UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 WASHINGTON, D.C. 20549

 FORM 10-K

 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the fiscal year ended December 31, 2023

 OR

 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 000-22062

 UWHARRIE CAPITAL CORP

 (Exact name of registrant as specified in its charter)

 North Carolina

 56-1814206

 (State or Other Jurisdiction of
 Incorporation or Organization)

 (I.R.S. Employer
 Identification No.)

 132 NORTH FIRST STREET

 ALBEMARLE, North Carolina

 28001

 (Address of Principal Executive Offices)

 (Zip Code)

 Registrant's Telephone number, including area code: ( 704) 983-6181

 Securities registered pursuant to Section 12(b) of the Act:

 Title of each class

 Trading Symbol(s)

 Name of each exchange on which registered

 NONE

 Securities registered pursuant to Section 12(g) of the Act:

 COMMON STOCK, PAR VALUE $1.25 PER SHARE

 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 No

 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

 Large accelerated filer

 Accelerated filer

 Non-accelerated filer

 Smaller reporting company

 Emerging growth company

 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).

 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

 State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. $ 52,458,704.00.

 Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: 7,124,438 shares of common stock outstanding as of March 4, 2024.

 Documents Incorporated by Reference.

 Portions of the Registrant's definitive Proxy Statement for the 2024 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

 FORM 10-K CROSS REFERENCE INDEX

 As indicated below, portions of the Registrant's definitive Proxy Statement for the 2024 Annual Meeting of Shareholders, which the Registrant plans to file with the Securities and Exchange Commission subsequent to the date hereof, are incorporated by reference into Part III of this report.

 Page

 Item 1.

 Business

 Item 1A.

 Risk Factors

 Item 1B.

 Unresolved Staff Comments

 Item 1C.

 Cybersecurity

 Item 2.

 Properties

 Item 3.

 Legal Proceedings

 Item 4.

 Mine Safety Disclosures

 Item 5.

 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Item 6.

 [Reserved]

 Item 7.

 Management's Discussion and Analysis of Financial Condition and Results of Operations

 Item 7A.

 Quantitative and Qualitative Disclosures about Market Risk

 Item 8.

 Financial Statements and Supplementary Data

 Item 9.

 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 Item 9A.

 Controls and Procedures

 Item 9B.

 Other Information

 Item 9C.

 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 Item 10.

 Directors, Executive Officers and Corporate Governance

 Item 11.

 Executive Compensation

 Item 12.

 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 Item 13.

 Certain Relationships and Related Transactions, and Director Independence

 Item 14.

 Principal Accountant Fees and Services

 Item 15.

 Exhibit and Financial Statement Schedules

 Item 16.

 Form 10-K Summary

 Item 1. Business.

 Uwharrie Capital Corp (the "Company") is a North Carolina business corporation and registered bank holding company. The Company was incorporated on February 24, 1993 to become the bank holding company for Uwharrie Bank (the "Bank"), a North Carolina commercial bank, originally chartered on September 28, 1983 as Bank of Stanly, and its three wholly owned subsidiaries, The Strategic Alliance Corporation ("Strategic Alliance"), BOS Agency, Inc. ("BOS Agency") and Gateway Mortgage, Inc., a mortgage brokerage company acquired in August 2000. The Company also owns two non-bank subsidiaries, Uwharrie Investment Advisors, Inc., formerly known as Strategic Investment Advisors, Inc., formed in 1999, and Uwharrie Mortgage, Inc., formed in 2004.

 On January 19, 2000, the Company completed its acquisition of Anson Bancorp, Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North Carolina savings bank charter and became a wholly owned subsidiary of the Company until September 1, 2013 when it was merged with and into the Bank.

 During 2002, the Company expanded its service area into the Cabarrus County market. On April 10, 2003 the Company capitalized a new wholly owned subsidiary bank, Cabarrus Bank & Trust Company. As of that date, Cabarrus Bank & Trust Company purchased two Cabarrus County branch offices of the Bank, formerly known as Bank of Stanly, in order to commence operations. Cabarrus Bank & Trust Company was merged with and into the Bank, effective September 1, 2013.

 The Company and its subsidiaries conduct their operations in Stanly County, Anson County, Cabarrus County, Randolph County and Mecklenburg County, North Carolina. 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 communities, 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. Beginning with its inception 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 cost of delivering competitive services.

 At December 31, 2023, the Company and related subsidiaries had 171 full-time and 22 part-time employees.

 Business of the Bank

 The Bank is a North Carolina chartered commercial bank, which was incorporated in 1983 and which commenced banking operations as Bank of Stanly on January 26, 1984. Its main banking office is located at 167 North Second Street, Albemarle, North Carolina, and it operates nine other banking offices and three loan production offices in Stanly County, Anson County, Cabarrus County, Randolph County and Mecklenburg County, North Carolina. The Bank is the only commercial bank headquartered in Stanly County.

 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 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 offers internet banking, mobile banking, 24-hour telephone banking, and issues Visa check cards, an electronic banking card, which functions as a point-of-sale card and allows cardholders to access their deposit accounts at the Bank's ten branches and at most automated teller machines of other banks linked to the STAR or CIRRUS networks. The Bank offers credit cards under license from MasterCard. The Bank does not presently provide the services of a trust department.

 Non-Bank Subsidiaries

 The Bank has three wholly owned subsidiaries, BOS Agency, Strategic Alliance and Gateway Mortgage, Inc. BOS Agency was formed during 1987 and engages in the sale of various insurance products, including fixed annuities, life insurance, long-term care, disability insurance and Medicare supplements. Strategic Alliance was formed during 1989 as BOS Financial Corporation and, in 1993, adopted its current name. It is registered with the Securities and Exchange Commission (the "SEC") and licensed by the

 Financial Industry Regulatory Authority ("FINRA") as a securities broker-dealer. Gateway Mortgage, Inc. is a mortgage brokerage company, acquired by the Bank in 2000.

 The Company has two non-bank subsidiaries. Uwharrie Investment Advisors, Inc., which is registered as an investment advisor with the SEC, began operations on April 1, 1999 and provides portfolio management services to customers in the Charlotte Metropolitan and Uwharrie Lakes Regions. The Company established Uwharrie Mortgage, Inc., a subsidiary to serve in the capacity of trustee and substitute trustee under deeds of trust, in 2004.

 Competition

 Commercial banking in North Carolina is extremely competitive, due in large part to early adoption of statewide and interstate branching laws. The Company encounters significant competition from a number of sources, including other bank holding companies, commercial banks, credit unions, and other financial institutions and financial intermediaries, including financial technology companies.

 Among commercial banks, the Bank competes in its market areas with some of the largest banking organizations operating in the state, several of which have numerous branches in North Carolina and billions of dollars in assets. 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. The Company could encounter increased competition in the future, from existing or new competitors 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, Anson, Cabarrus, Randolph and Mecklenburg Counties, and more generally, in the Charlotte Metropolitan and Uwharrie Lakes Regions. In addition, the banking industry in general is affected by economic conditions such as inflation, recession, unemployment and other factors beyond the Company's control. Economic recession over a prolonged period or other economic dislocation in the Charlotte Metropolitan and Uwharrie Lakes Regions 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 Company's market area would not have a material adverse effect on the Company's financial condition, results of operations or cash flows.

 Impact of Technological Advances; Upgrade to Company's Infrastructure

 The banking industry is undergoing, and management believes it 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 and by strengthening its policies and procedures. The Company also currently anticipates that it will evaluate opportunities to expand its array of technology-based products to its customers from time to time in the future.

 Federal Bank Holding Company Regulation and Structure

 As a registered bank holding company, the Company is subject to regulation under the Bank Holding Company Act of 1956 (the "BHCA") and to the supervision, examination and reporting requirements of the Federal Reserve System. The Bank has a North Carolina commercial bank charter and is subject to regulation, supervision and examination by the Federal Reserve and the North Carolina Commissioner of Banks ("NCCOB").

 The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve before:

 • it may acquire direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the voting shares of the bank;

 • it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or

 • it may merge or consolidate with any other bank holding company.

 The BHCA further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or that would substantially lessen competition in the banking business, unless the public interest in meeting the needs of the communities to be served outweighs the anti-competitive effects. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved and the convenience and needs of the communities to be served. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues focuses, in part, on the performance under the Community Reinvestment Act of 1977, both of which are discussed elsewhere in more detail.

 Subject to various exceptions, the BHCA and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring "control" of a bank holding company. Control is conclusively presumed to exist if a person or company acquires 25% or more of any class of voting securities of a bank holding company. Control is also presumed to exist, although rebuttable, if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:

 • the bank holding company has securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, or the Exchange Act; or

 • no other person owns a greater percentage of that class of voting securities immediately after the transaction.

 The Company's common stock is registered under Section 12 of the Exchange Act. Federal Reserve regulations provide a procedure for challenging rebuttable presumptions of control.

 The BHCA generally prohibits a bank holding company from engaging in activities other than banking, managing or controlling banks or other permissible subsidiaries, and acquiring or retaining direct or indirect control of any company engaged in any activities other than activities closely related to banking or managing or controlling banks. In determining whether a particular activity is permissible, the Federal Reserve considers whether performing the activity can be expected to produce benefits to the public that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve has the power to order a bank holding company or its subsidiaries to terminate any activity or control of any subsidiary when the continuation of the activity or control constitutes a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company.

 Under the BHCA, a bank holding company may file an election with the Federal Reserve to be treated as a financial holding company and engage in an expanded list of financial activities. The election must be accompanied by a certification that all of the company's insured depository institution subsidiaries are "well capitalized" and "well managed." Additionally, the Community Reinvestment Act of 1977 rating of each subsidiary bank must be satisfactory or better. If, after becoming a financial holding company and undertaking activities not permissible for a bank holding company, the company fails to continue to meet any of the prerequisites for financial holding company status, the company must enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements. If the company does not return to compliance within 180 days, the Federal Reserve may order the company to divest its subsidiary banks or the company may discontinue or divest investments in companies engaged in activities permissible only for a bank holding company that has elected to be treated as a financial holding company. The Company has not filed an election to become a financial holding company.

 Under Federal Reserve policy and as has been codified by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the Company is expected to act as a source of financial strength for the Bank and to commit resources to support the Bank. This support may be required at times when the Company might not be inclined to provide it. In addition, any capital loans made by the Company to the Bank will be repaid only after the Bank's deposits and various other obligations are repaid in full.

 The Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities and operations and is supervised and examined by state and federal bank regulatory agencies. The Federal Reserve and the NCCOB regularly examine the operations of the Bank and are given the authority to approve or disapprove mergers, consolidations, the establishment of

 branches and similar corporate actions. These agencies also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

 Bank Merger Act

 Section 18(c) of the Federal Deposit Insurance Act, popularly known as the "Bank Merger Act," requires the prior written approval of the federal banking regulators before any bank may (i) merge or consolidate with, (ii) purchase or otherwise acquire the assets of, or (iii) assume the deposit liabilities of, another bank if the resulting institution is to be a state nonmember bank.

 The Bank Merger Act prohibits approval of any proposed merger transaction that would result in a monopoly, or would further a combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States. Similarly, the Bank Merger Act prohibits the approval of a proposed merger transaction whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade. An exception may be made in the case of a merger transaction whose effect would be to substantially lessen competition, tend to create a monopoly, or otherwise restrain trade, if federal regulators find that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.

 In every proposed merger transaction, federal banking regulators must also consider the financial and managerial resources and future prospects of the existing and proposed institutions, the convenience and needs of the community to be served, and the effectiveness of each insured depository institution involved in the proposed merger transaction in combating money-laundering activities, including in overseas branches.

 State Law

 The Bank is subject to extensive supervision and regulation by the NCCOB. The NCCOB oversees state laws that set specific requirements for bank capital and that regulate deposits in, and loans and investments by, banks, including the amounts, types, and in some cases, rates. The NCCOB supervises and performs periodic examinations of North Carolina-chartered banks to assure compliance with state banking statutes and regulations, and banks are required to make regular reports to the NCCOB describing in detail their resources, assets, liabilities, and financial condition. Among other things, the NCCOB regulates mergers and consolidations of North Carolina state-chartered banks, capital requirements for banks, the payment of dividends, loans to officers and directors, record keeping, types and amounts of loans and investments, and the establishment, relocation, and closing of branches.

 The NCCOB has extensive enforcement authority over North Carolina banks. Such authority includes the ability to issue cease-and-desist orders and to seek civil money penalties. The NCCOB may also take possession of a North Carolina bank in various circumstances, including for a violation of its charter or of applicable laws, operating in an unsafe and unsound manner, or as a result of an impairment of its capital, and may appoint a receiver.

 The Company is also required to maintain registration as a bank holding company with the NCCOB. Subject to certain exceptions, the Company may not acquire control over another bank or bank holding company or consummate a merger or other combination transaction with another company without the prior approval of the NCCOB. The NCCOB also has authority to assert civil money penalties against a holding company if the NCCOB determines such holding company to be in violation of any banking laws and the holding company fails to comply with an NCCOB order to cease and desist from such violations of law.

 The primary state banking laws to which the Bank is subject are set forth in Chapters 53 and 53C of the North Carolina General Statutes. Certain provisions of the North Carolina Business Corporation Act are also applicable to the Bank, as a North Carolina banking corporation.

 Payment of Dividends and Other Restrictions

 The Company is a legal entity separate and distinct from the bank it owns. While there are various legal and regulatory limitations under federal and state law on the extent to which banks can pay dividends or otherwise supply funds to holding companies, the principal source of cash revenues for the Company is dividends from the Bank. The relevant federal and state regulatory agencies have authority to prohibit a state bank or bank holding company, which would include Uwharrie Capital Corp and the Bank, from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound practice in conducting its business. The payment of dividends could, depending upon the financial condition of a bank, be deemed to constitute an unsafe or unsound practice in conducting its business.

 North Carolina commercial banks, such as the Bank, are subject to legal limitations on the amounts of dividends they are permitted to pay. Specifically, an insured depository institution, such as the Bank, is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become "undercapitalized" (as such term is defined in the applicable law and regulations).

 The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that the holding company's net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the holding company's capital needs, asset quality and overall financial condition. The Federal Reserve also indicated that it would be inappropriate for a holding company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the Federal Reserve, the Federal Reserve may prohibit a bank holding company from paying any dividends if any of the holding company's bank subsidiaries are classified as undercapitalized.

 A bank holding company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of its consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order or any condition imposed by, or written agreement with, the Federal Reserve.

 Under the Inflation Reduction Act of 2022, there is a 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

 Capital Adequacy

 The Bank must comply with the Federal Reserve's established capital adequacy standards. The Federal Reserve has promulgated two basic measures of capital adequacy: a risk-based measure and a leverage measure. Banks and bank holding companies must satisfy all applicable capital standards to be considered in compliance. Pursuant to the Federal Reserve's Small Bank Holding Company Policy Statement, the Company is exempt from the Federal Reserve's risk-based capital and leverage rules.

 The risk-based capital standards are designed to make regulatory capital requirements sensitive to differences in risk profile among banks and bank holding companies, account for off-balance-sheet exposure and minimize disincentives for holding liquid assets.

 Assets and off-balance-sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items. The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. At least half of total capital must be Tier 1 Capital, which is common stock, undivided profits, minority interests in the equity accounts of consolidated subsidiaries and noncumulative perpetual preferred stock, less goodwill and certain other intangible assets. The remainder may consist of Tier 2 Capital, which is subordinated debt, other preferred stock and a limited amount of loan loss reserves. 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.

 At December 31, 2023 the Bank's total risk-based capital ratio and its Tier 1 risk-based capital ratio were 14.15% and 13.36%, respectively. The Bank has not been advised by any federal banking agency of any additional specific minimum capital ratio requirement applicable to it.

 In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and certain other intangible assets, of 3% for bank holding companies that meet specified criteria. All other bank holding companies generally are required to maintain a minimum leverage ratio of 4%. The Company's ratio at December 31, 2023 was 6.93%, compared to 6.66% at December 31, 2022. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a "tangible Tier 1 Capital leverage ratio" and other indications of capital strength in evaluating proposals for expansion or new activities. The Federal Reserve has not advised us of any additional specific minimum leverage ratio or tangible Tier 1 Capital leverage ratio applicable to the Company.

 Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the Federal Deposit Insurance Corporation ("FDIC"), a prohibition on taking brokered deposits and certain other restrictions on its business. As described below, federal banking regulators can impose substantial additional restrictions upon FDIC-insured depository institutions that fail to meet applicable capital requirements.

 The Federal Deposit Insurance Act, or FDI Act, requires the federal regulatory agencies to take "prompt corrective action" if a depository institution does not meet minimum capital requirements. The FDI Act establishes five capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." A depository institution's capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation.

 The federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels applicable to FDIC-insured banks. The relevant capital measures are the Total Risk-Based Capital ratio, Tier 1 Risk-Based Capital ratio and the leverage ratio. Under the regulations, an FDIC-insured bank will be:

 • "well capitalized" if it has a Total Risk-Based Capital ratio of 10% or greater, a Tier 1 Risk-Based Capital ratio of 8% or greater and a leverage ratio of 5% or greater and is not subject to any order or written directive by the appropriate regulatory authority to meet and maintain a specific capital level for any capital measure;

 • "adequately capitalized" if it has a Total Risk-Based Capital ratio of 8% or greater, a Tier 1 Risk-Based Capital ratio of 6% or greater and a leverage ratio of 4% or greater (3% in certain circumstances) and is not "well capitalized;"

 • "undercapitalized" if it has a Total Risk-Based Capital ratio of less than 8%, a Tier 1 Risk-Based Capital ratio of less than 6% or a leverage ratio of less than 4% (3% in certain circumstances);

 • "significantly undercapitalized" if it has a Total Risk-Based Capital ratio of less than 6%, a Tier 1 Risk-Based Capital ratio of less than 4% or a leverage ratio of less than 3%; and

 • "critically undercapitalized" if its tangible equity is equal to or less than 2% of average quarterly tangible assets.

 An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. As of December 31, 2023, the Bank had capital levels that qualify as "well capitalized" under such regulations.

 The FDI Act generally prohibits an FDIC-insured bank from making a capital distribution (including payment of a dividend) or paying any management fee to its holding company if the bank would thereafter be "undercapitalized." "Undercapitalized" banks are subject to growth limitations and are required to submit a capital restoration plan. The federal regulators may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the bank's capital. In addition, for a capital restoration plan to be acceptable, the bank's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of: (i) an amount equal to 5% of the bank's total assets at the time it became "undercapitalized"; and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a bank fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized."

 "Significantly undercapitalized" insured banks may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become "adequately capitalized," requirements to reduce total assets, cease receipt of deposits from correspondent banks, or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the parent holding company. "Critically undercapitalized" institutions are subject to the appointment of a receiver or conservator, may not make any payment of principal or interest on certain subordinated debt, extend credit for a highly leveraged transaction, or enter into any material transaction outside the ordinary course of business. A bank that is not "well capitalized" is also subject to certain limitations relating to brokered deposits.

 The regulatory capital framework under which the Company and the Bank operate has changed in significant respects as a result of the Dodd-Frank Act and other regulations, including the separate regulatory capital requirements put forth by the Basel Committee on Banking Supervision, commonly known "Basel III."

 The Federal Reserve, FDIC and Office of the Comptroller of the Currency have established an integrated regulatory capital framework that implements the Basel III regulatory capital requirements and certain provisions of the Dodd-Frank Act.

 The major provisions of the rule applicable to us are:

 • The rule implemented higher minimum capital requirements, including a new common equity Tier 1 capital requirement, and established criteria that instruments must meet in order to be considered Common Equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital. The minimum capital to risk-weighted assets ("RWA") requirements under the rule are a common equity Tier 1 capital ratio of 4.5% and a Tier 1 capital ratio of 6.0%, which is an increase from 4.0%, and a total capital ratio that remains at 8.0%. The minimum leverage ratio (Tier 1 capital to average total assets) is 4.0%. The rule maintains the general structure of the current prompt corrective action, or PCA, framework while incorporating these increased minimum requirements.

 • The rule implemented changes to the definition of capital, including stricter eligibility criteria for regulatory capital instruments that disallows the inclusion of instruments such as trust preferred securities in Tier 1 capital going forward (subject to certain exceptions), and new constraints on the inclusion of minority interests, mortgage-servicing assets ("MSAs"), deferred tax assets ("DTAs"), and certain investments in the capital of unconsolidated financial institutions.

 • Under the rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements. This buffer is intended to help ensure that banking organizations conserve capital when it is most needed, allowing them to better weather periods of economic stress. The buffer is measured relative to RWA. A banking organization with a buffer greater than 2.5% would not be subject to limits on capital distributions or discretionary bonus payments; however, a banking organization with a buffer of less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. The rule also prohibits a banking organization from making distributions or discretionary bonus payments during any quarter if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. The minimum capital requirements plus the capital conservation buffer exceed the PCA well-capitalized thresholds.

 • The rule also increased the risk weights for past-due loans, certain commercial real estate loans, and some equity exposures, and made selected other changes in risk weights and credit conversion factors.

 Compliance by the Company and the Bank with these capital requirements affects their respective operations by increasing the amount of capital required to conduct operations.

 In 2019, the federal banking agencies released a final rule amending the U.S. Basel III capital rules to simplify the capital treatment of capital deductions and recognition of minority interests for banking organizations such as the Registrant that are not subject to the advanced approaches capital rule. The final rule:

 • simplifies the framework of regulatory capital deductions and heightened risk weights for mortgage servicing assets, deferred tax assets arising from temporary differences that an institution could not realize through net operating loss carrybacks, and investments in the capital of unconsolidated financial institutions, resulting in potentially fewer deductions for these items;

 • simplifies the recognition and calculation of minority interests that are includable in regulatory capital, resulting in potentially greater recognition of minority interests; and

 • makes certain technical amendments to the capital rules.

 Community Bank Leverage Ratio. As discussed below, in 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act ("EGRRCPA") became law, which directed the federal banking agencies (which includes the FDIC, Federal Reserve Board, and Office of the Comptroller of the Currency, or OCC) to develop a community bank leverage ratio ("CBLR") of not less than 8 percent and not more than 10 percent for qualifying community banking organizations. EGRRCPA defines a qualifying community banking organization as a depository institution or depository institution holding company with total consolidated assets of less than $10 billion, which would include the Company and its banking subsidiary. A qualifying community banking organization that exceeds the CBLR level established by the agencies is considered to have met: (i) the generally applicable leverage and risk-based capital requirements under the agencies' capital rule; (ii) the capital ratio requirements in order to be considered well capitalized under the agencies' PCA framework (in the case of insured depository institutions); and (iii) any other applicable capital or leverage requirements. Section 201 of EGRRCPA defines the CBLR as the ratio of a banking organization's CBLR tangible equity to its average total consolidated assets, both as reported on the banking organization's applicable regulatory filing.

 The federal bank regulatory agencies have set the minimum required CBLR at 9%. Under the final rule, a qualifying community banking organization may elect to use the CBLR framework if its CBLR is greater than 9 percent. A qualifying community banking

 organization that has chosen the proposed framework is not required to calculate the existing risk-based and leverage capital requirements. A bank is also considered to have met the capital ratio requirements to be well capitalized for the agencies' prompt corrective action rules provided it has a CBLR greater than 9 percent. We have not elected to implement the CBLR framework at this time.

