Registrant’s ~~Telephone~~telephone number, including area code: (704) 983-6181

(Former name, former address and former fiscal year, if changed since last report)

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T ~~(Section 232.405 of this chapter)~~ during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ 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.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: ~~6,979,244~~6,930,717 shares of common stock outstanding as of ~~November 6, 2017.~~May 2, 2022.

	September 30, 2017 (Unaudited)			December 31, 2016*			March 31, 2022 (Unaudited)			December 31, 2021*
	(dollars in thousands)						(dollars in thousands)
ASSETS
Cash and due from banks	$	6,826		$	9,422		$	6,705		$	5,298
Interest-earning deposits with banks		85,757			36,546			109,005			89,112
Cash and cash equivalents								115,710			94,410
Securities available for sale, at fair value		97,717			105,899			322,268			330,337
Securities held to maturity, at amortized cost (fair value $11,575 and $11,934, respectively)		11,493			11,990
Securities held to maturity, at amortized cost (fair value $29,909 and $32,045 respectively)								30,722			30,801
Equity security, at fair value								383			392
Loans held for sale		2,725			5,823			11,910			21,684
Loans:
Loans held for investment		349,919			341,829			445,924			420,779
Less allowance for loan losses		(2,448	)		(2,707	)		(4,156	)		(4,026	)
Net loans held for investment		347,471			339,122			441,768			416,753
Premises and equipment, net		14,302			14,173			15,716			15,987
Interest receivable		1,516			1,629			2,731			2,554
Restricted stock		1,068			1,052			1,428			921
Bank owned life insurance		8,514			6,897
Other real estate owned		2,681			4,176
Bank-owned life insurance								9,095			9,066
Prepaid assets		1,000			826			1,179			968
Loan servicing assets								5,240			5,078
Mortgage banking derivatives								1,485			1,269
Other assets		10,882			10,675			14,105			9,460
Total assets	$	591,952		$	548,230		$	973,740		$	939,680

LIABILITIES
Deposits:
Demand noninterest-bearing	$	118,459		$	103,138		$	268,574		$	239,422
Interest checking and money market accounts		295,330			272,968			436,397			422,942
Savings deposits		45,075			42,452			109,535			103,341
Time deposits, $250,000 and over		10,408			7,472			21,809			23,720
Other time deposits		57,981			59,689			47,183			47,327
Total deposits		527,253			485,719			883,498			836,752
Short-term borrowed funds		1,788			2,674			1,344			1,081
Junior subordinated debt		9,534			9,534
Interest payable		151			151
Long-term debt								29,549			29,530
Mortgage banking derivatives								—			50
Other liabilities		8,066			6,627			12,191			11,480
Total liabilities		546,792			504,705			926,582			878,893

Off balance sheet items, commitments and contingencies (Note 9)
Off balance sheet items, commitments and contingencies (Note 10)

SHAREHOLDERS’ EQUITY
Common stock, $1.25 par value: 20,000,000 shares authorized; shares issued and outstanding 6,978,263 and 7,050,315		8,723			8,813
Common stock, $1.25 par value: 20,000,000 shares authorized; shares issued and outstanding 6,930,717 and 6,959,556, at March 31, 2022 and December 31, 2021, respectively								8,664			8,700
Additional paid-in capital		12,258			12,540			11,814			12,032
Undivided profits		14,262			12,867			31,213			30,551
Accumulated other comprehensive loss		(726	)		(1,318	)		(15,188	)		(1,151	)
Total Uwharrie Capital Corp shareholders’ equity		34,517			32,902			36,503			50,132
Noncontrolling interest		10,643			10,623			10,655			10,655
Total shareholders’ equity		45,160			43,525			47,158			60,787
Total liabilities and shareholders’ equity	$	591,952		$	548,230		$	973,740		$	939,680

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2022			2021
	(in thousands, except share and per share data)												(in thousands, except share and per share data)
Interest Income
Loans, including fees	$	4,214		$	4,025		$	12,336		$	11,820		$	5,107		$	6,062
Investment securities
US Treasury		5			11			28			34
US Government agencies and corporations		369			313			1,122			939
State and political subdivisions		121			125			361			375
Investment securities, taxable														1,015			826
Investment securities, non-taxable														358			253
Equity Securities														5			—
Interest-earning deposits with banks and federal funds sold	��	258			78			520			236			40			16
Total interest income		4,967			4,552			14,367			13,404			6,525			7,157

Interest Expense
Interest checking and money market accounts		113			82			295			229			113			91
Savings deposits		12			12			37			35			18			15
Time deposits, $250,000 and over		16			14			46			44			14			29
Other time deposits		51			59			143			255			32			76
Short-term borrowed funds		1			3			14			32			1			1
Long-term debt		138			139			410			412			315			136
Total interest expense		331			309			945			1,007			493			348
Net interest income		4,636			4,243			13,422			12,397			6,032			6,809
Provision for (recovery of) loan losses		(136	)		240			(309	)		70			118			(34	)
Net interest income after provision for (recovery of) loan losses		4,772			4,003			13,731			12,327			5,914			6,843

Noninterest Income
Service charges on deposit accounts		299			309			874			904			243			242
Interchange and card transaction fees, net														238			219
Other service fees and commissions		1,003			1,055			3,206			3,330			901			630
Gain (loss) on sale of securities (includes reclassification of ($14,000), $2,000, ($14,000) and $544,000 from accumulated other comprehensive income)		(12	)		2			(12	)		544
Gain (loss) on fixed assets and other assets		3			(1	)		3			(3	)
Income from mortgage loan sales		790			1,111			2,539			2,769
Gain (loss) on sale of securities														(91	)		940
Realized/unrealized loss on equity securities														(9	)		(19	)
Income from mortgage banking														1,267			5,106
Supplemental executive retirement plan loss														(48	)		(187	)
Other income		215			117			567			389			128			176
Total noninterest income		2,298			2,593			7,177			7,933			2,629			7,107

Noninterest Expense
Salaries and employee benefits		3,647			3,626			10,987			10,792			5,016			5,389
Net occupancy expense		327			327			938			850			425			426
Equipment expense		151			159			451			488			188			172
Data processing costs		429			161			789			529			212			165
Office supplies and printing		27			34			89			117
Foreclosed real estate expense		48			29			312			204
Loan costs														169			306
Professional fees and services		223			171			570			541			212			236
Marketing and donations		251			224			737			651			334			621
Electronic banking expense		317			303			921			884			111			89
Software amortization and maintenance		198			174			569			508			311			390
FDIC insurance		76			86			167			257			62			71
Supplemental executive retirement plan loss														(48	)		(187	)
Other noninterest expense		529			534			1,712			1,934			582			467
Total noninterest expense		6,223			5,828			18,242			17,755			7,574			8,145
Income before income taxes		847			768			2,666			2,505			969			5,805
Income taxes (includes reclassification of ($5,000), $1,000, ($5,000) and $210,000 from accumulated other comprehensive income)		259			228			829			745
Income taxes														168			1,222
Net income	$	588		$	540		$	1,837		$	1,760		$	801		$	4,583

Consolidated net income													$	801		$	4,583
Less: net income attributable to noncontrolling interest		(148	)		(149	)		(442	)		(444	)		(139	)		(139	)
Net income attributable to Uwharrie Capital Corp		440			391			1,395			1,316
Dividends – preferred stock		—			—			—			—
Net income (loss) available to common shareholders	$	440		$	391		$	1,395		$	1,316
Net income (loss) per common share
Net income attributable to Uwharrie Capital Corp and common shareholders														662			4,444
Net income per common share
Basic	$	0.06		$	0.06		$	0.20		$	0.19		$	0.10		$	0.61
Diluted	$	0.06		$	0.06		$	0.20		$	0.19		$	0.10		$	0.61
Weighted average shares outstanding
Basic		6,979,137			7,095,112			7,008,240			7,111,733			6,951,961			7,262,313
Diluted		6,979,985			7,095,112			7,008,845			7,111,733			6,951,961			7,262,313

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

(in thousands)

Net Income

$
588

$
540

$
1,837

$
1,760

Unrealized gain on available for sale securities

40

(268
)

884

1,165

Related tax effect

(14
)

90

(301
)

(422
)
Reclassification of (gain) losses recognized in net income

14

(2
)

14

(544
)
Related tax effect

(5
)

1

(5
)

210

Total other comprehensive income

35

(179
)

592

409

Comprehensive income

623

361

2,429

2,169

Less: Comprehensive income attributable to noncontrolling
interest

(148
)

(149
)

(442
)

(444
)

Comprehensive income attributable to Uwharrie Capital Corp

$
475

$
212

$
1,987

$
1,725

	Three Months Ended March 31,
	2022			2021
	(in thousands)

Net income	$	801		$	4,583

Unrealized loss on available for sale securities		(18,322	)		(3,959	)
Related tax effect		4,213			937
Reclassification of (gain) loss recognized in net income		91			(940	)
Related tax effect		(19	)		190

Total other comprehensive loss		(14,037	)		(3,772	)

Comprehensive income (loss)		(13,236	)		811

Less: Comprehensive income attributable to noncontrolling interest		(139	)		(139	)

Comprehensive income (loss) attributable to Uwharrie Capital Corp	$	(13,375	)	$	672

Number of
Common
Shares
Issued

Common
Stock

Additional
Paid-in
Capital

Undivided
Profits

Accumulated
Other
Comprehensive
Income (Loss)

Non
Controlling
Interest

Total

(dollars in thousands, except share data)

Balance, December 31, 2016

7,050,315

$
8,813

$
12,540

$
12,867

$
(1,318
)

$
10,623

$
43,525

Net income

—

—

—

1,395

—

442

1,837

Repurchase of common stock

(72,052
)

(90
)

(282
)

—

—

—

(372
)
Other comprehensive income

—

—

—

—

592

—

592

Record preferred stock dividend Series B
(noncontrolling interest)

—

—

—

—

—

(311
)

(311
)
Record preferred stock dividend Series C
(noncontrolling interest)

—

—

—

—

—

(111
)

(111
)
Balance, September 30, 2017

6,978,263

$
8,723

$
12,258

$
14,262

$
(726
)

$
10,643

$
45,160

	Number of Common Shares Issued			Common Stock			Additional Paid-in Capital			Undivided Profits		Accumulated Other Comprehensive Income (Loss)			Non Controlling Interest			Total
	(dollars in thousands, except share data)
Balance, December 31, 2020		7,052,143		$	8,815		$	12,607		$	23,000	$	4,160		$	10,655		$	59,237
Net Income		—			—			—			4,444		—			139			4,583
Repurchase and retirement of common stock		(12,201	)		(15	)		(68	)		—		—			—			(83	)
Other comprehensive loss		—			—			—			—		(3,772	)		—			(3,772	)
Record preferred stock dividend Series B (noncontrolling interest)		—			—			—			—		—			(103	)		(103	)
Record preferred stock dividend Series C (noncontrolling interest)		—			—			—			—		—			(36	)		(36	)
Balance, March 31, 2021		7,039,942		$	8,800		$	12,539		$	27,444	$	388		$	10,655		$	59,826

Balance, December 31, 2021		6,959,556		$	8,700		$	12,032		$	30,551	$	(1,151	)	$	10,655		$	60,787
Net Income		—			—			—			662		—			139			801
Repurchase and retirement of common stock		(28,839	)		(36	)		(218	)		—		—			—			(254	)
Other comprehensive loss		—			—			—			—		(14,037	)		—			(14,037	)
Record preferred stock dividend Series B (noncontrolling interest)		—			—			—			—		—			(103	)		(103	)
Record preferred stock dividend Series C (noncontrolling interest)		—			—			—			—		—			(36	)		(36	)
Balance, March 31, 2022		6,930,717		$	8,664		$	11,814		$	31,213	$	(15,188	)	$	10,655		$	47,158

Nine Months Ended September 30,

2017

2016

(dollars in thousands)

Cash flows from operating activities

Net income

$
1,837

$
1,760

Adjustments to reconcile net income to net cash

Provided (used) by operating activities:

Depreciation and amortization

636

615

Provision/ (recovery) of loan losses

(309
)

70

(Gain) loss on sale of securities available for sale

12

(544
)
(Gain) loss on sale of OREO

31

(20
)
Net amortization of premium on investment securities AFS

665

745

Net amortization of premium on investment securities HTM

112

103

Net amortization of mortgage servicing rights

557

756

OREO write downs

92

15

Net change in:

Originations and purchases of mortgage loans for sale

(70,968
)

(82,825
)
Proceeds from sales of mortgage loans for sale

73,509

85,453

Accrued interest receivable

113

44

Prepaid assets

(174
)

(490
)
Cash surrender value of life insurance

(92
)

(98
)
Miscellaneous other assets

(493
)

(231
)
Accrued interest payable

—

(18
)
Miscellaneous other liabilities

1,439

1,202

Net cash provided by operating activities

6,967

6,537

Cash flows from investing activities

Proceeds from sales of investment securities available for sale

8,918

23,095

Proceeds from maturities, calls & paydowns of investment securities held to maturity

385

143

Proceeds from maturities, calls & paydowns of investment securities available for sale

5,823

5,668

Purchase of investment securities held to maturity

—

(1,027
)
Purchase of investment securities available for sale

(6,338
)

(39,597
)
Purchase of life insurance investment

(1,525
)

—

Net change in restricted stock

(16
)

(12
)
Net increase in loans

(8,401
)

(24,515
)
Proceeds from sales of premises, equipment, and other assets

—

150

Purchase of premises and equipment

(765
)

(324
)
Proceeds from sale of OREO

1,733

880

Net cash used by investing activities

(186
)

(35,539
)

Cash flows from financing activities

Net increase in deposit accounts

41,534

21,322

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

(380
)

(3,972
)
Repayment of other borrowings

(506
)

(10
)
Common stock repurchases

(372
)

(260
)
Dividends paid on preferred stock

(442
)

