EX-13 2 dex13.htm 2009 ANNUAL REPORT TO SHAREHOLDERS 2009 Annual Report to Shareholders

Exhibit 13

Uwharrie Capital Corp

2009

ANNUAL REPORT TO SHAREHOLDERS

 

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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Description of Business

Uwharrie Capital Corp (the “Company”) is a North Carolina bank holding company. The Company was organized on July 1, 1993 to become the bank holding company for the Bank of Stanly (“Stanly”), a North Carolina commercial bank chartered on September 28, 1983, and its three wholly-owned subsidiaries, The Strategic Alliance Corporation, BOS Agency, Inc., and Gateway Mortgage, Inc., a mortgage origination company. The Company also owns two non-bank subsidiaries, Strategic Investment Advisors, Inc., and Uwharrie Mortgage, Inc.

Stanly engages in retail and commercial banking, with six banking offices in Stanly County. Stanly provides a wide range of banking services including deposit accounts, commercial, consumer, home equity and residential mortgage loans, safe deposit boxes, and electronic banking services.

On January 19, 2000, the Company completed its acquisition of Anson BanCorp, Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North Carolina savings bank charter and became a wholly-owned subsidiary of Uwharrie Capital Corp as Anson Bank & Trust Co. (“Anson”) and provides financial services to customers through one banking office in Anson County.

On April 10, 2003, the Company capitalized a new wholly-owned subsidiary bank, Cabarrus Bank & Trust Company (“Cabarrus”), located in Concord, North Carolina. As of that date, Cabarrus purchased two branch offices located in Cabarrus County from Stanly to begin its operation. Cabarrus operates as a commercial bank and provides a full range of banking services.

The Company and its subsidiaries are located in Stanly County, Anson County and Cabarrus County. However, the Company intends to prudently expand its service area to include the entire Uwharrie Lakes Region of North Carolina.

Depository services offered by the subsidiary banks include personal and commercial checking, savings, money market, certificates of deposit accounts and individual retirement accounts, all tailored to meet customers’ needs. The banks provide fixed and variable rate loans, which include mortgage, home equity, lines of credit, consumer and commercial loans. The banks also offer internet banking and 24-hour telephone banking, providing customers the convenience of access to account information, rate information and accessibility of funds transfers between accounts. Other services include MasterCard® credit cards and a Visa® check card which functions as a point-of-sale (POS) and automated teller machine (ATM) card. Customers can use the check card for purchases at virtually any merchant accepting Visa® and ATMs displaying the STAR® or CIRRUS® networks regionally and worldwide, respectively.

Strategic Investment Advisors Inc. provides portfolio management services to its customers. The Strategic Alliance Corporation (Strategic Alliance®) is a registered broker-dealer with the Financial Industry Regulatory Authority (FINRA). BOS Agency provides insurance products and is licensed in the state of North Carolina. Through Strategic Investment Group, a DBA for a partnership with UVEST Financial Services, Inc., securities and insurance products are offered including fixed annuities, long-term care, and life insurance products. Group insurance products are offered through an arrangement with Burchfield Insurance Group, Inc. and the Novus Group, Inc. as well as Medicare supplement products.

The Strategic Alliance Corporation. Member FINRA/SIPC.

Securities and insurance products are offered by, and Financial Consultants are registered with UVEST Financial Services, member FINRA/SIPC. UVEST, Strategic Investment Group and Uwharrie Capital Corp affiliates are independent entities. Securities and/or insurance products are not FDIC insured, are not deposits or other obligations of any depository institution, are not guaranteed by any depository institution and are subject to investment risks, including possible loss of the principal amount invested.

Bank of Stanly, Member FDIC, Equal Housing Lender.

Anson Bank & Trust Co., Member FDIC, Equal Housing Lender.

Cabarrus Bank & Trust Company, Member FDIC, Equal Housing Lender.

 

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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Financial Highlights

 

(Dollars in thousands except per share amounts)    2009     2008     Percent
Increase
(Decrease)
 

For the year:

      

Net income

   $ 690      $ 2,029      (65.99 )% 

Net income available to common shareholders

   $ 48      $ 2,016      (97.62 )% 

Basic net income per common share (1)

   $ 0.01      $ 0.27      (94.81 )% 

Diluted net income per common share (1)

   $ 0.01      $ 0.27      (96.30 )% 

Weighted average common shares outstanding (diluted)

     7,474,140        7,520,484      (0.62 )% 

At year-end:

      

Total assets

   $ 477,846      $ 452,468      5.61

Total earning assets

     436,012        422,709      3.15

Loans held for investment

     353,729        340,830      3.78

Total interest-bearing liabilities

     385,433        362,346      6.37

Shareholders’ equity

     44,024        41,233      6.77

Book value per common share (1)

   $ 4.47      $ 4.11      8.76

Averages for the year:

      

Total assets

   $ 471,729      $ 422,857      11.56

Total earning assets

     434,218        393,769      10.27

Loans held for investment

     346,976        335,791      3.33

Total interest-bearing liabilities

     378,411        342,341      10.54

Shareholders’ equity

     43,182        32,245      33.92

Financial ratios (in percentage):

      

Return on average assets

     0.15     0.48  

Return on average shareholders’ equity

     1.60     6.29  

Average equity to average assets

     9.15     7.63  

Net interest margin (fully tax equivalent basis)

     4.12     4.13  

Allowance as % of loans at year-end

     1.49     1.28  

Allowance as % of nonperforming loans

     93.71     111.87  

Nonperforming loans to total loans

     1.59     1.14  

Nonperforming assets to total assets

     1.89     1.48  

Net loan charge-offs (recoveries) to average loans

     0.24     0.04  

 

(1) Net income per share, book value per share, and shares outstanding at year-end have been adjusted to reflect the 3% stock dividends in 2008.

Market for the Company’s Common Stock and Related Security Holder Matters

It is the philosophy of Uwharrie Capital Corp to promote a strong base of local shareholders. While bid and asked prices for the Company’s common stock are quoted on the Over the Counter Bulletin Board under the symbol UWHR, trading is sporadic with trades also taking place in privately negotiated transactions. Management makes every reasonable effort to match willing buyers with willing sellers as they become known for the purpose of private negotiations for the purchase and sale of the Company’s common stock.

The Board of Directors adopts a dividend policy on an annual basis. For 2009, Uwharrie Capital Corp did not declare a dividend. The Board of Directors will determine an appropriate dividend, if any, on an annual basis, consistent with the capital needs of the Company.

 

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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

The following graph compares (i) the yearly change in the cumulative total shareholder return on the Company’s common stock with (ii) the cumulative return of The Carson Medlin Company Independent Bank Index, and (iii) the Nasdaq Composite. The graph assumes that the value of an investment in the Company’s common stock and in each index was $100 on December 31, 2004, and that all dividends were reinvested. The performance shown in the graph represents past performance and should not be considered the indication of future performance.

