Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis ofFinancial Condition and Results of Operations.

Caution Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements generally relate to estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors that could cause actual results to differ materially from these estimates. These factors include, but are not limited to: increases in our past due loans and provision for credit losses that may result from local and/or broader economic effects, including the impacts of inflation and constraints on the availability of credit that may impact our borrowers; declines in general economic conditions, including increased stress in the financial markets; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products and services. Any use of "we" or "our" in the following discussion refers to the Company on a consolidated basis.

Comparison of Financial Condition at September 30, 2025 and December 31, 2024.

During the nine months ended September 30, 2025, the Company's total assets increased $87.0 million, from $1.13 billion to $1.22 billion.

Cash and cash equivalents increased $58.7 million during the nine months ended September 30, 2025, from $52.3 million to $111.0 million. The increase in cash and cash equivalents is the result of growth in deposits.

Investment securities consist of securities available for sale and securities held to maturity. For the nine-month period ended September 30, 2025, investment securities increased $17.1 million from $359.8 million at December 31, 2024 to $376.9 million at September 30, 2025. At September 30, 2025, the Company had net unrealized losses on securities available for sale of $24.0 million, compared to net unrealized losses of $32.1 million at December 31, 2024, an improvement of $8.1 million. During the first nine months of 2025, a $22,000 recovery was recorded against the allowance for credit losses on securities held to maturity, bringing the balance to $46,000 at September 30, 2025 compared to $68,000 at December 31, 2024. The amortized cost basis of securities held to maturity totaled $22.0 million and $26.8 million at September 30, 2025 and December 31, 2024, respectively.

At September 30, 2025, equity securities had deteriorated slightly in value from $334,000 at December 31, 2024 to $332,000, making an almost complete recovery from the volatility in the equity market earlier in the year.

Loans held for sale increased $522,000 from December 31, 2024 to $5.1 million at September 30, 2025. Loans held for investment increased from $666.4 million at December 31, 2024 to $677.4 million at September 30, 2025, an increase of $11.0 million. The Company experienced a net decrease in loans categorized as "Real Estate - 1-4 Family Construction," "Consumer," and "Commercial - Other." All other loan sectors experienced a net increase during the nine months ended September 30, 2025.

The allowance for credit losses on loans was $6.4 million at September 30, 2025, which represented 0.94% of total loans held for investment, compared to $5.8 million, or 0.87% of total loans held for investment, at December 31, 2024. Additional discussion regarding the allowance is included in the Asset Quality section below.

Other changes in the Company's consolidated assets are primarily related to deferred tax assets, which decreased $1.9 million from $9.0 million at December 31, 2024 to $7.1 million at September 30, 2025 as a result of the improvement in fair value of the available for sale securities portfolio. Annual Company contributions, supplemented by positive market adjustments, increased the balance of supplemental executive retirement plans ("SERPs"), included in Other Assets, by $640,000 during the nine months ended September 30, 2025. Also included in Other Assets, accounts receivable increased $777,000 during the same period as a result of larger payments receivable on U.S. government agency securities.

Customer deposits, our primary funding source, experienced a $73.8 million increase during the nine-month period ended September 30, 2025, increasing from $1.03 billion to $1.10 billion. The overall increase in deposits is attributable to organic deposit growth. Demand noninterest-bearing checking accounts increased $14.9 million and interest checking and money market accounts increased $34.1 million, primarily from growth in public funds accounts, during the nine-month period ended September 30, 2025. Savings deposits increased $8.0 million and time deposits increased $17.0 million during the nine months ended September 30, 2025.

Total short-term borrowings decreased $1.4 million for the nine-month period ended September 30, 2025 due to the closing of a master note account during the third quarter that carried a balance of at least $1.1 million. At September 30, 2025, the Company had $29.2 million in long-term debt outstanding, which consists solely of its junior subordinated debt securities, net of unamortized debt issuance costs. During the third quarter of 2019, the Company issued $10.0 million in subordinated debt securities with a final

maturity date of September 30, 2029 that became redeemable by the Company on September 30, 2024. This junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. During the third quarter of 2021, the Company issued $12.0 million and $8.0 million of 10-year and 15-year fixed-to-floating rate subordinated debt securities, respectively. The 10-year subordinated notes mature on September 3, 2031, though they are redeemable at the Company's option on or after September 3, 2026, and initially pay interest quarterly at an annual rate of 3.5%. From and including September 3, 2026 to but excluding September 3, 2031, or up to any early redemption date, the interest rate on the 10-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month secured overnight financing rate ("SOFR"), plus 283 basis points payable quarterly in arrears. The 15-year subordinated notes mature on September 3, 2036, though they are redeemable at the Company's option on or after September 3, 2031, and initially pay interest quarterly at an annual rate of 4.0%. From and including September 3, 2031 to but excluding September 3, 2036, or up to any early redemption date, the interest rate on the 15-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month SOFR plus 292 basis points payable quarterly in arrears. The subordinated debt has been structured to qualify as and is included in the calculation of the Company's Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. Of the subordinated debt that remains outstanding at September 30, 2025, $25.4 million qualifies as Tier 2 capital. The Company also has a $3.0 million line of credit of which $3.0 million was available to use at September 30, 2025.