(424
)
Net cash provided by financing activities

39,834

16,656

Increase (decrease) in cash and cash equivalents

46,615

(12,346
)
Cash and cash equivalents, beginning of period

45,968

68,933

Cash and cash equivalents, end of period

$
92,583

$
56,587

Supplemental Disclosures of Cash Flow Information

Interest paid

$
946

$
1,025

Income taxes paid

660

252

Supplemental Schedule of Non-Cash Activities

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

$
592

$
410

Loans transferred to foreclosed real estate

361

315

Mortgage servicing rights capitalized

451

756

	Three Months Ended March 31,
	2022			2021
	(dollars in thousands)
Cash flows from operating activities
Net income	$	801		$	4,583
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization		287			271
Right of use asset amortization		85			85
Provision for (recovery of) loan losses		118			(34	)
(Gain) loss on sale of securities available for sale		91			(940	)
Gain on sale of mortgage loans		386			3,041
Realized/unrealized loss on equity securities		9			19
Net amortization of premium on investment securities available for sale		733			174
Net amortization of premium on investment securities held to maturity		37			39
Amortization of loan servicing rights		336			383
Originations and purchases of mortgage loans for sale		(41,909	)		(108,979	)
Proceeds from sales of mortgage loans for sale		51,297			98,313
Mortgage banking derivatives		(266	)		(1,046	)
Loan servicing assets		(493	)		(938	)
Accrued interest receivable		(177	)		179
Prepaid assets		(211	)		(72	)
Cash surrender value of life insurance		(29	)		(32	)
Miscellaneous other assets		(284	)		2,056
Accrued interest payable		61			(5	)
Miscellaneous other liabilities		650			2,412
Net cash provided (used) by operating activities		11,522			(491	)
Cash flows from investing activities
Proceeds from sales of investment securities available for sale		8,398			34,237
Proceeds from sale of equity securities		—			929
Proceeds from maturities, calls and paydowns of securities available for sale		9,007			4,505
Proceeds from maturities, calls and paydowns of securities held to maturity		42			366
Purchase of investment securities available for sale		(28,391	)		(41,445	)
Purchase of investments in other assets		(172	)		—
Proceeds from sales of investments in other assets		—			1,125
Net change in restricted stock		(507	)		245
Net (increase) decrease in loans		(25,133	)		7,184
Purchase of premises and equipment		(82	)		(72	)
Net cash provided (used) by investing activities		(36,838	)		7,074
Cash flows from financing activities
Net increase in deposit accounts		46,746			953
Net increase in federal funds purchased and other short-term borrowings		263			628
Proceeds from long-term borrowings		—			250
Repurchase of common stock, net		(254	)		(83	)
Dividends paid on preferred stock (noncontrolling interest)		(139	)		(139	)
Net cash provided by financing activities		46,616			1,609
Increase in cash and cash equivalents		21,300			8,192
Cash and cash equivalents, beginning of period		94,410			88,868
Cash and cash equivalents, end of period	$	115,710		$	97,060
Supplemental disclosures of cash flow information
Interest paid	$	432		$	328
Income taxes paid		—			—
Supplemental schedule of non-cash activities
Net change in fair value of securities available for sale, net of tax	$	(14,037	)	$	3,772

The financial statements and accompanying notes are presented on a consolidated basis including Uwharrie Capital Corp (the “Company”) and its subsidiaries, Uwharrie Bank (the “Bank”), Uwharrie Investment Advisors, Inc. (“UIA”), and Uwharrie Mortgage, Inc. The Bank consolidates its subsidiaries, the Strategic Alliance Corporation, BOS Agency, Inc. and Gateway Mortgage, Inc., each of which is wholly owned by the Bank.

The information contained in the consolidated financial statements is unaudited. In the opinion of management, the consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) and material adjustments necessary for a fair presentation of results of interim periods, all of which are of a normal recurring nature, have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for an entire year. Management continues to evaluate the impact of COVID-19, the disease caused by the novel Coronavirus, as well as its evolving variants, beyond the current impacts as of March 31, 2022, which are discussed throughout the accompanying notes of this report. Management is not aware of additional economic events, outside influences or changes in concentrations of business that would require additional clarification or disclosure in the consolidated financial statements.

The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to consolidated financial statements filed as part of the Company’s ~~2016~~2021 Annual Report on Form ~~10-K.~~10-K, which was filed with the Securities and Exchange Commission on March 9, 2022. This Quarterly Report should be read in conjunction with such Annual Report.

The preparation of financial statements, in conformity with 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 loan losses.

Certain amounts in the 2021 financial statements have been reclassified to conform to the 2022 presentation. These reclassifications did not have an impact on net income or shareholders’ equity.

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 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 (loss) for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 and ~~2016:~~2021:

Unrealized holding gains on available-for-sale securities (net)

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

2017

2016

(dollars in thousands)

Beginning Balance

$
(761
)

$
376

$
(1,318
)

$
(212
)

Other Comprehensive income (loss) before reclassifications,
   net of ($14,000), $90,000, ($301,000) and ($422,000) tax
   effect, respectively

26

(178
)

583

743

Amounts reclassified from accumulated other
   comprehensive income, net of ($5,000), $1,000, ($5,000)
   and $210,000 tax effect

9

(1
)

9

(334
)

Net current-period other comprehensive income (loss)

35

(179
)

592

409

Ending Balance

$
(726
)

$
197

$
(726
)

$
197

	For the three months ended March 31,
	2022			2021
	(dollars in thousands)

Beginning balance	$	(1,151	)	$	4,160

Other comprehensive income (loss) before reclassifications, net of $4,213 and $937 tax effect, respectively		(14,109	)		(3,022	)

Amounts reclassified from accumulated other comprehensive income, net of ($19) and $190 tax effect, respectively		72			(750	)

Net current-period other comprehensive income (loss)		(14,037	)		(3,772	)

Ending balance	$	(15,188	)	$	388

In ~~January~~ 2013, the Company’s subsidiary ~~banks~~bank issued a total of ~~$7.9~~$10.7 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series ~~B. The preferred stock qualified as Tier 1 capital at each bank~~B and pays dividends at an annual rate of 5.30%. The preferred stock has no voting rights. This capital is presented as a 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. Effective September 1, 2013, the Fixed Rate Noncumulative Perpetual Preferred Stock, Series B was rolled into one issue under Uwharrie Bank in connection with the consolidation and name change of the Company’s subsidiary banks.

~~During 2013, the Company’s subsidiary bank, Uwharrie Bank, raised $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.

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.

Basic and diluted net income per common share is computed based on the weighted average number of shares outstanding during each period after retroactively adjusting for stock dividends. Diluted net income per common share 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 net income of the Company. The Company had 0 stock options outstanding ~~covering 13,116 shares of common stock~~ at ~~both September 30, 2017 and~~March 31, 2022 or December 31, ~~2016. All of these options were dilutive because the strike price was lower than the market price.~~2021.

Basic and diluted net income per common share have been computed based upon net income available to common shareholders as presented in the accompanying consolidated statements of income divided by the weighted average number of common shares outstanding or assumed to be outstanding.

The ~~computation~~weighted average number of ~~basic and diluted earnings per share is summarized below:~~

common shares outstanding was 6,951,961 for the three-month period ended March 31, 2022 compared to 7,262,313 for the three-month period ended March 31, 2021.

Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:

September 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2022									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)								(dollars in thousands)
Securities available for sale
U.S. Treasury	$	—	$	—	$	—	$	—	$	31,410	$	—	$	2,021	$	29,389
U.S. Government agencies		57,007		24		619		56,412		42,290		70		685		41,675
GSE - Mortgage-backed securities and CMO’s		22,352		36		271		22,117
GSE - Mortgage-backed securities and CMOs										124,749		5		7,678		117,076
Asset-backed securities										42,161		318		218		42,261
State and political subdivisions		14,413		47		348		14,112		93,383		51		9,360		84,074
Corporate bonds		5,045		34		3		5,076		8,000		2		209		7,793
Total securities available for sale	$	98,817	$	141	$	1,241	$	97,717	$	341,993	$	446	$	20,171	$	322,268

September 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2021									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)								(dollars in thousands)
Securities held to maturity
Securities available for sale
U.S. Treasury									$	26,675	$	16	$	310	$	26,381
U.S. Government agencies	$	1,351	$	9	$	—	$	1,360		40,066		172		426		39,812
GSE - Mortgage-backed securities and CMOs										121,994		190		1,736		120,448
Asset-backed securities										43,383		875		60		44,198
State and political subdivisions		6,938		63		28		6,973		89,786		892		1,201		89,477
Corporate bonds		3,204		38		—		3,242		9,928		148		55		10,021
Total securities held to maturity	$	11,493	$	110	$	28	$	11,575
Total securities available for sale									$	331,832	$	2,293	$	3,788	$	330,337

December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2021									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)								(dollars in thousands)
Securities held to maturity
U.S. Government agencies	$	1,754	$	—	$	17	$	1,737	$	175	$	1	$	—	$	176
State and political subdivisions		6,974		7		60		6,921		15,626		1,096		—		16,722
Corporate bonds		3,262		14		—		3,276		15,000		196		49		15,147
Total securities held to maturity	$	11,990	$	21	$	77	$	11,934	$	30,801	$	1,293	$	49	$	32,045

~~At September 30, 2017 and December 31, 2016, the~~The Company owned Federal Reserve Bank (FRB) stock reported at cost of $959,000 and $509,000 at March 31, 2022 and ~~$507,000, and~~December 31, 2021, respectively. The Company owned Federal Home Loan Bank (FHLB) stock reported at cost of ~~$559,000~~$469,000 and ~~$545,000,~~$411,000 at March 31, 2022 and December 31, 2021, respectively. The investments in FRB stock and FHLB stock are required investments related to the Company’s membership in, and borrowings with, these banks and is 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 that the fair value approximated cost and that these investments were not impaired at ~~September 30, 2017.~~March 31, 2022.

Results from sales of securities available for sale for the ~~three and nine-month~~three-month periods ended ~~September 30, 2017~~March 31, 2022 and ~~September 30, 2016~~March 31, 2021 are as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2017			2016		2017			2016		2022			2021
	(dollars in thousands)										(dollars in thousands)
Gross proceeds from sales	$	8,918		$	—	$	8,918		$	20,225	$	8,398		$	34,237

Realized gains from sales	$	—		$	2	$	—		$	544	$	52		$	1,454
Realized losses from sales		12			—		12			—		143			514
Net realized gains	$	(12	)	$	2	$	(12	)	$	544
Net realized gains (losses)											$	(91	)	$	940

At ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, securities available for sale with a carrying amount of ~~$80.7~~$104.3 million and ~~$74.8~~$104.9 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016. These~~2021. We believe these unrealized losses on investment securities are a result of ~~temporary~~a volatile market and fluctuations in market prices due to a rise in interest rates, which will adjust if rates ~~decline, and in a volatile market and are in no way a reflection of the credit quality of the investments.~~

decline. Management does not believe these fluctuations are a reflection of the credit quality of the investments. At ~~September 30, 2017,~~March 31, 2022, the unrealized losses on available for sale securities less than twelve months related to~~eight~~ 6 U.S. Treasury bonds, 10 government agency bonds, ~~four government sponsored~~NaN government-sponsored enterprise (GSE) ~~mortgage backed~~mortgage-backed securities, ~~and one~~11 asset-backed securities, NaN state and political ~~bond.~~ ~~The Company had twelve government agency~~subdivision bonds ~~nine GSE mortgage backed securities,~~ and ~~one~~3 corporate ~~bond that had been in a loss position for more than twelve months. At September 30, 2017, the unrealized~~bonds. Unrealized losses on held to maturity securities related to ~~two~~1 government agency bond, 13 corporate bonds and 5 state and political ~~bonds.~~subdivision bonds that had been in a loss position less than twelve months at March 31, 2022. At December 31, ~~2016,~~2021, the unrealized losses on available for sale securities less than twelve months related to ~~one~~3 U.S. Treasury ~~seventeen~~bonds, 14 government agency bonds, ~~ten~~30 GSE ~~mortgage backed~~mortgage-backed securities, ~~one corporate bond~~5 asset-backed securities and ~~seven~~NaN state and political subdivision bonds and 3 corporate bonds. There were 8 corporate held to maturity bonds that had been in a loss position less than twelve months at December 31, 2021. At

March 31, 2022, the Company had 10 government agency bonds, 3 GSE mortgage-backed securities and 12 state and political subdivision bonds that had been in a loss position for twelve months or more.The Company had ~~six~~2 government agency bonds, ~~four~~1 GSE ~~mortgage backed securities~~mortgage-backed security and ~~one corporate bond~~9 state and political subdivision bonds that had been in a loss position for more than twelve ~~months.~~Atmonths at December 31, ~~2016, the unrealized losses on held to maturity securities related to one government agency securityand eight state and political subdivision bonds.~~2021.

