 178,757 134,743 6,486 4,140 4.85% 4.11%
--------- --------- --------- --------- --------- ---------
Net interest spread $ 22,983 $ 25,096 $ 5,987 $5,466 3.70% 4.08%
========= ========= ========= ========= ========= =========
Net interest margin (2)
(% of earning assets) 4.26% 4.73%
========= =========
</TABLE>
(1) Average loan balances are stated net of unearned income and include
nonaccrual loans. Interest recognized on nonaccrual loans is included in
interest income.
(2) Yields related to securities and loans exempt from income taxes are stated
on a fully tax-equivalent basis, assuming a 35% tax rate.
(3) Includes federal funds sold and due from banks, interest-bearing.
--------------------------------------------------------------------------------
Noninterest Income and Expense
Income from service charges and fees produced earnings of $1.6 million compared
to $1.3 million during the first nine months of 2000 and 1999, respectively, an
increase of 24.9%. Other income for current period amounted to $211 thousand
comprised mainly of recognition of gains from the sale of conforming mortgage
compared to a loss of $31 thousand during this period in 1999.
For this same period, noninterest expenses increased by $1.1 million or 22.6%.
Salaries and benefits, the largest component of noninterest expense, increased
by $660 thousand. Personnel costs increased due to additional staff to support
the Company's growth, accrual of management incentive, normal salary adjustments
and associated benefit costs, including the acquisition of Anson. All other
expenses as a group increased by $482 thousand when comparing results of the
first nine months of 2000 to the same period in 1999.
11
<PAGE>
Provision for Loan Losses
The provision for loan losses was $80 thousand during the nine-month periods of
2000 and 1999. The loan portfolio is analyzed on an ongoing basis in an effort
to identify potential problems. An allowance for loan losses, which is utilized
to absorb actual losses in the loan portfolio, is maintained at a level
sufficient to provide for estimated potential charge-offs of non-collectible
loans. Management believes the allowance for loan losses is sufficient to
absorb known risks in the portfolio; however, no assurance can be given that
economic conditions will not adversely affect borrowers and result in increased
losses.
Net charge-offs for the nine months ended September 30, 2000 totaled $159
thousand, reflecting a ratio to average loans of .10% compared to net charge-
offs of $286 thousand or .21% in the prior period.
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 and tax
advantaged loans. Income tax expense calculated to date in 2000 totaled $346
thousand, an effective tax rate of 22.8% of pretax income compared to $484
thousand in 1999, which reflected an effective rate of 30.7%.
During the fourth quarter of 1999, the Company implemented a tax savings
transaction that resulted in realized losses from sales of investment
securities. The proceeds from the sale of taxable securities were reinvested
principally in non-taxable municipal securities, which has resulted in increased
interest income, primarily non-taxable income. The reduction in taxes,
reflected in the effective tax rate, is a result of this transaction.
Non-performing assets
Non-performing assets include non-accrual loans, accruing loans contractually
past due 90 days or more; restructured loans, other real estate, and other real
estate under contract for sale. While non-performing assets represent potential
losses to the Company, management does not anticipate any aggregate material
losses since most loans are believed to be adequately secured.
The following table summarizes non-performing assets at September 30, 2000 and
December 31, 1999. Other than the amounts listed, there were no other loans
that (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity or
capital resources or (ii) represent material credits about which management has
information that causes them to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms.
<TABLE>
<CAPTION>
Schedule of Non-Performing Assets
-------------------------------------------------------------------------------------------------------------
(In thousands) September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Non-accrual loans $ 369 $ 317
Loans past due 90 days or more and still accruing 25 26
Other real estate owned, net 85 114
Renegotiated troubled debt - -
------------ ------------
Total non-performing assets $ 479 $ 457
============ ============
Non-performing assets as a percentage of gross loans .28% .33%
-------------------------------------------------------------------------------------------------------------
</TABLE>
12
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Liquidity and Capital Resources
The objective of the Company's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on the opportunities for expansion. Liquidity management addresses
the ability to meet deposit withdrawals on demand or at contractual maturity, to
repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.
The Company's primary sources of internally generated funds are principal and
interest payments on loans, cash flows generated from operations and cash flow
generated by investments. Growth in deposits is typically the primary source of
funds for loan growth. The Company and its subsidiary banks have multiple
funding sources in addition to deposits that can be used to increase liquidity
and provide additional financial flexibility. These sources are the subsidiary
banks' established federal funds lines with correspondent banks aggregating
$17.0 million at September 30, 2000, established borrowing relationships with
the Federal Home Loan Bank totaling approximately $50.5 million, access to
borrowings from the Federal Reserve Bank discount window, and the sale of
securities under agreements. In addition the parent company has a line of
credit of $4.5 million and issues commercial paper. Total debt from these
sources aggregated $54.4 million at September 30, 2000, compared to $40.0
million at December 31, 1999.
Banks and bank holding companies, as regulated institutions, must meet required
levels of capital. The FDIC and the Federal Reserve, the primary regulators of
the Company and its subsidiary banks, have adopted minimum capital regulations
or guidelines that categorize components and the level of risk associated with
various types of assets.
Regulatory guidelines require a minimum of total capital to risk-adjusted assets
ratio of 8 percent and Tier I leverage ratio of 4 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. Financial institutions are expected to maintain a level of capital
commensurate with the risk profile assigned to its assets in accordance with
those guidelines.
Both the Company and its subsidiary banks have maintained capital levels
exceeding minimum levels for "well capitalized" banks and bank holding
companies.
Accounting and Regulatory Matters
Management is not aware of any known trends, events, uncertainties or current
recommendations by regulatory authorities that will have or that are reasonably
likely to have a material effect on the Company's liquidity, capital resources,
or other operations.
Impact of Inflation and Changing Prices
Inflation affects financial institutions in ways that are different from most
commercial and industrial companies, which have significant investments in fixed
assets and inventories. The effect of inflation on interest rates can
materially impact bank operations, which rely on net interest margins as a major
source of earnings. Noninterest expenses, such as salaries and wages, occupancy
and equipment cost are also negatively impacted by inflation.
Year 2000
The Company's management is pleased that business continued as normal without
adverse impact to the Company during the critical date change. In coming months,
the Company will continue monitoring external entities to assure that they have
not experienced any Year 2000 problems that could impact their relationship with
the Company.
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Part II - Other Information
Item 4. Submission Of Matters To Vote Of Security Holders
None during the third quarter ended September 30, 2000.
Item 6. Exhibits and Reports On Form 8-K
a. Exhibits - Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned who is thereunto duly authorized.
UWHARRIE CAPITAL CORP
(Registrant)
Date November 9, 2000 By:
--------------------------
/s/ Roger L. Dick
---------------------------------------
Roger L. Dick
President and Chief Executive Officer
/s/ Barbara S. Williams
---------------------------------------
Barbara S. Williams
Senior Vice President-Finance
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