Other changes in the Company's liabilities are related to an increase of $1.2 million in other liabilities from December 31, 2024 to September 30, 2025, $955,000 of which is related to the accrual of reserves for payables due throughout 2025. As with SERP assets mentioned above, SERP liabilities increased $640,000 during the same period. These increases were offset by a decrease of $319,000 in lease liability as leases approach expiration.

At September 30, 2025, total shareholders' equity was $71.0 million, an increase of $13.3 million from December 31, 2024. Net income for the nine-month period ended September 30, 2025 was $8.3 million, which positively contributed to shareholders' equity. Improvement in the unrealized loss position of the available for sale securities portfolio also contributed to the increase in shareholders' equity during the same nine-month period. During the nine months ended September 30, 2025, the Company repurchased 89,547 shares of common stock at a total cost of $844,000, and the Company paid $422,000 in dividends attributable to noncontrolling interest. See Note 3 (Noncontrolling Interest) to the Company's Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest.

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

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $2.9 million for the three months ended September 30, 2025, compared to $3.0 million for the three months ended September 30, 2024. Net income available to common shareholders was $2.7 million, or $0.38 per common share, for the three months ended September 30, 2025, compared to $2.9 million, or $0.39 per common share, for the three months ended September 30, 2024. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Net Interest Income

Net interest income for the three months ended September 30, 2025 was $9.9 million, an $830,000 increase from the $9.1 million reported for the comparative period in 2024. During the third quarter of 2025, the average yield on our interest-earning assets increased 1 basis point to 5.19% from the same period in 2024, and the average rate we paid for our interest-bearing liabilities decreased 23 basis points to 2.32%. These changes resulted in an interest rate spread of 2.86% as of September 30, 2025, compared to 2.63% as of September 30, 2024. The Company's net interest margin was 3.50% and 3.34% for the comparable periods in 2025 and 2024, respectively.

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

Provision for (Recovery of) Credit Losses

The provision for credit losses was $176,000 for the three months ended September 30, 2025, compared to a recovery of $230,000 for the same period in 2024. There were net loan charge-offs of $67,000 for the three months ended September 30, 2025, as compared to net loan recoveries of $51,000 during the same period of 2024. Refer to the Asset Quality section below for further information.

Noninterest Income

The Company places significant emphasis on diversification of revenue sources rather than relying solely upon interest income. Total noninterest income increased by $377,000 for the three-month period ended September 30, 2025, as compared to the same period in 2024. Income associated with market adjustments on SERP accounts increased by $359,000 during the three months ended September 30, 2025, compared to the three months ended September 30, 2024.

Interchange fees, or "swipe" fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Interchange and card transaction fees consist of income from check card usage, point-of-sale income from PIN-based debit card transactions, ATM service fees, and credit card usage. A comparison of gross interchange and card transaction fees net of associated network costs for the reported periods is presented in the table below:

Noninterest Expense

Noninterest expense for the three months ended September 30, 2025 increased by $1.0 million from the same period in 2024. Salaries and benefits, the largest component of noninterest expense, increased $429,000 due to wage and benefit increases during 2025. Expense associated with market adjustments on SERP accounts increased by $359,000 during the three months ended September 30, 2025, compared to the three months ended September 30, 2024.

Total other noninterest expense increased $68,000 for the three months ended September 30, 2025, compared to the same period in 2024. The table below reflects the composition of other noninterest expense for the referenced periods.

Income Tax Expense

The Company had income tax expense of $867,000 for the three months ended September 30, 2025 at an effective tax rate of 23.1% compared to income tax expense of $962,000 with an effective tax rate of 24.1% in the comparable 2024 period. Income taxes computed at the statutory rate are primarily affected by the state income tax expense offset by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank-owned life insurance. For the three months ended September 30, 2024, the effective tax rate was higher due to an adjustment for increased interest expense disallowance resulting from compliance with the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA").