Shareholders needing information about purchasing or selling shares of Uwharrie Capital Corp should contact Tamara M. Singletary or Lisa E. Hartsell, Investor Relations at Uwharrie Capital Corp, 132 N. First Street, Post Office Box 338, Albemarle, NC 28002.

LOGO

 

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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Uwharrie Capital Corp

Albemarle, North Carolina

We have audited the accompanying consolidated balance sheets of Uwharrie Capital Corp and Subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Uwharrie Capital Corp and Subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective the quarter ended June 30, 2009 the Company changed its method of accounting for other-than temporary impairment of debt securities as a result of adopting new accounting guidance.

LOGO

Southern Pines, North Carolina

March 23, 2010

 

36


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2009 and 2008

 

 

     2009     2008  
     (dollars in thousands)  

ASSETS

    

Cash and due from banks

   $ 7,521      $ 2,931   

Interest-earning deposits with banks

     3,338        10,353   

Securities available for sale, at fair value

     76,317        68,835   

Loans held for sale

     2,628        2,691   

Loans:

    

Loans held for investment

     353,729        340,830   

Less allowance for loan losses

     (5,276     (4,361
                

Net loans held for investment

     348,453        336,469   
                

Premises and equipment, net

     13,646        11,128   

Interest receivable

     2,077        2,027   

Federal Home Loan Bank stock

     3,201        2,284   

Bank owned life insurance

     5,714        5,511   

Goodwill

     987        987   

Other real estate owned

     3,419        2,816   

Prepaid assets

     2,617        696   

Other assets

     7,928        5,740   
                

Total assets

   $ 477,846      $ 452,468   
                

LIABILITIES

    

Deposits:

    

Demand noninterest-bearing

   $ 44,924      $ 46,032   

Interest checking and money market accounts

     137,708        117,325   

Savings deposits

     32,120        26,360   

Time deposits, $100,000 and over

     64,736        63,321   

Other time deposits

     97,286        100,589   
                

Total deposits

     376,774        353,627   
                

Short-term borrowed funds

     26,940        22,249   

Long-term debt

     26,643        32,502   

Interest payable

     396        502   

Other liabilities

     3,069        2,355   
                

Total liabilities

     433,822        411,235   
                

Off balance sheet items, commitments and contingencies (Note 12)

    

SHAREHOLDERS’ EQUITY

    

Preferred stock, no par value: 10,000,000 shares authorized;

    

10,000 shares of series A issued and outstanding

     10,000        10,000   

500 shares of series B issued and outstanding

     500        500   

Discount on preferred stock

     (400     (500

Common stock, $1.25 par value: 20,000,000 shares authorized; 7,593,929 shares issued and outstanding

     9,492        9,492   

Additional paid-in capital plus stock option surplus

     14,030        14,019   

Unearned ESOP compensation

     (667     (736

Undivided profits

     10,056        10,008   

Accumulated other comprehensive income (loss)

     1,013        (1,550
                

Total shareholders’ equity

     44,024        41,233   
                

Total liabilities and shareholders’ equity

   $ 477,846      $ 452,468   
                

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

 

37


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2009, 2008 and 2007

 

 

     2009     2008     2007  
     (in thousands, except share and per share data)  

Interest Income

      

Loans, including fees

   $ 21,246      $ 22,780      $ 23,916   

Investment securities:

      

US Treasury

     12        73        98   

US Government agencies and corporations

     3,106        1,853        1,401   

State and political subdivisions

     632        689        633   

Other

     —          84        128   

Interest-earning deposits with banks and federal funds sold

     66        85        733   
                        

Total interest income

     25,062        25,564        26,909   
                        

Interest Expense

      

Interest checking and money market accounts

     838        1,357        2,550   

Savings deposits

     255        301        526   

Time deposits $100,000 and over

     1,980        2,453        2,316   

Other time deposits

     2,836        3,828        4,138   

Short-term borrowed funds

     316        529        1,128   

Long-term debt

     1,472        1,360        1,218   
                        

Total interest expense

     7,697        9,828        11,876   
                        

Net interest income

     17,365        15,736        15,033   

Provision for loan losses

     1,732        969        15   
                        

Net interest income after provision for loan losses

     15,633        14,767        15,018   
                        

Noninterest Income

      

Service charges on deposit accounts

     2,360        2,238        2,188   

Other service fees and commissions

     2,273        2,777        3,097   

Loss on sale of securities

     (711     —          (76

Loss on nonmarketable securities

     (172     —          —     

Loss on securities with other-than-temporary impairment

     (1,807     (158     —     

Portion of loss recognized in other comprehensive income

     —          —          —     
                        

Net impairment recognized in income

     (1,807     (158     —     

Income from mortgage loan sales

     3,436        1,208        957   

Other income

     445        532        424   
                        

Total noninterest income

     5,824        6,597        6,590   
                        

Noninterest Expense

      

Salaries and employee benefits

     11,527        10,637        10,156   

Net occupancy expense

     1,071        987        871   

Equipment expense

     702        645        598   

Data processing costs

     792        789        742   

Professional fees and services

     968        687        720   

Marketing and donations

     746        682        639   

Electronic banking expense

     728        792        706   

Software amortization and maintenance

     470        455        448   

FDIC insurance

     958        128        66   

Other noninterest expense

     2,968        2,729        2,416   
                        

Total noninterest expense

     20,930        18,531        17,362   
                        

Income before income taxes

     527        2,833        4,246   

Income taxes

     (163     804        1,287   
                        

Net income

   $ 690      $ 2,029      $ 2,959   
                        

Net income

   $ 690      $ 2,029      $ 2,959   

Dividends on preferred stock

     (642     (13     —     
                        

Net Income available to common shareholders

   $ 48      $ 2,016      $ 2,959   
                        

Net income per common share

      

Basic

   $ 0.01      $ 0.27      $ 0.39   
                        

Diluted

   $ 0.01      $ 0.27      $ 0.39   
                        

Weighted average common shares outstanding

      

Basic

     7,474,140        7,482,488        7,603,494   

Diluted

     7,474,140        7,520,484        7,706,832   

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

 

38


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2009, 2008 and 2007

 

 

     2009     2008     2007  
     (in thousands)  

Net Income

   $ 690      $ 2,029      $ 2,959   
                        

Other comprehensive income (loss):

      

Unrealized gains (losses) on available for sale securities

     1,637        (3,315     275   

Related tax effect

     (621     1,281        (105

Reclassification of losses recognized in net income

     711        —          76   

Related tax effect

     (274     —          (29

Reclassification of losses for which credit-related portion other-than-temporary impairment was recognized in net income

     1,807        158        —     

Related tax effect

     (697     (61     —     
                        

Total other comprehensive income (loss)

     2,563        (1,937     217   
                        

Comprehensive income

   $ 3,253      $ 92      $ 3,176   
                        

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

 