 Acquisitions

 The Company must comply with numerous laws related to any potential acquisition activity. Under the BHCA, a bank holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank or merge or consolidate with another bank holding company without the prior approval of the Federal Reserve. The acquisition of non-banking companies is also regulated by the Federal Reserve. Current federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation. Furthermore, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, as long as neither of the states has opted out of such interstate merger authority prior to such date, and subject to any state requirement that the target bank shall have been in existence and operating for a minimum period of time, not to exceed five years, and to certain deposit market-share limitations. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law. Additionally, under the Dodd-Frank Act, banks are permitted to open a de novo branch in any state if that state would permit a bank organized in that state to open a branch.

 Restrictions on Affiliate Transactions

 Sections 23A and 23B of the Federal Reserve Act establish parameters for a bank to conduct "covered transactions" with its affiliates, with the objective of limiting risk to the insured bank. Generally, Sections 23A and 23B (i) limit the extent to which the bank or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such bank's capital stock and surplus, and limit the aggregate of all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those that would be provided to a non-affiliate. The term "covered transaction" includes the making of loans to the affiliate, purchase of assets from the affiliate, issuance of a guaranty on behalf of the affiliate and several other types of transactions.

 Under the Dodd-Frank Act, restrictions on transactions with affiliates are enhanced by (i) including among "covered transactions" transactions between bank and affiliate-advised investment funds; (ii) including among "covered transactions" transactions between a bank and an affiliate with respect to securities repurchase agreements and derivatives transactions; (iii) adopting stricter collateral rules; and (iv) imposing tighter restrictions on transactions between banks and their financial subsidiaries.

 FDIC Insurance Assessments

 Assessments are paid by each Deposit Insurance Fund (DIF) member institution. Assessments are based on the average consolidated total assets less tangible equity of a financial institution. The assessment rates for an insured depository institution vary according to the level of risk incurred in its activities, which for established small institutions like the Bank (i.e., those institutions with less than $10 billion in assets and insured for five years or more), is generally determined by reference to the institution's supervisory ratings. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits. In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023. The increased assessment is expected to improve the likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35% by the statutory deadline prescribed under the FDIC's amended restoration plan.

 The Bank's insurance assessments during 2023 and 2022 were $424,000 and $286,000, respectively.

 The FDIC may terminate insurance of deposits upon a finding that an institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

 The FDIC has authority to increase deposit insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Company and the Bank. Management cannot predict what insurance assessment rates will be in the future.

 Community Reinvestment Act

 The Community Reinvestment Act requires federal bank regulatory agencies to encourage financial institutions to meet the credit needs of low and moderate-income borrowers in their local communities. An institution's size and business strategy determines the type of examination that it will receive. Large, retail-oriented institutions are examined using a performance-based lending, investment and service test. Small institutions are examined using a streamlined approach. All institutions may opt to be evaluated under a strategic plan formulated with community input and pre-approved by the bank regulatory agency.

 The Community Reinvestment Act regulations provide for certain disclosure obligations. Each institution must post a notice advising the public of its right to comment to the institution and its regulator on the institution's Community Reinvestment Act performance and to review the institution's Community Reinvestment Act public file. Each lending institution must maintain for public inspection a file that includes a listing of branch locations and services, a summary of lending activity, a map of its communities and any written comments from the public on its performance in meeting community credit needs. The Community Reinvestment Act requires public disclosure of a financial institution's written Community Reinvestment Act evaluations. This promotes enforcement of Community Reinvestment Act requirements by providing the public with the status of a particular institution's community reinvestment record.

 Community Reinvestment Act agreements with private parties must be disclosed and annual Community Reinvestment Act reports must be made available to a bank's primary federal regulator. A bank holding company will not be permitted to become a financial holding company and no new activities authorized under the Gramm-Leach-Bliley Act may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a satisfactory Community Reinvestment Act rating in its latest Community Reinvestment Act examination. The Bank received a "Satisfactory" rating in its last CRA examination, which was conducted as of November 16, 2020.

 The Federal Reserve is considering changes to the regulations under the Community Reinvestment Act. The Company will monitor any proposed changes as they make their way through the agency rulemaking process.

 Consumer Protection Laws

 The Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Act and state law counterparts.

 Privacy and Data Security

 Federal law currently contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and then again if any changes are made, the institution's policies and procedures regarding the handling of customers' nonpublic personal financial information. These provisions also provide that, except for certain limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means. In addition, certain state laws could potentially impact the Bank's operations, including those related to applicable notification requirements when unauthorized access to customers' nonpublic personal information has occurred.

 The U.S. federal bank regulatory agencies have established computer-security incident notification requirements for banking organizations and bank service providers. A bank holding company, such as the Company, and an FDIC-supervised depository institution, such as the Bank, are required to notify the Federal Reserve or FDIC, respectively, as soon as possible and no later than 36 hours after a determination that a computer-security incident that rises to the level of a notification incident has occurred. A computer-security incident is an occurrence that results in actual harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits. A notification incident is defined as a computer-security incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, a banking organization's: (i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business; (ii) business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value; or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States. For example, a notification incident may include a major computer-system failure; a cyber-related interruption, such as a distributed denial of service or ransomware attack; or another type of significant operational interruption.

 SEC rules also require disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy, and governance. See Item 1C. Cybersecurity.

 In addition to federal privacy laws and regulations, numerous state laws and regulations govern the collection, retention, use, and disclosure of personal information, and state legislatures have been actively considering and enacting new laws addressing data security, data breach notification, and privacy. For example, some states have enacted financial privacy laws and regulations that are similar to federal privacy requirements. All fifty states have enacted data breach notification laws, and many states have enacted or are considering comprehensive privacy laws. To the extent applicable, many of these laws and regulations impose additional and/or different requirements than federal law, may present implementation challenges, could be an enforcement priority for the state regulators, and could generate increased lawsuits by consumers and other individuals.

 The application, interpretation and enforcement of these laws and regulations are often uncertain, particularly in light of new and rapidly evolving data-driven technologies and significant increases in computing power. These laws and regulations are constantly evolving, remain a focus of regulators, and will continue to have a significant impact on our businesses and operations. Violations of these laws and regulations can give rise to enforcement actions by governmental agencies and to private lawsuits for damages and other forms of relief.

 Additional Legislative and Regulatory Matters

 The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act") required each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls with respect to its private banking accounts involving foreign individuals and certain foreign banks; and (iii) to avoid establishing, maintaining, administering or managing correspondent accounts in the United States for, or on behalf of, foreign banks that do not have a physical presence in any country. The USA PATRIOT Act also required the Secretary of the Treasury to prescribe by regulation minimum standards that financial institutions must follow to verify the identity of customers, both foreign and domestic, when a customer opens an account. In addition, the USA PATRIOT Act encouraged cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities.

 The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") mandated for public companies, such as Uwharrie Capital Corp, a variety of reforms intended to address corporate and accounting fraud and provided for the establishment of the Public Company Accounting Oversight Board ("PCAOB"), which enforces auditing, quality control and independence standards for firms that audit SEC-reporting companies. Sarbanes-Oxley imposed higher standards for auditor independence and restricted the provision of consulting services by auditing firms to companies they audit and required that certain audit partners be rotated periodically. It also requires chief executive officers and chief financial officers, or their equivalents, to certify the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this certification requirement, and increases the oversight and authority of audit committees of publicly traded companies.

 Fiscal and Monetary Policy

 Banking is a business which depends on interest rate differentials for success. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities holdings, constitutes the significant portion of a bank's earnings. Thus, our earnings and growth will be subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve and the reserve requirements on deposits. The nature and timing of any changes in such policies and their effect on our business and results of operations cannot be predicted.

 Current and future legislation and the policies established by federal and state regulatory authorities will affect our future operations. Banking legislation and regulations may limit our growth and the return to investors by restricting certain of our activities.

 In addition, capital requirements could be changed and have the effect of restricting the activities of the Company or requiring additional capital to be maintained. The Company cannot predict with certainty what changes, if any, will be made to existing federal and state legislation and regulations or the effect that such changes may have on our business and results of operations.

 Federal Home Loan Bank System

 The FHLB System consists of 12 district Federal Home Loan Banks ("FHLBs") subject to supervision and regulation by the Federal Housing Finance Agency ("FHFA"). The FHLBs provide a central credit facility primarily for member institutions. As a member of the FHLB of Atlanta, the Bank is required to acquire and hold shares of capital stock in the FHLB of Atlanta. The Bank was in compliance with this requirement with investment in FHLB of Atlanta stock of $712,000 at December 31, 2023. The FHLB of Atlanta serves as a reserve or central bank for its member institutions within its assigned district. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It offers advances to members in accordance with policies and procedures established by the FHFA and the Board of Directors of the FHLB of Atlanta. Long-term advances may only be made for the purpose of providing funds for residential housing finance, small businesses, small farms and small agribusinesses.

 Real Estate Lending Evaluations

 The federal regulators have adopted uniform standards for evaluations of loans secured by real estate or made to finance improvements to real estate. Banks are required to establish and maintain written internal real estate lending policies consistent with safe and sound banking practices and appropriate to the size of the institution and the nature and scope of its operations. The regulations establish loan to value ratio limitations on real estate loans. The Bank's loan policies establish limits on loan to value ratios that are equal to or less than those established in such regulations.

 Commercial Real Estate Concentrations

 Lending operations of commercial banks may be subject to enhanced scrutiny by federal banking regulators based on a bank's concentration of commercial real estate loans. The federal banking regulators have issued guidance to remind financial institutions of the risk posed by commercial real estate, or CRE, lending concentrations. CRE loans generally include land development, construction loans, and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for its examiners to help identify institutions that are potentially exposed to significant CRE risk and may warrant greater supervisory scrutiny:

 • total reported loans for construction, land development and other land ("C&D") represent 100% or more of the institution's total capital; or

 • total CRE loans represent 300% or more of the institution's total capital, and the outstanding balance of the institution's CRE loan portfolio has increased by 50% or more.

 As of December 31, 2023, our C&D concentration as a percentage of risk-based capital totaled 51.4% and our CRE concentration, net of owner-occupied loans, as a percentage of risk-based capital totaled 159.9%.

 Limitations on Incentive Compensation

 The Federal Reserve reviews incentive compensation arrangements of bank holding companies such as Uwharrie Capital Corp as part of the regular, risk-focused supervisory process. The federal banking agencies have also issued guidance designed to help ensure that incentive compensation policies at banking organizations do not encourage excessive risk-taking or undermine the safety and soundness of the banking organizations. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization's incentive compensation arrangements should (i) provide employees incentives that appropriately balance risk and reward and, thus, do not encourage risk-taking beyond the organization's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization's board of directors. Any deficiencies in compensation practices that are identified may be incorporated into the organization's supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The guidance provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the organization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

 Economic Environment

 The policies of regulatory authorities, including the monetary policy of the Federal Reserve, have a significant effect on the operating results of bank holding companies and their subsidiaries. Among the means available to the Federal Reserve to affect the money supply are open market operations in U.S. government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.

 The Federal Reserve's monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. The nature of future monetary policies and the effect of these policies on our business and earnings cannot be predicted.

 Evolving Legislation and Regulatory Action

 General. New laws or regulations or changes to existing laws and regulations, including changes in interpretation or enforcement, could materially adversely affect our financial condition or results of operations. As a result, the overall financial impact on the Company and the Bank cannot be anticipated at this time.

 Dodd-Frank Act. In 2009, many emergency government programs enacted in 2008 in response to the financial crisis and the recession slowed or wound down, and global regulatory and legislative focus generally moved to a second phase of broader regulatory reform and a restructuring of the entire financial regulatory system. The Dodd-Frank Act was signed into law in 2010 and implements many new changes in the way financial and banking operations are regulated in the United States, including through the creation of a new resolution authority, mandating higher capital and liquidity requirements, requiring banks to pay increased fees to regulatory agencies and numerous other provisions intended to strengthen the financial services sector. The Dodd-Frank Act provided for the creation of the Financial Stability Oversight Council ("FSOC"), which is charged with overseeing and coordinating the efforts of the primary U.S. financial regulatory agencies (including the Federal Reserve, the FDIC and the SEC) in establishing regulations to address systemic financial stability concerns. The Dodd-Frank Act also provided for the creation of the Consumer Financial Protection Bureau (the "CFPB"), a consumer financial services regulator. The CFPB is authorized to prevent unfair, deceptive and abusive practices and ensure that consumers have access to markets for consumer financial products and services and those markets are fair, transparent and competitive.

 Tax Cuts and Jobs Act of 2017. In 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law. The Tax Act includes a number of provisions that impact the Company, including the following:

 • Tax Rate. The Tax Act replaced the graduated corporate tax rates applicable under prior law, which imposed a maximum tax rate of 35%, with a reduced 21% flat tax rate.

 • Employee Compensation. A "publicly held corporation" is not permitted to deduct compensation in excess of $1 million per year paid to certain employees. The Tax Act eliminates certain exceptions to the $1 million limit applicable under prior to law related to performance-based compensation, such as equity grants and cash bonuses that are paid only on the attainment of performance goals.

 • Business Asset Expensing. The Tax Act allowed taxpayers to immediately expense the entire cost (instead of only 50%, as under prior law) of certain depreciable tangible property and real property improvements acquired and placed in service after September 27, 2017 and before January 1, 2023 (with an additional year for certain property). This 100% "bonus" depreciation is phased out proportionately for property placed in service on or after January 1, 2023 and before January 1, 2027 (with an additional year for certain property).

 • Interest Expense. The Tax Act limited a taxpayer's annual deduction of business interest expense to the sum of (i) business interest income and (ii) 30% of "adjusted taxable income," defined as a business's taxable income without taking into account business interest income or expense, net operating losses, and, for 2018 through 2021, depreciation, amortization and depletion.

 Economic Growth, Regulatory Relief, and Consumer Protection Act. In 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act ("EGRRCPA") was signed into law, which amended provisions of the Dodd-Frank Act and was intended to ease, and better tailor, regulation, particularly with respect to smaller-sized institutions such as the Company. EGRRCPA's highlights include, among other things: (i) exempting banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) not requiring appraisals for certain transactions valued at less than $400,000 in rural areas; (iii) clarifying that, subject to various conditions, reciprocal deposits of another depository institution obtained using a deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC's brokered-deposit regulations; (iv) raising eligibility for the 18-month exam cycle from $1 billion to banks with $3 billion in assets; and (v) simplifying capital calculations by requiring regulators to establish for institutions under $10 billion in assets a community bank leverage ratio (tangible equity to average consolidated assets) at a percentage not less than 8% and not greater than 10% that such institutions may elect to replace the general applicable risk-based capital requirements for determining well capitalized status. In 2019, the federal banking agencies passed a final rule on the community bank leverage ratio, setting the minimum required community bank leverage ratio at 9%. The rule went into effect in 2020. In addition, the Federal Reserve Board was required to raise the asset threshold under its Small Bank Holding Company Policy Statement from $1 billion to $3 billion for bank or savings and loan holding companies that are exempt from consolidated capital requirements, provided that such

 companies meet certain other conditions such as not engaging in significant nonbanking activities and not having a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the Securities and Exchange Commission. Consistent with EGRRCPA, the Federal Reserve passed an interim final rule that became effective in 2018 to increase the asset threshold to $3 billion for qualifying for such policy statement.

 Future Legislation

 The Company cannot predict what legislation might be enacted or what regulations might be adopted, or if enacted or adopted, the effect thereof on the Company's operations.

 Item 1A. Risk Factors.

 Item not required for smaller reporting companies.

 Item 1B. Unresolved Staff Comments.

 Item not required for non-accelerated filers.

 Item 1C. Cybersecurity.

 Risk Management and Strategy

 The Company recognizes the importance of a cybersecurity risk management program designed to assess, identify, and manage risk associated with cybersecurity threats. Our cybersecurity risk management program (the "Program") is consistent with the Federal Financial Institutions Examination Council ("FFIEC") Cybersecurity Assessment Tool, which incorporates bank regulatory guidance and principles from the National Institute of Standards and Technology Cybersecurity Framework and includes the following risk-based principles:

 • Identification, measurement, mitigation, monitoring and reporting of cybersecurity threats based on internal and external information sharing and resources;

 • Safeguards designed to protect against identified threats, including documented policies and procedures, controls, and employee education and awareness;

 • Processes to detect cybersecurity events and improve incident response, including routine testing of incident response, recovery and business continuity plans and processes; and

 • Third-party risk management process to manage cybersecurity risk with service providers, suppliers, and vendors.

 Our Program is designed to adapt to an evolving landscape of emerging cybersecurity threats and advancing technology to determine the Company's cybersecurity preparedness. Through routine data gathering, emerging risks, internal incidents, technology investments and internal controls, our Program and overall cybersecurity risk strategy is adjusted as needed.

 Our Program is supported by regular training of information security employees and awareness training and activities for executives, directors, and employees through which we communicate our cybersecurity policies, standards, processes and practices to foster a culture of cybersecurity risk management across the Company.

 Integrated Risk Management

 The Program is integrated into the Company's enterprise risk management framework and functions to identify risk, form a strategy to manage risk, implement the strategy, test the implementation, and monitor our technology environment to control risk. Our information technology team works closely with stakeholders across security, risk, compliance, operations, other business stakeholders, and senior leadership to conduct an annual cybersecurity risk assessment utilizing the FFIEC Cybersecurity Assessment Tool.

 Engagement of Third Parties in Connection with Risk Management

 The Company engages various third parties to evaluate the effectiveness and maturity of our Program. The Company engages an independent third party to audit the cybersecurity risk strategy and preparedness. The Company also maintains cybersecurity insurance, however, the costs related to cybersecurity threats or disruptions may not be fully insured. The Company also engages third parties to perform regular penetration tests, vulnerability scans, disaster recovery tests and cyber exercises to simulate threat actor

 attacks. Our relationships with third parties enable us to leverage their cybersecurity expertise and industry knowledge to assess our Program and make adjustments as needed.

 Oversight of Third-party Risks

 Our third-party service providers, suppliers, and vendors face their own risks from cybersecurity threats that could impact the Company in certain circumstances. In response, we have implemented processes for overseeing and managing these risks. The processes include limiting the exposure of our information systems to external systems to the least practical amount, assessing the third parties' information security practices before allowing them to access our information systems or data, requiring third parties to implement appropriate cybersecurity controls in our agreements with them, conducting ongoing monitoring of their compliance with those requirements, and requiring third parties to agree to contractual requirements designed to ensure cybersecurity concepts are appropriately addressed.

 Risks from Cybersecurity Threats

 As of the date of this report, we have not encountered any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition.

 Governance

 Board of Directors Oversight

 Our Board's Audit Committee oversees cybersecurity risk.

 Management's Role in Cybersecurity Risk Management

 Given the important role of technology in the Company's operations and customer service, the Company has established an Information Technology Steering Committee, which consists of our IT Manager, President and Chief Risk Officer, Chief Operations Officer, Chief Financial Officer, Mortgage Systems Administrator and Enterprise Risk Manager. The Information Technology Steering Committee reviews, monitors, aligns, and prioritizes all significant strategic information technology initiatives and security risks. The Information Technology Steering Committee reports to the Audit Committee and minutes of the committee's meetings are subsequently reported by the Audit Committee to the Company's Board of Directors. Our IT Manager, in collaboration with our Enterprise Risk Manager make monthly/quarterly reports to the Information Technology Steering Committee. Such reports include updates related to key metrics, key risk indicators, key performance indicators, penetration test results, risk assessment results, project updates, incident reports, compliance matters, and operational issues.

 Risk Management Personnel

 The IT Manager has the primary responsibility for managing the Program to identify, assess, manage and control cybersecurity risk. The IT Manager reports directly to our Chief Operations Officer. Our IT Manager has approximately 20 years of experience in cybersecurity, information security risk management, identity and access management, security architecture, vulnerability management, threat intelligence, security operations and incident management and response.

 Monitoring Cybersecurity Incidents

 The IT Manager is continually informed of and monitors cybersecurity risks and incidents. In the event of a cybersecurity incident, the Company has developed an incident response plan to timely report cybersecurity incidents to our executive management team, the Audit Committee and Board of Directors, as necessary. In addition to facilitating timely evaluation, escalation and reporting of cybersecurity incidents, this plan also sets forth the process for identifying and assessing the severity of cybersecurity incidents, as well as monitoring post-incident mitigation and remediation.

 Reporting to Board of Directors

 The Audit Committee receives reports from the Chief Operations Officer, IT Manager or Enterprise Risk Manager and briefings on our information security and enterprise risk management programs at least quarterly, including the results of any external audits, bank regulatory examinations and evaluations, as well as maturity assessments of our information security program.

 Item 2. Properties.

 The Company's executive and administrative offices are located at 132 North First Street, Albemarle, North Carolina, where the Company owns a three-building complex located at 130-134 North First Street in Albemarle. This complex houses the Company's offices and meeting rooms and is also the location of the Bank's subsidiary, Strategic Alliance.

 The Bank's Main Office has been located at 167 North Second Street, Albemarle, North Carolina since it opened in 1984. The Bank's credit administration offices and portion of its lending offices occupy an adjoining building, purchased in 1991. The Bank owns a commercial building which houses some of its operations offices and parking lot adjacent to its Main Office. During 2009, the Bank acquired property in downtown Albemarle for future expansion.

 The Bank owns its other banking locations at 710 North First Street, which houses the Village Branch, and its East Albemarle Branch at 800 Highway 24-27 Bypass, both located in Albemarle. It also owns a branch office located at 107 South Main Street in Norwood, North Carolina and a branch located at 416 West Main Street in Locust, North Carolina. The Bank leases its branch office at 224 North Main Street in Oakboro, North Carolina.

 In Cabarrus County, the Bank owns a full-service branch office located at 25 Palaside Drive, N.E., Concord, North Carolina and leases its branch office at 1490 South Main Street, Mt. Pleasant, North Carolina. The Bank owns an office at 700 North Church Street in Concord, North Carolina where it previously provided banking services, which currently serves as a loan production office.

 In Anson County, the Bank owns its banking facility located at 211 South Greene Street, Wadesboro, North Carolina and also owns an ATM site at 426 East Caswell Street, Wadesboro, North Carolina. In 2006, the Bank purchased a lot in Anson County for a future branch location.

 In Randolph County, the Bank leases its loan production office located at 222 Sunset Avenue, Suite 101, Asheboro, North Carolina. Uwharrie Investment Advisors leases suites 107 and 108 at the same location for an additional wealth advisory office.

 In Mecklenburg County, the Bank leases its loan production office located at 141 Providence Road, Charlotte, North Carolina and leases its banking facility located at 5231 Piper Station Drive, Suite 100, Charlotte, North Carolina.

 All of the Bank's existing offices are fully equipped and have adequate parking and drive-up banking facilities, with the exception of the Bank's loan production offices, the Main Office in Albemarle, and the banking facility in Charlotte, which do not have drive-up facilities.

 Item 3. Legal Proceedings.

 In the ordinary course of operations, the Company and the Bank are at times involved in legal proceedings. In the opinion of management, as of December 31, 2023 there are no material pending legal proceedings to which the Company, or any of its subsidiaries, is a party, or of which any of their property is the subject.

 Item 4. Mine Safety Disclosures.

 Not applicable.