Less than 12 Months

12 Months or More

Total

September 30, 2017

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

(dollars in thousands)

Securities available for sale temporary impairment

U.S. Gov’t agencies

29,110

235

21,377

384

50,487

619

GSE-Mortgage-backed securities and CMO’s

6,148

40

11,456

231

17,604

271

State and political

1,162

25

10,224

323

11,386

348

Corporate bonds

—

—

806

3

806

3

Total securities available for sale

$
36,420

$
300

$
43,863

$
941

$
80,283

$
1,241

	Less than 12 Months				12 Months or More				Total
March 31, 2022	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)
Securities available for sale temporary impairment
U.S. Treasury	$	31,410	$	2,021	$	—	$	—	$	31,410	$	2,021
U.S. Government agencies		14,335		383		10,944		302		25,279		685
GSE-Mortgage-backed securities and CMOs		105,231		7,084		12,421		594		117,652		7,678
Asset-backed securities		19,525		218		—		—		19,525		218
State and political subdivisions		72,790		7,371		13,566		1,989		86,356		9,360
Corporate bonds		6,000		209		—		—		6,000		209
Total securities available for sale	$	249,291	$	17,286	$	36,931	$	2,885	$	286,222	$	20,171

	Less than 12 Months				12 Months or More				Total				Less than 12 Months				12 Months or More				Total
December 31, 2016	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2021													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)												(dollars in thousands)
Securities available for sale temporary impairment
U.S. Treasury	$	4,014	$	3	$	—	$	—	$	4,014	$	3	$	16,306	$	310	$	—	$	—	$	16,306	$	310
U.S. Gov’t agencies		48,192		807		4,164		56		52,356		863
GSE-Mortgage-backed securities and CMO’s		16,250		395		5,251		191		21,501		586
State and political		9,994		658		—		—		9,994		658
U.S. Government agencies														19,702		396		2,313		30		22,015		426
GSE-Mortgage-backed securities and CMOs														93,928		1,607		4,210		129		98,138		1,736
Asset-backed securities														8,531		60		—		—		8,531		60
State and political subdivisions														52,959		892		9,272		309		62,231		1,201
Corporate bonds		1,999		27		800		11		2,799		38		5,945		55		—		—		5,945		55
Total securities available for sale	$	80,449	$	1,890	$	10,215	$	258	$	90,664	$	2,148	$	197,371	$	3,320	$	15,795	$	468	$	213,166	$	3,788

Less than 12 Months

12 Months or More

Total

December 31, 2016

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

(dollars in thousands)

Held to maturity temporary impairment

U.S. Gov’t agencies

$
1,895

$
17

$
—

$
—

$
1,895

$
17

State and political

6,056

60

—

—

6,056

60

Total securities held to maturity

$
7,951

$
77

$
—

$
—

$
7,951

$
77

	Less than 12 Months				12 Months or More				Total
December 31, 2021	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)
Securities held to maturity temporary impairment
U.S. Government agencies	$	—	$	—	$	—	$	—	$	—	$	—
State and political subdivisions		—		—		—		—		—		—
Corporate bonds		5,201		49		—		—		5,201		49
Total securities held to maturity	$	5,201	$	49	$	—	$	—	$	5,201	$	49

Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for other-than-temporary impairment, 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 and the intent and the 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, but that the losses are temporary in nature. At

~~September 30, 2017,~~ March 31, 2022, the Company does not intend to sell and is not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.

The ~~aggregate amortized cost and fair value~~following tables show contractual maturities of the ~~available~~investment portfolio as of March 31, 2022:

	March 31, 2022
	Amortized Cost		Estimated Fair Value		Book Yield
	(dollars in thousands)
Securities available for sale

U.S. Treasury
Due after one but within five years		4,791		4,686		1.77	%
Due after five but within ten years		26,619		24,703		1.24	%
		31,410		29,389		1.32	%
U.S. Government agencies
Due within twelve months		4,001		4,019		1.80	%
Due after one but within five years		2,143		2,050		1.91	%
Due after five but within ten years		17,419		16,980		0.80	%
Due after ten years		18,727		18,626		1.09	%
		42,290		41,675		1.08	%
Mortgage-backed securities
Due after one but within five years		5,441		5,391		3.46	%
Due after five but within ten years		42,723		39,741		1.18	%
Due after ten years		76,585		71,944		1.35	%
		124,749		117,076		1.38	%
Asset-backed securities
Due after ten years		42,161		42,261		1.32	%
		42,161		42,261		1.32	%
State and political subdivisions
Due within twelve months		105		105		4.50	%
Due after one but within five years		1,542		1,528		2.50	%
Due after five but within ten years		6,291		5,903		1.96	%
Due after ten years		85,445		76,538		1.86	%
		93,383		84,074		1.88	%
Corporate bonds
Due within twelve months		2,000		2,002		2.98	%
Due after one but within five years		4,000		3,808		0.83	%
Due after five but within ten years		2,000		1,983		2.00	%
		8,000		7,793		1.66	%
Total securities available for sale
Due within twelve months		6,106		6,126		2.23	%
Due after one but within five years		17,917		17,463		2.15	%
Due after five but within ten years		95,052		89,310		1.19	%
Due after ten years		222,918		209,369		1.52	%
	$	341,993	$	322,268		1.47	%

The portion of unrealized gains and losses for ~~sale~~the three months ended March 31, 2022 and 2021 related to equity securities ~~portfolio~~still held at ~~September 30, 2017 by remaining contractual maturity are~~the reporting date is calculated as follows:

September 30, 2017

Amortized
Cost

Estimated
Fair Value

Book
Yield

(dollars in thousands)

Securities available for sale

U.S. Government agencies

Due after one but within five years

36,569

36,238

1.40
%
Due after five but within ten years

15,022

14,799

1.90
%
Due after ten years

5,416

5,375

1.77
%

57,007

56,412

1.57
%
Mortgage-backed securities

Due after one but within five years

2,662

2,645

2.02
%
Due after five but within ten years

5,875

5,866

2.15
%
Due after ten years

13,815

13,606

1.93
%

22,352

22,117

2.00
%
State and political subdivisions

Due after one but within five years

1,955

2,000

4.90
%
Due after five but within ten years

2,703

2,657

3.12
%
Due after ten years

9,755

9,455

2.45
%

14,413

14,112

2.91
%
Corporate Bonds

Due after one but within five years

2,829

2,826

2.15
%
Due after five but within ten years

2,216

2,250

1.50
%

5,045

5,076

1.86
%
Total Securities available for sale

Due after one but within five years

44,015

43,709

1.64
%
Due after five but within ten years

25,816

25,572

2.05
%
Due after ten years

28,986

28,436

2.07
%

$
98,817

$
97,717

1.88
%

September 30, 2017

Amortized
Cost

Estimated
Fair Value

Book
Yield

(dollars in thousands)

Held to maturity

U. S. Government agencies

Due after five but within ten years

$
1,351

$
1,360

2.49
%

1,351

1,360

2.49
%
State and political subdivisions

Due after one but within five years

3,700

3,710

2.28
%
Due after five but within ten years

3,238

3,263

3.03
%

6,938

6,973

2.63
%
Corporate Bonds

Due after one but within five years

3,204

3,242

2.76
%

3,204

3,242

2.76
%
Total Securities held for maturity

Due after one but within five years

6,904

6,952

2.51
%
Due after five but within ten years

4,589

4,623

2.87
%

$
11,493

$
11,575

2.65
%

	Three Months Ended March 31,
	2022			2021
	(dollars in thousands)
Gross proceeds from sales	$	—		$	929

Net losses recognized during the period on equity securities	$	(9	)	$	(19	)
Less: Net losses recognized from equity securities sold during the period		—			(18	)
Unrealized losses recognized during the period on equity securities still held at the reporting date	$	(9	)	$	(1	)

The composition of net loans held for investment by class as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~2021 are as follows:

	September 30, 2017			December 31, 2016			March 31, 2022			December 31, 2021
	(dollars in thousands)						(dollars in thousands)
Commercial
Commercial	$	56,469		$	55,752		$	80,123		$	73,035
SBA Paycheck Protection Program (PPP)								7,946			15,840
Real estate - commercial		116,178			109,752			154,577			150,382
Other real estate construction loans		32,511			26,718			42,713			28,275
Other loans								5,393			5,496
Noncommercial
Real estate 1-4 family construction		4,360			5,625			8,927			8,424
Real estate - residential		77,447			81,700			84,156			78,824
Home equity		49,840			50,815			52,666			51,003
Consumer loans		10,431			9,711			9,040			9,579
Other loans		2,703			1,687
		349,939			341,760			445,541			420,858
Less:
Allowance for loan losses		(2,448	)		(2,707	)		(4,156	)		(4,026	)
Deferred loan (fees) costs, net		(20	)		69
Deferred loan costs (fees) net								383			(79	)

Loans held for investment, net	$	347,471		$	339,122		$	441,768		$	416,753

The Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”), was created as part of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The Company participated in assisting its customers with applications for funds through the program. PPP loans have a two-year term or, if approved after June 5, 2020, a five-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of March 31, 2022, the Company had funded 1,202 PPP loans representing $81.0 million. Of the loans funded, 1,187 loans totaling $80.7 million had been paid off or forgiven by the SBA as of March 31, 2022. The Consolidated Appropriations Act, 2021, or CAA, established another round of PPP loan funding for certain eligible borrowers, and the Company assisted these borrowers in obtaining a first or second draw loan. The Company had funded 879 second round PPP loans totaling $46.4 million as of March 31, 2022. Of the loans funded during the second round, 728 loans totaling $38.7 million had been paid off or forgiven by the SBA as of March 31, 2022. Remaining deferred loan fees of $393,000 and remaining deferred loan costs of $47,000 were attributable to the second round of PPP loans at March 31, 2022. It is the Company’s understanding that loans funded through the PPP are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish additional allowance for loan loss through additional provision expense charged to earnings.

The following ~~table shows~~tables show the change in the allowance for loan losses by loan segment for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively:

Non-Commercial	Three Months Ended September 30,						Nine Months Ended September 30,
Commercial													Three Months Ended March 31,
	2017			2016			2017			2016			2022		2021
	(dollars in thousands)												(dollars in thousands)

Balance, beginning of period	$	1,228		$	1,360		$	1,303		$	1,574		$	2,429	$	2,753
Provision (recovery) charged to operations		(102	)		(31	)		(140	)		(272	)
Provision for (recovery of) loan losses														190		(87	)
Charge-offs		(7	)		(118	)		(91	)		(198	)		—		(118	)
Recoveries		28			78			75			185			7		7
Net (charge-offs) / Recoveries		21			(40	)		(16	)		(13	)
Net (charge-offs) recoveries														7		(111	)
Balance at end of period	$	1,147		$	1,289		$	1,147		$	1,289		$	2,626	$	2,555

Total	Three Months Ended September 30,						Nine Months Ended September 30,
Non-Commercial													Three Months Ended March 31,
	2017			2016			2017			2016			2022			2021
	(dollars in thousands)												(dollars in thousands)

Balance, beginning of period	$	2,551		$	2,706		$	2,707		$	2,884		$	1,597		$	1,649
Provision (recovery) charged to operations		(136	)		240			(309	)		70
Provision for (recovery of) loan losses														(72	)		53
Charge-offs		(13	)		(187	)		(113	)		(329	)		(6	)		(20	)
Recoveries		46			90			163			224			11			15
Net (charge-offs) / Recoveries		33			(97	)		50			(105	)
Net (charge-offs) recoveries														5			(5	)
Balance at end of period	$	2,448		$	2,849		$	2,448		$	2,849		$	1,530		$	1,697

The following ~~table shows~~tables show period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

September 30, 2017
March 31, 2022
	Individually Evaluated				Collectively Evaluated				Total				Individually Evaluated				Collectively Evaluated				Total
	Reserve		Loans		Reserve		Loans		Reserve		Loans		Reserve		Loans		Reserve		Loans		Reserve		Loans
	(dollars in thousands)												(dollars in thousands)

Commercial	$	13	$	1,856	$	1,288	$	203,302	$	1,301	$	205,158	$	130	$	2,146	$	2,496	$	288,416	$	2,626	$	290,562
Non-Commercial		154		3,534		993		141,227		1,147		144,761		113		1,945		1,417		153,417		1,530		155,362

Total	$	167	$	5,390	$	2,281	$	344,529	$	2,448	$	349,919	$	243	$	4,091	$	3,913	$	441,833	$	4,156	$	445,924

December 31, 2016
December 31, 2021
	Individually Evaluated				Collectively Evaluated				Total				Individually Evaluated				Collectively Evaluated				Total
	Reserve		Loans		Reserve		Loans		Reserve		Loans		Reserve		Loans		Reserve		Loans		Reserve		Loans
	(dollars in thousands)												(dollars in thousands)

Commercial	$	16	$	1,993	$	1,388	$	190,229	$	1,404	$	192,222	$	102	$	2,573	$	2,327	$	269,876	$	2,429	$	272,449
Non-Commercial		123		4,096		1,180		145,511		1,303		149,607		112		2,135		1,485		146,195		1,597		148,330

Total	$	139	$	6,089	$	2,568	$	335,740	$	2,707	$	341,829	$	214	$	4,708	$	3,812	$	416,071	$	4,026	$	420,779

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

September 30, 2017
March 31, 2022
	Loans 30-89 Days Past Due		Loans 90 Days or More Past due		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due		Loans 30-89 Days Past Due		Loans 90 Days or More Past due and and Non-accrual		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
	(dollars in thousands)												(dollars in thousands)

Commercial	$	34	$	—	$	34	$	56,435	$	56,469	$	—	$	122	$	381	$	503	$	79,620	$	80,123	$	0
SBA Paycheck Protection Program (PPP)														9		—		9		7,590		7,599		0
Real estate - commercial		114		457		571		116,064		116,178		—		127		286		413		154,321		154,734		0
Other real estate construction		—		53		53		32,511		32,511		—		—		—		—		42,713		42,713		0
Real estate 1-4 family construction		—		—		—		4,360		4,360		—		—		—		—		8,927		8,927		0
Real estate - residential		1,356		190		1,546		76,071		77,427		—		211		163		374		84,355		84,729		0
Home equity		171		58		229		49,669		49,840		—		19		31		50		52,616		52,666		0
Consumer loans		12		2		14		10,417		10,431		2		38		—		38		9,002		9,040		0
Other loans		—		—		—		2,703		2,703		—		—		—		—		5,393		5,393		0

Total	$	1,687	$	760	$	2,447	$	348,230	$	349,919	$	2	$	526	$	861	$	1,387	$	444,537	$	445,924	$	0

December 31, 2016
December 31, 2021
	Loans 30-89 Days Past Due		Loans 90 Days or More Past due and Non - Accrual		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due		Loans 30-89 Days Past Due		Loans 90 Days or More Past due and and Non-accrual		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
	(dollars in thousands)												(dollars in thousands)

Commercial	$	—	$	—	$	—	$	55,752	$	55,752	$	—	$	201	$	310	$	511	$	72,524	$	73,035	$	0
SBA Paycheck Protection Program (PPP)														—		—		—		15,100		15,100		0
Real estate - commercial		—		392		392		109,360		109,752		—		127		292		419		150,124		150,543		0
Other real estate construction		106		190		296		26,422		26,718		—		—		—		—		28,275		28,275		0
Real estate construction		—		—		—		5,625		5,625		—
Real estate 1-4 family construction														—		—		—		8,424		8,424		0
Real estate - residential		510		846		1,356		80,413		81,769		—		559		337		896		78,428		79,324		0
Home equity		66		22		88		50,727		50,815		—		—		33		33		50,970		51,003		0
Consumer loan		36		—		36		9,675		9,711		—		27		—		27		9,552		9,579		0
Other loans		—		—		—		1,687		1,687		—		—		—		—		5,496		5,496		0

Total	$	718	$	1,450	$	2,168	$	339,661	$	341,829	$	—	$	914	$	972	$	1,886	$	418,893	$	420,779	$	0

Once a loan becomes 90 days past due, the loan is automatically transferred to a ~~nonaccrual~~non-accrual status. The exception to this policy is credit card loans that remain in accruing status 90 days or more until they are paid current or charged off. ~~Also, mortgage loans that were originated for sale but were not sold and are being held in the loan portfolio remain in an accruing status until they are foreclosed.~~

The Company had ~~$1.1 million~~$0 in foreclosed residential real estate and no$41,000 of residential real estate in ~~the~~ process of foreclosure at ~~September 30, 2017.~~March 31, 2022. At December 31, 2021, the Company had $0 in foreclosed residential real estate and $0 of residential real estate in process of foreclosure.