39


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years Ended December 31, 2009, 2008 and 2007

 

 

     Number
Common
Shares
Issued
    Preferred
Stock
Series A
   Preferred
Stock
Series B
   Discount on
Preferred
Stock
    Common
Stock
    Additional
Paid-in
Capital
    Unearned
ESOP
Compensation
    Undivided
Profits
    Accumulated
Other
Comprehensive
Income(Loss)
    Total  
     (in thousands, except share data)  

Balance, December 31, 2006

   7,423,550      $ —      $ —      $ —        $ 9,279      $ 13,541      $ (859   $ 7,502      $ 170      $ 29,633   

Net income

   —          —        —        —          —          —          —          2,959        —          2,959   

Other comprehensive income

   —          —        —        —          —          —          —          —          217        217   

Release of ESOP shares

   —          —        —        —          —          31        59        —          —          90   

Common stock issued pursuant to:

                      

3% stock dividend

   216,062        —        —        —          270        916        —          (1,186     —          —     

Stock options exercised

   12,764        —        —        —          16        20        —          —          —          36   

Tax benefit of stock options exercised

   —          —        —        —          —          3        —          —          —          3   

Repurchase of common stock

   (237,669     —        —        —          (297     (1,107     —          —          —          (1,404

Cash paid fraction shares

   —          —        —        —          —          —          —          (9     —          (9

Stock compensation expense

   —          —        —        —          —          49        —          —          —          49   
                                                                            

Balance, December 31, 2007

   7,414,707        —        —        —          9,268        13,453        (800     9,266        387        31,574   
                                                                            

Net income

   —          —        —        —          —          —          —          2,029        —          2,029   

Other comprehensive income

   —          —        —        —          —          —          —          —          (1,937     (1,937

Release of ESOP shares

   —          —        —        —          —          14        64        —          —          78   

Common stock issued pursuant to:

                      

3% stock dividend

   220,738        —        —        —          276        718        —          (994     —          —     

Stock options exercised

   69,742        —        —        —          87        214        —          —          —          301   

Tax benefit of stock options exercised

   —          —        —        —          —          26        —          —          —          26   

Repurchase of common stock

   (111,258     —        —        —          (139     (432     —          —          —          (571

Cash paid fractional shares

   —          —        —        —          —          —          —          (7     —          (7

Stock compensation expense

   —          —        —        —          —          26        —          —          —          26   

Adjustment to initially apply ASC 715-60

   —          —        —        —          —          —          —          (273     —          (273

Issue series A preferred stock to the Treasury

   —          10,000      —        —          —          —          —          —          —          10,000   

Issue series B preferred stock to the Treasury

   —          —        500      —          —          —          —          —          —          500   

Record Series B warrant expense

   —          —        —        (500     —          —          —          —          —          (500

Record preferred stock dividend

   —          —        —        —          —          —          —          (13     —          (13
                                                                            

Balance, December 31, 2008

   7,593,929        10,000      500      (500     9,492        14,019        (736     10,008        (1,550     41,233   
                                                                            

 

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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

Years Ended December 31, 2009, 2008 and 2007

 

 

     Number
Common
Shares
Issued
   Preferred
Stock
Series A
   Preferred
Stock
Series B
   Discount on
Preferred
Stock
    Common
Stock
   Additional
Paid-in
Capital
   Unearned
ESOP
Compensation
    Undivided
Profits
    Accumulated
Other
Comprehensive
Income(Loss)
    Total  
     (in thousands, except share data)  

Balance, December 31, 2008

   7,593,929    $ 10,000    $ 500    $ (500   $ 9,492    $ 14,019    $ (736   $ 10,008      $ (1,550   $ 41,233   

Net income

   —        —        —        —          —        —        —          690        —          690   

Other comprehensive income

   —        —        —        —          —        —        —          —          2,563        2,563   

Release of ESOP shares

   —        —        —        —          —        —        69        —          —          69   

Stock compensation expense

   —        —        —        —          —        11      —          —          —          11   

Record preferred stock dividend and discount accretion

   —        —        —        100        —        —        —          (642     —          (542
                                                                         

Balance, December 31, 2009

   7,593,929    $ 10,000    $ 500    $ (400   $ 9,492    $ 14,030    $ (667   $ 10,056      $ 1,013      $ 44,024   
                                                                         

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

 

41


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2009, 2008 and 2007

 

 

     2009     2008     2007  

Cash flows from operating activities

      

Net income

   $ 690      $ 2,029      $ 2,959   

Adjustments to reconcile net income to net cash

      

Provided by operating activities:

      

Depreciation

     780        676        625   

Net amortization of security premiums/discounts

     134        (202     (220

Impairment of securities available for sale

     1,807        158        —     

Net amortization of mortgage servicing rights

     868        471        407   

Impairment of foreclosed real estate

     78        28        —     

Provision for loan losses

     1,732        969        15   

Deferred income taxes

     (737     (728     205   

Stock compensation

     11        26        49   

Net realized loss on sales / calls available for sale securities

     711        —          76   

Income from mortgage loan sales

     (3,436     (1,208     (957

Proceeds from sales of loans held for sale

     144,761        55,198        45,603   

Origination of loans held for sale

     (142,727     (54,328     (43,748

(Gain) loss on sale of premises, equipment and other assets

     (1     5        (26

Loss on nonmarketable securities

     172        —          —     

Increase in cash surrender value of life insurance

     (203     (193     (185

Loss on sales of foreclosed real estate

     36        41        2   

Release of ESOP Shares

     69        78        90   

Net change in interest receivable

     (50     28        (280

Net change in other assets

     (3,652     83        (866

Net change in interest payable

     (106     (94     93   

Net change in other liabilities

     714        584        302   
                        

Net cash provided by operating activities

     1,651        3,621        4,144   
                        

Cash flows from investing activities

      

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

     30,353        14,386        10,382   

Purchase of securities available for sale

     (36,208     (35,329     (23,744

Net increase in loans

     (15,598     (21,837     (33,588

Proceeds from sale of premises, equipment and other assets

     1        —          87   

Purchase of premises and equipment

     (3,298     (3,058     (758

Proceeds from sales of foreclosed real estate

     1,243        182        98   

Investment in other assets

     (1,089     (569     —     

Net increase in Federal Home Loan Bank stock

     (917     (147     (157
                        

Net cash used by investing activities

     (25,513     (46,372     (47,680
                        

Cash flows from financing activities

      