 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 Market Information

 It is the philosophy of Uwharrie Capital Corp to promote a strong base of local shareholders. While bid and ask prices for the Company's common stock are quoted on the OTCQX Best Market through www.otcmarkets.com, operated by OTC Market Groups, Inc. and under the symbol UWHR, trading is limited and sporadic with most trades taking place in privately negotiated transactions. Any over-the-counter market quotations of the Company's common stock reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions. Management makes every reasonable effort to match willing buyers with willing sellers as they become known for the purpose of private negotiations for the purchase and sale of the Company's common stock. The Company has an independent valuation of its common stock performed on an annual basis and makes this valuation available to interested shareholders in order to promote fairness and market efficiency in privately negotiated transactions.

 Holders

 On February 13, 2024 there were approximately 2,460 shareholders of record of the Company's common stock. This number does not include shareholders for whom shares are held in "nominee" or "street" name.

 Dividends

 There were no cash dividends declared on the Company's common stock in 2023 or 2022. The timing and amount of cash dividends paid, if any, depends on the Company's earnings, capital requirements, financial condition and other relevant factors. See "Payment of Dividends and Other Restrictions" under Item 1 of this Report for more information on restrictions on the Company's ability to declare and pay dividends. The Company can offer no assurance that the board of directors will declare or pay cash dividends in any future period.

 Recent Sales of Unregistered Securities

 None.

 Securities Authorized for Issuance under Equity Compensation Plans

 See Item 12 of this Report for disclosure regarding securities authorized for issuance and equity compensation plans required by Item 201(d) of Regulation S-K.

 Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 The following table sets forth information with respect to shares of common stock repurchased by the Company during each of the three months in the quarterly period ended December 31, 2023.

 (a) Total
Shares
Purchased

 (b) Average
Price Paid per
Share

 (c) Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or Program (1)

 (d) Maximum
Dollar Value of
Shares that
May Yet Be
Purchased Under
the Plans

 October 1, 2023 Through October 31, 2023

 18,396

 $

 7.58

 —

 $

 —

 November 1, 2023 Through November 30, 2023

 17,147

 $

 7.91

 —

 $

 —

 December 1, 2023 Through December 31, 2023

 28,859

 $

 8.87

 —

 $

 —

 Total

 64,402

 $

 8.25

 —

 $

 —

 (1) Trades of the Company's common stock occur in the Over-the-Counter market from time to time. The Company also has in place a Stock Repurchase Plan that provides liquidity to its shareholders in the event a willing buyer is not available to purchase shares that are offered for sale. The Company is under no obligation to purchase shares offered; however, it will accommodate such offers as its Stock Repurchase Plan allows.

 Item 6. [Reserved].

 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 A discussion and analysis of the Company's operating results and 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 notes thereto appearing on pages 33 through 76 of this Annual Report. References to changes in assets and liabilities represent end-of-period balances unless otherwise noted. Statements contained in this Annual Report, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary because of market and other factors. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission periodically. Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "should," "might," "planned," "estimated," "potential," and similar words. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, 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: 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.

 Financial Condition at December 31, 2023 and December 31, 2022

 The Company's total assets increased $53.1 million from $1.02 billion at December 31, 2022 to $1.07 billion at December 31, 2023. Cash and cash equivalents decreased $51.1 million during the same period as the Company used the cash and cash equivalents to fund substantial growth in the loans held for its investment portfolio.

 Investment securities consist of securities available for sale and securities held to maturity. Total investment securities increased $10.3 million, or 2.9%, from $355.0 million at December 31, 2022 to $365.3 million at December 31, 2023. At December 31, 2023, the Company had net unrealized losses on securities available for sale of $32.6 million, compared to net unrealized losses of $41.3 million at December 31, 2022. The improvement in fair value is directly related to the drop in the U.S. 10-year Treasury yield during the last two months of 2023.

 On January 1, 2023, the Company adopted Accounting Standards Codification ("ASC") 326, requiring credit loss reserves on held to maturity securities. The adoption resulted in a $70,000 allowance for credit losses on securities held to maturity, which was allowed as a one-time adjustment to retained earnings at adoption. During 2023, recoveries totaling $14,000 were realized due to bond maturities and adjustments to the probabilities of default, leaving a $56,000 allowance for credit losses on securities held to maturity, with an amortized cost basis of $28.5 million, at December 31, 2023.

 During 2023, the unrealized gain on equity securities increased by $10,000, resulting in a fair value of $302,000 at December 31, 2023, compared to a fair value of $292,000 at December 31, 2022.

 Loans held for sale increased $1.9 million from December 31, 2022 to $4.7 million at December 31, 2023. Loans held for investment increased $94.2 million, or 18.9%, from $497.9 million at December 31, 2022 to $592.1 million at December 31, 2023. The Company experienced net growth in all loan sectors with the exception of loans categorized as "Other".

 The allowance for loan losses was $2.3 million at December 31, 2022, which represented 0.46% of the total loans held for investment. As noted above, on January 1, 2023, the Company adopted ASC 326, requiring a change to the allowance methodology. The result of the accounting standard adoption was a $2.4 million increase in the allowance for credit losses on loans, which was allowed as a one- time adjustment to retained earnings at adoption. During 2023, the model called for a $1.5 million increase to our current expected credit losses to account for loan growth and charge-offs during the same period. The allowance for credit losses on loans was $5.6 million at December 31, 2023, which represented 0.94% of total loans held for investment. 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 $2.0 million from $10.7 million as of December 31, 2022 to $8.7 million at December 31, 2023 as a result of the improvement in fair value of the available for sale securities portfolio. Mortgage banking derivatives increased $852,000 during 2023, primarily related to interest rate lock commitments ("IRLCs"). The value of IRLCs appreciated $901,000 during the twelve-month period ended December 31, 2023 as

 rates locked to borrowers exceeded market interest rates at year end. Additionally, prepaid expenses, included in other assets, increased $591,000 from $830,000 as of December 31, 2022 to $1.4 million at December 31, 2023.

 Customer deposits, our primary funding source, experienced a $41.9 million increase during the year, increasing from $939.9 million to $981.7 million at December 31, 2023, a 4.5% increase. Growth in the number of deposit accounts and relationship sizes, combined with promotional time deposit offerings, contributed to the increase in total deposits. During 2023, demand noninterest-bearing checking accounts increased $8.1 million, primarily from growth in commercial accounts, and time deposits increased $106.1 million as customers took advantage of higher rates offered on promotional time deposit products. Interest checking and money market accounts decreased $69.2 million and savings deposits decreased $3.1 million during the twelve-month period ended December 31, 2023. The decrease in interest checking, money market and savings accounts is primarily related to the movement of funds into the Company's higher yielding time deposits. While the Company did not require funding for the balance sheet and believes it has ample liquidity, the Company wants to ensure its depositors are paid a fair, market rate for their deposits.

 During 2023, the Company's net borrowings decreased by $168,000. Borrowings consist of both short-term and long-term borrowed funds. The Company utilizes both short-term and long-term advances from the Federal Home Loan Bank. At December 31, 2023 and 2022, there were no outstanding Federal Home Loan Bank advances. Short-term borrowings consisted of $1.4 million in master notes, and long-term borrowings consisted solely of junior subordinated debt securities totaling $29.1 million, net of unamortized debt issuance costs, at December 31, 2023.

 Other changes in the Company's liabilities are related to a decrease of $745,000 in other liabilities from December 31, 2022 to December 31, 2023 resulting primarily from a reduction in the reserve for federal income tax payable.

 At December 31, 2023, total shareholders' equity was $49.4 million, an increase of $12.0 million from December 31, 2022. Net income for the year ended December 31, 2023 was $8.6 million. ASC 326 was adopted on January 1, 2023, requiring an adoption entry to reduce retained earnings by the current expected credit losses adjustment, net of tax, of $1.9 million, which partially offset the impact of the Company's net income during 2023. During the twelve-month period ended December 31, 2023, the Company repurchased 90,017 shares of common stock at a total cost of $728,000, and the Company paid $565,000 in dividends attributable to noncontrolling interest. See Note 1 (Significant Accounting Policies) to the Company's Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest. At December 31, 2023, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.

 Results of Operations for the Years Ended December 31, 2023 and 2022

 Net Income and Net Income Available to Common Shareholders

 Uwharrie Capital Corp reported net income of $8.6 million for the twelve months ended December 31, 2023, as compared to $8.2 million for the twelve months ended December 31, 2022, an increase of $347,000. Net income available to common shareholders was $8.0 million, or $1.12 per common share, for the year ended December 31, 2023, compared to net income available to common shareholders of $7.7 million, or $1.06 per common share, for the same period in 2022. Net income available to common shareholders is net income less any dividends paid on the aforementioned noncontrolling interest.

 Net Interest Income

 As with most financial institutions, the primary component of earnings for our subsidiary bank is net interest income. Net interest income is the difference between interest income, principally from the loan and investment securities portfolios, and interest expense, principally on customer deposits and wholesale borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as levels of noninterest bearing liabilities and capital.

 Net interest income increased $5.0 million to a total of $32.7 million for the twelve months ended December 31, 2023 from the $27.7 million reported for the comparative period in 2022. The average yield on our interest-earning assets increased 128 basis points to 4.65%, while the average rate paid for interest-bearing liabilities increased 124 basis points to 1.81%. These changes resulted in a net increase of 4 basis points in our interest rate spread, from 2.80% in 2022 to 2.84% in 2023. Our net interest margin for 2023 was 3.34%, compared to 2.97% in 2022. The Federal Reserve Bank increased overnight rates four times during 2023 for a total of 525 basis points, repricing many of the Company's variable rate assets and deposit funding sources. As a part of the loan agreements, a portion of the Company's loan portfolio has interest rate floors and caps. The interest rate floor feature allows the Company to maintain a more favorable interest margin despite a decline in rates; however, the interest rate cap could hurt the margin in a rising

 rate environment. Financial Table 1 presents a detailed analysis of the components of the Company's net interest income, while Financial Table 2 summarizes the effects on net interest income from changes in interest rates and in the dollar volume of the components of interest-earning assets and interest-bearing liabilities. Financial Table 1 and Table 2, as well other Financial Tables referenced here appear at the end of this discussion and analysis.

 Provision for (Recovery of) Credit Losses

 The net provision for credit losses on loans and securities held to maturity was $1.5 million for the twelve months ended December 31, 2023, compared to a recovery of $1.8 million for the same period in 2022. There were net loan charge-offs of $631,000 for the twelve months ended December 31, 2023, as compared to net loan recoveries of $23,000 during the same period of 2022. Refer to the Asset Quality section below for further information.

 Noninterest Income

 The Company generates most of its revenue from net interest income; however, diversification of our earnings base is a key strategic initiative to our long-term success. Noninterest income decreased 6.6%, from $10.1 million in 2022, to $9.5 million in 2023, a decrease of $665,000. This reduction is primarily related to $1.0 million of one-time proceeds from bank owned life insurance due to the death of an insured retired executive that was received during the 2022 period.

 Noninterest Expense

 Noninterest expense for the year ended December 31, 2023 was $29.9 million compared to $29.7 million for 2022, an increase of $242,000. The FDIC's increase in the base deposit insurance assessment rate, effective with the first quarterly assessment of 2023, and positive market adjustments on supplemental executive retirement plans contributed to the overall increase in total noninterest expense. Financial Table 5 reflects the additional breakdown of other noninterest expense.

 Income Tax Expense

 The Company had income tax expense of $2.2 million for 2023 at an effective tax rate of 20.14% compared to income tax expense of $1.7 million in 2022 with an effective tax rate of 17.13%. Income taxes computed at the statutory rate are affected primarily 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 twelve months ended December 31, 2023, the effective tax rate increased due to proceeds received from the payout of a bank owned life insurance policy during the 2022 period.

 Results of Operations for the Years Ended December 31, 2022 and 2021

 Results of operations for the years ended December 31, 2022 and 2021 can be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 8, 2023.

 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 with total relationship exposure greater than or equal to $100,000 that are determined to be collateral dependent. These collateral dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Loans that do not share risk characteristics are evaluated on an individual basis. 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 December 31, 2023, the level of our individually evaluated loans, which includes all collateral dependent loans in nonaccrual status with total relationship exposure greater than or equal to $100,000, was $867,000. The allowance for credit losses related to individually evaluated loans was $98,000 at December 31, 2023.

 The allowance, expressed as a percentage of gross loans held for investment, increased forty-eight basis points from 0.46% at December 31, 2022 to 0.94% at December 31, 2023. The adoption of ASC 326 is the primary driver of the increase in allowance for credit losses on loans as a percentage of gross loans held for investment. The ratio of nonaccrual loans to total loans increased from 0.08% at December 31, 2022 to 0.19% at December 31, 2023, and was related to the $578,000 increase in nonaccrual loans. Six loans were converted to nonaccrual during 2023, offset by one loan that was moved to other real estate owned, two loans that were removed from nonaccrual status and one loan that was charged off.

 Other real estate owned increased to $141,000 at December 31, 2023 compared to $0 at December 31, 2022 as there was one loan foreclosed on during the first quarter of 2023.

 As of December 31, 2023, 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 as of December 31, 2023 and 2022:

 Nonperforming Assets

 At December 31,

 2023

 2022

 Nonperforming Assets:

 Accruing loans past due 90 days or more

 $

 —

 $

 —

 Nonaccrual loans

 1,101

 Other real estate owned

 —

 Total nonperforming assets

 $

 1,242

 $

 Allowance for credit losses on loans

 $

 5,561

 $

 2,290

 Nonaccrual loans to total loans

 0.19

 %

 0.08

 %

 Allowance for credit losses on loans to total loans

 0.94

 %

 0.46

 %

 Allowance for credit losses on loans to nonaccrual loans

 505.09

 %

 573.93

 %

 Capital Resources

 The Company continues to maintain capital ratios intended to 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.

 The phase-in period for the rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance of all the rules' requirements phased in over a multi-year schedule, becoming fully phased-in on January 1, 2019. Pursuant to the Federal Reserve's Small Bank Holding Company Policy Statement, the Company is exempt from Basel III. As of December 31, 2023, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under applicable capital adequacy rules.

 In January 2013, the Company's subsidiary bank issued $7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualifies as Tier 1 capital at the bank and pays dividends at a rate of 5.30%. The offering raised $7.9 million less issuance costs of $113,000.

 During the third quarter of 2013, the Company's subsidiary bank raised an additional $2.8 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series C. The preferred stock qualifies as Tier 1 capital at the bank and pays dividends at an annual rate of 5.30%. The preferred stock has no voting rights. The offering raised net proceeds of $2.8 million less issuance costs of $23,000.

 During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $1,000 per security with a required minimum investment of $50,000. The offering raised $10.0 million, of which the entire $9.7 million was outstanding at December 31, 2023. These securities have a final maturity date of September 30, 2029 and may be redeemed by the Company after September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. All proceeds of this private placement qualify and are included in the calculation of Tier 2 capital. Once the final maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 30, 2024.

 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. At December 31, 2023, $11.7 million and $8.0 million remained outstanding of the 10-year and 15-year subordinated notes, 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 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 per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 3, 2026 and September 3, 2031 for the 10-year and 15-year subordinated notes, respectively.

 Proceeds of the Company's aforementioned securities that have been invested in its subsidiary bank qualify for Tier 1 capital treatment for the Bank and are included as such in its year end capital ratios.

 The Company expects to continue to exceed required minimum capital ratios without altering current operations or strategy. Note 15 (Shareholders' Equity and Regulatory Matters) to the Notes to Consolidated Financial Statements presents additional information regarding the Company's and its subsidiary bank's capital ratios.

 Dividends

 The Board of Directors of Uwharrie Capital Corp declared a 2.0% stock dividend in 2023, a 2.5% stock dividend in 2022 and a 3.0% stock dividend in 2021. All references in this Annual Report to net income per share and weighted average common and common equivalent shares outstanding reflect the effects of these stock dividends.

 Liquidity

 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. Liquidity is managed primarily by the selection of asset mix and the maturity mix of liabilities. 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. Maturities and the marketability of securities provide a source of liquidity to meet deposit fluctuations. Maturities of the securities portfolio are presented in Financial Table 3. Growth in deposits is typically the primary source of funds for loan growth. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 36.5% and 38% of total deposits at December 31, 2023 and 2022, 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 December 31, 2023, these sources are 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 Federal Home Loan Bank, with available credit of $147.0 million; and access to borrowings from the Federal Reserve Bank discount window, with available credit of $22.3 million. In March 2023, the Federal Reserve established a Bank Term Funding Program ("BTFP") which offers loans of up to one year in length to banks pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. The assets are valued at par. The Company had approximately $83.8 million of additional liquidity available through the BTFP at December 31, 2023. 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 December 31, 2023, $3.0 million remains 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.

 Interest-earning cash and cash equivalents

 56,027

 109,224

 Interest-earning cash and cash equivalents as a percent of:

 Total loans held for investment

 9.5

 %

 21.9

 %

 Total earning assets

 5.5

 %

 11.3

 %

 Total deposits

 5.7

 %

 11.6

 %

 At December 31, 2023, short-term borrowings amounted to $1.4 million. Long-term debt at that date consisted solely of $29.1 million of junior subordinated debt. Other contractual obligations of the Company exist in the form of operating leases and deposits. Obligations for operating leases and deposits totaled $1.6 million and $981.7 million, respectively, at December 31, 2023. Note 8 (Leases) and Note 9 (Deposits) to the Notes to Consolidated Financial Statements provide additional information, including maturities, regarding these obligations.

 The Company has various financial instruments (outstanding commitments) with off-balance sheet risk that are issued in the normal course of business to meet the financing needs of its customers. See Note 12 (Commitments and Contingencies) to the Company's Notes to Consolidated Financial Statements for more information regarding these commitments and contingent liabilities.

 Management believes that the Company's current sources of funds provide adequate liquidity for its current cash flow needs.

 Critical Accounting Policies

 A critical accounting policy is one that is both very important to the portrayal of the Company's financial condition and results, and requires management's most difficult, subjective and/or complex judgments. What makes these judgments difficult, subjective and/or complex is the need to make estimates about the effects of matters that are inherently uncertain. Refer to Note 1 (Significant Accounting Policies) in Notes to Consolidated Financial Statements for more information about these and other accounting policies utilized by the Company.

 Allowance for Credit Losses

 The allowance for credit losses 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 allowance is a critical accounting estimate in the financial statements as it provides, by reference, an indication of the quality of the loan portfolio. Estimating credit losses is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Additional measurement uncertainty in the estimate is due, in part, to the large amount of data evaluated, the long-term nature of the underlying assets and the analysis of economic indicators. Regulatory examiners may require the Company to recognize adjustments to the allowance for credit losses based on their judgment about information available to them at the time of their assessment.

 On a regular basis, the allowance for credit losses is evaluated both individually and collectively by loan segments. The Company measures expected credit losses for loans on a collective basis when similar risk characteristics exist. However, loans with total relationship exposure greater than or equal to $100,000 that are determined to be collateral dependent are individually reviewed. Appropriately dividing the loan portfolio into different segments with similar risk characteristics aids in providing a more accurate estimation of the portfolio's expected credit losses. The Company's methodology for estimating lifetime credit losses is well documented and supported by internal controls, and validation of the process is performed on a recurring basis.

 Loan Servicing Assets

 The Company capitalizes mortgage and U.S. Small Business Administration (SBA) loan servicing rights when loans are sold and the loan servicing is retained. Servicing revenue is recognized in the statement of income as a component of other noninterest income. The amortization of servicing rights is realized over the estimated period that net servicing revenues are expected to be received. Essential assumptions used to value the loan servicing rights include prepayment speeds, discount rates and costs to service the loan. Servicing assets are periodically evaluated for impairment based upon their fair value, and any resulting impairment is recognized through a valuation allowance and charged to other expense. An unrelated third party performs a quarterly valuation of the Company's Fannie Mae and Freddie Mac Mortgage Servicing Rights. Significant judgment is required to estimate the value of servicing rights due to the nature and variety of assumptions used. As such, changes in assumptions could materially affect the estimated value of loan servicing assets.

 Interest Rate Sensitivity

 Net Interest Income ("Margin") is the single largest component of revenue for the Company. Margin is the difference between the yield on earning assets and interest paid on interest-bearing liabilities. Margin can vary over time as interest rates change. The variance fluctuates based on both the timing (repricing) and magnitude of 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 periods. While management reviews this information, it has implemented the use of an income simulation model, which calculates expected future Margin based on projected interest-earning assets, interest-bearing liabilities and forecasted interest rates along with multiple other forecasted assumptions. Management believes this provides a more relevant view of interest rate risk sensitivity than the traditional gap analysis because the gap analysis ignores optionality embedded in the balance sheet, such as prepayments or changes based on interest rates. The income simulation model allows a comparison of flat, rising and falling rate scenarios to determine the interest rate sensitivity of earnings in varying interest rate environments.

 The Company models immediate rising and declining rate shocks of up to 4% (in 1% intervals) on its subsidiary bank, using a static balance sheet for a two-year horizon, as preferred by regulators. The most recent consolidated 2% rate shock projections for a one-year horizon, indicates a negative impact of (4.43%) on Margin in a rates-down scenario and a positive impact of 0.60% on Margin in a rates-up scenario. Based on the most recent twelve-month forecast, the subsidiary bank is asset-sensitive and may experience some negative impact to earnings should interest rates decline. The Bank has the potential to benefit from a rising interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the upside potential.

 The principal goals for asset liability management for the Company are to maintain adequate levels and sources of liquidity and to manage interest rate risk. Interest rate risk management attempts to balance the effects of interest rate changes on both interest-sensitive assets and interest-sensitive liabilities to protect Margin from wide fluctuations as a result of changes in market interest rates. To that end, management has recommended and the Board of Directors has approved policy limits that minimize the downside risk from interest rate shifts. The aforementioned ratios are within those stated limits of -18% for the respective modeled scenarios at the subsidiary bank and combined. Managing interest rate risk is an important factor to the long-term viability of the Company since Margin is such a large component of earnings. The Company's Asset Liability Management Committee (ALCO) monitors market changes in interest rates and assists with the pricing of loans and deposit products while considering the funding source needs, asset growth projections, and necessary operating liquidity.