The composition of ~~nonaccrual~~non-accrual loans by class as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016 is~~2021 was as follows:

	September 30, 2017		December 31, 2016		March 31, 2022		December 31, 2021
	(dollars in thousands)				(dollars in thousands)

Commercial					$	381	$	310
SBA Paycheck Protection Program (PPP)						—		—
Real estate - commercial		457		392		286		292
Other real estate construction		53		190		—		—
Real estate 1 – 4 family construction						—		—
Real estate – residential		190		846		163		337
Home equity		58		22		31		33
Consumer loans		2		—		—		—
Other loans						—		—
	$	760	$	1,450	$	861	$	972

Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and to measure the adequacy of the allowance for loan losses. 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 eight risk grades summarized in five 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 and~~exceptions; any major exceptions are clearly mitigated by other economic factors.

Watch: Loans that are watch credits include loans on management’s watch list where a risk concern may be anticipated in the near future.

Substandard: Loans that are considered substandard are loans that are inadequately protected by current sound net worth and paying capacity of the obligor or the value of the collateral pledged. All ~~nonaccrual~~non-accrual 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 tables below summarize risk grades of the loan portfolio by class at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

September 30, 2017
March 31, 2022
	Pass		Watch		Sub- standard		Doubtful		Total		Pass		Watch		Sub- standard		Doubtful		Total
	(dollars in thousands)										(dollars in thousands)

Commercial	$	55,202	$	1,252	$	15	$	—	$	56,469	$	77,787	$	1,955	$	381	$	—	$	80,123
SBA Paycheck Protection Program (PPP)												7,599		—		—		—		7,599
Real estate - commercial		110,810		3,091		2,277		—		116,178		151,465		2,983		286		—		154,734
Other real estate construction		30,382		1,736		393		—		32,511		42,405		54		254		—		42,713
Real estate 1 - 4 family construction		4,360		—		—		—		4,360		8,927		—		—		—		8,927
Real estate - residential		69,364		6,839		1,224		—		77,427		82,640		1,530		559		—		84,729
Home equity		48,981		800		59		—		49,840		52,487		148		31		—		52,666
Consumer loans		10,361		69		1		—		10,431		9,001		39		—		—		9,040
Other loans		2,703		—		—		—		2,703		5,393		—		—		—		5,393

Total	$	332,163	$	13,787	$	3,969	$	—	$	349,919	$	437,704	$	6,709	$	1,511	$	—	$	445,924

December 31, 2016
December 31, 2021
	Pass		Watch		Sub- standard		Doubtful		Total		Pass		Watch		Sub- standard		Doubtful		Total
	(dollars in thousands)										(dollars in thousands)

Commercial	$	54,906	$	827	$	19	$	—	$	55,752	$	70,235	$	2,490	$	310	$	—	$	73,035
SBA Paycheck Protection Program (PPP)												15,100		—		—		—		15,100
Real estate - commercial		105,366		1,937		2,449		—		109,752		145,084		4,387		1,072		—		150,543
Other real estate construction		24,312		1,876		530		—		26,718		27,966		55		254		—		28,275
Real estate 1 - 4 family construction		5,625		—		—		—		5,625		8,424		—		—		—		8,424
Real estate - residential		71,105		8,551		2,113		—		81,769		76,430		2,157		737		—		79,324
Home equity		49,818		973		24		—		50,815		50,672		298		33		—		51,003
Consumer loans		9,545		163		3		—		9,711		9,538		41		—		—		9,579
Other loans		1,687		—		—		—		1,687		5,496		—		—		—		5,496

Total	$	322,364	$	14,327	$	5,138	$	—	$	341,829	$	408,945	$	9,428	$	2,406	$	—	$	420,779

Loans that are in ~~nonaccrual~~non-accrual status or 90 days past due and still accruing are considered to be nonperforming. At ~~September 30, 2017~~both March 31, 2022 and December 31, 2021 there ~~was one loan~~were 0 loans 90 days past due and still ~~accruing and no loans at December 31, 2016.~~accruing. The following tables show the breakdown between performing and nonperforming loans by class at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

September 30, 2017
March 31, 2022
	Performing		Non- Performing		Total		Performing		Non- Performing		Total
	(dollars in thousands)						(dollars in thousands)

Commercial	$	56,469	$	—	$	56,469	$	79,742	$	381	$	80,123
SBA Paycheck Protection Program (PPP)								7,599		—		7,599
Real estate - commercial		115,721		457		116,178		154,448		286		154,734
Other real estate construction		32,458		53		32,511		42,713		—		42,713
Real estate 1 – 4 family construction		4,360		—		4,360		8,927		—		8,927
Real estate – residential		77,238		190		77,427		84,566		163		84,729
Home equity		49,781		58		49,840		52,635		31		52,666
Consumer loans		10,429		2		10,431		9,040		—		9,040
Other loans		2,703		—		2,703		5,393		—		5,393

Total	$	349,159	$	760	$	349,919	$	445,063	$	861	$	445,924

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. If a loan is deemed impaired, a specific calculation is performed and a specific reserve is allocated, if necessary. The tables below summarize the loans deemed impaired and the amount of specific reserves allocated by class at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016.~~

September 30, 2017
March 31, 2022
	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance		Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance
	(dollars in thousands)								(dollars in thousands)

Commercial	$	11	$	11	$	—	$	—	$	977	$	—	$	977	$	59
SBA Paycheck Protection Program (PPP)										—		—		—		—
Real estate - commercial		1,692		1,412		280		9		1,169		—		1,169		71
Other real estate construction		691		53		100		4		—		—		—		—
Real estate 1 - 4 family construction		1		—		1		—		—		—		—		—
Real estate - residential		3,413		1,417		1,996		122		1,914		601		1,313		112
Home equity		71		28		42		32		31		1		30		1
Consumer loans		49		50		—		—		—		—		—		—
Other loans		—		—		—		—		—		—		—		—

Total	$	5,928	$	2,971	$	2,419	$	167	$	4,091	$	602	$	3,489	$	243

December 31, 2016
December 31, 2021
	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance		Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance
	(dollars in thousands)								(dollars in thousands)

Commercial	$	29	$	13	$	16	$	2	$	960	$	—	$	960	$	31
SBA Paycheck Protection Program (PPP)										—		—		—		—
Real estate - commercial		1,671		1,552		119		9		1,613		—		1,613		71
Other real estate construction		831		190		103		5		0		—		—		—
Real estate 1 - 4 family construction		6		—		6		—		—		—		—		—
Real estate - residential		3,994		2,072		1,922		123		2,103		777		1,326		111
Home equity		35		35		—		—		32		2		30		1
Consumer loans		61		61		—		—		—		—		—		—
Other loans		—		—		—		—		—		—		—		—

Total	$	6,627	$	3,923	$	2,166	$	139	$	4,708	$	779	$	3,929	$	214

~~-17-~~The table below shows interest income received on impaired loans by class for the three months ended March 31, 2022 and 2021.

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. The Company offers various types of concessions when modifying loans to troubled borrowers, however, forgiveness of principal is rarely granted. Concessions offered are 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 may include 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 be requested.

Loans modified as TDRs are typically already on ~~nonaccrual~~non-accrual status and in some cases, partial charge-offs may have already been taken against the outstanding loan balance. The Company classifies TDR loans as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis. An allowance is 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 is deemed to be collateral dependent.

At ~~September 30, 2017,~~March 31, 2022, the Company had ~~$4.7~~$3.3 million in TDRs outstanding, ~~none~~ of which ~~were~~1 with a balance totaling $38,000 was on a non-accruing basis. Comparatively, the Company had $3.8 million of outstanding TDRs, of which 1 with a balance of $39,000 was on a non-accruing basis, at December 31, 2021.

~~For the three~~There were no loans modified as TDRs during both three-month periods ended March 31, 2022 and ~~nine months ended September 30, 2017 and 2016, the following table presents a breakdown of the types of concessions made by loan class:~~

During the twelve months ended ~~September 30, 2017 and September 30, 2016,~~March 31, 2022, there was ~~one~~1 TDR for which there was a payment default. During the twelve months ended March 31, 2021, there were 0 TDRs for which there was a payment default.

A default on a TDR is defined as being past due 90 days or being out of compliance with the modification agreement. As previously mentioned, the Company considers TDRs to be impaired loans and has ~~$123,000~~$155,000 in the allowance for loan losses as of ~~September 30, 2017,~~March 31, 2022, as a direct result of these TDRs. At ~~September 30, 2016,~~March 31, 2021, there was ~~$106,000~~$139,000 in the allowance for loan losses related to TDRs.

The following table presents the ~~successes and failures~~status of the types of ~~loan modifications~~loans modified as TDRs within the previous twelve months as of ~~September 30, 2017~~March 31, 2022 and ~~2016:~~2021:

	Paid In Full				Paying as restructured				Converted to nonaccrual				Foreclosure/ Default				Paid In Full				Paying as restructured				Converted to non-accrual				Foreclosure/ Default
	Number of Loans		Recorded Investments		Number of Loans		Recorded Investments		Number of Loans		Recorded Investments		Number of Loans		Recorded Investments		Number of Loans		Recorded Investments		Number of Loans		Recorded Investments		Number of Loans		Recorded Investments		Number of Loans		Recorded Investments
	(dollars in thousands)																(dollars in thousands)
September 30, 2017

Below market
Interest rate		—	$	—		—	$	—		—	$	—		—	$	—
March 31, 2022
Below market interest rate																		1	$	218		—	$	—		—	$	—		—	$	—
Extended payment Terms		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Forgiveness of Principal/Other		5		562		8		811		—		—		1		15		6		814		6		2,339		—		—		—		—

Total		5	$	562		8	$	811		—	$	—		1	$	15		7	$	1,032		6	$	2,339		—	$	—		—	$	—

September 30, 2016

Below market
Interest rate		—	$	—		—	$	—		—	$	—		—	$	—
March 31, 2021
Below market interest rate																		—	$	—		—	$	—		—	$	—		—	$	—
Extended payment Terms		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Forgiveness of Principal/Other		6		433		8		501		—		—		4		59		6		639		5		1,745		—		—		1		41

Total		6	$	433		8	$	501		—	$	—		4	$	59		6	$	639		5	$	1,745		—	$	—		1	$	41

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which was signed into law on March 27, 2020, allowed the Company to suspend the TDR classifications described above in an effort to provide relief to borrowers impacted by COVID-19. The Consolidated Appropriations Act, 2021 (CAA), which was signed into law on December 27, 2020, extended the expiration of TDR suspensions as set forth in the CARES Act until the earlier of (i) January 1, 2022 or (ii) 60 days after the national emergency terminates. The Company elected to adopt this suspension until January 1, 2022 in accordance with the CAA. Modifications of loans subsequent to March 1, 2020 for COVID-19 reasons, and that were current as of December 31, 2019, were not considered TDRs and are tracked internally as “COVID-19 Modifications”. As of March 31, 2022 and December 31, 2021, the Company had 0 current outstanding loans modified for COVID-19 related reasons.

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 the 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.

Our leases relate to 3 office locations, 2 of which are branch locations, with remaining terms of four to seven 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 March 31, 2022, operating lease ROU assets were $2.0 million and the lease liability was $2.1 million, compared to ROU assets of $2.4 million and a lease liability of $2.5 million at March 31, 2021. Lease costs associated with all leases was $99,000 for both three-month periods ended March 31, 2022 and 2021.

The ~~Company has not committed to fund any additional disbursements for TDRs.~~table below summarizes the maturity of remaining lease liabilities:

The Company’s subsidiary bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, lines of credit and standby letters of credit. These instruments involve elements of credit risk in excess of amounts recognized in the accompanying financial statements.

The Bank’s risk of loss with 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~~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.

At ~~September 30, 2017,~~March 31, 2022 and December 31, 2021, outstanding financial instruments whose contract amounts ~~represented~~represent credit risk were approximately:

			March 31, 2022		December 31, 2021
			(dollars in thousands)
	(dollars in thousands)
Commitments to extend credit	$	106,808	$	168,781	$	177,706
Credit card commitments		10,419		19,838		19,763
Standby letters of credit		1,349		8,196		8,161
Total commitments	$	118,576	$	196,815	$	205,630

~~In 2016, the Bank entered into a five-year operating lease for commercial property. The term expires on September 30, 2021. The annual cost of the lease is $151,875 with a 2.625% annual adjustor.~~

During the second quarter of 2017, the Bank entered into a lease that following completion of construction will be ten years and three months. Construction is expected to be complete no later than first quarter of 2018.