Net increase in deposit accounts

     23,147        28,970        15,057   

Net increase (decrease) in short-term borrowed funds

     4,691        (9,679     18,888   

Net increase (decrease) in long-term debt

     (5,859     3,392        (7,598

Net proceeds from issuance of junior subordinated debt

     —          7,419        —     

Repurchases of common stock

     —          (571     (1,404

Net proceeds from issuance of preferred stock

     —          10,000        —     

Net proceeds from issuance of common stock

     —          301        36   

Tax benefit of stock options exercised

     —          26        3   

Dividend and discount accretion on preferred stock

     (542     (13     —     

Cash paid for fractional shares

     —          (7     (9
                        

Net cash provided by financing activities

     21,437        39,838        24,973   
                        

Decrease in cash and cash equivalents

     (2,425     (2,913     (18,563

Cash and cash equivalents, beginning of period

     13,284        16,197        34,760   
                        

Cash and cash equivalents, end of period

   $ 10,859      $ 13,284      $ 16,197   
                        

Supplemental disclosures of cash flow information

      

Interest paid

   $ 7,802      $ 9,922      $ 11,783   

Income taxes paid

     1,558        1,596        1,311   

Supplemental schedule of non-cash activities

      

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

     2,563        (1,937     217   

Loans transferred to foreclosed real estate

     1,882        2,876        60   

Mortgage servicing rights capitalized

     1,465        563        331   

Preferred stock dividend accrued

     (68     (13     —     

ASC 715-60 charged to retained earnings

     —          (273     —     

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

 

42


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 1 - Significant Accounting Policies

Nature of Business

Uwharrie Capital Corp (the “Company”) was incorporated under North Carolina law for the purpose of becoming the holding company for Bank of Stanly (“Stanly”). On July 1, 1993, Stanly became a wholly-owned subsidiary of the Company through a one-for-one exchange of the common stock of Stanly for common stock of the Company.

Stanly was incorporated on September 28, 1983, under the laws of the State of North Carolina and began operations on January 26, 1984 in Albemarle, North Carolina. Deposits with Stanly are insured by the Federal Deposit Insurance Corporation (“FDIC”). Stanly is under regulation of the Federal Reserve, FDIC and the North Carolina State Banking Commission. Through its six branch locations in Stanly County, Stanly provides a wide range of deposit accounts, commercial, consumer, home equity and residential mortgage loans, safe deposit boxes and automated banking.

In 1987, Stanly established a wholly-owned subsidiary, BOS Agency, Inc. (“BOS Agency”), which engages in insurance product sales. In 1989, Stanly established a second wholly-owned subsidiary, BOS Financial Corporation, for the purpose of conducting business as a broker/dealer in securities. During 1993, BOS Financial Corporation changed its name to The Strategic Alliance Corporation (“Strategic Alliance”) and was registered as a broker/dealer and is regulated by the Financial Industry Regulatory Authority (“FINRA”).

The Company formed a new subsidiary, Strategic Investment Advisors, Inc. (“SIA”), during 1999 to provide investment advisory and asset management services. This subsidiary is registered as an investment advisor with the Securities and Exchange Commission.

On January 19, 2000, the Company completed its acquisition of Anson BanCorp, Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North Carolina savings bank charter and became a wholly-owned subsidiary of Uwharrie Capital Corp as Anson Bank & Trust Company (“Anson”), operating out of its main office branch in Wadesboro.

On August 4, 2000, Stanly acquired another subsidiary, Gateway Mortgage, Inc. (“Gateway”), a mortgage origination company.

On April 10, 2003, the Company capitalized a new wholly-owned subsidiary bank, Cabarrus Bank & Trust Company (“Cabarrus”), located in Concord, North Carolina. As of that date, Cabarrus purchased two branch offices located in Cabarrus County from Stanly to begin its operation. Cabarrus operates as a commercial bank and provides a full range of banking services.

On April 7, 2004 Uwharrie Mortgage, Inc. was established as a subsidiary of the Company to serve in the capacity of trustee and substitute trustee under deeds of trust.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, Stanly, Anson, Cabarrus, SIA and their subsidiaries, BOS Agency, Strategic Alliance and Gateway. All significant intercompany transactions and balances have been eliminated in consolidation.

 

43


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, 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.

Cash and Cash Equivalents

For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet captions “Cash and due from banks” and “Interest-earning deposits with banks.”

Investment Securities Held To Maturity

Investment securities classified as held to maturity are debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premium and accretion of discount, computed by the interest method over their contractual lives. Declines in the fair value of individual held to maturity securities below their cost that are other than temporary would result in write-downs of the individual securities to their fair value. Such write-downs would be included in earnings as realized losses. The Company had no securities held to maturity at December 31, 2009 and 2008.

Investment Securities Available for Sale

Investment securities available for sale consist of bonds and notes not classified as trading securities nor as held to maturity securities. Unrealized holding gains and losses on available for sale securities are reported as a net amount in other comprehensive income, net of income taxes. Gains and losses on the sale of available for sale securities are determined using the specific identification method. Declines in the fair value of individual available for sale securities below their cost that are other than temporary would result in write-downs of the individual securities to their fair value. Such write-downs would be included in earnings as realized losses. Premiums and discounts are recognized in interest income using the interest method over the period to maturity.

Loans Held for Sale

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

Loans

The Company grants mortgage, commercial and consumer loans to customers. The ability of the Company’s borrowers to honor their contracts is largely dependent upon the real estate and general economic conditions in the Company’s market area. Loans that management has the

 

44


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, regulatory examiners may require the Company to recognize adjustments to the allowance for loan losses based on their judgment about information available to them at the time of their assessment.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer, residential and other loans for impairment disclosures.

 

45


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

Servicing Rights

The Company capitalizes servicing rights when loans are either securitized or sold and the loan servicing is retained. The cost of servicing rights is amortized in proportion to and over the estimated period of net servicing revenues. The amortization of servicing rights is recognized in the statement of income as an offset to other noninterest income. Servicing assets are evaluated for impairment based upon the fair value. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance.

Transfers of Financial Assets

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

Foreclosed Real Estate

Real estate properties acquired through foreclosure or other proceedings are initially recorded at fair value upon foreclosure, establishing a new cost basis. After foreclosure, valuations are performed and the foreclosed property is adjusted to the lower of cost or fair value of the properties, less costs to sell. Any write-down at the time of transfer to foreclosed properties is charged to the allowance for loan losses. Subsequent write-downs are charged to other expenses. Property is evaluated regularly to ensure that the recorded amount is supported by its current fair value.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Land is carried at cost. Additions and major replacements or betterments which extend the useful lives of premises and equipment are capitalized. Maintenance, repairs and minor improvements are expensed as incurred. Depreciation is computed principally by the straight-line method over estimated useful lives, except in the case of leasehold improvements, which are amortized over the term of the leases, if shorter. Useful lives range from five to seven years for furniture, fixtures and equipment, to ten to thirty-nine years for leasehold improvements and buildings, respectively. Upon retirement or other disposition of the assets, the cost and the related accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.

Federal Home Loan Bank Stock

As a requirement for membership, the banks invest in the stock of the Federal Home Loan Bank of Atlanta (“FHLB”). This investment is carried at cost. Due to the redemption provisions of the FHLB, the Company estimated that fair value approximates cost and that this investment was not impaired.