 Financial Table 1

 Average Balances and Net Interest Income Analysis

 2023

 2022

 2021

 Income/

 Yield/

 Income/

 Yield/

 Income

 Yield

 Expense

 Rate (1)

 Expense

 Rate (1)

 Expense

 Rate (1)

 Interest-earning assets

 Taxable securities

 $

 297,662

 10,743

 3.61

 %

 $

 285,020

 5,984

 2.10

 %

 $

 216,345

 3,152

 1.46

 %

 Non-taxable securities (1)

 60,041

 1,324

 2.76

 %

 67,952

 1,524

 2.71

 %

 49,207

 1,148

 2.97

 %

 Short-term investments

 89,839

 4,131

 4.60

 %

 125,766

 2,401

 1.91

 %

 97,244

 0.15

 %

 Equity Securities

 6.56

 %

 5.63

 %

 4.12

 %

 Taxable loans (2)

 531,211

 29,159

 5.49

 %

 460,471

 21,382

 4.64

 %

 447,904

 22,956

 5.13

 %

 Non-taxable loans (1)

 13,964

 3.07

 %

 11,147

 2.72

 %

 7,562

 3.55

 %

 Total interest-earning assets

 993,022

 45,719

 4.65

 %

 950,711

 31,562

 3.37

 %

 818,747

 27,631

 3.42

 %

 Non-earning assets

 Cash and due from banks

 7,418

 5,040

 3,708

 Premises and equipment, net

 14,967

 15,379

 16,506

 Interest receivable and other

 32,323

 30,406

 23,970

 Total non-earning assets

 54,708

 50,825

 44,184

 Total assets

 $

 1,047,730

 $

 1,001,536

 $

 862,931

 Interest-bearing liabilities

 Savings deposits

 $

 100,945

 $

 0.43

 %

 $

 107,908

 $

 0.11

 %

 $

 87,878

 $

 0.07

 %

 Interest checking & MMDA

 440,087

 6,124

 1.39

 %

 458,869

 1,892

 0.41

 %

 375,425

 0.11

 %

 Time deposits

 147,218

 5,088

 3.46

 %

 70,511

 0.64

 %

 71,946

 0.38

 %

 Total deposits

 688,250

 11,646

 1.69

 %

 637,288

 2,463

 0.39

 %

 535,249

 0.14

 %

 Short-term borrowed funds

 1,077

 4.27

 %

 1,110

 0.90

 %

 1,289

 0.31

 %

 29,216

 1,331

 4.56

 %

 29,560

 1,349

 4.56

 %

 16,946

 4.72

 %

 Total interest-bearing liabilities

 718,543

 13,023

 1.81

 %

 667,958

 3,822

 0.57

 %

 553,484

 1,542

 0.28

 %

 Noninterest liabilities

 Transaction deposits

 276,960

 278,865

 236,048

 Interest payable and other

 11,902

 11,197

 12,978

 Total liabilities

 1,007,405

 958,020

 802,510

 Shareholders' equity

 40,325

 43,516

 60,421

 Total liabilities and shareholders' equity

 $

 1,047,730

 $

 1,001,536

 $

 862,931

 Interest rate spread

 2.84

 %

 2.80

 %

 3.14

 %

 Net interest income and net interest
 margin

 $

 32,696

 3.34

 %

 $

 27,740

 2.97

 %

 $

 26,089

 3.23

 %

 (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 21.00% tax rate for 2023, 2022 and 2021.

 (2) Nonaccrual loans are included in loans, net of unearned income.

 Financial Table 2

 Volume and Rate Variance Analysis

 2023 Versus 2022

 2022 Versus 2021

 Net

 Net

 Volume

 Rate

 Change

 Volume

 Rate

 Change

 Interest-earning assets

 Taxable securities

 $

 $

 4,398

 $

 4,759

 $

 1,221

 $

 1,611

 $

 2,832

 Non-taxable securities

 (176

)

 (24

)

 (200

)

 (53

)

 Short-term investments

 (1,169

)

 2,899

 1,730

 1,964

 2,257

 (3

)

 (6

)

 —

 Taxable loans

 3,584

 4,193

 7,777

 (2,188

)

 (1,574

)

 Non-taxable loans

 (50

)

 Total interest-earning assets

 2,663

 11,494

 14,157

 2,641

 1,290

 3,931

 Interest-bearing liabilities

 Savings deposits

 (19

)

 Transaction and MMDA deposits

 (169

)

 4,401

 4,232

 1,274

 1,491

 1,571

 3,065

 4,636

 (7

)

 Short-term borrowed funds

 (1

)

 (1

)

 (16

)

 (2

)

 (18

)

 (37

)

 Total interest-bearing liabilities

 1,366

 7,835

 9,201

 1,467

 2,280

 Net interest income

 $

 1,297

 $

 3,659

 $

 4,956

 $

 1,828

 $

 (177

)

 $

 1,651

 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 the change attributable to volume and the change attributable to rate.

 Financial Table 3

 Weighted Average Yield on Investment Securities

 Weighted

 Weighted

 Average Yield (1)

 Average Yield (1)

 4.03

 %

 —

 1.58

 %

 3.55

 %

 1.21

 %

 1.24

 %

 2.45

 %

 2.44

 %

 3.71

 %

 2.61

 %

 4.75

 %

 3.76

 %

 5.81

 %

 4.33

 %

 5.44

 %

 3.99

 %

 Mortgage-backed securities

 8.44

 %

 —

 1.73

 %

 3.50

 %

 2.34

 %

 1.79

 %

 2.96

 %

 2.19

 %

 2.81

 %

 2.19

 %

 6.69

 %

 5.33

 %

 6.69

 %

 5.33

 %

 State and political

 5.64

 %

 4.50

 %

 5.70

 %

 2.36

 %

 2.65

 %

 2.71

 %

 2.21

 %

 1.98

 %

 2.28

 %

 2.07

 %

 Corporate Bonds

 3.48

 %

 2.10

 %

 4.00

 %

 3.13

 %

 3.65

 %

 2.44

 %

 Total Securities available for sale

 4.72

 %

 4.50

 %

 1.95

 %

 3.34

 %

 2.57

 %

 2.06

 %

 3.58

 %

 2.81

 %

 3.28

 %

 2.69

 %

 (1) Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2023 and 2022.

 Financial Table 3

 Weighted Average Yield on Investment Securities (Continued)

 Weighted

 Weighted

 Average Yield (1)

 Average Yield (1)

 2.94

 %

 —

 —

 2.87

 %

 2.94

 %

 2.87

 %

 State and political

 2.99

 %

 2.18

 %

 —

 2.41

 %

 2.60

 %

 —

 3.46

 %

 2.85

 %

 3.20

 %

 2.77

 %

 Corporate Bonds

 4.57

 %

 4.57

 %

 4.57

 %

 4.57

 %

 Total Securities held to maturity

 2.98

 %

 2.18

 %

 —

 2.54

 %

 4.17

 %

 4.57

 %

 3.46

 %

 2.85

 %

 3.92

 %

 3.66

 %

 (1) Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax-equivalent basis, assuming a 21.00% tax rate for 2023 and 2022.

 Financial Table 4

 Noninterest Income

 Year Ended December 31,

 2023

 2022

 2021

 Income from mortgage banking

 $

 3,159

 $

 3,409

 $

 11,294

 Asset management fees

 1,980

 1,940

 2,050

 Interchange and card transaction fees, net

 1,252

 1,232

 1,181

 Service charges on deposit accounts

 1,056

 1,041

 Other banking fees

 Brokerage commissions

 Other gains from sale of assets

 Investment securities gains (losses)

 (42

)

 (91

)

 Supplemental executive retirement plan gain (loss)

 (90

)

 (244

)

 Other noninterest income

 1,383

 Total noninterest income

 $

 9,468

 $

 10,133

 $

 18,932

 Financial Table 5

 Other Noninterest Expense

 Year Ended December 31,

 2023

 2022

 2021

 Director fees and expense

 $

 $

 $

 Dues and subscriptions

 Postage

 Shareholder relations expense

 Telephone and data lines

 Insurance

 Employee education

 Franchise and other taxes

 Office supplies and printing

 Other

 Total other noninterest expense

 $

 2,429

 $

 2,380

 $

 2,276

 Financial Table 6

 Loan Portfolio Composition

 At December 31,

 2023

 2022

 Loans

 Loans

 Loan type:

 $

 102,178

 17.28

 %

 $

 17.29

 %

 0.03

 %

 0.11

 %

 213,397

 36.10

 %

 183,550

 36.93

 %

 Real estate - construction

 53,353

 9.02

 %

 43,690

 8.79

 %

 204,296

 34.56

 %

 166,855

 33.57

 %

 Consumer

 1.96

 %

 9,762

 1.97

 %

 Other

 6,214

 1.05

 %

 6,666

 1.34

 %

 Total loans

 591,207

 100.00

 %

 496,985

 100.00

 %

 Less:

 Allowance for credit losses

 (5,561

)

 (2,290

)

 Unearned net loan costs

 Net loans

 $

 586,510

 $

 495,599

 Financial Table 7

 Selected Loan Maturities

 Five to

 One Year

 One to

 Fifteen

 Over Fifteen

 or Less

 Five Years

 Years

 Years

 Total

 Commercial and agricultural

 $

 25,972

 $

 27,748

 $

 19,984

 $

 28,662

 $

 102,366

 Real estate - construction

 7,308

 6,040

 11,237

 28,768

 53,353

 Total selected loans

 $

 33,280

 $

 33,788

 $

 31,221

 $

 57,430

 $

 155,719

 Fixed rate loans

 $

 10,511

 $

 32,337

 $

 47,667

 $

 64,696

 $

 155,211

 Sensitivity to rate changes:

 Variable interest rates

 $

 35,712

 $

 28,017

 $

 146,108

 $

 227,023

 $

 436,860

 Financial Table 8

 Allocation of Charge-Offs and Recoveries

 At December 31,

 2023

 2022

 Net charge-offs (recoveries)

 Average loans

 Net charge-offs (recoveries) to average loans

 Net charge-offs (recoveries)

 Average loans

 Net charge-offs (recoveries) to average loans

 $

 $

 89,021

 0.65

 %

 $

 (71

)

 $

 77,890

 (0.09

)%

 —

 —

 —

 4,960

 —

 —

 201,219

 —

 —

 167,670

 —

 39,022

 0.11

 %

 —

 38,210

 —

 —

 9,666

 —

 —

 7,695

 —

 (2

)

 125,767

 (0.00

)%

 (12

)

 95,040

 (0.01

)%

 (32

)

 59,209

 (0.05

)%

 (1

)

 54,867

 (0.00

)%

 10,676

 0.38

 %

 9,501

 0.64

 %

 —

 6,401

 —

 —

 5,603

 —

 Total

 $

 $

 541,266

 0.117

 %

 $

 (23

)

 $

 461,436

 (0.005

)%

 Financial Table 9

 Allocation of the Allowance for Credit Losses

 At December 31,

 2023

 2022

 Loans (1)

 Loans (1)

 $

 1,493

 17.28

 %

 $

 17.29

 %

 —

 0.03

 %

 —

 0.11

 %

 2,057

 36.10

 %

 36.93

 %

 6.91

 %

 7.46

 %

 2.11

 %

 —

 1.33

 %

 24.31

 %

 21.87

 %

 10.25

 %

 11.71

 %

 Consumer loan

 1.96

 %

 1.96

 %

 1.05

 %

 1.34

 %

 Total loans

 $

 5,561

 100.00

 %

 $

 2,290

 100.00

 %

 (1) Represents total of all outstanding loans in each category as a percent of total loans outstanding.

 Financial Table 10

 Maturities of Time Deposits

 3 Months

 Over 3 Months

 Over 1 Year

 Over

 or Less

 to 1 Year

 to 3 Years

 3 Years

 Total

 U.S. time deposits in amounts in excess of the FDIC insurance limit

 $

 47,317

 $

 34,987

 $

 1,960

 $

 —

 $

 84,264

 45,140

 51,344

 10,854

 1,602

 108,940

 $

 92,457

 $

 86,331

 $

 12,814

 $

 1,602

 $

 193,204

 Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

 Item not required for smaller reporting companies.

 Item 8. Financial Statements and Supplementary Data.

 Report of Independent Registered Public Accounting Firm0F

 Shareholders and the Board of Directors

 Uwharrie Capital Corp and Subsidiaries

 Opinion on the Consolidated Financial Statements

 We have audited the accompanying consolidated balance sheets of Uwharrie Capital Corp and Subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

 Change in Accounting Principle

 As discussed in Notes 1 and 4 to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Accounting Standards Codification (ASC) Topic 326, Financial Instruments – Credit Losses.

 Basis for Opinion

 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.

 We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 Critical Audit Matter

 The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

 Allowance for Credit Losses on Loans

 As described in Notes 1 and 4 to the consolidated financial statements, the Company's allowance for credit losses ("ACL") was $5.6 million at December 31, 2023. 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 on consumer credit scores and collateral and the Commercial segment based upon loan risk grade and collateral. The ACL for each loan segment is calculated using a non-discounted cash flow methodology. The non-discounted cash flow methodology incorporates macroeconomic forecasts to project expected losses. Significant macroeconomic factors used in estimating the expected losses include the national unemployment rate and the 10-Year T-Bill. A third-party forecast is utilized to project defaults for two years followed by a one-year reversion period to the historical long run average economic forecast for the remainder of the portfolio life.

 We identified the quantitative component of the ACL as a critical audit matter. The principal considerations for our determination included the high degree of subjectivity and complexity involved in management's determination and application of the reasonable and supportable forecasts in the non-discounted cash flow model, and the significant audit effort required driven by management's use of internal historical data in the calculation of the probability of default ("PD"). This required a high degree of effort, specialized skills and knowledge, and significant judgment.

 The primary procedures we performed to address this critical audit matter included:

 • Obtained an understanding of the Company's process for establishing the ACL, including:

 o Controls over the completeness and accuracy of inputs into the model, specifically related to the PD calculations, and

 o Controls over management's review and approval of the ACL, including management's determination of the reasonable and supportable forecasts.

 • Tested the completeness and accuracy of key inputs and assumptions used in the model's quantitative calculation, such as the regression model and economic forecasts, risk grades, and integrity of loan segments.

 • Evaluated management's reasonable and supportable economic forecast used in the model.

 • Involved our internal specialists to:

 o Test components used to develop the PDs used in the model.

 o Test the accuracy of the forecasted economic variables.

 o Recalculate cash flows for a sample of loans.

 o Test the mathematical accuracy of the PD and loss given default calculations.

 /s/ FORVIS, LLP

 We have served as the Company's auditor since 1996.

 Asheville, NC

 CONSOLIDATED BALANCE SHEETS

 December 31, 2023 and 2022

 2023

 2022

 ASSETS

 Cash and due from banks

 $

 7,407

 $

 5,357

 Interest-earning deposits with banks

 56,027

 109,224

 Cash and cash equivalents

 Securities available for sale, at fair value (amortized cost $ 369,301 and $ 365,936, respectively)

 324,683

 Securities held to maturity, at amortized cost (fair value $ 25,736 and $ 27,178, respectively)

 30,306

 Less allowance for credit losses on securities held to maturity

 ( 56

)

 —

 Net securities held to maturity

 28,544

 30,306

 Equity securities, at fair value

 Loans held for sale

 4,695

 2,774

 Loans held for investment

 592,071

 Less allowance for credit losses on loans

 ( 5,561

)

 ( 2,290

)

 Net loans held for investment

 586,510

 495,599

 Premises and equipment, net

 15,089

 14,735

 Interest receivable

 4,393

 3,633

 Restricted stock

 1,672

 1,428

 Bank owned life insurance

 7,793

 7,652

 Deferred income tax benefit

 8,910

 10,726

 Loan servicing assets

 4,287

 4,931

 —

 Other assets

 9,396

 8,150

 Total assets

 $

 1,072,591

 $

 1,019,490

 LIABILITIES

 Deposits:

 Demand noninterest-bearing

 $

 269,998

 $

 261,882

 Interest checking and money market accounts

 417,318

 486,548

 Savings deposits

 101,193

 104,301

 Time deposits, $250,000 and over

 78,046

 35,979

 115,158

 51,146

 Total deposits

 981,713

 939,856

 Short-term borrowed funds

 1,379

 1,044

 29,104

 29,607

 Other liabilities

 10,666

 11,411

 Total liabilities

 1,023,150

 982,093

 Off balance sheet items, commitments and contingencies (Note 13)

 SHAREHOLDERS' EQUITY

 Common stock, $ 1.25 par value: 20,000,000 shares authorized; shares issued and
 outstanding 7,124,438 and 7,075,125, at December 31, 2023 and 2022, respectively

 8,905

 8,844

 Additional paid-in capital

 12,876

 12,633

 Undivided profits

 42,105

 37,030

 Accumulated other comprehensive loss

 ( 25,100

)

 ( 31,765

)

 Total Uwharrie Capital Corp shareholders' equity

 38,786

 26,742

 Noncontrolling interest

 Total shareholders' equity

 49,441

 37,397

 Total liabilities and shareholders' equity

 $

 1,072,591

 $

 1,019,490

 The accompanying notes are an integral part of the consolidated financial statements.

 CONSOLIDATED STATEMENTS OF INCOME

 Years Ended December 31, 2023, 2022 and 2021

 2023

 2022

 2021

 (dollars in thousands, except share and per share data)

 Interest Income

 Loans, including fees

 $

 29,501

 $

 21,633

 $

 23,167

 Investment securities:

 Investment securities, taxable

 10,743

 5,984

 3,152

 Investment securities, non-taxable

 1,324

 1,524

 1,148

 Interest-earning deposits with banks and federal funds sold

 4,131

 2,401

 Total interest income

 45,719

 31,562

 27,631

 Interest Expense

 Interest checking and money market accounts

 6,124

 1,892

 Savings deposits

 Time deposits, $250,000 and over

 2,333

 2,755

 Short-term borrowed funds

 1,331

 1,349

 Total interest expense

 13,023

 3,822

 1,542

 Net interest income

 32,696

 27,740

 26,089

 Provision for (recovery of) credit losses

 1,480

 ( 1,759

)

 ( 917

)

 Net interest income after provision for (recovery of) credit losses

 31,216

 29,499

 27,006

 Noninterest Income

 Service charges on deposit accounts

 1,056

 1,041

 Other service fees and commissions

 3,443

 3,238

 3,061

 Interchange and card transaction fees, net

 1,252

 1,232

 1,181

 Gain (loss) on sale of securities

 ( 42

)

 ( 91

)

 Realized/unrealized gain (loss) on equity securities

 ( 100

)

 ( 31

)

 Income from mortgage banking

 3,159

 3,409

 11,294

 Income from bank owned life insurance

 1,134

 Supplemental executive retirement plan gain (loss)

 ( 90

)

 ( 244

)

 Other income

 Total noninterest income

 9,468

 10,133

 18,932

 Noninterest Expense

 Salaries and employee benefits

 19,306

 19,655

 21,637

 Net occupancy expense

 1,783

 1,681

 1,738

 Equipment expense

 Data processing costs

 Loan costs

 Professional fees and services

 Marketing and donations

 1,298

 1,307

 1,306

 Electronic banking expense

 Software amortization and maintenance

 1,247

 1,236

 1,380

 FDIC insurance

 Supplemental executive retirement plan gain (loss)

 ( 90

)

 ( 244

)

 Other noninterest expense

 2,429

 2,380

 2,276

 Total noninterest expense

 29,920

 29,678

 33,092

 Income before income taxes

 10,764

 9,954

 12,846

 Income taxes

 2,168

 1,705

 2,763

 Net income

 $

 8,596

 $

 8,249

 $

 Consolidated net income

 $

 8,596

 $

 8,249

 $

 Less: Net income attributable to noncontrolling interest

 ( 565

)

 ( 565

)

 ( 565

)

 Net income attributable to Uwharrie Capital Corp and common shareholders

 8,031

 7,684

 9,518

 Net income per common share

 Basic

 $

 1.12

 $

 1.06

 $

 1.27

 Diluted

 $

 1.12

 $

 1.06

 $

 1.27

 Weighted average common shares outstanding

 Basic

 Diluted

 The accompanying notes are an integral part of the consolidated financial statements.

 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 Years Ended December 31, 2023, 2022 and 2021

 2023

 2022

 2021

 Net Income

 $

 8,596

 $

 8,249

 $

 Other comprehensive income (loss):

 Unrealized gain (loss) on available for sale securities

 8,624

 ( 39,850

)

 ( 5,906

)

 Related tax effect

 ( 1,993

)

 9,161

 1,373

 Reclassification of (gain) loss recognized in net income

 ( 991

)

 Related tax effect

 ( 8

)

 ( 16

)

 Total other comprehensive income (loss)

 6,665

)

)

 Comprehensive income (loss)

 15,261

 ( 22,365

)

 4,772

 Less: Comprehensive income attributable to noncontrolling interest

 ( 565

)

 ( 565

)

 ( 565

)

 Comprehensive income (loss) attributable to Uwharrie Capital Corp

 $

 14,696

 $

 ( 22,930

)

 $

 4,207

 The accompanying notes are an integral part of the consolidated financial statements.

 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

 Years Ended December 31, 2023, 2022 and 2021

Common
Shares
Issued

 Common
Stock

 Additional
Paid-in
Capital

 Undivided
Profits

 Accumulated
Other
Comprehensive
Income (Loss)

 Noncontrolling

 Total

 (dollars in thousands, except share data)

 Balance, December 31, 2020

 7,052,143

 $

 8,815

 $

 12,607

 $

 23,000

 $

 4,160

 $

 $

 59,237

 Net Income

 —

 —

 —

 9,518

 —

 Repurchase of common stock

 ( 298,700

)

 ( 373

)

 ( 2,271

)

 —

 —

 —

 ( 2,644

)

 3.0 % stock dividend

 206,113

 1,696

 ( 1,954

)

 —

 —

 —

 Cash paid – fractional shares

 —

 —

 —

 ( 13

)

 —

 —

 ( 13

)

 Other comprehensive loss

 —

 —

 —

 —

)

 —

)

 Record preferred stock dividend series B (noncontrolling interest)

 —

 —

 —

 —

 —

 ( 417

)

 ( 417

)

 Record preferred stock dividend series C (noncontrolling interest)

 —

 —

 —

 —

 —

 ( 148

)

 ( 148

)

 Balance, December 31, 2021

 6,959,556

 $

 8,700

 $

 12,032

 $

 30,551

 $

 ( 1,151

)

 $

 $

 60,787

 Net Income

 —

 —

 —

 7,684

 —

 8,249

 Repurchase of common stock

 ( 55,982

)

 ( 70

)

 ( 381

)

 —

 —

 —

 ( 451

)

 2.5 % stock dividend

 171,551

 ( 1,196

)

 —

 —

 —

 Cash paid – fractional shares

 —

 —

 —

 ( 9

)

 —

 —

 ( 9

)

 Other comprehensive loss

 —

 —

 —

 —

)

 —

)

 Record preferred stock dividend series B (noncontrolling interest)

 —

 —

 —

 —

 —

 ( 416

)

 ( 416

)

 Record preferred stock dividend series C (noncontrolling interest)

 —

 —

 —

 —

 —

 ( 149

)

 ( 149

)

 Balance, December 31, 2022

 7,075,125

 $

 8,844

 $

 12,633

 $

 37,030

 $

 ( 31,765

)

 $

 $

 37,397

 Cumulative effect of change in accounting principle

 —

 —

 —

 ( 1,915

)

 —

 —

 ( 1,915

)

 Net Income

 —

 —

 —

 8,031

 —

 8,596

 Repurchase of common stock

 ( 90,017

)

 ( 113

)

 ( 615

)

 —

 —

 —

 ( 728

)

 2.0 % stock dividend

 139,330

 ( 1,032

)

 —

 —

 —

 Cash paid – fractional shares

 —

 —

 —

 ( 9

)

 —

 —

 ( 9

)

 Other comprehensive income

 —

 —

 —

 —

 6,665

 —

 6,665

 Record preferred stock dividend series B (noncontrolling interest)

 —

 —

 —

 —

 —

 ( 416

)

 ( 416

)

 Record preferred stock dividend series C (noncontrolling interest)

 —

 —

 —

 —

 —

 ( 149

)

 ( 149

)

 Balance, December 31, 2023

 7,124,438

 $

 8,905

 $

 12,876

 $

 42,105

 $

 ( 25,100

)

 $

 $

 49,441

 The accompanying notes are an integral part of the consolidated financial statements.