Accounting Standards Codification ~~(ASC)~~(“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;~~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; and goodwill, which is periodically tested for impairment.~~assumptions. Deposits, short-term borrowings and long-term obligations are not reported at fair value.

Prices for USU.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 shown in the ~~“Level~~Level 1 ~~input”~~input column. 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 shown in the ~~“Level~~Level 2 ~~input”~~input column. 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 shown in the ~~“Level~~Level 3 ~~input”~~input column. 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, or IRLCs, mortgage forward sales commitments and to-be-announced mortgage-backed securities trades (TBAs), 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.

The following ~~table provides~~tables provide fair value information for assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

	September 30, 2017								March 31, 2022
	(dollars in thousands)								(dollars in thousands)
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3

Securities available for sale:
US Government Agencies		56,412		—		56,412		—
U.S. Treasury									$	29,389	$	29,389	$	—	$	—
U.S. Government agencies										41,675		—		41,675		—
GSE - Mortgage-backed securities and CMO’s		22,117		—		22,117		—		117,076		—		117,076		—
Asset-backed securities										42,261		—		42,261		—
State and political subdivisions		14,112		—		14,112		—		84,074		—		84,074		—
Corporate bonds		5,076		—		5,076		—		7,793		—		7,793		—

Total assets at fair value	$	97,717	$	—	$	97,717	$	—

Total liabilities at fair value	$	—	$	—	$	—	$	—
Equity securities										383		383		—		—
Mortgage banking derivatives										1,485		—		1,216		269
Total assets at fair value on a recurring basis									$	324,136	$	29,772	$	294,095	$	269
Mortgage banking derivatives									$	—	$	—	$	—	$	—
Total liabilities at fair value on a recurring basis									$	—	$	—	$	—	$	—

December 31, 2016

(dollars in thousands)

Total

Level 1

Level 2

Level 3

Securities available for sale:

US Treasury

$
4,014

$
4,014

$
—

$
—

US Gov’t

57,671

—

57,671

—

Mortgage-backed securities and CMO’s

25,648

—

25,648

—

State and political subdivisions

13,536

—

13,536

—

Corporate bonds

5,030

—

5,030

—

Total assets at fair value

$
105,899

$
4,014

$
101,885

$
—

Total liabilities at fair value

$
—

$
—

$
—

$
—

	December 31, 2021
	(dollars in thousands)
	Total		Level 1		Level 2		Level 3

Securities available for sale:
U.S. Treasury	$	26,381	$	26,381	$	—	$	—
U.S. Government agencies		39,812		—		39,812		—
GSE - Mortgage-backed securities and CMO’s		120,448		—		120,448		—
Asset-backed securities		44,198		—		44,198		—
State and political subdivisions		89,477		—		89,477		—
Corporate bonds		10,021		—		10,021		—
Equity securities		392		392		—		—
Mortgage banking derivatives		1,269		—		253		1,016
Total assets at fair value on a recurring basis	$	331,998	$	26,773	$	304,209	$	1,016
Mortgage banking derivatives	$	50	$	—	$	50	$	—
Total liabilities at fair value on a recurring basis	$	50	$	—	$	50	$	—

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

The fair value of mortgage interest rate lock commitments at March 31, 2022 was calculated based on a notional amount of $30.9 million. Significant unobservable inputs are used to determine the fair value of these derivatives. For the three months ended March 31, 2022, 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 89.1% determined by loan product, loan stage, and loan purpose. The fair value of mortgage interest rate lock commitments at December 31, 2021 was calculated based on a notional amount of $28.9 million. Significant unobservable inputs were the same as those used for the three months ended March 31, 2022 and assumed a projected pull-through rate of 82.47% at December 31, 2021. Changes in interest rates and other assumptions could significantly change these estimated values.

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. ~~GAAP.~~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 ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

At ~~September 30, 2017,~~March 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.

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 ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~2021 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 ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016:~~2021:

September 30, 2017
March 31, 2022
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)										(dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents	$	92,583		92,583	$	90,093	$	2,490	$	—	$	115,710	$	115,710	$	115,710	$	—	$	—
Securities available for sale		97,717		97,717		—		97,717		—		322,268		322,268		29,389		292,879		—
Securities held to maturity		11,493		11,575		—		11,575		—		30,722		29,909		—		15,370		14,539
Equity securities												383		383		383		—		—
Loans held for investment, net		349,919		354,125		—		—		354,125		441,768		431,121		—		—		431,121
Loans held for sale		2,725		2,725		—		2,725		—		11,910		11,910		—		11,910		—
Restricted stock		1,068		1,068		1,068		—		—		1,428		1,428		1,428		—		—
Loan servicing rights												5,240		6,239		—		6,239		—
Mortgage banking derivatives												1,485		1,485		—		1,216		269
Accrued interest receivable		1,516		1,516		—		—		1,516		2,731		2,731		—		—		2,731

FINANCIAL LIABILITIES
Deposits	$	527,253	$	500,388	$	—	$	500,388	$	—	$	883,498		882,711		—		882,711		—
Short-term borrowings		1,788		1,788		—		1,788		—		1,344		1,344		—		1,344		—
Junior subordinated debt		9,534		9,651		—		—		9,651
Long-term borrowings												29,549		28,248		—		—		28,248
Mortgage banking derivatives												—		—		—		—		—
Accrued interest payable		151		151		—		—		151		68		68		—		—		68

December 31, 2016

Carrying
Value

Estimated
Fair Value

Level 1

Level 2

Level 3

(dollars in thousands)

FINANCIAL ASSETS

Cash and cash equivalents

$
45,968

$
45,995

$
43,478

$
2,517

$
—

Securities available for sale

105,899

105,899

4,014

101,885

—

Securities held to maturity

11,990

11,934

—

11,934

—

Loans held for investment, net

339,122

337,348

—

—

337,348

Loans held for sale

5,823

5,685

—

5,685

—

Restricted stock

1,052

1,052

1,052

—

—

Accrued interest receivable

1,629

1,629

—

—

1,629

FINANCIAL LIABILITIES

Deposits

485,719

447,784

—

447,784

—

Short-term borrowings

2,674

2,674

—

2,674

—

Junior subordinated debt

9,534

9,673

—

—

9,673

Accrued interest payable

151

151

—

—

151

~~The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:~~

Borrowings – The fair value disclosed for short-term borrowings, which are composed of overnight borrowings and debt due within one year approximate the carrying value for such debt and is recorded in Level 2. The estimated fair value for long-term borrowings are estimated based on discounted cash flow analyses using offered market rates. Total borrowings are carried in Level 2. Junior subordinated debt is fair valued based on discounted cash flow analyses and is recorded in Level 3.

December 31, 2021
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents	$	94,410	$	94,357	$	90,924	$	3,433	$	—
Securities available for sale		330,337		330,337		—		330,337		—
Securities held to maturity		30,801		32,045		—		16,898		15,147
Equity securities		392		392		392		—		—
Loans held for investment, net		416,753		412,585		—		—		412,585
Loans held for sale		21,684		21,684		—		21,684		—
Restricted stock		921		921		921		—		—
Loan servicing rights		5,078		5,509		—		5,509		—
Mortgage banking derivatives		1,269		1,269		—		253		1,016
Accrued interest receivable		2,554		2,554		—		—		2,554

FINANCIAL LIABILITIES
Deposits	$	836,752	$	836,567	$	—	$	836,567	$	—
Short-term borrowings		1,081		1,081		—		1,081		—
Long-term borrowings		29,530		30,039		—		—		30,039
Mortgage banking derivatives		50		50		—		50		—
Accrued interest payable		7		7		—		—		7

At ~~September 30, 2017,~~March 31, 2022 the Company’s 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; therefore, the fair value is the fee the Bank is expected to receive. This amount is deemed immaterial by management. See Note 9.10.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this ASU address certain aspects of recognition, measurement, presentation and disclosure. The amendments in this ASU (i) require equity investments to be measured at fair value with changes in fair value recognized in net income; (ii) simplify the impairment assessment of equity investments without readily determinable fair value; (iii) require public business entities to use exit prices, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (iv) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; (v) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the balance sheet; (vi) require separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (vii) state that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets. The amendments in this ASU are effective for public business entities for fiscal periods beginning after December 15, 2017, including interim periods within those fiscal years. The ASU only permits early adoption of the instrument-specific credit risk provision. The Company currently does not invest in equity securities, therefore the impact from the adoption of this standard is not expected to be material to the financial position or results of operations of the Company, but new disclosures on fair value will be implemented.

In February 2016, the FASB issued ASU 2016-02, “Leases, Topic 842”. This ASU increases the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The key difference between existing standards and this ASU is the requirement for lessees to recognize on their balance sheet all lease contracts with lease terms greater than 12 months, including operating leases. Both a right-of-use asset, representing the right to use the leased asset, and a lease liability, representing the contractual obligation, are required to be recognized on the balance sheet of the lessee at lease commencement. Further, this ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar to the current operating and capital leases classifications. The distinction between these two classifications under the new standard does not relate to balance sheet treatment, but relates to treatment in the statements of income and cash flows. Lessor guidance remains largely unchanged with the exception of how a lessor determines the appropriate lease classification for each lease to better align the lessor guidance with revised lessee classification guidance. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the new standard, which we anticipate we will adopt during the first quarter of 2019. We currently have one property that we operate under a lease, which would affect both the Consolidated Statements of Income and the Consolidated Balance Sheets.

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent considerations (Reporting Revenue Gross versus Net)”. ASU 2016-08 updates the new revenue standard by clarifying the principal

versus agent implementation guidance, but does not change the core principle of the new standard. The updates to the principal versus agent guidance: (i) require an entity to determine whether it is a principal or an agent for each distinct good or service (or a distinct bundle of goods or services) to be provided to the customer; (ii) illustrate how an entity that is a principal might apply the control principle to goods, services, or rights to services, when another party is involved in providing goods or services to a customer and (iii) Clarify that the purpose of certain specific control indicators is to support or assist in the assessment of whether an entity controls a good or service before it is transferred to the customer, provide more specific guidance on how the indicators should be considered, and clarify that their relevance will vary depending on the facts and circumstances. For public business entities, the effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09 which is effective for interim and annual periods beginning after December 15, 2017. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this new guidance recognized at the date of initial application. Our revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. ASU 2016-08 and 2014-09 could require us to change how we recognize certain revenue streams within non-interest income, however, we do not expect these changes to have a significant impact on our financial statements. We continue to evaluate the impact of ASU 2016-08 and 2014-09 on our Company and expect to adopt the standard in the first quarter of 2018 with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be significant.

In June 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~ASU~~Accounting Standards Update (ASU) 2016-13, “Financial ~~Instruments-Credit~~Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. ~~The updated guidance is~~During 2019, the effective ~~for interim and annual reporting periods~~date was extended to fiscal years beginning on or after December 15, ~~2019, including interim periods within those fiscal years.~~2022 for public entities that qualify as smaller reporting companies, per the Securities and Exchange Commission definition, which currently includes the Company. Early adoption is permitted. Entities will apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We ~~are currently exploring vendor-based options for outsourcing~~have entered into a contract to outsource our current model with a CECL-ready vendor. Currently we are in the process of validating data, setting assumptions for CECL and modeling our forecast for probabilities of default. The Company plans to run the CECL model parallel to the existing allowance model beginning in the second quarter of 2022. The impact of the adoption is dependent on loan portfolio composition and credit quality at adoption date, as well as ~~extending our current~~economic conditions and forecasts at that time.

In March 2022, FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”, effective December 15, 2022. ASU 2022-02 eliminates the TDR accounting guidance set forth in Subtopic 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” for financial institutions that have already adopted the CECL standard. Measurement of expected losses under the CECL model already incorporates loans modified as TDRs. As such, once CECL is implemented, the TDR guidance no longer provides useful information. After implementation, an entity must apply the loan refinancing and restructuring guidance in ASC 310-20, “Receivables – Nonrefundable Fees and Other Costs,” to ~~comply with CECL. We continue~~determine whether a modification results in a new loan or a continuation of an existing loan. Enhanced qualitative and quantitative disclosures will be required for modifications made for borrowers experiencing financial difficulty.

ASC 848, “Reference Rate Reform,” was set forth to ~~assess~~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 ~~potential~~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 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 can be applied beginning March 12, 2020 and will sunset December 31, 2022. The Company currently holds, but no longer issues, loan contracts that reference LIBOR. The Company is evaluating the most effective manner in which to modify those contracts, but does not anticipate material financial ~~impact to the Company’s financial position.~~impact.

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.

~~Certain amounts~~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 ~~2016 financial statements have been reclassified to conform~~mortgage banking derivatives asset 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 ~~2017 presentation.~~risk that the interest rate will change from the rate quoted to the borrower. In an effort to mitigate interest rate risk, the Company also 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 ~~reclassifications do~~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 ~~have~~announced until just prior to settlement. These TBA trades provide an ~~impact on net income or shareholders’ equity.~~economic hedge against the effect of changes in interest rates resulting from IRLCs. TBAs are accounted for as derivatives under FASB ASC 815 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 March 31, 2022 and December 31, 2021.

Item 2.Management’s Discussion and ~~Analysis~~Analysis of Financial Condition and Results of ~~Operations~~Operations.

This Quarterly Report on Form 10-Q may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors ~~which~~that could cause actual results to differ materially from these estimates. These factors include, but are not limited to: the impact of the novel Coronavirus disease, or COVID-19, and its variants on our borrowers’ ability to meet their financial obligations to us; increases in our past due loans and provisions for loan losses that may result from COVID-19 and its broader economic effects, including labor shortages, supply chain issues, and inflation that may impact our borrowers; declines in general economic conditions, including increased stress in the financial markets due to COVID-19; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. Any use of “we” or “our” in the following discussion refers to the Company on a consolidated basis.

Comparison of Financial Condition at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016.~~2021.