 

46


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

Goodwill

Goodwill resulted from the 2000 acquisition of Anson BanCorp, Inc. and its subsidiary, Anson Savings Bank. Goodwill is evaluated for impairment annually or more frequently if circumstances indicate potential impairment.

Stock-Based Compensation

The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). ASC 718 also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. Excess tax benefits are reported as financing cash inflows in the consolidated statement of cash flows.

Income Taxes

The Company and its subsidiaries file a consolidated Federal income tax return and separate North Carolina income tax returns. The provision for income taxes in the accompanying consolidated financial statements is provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Fair Value of Financial Instruments

The Company adopted the provisions of Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures and ASC 825, Financial Instruments on January 1, 2008.

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.

 

47


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

Among the Company’s assets and liabilities, investment securities available for sale are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including loans held for sale, which are carried at the lower of cost or market; 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; foreclosed real estate, which is carried at lower of cost or fair market value and goodwill, which is periodically tested for impairment. Deposits, short-term borrowings and long-term obligations are not reported at fair value.

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 in accordance with ASC 310, Receivables, Loan and Debt Securities. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2009, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Comprehensive Income

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.

As of December 31, 2009 and December 31, 2008, total accumulated other comprehensive income (loss) was $1.0 million and $(1.6) million, respectively. The components of accumulated other comprehensive income at December 31, 2009 included $239,926 of unrealized gains and temporary unrealized losses net of tax, and non credit losses on five other than temporarily impaired investments of $(772,722) net of tax. Accumulated other comprehensive income at December 31, 2008 consisted of unrealized gains and temporary unrealized losses of $(1.6) million net of tax.

Earnings per Common Share

The Company issued 3% stock dividends in 2008 and 2007. There was not a stock dividend in 2009. All references in these consolidated financial statements to earnings per common share and weighted average common and common equivalent shares outstanding have been adjusted for the effect of these stock dividends. In 2009 and 2008 there were 280,715 and 189,866 options outstanding that were anti-dilutive, respectively. There were not any anti-dilutive stock options outstanding in 2007.

 

48


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The ESOP effect is the yearly average of the unallocated ESOP shares.

The computation of weighted average shares used in the calculation of basic and dilutive earnings per share is summarized below:

 

     2009     2008     2007  

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

   7,593,969      7,618,913      7,753,837   

Effect of ESOP shares

   (119,829   (136,425   (150,343
                  

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

   7,474,140      7,482,488      7,603,494   

Effect of dilutive stock options

   —        37,996      103,338   
                  

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

   7,474,140      7,520,484      7,706,832   
                  

Recent Accounting Pronouncements

ASC 105

In June 2009, the Financial Accounting Standards Board issued Accounting Standards Codification ASC 105. The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles as the single source of authoritative U.S. Generally Accepted Accounting Principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. The Codification reorganizes all previous GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure. All existing standards that were used to create the Codification have been superseded, replacing the previous references to specific Statements of Financial Accounting Standards (SFAS) with numbers used in the Codification’s structural organization. The guidance is effective for interim and annual periods ending after September 15, 2009. After September 15, only one level of authoritative GAAP exists, other than guidance issued by the Securities and Exchange Commission (SEC). All other accounting literature excluded from the Codification is considered non-authoritative. The adoption of the Codification does not have a material impact on the Company’s consolidated financial statements.

ASC 815

In March of 2008, the Financial Accounting Standards Board issued Accounting Standards Codification 815 (“ASC 815”), Derivative and Hedging. ASC 815 amends and expands the disclosure requirement for derivative instruments and hedging activities to provide users of financial statements with an enhanced understanding of the derivative instrument’s purpose,

 

49


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

how it is accounted for, and its impact on the financial statements. The adoption of ASC 815 on January 1, 2009 did not have a material effect on the Company’s consolidated financial statements.

ASC 855

In May 2009, the Financial Accounting Standards Board issued Accounting Standards Codification (“ASC 855”), Subsequent Events. The guidance establishes general standards of accounting for and disclosure of subsequent events. Subsequent events are events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance is effective for interim or annual periods ending after June 15, 2009. The adoption of this guidance was not material to the Company’s consolidated financial statements.

FSP EITF 99-20-1

On January 12, 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position, Emerging Issues Task Force (EITF) 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20. FSP EITF 99-20-1 addresses certain practice issues in EITF No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” by making its other-than-temporary impairment assessment guidance consistent with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” FSP EITF 99-20-1 removes the reference to the consideration of a market participant’s estimates of cash flows in EITF 99-20, and instead requires an assessment of whether it is probable, based on current information and events, that the holder of the security will be unable to collect all amounts due according to the contractual terms. If it is probable that there has been an adverse change in estimated cash flows, other-than-temporary impairment is deemed to exist, and a corresponding loss shall be recognized in earnings equal to the entire difference between the investment’s carrying value and its fair value at the balance sheet date of the reporting period for which the assessment is made. This FSP is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. The impact of adoption did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the Financial Accounting Standards Board issued the following three FASB Staff Positions intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities:

ASC 820

ASC 820, “Fair Value and Disclosures,” provide additional guidance for estimating fair value in accordance with ASC 820 when the volume and level of activity for the asset or liability have decreased significantly. ASC 820 also provides guidance on identifying circumstances that indicate a transaction is not orderly. The provisions of ASC 820 are effective for the Company’s interim period ending on June 30, 2009.

ASC 825

ASC 825, “Financial Instruments,” requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The provisions of ASC 825 are effective for the Company’s interim period ending on June 30, 2009. As ASC 825 amends only the disclosure requirements about fair value of financial instruments in interim periods, the adoption of ASC 825 did not have a material effect on the Company’s statement of operations and balance sheet.

 

50


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 1 - Significant Accounting Policies (Continued)

 

ASC 320

ASC 320, “Investments, Debt Equity Securities” amends current other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This ASC does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The Company adopted this as of June 30, 2009 and it did not have a material effect on the Company’s statement of operations and balance sheet.

SAB 111

The Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 111 (FASB ASC 320-10-S99-1) on April 9, 2009 to amend Topic 5.M., “Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities” and to supplement FSP SFAS 115-2 and SFAS 124-2. SAB 111 maintains the Staff’s previous views related to equity securities; however, debt securities are excluded from its scope. The SAB provides that “other-than-temporary” impairment is not necessarily the same as “permanent” impairment and unless evidence exists to support a value equal to or greater than the carrying value of the equity security investment, a write-down to fair value should be recorded and accounted for as a realized loss. The SAB was effective upon issuance and had no impact on the Company’s financial position.

From time to time the FASB issues exposure drafts of proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.

Reclassification

Certain amounts in the 2008 and 2007 financial statements have been reclassified to conform to the 2009 presentation. The reclassifications had no effect on net income or shareholders’ equity as previously reported.