 CONSOLIDATED STATEMENTS OF CASH FLOWS

 Years Ended December 31, 2023, 2022 and 2021

 2023

 2022

 2021

 Cash flows from operating activities

 Net income

 $

 8,596

 $

 8,249

 $

 Adjustments to reconcile net income to net cash provided (used) by operating activities:

 Depreciation and amortization

 1,110

 1,135

 1,125

 Right of use asset amortization

 Provision for (recovery of) credit losses

 1,480

 ( 1,759

)

 ( 917

)

 (Gain) loss on sale of investment securities available for sale

 ( 991

)

 Gain on sale of mortgage loans

 ( 1,103

)

 ( 3,030

)

 ( 8,645

)

 Gain on sale of premises and equipment

 ( 167

)

 ( 143

)

 ( 23

)

 Realized/unrealized (gain) loss on equity securities

 ( 10

)

 Net amortization of premium on investment securities available for sale

 1,939

 2,583

 1,716

 Net amortization of premium on investment securities held to maturity

 Amortization of loan servicing rights

 1,228

 1,343

 1,589

 Originations and purchases of mortgage loans for sale

 ( 84,694

)

 ( 114,762

)

 ( 316,842

)

 Proceeds from sale of mortgage loans for sale

 83,876

 136,702

 310,762

 ( 739

)

 1,394

 Loan servicing assets

 ( 584

)

 ( 1,196

)

 ( 2,710

)

 Accrued interest receivable

 ( 760

)

 ( 1,079

)

 ( 31

)

 Prepaid assets

 ( 591

)

 Cash surrender value of life insurance

 ( 140

)

 ( 124

)

 ( 130

)

 Miscellaneous other assets

 1,925

 Deferred income taxes

 ( 794

)

 Accrued interest payable

 ( 14

)

 Miscellaneous other liabilities

 ( 1,060

)

 ( 298

)

 ( 1,753

)

 Net cash provided (used) by operating activities

 9,337

 30,904

 ( 3,548

)

 Cash flows from investing activities

 Proceeds from sale of investment securities available for sale

 11,329

 8,398

 49,280

 Proceeds from sale of equity securities

 —

 —

 Proceeds from maturities, calls and paydowns of securities available for sale

 28,969

 39,007

 22,200

 Proceeds from maturities, calls and paydowns of securities held to maturity

 1,563

 2,253

 Purchase of investment securities available for sale

 ( 45,644

)

 ( 84,184

)

 ( 217,926

)

 Purchase of investment securities held to maturity

 —

 —

 ( 5,000

)

 Purchase of investments in other assets

 ( 217

)

 ( 396

)

 ( 314

)

 Proceeds from sale of investments in other assets

 —

 —

 1,120

 Proceeds from life insurance settlement

 —

 1,538

 —

 Net change in restricted stock

 ( 244

)

 ( 507

)

 Net (increase) decrease in loans

 ( 94,953

)

 ( 77,087

)

 47,504

 Purchase of premises and equipment

 ( 1,797

)

 ( 436

)

 ( 765

)

 Proceeds from sale of premises, equipment and other assets

 Net cash used by investing activities

 ( 100,794

)

 ( 112,775

)

 ( 100,134

)

 Cash flows from financing activities

 Net increase in deposit accounts

 41,857

 103,104

 93,556

 Net increase (decrease) in federal funds purchased and other short-term borrowings

 ( 37

)

 Proceeds from long-term borrowings

 —

 —

 20,000

 Debt issuance costs

 —

 —

 ( 481

)

 Repayment of long-term borrowings

 ( 580

)

 —

 ( 1,000

)

 Repurchase of common stock, net

 ( 728

)

 ( 451

)

 ( 2,644

)

 Dividends paid on preferred stock (noncontrolling interest)

 ( 565

)

 ( 565

)

 ( 565

)

 Cash paid for fractional shares

 ( 9

)

 ( 9

)

 ( 13

)

 Net cash provided by financing activities

 40,310

 102,042

 109,224

 Increase (decrease) in cash and cash equivalents

 ( 51,147

)

 20,171

 5,542

 Cash and cash equivalents, beginning of year

 94,410

 88,868

 Cash and cash equivalents, end of year

 $

 $

 $

 94,410

 Supplemental disclosures of cash flow information

 Interest paid

 $

 12,633

 $

 3,637

 $

 1,530

 Income taxes paid

 2,427

 1,221

 2,741

 Supplemental schedule of non-cash activities

 Net change in fair value of securities available for sale, net of tax

 6,665

)

)

 Initial right of use asset for leased properties

 —

 —

 Initial lease liability for leased properties

 —

 —

 Loans transferred to foreclosed real estate

 —

 —

 The accompanying notes are an integral part of the 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 ("Stanly"). On July 1, 1993, Stanly became a wholly owned subsidiary of the Company through a one-for- one exchange of the common stock of Stanly for common stock of the Company. On September 1, 2013, Bank of Stanly changed its name to Uwharrie Bank ("Uwharrie" or the "Bank").
 Uwharrie 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 Uwharrie are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). Uwharrie is under regulation of the Federal Reserve, the FDIC and the North Carolina Commissioner of Banks. In North Carolina, Uwharrie has ten branch locations that provide a wide range of deposit accounts, commercial, consumer, home equity and residential mortgage loans, safe deposit boxes and automated banking.
 In 1987, Uwharrie established a wholly owned subsidiary, BOS Agency, Inc. ("BOS Agency"), which engages in insurance product sales. In 1989, Uwharrie established a second wholly owned subsidiary, BOS Financial Corporation, for the purpose of conducting business as a securities broker-dealer. During 1993, BOS Financial Corporation changed its name to The Strategic Alliance Corporation ("Strategic Alliance") and was registered as a broker-dealer and is regulated by the Financial Industry Regulatory Authority ("FINRA").
 The Company formed a new subsidiary, Strategic Investment Advisors, Inc. ("SIA"), during 1998 to provide investment advisory and asset management services. This subsidiary is registered as an investment advisor with the Securities and Exchange Commission. During 2015, SIA changed its name to Uwharrie Investment Advisors, Inc. ("UIA").
 On January 19, 2000, the Company completed its acquisition of Anson BanCorp, Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North Carolina savings bank charter and became a wholly owned subsidiary of Uwharrie Capital Corp as Anson Bank & Trust Company ("Anson"), operating out of its main office branch in Wadesboro. Anson was consolidated into Uwharrie Bank effective September 1, 2013.
 On August 4, 2000, Uwharrie acquired another subsidiary, Gateway Mortgage, Inc. ("Gateway"), a mortgage origination company. This company is currently inactive and does not affect the Company's consolidated financial statements.
 On April 10, 2003, the Company capitalized a new wholly owned subsidiary bank, Cabarrus Bank & Trust Company ("Cabarrus"), located in Concord, North Carolina. As of that date, Cabarrus purchased two branch offices located in Cabarrus County from Uwharrie to begin its operation. Cabarrus operated as a commercial bank and provided a full range of banking services. Cabarrus was consolidated into Uwharrie Bank effective September 1, 2013.
 On April 7, 2004, Uwharrie Mortgage, Inc. was established as a subsidiary of the Company to serve in the capacity of trustee and substitute trustee under deeds of trust.

 Principles of Consolidation
 The consolidated financial statements include the accounts of the Company, Uwharrie, UIA and Uwharrie's 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 accounting principles generally accepted in the United States of America ("GAAP"), 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 credit losses.

 Cash and 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 captions "Cash and due from banks" and "Interest-earning deposits with banks."

 Investment Securities Available for Sale
 Investment securities available for sale consist of United States Treasuries, United States Government agencies, Government Sponsored Enterprise (GSE) mortgage-backed securities and collateralized mortgage obligations (CMOs), Federal Family Education Loan Program (FFELP) student loan asset-backed securities, corporate bonds and state and political subdivision bonds. Gains and losses on the sale of available for sale securities are determined using the specific identification method and recorded on a trade basis. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the period to maturity.
 Unrealized holding gains and losses on available for sale securities are reported in other comprehensive income, net of income taxes. Management evaluates all available for sale securities in an unrealized loss position on a quarterly basis, or more frequently if economic or market conditions warrant. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

 Investment Securities Held to Maturity
 Investment securities held to maturity consist of United States Government agencies, corporate bonds and state and political subdivision bonds. The Company has both the intent and ability to hold the securities to maturity. These securities are reported at amortized cost.

 Loans Held for Sale
 Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

 Loans Held for Investment
 The Company divides the loans it originates into two segments, commercial and noncommercial loans. Commercial loans are broken down into the following classes: commercial loans, real estate commercial loans, other real estate construction loans and other loans. Noncommercial loans are divided into the following classes: real estate 1-4 family construction loans, real estate 1-4 family residential loans, home equity loans and consumer loans. The ability of the Company's borrowers to honor their contracts is largely dependent upon the real estate and general economic conditions in the Company's market area. 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 unpaid principal balances adjusted for charge-offs, the allowance for credit losses on loans, and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the effective interest method. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. The exception to this policy is credit card loans that remain in accrual status 90 days or more until they are paid current or charged off.
 All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these impaired loans is accounted for on a cash basis until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Generally, a minimum of six months of sustained performance is required.

 Allowance for Credit Losses
 On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASC 326"). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities.

 In concurrence with the adoption of CECL, the Company also adopted ASU 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02") effective January 1, 2023. The amendments in ASU 2022-02 enhanced disclosures for loan modifications made for borrowers experiencing financial difficulty and eliminated the Troubled Debt Restructurings ("TDR") accounting guidance for financial institutions that have adopted CECL. See Note 4 (Allowance for Credit Losses on Loans) to the Company's Notes to Consolidated Financial Statements for additional discussion of the adoption of ASU 2022-02.
 The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified
 retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the adoption of CECL included an increase in the allowance for credit losses on loans of $ 2.41 million, which is presented as a reduction to net loans held for investment, and an increase in the allowance for credit losses on unfunded loan commitments of $ 9,000, which is recorded within Other Liabilities. The Company recorded an allowance for credit losses for held to maturity securities of $ 70,000, which is presented as a reduction to securities held to maturity. The Company recorded a net decrease to retained earnings of $ 1.9 million as of January 1, 2023 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards ("Incurred Loss"). As a practical expedient, the Company has excluded interest receivable from the credit loss analysis under CECL for all applicable financial instruments.
 The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale securities was not necessary.

 Allowance for credit losses

 January 1, 2023
As Reported Under ASC 326

Pre-ASC 326 Adoption

 Impact of
ASC 326 Adoption

 Assets

 $

 $

 —

 $

 —

 Securities held to maturity, total

 —

 Loans held for investment

 1,137

 1,777

 1,017

 —

 Loans held for investment, total

 4,697

 2,290

 2,407

 Liabilities

 Unfunded loan commitments

 Total

 $

 4,917

 $

 2,431

 $

 2,486

 Allowance for Credit Losses – Available for Sale Securities
 Management evaluates all available for sale securities in an unrealized loss position on a quarterly basis, or more frequently if economic or market conditions warrant. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.
 If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the length of time and extent to which the security has been in a loss position, performance of any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled principal or interest payments and adverse conditions specifically related to the security. If the evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.
 Changes in the allowance for credit loss are recorded as provision for (or recovery of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At December 31, 2023, there was no allowance for credit loss related to the available for sale securities portfolio. Accrued interest receivable on available for sale debt securities, included in interest receivable in the consolidated balance sheets, totaled $ 2.1 million at December 31, 2023 and was excluded from the estimate of credit losses.
 Allowance for Credit Losses – Held to Maturity Securities
 Management measures expected credit losses on held to maturity debt securities on a collective basis by major security type. Accrued interest receivable on held to maturity debt securities, included in interest receivable in the consolidated balance sheets, totaled $ 275,000 at December 31, 2023 and was excluded from the estimate of credit losses.
 The estimate of expected credit losses is primarily based on the ratings assigned to the securities by debt rating agencies and the
 average of the annual historical loss rates associated with those ratings. The Company then multiplies those loss rates, as adjusted for
 any modifications to reflect current conditions and reasonable and supportable forecasts as considered necessary, by the remaining
 lives of each individual security to arrive at a lifetime expected loss amount. Management classifies the held to maturity portfolio into
 the following major security types: U.S. government agencies, state and political subdivisions and corporate bonds. All of the U.S.
 government agency securities are issued by government-sponsored agencies. These securities are either explicitly or implicitly
 guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. As a result,
 no allowance for credit losses was recorded for these securities at December 31, 2023. The state and political subdivisions securities
 held by the Company are highly rated by major rating agencies. As such, there was minimal allowance for credit losses recorded at
 December 31, 2023 for state and political subdivisions securities.
 Allowance for Credit Losses – Loans
 The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. Accrued interest receivable is excluded from the estimate of credit losses.
 The allowance for credit losses 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 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. The Non-Discounted Cash Flow methodology incorporates macroeconomic forecasts to project expected losses. Significant macroeconomic factors used in estimating the expected losses include the National Unemployment Rate and the 10 -Year T-Bill. A third-party forecast is utilized to project defaults for two years followed by a one year reversion period to the historical long run average economic forecast for the remainder of the portfolio life.
 The Company individually reviews loans that are experiencing financial difficulty with total relationship exposure greater than or equal to $ 100,000 that are determined to be collateral dependent. These collateral dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Loans that do not share risk characteristics are evaluated on an individual basis. 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.
 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.
 Allowance for Credit Losses – Unfunded Loan Commitments
 Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
 The Company records an allowance for credit losses on unfunded loan commitments, unless the commitments to extend credit are unconditionally cancellable, through a charge to provision for unfunded loan commitments, included in loan costs in the Company's consolidated income statements. The allowance for credit losses on unfunded loan commitments is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded loan commitments is included in other liabilities on the Company's consolidated balance sheets.

 Loan Servicing Assets
 The Company capitalizes mortgage and U.S. Small Business Administration (SBA) loan servicing rights when loans are sold and the loan servicing is retained. Servicing revenue is recognized in the statement of income as a component of other noninterest income. The amortization of servicing rights is realized over the estimated period that net servicing revenues are expected to be received. These projections are based on the amount and timing of estimated future cash flows. The amortization of servicing rights is recognized in the statement of income as an offset to other noninterest income. Servicing assets are periodically evaluated for impairment based upon their fair value. Fair value is based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance and charged to other expense.

 Mortgage Banking Derivatives
 The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding, otherwise known as Interest Rate Lock Commitments ("IRLCs"). IRLCs on mortgage loans that will be held for resale are considered to be derivatives and must be accounted for at fair value on the balance sheet. Accordingly, such commitments are recorded at fair value in the mortgage banking derivatives asset or liability with changes in fair value recorded in income from mortgage banking within the consolidated statement of income. Fair value is based on anticipated margins determined by market movement from the original lock date and projected pull-through rates on each loan by loan product, loan stage, and loan purpose.

 During the term of the IRLC, the Company is exposed to the risk that the interest rate will change from the rate quoted to the borrower. In an effort to mitigate interest rate risk, the Company enters into mortgage forward sales commitments on a mandatory basis for future delivery of residential mortgage loans after an interest rate lock is committed to the borrower. Mandatory commitments require that the loan must be delivered to the investor or a pair-off fee be paid. These forward commitments are recorded at fair value in the mortgage banking derivatives asset or liability, and changes in fair value are recorded to income from mortgage banking within the consolidated statement of income. The fair value of the forward commitments is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date.
 The Company also enters into purchase and sale agreements of to-be-announced mortgage-backed securities trades ("TBAs"). A TBA trade is a contract to buy or sell mortgage-backed securities on a specific date while the underlying mortgages are not announced until just prior to settlement. These TBA trades provide an economic hedge against the effect of changes in interest rates resulting from IRLCs. TBAs are accounted for as derivatives under Accounting Standards Codification ("ASC") 815, issued by the Financial Accounting Standards Board ("FASB"), when either of the following conditions exist: (i) when settlement of the TBA trade is not expected to occur at the next regular settlement date (which is typically the next month) or (ii) a mechanism exists to settle the contract on a net basis. As a result, these instruments are recorded at fair value in the mortgage banking derivatives asset or liability with changes in fair value recorded in income from mortgage banking within the consolidated statement of income. The fair value of the TBA trades is based on the gain or loss that would occur if the Company were to pair-off the trade at the measurement date.
 The following table reflects the notional amount and fair value of mortgage banking derivatives included in the balance sheet at fair value as of December 31, 2023 and December 31, 2022.

 Notional Amount

 Balance at December 31, 2023

 Included in mortgage banking derivatives asset:

 Interest rate lock commitments

 $

 21,791

 $

 Forward sales commitments

 1,826

 Included in mortgage banking derivatives liability:

 To-be-announced mortgage-backed securities trades

 23,000

 Balance at December 31, 2022

 Included in mortgage banking derivatives liability:

 Interest rate lock commitments

 $

 8,863

 $

 To-be-announced mortgage-backed securities trades

 10,000

 Transfers of Financial Assets
 Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

 Foreclosed Real Estate
 Real estate properties acquired through foreclosure or other proceedings are initially recorded at fair value less costs to sell upon foreclosure, establishing a new cost basis. Annually, valuations are performed and the foreclosed property is adjusted to the lower of cost or fair 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 noninterest expense, and costs related to the improvement of the property are capitalized if the fair value less cost to sell will allow it. If not, these costs are expensed also.

 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 to seven years for furniture, fixtures and equipment, to ten to thirty-nine 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. Right-of-use ("ROU") assets that are recognized at the initial adoption of a lease arrangement are included in premises and equipment. More information regarding ROU assets can be found in Note 7 (Leases) to the Company's Notes to Consolidated Financial Statements.

 Restricted Stock
 As a requirement for membership, the Bank invests in the stock of the Federal Home Loan Bank of Atlanta ("FHLB") and Federal Reserve Bank ("FRB"). These investments are carried at cost. Due to the redemption provisions of these investments, the Company estimated that fair value approximates cost and that these investments were not impaired.

 Stock-Based Compensation
 The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). ASC 718 also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. As of December 31, 2023 and December 31, 2022, there are no outstanding awards.

 Income Taxes
 The Company and its subsidiaries file a consolidated federal income tax return and separate North Carolina income tax returns. The Bank files a separate South Carolina income tax return. The provision for income taxes in the accompanying consolidated financial statements is provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences 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. We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold. The tax returns for the Company are subject to audit by federal and state taxing authorities for the 2020 fiscal year and thereafter. It is the Company's policy to recognize interest and penalties associated with uncertain tax positions as components of other expenses in the income statement; however, if interest becomes a material amount, it would be reclassified as interest expense. There were no interest or penalties accrued during the years ended December 31, 2023, 2022 and 2021.

 Leases
 Operating leases in which we are the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on our consolidated balance sheet. Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental collateralized borrowing rate at the lease commencement date. ROU assets are further adjusted for the lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in the net occupancy expense in the consolidated statement of income.

 Revenue Recognition
 For revenue not associated with financial instruments, loan servicing guarantees and lease contracts, we apply the following steps when recognizing revenue from contracts with customers: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations and (v) recognize revenue when the performance obligation is satisfied. Our contracts with customers are generally short term in nature, typically due within one year or less or cancellable by us or our customer upon a short notice period. Performance obligations for our customer contracts are generally satisfied at a single point in time, typically when the transaction is complete, or over time. For performance obligations satisfied over time, we primarily use the output method, directly measuring the value of the products/services transferred to the customer, to determine when performance obligations have been satisfied. We typically receive payment from customers and recognize revenue concurrent with the satisfaction of our performance obligations. In most cases, this occurs within a single financial reporting period. For payments received in advance of the satisfaction of performance obligations, revenue recognition is deferred until such time the performance obligations have been satisfied. In cases where we have not received payment despite satisfaction of our performance obligations, we accrue an estimate of the amount due in the period our performance obligations have been satisfied.

 For contracts with variable components, only amounts for which collection is probable are accrued. We generally act in a principal capacity, on our own behalf, in most of our contracts with customers. In such transactions, we recognize revenue and the related costs to provide our services on a gross basis in our financial statements. In some cases, we act in an agent capacity, deriving revenue through assisting other entities in transactions with our customers. In such transactions, we recognize revenue and the related costs to provide our services on a net basis in our financial statements. These transactions primarily relate to insurance and brokerage commissions and fees derived from our customers' use of various interchange and ATM/debit card/credit card networks. Network costs associated with debit card and credit card transactions are netted against the related fees from such transactions. For the twelve months ended December 31, 2023, gross interchange and card transaction fees totaled $ 3.0 million while related network costs totaled $ 1.7 million. On a net basis, we reported $ 1.3 million as interchange and card transaction fees in the accompanying Consolidated Statement of Income for the twelve months ended December 31, 2023. For the twelve months ended December 31, 2022 and December 31, 2021, interchange and card transaction fees were $ 2.8 million and $ 2.6 million, respectively, on a gross basis while related network costs were $ 1.6 million and $ 1.4 million, respectively.
 Fair Value of Financial Instruments
 ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.
 ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which those assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. Fair values determined using Level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on Level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities for which identical or similar assets and liabilities are not actively traded in observable markets are based on Level 3 inputs, which are considered to be unobservable.
 Among the Company's assets and liabilities, investment securities available for sale and mortgage banking derivatives are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including other real estate owned, impaired loans, loans held for sale, which are carried at the lower of cost or market, and loan servicing rights, where fair value is determined using similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Deposits, short-term borrowings and long-term obligations are not reported at fair value.

 Prices for U.S. Treasury and marketable equity securities are readily available in the active markets in which those securities are traded, and the resulting fair values are classified as Level 1. Prices for government agency securities, mortgage-backed securities, asset-backed securities and for state, county and municipal securities are obtained for similar securities, and the resulting fair values are classified as Level 2. Prices for all other non-marketable investments are determined based on various assumptions that are not observable. The fair values for these investment securities are classified as Level 3. Non-marketable investment securities, which are carried at their purchase price, include those that may only be redeemed by the issuer. The changes in securities between Level 1 and Level 2 were related to the purchase and sale of several securities and not the transfer of securities.
 Mortgage banking derivatives, which are comprised of interest rate lock commitments, mortgage forward sales commitments and to-be-announced mortgage-backed securities trades, are recorded at fair value on a recurring basis. Fair value of the IRLCs is based on projected pull-through rates and anticipated margins based on changes in market interest rates. The Company considers these to be Level 3 valuations. The fair value of mortgage forward sales commitments and TBAs is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date and is considered to be a Level 2 input.
 The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment by using one of several methods including collateral value, fair value of similar debt or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected
 repayments or fair value of collateral exceed the recorded investments in such loans. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations.
 Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at the estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charged to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations.
 Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate, based on secondary market prices. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. These loans are recorded in Level 2.

 Comprehensive Income (Loss)
 The Company reports as comprehensive income all changes in shareholders' equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company's only component of other comprehensive income (loss) is unrealized gains and losses, net of income tax, on investment securities available for sale.
 The following table presents the changes in accumulated other comprehensive income for the years ended December 31, 2023, 2022 and 2021:

 Year ended December 31,

 2023

 2022

 2021

 Beginning Balance

 $

 ( 31,765

)

 $

 ( 1,151

)

 $

 4,160

 Accumulated other comprehensive income (loss) before reclassifications,
 net of ($1,993), $ 9,161 and $ 1,373 tax effect, respectively

 6,631

 ( 30,689

)

 ( 4,533

)

 Amounts reclassified from accumulated other comprehensive income,
 net of ($ 8), ($ 16), and $ 213 tax effect, respectively

 ( 778

)

 Net current-period other comprehensive income (loss)

 6,665

)

)

 Ending Balance

 $

 ( 25,100

)

 $

 ( 31,765

)

 $

 ( 1,151

)

 Earnings per Common Share
 The Company had no stock options outstanding at December 31, 2023, 2022 and 2021.
 Basic earnings per share ("EPS") excludes dilution and 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. On October 17, 2023, the Company's Board of Directors declared a 2.0 % stock dividend payable on November 21, 2023 to shareholders of record on November 7, 2023. All information presented in the accompanying consolidated financial statements regarding earnings per share and weighted average number of shares outstanding has been computed giving effect to this stock dividend.
 The computation of weighted average shares used in the calculation of basic and dilutive earnings per share is summarized below:

 2023

 2022

 2021

 Weighted average number of common shares used in
 computing basic net income per common share

 Effect of dilutive stock options

 —

 —

 —

 Weighted average number of common shares and dilutive
 potential common shares used in computing diluted net
 income per common share

 Noncontrolling Interest
 In 2013, the Company's subsidiary bank issued a total of $ 10.7 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C. The preferred stock qualifies as Tier 1 capital of the Bank and pays dividends at an annual rate of 5.30 %. The preferred stock has no voting rights. This capital is presented as noncontrolling interest in the consolidated balance sheets. Dividends declared on this preferred stock are presented as earnings allocated to the noncontrolling interest in the consolidated statements of income.

