Exhibit 99.1

 

 

 

August 13, 2018

 

Dear Shareholder:

 

Your company, Uwharrie Capital Corp, ended the second quarter, June 30, 2018, with total assets of $614 million, an annualized increase of 13.19% compared to December 31, 2017. The asset quality of our balance sheet remains very strong with non-performing assets and past due loans at historically low levels and well below our state banking peers. Uwharrie Bank’s liquidity is also very strong by industry standards. Our balance sheet is comprised of excellent quality assets, funded by a solid base of core deposits and strong capital levels.

Balance sheet strength, along with the momentum of a robust economy, gave us the strategic runway and platform we needed to launch our investments into new technologies, product lines and markets that will keep our company viable and relevant long-term; however, investing in our future involves a higher level of cost short-term. Our core processing system is the heart of our ability to provide financial services. The current system is 15 years old and not able to efficiently support our operations and growth going forward. A project team began working on this conversion over a year ago, and we will convert to the new system during third quarter of 2018. Transitioning to this new core system has taken countless hours of work from our dedicated team and includes over $250 thousand of one-time expenses through June 30, 2018. This new core system will allow us to achieve new operational efficiencies while, at the same time, improving our customers’ experience.

The new team of Small Business Administration/United States Department of Agriculture Rural Development (SBA/USDA) lending specialists, which was discussed in our first quarter letter, has continued to grow and develop new business relationships for our company. Over the course of 2018, the team expects to break even and begin producing a net income contribution in 2019; however, it has taken an investment of $175 thousand in the first six months of 2018.

Our new full-service banking office on Rea Road in Ballantyne (Charlotte) is out-performing expected goals, though it is still in the initial start-up phase. The 2018 year-to-date investment impact is $370 thousand in additional operating cost. As new relationships develop and this office grows, it will become a net income contributor to the company. In the financial services industry, it is normal for a new branch to take 24 to 36 months to reach breakeven. Similarly, by our increasing the number of dedicated wealth management personnel in Charlotte and Asheboro, NC, we have impacted the company $50 thousand in 2018 year-to-date; however, this strategy allows our personalized financial services footprint to expand beyond Anson, Stanly and Cabarrus counties.

All four of our investment strategies totaled approximately $845 thousand in incremental one-time costs through June 2018 (pre-tax), or $670 thousand after adjusting for tax. When comparing June 30, 2018 to the same period in 2017, and adjusting for these one-time expenses, the company’s Net Income

1

 


would have been $1.37 million compared to $1.25 million, a 9.60% improvement in the core earnings run rate.

Reported net income available to common shareholders of $326 thousand for the quarter ending June 30, 2018, is down from last year’s reported earnings of $484 thousand reported for the same period. For the six months ending June 30, 2018, earnings available to common shareholders of $417 thousand were reported as compared to $955 thousand for the six months ending June 30, 2017.

As discussed, the decline in earnings is not due to problems with your company, but rather a focused strategic effort to position ourselves to be a long-term survivor. During the second quarter, revenues for the overall company continued to improve and were on track with our budget and strategic plan.

All of these 2018 investments, which are short-term expenses, are part of a longer term plan to position our company for exponential growth and revenue opportunities in 2019 and beyond. Your company will remain relevant and will be in a strategic position to deliver new products and services to our client relationships, adding more value to them, while providing you a greater return on your investment in Uwharrie Capital Corp.

Please remember to refer your family, friends and neighbors to us for their financial needs. Thank you for your continued support.

 

 

 

 

Sincerely,

 

UWHARRIE CAPITAL CORP

 

 

 

/s/ Roger L. Dick

 

/s/ Brendan P. Duffey

President and Chief Executive Officer

 

Chief Operating Officer

 

 

 

This Report may contain, among other things, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, (i) statements regarding certain of the Company's goals and expectations with respect to earnings, income per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (ii) statements preceded by, followed by or that include the words “may," ”could," ”should,” “would,” “believe," ”anticipate," "estimate," "expect," “intend,” ”plan,” ”projects," ”outlook," or similar expressions. These statements are based upon the current belief and expectations of the Company‘s management and are subject to significant risks and uncertainties that are subject to change based on various factors (many of which are beyond the Company’s control).

 

 

 

 

 

 

2

 


Uwharrie Capital Corp and Subsidiaries

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited)

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands except share and per share data)

2018

 

 

2017

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and due from banks

$

7,505

 

 

$

8,368

 

Interest-earning deposits with banks

 

91,520

 

 

 

68,539

 

Securities available for sale

 

90,429

 

 

 

102,209

 

Securities held to maturity (fair value $11,002 and $11,863, respectively)

 

11,118

 

 

 

11,780

 

Loans held for sale

 

5,292

 

 

 

3,112

 

Loans held for investment

 

370,577

 

 

 

353,179

 

     Less: Allowance for loan losses

 

2,583

 

 

 

2,551

 

     Net loans held for investment

 

367,994

 

 

 

350,628

 

Interest receivable

 

1,714

 

 

 

1,603

 

Premises and equipment, net

 

15,064

 

 

 

14,051

 

Restricted stock

 

1,094

 

 

 

1,068

 

Bank-owned life insurance

 

8,613

 

 

 

8,481

 

Other real estate owned

 

1,439

 

 

 

2,801

 

Other assets

 