 

51


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 2 - Investment Securities

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

 

December 31, 2009

   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
          (dollars in thousands)     

U.S. Treasury

   $ 3,024    $ —      $ 5    $ 3,019

U.S. Government agencies

     20,736      246      11      20,971

Mortgage-backed securities and CMO’s

     34,186      1,056      —        35,242

Private label CMO’s

     7,468      117      85      7,500

State and political subdivisions

     9,276      309      —        9,585
                           

Total securities available for sale

   $ 74,690    $ 1,728    $ 101    $ 76,317
                           

December 31, 2008

   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
          (dollars in thousands)     

U.S. Government agencies

   $ 10,469    $ 229    $ 55    $ 10,643

Mortgage-backed securities and CMO’s

     33,149      691      225      33,615

Private label CMO’s

     11,351      —        3,570      7,781

State and political subdivisions

     16,396      417      17      16,796
                           

Total securities available for sale

   $ 71,365    $ 1,337    $ 3,867    $ 68,835
                           

At December 31, 2009 and 2008, the Company owned Federal Reserve stock reported at cost of $778,850 and $568,850 respectively and is included in other assets. Also at December 31, 2009 and 2008, the Company owned Federal Home Loan Bank Stock (FHLB) of $3.2 million and $2.3 million, respectively. The investments in Federal Reserve stock and FHLB stock are required investments related to the Company’s membership and borrowings with these banks.

Results from sales and calls of securities available for sale for the years ended December 31, 2009, 2008 and 2007 are as follows:

 

     2009     2008    2007  
     (dollars in thousands)  

Gross proceeds from sales and calls

   $ 9,535      $ —      $ 4,643   
                       

Realized gains from sales

   $ 219      $ —      $ —     

Realized losses from sales

     (930     —        (76
                       

Net realized gains (losses)

   $ (711   $ —      $ (76
                       

At December 31, 2009, 2008 and 2007 securities available for sale with a carrying amount of $11.4 million, $13.2 million and $15.2 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 December 31, 2009 and 2008. These unrealized losses on investment securities are a result of temporary fluctuations in the market prices due to a rise in interest rates, which will adjust if rates decline in a volatile market and are in no way a reflection of the quality of the investments. At December 31, 2009, the unrealized losses related to three U.S. Treasury notes, three U.S. Government Agencies and five mortgage backed securities and collateralized mortgage obligations “CMOs”.

 

52


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 2 - Investment Securities (Continued)

 

     Less than 12 Months    12 Months or More    Total

December 31, 2009

   Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
     (dollars in thousands)          

Securities available for sale temporary impairment

                 

U.S. Treasury

   $ 3,019    $ 5    $ —      $ —      $ 3,019    $ 5

U.S. Gov’t agencies

     10,327      11      —        —        10,327      11

Mortgage-backed securities and CMO’s

     —        —        134      —        134      —  

Private label CMO’s

     —        —        1,625      85      1,625      85

State and political subdivisions

     —        —        —        —        —        —  
                                         
   $ 13,346    $ 16    $ 1,759    $ 85    $ 15,105    $ 101
                                         

Other than Temporary Impairment

                 

Private label CMO’s

   $ —      $ —      $ 3,667    $ —      $ 3,667    $ —  
                                         
   $ —      $ —      $ 3,667    $ —      $ 3,667    $ —  
                                         

 

     Less than 12 Months    12 Months or More    Total

December 31, 2008

   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

   $ 3,010    $ 55    $ —      $ —      $ 3,010    $ 55

Mortgage-backed securities and CMO’s

     3,996      212      633      12      4,629      224

Private label CMO’s

     10,506      3,076      657      66      11,163      3,142

State and political subdivisions

     2,648      17      —        —        2,648      17
                                         
   $ 20,160    $ 3,360    $ 1,290    $ 78    $ 21,450    $ 3,438
                                         

Other than Temporary Impairment

                 

Private label CMO’s

   $ 188    $ 429    $ —      $ —      $ 188    $ 429
                                         
   $ 188    $ 429    $ —      $ —      $ 188    $ 429
                                         

The Company routinely conducts reviews to identify and evaluate each investment security to determine whether OTTI has occurred using several economic models. To determine if the unrealized loss is other-than-temporary, the Company projects total estimated defaults of the underlying troubled and non performing assets (mortgages) and multiply that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss. The Company also evaluates the current credit enhancement underlying the bond to determine the impact on cash flows. If the Company determines that a given position will be subject to a write-down, loss or decline in yield, the Company records the expected credit loss as a charge to earnings. In addition, the Company estimates the expected loss by taking into account observed performance of the underlying securities, industry studies, market forecasts, as well as our view of the economic outlook affecting bond collateral.

Based on these evaluations, the Company determined that five private label collateralized mortgage obligations were other-than-temporarily impairment at December 31, 2009, and reduced the carrying value of these instruments to fair value through a $1.8 million charge to earnings. These instruments were subsequently sold at a further loss of $93,621 during the first quarter of 2010.

 

53


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 2 – Investment Securities (Continued)

The following table summarizes cumulative credit other-than-temporary impairment losses recognized on debt securities held by the Company:

 

     2009  
     (dollars in thousands)  

Balance, beginning of the period

   $ —     

Impairment losses recognized during the year

     1,807   

Realized losses from sales

     (124
        

Balance, end of year

   $ 1,683   
        

As of December 31, 2009 there are no unrealized loss components for these impaired securities and accumulated other comprehensive income.

Note 3 – Loans Held for Investment

The composition of net loans held for investment as of December 31, 2009 and 2008 is as follows:

 

     2009     2008  
     (dollars in thousands)  

Commercial

   $ 51,723      $ 45,470   

Real estate - construction

     44,976        50,661   

Real estate - residential

     144,154        139,346   

Real estate - commercial

     95,938        89,561   

Consumer

     16,628        15,499   

Other

     172        121   
                
     353,591        340,658   

Less:

    

Allowance for loan losses

     (5,276     (4,361

Deferred loan (fees) costs, net

     138        172   
                

Loans held for investment, net

   $ 348,453      $ 336,469   
                

Although the subsidiary banks’ loan portfolios are diversified, there is a concentration of mortgage real estate loans, primarily one to four family residential mortgage loans, which represent 40.77% of total loans. Additionally, there is concentration in commercial loans secured primarily by real estate, to finance manufacturing buildings, shopping center locations, commercial land development, commercial buildings and equipment that comprise 27.13% of total loans. There is not a concentration of a particular type of credit in this group of commercial loans.