 Recent Accounting Pronouncements
 ASC 848, "Reference Rate Reform," was set forth to eliminate certain reference rates and introduce new reference rates that are based on a larger, more liquid population of observable transactions that are less vulnerable to manipulation. The reference rate reform will discontinue the use of certain widely used reference rates such as the London Interbank Offered Rate, or LIBOR. In response to likely challenges arising from contract modifications due to reference rate reform, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," in March 2020 to provide optional expedients and exceptions for applying GAAP to contract modifications. As such, modifications to debt contracts may be accounted for as a continuation of the existing contract by prospectively adjusting the effective interest rate. This amendment could be applied beginning March 12, 2020 through a sunset date of December 31, 2022. In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848." These amendments extend the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision based on expectations of when LIBOR would cease being published. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief provided in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. ASU 2022-06 was effective upon issuance. The Company no longer holds or issues loan contracts that reference LIBOR. As of July 1, 2023, all loan contracts that previously referenced LIBOR had been modified. The Company does not anticipate a material financial impact as a result of these modifications.

 The Inflation Reduction Act of 2022 ("IRA") created a new nondeductible 1 % excise tax on repurchases of corporate stock by certain publicly traded corporations or their specified affiliates after December 31, 2022. The tax is imposed on the fair value of the stock of a covered corporation that is repurchased in a given year, less the fair market value of any stock issued in that year. A "covered corporation" is any domestic corporation whose stock is traded on an established securities market, such as an OTC market. The excise tax applies to all of the stock of a covered corporation regardless of whether the corporation has profits or losses. The IRA contains several exceptions to the excise tax, including, but not limited to, any repurchase of stock: in which the total value of the repurchased stock in a given year does not exceed $ 1,000,000; that is contributed to an employer-sponsored retirement plan or other similar stock compensation plan; or that is taxed as a dividend. The impact of the IRA on our consolidated financial statements is dependent on the extent of stock repurchases.
 ASU 2023-01 "Leases (Topic 842) – Common Control Arrangements" requires entities to determine whether a related party
 arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify
 and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and
 conditions). ASU 2023-01 became effective January 1, 2024 and is not expected to have an impact on our consolidated financial statements.
 In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which enhances income tax disclosure requirements. Under the new guidance, entities must disclose additional information in specified categories for federal, state and foreign income taxes with respect to the reconciliation of the effective tax rate to the statutory rate (rate reconciliation). Greater detail is also required about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. Additionally, the amendments require that entities must disaggregate income taxes paid, net of refunds received, for federal, state and foreign taxes and further disaggregate for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The quantitative threshold is equal to 5% or more of the amount determined by multiplying pretax income (loss) from continuing operations by the applicable statutory rate. Public business entities must apply the guidance to annual periods beginning after December 15, 2024. ASU 2023-09 is effective for the Company on January 1, 2025, though early adoption is permitted. Entities may apply the amendments prospectively or may elect retrospective application. The Company is currently evaluating the potential impacts related to the adoption of this ASU.
 From time to time the FASB issues exposure drafts of proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.

 Reclassification

 Certain amounts in the 2022 financial statements have been reclassified to conform to the 2023 presentation. These reclassifications had no material impact on net income or shareholders' equity.

 Note 2 – Investment and Equity Securities
 Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:

Cost

 Gross
Gains

 Gross

 Fair
Value

 $

 54,984

 $

 —

 $

 3,479

 $

 43,921

 43,018

 137,346

 13,729

 123,787

 31,469

 31,513

 95,581

 14,196

 81,400

 6,000

 —

 5,491

 Total securities available for sale

 $

 369,301

 $

 $

 33,082

 $

 Cost

 Gross
Gains

 Gross

 Fair
Value

 Allowance for
Credit Losses

 Net Carrying

 $

 $

 —

 $

 $

 $

 —

 $

 13,467

 —

 12,482

 —

 13,467

 15,000

 —

 1,878

 13,122

 14,944

 Total securities held to maturity

 $

 $

 —

 $

 2,864

 $

 25,736

 $

 $

 28,544

Cost

 Gross
Gains

 Gross

 Fair
Value

 $

 54,948

 $

 —

 $

 4,318

 $

 34,746

 1,048

 33,762

 132,059

 —

 16,064

 115,995

 37,228

 36,686

 100,955

 —

 18,689

 82,266

 6,000

 —

 5,344

 Total securities available for sale

 $

 365,936

 $

 $

 41,387

 $

 324,683

Cost

 Gross
Gains

 Gross

 Fair
Value

 $

 $

 —

 $

 $

 15,154

 —

 1,775

 13,379

 15,000

 —

 1,348

 13,652

 Total securities held to maturity

 $

 30,306

 $

 —

 $

 3,128

 $

 27,178

 At December 31, 2023 and December 31, 2022, the Company owned Federal Reserve Bank (FRB) stock reported at cost of $ 959,000. The Company owned Federal Home Loan Bank (FHLB) stock reported at cost of $ 712,000 and $ 469,000 at December 31, 2023 and December 31, 2022, respectively. The investments in Federal Reserve stock and FHLB stock are required investments related to the Company's membership in, and borrowings with, these banks and are classified as restricted stock on the consolidated balance sheet. These investments are carried at cost since there is no ready market and redemption has historically been made at par value. The Company estimated the fair value approximated cost and that these investments were not impaired at December 31, 2023.

 Note 2 - Investment and Equity Securities (Continued)
 There is no allowance for credit losses on available for sale securities. The following table shows a rollforward of the allowance for credit losses on held to maturity securities for the year ended December 31, 2023.

 U.S. government agencies

 Total

 Balance, December 31, 2022

 $

 —

 $

 —

 $

 —

 $

 —

 Cumulative effect of change in accounting principle

 —

 Recovery of credit losses

 —

 ( 3

)

 ( 11

)

 ( 14

)

 Charge-offs of securities

 —

 —

 —

 —

 —

 —

 —

 —

 Balance, December 31, 2023

 $

 —

 $

 —

 $

 $

 On a quarterly basis, the Company monitors the credit quality of the debt securities held to maturity through the use of credit ratings. For unrated securities, primarily corporate bonds consisting of subordinated debt of bank holding companies, individual financial reports are reviewed quarterly. Capital, profitability, liquidity and other ratios are reviewed to assist in determining credit quality. U.S. government agency bonds are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses.
 The following table summarizes the credit ratings of debt securities held to maturity, presented at amortized cost, by major security type at December 31, 2023.

 U.S. government agencies

 Total

 Aaa

 $

 —

 $

 1,154

 $

 —

 $

 1,154

 Aa1/Aa2/Aa3

 —

 12,313

 —

 12,313

 A1/A2

 —

 —

 —

 —

 BBB

 —

 —

 —

 —

 Not rated

 —

 15,000

 15,133

 Total

 $

 $

 13,467

 $

 15,000

 $

 At December 31, 2023, the Company had no securities held to maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held to maturity classified as nonaccrual for the year ended December 31, 2023.
 Results from sales of securities available for sale for the years ended December 31, 2023, 2022 and 2021 are as follows:

 2023

 2022

 2021

 Gross proceeds from sales

 $

 11,329

 $

 8,398

 $

 49,280

 Realized gains from sales

 $

 $

 $

 1,505

 Realized losses from sales

 ( 96

)

 ( 144

)

 ( 514

)

 Net realized gains (losses)

 $

 ( 42

)

 $

 ( 91

)

 $

 Note 2 - Investment and Equity Securities (Continued)
 At December 31, 2023 and 2022 securities available for sale with a carrying amount of $ 137.1 million and $ 153.3 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
 We believe these unrealized losses on investment securities are a result of a volatile market and fluctuations in market prices due to a rise in interest rates, which will adjust if rates decline. Management does not believe these fluctuations are a reflection of the credit quality of the investments. The following table shows the gross unrealized losses and estimated fair value of available for sale securities, for which an allowance has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2023.

 Less than 12 Months

 12 Months or More

 Total

 —

 $

 —

 $

 —

 $

 $

 3,479

 $

 $

 3,479

 16,865

 14,705

 31,570

 7,907

 100,765

 13,626

 108,672

 13,729

 1,711

 10,140

 11,851

 2,496

 76,352

 14,173

 78,848

 14,196

 —

 —

 —

 5,491

 5,491

 Total securities available for sale

 $

 28,979

 $

 $

 258,958

 $

 32,844

 $

 287,937

 $

 33,082

 The following tables show the gross unrealized losses and estimated fair value of available for sale securities and held to maturity securities aggregated by category and length of time that securities have been in a continuous loss position at December 31, 2022.

 Less than 12 Months

 12 Months or More

 Total

 $

 27,991

 $

 $

 22,639

 $

 3,809

 $

 $

 4,318

 8,580

 13,994

 22,574

 1,048

 35,657

 2,021

 77,799

 14,043

 113,456

 16,064

 22,828

 7,326

 30,154

 19,381

 61,359

 18,001

 80,740

 18,689

 —

 —

 —

 5,344

 5,344

 Total securities available for sale

 $

 114,437

 $

 3,602

 $

 188,461

 $

 37,785

 $

 302,898

 $

 41,387

 Less than 12 Months

 12 Months or More

 Total

 U.S. government agencies

 $

 $

 —

 $

 —

 $

 —

 $

 $

 12,354

 1,621

 1,025

 13,379

 1,775

 6,383

 7,269

 13,652

 1,348

 Total securities held to maturity

 $

 18,884

 $

 1,993

 $

 8,294

 $

 1,135

 $

 27,178

 $

 3,128

 Note 2 - Investment and Equity Securities (Continued)
 Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for credit loss, management considers, among other things, the length of time and the extent to which the fair value has been in a loss position; the financial condition of the issuer through the review of credit ratings and, if necessary, corporate financial statements; adverse conditions specifically related to the security such as past due principal or interest; underlying assets that collateralize the debt security; other economic conditions and demographics; and the intent and ability of the Company to hold the investment until the loss position is recovered. Any unrealized losses were largely due to increases in market interest rates over the yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. At December 31, 2023, the Company did not intend to sell and believed it was not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.
 The following tables show contractual maturities of the investment portfolio as of December 31, 2023:

Cost

 Estimated

 $

 26,010

 $

 25,857

 46,826

 42,961

 65,207

 57,773

 231,258

 210,123

 $

 369,301

 $

Cost

 Estimated

 $

 $

 —

 —

 18,836

 16,617

 9,250

 8,607

 $

 $

 25,736

 The portion of unrealized gains and losses for the twelve months ended December 31, 2023 and 2022 related to equity securities still held at the reporting date is calculated as follows:

 Twelve Months Ended December 31,

 2023

 2022

 Gross proceeds from sales

 $

 —

 $

 —

 Net gains (losses) recognized during the period on equity securities

 $

 $

 ( 100

)

 Less: Net gains (losses) recognized from equity securities sold during the period

 —

 —

 Unrealized gains (losses) recognized during the period on equity securities still held at the reporting date

 $

 $

 ( 100

)

 Note 3 – Loans Held for Investment
 The composition of net loans held for investment by class as of December 31, 2023 and 2022 is as follows:

 2023

 2022

 $

 102,178

 $

 213,397

 183,550

 Other real estate construction loans

 37,077

 6,214

 6,666

 Noncommercial

 6,613

 143,697

 108,669

 60,599

 58,186

 9,762

 591,207

 496,985

 Less:

 Allowance for credit losses

 ( 5,561

)

 ( 2,290

)

 Deferred loan fees, net

 Loans held for investment, net

 $

 586,510

 $

 495,599

 Although the Bank's loan portfolio is diversified, there is a concentration of mortgage real estate loans, primarily 1-to-4 family residential and home equity loans, which represents 34.6 % of total loans. Additionally, there is a concentration in commercial loans secured by real estate that represents 36.1 % of total loans. The commercial loan real estate portfolio is diversified and comprised of different types of real estate including, but not limited to, commercial buildings, commercial land development, multi-family housing, hotels, agriculture, and shopping center locations. There is not a concentration of a particular type of credit in this group of commercial loans. The Company's loan policies are written to address loan-to-value ratios and collateralization methods with respect to each lending category. Consideration is given to the economic and credit risk of lending areas and customers associated with each category.
 The carrying value of foreclosed properties held as other real estate was $ 141,000 at December 31, 2023 compared to $ 0 at December 31, 2022. The Company had no residential real estate in process of foreclosure at December 31, 2023 and December 31, 2022.

 Note 4 - Allowance for Credit Losses on Loans
 The following tables summarize the activity related to the allowance for credit losses on loans for the year ended December 31, 2023 under the CECL methodology.

 Commercial Loans

 Noncommercial Loans

 Real estate
commercial

 Other
real estate
construction

 Other
loans

 Real estate
1-4 family
construction

 Real estate
residential

 Home
equity

 Consumer

 Total
Loans

 Balance, December 31, 2022

 $

 $

 $

 $

 $

 —

 $

 $

 $

 $

 2,290

 Cumulative effect of change in accounting principle

 1,017

 —

 2,407

 Provision for (recovery of) credit losses

 —

 ( 102

)

 1,495

 Charge-offs

 ( 604

)

 —

 ( 42

)

 —

 —

 —

 —

 ( 108

)

 ( 754

)

 —

 —

 —

 —

 Net (charge-offs) recoveries

 ( 582

)

 —

 ( 42

)

 —

 —

 ( 41

)

 ( 631

)

 Balance, December 31, 2023

 $

 1,493

 $

 2,057

 $

 $

 $

 $

 $

 $

 $

 5,561

 Prior to the adoption of ASU 2016-13 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.
 Changes in the allowance for loan losses by loan segment for the years ended December 31, 2022 and 2021 are presented below:

 2022

 2021

 Balance, beginning of year

 $

 2,429

 $

 2,753

 Recovery charged to operations

 ( 1,124

)

 ( 803

)

 Charge-offs

 —

 ( 156

)

 Net recoveries

 Balance, end of year

 $

 1,376

 $

 2,429

 Noncommercial

 2022

 2021

 Balance, beginning of year

 $

 1,597

 $

 1,649

 Recovery charged to operations

 ( 635

)

 ( 114

)

 Charge-offs

 ( 84

)

 ( 56

)

 Net (charge-offs) recoveries

 ( 48

)

 Balance, end of year

 $

 $

 1,597

 Total

 2022

 2021

 Balance, beginning of year

 $

 4,026

 $

 4,402

 Recovery charged to operations

 ( 1,759

)

 ( 917

)

 Charge-offs

 ( 84

)

 ( 212

)

 Net recoveries

 Balance, end of year

 $

 2,290

 $

 4,026

 The following table shows period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at December 31, 2022:

 Individually Evaluated

 Collectively Evaluated

 Total

 Reserve

 Loans

 Reserve

 Loans

 Reserve

 Loans

 $

 $

 $

 1,336

 $

 313,181

 $

 1,376

 $

 313,885

 Noncommercial

 2,368

 181,636

 184,004

 Total

 $

 $

 3,072

 $

 2,117

 $

 494,817

 $

 2,290

 $

 Past due loan information is used by management when assessing the adequacy of the allowance for credit losses. The following tables summarize the past due information of the loan portfolio by class as of the dates indicated:

 Loans
30-89 Days

 Nonaccrual Loans

 Total Past
Due Loans

 Current
Loans

 Total
Loans

 Accruing
Loans 90 or
More Days

 $

 $

 $

 $

 101,986

 $

 102,178

 $

 —

 —

 1,076

 212,447

 213,523

 —

 —

 —

 —

 —

 —

 —

 —

 —

 143,445

 144,438

 —

 60,304

 60,600

 —

 —

 11,497

 —

 —

 —

 —

 6,214

 6,214

 —

 Total

 $

 1,548

 $

 1,101

 $

 2,649

 $

 589,422

 $

 592,071

 $

 —

 Loans
30-89 Days

 Nonaccrual Loans

 Total Past
Due Loans

 Current
Loans

 Total
Loans

 Accruing
Loans 90 or
More Days

 $

 —

 $

 $

 $

 85,846

 $

 $

 —

 —

 —

 183,464

 183,694

 —

 —

 36,894

 37,077

 —

 —

 —

 —

 6,613

 6,613

 —

 108,819

 109,443

 —

 58,051

 58,186

 —

 —

 9,733

 9,762

 —

 —

 —

 —

 6,666

 6,666

 —

 Total

 $

 1,125

 $

 $

 1,524

 $

 496,365

 $

 $

 —

 Once a loan becomes 90 days past due, the loan is automatically transferred to a nonaccrual status. The exception to this policy is credit card loans that remain in accrual status 90 days or more until they are paid current or charged off.
 The composition of nonaccrual loans by class as of December 31, 2023 and 2022 is as follows:

 CECL

 Twelve Months Ended

 Incurred Loss

 Nonaccrual Loans with No Allowance

 Nonaccrual Loans with an Allowance

 Total Nonaccrual Loans

 Interest Income

 Nonaccrual Loans

 $

 —

 $

 $

 $

 $

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 $

 $

 $

 1,101

 $

 $

 A loan may be individually assessed for determining the allowance for credit losses when it is determined that it does not share similar risk characteristics with other assets. Loans that are on nonaccrual status will be reviewed to determine if they will be individually, rather than collectively, assessed. If the loan is deemed to be collateral dependent and the relationship's outstanding balance is $ 100,000 or greater, it will be individually assessed. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans require an analysis of the collateral. The fair value of the collateral is discounted by liquidation costs. If the discounted fair value of the collateral is greater than the amortized loan balance, no allowance is required. Otherwise the difference between the balance and the collateral is charged off if deemed uncollectible.
 The following table details the amortized cost of collateral dependent loans and any related allowance at December 31, 2023.

 Amortized Cost

 Allowance for Credit Losses

 $

 $

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 Total

 $

 $

 Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and to measure the adequacy of the allowance for credit losses on loans. In this program, risk grades are initially assigned by the loan officers and reviewed and monitored by the lenders and credit administration. The program has nine risk grades summarized in six categories as follows:
 Pass: Loans that are pass grade credits include loans that are fundamentally sound, with risk factors that are reasonable and acceptable. They generally conform to policy with only minor exceptions; any major exceptions are clearly mitigated by other economic factors.
 Watch: Loans that are acceptable but show signs of weakness in either adequate sources of repayment or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss. These loans may deserve management's attention.
 Special Mention: Loans that exhibit potential weakness that deserve management's close attention. Credits within this category exhibit risk that is increasing beyond the point where the loan would have been originally approved.
 Substandard: Loans that are considered substandard are loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or the value of the collateral pledged. All nonaccrual loans are graded as substandard.
 Doubtful: Loans that are considered to be doubtful have all weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make the collection or liquidation in full on the basis of current existing facts, conditions and values highly questionable and improbable.
 Loss: Loans that are considered to be a loss are considered to be uncollectible and of such little value that their continuance as bankable assets is not warranted.

 The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of December 31, 2023:

 Term Loans by Year of Origination

 2023

 2022

 2021

 2020

 2019

 Prior

 Revolving

 Total

 Commercial (including PPP)

 Pass

 $

 23,611

 $

 21,731

 $

 16,587

 $

 5,868

 $

 2,553

 $

 10,634

 $

 20,089

 $

 101,073

 Watch

 —

 —

 —

 —

 1,119

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 Total commercial (including PPP)

 23,810

 21,753

 16,587

 6,022

 2,553

 10,634

 21,003

 102,362

 Pass

 51,543

 46,563

 38,267

 23,031

 15,727

 33,949

 2,844

 211,924

 Watch

 —

 —

 —

 —

 —

 —

 —

 —

 —

 1,037

 —

 —

 —

 —

 —

 Total real estate - commercial

 51,543

 46,563

 39,255

 23,240

 15,972

 34,106

 2,844

 213,523

 Pass

 20,458

 10,368

 3,050

 3,711

 2,148

 40,825

 Watch

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 Total other real estate construction

 20,458

 10,368

 3,050

 3,711

 2,195

 Pass

 10,628

 1,353

 —

 —

 —

 —

 Watch

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 Total real estate 1-4 family construction

 10,628

 1,353

 —

 —

 —

 —

 Pass

 46,470

 40,558

 23,259

 11,182

 3,528

 15,208

 1,082

 141,287

 Watch

 —

 —

 —

 1,384

 —

 —

 —

 —

 1,489

 —

 —

 —

 —

 —

 Total real estate - residential

 47,136

 40,558

 23,969

 11,762

 3,650

 16,281

 1,082

 144,438

 Pass

 1,309

 57,800

 60,012

 Watch

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 Total home equity

 1,620

 57,949

 60,600

 Pass

 4,302

 2,089

 3,936

 11,538

 Watch

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 Total consumer loans

 4,327

 2,107

 3,936

 Pass

 1,611

 2,864

 1,306

 —

 —

 6,214

 Watch

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 Total other loans

 1,611

 2,864

 1,306

 —

 —

 6,214

 Total loans

 $

 158,080

 $

 124,447

 $

 87,038

 $

 46,569

 $

 22,959

 $

 65,616

 $

 87,362

 $

 592,071

 During the year end December 31, 2023, thirty loans totaling $ 1.2 million were converted from revolving to term loans.

 The following table presents gross charge-offs by origination date as of December 31, 2023:

 Gross Loan Charge-offs by Year of Origination

 2023

 2022

 2021

 2020

 2019

 Prior

 Revolving

 Total

 $

 —

 $

 $

 —

 $

 $

 $

 $

 $

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 Noncommercial

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 Total charge-offs

 $

 —

 $

 $

 $

 $

 $

 $

 $

 The following table presents the Company's recorded investment in loans by credit quality indicators as of December 31, 2022:

 Pass

 Watch

 Sub-
standard

 Doubtful

 Total

 $

 85,789

 $

 $

 $

 —

 $

 —

 —

 —

 182,110

 1,584

 —

 —

 183,694

 36,717

 —

 37,077

 6,613

 —

 —

 —

 6,613

 106,968

 2,359

 —

 109,443

 58,050

 —

 58,186

 9,715

 —

 —

 9,762

 6,666

 —

 —

 —

 6,666

 Total

 $

 493,159

 $

 4,206

 $

 $

 —

 $

 Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. At both December 31, 2023 and 2022, there were no loans 90 days past due and still accruing. The following tables show the breakdown between performing and nonperforming loans by class as of December 31, 2023 and 2022:

 Performing

 Non-
Performing

 Total

 $

 102,024

 $

 $

 102,178

 —

 213,035

 213,523

 —

 —

 144,160

 144,438

 60,419

 60,600

 —

 6,214

 —

 6,214

 Total

 $

 590,970

 $

 1,101

 $

 592,071

 Performing

 Non-
Performing

 Total

 $

 85,846

 $

 $

 —

 183,694

 —

 183,694

 36,894

 37,077

 6,613

 —

 6,613

 109,326

 109,443

 58,158

 58,186

 9,762

 —

 9,762

 6,666

 —

 6,666

 Total

 $

 497,490

 $

 $

 Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. Impaired loans include loans on nonaccrual status and troubled debt restructurings. The Company individually assessed for impairment all nonaccrual loans and, prior to the adoption of CECL, troubled debt restructurings. If a loan was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment was expected solely from the collateral. The tables below summarize the loans deemed impaired and the amount of specific reserves allocated by class at December 31, 2022 and 2021.