Results of Operations for the Nine Months Ended September 30, 2025 and 2024.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $8.3 million for the nine months ended September 30, 2025, as compared to $7.6 million for the nine months ended September 30, 2024, an increase of $636,000. Net income available to common shareholders was $7.8 million, or $1.08 per common share, for the nine months ended September 30, 2025, compared to $7.2 million, or $0.97 per common share, for the nine months ended September 30, 2024. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Net Interest Income

Net interest income for the nine months ended September 30, 2025 was $28.7 million, a $2.3 million increase from the $26.4 million reported for the comparative period in 2024. During the first nine months of 2025, the average yield on our interest-earning assets increased 9 basis points to 5.20% from the same period in 2024, and the average rate we paid for our interest-bearing liabilities decreased 6 basis points to 2.34%. These changes resulted in a higher interest rate spread of 2.86% as of September 30, 2025, compared to 2.71% as of September 30, 2024. The Company's net interest margin was 3.50% and 3.38% for the comparable periods in 2025 and 2024, respectively.

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

Provision for Credit Losses

The provision for credit losses was $711,000 for the nine months ended September 30, 2025, compared to a provision of $171,000 for the same period in 2024. There were net loan charge-offs of $190,000 for the nine months ended September 30, 2025, as compared to net loan charge-offs of $7,000 during the same period of 2024. Refer to the Asset Quality section below for further information.

Noninterest Income

The Company places significant emphasis on diversification of revenue sources rather than relying solely upon interest income. Total noninterest income increased by $1.3 million for the nine-month period ended September 30, 2025, as compared to the same period in 2024. The primary factor contributing to the overall improvement in noninterest income was an increase of $704,000 in income from mortgage banking. This improvement is the result of increased volume in the mortgage loan pipeline. Another driver of the overall increase was a $529,000 increase in income associated with market adjustments on SERP accounts during the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024.

Interchange fees, or "swipe" fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Interchange and card transaction fees consist of income from check card usage, point-of-sale income from PIN-based debit card transactions, ATM service fees, and credit card usage. A comparison of gross interchange and card transaction fees net of associated network costs for the reported periods is presented in the table below:

Noninterest Expense

Noninterest expense for the nine months ended September 30, 2025 increased by $2.2 million from the same period in 2024, to $25.8 million. Salaries and employee benefits contributed $1.2 million to the increase in noninterest expense due to wage increases and more commissions paid on increased production in the mortgage division during the first nine months of 2025. Additionally, expense associated with market adjustments on SERP accounts increased by $529,000 during the nine-month period ended September 30, 2025, compared to the same period in 2024.

Total other noninterest expense increased $89,000 for the nine months ended September 30, 2025, compared to the same period in 2024. The table below reflects the composition of other noninterest expense for the referenced periods.

Income Tax Expense

The Company had income tax expense of $2.3 million for the nine months ended September 30, 2025 at an effective tax rate of 22.1% compared to income tax expense of $2.2 million with an effective tax rate of 22.1% in the comparable 2024 period. Income taxes computed at the statutory rate are primarily affected by the state income tax expense offset by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank-owned life insurance.

Asset Quality

The Company's allowance for credit losses on loans is established through charges to earnings in the form of a provision for credit losses. The allowance is increased by provisions charged to operations and recoveries of amounts previously charged off and is reduced by recovery of provisions and loans charged off. Management continuously evaluates the adequacy of the allowance for credit losses. In evaluating the adequacy of the allowance, management considers the following: the growth, composition and industry diversification of the portfolio; historical loan loss experience; current delinquency levels; adverse situations that may affect a borrower's ability to repay; estimated value of any underlying collateral; prevailing economic conditions; and other relevant factors.

The allowance for credit losses on loans represents management's estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company's credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loan's credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrower's risk grade accordingly.

The Company individually reviews loans when it is determined that it does not share similar risk characteristics with other loans and with total relationship exposure greater than or equal to $100,000 that are determined to be collateral dependent. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate. This evaluation is inherently subjective, as it requires material estimates, including internal and external appraisal services. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for credit losses on loans and may require additions for estimated losses based upon judgments different from those of management.

The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company
evaluates credit risk in the Consumer segment based upon consumer credit scores and collateral and the Commercial segment based
upon loan risk grade and collateral. The allowance for credit losses for each segment is calculated using a Non-Discounted Cash Flow methodology. Management uses a risk-grading program designed to evaluate the credit risk in the loan portfolio. In this program, risk grades are initially assigned by loan officers and then reviewed and monitored by credit administration. This process includes the maintenance of an internally classified loan list that is designed to help management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses on loans. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower's ability to repay, the borrower's payment history, and the current delinquent status.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

At September 30, 2025, the level of our individually assessed loans, which includes all collateral dependent loans in nonaccrual status with total relationship exposure greater than or equal to $100,000, was $136,000. The allowance for credit losses related to individually evaluated loans was $18,000 at September 30, 2025.