Impaired loans, which consisted of nonaccrual loans and other loans identified by management as impaired, totaled $24.1 million and $12.5 million at December 31, 2009 and 2008, respectively. The nonaccrual status of these loans had the effect of reducing net income by $246,395 in 2009 and $93,750 in 2008. Of the $24.1 million in impaired loans at December 31, 2009, $16.5 million carried allowances totaling $3.0 million while $7.6 million were evaluated and required no specific allowance. Of the $12.5 million in impaired loans at December 31, 2008, $9.0 million carried allowances totaling $2.3 million while $3.5 million required no specific allowance. There were credit card loans 90 days past due and still accruing of $16,635 and $2,710 at December 31, 2009 and 2008, respectively.

Restructured loans at December 31, 2009 totaled $2.4 million of which $2.3 million are included in impaired loans above.

 

54


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 3 – Loans Held for Investment (Continued)

The carrying value of foreclosed properties held as other real estate was $3.4 million and $2.8 million at December 31, 2009 and 2008, respectively.

The Company’s loan policies are written to address loan-to-value ratios and collateralization methods with respect to each lending category. Consideration is given to the economic and credit risk of lending areas and customers associated with each category.

Note 4 – Allowance for Loan Losses

Changes in the allowance for loan losses for the years ended December 31, 2009, 2008 and 2007 are presented below:

 

     2009     2008     2007  
     (dollars in thousands)  

Balance, beginning of year

   $ 4,361      $ 3,510      $ 3,171   

Charge-offs

     (871     (288     (224

Recoveries

     54        170        548   

Provision charged against income

     1,732        969        15   
                        

Balance, end of year

   $ 5,276      $ 4,361      $ 3,510   
                        

Note 5 – Servicing Assets

Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage and other loans serviced for others were approximately $289 million and $228 million at December 31, 2009 and 2008, respectively. The carrying value of capitalized servicing rights, net of valuation allowances, is included in other assets. A summary of mortgage servicing rights follows:

 

     2009     2008     2007  
     (dollars in thousands)  

Beginning of year mortgage servicing rights:

   $ 1,293      $ 1,321      $ 1,244   

Amounts capitalized

     1,465        563        484   

Amortization

     (868     (471     (407

Impairment

     —          (120     —     
                        

End of year

   $ 1,890      $ 1,293      $ 1,321   
                        

Amortization expense is estimated as follows:

 

     Year ending December 31,
     (dollars in thousands)

2010

   $ 305

2011

     264

2012

     224

2013

     183

2014

     142

Thereafter

     772
      

Total

   $ 1,890
      

 

55


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 6 – Premises and Equipment

The major classes of premises and equipment and the total accumulated depreciation at December 31, 2009 and 2008 are listed below:

 

     2009    2008
     (dollars in thousands)

Land

   $ 4,081    $ 3,207

Building and improvements

     10,012      8,402

Furniture and equipment

     5,598      5,391
             
     19,691      17,000

Less accumulated depreciation

     6,045      5,872
             

Total

   $ 13,646    $ 11,128
             

Note 7 – Leases

The Company’s subsidiary, Bank of Stanly, had a noncancelable operating lease for a branch location in Albemarle that expired in 2008, with annual rental payments of $18,575. The lease has one five year renewal option at the expiration of the initial term. Bank of Stanly elected to go into a month to month lease and entered into an agreement to purchase the building for $300,000 in 2009. The lease payment remained the same during the finalization of the purchase. Bank of Stanly has also entered into a noncancelable operating lease for a branch location in Locust that expires in 2010 with annual rental payments of $41,856. The Company’s subsidiary, Cabarrus Bank and Trust has entered into a noncancelable operating lease for an administrative office location in Concord that expires in 2017 with annual rental payments of $59,850. The lease has two five year renewal options at the expiration of the initial term.

Future minimum lease payments under these leases for years subsequent to December 31, 2009 are as follows:

 

     Year ending December 31,
     (dollars in thousands)

2010

   $ 95

2011

     60

2012

     60

2013

     60

2014

     60

Thereafter

     159
      

Total

   $ 494
      

Total rental expense related to the operating leases was $106,350, $120,281, and $76,449 for the years ended December 31, 2009, 2008 and 2007 respectively, and is included in occupancy expense.

 

56


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 8 – Deposits

The composition of deposits at December 31, 2009 and 2008 is as follows:

 

     2009     2008  
     Amount    Percentage
of Total
    Amount    Percentage
of Total
 
     (dollars in thousands)  

Demand deposits

   $ 44,924    12   $ 46,032    13

Interest checking and money market

     137,708    37     117,325    33

Savings

     32,120    8     26,360    8

Time deposits $100,000 and over

     64,736    17     63,321    18

Other time deposits

     97,286    26     100,589    28
                          

Total

   $ 376,774    100   $ 353,627    100
                          

The maturities of fixed-rate time deposits at December 31, 2009 are reflected in the table below:

 

Year ending December 31,

   Time
Deposits
$100,000
and Over
   Other
Time
Deposits
     (dollars in thousands)

2010

   $ 53,500    $ 78,857

2011

     9,583      15,676

2012

     1,044      1,659

2013

     507      494

2014

     102      590

Thereafter

     —        10
             

Total

   $ 64,736    $ 97,286
             

 

57


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 9 – Short-Term Borrowed Funds

The following tables set forth certain information regarding the amounts, year-end weighted average rates, average balances, weighted average rate, and maximum month-end balances for short-term borrowed funds, at and during 2009 and 2008

 

     2009     2008  
     Amount    Rate     Amount    Rate  
     (dollars in thousands)  

At year-end

          

Federal funds purchased

   $ —      0.00   $ —      0.00

Securities sold under repurchase agreements

     —      0.00     1,463    0.92

Master notes

     11,482    0.50     8,903    1.00

Notes payable

     58    3.80     8    6.00

Short-term line of credit

     —      0.00     2,600    2.25

Short-term advances from FHLB

     15,400    0.36     9,275    0.46
                          
   $ 26,940    0.42   $ 22,249    0.92
                          

 

     2009     2008  
     Amount    Rate     Amount    Rate  
     (dollars in thousands)  

Average for the year

          

Federal funds purchased

   $ 273    1.05   $ 1,245    2.93

Securities sold under repurchase agreements

     669    0.89     1,354    1.37

Master notes

     11,298    0.83     8,882    1.36

Notes payable

     56    3.25     8    6.00

Short-term line of credit

     724    1.68     703    3.18

Short-term advances from FHLB

     11,401    1.70     7,278    4.46
                          
   $ 24,421    1.29   $ 19,470    2.72
                          

 

     2009    2008
     (dollars in thousands)

Maximum month-end balance

     

Federal funds purchased

   $ 1,250    $ 6,050

Securities sold under repurchase agreements

     1,740      1,752

Master notes

     12,559      11,657

Notes payable

     58      8

Short-term line of credit

     2,600      6,600

Short-term advances from FHLB

     24,275      14,000

Federal funds purchased represent unsecured overnight borrowings from other financial institutions. Securities sold under repurchase agreements represent short-term borrowings collateralized by securities of the United States government or its agencies. Master notes represent an overnight investment in commercial paper issued by the Company to customers of its subsidiary banks, where an agreement is in place.