 As of December 31, 2022

 Year Ended December 31, 2022

 Unpaid

 Principal

 With No

 With

 Related

 Income

 $

 $

 —

 $

 $

 $

 $

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 2,318

 1,746

 2,217

 —

 —

 —

 —

 Total

 $

 3,072

 $

 $

 2,289

 $

 $

 3,615

 $

 As of December 31, 2021

 Year Ended December 31, 2021

 Unpaid

 Principal

 With No

 With

 Related

 Income

 $

 $

 —

 $

 $

 $

 $

 —

 —

 —

 —

 —

 —

 1,613

 1,613

 3,122

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 2,103

 1,326

 2,625

 —

 —

 —

 Total

 $

 4,708

 $

 $

 3,929

 $

 $

 6,893

 $

 Modifications to Borrowers Experiencing Financial Difficulty
 The Company adopted ASU 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures" effective January 1, 2023. The amendments in ASU 2022-02 enhanced disclosures for loan modifications made for borrowers experiencing financial difficulty and eliminated the Troubled Debt Restructurings ("TDR") accounting guidance for financial institutions that have adopted CECL.
 The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
 Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses due to the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. The Company rarely modifies loans by providing principal forgiveness. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Company will modify a loan by providing multiple types of concessions. Typically one type of concession is granted initially. If the borrower continues to experience financial difficulty, another concession may be granted. Types of concessions include term extensions beyond customary terms, capitalization of accrued interest, interest rates reductions to below market rates, payment deferrals or principal forgiveness.
 The following table shows the amortized cost basis of loans modified to borrowers experiencing financial difficulty, disaggregated by class of loans and type of concession granted, during the twelve-month period ended December 31, 2023.

 Payment Deferrals

 Cost Basis

 Loan Type

 Financial Effect

 $

 0.39

 %

 Provided additional payment deferral to borrowers in the form interest-only payments

 Total

 $

 The Company did no t have any loans made to borrowers experiencing financial difficulty that were modified during 2023 that subsequently defaulted. A default on a modified loan is defined as being past due 90 days or being out of compliance with the modification agreement. The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months:

 Payment Status (Amortized Cost Basis)

 30-89 Days

 90+ Days

 Current

 $

 $

 —

 $

 —

 Total

 $

 $

 —

 $

 —

 Prior to adoption of ASU 2016-13, modification of a loan constituted a troubled debt restructuring when a borrower was experiencing financial difficulty and the modification involved providing a concession to the existing loan contract. The Company offered various types of concessions when modifying loans to troubled borrowers, however, forgiveness of principal was rarely granted. Concessions offered were term extensions, capitalizing accrued interest, reducing interest rates to below current market rates or a combination of any of these. Combinations from time to time included allowing a customer to be placed on interest-only payments. The presentations below in the "other" category are TDRs with a combination of concessions. At the time of a TDR, additional collateral or a guarantor may have been requested. Loans modified as TDRs were typically already on nonaccrual status and in some cases, partial charge-offs may have already been taken against the outstanding loan balance. The Company classified TDR loans as impaired loans and evaluated the need for an allowance for loan loss on a loan-by-loan basis. An allowance was based on either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan was deemed to be collateral dependent.
 At December 31, 2022, the Company had $ 2.8 million in TDRs outstanding, of which two with balances totaling 52,000 were on a nonaccrual basis.
 The following tables present as of December 31, 2022 and 2021, the status of the types of loans modified as TDRs within the twelve months preceding such date.

 Paid In Full

 Paying as restructured

 Converted to nonaccrual

 Foreclosure/ Default

 Loans

 Loans

 Loans

 Loans

 Below market interest rate

 —

 $

 —

 —

 $

 —

 —

 $

 —

 —

 $

 —

 Extended payment terms

 —

 —

 —

 —

 —

 —

 —

 —

 Other

 1,546

 —

 —

 Total

 $

 1,546

 $

 $

 —

 $

 —

 Paid In Full

 Paying as restructured

 Converted to nonaccrual

 Foreclosure/ Default

 Loans

 Loans

 Loans

 Loans

 December 31, 2021

 Below market interest rate

 $

 —

 $

 —

 —

 $

 —

 —

 $

 —

 Extended payment terms

 —

 —

 —

 —

 —

 —

 —

 —

 Other

 1,079

 2,339

 —

 —

 —

 —

 Total

 $

 1,297

 $

 2,339

 —

 $

 —

 —

 $

 —

 Note 5 – Loan Servicing Assets
 The principal balance of loans serviced for others is not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage and other loans serviced for others were approximately $ 721.4 million and $ 729.7 million at December 31, 2023 and 2022, respectively. The carrying value of capitalized servicing rights, net of valuation allowances, is included in other assets. A summary of loan servicing rights follows:

 2023

 2022

 2021

 Beginning of year servicing rights:

 $

 4,931

 $

 5,078

 $

 3,957

 Amounts capitalized

 1,196

 2,710

 Amortization

 ( 1,228

)

 ( 1,343

)

 ( 1,589

)

 Impairment

 —

 —

 —

 End of year

 $

 4,287

 $

 4,931

 $

 5,078

 Note 5 – Loan Servicing Assets (Continued)
 Amortization expense is estimated as follows:

 Year ending December 31,

 2024

 $

 1,012

 2025

 2026

 2027

 2028

 Thereafter

 Total

 $

 4,287

 The amortization does not anticipate or pro-forma loan prepayments.
 The fair value of loan servicing rights was $ 7.0 million at December 31, 2023 and 2022. The key assumptions used to value mortgage servicing rights were as follows:

 2023

 2022

 Weighted average remaining life

 282 months

 286 months

 Weighted average discount rate

 11.21

 %

 11.22

 %

 Weighted average coupon

 3.69

 %

 3.45

 %

 Weighted average prepayment speed

 %

 %

 Note 6 - Premises and Equipment
 The major classes of premises and equipment and the total accumulated depreciation at December 31, 2023 and 2022 are listed below:

 2023

 2022

 Land

 $

 2,903

 $

 2,903

 Building and improvements

 13,626

 13,567

 ROU assets

 1,495

 1,872

 Furniture and equipment

 10,756

 9,857

 Total fixed assets

 28,780

 28,199

 Less accumulated depreciation

 13,691

 13,464

 Net fixed assets

 $

 15,089

 $

 14,735

 Depreciation expense was $ 1.1 million for the years ended December 31, 2023, 2022 and 2021, and is included in net occupancy expense, equipment expense and software amortization and maintenance expense.
 See Note 7 (Leases) to the Company's Notes to Consolidated Financial Statements for more information regarding ROU assets.

 Note 7 – Leases
 Operating leases in which we are the lessee are recorded as operating lease right of use ("ROU") assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on our consolidated balance sheets. Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental collateralized borrowing rate at the lease commencement date. ROU assets are further adjusted for any lease incentives. Operating lease expense, which is composed of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in the net occupancy expense in the consolidated statements of income. We do not currently have any finance leases in which we are the lessee.

 Note 7 – Leases (Continued)
 Our leases relate to four office locations, three of which are branch locations, with remaining terms of three to six years. Certain lease arrangements contain extension options which range from five to ten years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As of December 31, 2023, operating lease ROU asset s were $ 1.5 million and the lease liability was $ 1.6 million. Operating lease ROU assets were $ 1.9 million and the lease liability was $ 2.0 million at December 31, 2022. The table below depicts information related to the Company's leases:

 Twelve Months Ended December 31,

 2023

 2022

 (in thousands except percent and period data)

 Cash paid for amounts included in the measurement of lease liabilities

 Operating cash flows from operating leases

 $

 $

 ROU assets obtained in exchange for new operating lease liabilities

 1,495

 1,872

 Weighted-average remaining lease term - operating leases, in years

 3.9

 4.9

 Weighted-average discount rate - operating leases

 2.8

 %

 2.7

 %

 Total rental expense related to the operating leases was $ 435,023, $ 414,563, and $ 390,292 for the years ended December 31, 2023, 2022 and 2021, respectively, and is included in net occupancy expense.
 A table detailing the lease payments associated with the aforementioned properties is below.

 December 31,

 2024

 $

 2025

 2026

 2027

 2028

 Thereafter

 Total lease payments

 1,693

 Less: Interest

 ( 88

)

 Present value of lease liabilities

 $

 1,605

 Note 8 - Deposits
 The composition of deposits at December 31, 2023 and 2022 is as follows:

 2023

 2022

 Percentage
of Total

 Percentage
of Total

 Demand noninterest-bearing

 $

 269,998

 %

 $

 261,882

 %

 Interest checking and money market

 417,318

 %

 486,548

 %

 Savings

 101,193

 %

 104,301

 %

 Time deposits $250,000 and over

 78,046

 %

 35,979

 %

 115,158

 %

 51,146

 %

 Total

 $

 981,713

 %

 $

 939,856

 %

 Note 8 - Deposits (Continued)

 The maturities of fixed-rate time deposits at December 31, 2023 are reflected in the table below:

 Time Deposits

 Other

 Year ending December 31,

 $250,000 and Over

 Time Deposits

 2024

 $

 76,086

 $

 102,702

 2025

 1,960

 8,282

 2026

 —

 2,573

 2027

 —

 1,097

 2028

 —

 Thereafter

 —

 Total

 $

 78,046

 $

 115,158

 Note 9 - 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 2023 and 2022:

 2023

 2022

 Rate

 Rate

 At year-end

 Master notes and other short-term borrowings

 $

 1,379

 4.56

 %

 $

 1,044

 3.43

 %

 $

 1,379

 4.56

 %

 $

 1,044

 3.43

 %

 2023

 2022

 Rate

 Rate

 Average for the year

 Federal funds purchased

 $

 5.90

 %

 $

 3.16

 %

 Master notes and other short-term borrowings

 1,073

 0.94

 %

 1,108

 0.91

 %

 $

 1,077

 0.96

 %

 $

 1,110

 0.92

 %

 2023

 2022

 Maximum month-end balance

 Master notes and other short-term borrowings

 $

 2,094

 $

 1,344

 Master notes represent an overnight investment in commercial paper issued by the Company to customers of its subsidiary bank, where an agreement is in place.
 The subsidiary bank has combined available lines of credit for federal funds and Federal Reserve discount window availability in the amount of $ 60.3 million at December 31, 2023.

 Note 10 - Long-Term Debt
 The Company has a line of credit with the Federal Home Loan Bank secured by qualifying first lien and second mortgage loans and commercial real estate loans with eligible collateral value of $ 147.0 million with the entire amount available for advances at December 31, 2023. There were no long-term advances under this line at December 31, 2023 or at December 31, 2022. The Company also secured a $ 3.0 million line of credit with TIB The Independent BankersBank, N.A. during 2020. The line is secured with 100 % of the outstanding common shares of the Company's subsidiary bank. As of December 31, 2023, there was no outstanding balance on the line of credit. This loan carries certain debt covenants, and as of December 31, 2023, the Company was in compliance with all of these covenants.

 Note 10 - Long-Term Debt (Continued)
 During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $ 1,000 per security with a required minimum investment of $ 50,000. The offering raised $ 10.0 million, of which $ 9.7 million was outstanding at December 31, 2023. These securities have a final maturity date of September 30, 2029 and may be redeemed by the Company after September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25 %. All proceeds of this private placement qualify and are included in the calculation of Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 30, 2024.
 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. At December 31, 2023, $ 11.7 million and $ 8.0 million remained outstanding of the 10-year and 15-year subordinated notes, 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 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 per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 3, 2026 and September 3, 2031 for the 10-year and 15-year subordinated notes, respectively.
 Debt is reported net of unamortized debt issuance costs of $ 308,000 and $ 385,000 at December 31, 2023 and December 31, 2022, respectively.
 As of December 31, 2023, the scheduled maturities of these long-term borrowings are as follows:

 Year Ended December 31, 2023

 2023

 $

 —

 2024

 —

 2025

 —

 2026

 —

 2027

 —

 Thereafter

 29,412

 29,412

 Less: unamortized debt issuance costs

 ( 308

)

 Total

 $

 29,104

 Note 11 - Income Tax Matters
 The significant components of income tax expense for the years ended December 31, 2023, 2022 and 2021 are summarized as follows:

 2023

 2022

 2021

 Current tax expense:

 Federal

 $

 2,706

 $

 $

 2,311

 State

 Total

 2,962

 1,101

 2,620

 Deferred tax expense (benefit):

 Federal

 ( 709

)

 State

 ( 85

)

 Total

 ( 794

)

 Net provision for income taxes

 $

 2,168

 $

 1,705

 $

 2,763

 The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 21 % to income before income taxes is summarized below:

 2023

 2022

 2021

 Tax computed at the statutory federal rate

 $

 2,260

 $

 2,090

 $

 2,698

 Increases (decreases) resulting from:

 State income taxes, net of federal benefit

 Meals and entertainment

 Tax exempt income on bank owned life insurance policies

 ( 29

)

 ( 238

)

 ( 27

)

 Tax exempt interest, net

 ( 315

)

 ( 364

)

 ( 283

)

 Executive compensation limitation

 —

 —

 Other

 ( 55

)

 Provision for income taxes

 $

 2,168

 $

 1,705

 $

 2,763

 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred taxes at December 31, 2023, 2022 and 2021 are as follows:

 2023

 2022

 2021

 Deferred tax assets relating to:

 Net unrealized loss on securities available for sale

 $

 7,487

 $

 9,488

 $

 Allowance for loan losses

 1,333

 Deferred compensation

 1,043

 Lease liability

 Other

 Total deferred tax assets

 10,176

 11,483

 2,961

 Deferred tax liabilities relating to:

 Deferred loans fees and costs

 ( 529

)

 ( 481

)

 ( 417

)

 ROU asset

 ( 344

)

 ( 430

)

 ( 483

)

 Loan servicing

 ( 239

)

 ( 276

)

 ( 285

)

 Premises and equipment

 ( 147

)

 ( 174

)

 ( 172

)

 2016-01 unrealized gain

 ( 7

)

 ( 5

)

 ( 28

)

 Total deferred tax liabilities

 ( 1,266

)

 ( 1,366

)

 ( 1,385

)

 Net recorded deferred tax asset

 $

 8,910

 $

 10,117

 $

 1,576

 The net deferred tax asset is included in deferred income tax benefit on the accompanying consolidated balance sheets. The Company has no uncertain tax positions. The Company is subject to U.S. federal income tax as well as income tax of North Carolina and South Carolina. The Company is no longer subject to examination by federal and state taxing authorities for years before 2020.

 Note 12 - Commitments and Contingencies
 Financial Instruments with Off-Balance Sheet Risk
 The subsidiary bank is party to financial instruments with off-balance sheet risks 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, 2023 and 2022, outstanding financial instruments whose contract amounts represent credit risk were as follows:

 2023

 2022

 Commitments to extend credit

 $

 204,163

 $

 165,992

 Credit card commitments

 25,647

 20,376

 Standby letters of credit

 7,878

 8,135

 $

 237,688

 $

 194,503

 The allowance for credit losses for unfunded loan commitments of $ 184,000 and $ 141,000 at December 31, 2023 and December 31, 2022, respectively, is separately classified on the balance sheet within Other Liabilities.
 The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for year ended December 31, 2023.

 Total Allowance for
Credit Losses - Unfunded
Loan Commitments

 Balance, December 31, 2022

 $

 Cumulative effect of change in accounting principle

 Provision for credit losses

 Balance, December 31, 2023

 $

 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 consolidated financial statements.
 Financial Instruments with Concentration of Credit Risk
 The subsidiary bank makes commercial, agricultural, real estate mortgage, home equity and consumer loans primarily in Stanly, Anson, Cabarrus, Randolph and Mecklenburg counties in North Carolina. A substantial portion of the Company's customers' ability to honor their contracts is dependent on the economy in these counties.
 Although the Company's composition of loans is diversified, there is some concentration of mortgage real estate loans, primarily 1-to-4 family residential mortgage loans and commercial loans secured primarily by real estate, shopping center locations, commercial land development, commercial buildings and equipment in the total portfolio. The Bank's policy is to abide by real estate loan-to-value margin limits corresponding to guidelines issued by the federal supervisory agencies on March 19, 1993. The Bank's lending policy for all loans requires that they be supported by sufficient cash flows at the time of origination.

 Note 13 - Related Party Transactions
 The Company has granted loans to certain directors and executive officers and their related interests. Such loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other borrowers and, in management's opinion, do not involve more than the normal risk of collectability. All loans to directors and executive officers or their related interests are submitted to the Board of Directors for approval. A summary of loans to directors, executive officers and their related interests follows:

 2023

 2022

 Balance, at beginning of the year

 $

 4,984

 $

 13,773

 Beginning balance adjustment

 ( 40

)

 —

 Disbursements during the year

 10,238

 2,786

 Collections during the year

 ( 10,329

)

 ( 11,575

)

 Balance, at end of the year

 $

 4,853

 $

 4,984

 At December 31, 2023, the Company had approved, but unused lines of credit, totaling $ 6.1 million to executive officers and directors, and their related interests, compared to $ 6.7 million at December 31, 2022. In addition, at December 31, 2023, the Company had $ 34.8 million of deposits for executive officers and directors, and their related interests compared to $ 35.2 million at December 31, 2022. Preferred stock issued to directors, executive officers and their related interests was $ 1.3 million at December 31, 2023 compared to $ 1.4 million at December 31, 2022. Additionally, certain directors own subordinated debt issued by the Company. The amount of related interest ownership of the Company's subordinated debt in 2023 is $ 1.1 million compared to $ 1.6 million at December 31, 2022.

 Note 14 – Shareholders' Equity and Regulatory Matters
 The Company and its banking subsidiary 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 deposits with the Federal Reserve Bank. For the reserve maintenance period in effect at December 31, 2023, there was no requirement of the Bank to maintain reserve balances in cash or on deposit with the Federal Reserve Bank as reserves on deposit liabilities.
 The Company and its subsidiary bank are subject to federal regulatory risk-based capital guidelines for banks and bank holding companies. Each must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices which measure Total Capital, Tier 1 Capital and Common Equity Tier 1 Capital to risk-weighted assets and Tier 1 Capital to average assets. As of December 31, 2023, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under the capital adequacy rules.
 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.

 Minimum

 Minimum to Be Well

 For Capital

 Capitalized Under Prompt

 Actual

 Requirement

 Corrective Action Provisions

 Ratio

 Ratio

 Ratio

 Total Capital to Risk Weighted Assets:

 $

 109,207

 14.8

 %

 $

 58,872

 8.0

 %

 103,966

 14.1

 %

 58,780

 8.0

 %

 73,475

 10.0

 %

 Tier 1 Capital to Risk Weighted Assets:

 74,542

 10.1

 %

 44,154

 6.0

 %

 98,165

 13.4

 %

 44,085

 6.0

 %

 58,780

 8.0

 %

 Common Equity Tier 1 Capital to Risk Weighted Assets:

 63,887

 8.7

 %

 33,115

 4.5

 %

 87,510

 11.9

 %

 33,064

 4.5

 %

 47,759

 6.5

 %

 Tier 1 Capital to Average Assets:

 74,542

 6.9

 %

 43,002

 4.0

 %

 98,165

 9.1

 %

 42,925

 4.0

 %

 53,656

 5.0

 %

 Note 14 – Shareholders' Equity and Regulatory Matters (Continued)

 Minimum

 Minimum to Be Well

 For Capital

 Capitalized Under Prompt

 Actual

 Requirement

 Corrective Action Provisions

 Ratio

 Ratio

 Ratio

 Total Capital to Risk Weighted Assets:

 $

 101,059

 15.6

 %

 $

 51,673

 8.0

 %

 95,135

 14.8

 %

 51,569

 8.0

 %

 64,461

 10.0

 %

 Tier 1 Capital to Risk Weighted Assets:

 69,162

 10.7

 %

 38,754

 6.0

 %

 92,845

 14.4

 %

 38,677

 6.0

 %

 51,569

 8.0

 %

 Common Equity Tier 1 Capital to Risk Weighted Assets:

 58,507

 9.1

 %

 29,066

 4.5

 %

 82,190

 12.8

 %

 29,007

 4.5

 %

 41,900

 6.5

 %

 Tier 1 Capital to Average Assets:

 69,162

 6.7

 %

 41,569

 4.0

 %

 92,845

 9.0

 %

 41,481

 4.0

 %

 51,852

 5.0

 %

 As of December 31, 2023, the most recent notification from the Federal Deposit Insurance Corporation categorized the Company's subsidiary bank as being well capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events since such notification that management believes would have changed the categorization.
 In January 2013, the Company's subsidiary bank issued $ 7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualifies as Tier 1 capital at the subsidiary bank and pays dividends at a rate of 5.30 %. The preferred stock has no voting rights. The offering raised $ 7.9 million less issuance costs of $ 113,000. During 2013, the Company's subsidiary bank issued $ 2.8 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series C. The preferred stock qualifies as Tier 1 capital at the bank and pays dividends at an annual rate of 5.30 %. The preferred stock has no voting rights. The offering raised $ 2.8 million in new capital less total issuance costs of $ 23,000. The total net amount of capital raised from Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C issued at the subsidiary bank level is presented as noncontrolling interest in the consolidated balance sheets.
 During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $ 1,000 per security with a required minimum investment of $ 50,000. The offering raised $ 10.0 million, of which $ 9.7 million was outstanding at December 31, 2023. These securities have a final maturity date of September 30, 2029 and may be redeemed by the Company after September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25 %. All proceeds of this private placement qualify and are included in the calculation of Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 30, 2024.
 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. At December 31, 2023, $ 11.7 million and $ 8.0 million remained outstanding of the 10-year and 15-year subordinated notes, 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 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 per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. The Company will have a twenty percent reduction beginning at September 3, 2026 and September 3, 2031 for the 10-year and 15-year subordinated notes, respectively. Proceeds of the Company's aforementioned securities that have been invested in its subsidiary bank qualify for Tier 1 capital treatment for the Bank and are included as such in its year end capital ratios.

 Note 14 – Shareholders' Equity and Regulatory Matters (Continued)
 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 2023, the Company repurchased 90,017 shares of outstanding common stock and repurchased 55,982 and 298,700 shares of outstanding common stock during 2022 and 2021, respectively.

 Note 15 - Employee and Director Benefit Plans
 Employees' 401(k) Retirement Plan
 The Company has established an associate tax deferred savings plan under Section 401(k) of the Internal Revenue Code of 1986. All associates are eligible to make elective deferrals on the first day of the calendar month coincident or next following the date the associate attains the age of 18 and completes thirty days of eligible service. Employees are 100 % vested in the plan once they enroll.
 The Company's annual contribution to the plan was $ 665,462 in 2023, $ 655,958 in 2022 and $ 661,764 in 2021, determined as follows:
 • The Company will contribute a safe harbor matching contribution in an amount equal to 100 % of the matched employee contributions that are not in excess of 5 % of compensation.