The allowance, expressed as a percentage of gross loans held for investment, increased seven basis points from 0.87% at December 31, 2024 to 0.94% at September 30, 2025. During the second quarter of 2025, the Company implemented a change in estimate of the allowance model which altered the allocation of these percentages between the collectively assessed population and qualitative factors. The collectively assessed portion decreased from 0.75% at December 31, 2024 to 0.53% at September 30, 2025, and the qualitative factors portion increased from 0.12% to 0.41% over the same period. The increase in the allowance was driven by an increase in the national unemployment rate forecast used in the commercial regression model. Additionally, while total loans decreased during the third quarter of 2025, newly originated loans had a higher forecasted loss rate due to a longer projected duration than the loans that were fully repaid during the same quarter. The ratio of nonaccrual loans to total loans increased from 0.03% at December 31, 2024 to 0.06% at September 30, 2025, and was related to the $211,000 increase in nonaccrual loans. Four loans totaling $360,000 were converted to nonaccrual during the first nine months of 2025, offset by paydowns of $20,000, two loans totaling $88,000 were charged off, and one loan totaling $40,000 was moved to other real estate owned and subsequently sold.

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

As of September 30, 2025, management believed the level of the allowance for credit losses on loans was appropriate in light of the risk inherent in the loan portfolio. While management believes that it uses the best information available to establish the allowance for credit losses on loans, future adjustments may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the Company's loan portfolio, will not require an adjustment to the allowance for credit losses on loans. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance is adequate or that increases will not be necessary, should the quality of any loans deteriorate because of the factors discussed herein. Any material increase in the allowance for credit losses on loans may adversely affect the Company's financial condition, results of operations and the value of its securities.

The following table shows the comparison of nonperforming assets at September 30, 2025 and December 31, 2024:

Nonperforming Assets

(dollars in thousands)

Liquidity and Capital Resources

The objective of the Company's liquidity management policy is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on any opportunities for expansion. Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature and to fund new loans and investments as opportunities arise.

The Company's primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flow generated by investments. Growth in deposits is typically the primary source of funds for loan growth. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 42.0% and 38.8% of total deposits at September 30, 2025 and December 31, 2024, respectively. The Company and its subsidiary bank have multiple funding sources, in addition to deposits, that can be used to increase liquidity and provide additional financial flexibility. At September 30, 2025, these sources were the subsidiary bank's established federal funds lines with correspondent banks aggregating $38.0 million, with available credit of $38.0 million; an established borrowing relationship with the FHLB, with available credit of $145.1 million; and access to borrowings from the FRB discount window, with available credit of $26.5 million. The Company also has a $3.0 million line of credit with TIB The Independent BankersBank, N.A. The line is held by the holding company and is secured with 100% of the outstanding common shares of the Company's subsidiary bank. As of September 30, 2025, $3.0 million remained available for use on the line of credit.

The following table summarizes the Company's interest-earning cash and cash equivalents as of the periods indicated.

Banks and bank holding companies, as regulated institutions, must meet required levels of capital. The Federal Reserve, the primary federal regulator of the Company and its subsidiary bank, has adopted minimum capital regulations or guidelines that categorize components and the level of risk associated with various types of assets.

The Company continues to maintain capital ratios that support its asset growth. The federal bank regulatory agencies have implemented regulatory capital rules known as "Basel III." The Basel III rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, a minimum ratio of total capital to risk-weighted assets of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. There is also a capital conservation buffer that requires banks to hold common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.5% to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees. The Company's accumulated other comprehensive income or loss, resulting from unrealized gains and losses, net of income tax, on investment securities available for sale, is excluded from regulatory capital. As of September 30, 2025, the Company's subsidiary bank continued to exceed minimum capital standards and remained well-capitalized under the applicable rules.

The Company's subsidiary bank has a net total of $10.7 million in outstanding Fixed Rate Noncumulative Perpetual Preferred Stock. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30%. The net total of $10.7 million is presented as noncontrolling interest at the Company level and qualifies as Tier 1 capital at the Company. At September 30, 2025, the Company had $29.2 million, net of unamortized debt issuance costs of $173,000, in subordinated debt outstanding, of which $25.4 million qualifies as Tier 2 capital at the Company level. The Company has made all interest and dividend payments in a timely manner.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements include transactions, agreements or other contractual arrangements to which an unconsolidated entity of the Company is a party and pursuant to which the Company has obligations, including an obligation to provide guarantees on behalf of an unconsolidated entity, or retains an interest in assets transferred to an unconsolidated entity. We currently have no off-balance sheet arrangements of this kind.

Derivative financial instruments include futures contracts, forward contracts, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in significant derivative activities through September 30, 2025, with the exception of mortgage banking derivatives. See Note 12 (Mortgage Banking Derivatives) to the Company's Notes to Consolidated Financial Statements for additional discussion of mortgage banking derivatives.

Contractual Obligations

The timing and amount of our contractual obligations has not changed materially since our 2024 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 6, 2025.