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2022, the Company’s total assets increased ~~$43.7~~$34.1 million, from ~~$548.2~~$939.7 million to ~~$591.9~~$973.7 million.

Cash and cash equivalents increased ~~$46.6~~$21.3 million during the ~~nine~~three months ended ~~September 30, 2017. Cash and due from banks decreased $2.6 million, while interest-earning deposits with banks increased $49.2 million.~~March 31, 2022. The increase is ~~directly~~ related to the ~~increase~~growth in ~~noninterest-bearing~~ deposits.

Investment securities consist of securities available for sale and securities held to maturity. Investment securities decreased ~~$8.7~~$8.1 million to ~~$109.2~~$353.0 million for the ~~nine-month~~three-month period ended ~~September 30, 2017.~~March 31, 2022. At ~~September 30, 2017,~~March 31, 2022, the Company had ~~net~~ unrealized losses on securities available for sale of ~~$1.1 million.~~$19.7 million, compared to unrealized losses of $1.5 million at December 31, 2021. The significant decline in fair value is directly related to the increase in market interest rates at March 31, 2022 compared to December 31, 2021, as the market prepares for the anticipated increase in overnight rates by the Federal Reserve.

~~Loans held for investment increased~~At March 31, 2022, equity securities declined slightly in value from ~~$341.8 million~~$392,000 at December 31, 2021 to ~~$349.9 million, an increase~~$383,000 as a result of ~~$8.1 million or 2.37%. The Company experienced growth~~the decline in value in the commercial, other real estate commercial and construction, and other loan segments during the first nine months of 2017. The other real estate construction segment has the largest increase in the portfolio of 21.7% or $5.8 million. The largest decline is in the residential real estate segment of $4.3 million or 5.2%. equity market.

Loans held for sale decreased ~~53.2%~~45.1%, or ~~$3.1~~$9.8 million, as many of the loans produced near ~~year-end~~the December 31, 2021 quarter-end date were not sold on the secondary market until ~~first quarter 2017.~~ 2022. Loans held for investment increased from $420.8 million to $445.9 million, an increase of $25.1 million for the three-month period ended March 31, 2022. The Company experienced a net increase in all loan sectors with the exception of consumer loans, other loans and SBA PPP loans. SBA PPP loans were issued during 2020 and 2021 as a result of the Federal Government’s response to helping small businesses due to COVID-related issues. These loans are unsecured commercial loans, but are 100% guaranteed by the SBA if the loans comply with PPP requirements.

The allowance for loan losses was ~~$2.4~~$4.2 million at ~~September 30, 2017,~~March 31, 2022, which represented ~~0.69%~~0.93% of the total ~~loan portfolio~~loans held for investment, compared to ~~$2.7~~$4.0 million or ~~0.79%~~0.96% of the total loans held for investment at December 31, ~~2016.~~2021. Additional discussion regarding the allowance is included in the Asset Quality section below.

Other changes in our consolidated assets are primarily related to ~~bank owned life insurance and~~ other ~~real estate owned. Bank owned life insurance~~assets, which increased ~~$1.6~~$4.6 million from $9.5 million as of December 31, 2021 to $14.1 million at March 31, 2022 as a result of the increase in deferred tax assets from the significant decline in value of the available for sale security portfolio. Additionally, restricted stock increased $507,000 for the same period mainly due to ~~an additional $1.5 million investment for an executive officer. Other real estate owned decreased $1.5 million. During~~ the ~~nine months ended September 30, 2017, the Company sold thirteen pieces of property totaling $1.8 million. The Company recorded net valuation write-down adjustments of $92,000.~~increase in FRB stock required to be held from increased common equity.

Customer deposits, our primary funding source, experienced a ~~$41.5~~$46.7 million increase during the ~~nine-month~~three-month period ended ~~September 30, 2017,~~March 31, 2022, increasing from ~~$485.7~~$836.8 million to ~~$527.2~~$883.5 million, ~~or 8.55%.~~a 5.6% increase. In addition to receipt of government grant funding by some depositors, a large portion of this increase is related to the overall growth in the number of deposit accounts and relationship sizes. As the banking subsidiary of the Company operates in a primarily rural market, many competitors have exited the markets where we remain, which has driven deposit growth in our current markets. Demand ~~noninterest bearing~~noninterest-bearing checking accounts increased ~~$15.3~~$29.2 million, interest checking and money market accounts increased ~~$22.3~~$13.5 million and savings deposits increased ~~$2.6~~$6.2 million ~~and time~~during the three months ended March 31, 2022. Time deposits ~~greater than $250,000 increased $2.9 million. This increase was offset~~decreased by ~~declines in other time deposits of $1.7 million.~~$2.1 million during the same period as customers transitioned to liquid accounts.

Total short-term borrowings ~~decreased $886,000~~increased $263,000 for the ~~first nine months~~three-month period. At March 31, 2022, the Company had $29.5 million in long-term debt outstanding, which consists solely of ~~2017 due~~its junior subordinated debt securities. During the third quarter of 2019, the Company issued $10.0 million in subordinated debt securities with a final maturity date of September 30, 2029 that may be redeemed on or after September 30, 2024. This junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. During the third

quarter of 2021, the Company issued $12.0 million and $8.0 million of 10-year and 15-year fixed-to-floating rate subordinated debt securities, respectively. The 10-year subordinated notes mature on September 3, 2031, though redeemable 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 an early redemption date, the interest rate on the 10-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month secured overnight financing rate (“SOFR”), plus 283 basis points payable quarterly in arrears. The 15-year subordinated notes mature on September 3, 2036, though redeemable 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 an 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. The Company also has a ~~payoff of an outstanding~~$3.0 million line of ~~credit.~~credit of which $3.0 million was available to use at March 31, 2022.

Other changes in consolidated liabilities ~~increased~~are primarily related to increases in accruals for bonuses, donations and income taxes totaling $711,000. These increases are offset by a decline in the mortgage forward sales commitments liability. Mortgage forward sales commitments decreased $50,000 from ~~$6.6 million~~$50,000 at December 31, ~~2016~~2021 to ~~$8.1 million~~$0 at ~~September 30, 2017, an increase~~March 31, 2022, because of ~~$1.4 million related~~the rise in interest rates since year-end. As rates rise, the value of the mandatory commitment deteriorates, and the price required to ~~an increase in supplemental executive retirement plans (SERPs) valuation and annual funding,~~exit out of ~~which there is a corresponding increase in Rabbi Trust assets. Additionally, reserve balances increased due to timing of payables which is to recognize expenses to be paid within~~ the ~~calendar year.~~ commitment decreases.

At ~~September 30, 2017,~~March 31, 2022, total shareholders’ equity was ~~$45.2~~$47.2 million, ~~an increase~~a decrease of ~~$1.6~~$13.6 million from December 31, ~~2016.~~2021. Net income for the ~~nine-month~~three-month period ended ~~September 30, 2017~~March 31, 2022 was ~~$1.8 million.~~$801,000. Unrealized ~~gains and~~ losses on investment securities, net of tax, increased by ~~$592,000.~~$14.0 million as the yield curve continues to steepen. The Company ~~also~~ repurchased ~~72,052~~28,839 shares of common stock ~~for~~at a total ~~value~~cost of ~~$372,000.~~$254,000 during the first three months of 2022. The Company paid ~~$422,000~~$139,000 in dividends ~~attributed~~attributable to noncontrolling interest during the first three months of 2022. See Note 3 (Noncontrolling Interest) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest.

~~Comparison of~~ Results of Operations for the Three Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016.~~2021.

Uwharrie Capital Corp reported net income of ~~$588,000~~$801,000 for the three months ended ~~September 30, 2017,~~March 31, 2022, as compared to ~~$540,000~~$4.6 million for the three months ended ~~September 30, 2016,~~March 31, 2021, a ~~increase~~decrease of ~~$48,000.~~$3.8 million. Net income available to common shareholders was ~~$440,000~~$662,000, or ~~$0.06~~$0.10 per common share, for the three months ended March 31, 2022, compared to $4.4 million, or $0.61 per common share, at ~~September 30, 2017, compared to $391,000 or $0.06 per common share at September 30, 2016.~~March 31, 2021. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

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 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 by levels of noninterest-bearing liabilities and capital.

Net interest income for the three months ended ~~September 30, 2017~~March 31, 2022 was ~~$4.6~~$6.0 million, compared to ~~$4.2~~$6.8 million for the three months ended ~~September 30, 2016, an increase~~March 31, 2021, a decrease of ~~$393,000.~~$777,000. During the ~~third~~first quarter of ~~2017,~~2022, the average yield on our ~~interest–earning~~interest-earning assets decreased ~~three~~eighty-four basis points to ~~3.72%, while~~2.96% from the same period in 2021, and the average rate we paid for our interest-bearing liabilities ~~remained flat at~~increased five basis points to 0.32%. ~~The aforementioned~~These changes resulted in a ~~decrease of two basis points~~lower interest rate spread ~~to 3.40% for the third quarter~~ of ~~2017~~2.65% as of March 31, 2022, compared to ~~3.42% in 2016.~~3.53% as of March 31, 2021. Our net interest margin ~~decreased one basis point to 3.47% in the third quarter of 2017 from 3.48% in~~was 2.74% and 3.62% for the comparable ~~period~~periods in ~~2016. A portion of the Company’s loan portfolio has interest rate floors~~2022 and caps in place on the loans. This feature has allowed the Company to maintain a stronger interest margin, while there has been a decline in rates; however, this feature could hurt the margin in a rising rate environment.2021, respectively.

The following table presents average balance ~~sheets~~sheet and a net interest income analysis for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016:~~2021:

(dollars in thousands)
	Average Balance				Income/Expenses				Rate/Yield						Average Balance				Income/Expenses				Rate/Yield
	2017		2016		2017		2016		2017			2016			2022		2021		2022		2021		2022			2021
Interest-earning assets:
Taxable securities	$	95,670	$	87,217	$	386	$	324		1.60	%		1.48	%	$	296,892	$	193,755	$	1,015	$	826		1.39	%		1.73	%
Nontaxable securities (1)		16,260		19,440		109		125		4.29	%		4.20	%		65,181		39,490		358		253		2.80	%		3.26	%
Short-term investments		76,098		48,799		258		78		1.35	%		0.64	%		88,426		58,384		40		16		0.18	%		0.11	%
Equity Securities																392		721		5		—		5.17	%		0.00	%
Taxable loans		342,246		327,457		4,146		3,929		4.81	%		4.77	%		449,205		471,456		5,057		6,004		4.57	%		5.16	%
Non-taxable loans (1)		10,800		15,296		68		96		4.01	%		4.18	%		7,604		8,197		50		58		3.36	%		3.60	%
Total interest-earning assets		541,074		498,209		4,967		4,552		3.72	%		3.75	%		907,700		772,003		6,525		7,157		2.96	%		3.80	%

Interest-bearing liabilities:
Interest-bearing deposits		399,205		370,622		192		167		0.19	%		0.18	%		597,942		510,486		177		211		0.12	%		0.17	%
Short-term borrowed funds		1,556		2,183		1		3		0.25	%		0.55	%		1,092		1,621		1		1		0.37	%		0.25	%
Long-term debt		9,534		9,538		138		139		5.74	%		5.80	%		29,541		12,004		315		136		4.32	%		4.56	%
Total interest bearing liabilities		410,295		382,343		331		309		0.32	%		0.32	%
Total interest-bearing liabilities																628,575		524,111		493		348		0.32	%		0.27	%

Net interest spread	$	130,779	$	115,866	$	4,636	$	4,243		3.40	%		3.42	%	$	279,125	$	247,892	$	6,032	$	6,809		2.65	%		3.53	%

Net interest margin (1) (% of earning assets)										3.47	%		3.48	%										2.74	%		3.62	%

The provision for loan losses was ~~a recovery of $136,000~~$118,000 for the three months ~~ending September 30, 2017~~ended March 31, 2022, compared to ~~an expense~~a recovery of ~~$240,000~~$34,000 for the same period in ~~2016.~~2021. There were net loan recoveries of ~~$22,000~~$12,000 for the three months ended ~~September 30, 2017,~~March 31, 2022, as compared ~~with~~to net loan ~~charge offs~~charge-offs of ~~$97,000~~$116,000 during the same period of ~~2016.~~2021. Refer to the Asset Quality ~~discussion on page 32~~section below for further information.

The Company generates most of its revenue from net interest income; however, diversification of our revenue ~~base~~sources is ~~of major importance in our long-term success.~~important as well. Total noninterest income decreased ~~$295,000~~by $4.5 million for the three-month period ~~ending September 30,~~

~~2017~~ended March 31, 2022, as compared to the same period in ~~2016.~~ 2021. The gain on sale of securities decreased $1.0 million to a loss of $91,000 at March 31, 2022 compared to a gain of $940,000 at March 31, 2021 as the Company worked to reduce the duration of the investment portfolio in an attempt to protect capital as long-term interest rates rise.

The primary factor contributing to the overall ~~decrease~~decline in noninterest income was a decrease of $3.8 million in income from mortgage loan sales. This decrease is due to the significant reduction in production, particularly mortgage refinancing activity, as interest rates have risen quickly during the first three months of 2022.

Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Interchange and card transaction fees consist of income from check card usage, point-of-sale income from PIN-based debit card transactions, ATM service fees, and ~~commissions from our investment division~~credit card usage. A comparison of ~~$52,000,~~gross interchange and ~~a decrease~~card transaction fees and interchange and card transaction fees net of ~~mortgage loan sales of $321,000 to $2.5 million~~associated network costs for the ~~quarter ended September 30, 2017 from $2.8 million for~~reported periods is presented in the ~~same period in 2016.~~table below:

Noninterest expense for the ~~quarter~~three months ended ~~September 30, 2017 was $6.2 million compared to $5.8 million for~~March 31, 2022 decreased by $571,000 from the same period ~~of 2016. The~~in 2021, to $7.6 million. Salaries and benefits, the largest component of noninterest expense, ~~comes~~decreased $373,000 due to decreased commissions from ~~$250,000 for deconversion~~reduced production in the mortgage division. As a result of production declines in the mortgage division, loan costs ~~of our core accounting software. Salaries and employee benefits increased $21,000~~decreased by $137,000 to $169,000 for the ~~quarter ending September 30, 2017. Net occupancy~~three months ended March 31, 2022 and marketing and donations decreased $287,000 to $334,000 for the same time period.