 • 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.

 Supplemental Executive Retirement Plan
 The Company has implemented a non-qualifying deferred compensation plan for certain executive officers. Certain of the plan benefits will accrue and vest during the period of employment and will be paid in fixed monthly benefit payments for up to ten years upon separation from service. The plan also provides for payment of death benefits and for payment of disability benefits in the event the officer becomes permanently disabled prior to separation from service.
 Effective December 31, 2008, this plan was amended and restated to comply with Section 409A of the Internal Revenue Code. The participants' account liability balances as of December 31, 2008 could be transferred into a trust fund, where investments will be participant-directed.
 The plan is structured as a defined contribution plan and the Company's expected annual funding contribution for the participants has been calculated through the participant's expected retirement date. Under terms of the agreement, the Company has reserved the absolute right, at its sole discretion, to either fund or refrain from funding the plan. The plans assets are maintained in a rabbi trust and are recorded at fair value with the corresponding liability adjusted to the same fair value.
 During 2023, $ 223,300 was expensed for benefits provided under the plans. Benefits provided under the plans were $ 223,300 and $ 253,300 for 2022 and 2021, respectively. The liability accrued for deferred compensation under the plan amounted to $ 4.5 million and $ 4.4 million at December 31, 2023 and 2022, respectively.
 Split-Dollar Life Insurance
 The Company has entered into Life Insurance Endorsement Method Split-Dollar Agreements with certain officers. Under these agreements, upon death of the officer, the Company first recovers the cash surrender value of the contract and then shares the remaining death benefits from insurance contracts, which are written with different carriers, with the designated beneficiaries of the officers. The death benefit to the officers' beneficiaries is a multiple of base salary at the time of the agreements. The Company, as owner of the policies, retains an interest in the life insurance proceeds and a 100 % interest in the cash surrender value of the policies. During 2023, the income associated with these policies was $ 78,641. During 2022, the income associated with these policies was $ 37,069 compared to expense of $ 35,847 during 2021. The liability associated with the split-dollar life insurance policies is $ 732,000 and $ 811,000 at December 31, 2023 and 2022, respectively.

 Note 15 - Employee and Director Benefit Plans (Continued)
 Stock Grant Plan
 During 2015, the Company adopted the 2015 Stock Grant Plan ("SGP"), under which the Company, at its discretion, may choose to make grants or awards of Uwharrie Capital Corp common stock (the "Common Stock") to employees, directors or independent contractors of the Company or its subsidiaries as an alternate form of compensation or as a performance bonus. Shares of the Company's Common Stock to be used for Stock Grants under this Plan are outstanding shares purchased by a revocable trust formed by the Company (the "Trust"). Participants are 100 % vested in the shares purchased on their behalf as soon as the Trust's purchase is completed. The Company recognizes expense for the value of the shares at the time they are purchased by the Trust. During 2023, there were 23,576 shares granted at an expense of $ 183,000 compared to 19,078 shares granted at an expense of $ 163,000 in 2022 and 17,676 shares granted at an expense of $ 120,000 in 2021.

 Note 16 - Fair Values of Financial Instruments
 ASC 825, "Disclosures about Fair Value of Financial Instruments," requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or non-recurring basis.
 The fair value estimates presented at December 31, 2023 and December 31, 2022, are based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price at which a liability could be settled. However, given there is no active market or observable market transactions for many of the Company's financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following 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. The following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of December 31, 2023 and December 31, 2022:

 Carrying

 Estimated

 Value

 FINANCIAL ASSETS

 Cash and cash equivalents

 $

 $

 $

 $

 —

 $

 —

 285,209

 —

 28,544

 —

 15,422

 13,122

 —

 —

 Loans held for investment, net

 586,510

 544,985

 —

 —

 544,985

 Loans held for sale

 4,695

 4,695

 —

 4,695

 —

 Restricted stock

 1,672

 1,672

 1,672

 —

 —

 Loan servicing assets

 4,287

 7,030

 —

 7,030

 —

 —

 Accrued interest receivable

 4,393

 4,393

 —

 —

 4,393

 FINANCIAL LIABILITIES

 Deposits

 $

 981,713

 $

 980,534

 $

 —

 $

 980,534

 $

 —

 Short-term borrowings

 1,379

 1,379

 —

 1,379

 —

 29,104

 25,102

 —

 —

 25,102

 —

 —

 Accrued interest payable

 —

 —

 Note 16 - Fair Values of Financial Instruments (Continued)

 Carrying

 Estimated

 Value

 FINANCIAL ASSETS

 Cash and cash equivalents

 $

 $

 $

 $

 —

 $

 —

 324,683

 324,683

 270,054

 3,999

 30,306

 27,178

 —

 13,526

 13,652

 —

 —

 Loans held for investment, net

 495,599

 458,479

 —

 —

 458,479

 Loans held for sale

 2,774

 2,774

 —

 2,774

 —

 Restricted stock

 1,428

 1,428

 1,428

 —

 —

 Loan servicing assets

 4,931

 6,972

 —

 6,972

 —

 Accrued interest receivable

 3,633

 3,633

 —

 —

 3,633

 FINANCIAL LIABILITIES

 Deposits

 $

 939,856

 $

 938,114

 $

 —

 $

 938,114

 $

 —

 Short-term borrowings

 1,044

 1,044

 —

 1,044

 —

 29,607

 25,869

 —

 —

 25,869

 —

 Accrued interest payable

 —

 —

 At December 31, 2023, the subsidiary 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. The fair value is not material. See Note 12 (Commitments and Contingencies) to the Company's Notes to Consolidated Financial Statements for more information regarding commitments and contingent liabilities.
 The following table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022:

 Total

 Securities available for sale:

 $

 $

 $

 —

 $

 —

 43,018

 —

 43,018

 —

 123,787

 —

 123,787

 —

 31,513

 —

 31,513

 —

 81,400

 —

 81,400

 —

 5,491

 —

 5,491

 —

 —

 —

 —

 Total assets at fair value

 $

 337,868

 $

 51,807

 $

 285,255

 $

 $

 $

 —

 $

 $

 —

 Total liabilities at fair value

 $

 $

 —

 $

 $

 —

 Note 16 - Fair Values of Financial Instruments (Continued)

 Total

 Securities available for sale:

 $

 $

 $

 —

 $

 —

 33,762

 —

 33,762

 —

 115,995

 —

 111,996

 3,999

 36,686

 —

 36,686

 —

 82,266

 —

 82,266

 —

 5,344

 —

 5,344

 —

 —

 —

 —

 —

 —

 —

 Total assets at fair value

 $

 324,975

 $

 50,922

 $

 270,054

 $

 3,999

 $

 $

 —

 $

 $

 Total liabilities at fair value

 $

 $

 —

 $

 $

 The following table provides a reconciliation for recurring Level 3 fair value measurements:

 Mortgage banking derivatives: Interest rate lock commitments

 Securities available for sale: GSE mortgage-backed securities and CMOs

 Total

 Balance at December 31, 2021

 $

 1,016

 $

 —

 $

 1,016

 Change in fair value:

 Included in income from mortgage banking

 ( 1,111

)

 —

 ( 1,111

)

 Included in accumulated other comprehensive income (loss)

 —

 ( 3

)

 ( 3

)

 Change in observability of significant inputs:

 Included in accumulated other comprehensive income (loss)

 —

 4,002

 4,002

 Balance at December 31, 2022

 $

 ( 95

)

 $

 3,999

 $

 3,904

 Change in fair value:

 Included in income from mortgage banking

 —

 Included in accumulated other comprehensive income (loss)

 —

 Change in observability of significant inputs:

 Included in accumulated other comprehensive income (loss)

 —

 ( 4,003

)

 ( 4,003

)

 Balance at December 31, 2023

 $

 $

 —

 $

 During the fourth quarter of 2022, the Company had one mortgage-backed security that was transferred from Level 2 to Level 3 due to changes in the observability of significant inputs. During the fourth quarter of 2023, the Company was able to observe inputs sufficient to support a Level 2 designation. Accordingly, the fair value of the security was transferred from Level 3 to Level 2 at December 31, 2023.
 The fair value of mortgage interest rate lock commitments at December 31, 2023 was calculated based on a notional amount of $ 21.8 million. Significant unobservable inputs are used to determine the fair value of these derivatives. For the twelve months ended December 31, 2023, such inputs included anticipated margins to be earned based on market movement from the original lock date and an overall projected pull-through rate of 82.7 % determined by loan product, loan stage, and loan purpose. The fair value of mortgage interest rate lock commitments at December 31, 2022 was calculated based on a notional amount of $ 8.9 million. Significant unobservable anticipated margins to be earned based on market movement from the original lock date and an overall projected pull-through rate of 92.98 % at December 31, 2022. Changes in interest rates and other assumptions could significantly change these estimated values.

 Note 16 - Fair Values of Financial Instruments (Continued)
 The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value less cost to sell at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of December 31, 2023 and December 31, 2022:

 Total

 Individually evaluated loans

 $

 $

 —

 $

 —

 $

 Total assets at fair value on a nonrecurring basis

 $

 $

 —

 $

 —

 $

 Total liabilities at fair value on a nonrecurring basis

 $

 —

 $

 —

 $

 —

 $

 —

 Total

 Impaired loans

 $

 2,116

 $

 —

 $

 —

 $

 2,116

 Total assets at fair value on a nonrecurring basis

 $

 2,116

 $

 —

 $

 —

 $

 2,116

 Total liabilities at fair value on a nonrecurring basis

 $

 —

 $

 —

 $

 —

 $

 —

 Quantitative Information about Level 3 Fair Value Measurements:

 General

 Valuation Technique

 Unobservable Input

 Range

 Nonrecurring measurements:

 Individually evaluated loans

 Discounted appraisals

 Collateral discounts and estimated costs to sell

 0 - 25 %

 General

 Valuation Technique

 Unobservable Input

 Range

 Nonrecurring measurements:

 Impaired loans

 Discounted appraisals

 Collateral discounts and Estimated costs to sell

 0 – 25 %

 Discounted cash flows

 Discount rates

 4 %- 8.75 %

 At December 31, 2023, individually evaluated loans were being evaluated with discounted appraisals for individually assessed
 nonaccrual loans deemed collateral dependent. At December 31, 2022, impaired loans were being evaluated with discounted expected cash flows for performing TDRs and discounted appraisals were being used on collateral dependent loans.

 Note 17 - Parent Company Financial Data
 The following is a summary of the condensed financial statements of Uwharrie Capital Corp:
 Condensed Balance Sheets

 December 31,

 2023

 2022

 Assets

 Cash and demand deposits

 $

 $

 Interest-earning deposits

 5,221

 5,234

 Investments in:

 Bank subsidiaries

 62,409

 50,425

 Nonbank subsidiaries

 Other assets

 1,247

 Total assets

 $

 69,629

 $

 57,922

 Liabilities and shareholders' equity

 Master notes

 $

 1,379

 $

 1,044

 Long term debt

 29,104

 29,607

 Other liabilities

 Total liabilities

 30,843

 31,180

 Shareholders' equity

 38,786

 26,742

 Total liabilities and shareholders' equity

 $

 69,629

 $

 57,922

 Condensed Statements of Income

 2023

 2022

 2021

 Equity in undistributed earnings of subsidiaries

 $

 7,907

 $

 6,826

 $

 10,949

 Dividends received from subsidiaries

 2,000

 2,750

 —

 Interest income

 Other income

 Interest expense

 ( 1,377

)

 ( 1,359

)

 ( 802

)

 Other operating expense

 ( 537

)

 ( 440

)

 ( 532

)

 Income tax benefit

 Net income

 $

 8,596

 $

 8,249

 $

 Consolidated net income

 $

 8,596

 $

 8,249

 $

 Less: Net income attributable to noncontrolling interest

 ( 565

)

 ( 565

)

 ( 565

)

 Net income attributable to Uwharrie Capital Corp

 8,031

 7,684

 9,518

 Net income available to common shareholders

 $

 8,031

 $

 7,684

 $

 9,518

 Net income per common share

 Basic

 $

 1.12

 $

 1.06

 $

 1.27

 Diluted

 $

 1.12

 $

 1.06

 $

 1.27

 Weighted average shares outstanding

 Basic

 Diluted

 Note 17 - Parent Company Financial Data (Continued)

 Condensed Statements of Cash Flows

 2023

 2022

 2021

 Cash flows from operating activities

 Net income

 $

 8,596

 $

 8,249

 $

 $

 Adjustments to reconcile net income to net cash provided (used) by operating activities:

 Equity in undistributed earnings of subsidiaries

 ( 7,907

)

 ( 6,826

)

 ( 10,949

)

 Realized/unrealized (gain) loss on equity securities

 ( 10

)

 Amortization of debt issuance costs

 (Increase) decrease in other assets

 ( 307

)

 1,013

 Increase (decrease) in other liabilities

 ( 169

)

 ( 818

)

 Net cash provided (used) by operating activities

 1,304

 ( 621

)

 Cash flows from investing activities

 Proceeds from sale of equity securities

 —

 —

 Proceeds from sale of investments in other assets

 —

 —

 1,120

 Net cash provided by investing activities

 —

 —

 2,049

 Cash flows from financing activities

 Net increase (decrease) in master notes

 ( 37

)

 Net decrease in long-term debt

 ( 580

)

 —

 ( 1,000

)

 Proceeds from issuance of junior subordinated debentures

 —

 —

 20,000

 Debt issuance costs

 —

 —

 ( 481

)

 Net increase in investment in subsidiaries

 —

 —

 ( 15,000

)

 Repurchase of common stock, net

 ( 728

)

 ( 451

)

 ( 2,644

)

 Cash paid for fractional shares

 ( 9

)

 ( 9

)

 ( 13

)

 Other, net

 —

 —

 ( 1

)

 Net cash provided (used) by financing activities

 ( 982

)

 ( 497

)

 1,232

 Net increase in cash and cash equivalents

 2,660

 Cash and cash equivalents at beginning of year

 5,360

 4,553

 1,893

 Cash and cash equivalents at end of year

 $

 5,362

 $

 5,360

 $

 4,553

 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 None.

 Item 9A. Controls and Procedures.

 Evaluation of Disclosure Controls and Procedures

 At the end of the period covered by this Report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15.

 Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective (1) to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including its Chief Executive Officer and Principal Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

 Management's Annual Report on Internal Control over Financial Reporting

 Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company's internal control over financial reporting is a process designed under the supervision of the Company's Chief Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Management has made a comprehensive review, evaluation and assessment of the Company's internal control over financial reporting as of December 31, 2023. In making its assessment of internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission's ("COSO") Internal Control Integrated Framework 2013. In accordance with Section 404 of the Sarbanes-Oxley Act of 2002, management makes the following assertions:

 Management has implemented a process to monitor and assess both the design and operating effectiveness of internal control over financial reporting.

 All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 Based on management's assessment pursuant to the COSO Internal Control Integrated Framework 2013, the Company believes that, as of December 31, 2023, the Company's internal control over financial reporting is effective.

 This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to applicable Securities and Exchange Commission rules.

 Changes in Internal Control over Financial Reporting

 Management of the Company has evaluated, with the participation of the Company's Chief Executive Officer and Principal Financial Officer, changes in the Company's internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter of 2023. In connection with such evaluation, the Company has determined that there have been no changes in internal control over financial reporting during the fourth quarter of 2023 that have materially affected or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 Item 9B. Other Information.

 None.

 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

 Not applicable.

 Item 10. Directors, Executive Officers and Corporate Governance.

 Incorporated by reference to the Company's definitive proxy statement for the 2024 Annual Meeting of Shareholders.

 The Company has adopted a Code of Business Conduct and Ethics that applies to, among others, its Principal Executive Officer and Principal Financial Officer. The Company's Code of Business Conduct Ethics is available on the Company's website at

 Item 11. Executive Compensation.

 Incorporated by reference to the Company's definitive proxy statement for the 2024 Annual Meeting of Shareholders.

 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 Incorporated by reference to the Company's definitive proxy statement for the 2024 Annual Meeting of Shareholders.

 The following table sets forth information with respect to certain equity compensation plans at December 31, 2023.

 Equity Compensation Plan Information

 Plan Category

 Number of securities
to be issued upon
exercise of outstanding
options, warrants and rights

 Weighted-average
exercise price of
outstanding options,
warrants and rights

 Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column(a))

 (a)

 (b)

 (c)

 Equity compensation plans approved by
security holders

 —

 $

 —

 —

 Equity compensation plans not approved by
security holders

 N/A

 N/A

 N/A

 Total

 —

 $

 —

 —

 Item 13. Certain Relationships and Related Transactions, and Director Independence.

 Incorporated by reference to the Company's definitive proxy statement for the 2024 Annual Meeting of Shareholders.

 Item 14. Principal Accountant Fees and Services.

 Incorporated by reference to the Company's definitive proxy statement for the 2024 Annual Meeting of Shareholders.

 The Independent Registered Public Accounting Firm is FORVIS, LLP (PCAOB Firm ID No. 686) located in Asheville, North Carolina.

 Item 15. Exhibit and Financial Statement Schedules.

 The following documents are filed as part of this report:

 1. Financial statements from the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2023, which are incorporated herein by reference:

 Report of Independent Registered Public Accounting Firm.

 Consolidated Balance Sheets as of December 31, 2023 and 2022.

 Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021.

 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021.

 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2023, 2022 and 2021.

 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021.

 Notes to Consolidated Financial Statements.

 2. Financial statement schedules required to be filed by Item 8 of this Form:

 None

 3. Exhibits

 UWHARRIE CAPITAL CORP

 Exhibit Index

 Exhibit Number

 Description of Exhibit

 3.1

 Registrant's Articles of Incorporation (Incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K filed with SEC on March 1, 2017)

 3.2

 Registrant's By-laws (Incorporated by reference to Exhibit 3(b) of Registrant's Annual Report on Form 10-K filed with SEC on March 1, 2017)

 3.3

 Articles of Amendment effective April 24, 1997 (Incorporated by reference to Exhibit 3.3 of Registrant's Annual Report on Form 10-K filed with SEC on March 4, 2020)

 3.4

 Articles of Amendment effective November 1, 1999 (Incorporated by reference to Exhibit 3(c) of Registrant's Annual Report on Form 10-K filed with SEC on March 1, 2017)

 3.5

 Articles of Amendment effective May 31, 2000 (Incorporated by reference to Exhibit 3(d) of Registrant's Annual Report on Form 10-K filed with SEC on March 1, 2017)

 3.6

 Articles of Amendment effective December 19, 2008 (Incorporated by reference to Exhibit 3.1 of Registrant's Current Report on Form 8-K filed with SEC on December 29, 2008)

 4.1

 Form of common stock certificate (Incorporated by reference to Exhibit 4(a) of Registrant's Annual Report on Form 10-K filed with SEC on March 1, 2017)

 4.2

 Description of Registrant's Securities Registered under Section 12 of the Exchange Act (Incorporated by reference to Exhibit 4.2 of Registrant's Annual Report on Form 10-K filed with SEC on March 4, 2020)

 4.3

 Form of 10-Year Subordinated Note (Incorporated by reference to Exhibit 4.1 of Registrant's Current Report on Form 8-K filed with SEC on September 8, 2021)

 4.4

 Form of 15-Year Subordinated Note (Incorporated by reference to Exhibit 4.2 of Registrant's Current Report on Form 8-K filed with SEC on September 8, 2021)

 10.1

 Nonqualified Deferred Compensation Plan and Executive Supplemental Retirement Plan Agreement between Uwharrie Capital Corp and Roger L. Dick, a compensatory plan (Incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed with SEC on December 31, 2008)

 10.2

 Nonqualified Deferred Compensation Plan and Executive Supplemental Retirement Plan Agreement between Uwharrie Capital Corp and R. David Beaver, III, a compensatory plan (Incorporated by reference to Exhibit 10(e) of Registrant's Annual Report on Form 10-K filed with SEC on March 1, 2017)

 10.3

 2015 Stock Grant Plan (Incorporated by reference to Exhibit 4.1 of Registrant's Form S-8 filed with SEC on October 27, 2015)

 10.4

 Form of 10-Year Subordinated Note Purchase Agreement (Incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed with SEC on September 8, 2021)

 10.5

 Form of 15-Year Subordinated Note Purchase Agreement (Incorporated by reference to Exhibit 10.2 of Registrant's Current Report on Form 8-K filed with SEC on September 8. 2021)

 10.6

 Uwharrie Capital Corp Employees 401(k) Retirement Plan – Adoption Agreement (Incorporated by reference to Exhibit 99.1 of Registrant's Form S-8 filed with SEC on December 23, 2021)

 10.7

 Uwharrie Capital Corp Employees 401(k) Retirement Plan – Plan Document (Incorporated by reference to Exhibit 99.2 of Registrant's Form S-8 filed with SEC on December 23, 2021)

 10.8

 Uwharrie Capital Corp Employees 401(k) Retirement Plan – Amendment for SECURE Act (Incorporated by reference to Exhibit 99.3 of Registrant's Form S-8 filed with SEC on December 23, 2021)

 10.9

 Uwharrie Capital Corp Employees 401(k) Retirement Plan – Amendment for CARES Act (Incorporated by reference to Exhibit 99.4 of Registrant's Form S-8 filed with SEC on December 23, 2021)

 10.10

 Uwharrie Capital Corp Employees 401(k) Retirement Plan – Amendment Number Three (Incorporated by reference to Exhibit 99.5 of Registrant's Form S-8 filed with SEC on December 23, 2021)

 Subsidiaries of the Registrant (filed herewith)

 Consent of FORVIS, LLP (filed herewith)

 31.1

 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 31.2

 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

 Item 16. Form 10-K Summary.

 Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information.

 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

 By:

 /s/ Roger L. Dick

 Roger L. Dick, 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/ Roger L. Dick

 Roger L. Dick, Chief Executive Officer

 /s/ Heather H. Almond

 Heather H. Almond, Principal Financial Officer and Principal Accounting Officer

 /s/ Merlin Amirtharaj

 Merlin Amirtharaj, Director

 /s/ Aaron D. Bates

 Aaron D. Bates, Director

 /s/ Dean M. Bowers

 Dean M. Bowers, Director

 /s/ James O. Campbell

 James O. Campbell, Director

 /s/ Vanessa O. Chambers

 Vanessa O. Chambers, Director

 /s/ Tara G. Eudy

 Tara G. Eudy, Director

 /s/ Deidre B. Foster

 Deidre B. Foster, Director

 /s/ Allen K. Furr

 Allen K. Furr, Director

 /s/ Cynthia B. Hanson

 Cynthia B. Hanson, Director

 /s/ Matthew R. Hudson

 Matthew R. Hudson, Director

 /s/ Mary N. Klauder

 Mary N. Klauder, Director

 /s/ Matthew D. McAulay

 Matthew D. McAulay, Director

 /s/ Wesley A. Morgan

 Wesley A. Morgan, Director

 /s/ Chris M. Poplin

 Chris M. Poplin, Director

 /s/ Frank A. Rankin, III

 Frank A. Rankin, III, Director

 /s/ Vernon A. Russell

 Vernon A. Russell, Director

 /s/ S. Todd Swaringen

 S. Todd Swaringen, Director