12,453

 

 

 

12,957

 

     Total assets

$

614,235

 

 

$

585,597

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

     Demand, noninterest-bearing

$

133,924

 

 

$

122,003

 

     Interest checking and money market accounts

 

307,736

 

 

 

285,731

 

     Savings accounts

 

49,804

 

 

 

45,428

 

     Time deposits, $250,000 and over

 

7,633

 

 

 

11,490

 

     Other time deposits

 

51,556

 

 

 

57,468

 

          Total deposits

 

550,653

 

 

 

522,120

 

Interest payable

 

149

 

 

 

149

 

Short-term borrowed funds

 

1,522

 

 

 

1,454

 

Long-term debt

 

9,534

 

 

 

9,534

 

Other liabilities

 

8,452

 

 

 

7,656

 

     Total liabilities

 

570,310

 

 

 

540,913

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

Common stock, $1.25 par value:  20,000,000 shares authorized;

 

 

 

 

 

 

 

     issued and outstanding or in process of issuance

 

 

 

 

 

 

 

     7,100,749 and 6,979,244 shares, respectively.

 

 

 

 

 

 

 

     Book value per share $4.69 in 2018 and $4.78 in 2017 (1)

 

8,876

 

 

 

8,724

 

Additional paid-in capital

 

12,762

 

 

 

12,263

 

Undivided profits

 

13,699

 

 

 

13,822

 

Accumulated other comprehensive income (loss)

 

(2,066

)

 

 

(761

)

     Total Uwharrie Capital Corp shareholders' equity

 

33,271

 

 

 

34,048

 

Noncontrolling interest

 

10,654

 

 

 

10,636

 

     Total shareholders' equity

 

43,925

 

 

 

44,684

 

     Total liabilities and shareholders' equity

$

614,235

 

 

$

585,597

 

 

 

 

 

 

 

 

 

(1)   Net income per share, book value per share and weighted average shares outstanding have been adjusted to reflect the 2% stock dividend in 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 


Uwharrie Capital Corp and Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

(Amounts in thousands except share and per share data)

2018

 

2017

 

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

$

4,469

 

$

4,132

 

 

$

8,725

 

$

8,122

 

Interest on investment securities

 

484

 

 

507

 

 

 

995

 

 

1,016

 

Interest-earning deposits with banks and federal funds sold

 

365

 

 

158

 

 

 

642

 

 

262

 

     Total interest income

 

5,318

 

 

4,797

 

 

 

10,362

 

 

9,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid on deposits

 

269

 

 

175

 

 

 

486

 

 

329

 

Interest paid on borrowed funds

 

142

 

 

143

 

 

 

280

 

 

285

 

     Total interest expense

 

411

 

 

318

 

 

 

766

 

 

614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income

 

4,907

 

 

4,479

 

 

 

9,596

 

 

8,786

 

Provision for (recovery of) loan losses

 

38

 

 

(114

)

 

 

116

 

 

(173

)

Net interest income after provision (recovery of)

 

 

 

 

 

 

 

 

 

 

 

 

 

     for loan losses

 

4,869

 

 

4,593

 

 

 

9,480

 

 

8,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

290

 

 

286

 

 

 

573

 

 

575

 

Interchange and card transaction fees

 

144

 

 

201

 

 

 

286

 

 

337

 

Other service fees and commissions

 

652

 

 

592

 

 

 

1,290

 

 

1,388

 

Income from mortgage loan sales

 

869

 

 

878

 

 

 

1,531

 

 

1,749

 

Other income

 

216

 

 

66

 

 

 

385

 

 

352

 

     Total noninterest income

 

2,171

 

 

2,023

 

 

 

4,065

 

 

4,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

4,121

 

 

3,642

 

 

 

8,067

 

 

7,340

 

Occupancy expense

 

396

 

 

307

 

 

 

760

 

 

611

 

Equipment expense

 

165

 

 

148

 

 

 

335

 

 

300

 

Data processing

 

283

 

 

178

 

 

 

533

 

 

360

 

Other operating expenses

 

1,530

 

 

1,396

 

 

 

3,013

 

 

2,930

 

     Total noninterest expense

 

6,495

 

 

5,671

 

 

 

12,708

 

 

11,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

545

 

 

945

 

 

 

837

 

 

1,819

 

Provision for income taxes

 

78

 

 

313

 

 

 

136

 

 

570

 

Net Income

$

467

 

$

632

 

 

$

701

 

$

1,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net income

$

467

 

$

632

 

 

$

701

 

$

1,249

 

  Less: Net income attributable to noncontrolling interest

 

(141

)

 

(148

)

 

 

(284

)

 

(294

)

Net income attributable to Uwharrie Capital Corp and common shareholders

$

326

 

$

484

 

 

$

417

 

$

955

 

Net Income Per Common Share (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic

$

0.05

 

$

0.07

 

 

$

0.06

 

$

0.13

 

     Assuming dilution

$

0.05

 

$

0.07

 

 

$

0.06

 

$

0.13

 

Weighted Average Common Shares Outstanding (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic

 

7,107,245

 

 

7,141,240

 

 

 

7,109,782

 

 

7,163,493

 

     Assuming dilution

 

7,107,245

 

 

7,141,572

 

 

 

7,109,782

 

 

7,163,986

 

 

4

 

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