Total other noninterest expense ~~remained flat at September 30, 2017. Foreclosed real estate expense has~~ increased ~~$17,000 from $29,000 at September 30, 2016~~$115,000 for the three months ended March 31, 2022, compared to ~~$48,000 at September 30, 2017~~the same period in 2021. This change was due to ~~write downs for updated appraisals and contract prices to sell~~market valuation adjustments that increased the ~~property. FDIC insurance has decreased $10,000 from September 30, 2016 to September 30, 2017 due to the decline~~expense associated with supplemental executive retirement plans by $135,000, included in ~~troubled assets, as well as the altered deposit insurance calculation that took effect in the first quarter of 2017.~~“Other” line item below. The table below reflects the composition of other noninterest expense. Total loan cost increased $16,000 for the three-month period ended September 30, 2017 compared to the three-month period ended September 30, 2016 due to reduced loan collection, cost of loans in process of foreclosure, and reduced bank paid closing cost expenses.

					Three Months Ended March 31,
	Three Months Ended September 30,				2022		2021
	2017		2016		(in thousands)
	(dollars in thousands)
Postage	$	45	$	48	$	64	$	46
Telephone and data lines		43		41		57		49
Loan costs (recoveries)		81		65
Office supplies and printing						24		26
Shareholder relations expense		47		33		37		33
Dues and subscriptions		55		49		76		109
Other		258		298		324		204
Total	$	529	$	534	$	582	$	467

The Company had income tax expense of ~~$259,000~~$168,000 for the three months ended ~~September 30, 2017~~March 31, 2022 at an effective tax rate of ~~30.58%~~17.3% compared to income tax expense of ~~$228,000~~$1.2 million with an effective tax rate of ~~29.69%~~21.1% in the comparable ~~2016~~2021 period. Income taxes computed at the statutory rate are primarily affected ~~primarily~~by the state income tax expense offset by the eligible amount of interest earned on state and municipal securities, ~~tax-free~~tax free municipal loans and income earned on ~~bank owned~~bank-owned life insurance. ~~The~~For the three months ended March 31, 2022, the effective tax rate ~~increased as we had less interest income from tax-free bonds and loans.~~

~~Comparison of Results of Operations for the Nine Months Ended September 30, 2017 and 2016.~~

Uwharrie Capital Corp reported an increase of $77,000 in net income for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. Net income available to common shareholders was $1.4 million or $0.20 per common share for the nine months ended September 30, 2017, compared to $1.3 million or $0.19 per common share for the nine months ended September 30, 2016. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Net interest income for the nine months ended September 30, 2017 was $13.4 million compared to $12.4 million for nine months ending September 30, 2016. During the nine months ending September 30, 2017, the volume of interest-earning assets increased $40 million as the volume of interest-bearing liabilities increased $24 million. The average yield on our interest–earning assets declined seven basis points to 3.73%, while the average rate we paid for our interest-bearing liabilities decreased four basis points to 0.32%. The Company’s assets that are interest rate sensitive adjust at the time the Federal Reserve adjusts interest rates, while interest-bearing time deposits adjust at the time of maturity. The aforementioned changes resulted in a decrease of two basis points in our interest rate spread to 3.42% for the first nine months of 2017, compared to 3.44% for the first nine months of 2016. Our net interest margin was 3.49% and 3.52% for the comparable nine-month periods in 2017 and 2016, respectively. A portion of the Company’s loan portfolio has interest rate floors and caps in place on the loans. This feature has allowed the Company to maintain a stronger interest margin, while there has been a decline in rates; however, this feature could hurt the margin in a rising rate environment.

~~The following table presents average balance sheets and a net interest income analysis for the six months ended September 30, 2017 and 2016:~~

(dollars in thousands)

Average Balance

Income/Expenses

Rate/Yield

2017

2016

2017

2016

2017

2016

Interest-earning assets:

Taxable securities

$
97,694

$
85,149

$
1,185

$
973

1.62
%

1.53
%
Nontaxable securities (1)

16,936

19,291

326

375

4.15
%

4.20
%
Short-term investments

62,181

49,458

520

235

1.12
%

0.63
%
Taxable loans

338,794

316,102

12,135

11,506

4.79
%

4.86
%
Non-taxable loans (1)

10,657

16,405

201

315

4.06
%

4.21
%
Total interest-earning assets

526,262

486,405

14,367

13,404

3.73
%

3.80
%

Interest-bearing liabilities:

Interest-bearing deposits

388,948

363,839

521

563

0.18
%

0.21
%
Short-term borrowed funds

2,267

3,582

14

32

0.83
%

1.19
%
Long-term debt

9,534

9,543

410

412

5.75
%

5.77
%
Total interest bearing liabilities

400,749

376,964

945

1,007

0.32
%

0.36
%

Net interest spread

$
125,513

$
109,441

$
13,422

$
12,397

3.42
%

3.44
%

Net interest margin (1) (% of earning assets)

3.49
%

3.52
%

The Company recovered $309,000 for the nine months ending September 30, 2017 compared to $70,000 provision for the same period in 2016. There were net loan recoveries of $49,000 for the nine months ended September 30, 2017 as compared with net loan charge-offs of $8,000 during the same period of 2016. Refer to the Asset Quality discussion on page 32 for further information.

The Company generates most of its revenue from net interest income; however, like all financial institutions, diversification of our earnings base is of major importance in our long-term success. Total noninterest income decreased $756,000 for the nine-month period ending September 30, 2017 as compared to the same period in 2016. Income from mortgage loan sales was $2.5 million for the nine months ended September 30, 2017 compared to $2.8 million for the same period in 2016. Service charges on deposit accounts produced revenue of $874,000 for the nine months ended September 30, 2017, a decrease of $30,000 compared to the same period in 2016. Other service fees and commissions experienced a 1.6% decrease for the comparable nine-month period. This decrease was directly related to brokerage commissions and mortgage loan sales decreasing. September 30, 2017 losses realized on the sale of securities were $14,000 for the first nine months in 2017 compared to gains of $544,000 for the same period in 2016.

Noninterest expense for the nine months ended September 30, 2017 was $18.2 million compared to $17.8 million for the same period of 2016; an increase of $487,000. Salaries and employee benefits, the largest component of noninterest expense, increased $195,000 for the nine months ending September 30, 2017. Professional fees and services increased $52,000 during the nine months ending September 30, 2017 as compared to the same period in 2016. Data processing fees increased $250,000 for deconversion costs of our core accounting software. FDIC deposit insurance premiums also declined $90,000 for the comparable periods. Foreclosed real estate expense increased $108,000 for the nine months ending September 30, 2017 compared to the same period in 2016. The driver of this increase was due to ~~write downs to contracts of sale. Other noninterest expense decreased $222,000 for~~ the comparable nine-month periods. The table below reflects the composition of other noninterest expense. Total loan cost declined $157,000 for the nine-month period September 30, 2017 compared to September 30, 2016 due to reduced loan collection, cost of loansincrease in ~~process of foreclosure, and reduced bank paid closing cost expenses.~~

The Company had income tax expense of $829,000 for the nine months ended September 30, 2017 resulting in an effective tax rate of 31.10%, compared to income tax expense of $745,000 and an effective rate of 29.74% in the 2016 period. 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. The effective tax rate increased as we had less interest income from tax-free bonds and loans. tax-exempt security holdings.

The Company’s allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. The allowance is increased by provisions charged to operations and ~~decreased by~~ 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 loan 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~~conditions; and other relevant factors. 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. For loans determined to be impaired, the allowance is 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 the selling costs. This evaluation is inherently subjective, as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans, which may be susceptible to significant change. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require additions for estimated losses based upon judgments different from those of management.

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 loan losses. 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. Because of this process, certain loans are deemed to be impaired and evaluated as an impaired loan.

The portion of the Company’s allowance for loan loss model related to general reserves captures the mean loss of individual loans within the loan portfolio and adds additional loss based on economic uncertainty and specific indicators of potential issues in the market. Specifically, the Company calculates probable losses on loans by computing a probability of loss and multiplying that by a loss given default derived from historical experience. An additional calculation based on economic uncertainty is added to the probable losses, thus deriving the estimated loss scenario by FDIC call report codes. Together, these expected components, as well as

a reserve for qualitative factors based on economic conditions determined at management’s discretion, form the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations.

The Company assesses the probability of losses inherent in the loan portfolio using probability of default data derived from the Company’s internal historical data, representing a one-year loss horizon for each obligor. Credit scores are used within the model to determine the probability of default. The Company updates the credit scores for individuals that either have a loan, or are financially responsible for the loan, semi-annually, during the first and third quarters. During the first three months of 2022, the average effective credit score of the portfolio, excluding loans in default, increased slightly from 767 to 771. The probability of default associated with each credit score is a major driver in the allowance for loan losses.

The allowance for loan losses represents management’s best estimate of an appropriate amount to provide for probable credit risk inherent in the loan portfolio in the normal course of business. While management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance 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 for loan losses in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the Company’s portfolio, will not require an adjustment to the allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary, should the quality of any loans deteriorate because of the factors discussed herein. Unexpected global events, such as the unprecedented economic disruption due to COVID-19, are the type of future events that often cause material adjustments to the allowance to be necessary. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition, ~~and~~ results of ~~operations.~~operations and the value of its securities.

At ~~September 30, 2017,~~March 31, 2022, the ~~levels~~level of our impaired loans, which includes all loans in ~~nonaccrual~~non-accrual status, TDRs, and other loans deemed by management to be impaired, ~~were $5.4~~was $4.1 million, compared to ~~$6.1~~$4.7 million at December 31, ~~2016,~~2021, a net decrease of ~~$699,000.~~$617,000. The decrease is related to one large relationship paying off in the first quarter of 2022 and another relationship with a large pay down due to collateral sale. Total ~~nonaccrual~~non-accrual loans, which are a component of impaired loans, decreased from ~~$1.5 million~~$972,000 at December 31, ~~2016~~2021 to ~~$758,000~~$861,000 at

~~September 30, 2017.~~ March 31, 2022. During the first ~~nine~~three months of ~~2017, four relationships~~2022, one additional loan totaling ~~$140,000 were~~$18,000 was added to impaired ~~loans. The addition~~loans; however, one loan totaling $169,000 was ~~offset by twelve impaired relationships totaling $849,000 being charged off,~~ paid ~~out, and~~off. We also had net pay downs of ~~$182,000.~~$466,000.

The allowance, expressed as a percentage of gross loans held for investment, decreased ~~ten~~three basis points from ~~0.79%~~0.96% at December 31, ~~2016~~2021 to ~~0.69%~~0.93% at ~~September 30, 2017~~.March 31, 2022. The collectively evaluated ~~reserve~~ allowance as a percentage of collectively evaluated loans ~~decreased from 0.78%~~was 0.92% at December 31, ~~2016~~2021 and 0.89% at March 31, 2022. The decrease is attributable to ~~0.69% at~~ ~~September 30, 2017~~. Intuitively, growth in the loan portfolio would indicate an increase in the reserve; however, the overall quality of performing loans in the loan portfolio improved. Additionally, charge-offs have declined $217,000 during the first three quarters compared to the same period of 2016. Recoveries have also decreased $62,000 resulting in ancontinued improvement in ~~net charge-offs of $155,000. The improved charge off position contributed to the decrease in the reserve for loan loss. New loan production has credit metrics that we believe indicate a lower~~ probability of default, thus lowering the expected loss associated with those credits compared to the overall loan portfolio. The combined (current book and new production) loan portfolio is less risky; therefore, as current loans contractually pay down and new production is booked – growing the overall portfolio – the allowance as a percentage of loans, declines, similar to the expected lossdefaults of the ~~overall blended~~ portfolio. The individually evaluated allowance as a percentage of individually evaluated loans increased from ~~2.28% at December 31, 2016~~4.54% to ~~3.11% at September 30, 2017~~5.93% for the same periods, mainly due to ~~an increase of individually evaluated loans that are not sufficiently collateralized, therefore requiring additional allowance. The portion of the Company’s allowance for loan loss model related~~one relationship with a large pay down and little reserves associated due to general reserves captures the mean loss of individual loans and the rare event of severe loss that can occur within the loan portfolio. Specifically, the Company calculates probable losses on loans by computing a probability of loss and expected loss scenario by FDIC call report codes. Together, these expected components as well as a level of more extreme unexpected losses form the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations.collateral values.

The ~~Company assesses the probability~~ratio of losses inherent in the loan portfolio using probability of default data, acquired from a third-party vendor representing a one-year loss horizon for each obligor. The Company updates the data inputs into the model; specifically, the loss given default and the probability of defaults obtained from the vendor annually during the second quarter. The Company updates the credit scores which is one of the components used within the allowance model semi-annually, during the first and third quarters. The probability of default associated with each credit score is the major driver in the overall decrease in the allowance for loan losses, thus reducing the balance of the allowance.

~~Nonperforming~~nonperforming loans, which ~~consist~~consists of ~~nonaccrual~~non-accrual loans and loans past due 90 days and still accruing, to total loans decreased from ~~0.42%~~0.23% at December 31, ~~2016,~~2021 to ~~0.22%~~0.19% at ~~September 30, 2017~~.March 31, 2022, and was related to the nonaccrual relationship that was paid off in the first quarter.

~~Management believes~~Troubled debt restructured loans, included in impaired loans, totaled $3.3 million at March 31, 2022 and $3.8 million at December 31, 2021. At March 31, 2022, there was one troubled debt restructured loan in non-accrual status, which had a balance of $38,000.

Other real estate owned remained at $0 through March 31, 2022, as there were no loans foreclosed on during the ~~current~~first three months of 2022.

As of March 31, 2022, management believed the level of the allowance for loan losses iswas appropriate in light of the risk inherent in the loan portfolio.

Other real estate owned decreased $1.7 million during the nine month period ended September 30, 2017. The Company sold fifteen pieces of foreclosed property totaling $1.8 million realizing a loss of $31,000. The Company had seven write-downs of $142,000 which was offset by improved valuations and sales activity of $50,000. There were two loans foreclosed on during the third quarter with a book value of $113,000.-32-

Troubled debt restructured loans at September 30, 2017 totaled $4.7 million compared to $4.5 million at December 31, 2016 and are included in impaired loans. At September 30, 2017, there were no troubled debt restructured loans in nonaccrual status.

The following table shows the comparison of nonperforming assets at ~~September 30, 2017 to~~March 31, 2022 and December 31, ~~2016:~~2021:

	September 30, 2017			December 31, 2016			March 31, 2022			December 31, 2021
Nonperforming assets:
Loans past due 90 days or more	$	2		$	—
Nonaccrual loans		758			1,450
Accruing loans past due 90 days or more							$	—		$	—
Non-accrual loans								861			972
Other real estate owned		2,681			4,176			—			—
Total nonperforming assets	$	3,441		$	5,626		$	861		$	972

Allowance for loans losses	$	2,448		$	2,707		$	4,156		$	4,026
Nonperforming loans to total loans		0.22	%		0.42	%
Nonaccrual loans to total loans								0.19	%		0.23	%
Allowance for loan losses to total loans		0.69	%		0.79	%		0.93	%		0.96	%
Nonperforming assets to total assets		0.58	%		1.03	%
Allowance for loan losses to nonperforming loans		322.96	%		186.69	%
Allowance for loan losses to nonaccrual loans								482.69	%		414.20	%

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

The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flow generated by investments. Growth in deposits is typically the primary source of funds for loan growth. 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. ~~These~~At March 31, 2022, these sources are the subsidiary bank’s established federal funds lines with correspondent banks aggregating ~~$28~~$43.0 million, ~~at September 30, 2017,~~ with available credit of ~~$28.0~~$43.0 million; an established borrowing ~~relationships~~relationship with the Federal Home Loan Bank, with available credit of ~~$40.5~~$95.1 million; access to borrowings from the Federal Reserve Bank discount window, with available credit of ~~$30.7~~$16.4 million and the issuance of commercial paper. The Company also has a $3.0 million line of credit with TIB The Independent BankersBank, N.A. The line is secured with 100% of the outstanding common shares of the Company’s subsidiary bank. As of March 31, 2022, $3.0 million remained available for use on the line of credit. The Company has also secured long-term debt from other ~~sources. Total~~sources consisting of $29.5 million of junior subordinated debt ~~from these sources aggregated $9.5 million~~ at both ~~September 30, 2017,~~March 31, 2022 and December 31, ~~2016.~~2021.

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

The Company continues to maintain capital ratios that support its asset growth. ~~Bank~~The federal bank regulatory agencies ~~approved~~have implemented regulatory capital ~~guidelines (“~~rules known as “Basel III.” The Basel ~~III”) aimed at strengthening existing capital requirements for banking organizations. Under the final~~III rules ~~minimum requirements increase for both the quantity and quality of capital held by the Company. The rules include~~require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, ~~an increase in the~~a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, ~~require~~ a minimum ratio of total capital to risk-weighted assets of 8.00%, and ~~require~~ a minimum Tier 1 leverage ratio of ~~5.00%~~4.00%. AThere is also a capital conservation buffer ~~comprised of~~that requires banks to hold common equity Tier 1 capital ~~was also established above~~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.

As of March 31, 2022, the regulatory minimum capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by an additional 0.625% until reaching its final level of 2.50% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. The final rules also revise the definition and calculation of Tier 1 capital, total capital, and risk-weighted assets.

~~The phase-in period for the final rules became effective for the Company and its~~Company’s subsidiary bank on January 1, 2015, with full compliance of all the final rules’ requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019. As of September 30, 2017, the Company and its subsidiary bank continuecontinued to exceed minimum capital standards and ~~remain~~remained well-capitalized under the ~~new~~applicable rules.

~~As previously discussed, the~~The Company’s subsidiary bank has a net total of $10.6 million in outstanding Fixed Rate Noncumulative Perpetual Preferred Stock. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30%. The net total of $10.6 million is presented as noncontrolling interest at the Company level and qualifies as Tier 1 capital at the Company. At ~~September 30, 2017,~~March 31, 2022, the Company had ~~$9.5~~$29.5 million in subordinated debt outstanding, ~~that~~which qualifies as Tier 2 ~~capital.~~capital at the Company level. The Company has made all interest and dividend payments in a timely manner.

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

Derivative financial instruments include futures contracts, forward contracts, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in significant derivative activities through March 31, 2022, with the exception of mortgage banking derivatives. See Note 14 (Mortgage Banking Derivatives) to the Company’s Notes to Consolidated Financial Statements for additional discussion of mortgage banking derivatives.

The timing and amount of our contractual obligations has not changed materially since our 2021 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 9, 2022.

~~The Company’s primary market risk~~Disclosure under this item is interest rate risk. Interest rate risk is the result of differing maturities or repricing intervals of interest-earning assets and interest-bearing liabilities and the fact that rates on these financial instruments do not change uniformly. These conditions may impact the earnings generated by the Company’s interest earning assets or the cost of its interest-bearing liabilities, thus directly impacting the Company’s overall earnings. The Company’s management actively monitors and manages interest rate risk. One way this is accomplished is through the development of and adherence to the Company’s asset/liability policy. This policy sets forth management’s strategyrequired for matching the risk characteristics of the Company’s interest-earning assets and liabilities so as to mitigate the effect of changes in the rate environment. In management’s opinion, the Company’s market risk profile has not changed significantly since December 31, 2016.smaller reporting companies.

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 principal 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 (“Exchange Act”) Rule 13a-15.

Based upon that evaluation, the principal executive officer and principal financial officer concluded that in their opinion, 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 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 principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure.

Management of the Company has evaluated, with the participation of the Company’s principal executive officer and principal financial officer, changes in the Company’s internal controls over financial reporting (as defined in Rule ~~13a -15(f)~~13a-15(f) and ~~15d – 15(f)~~15d-15(f) of the Exchange Act) during the ~~third~~first quarter of ~~2017.~~2022. In connection with such evaluation, the Company has determined that there were no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal control over financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensuring that the Company’s systems evolve with its business.

Neither the Company nor its subsidiaries, nor any of their properties are subject to any material legal proceedings. From time to time, the Company’s subsidiary bank is engaged in ordinary routine litigation incidental to its business.

The following table sets forth information with respect to shares of common stock repurchased by the Company during the three months ended ~~September 30, 2017.~~March 31, 2022.

⁽¹⁾ Trades of the Company’s common stock are quoted on the OTCQX 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~NORTH CAROLINA~~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~~north carolina		28001
(Address of Principal Executive Offices)		(Zip Code)

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company.)~~☒	Smaller reporting company	☒
~~Emerging growth company~~	☐		Emerging growth company	☐

		Page No.

Part I.	FINANCIAL INFORMATION

Item 1 -	Financial Statements (Unaudited)

	~~Consolidated Balance Sheets September 30, 2017 and December 31, 2016~~	3

	Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	3

	Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021	4

	Consolidated Statements of Comprehensive Income (Loss) for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021	5

	Consolidated Statements of Changes in Shareholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2022 and 2021	6

	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021	7

	Notes to Consolidated Financial Statements	8

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2728

Item 3 -	Quantitative and Qualitative Disclosures ~~About~~about Market Risk	3334

Item 4 -	Controls and Procedures	3334

Part II.	OTHER INFORMATION

Item 1 -	Legal Proceedings	34

Item 1A -	Risk Factors	34

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	3435

Item 3 -	Defaults Upon Senior Securities	3435

Item 4 -	Mine Safety Disclosures	3435

Item 5 -	Other Information	35

Item 6 -	Exhibits	36

	Signatures	37

	Unrealized holding gains on available-for-sale securities (net)
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
	(dollars in thousands)

Beginning Balance	$	(761	)	$	376		$	(1,318	)	$	(212	)

Other Comprehensive income (loss) before reclassifications, net of ($14,000), $90,000, ($301,000) and ($422,000) tax effect, respectively		26			(178	)		583			743

Amounts reclassified from accumulated other comprehensive income, net of ($5,000), $1,000, ($5,000) and $210,000 tax effect		9			(1	)		9			(334	)

Net current-period other comprehensive income (loss)		35			(179	)		592			409

Ending Balance	$	(726	)	$	197		$	(726	)	$	197

	Three Months Ended March 31, 2022				Three Months Ended March 31, 2021
	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
	(dollars in thousands)

Commercial	$	969	$	4	$	651	$	5
SBA Paycheck Protection Program (PPP)		—		—		—		—
Real estate - commercial		1,391		24		3,584		24
Other real estate construction		—		—		519		—
Real estate 1- 4 family construction		—		—		—		—
Real estate - residential		2,008		63		2,792		38
Home equity		32		—		143		1
Consumer loans		—		—		12		—
Other loans		—		—		—		—
Total	$	4,400	$	91	$	7,701	$	68

	Three Months ended September 30, 2017					Three Months ended September 30, 2016
	Average Recorded Investment			Interest Income		Average Recorded Investment		Interest Income
	(dollars in thousands)

Commercial	$	11			1	$	31		—
Real estate - commercial		1,661			17		620		9
Other real estate construction		154			1		297		1
Real estate 1- 4 family construction		2			—		9		1
Real estate - residential		3,560	��		39		4,542		65
Home equity		112			—		46		—
Consumer loans		51			—		71		2
Other loans		—			—		—		—

Total	$	5,551		$	58	$	5,616	$	78

	Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2016
	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
	(dollars in thousands)

Commercial	$	20	$	1	$	48	$	1
Real estate - commercial		1,664		46		624		28
Other real estate construction		223		4		299		4
Real estate 1- 4 family construction		4		—		11		1
Real estate - residential		3,777		124		4,522		176
Home equity		74		1		47		1
Consumer loans		55		3		74		5
Other loans		—		—		—		—

Total	$	5,817	$	179	$	5,625	$	216

	For the Three Months Ended September 30, 2017
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)

Other:
Commercial		—	$	—	$	—
Real estate - commercial		—		—		—
Other real estate construction		—		—		—
Real estate 1 – 4 family construction		—		—		—
Real estate – residential		1		186		186
Home equity		—		—		—
Consumer loans		1		9		7
Other loans		—		—		—

Total		2	$	195	$	193

	For the Nine Months Ended September 30, 2017
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)

Other:
Commercial		1	$	12	$	11
Real estate - commercial		1		166		163
Other real estate construction		—		—		—
Real estate 1 – 4 family construction		—		—		—
Real estate – residential		5		661		630
Home equity		—		—		—
Consumer loans		1		9		7
Other loans		—		—		—

Total		8	$	848	$	811

	March 31, 2022
	(dollars in thousands)
	Mortgage banking derivatives: Interest rate lock commitments			Total
Balance at December 31, 2021	$	1,016		$	1,016
Change in fair value:
Included in income from mortgage banking		(747	)		(747	)
Balance at March 31, 2022	$	269		$	269

~~September 30, 2017~~
	~~Valuation Technique~~	~~Unobservable Input~~	~~General~~ ~~Range~~
~~Nonrecurring measurements:~~

~~Impaired loans~~	~~Discounted appraisals~~	~~Collateral discounts and~~ ~~Estimated costs to sell~~	~~0 – 25%~~
	~~Discounted cash flows~~	~~Discount Rate~~	~~4%-8.75%~~

~~OREO~~	~~Discounted appraisals~~	~~Collateral discounts and~~ ~~Estimated costs to sell~~	~~0 – 10%~~

	Notional Amount		Fair Value
	(dollars in thousands)

Balance at March 31, 2022
Included in mortgage banking derivatives asset:
Interest rate lock commitments	$	30,933	$	269
Forward sales commitments		—		—
To-be-announced mortgage-backed securities trades		50,000		1,216
Included in mortgage banking derivatives liability:
Forward sales commitments		—		—
To-be-announced mortgage-backed securities trades		—		—

Balance at December 31, 2021
Included in mortgage banking derivatives asset:
Interest rate lock commitments		28,939		1,016
Forward sales commitments		8,417		253
To-be-announced mortgage-backed securities trades		—		—
Included in mortgage banking derivatives liability:
Forward sales commitments		—		—
To-be-announced mortgage-backed securities trades		44,000		50

	(a) Total Number of 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
July 1, 2017 Through July 31, 2017		—	$	—		—	$	—
August 1, 2017 Through August 31, 2017		—	$	—		—	$	—
September 1, 2017 Through September 30, 2017		981	$	5.25		—	$	—
Total		981	$	5.25		—	$	—

Exhibit Number		Description of Exhibit



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)

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

101		Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2017,~~March 31, 2022, in inline XBRL (eXtensible Business Reporting Language) (filed herewith)
104		Cover page interactive data file (formatted in inline XBRL and contained in Exhibit 101)

		UWHARRIE CAPITAL CORP
		(Registrant)

Date:	~~November 7, 2017~~May 3, 2022	By:	/s/ Roger L. Dick
		Roger L. Dick
		President and Chief Executive Officer

Date:	~~November 7, 2017~~May 3, 2022	By:	/s/ ~~R. David Beaver, III~~Heather H. Almond
		~~R. David Beaver, III~~Heather H. Almond
		Principal Financial Officer

~~December~~March 31, ~~2016~~2022

Valuation Technique

Unobservable Input

General
Range

Nonrecurring measurements:

Impaired loans

Discounted appraisals

Collateral discounts and
Estimated costs to sell

Discounted cash flows

Discount rates