On September 25, 2007, the Company borrowed $6.6 million from a bank at an interest rate of prime less one percent. During 2008 principal payments were made on this note in the amount of $4.0 million. The remaining balance of $2.6 million was paid off during 2009.

 

58


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 9 – Short-Term Borrowed Funds (Continued)

The subsidiary banks have combined available lines of credit for federal funds in the amount of $18.8 million at December 31, 2009.

Note 10 – Long-Term Debt

The Company has a line of credit with the Federal Home Loan Bank secured by qualifying first lien and second mortgage loans, commercial real estate loans and investment securities with eligible collateral value of $79.6 million at December 31, 2009. The long-term advances under this line amounted to $19.0 million and $25.0 million at December 31, 2009 and 2008, respectively. Interest rates ranged from 1.57% to 5.50% in 2009 and from 2.96% to 7.52% in 2008. Two subsidiary banks also have standby letters of credit issued by the Federal Home Loan Bank to be used as collateral for public funds deposits. The amount of the letters of credit was $10.0 million at December 31, 2009.

During the second and third quarters of 2008, the Company began a private placement of up to 7,500 fixed rate junior subordinated debt securities at $1,000 per security with a required minimum investment of $50,000. These securities may be redeemed by the Company after June 30, 2010 and the final maturity date is June 30, 2015. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.75%. The proceeds of this private placement qualify and are included in the calculation of Tier 2 capital. At the end of the offering period the Company had raised $7.4 million that was outstanding at December 31, 2009.

On November 19, 2002, the Company executed a mortgage in the amount of $129,000 for the purchase of property for branch expansion. This loan bears interest at 6.00% and is to be paid in 60 quarterly installments of $3,277. The outstanding principal balance on this note was $82,781 at December 31, 2009.

On May 13, 2009, the Company executed a note payable in the amount of $200,000 for the purchase of existing leased office space. The note bears interest at 3.43% and is to be paid in four equal annual payments of $50,000. The outstanding balance of this note was $200,000 at December 31, 2009.

As of December 31, 2009, the scheduled maturities of these advances and notes payable are as follows:

 

     Year ending December 31,
     (dollars in thousands)

2011

   $ 10,059

2012

     3,059

2013

     4,560

2014

     1,510

2015

     7,430

Thereafter

     25
      

Total

   $ 26,643
      

 

59


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 11 – Income Tax Matters

The significant components of income tax expense for the years ended December 31 are summarized as follows:

 

     2009     2008     2007
     (dollars in thousands)

Current tax expense:

      

Federal

   $ 428      $ 1,225      $ 844

State

     146        307        238
                      

Total

     574        1,532        1,082
                      

Deferred tax expense:

      

Federal

     (620     (607     198

State

     (117     (121     7
                      

Total

     (737     (728     205
                      

Net provision for income taxes

   $ (163   $ 804      $ 1,287
                      

The difference between the provision for income taxes and the amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes is summarized below:

 

     2009     2008     2007  
     (dollars in thousands)  

Tax computed at the statutory federal rate

   $ 179      $ 963      $ 1,443   

Increases (decrease) resulting from:

      

Tax exempt interest, net

     (269     (267     (245

State income taxes, net of federal benefit

     19        123        162   

Other

     (92     (15     (73
                        

Provision for income taxes

   $ (163   $ 804      $ 1,287   
                        

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

 

60


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 11 – Income Tax Matters (Continued)

 

     2009     2008     2007  
     (dollars in thousands)  

Deferred tax assets relating to:

      

Net unrealized loss on securities available for sale

   $ —        $ 979      $ —     

Allowance for loan losses

     1,772        1,305        935   

Deferred compensation

     635        494        357   

Other

     462        126        (10
                        

Total deferred tax assets

     2,869        2,904        1,282   

Deferred tax liabilities relating to:

      

Net unrealized gain on securities available for sale

     (613     —          (241

Premises and equipment

     (371     (301     (369

Deferred loans fees and costs

     (214     (213     (213

Loan servicing

     (158     (41     (78

Prepaid expenses

     (157     (138     (110

Other

     —          —          (8
                        

Total deferred tax liabilities

     (1,513     (693     (1,019
                        

Net recorded deferred tax asset

   $ 1,356      $ 2,211      $ 263   
                        

The net deferred tax asset is included in other assets on the accompanying consolidated balance sheets.

Note 12 – Commitments and Contingencies

Financial Instruments with Off-Balance Sheet Risk

The subsidiary banks are parties to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of their 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 subsidiary banks’ risks of loss with the unfunded loans and lines of credit or standby letters of credit are represented by the contractual amount of these instruments. The Banks use the same credit policies in making commitments under such instruments as they do for on-balance sheet instruments. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, real estate and time deposits with financial institutions. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are unsecured.

As of December 31, 2009 and 2008, outstanding financial instruments whose contract amounts represent credit risk were as follows:

 

     2009    2008
     (dollars in thousands)

Commitments to extend credit

   $ 91,648    $ 79,649

Credit card commitments

     8,697      10,923

Standby letters of credit

     881      981
             
   $ 101,226    $ 91,553
             

 

61


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 12 – Commitments and Contingencies (Continued)

Contingencies

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements.

During 2009, the Company had entered into a contract to construct the new Locust branch office. At of December 31, 2009, there was $894,000 remaining on the contract. The branch will be opening in 2010.

Financial Instruments with Concentration of Credit Risk

The bank subsidiaries make commercial, agricultural, real estate mortgage, home equity and consumer loans primarily in Stanly, Anson and Cabarrus counties. A substantial portion of the Company’s customers’ ability to honor their contracts is dependent on the economy in these counties.

Although the Company’s composition of loans is diversified, there is some concentration of mortgage loans in the total portfolio. The Banks’ Policy is to abide by real estate loan-to-value margin limits corresponding to guidelines issued by the federal supervisory agencies on March 19, 1993. Lending policy for all loans requires that they be supported by sufficient cash flows. Credit losses related to this real estate concentration are consistent with credit losses experienced in the portfolio as a whole.

Note 13 – Related Party Transactions

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

(dollars in thousands)

 

Balance at December 31, 2008

   $ 15,449   

Disbursements during the year

     7,221   

Collections during the year

     (7,881
        

Balance at December 31, 2009

   $ 14,789   
        

At December 31, 2009, the Company had approved, but unused lines of credit, totaling $6.4 million to executive officers, directors, officers and their related interests.

 

62


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 14 – Shareholders’ Equity and Regulatory Matters

The Company, and its bank subsidiaries, are subject to certain requirements imposed by state and federal banking statutes and regulations. These requirements, among other things, establish minimum levels of capital, restrict the amount of dividends that may be distributed, and require that reserves on deposit liabilities be maintained in the form of vault cash or deposits with the Federal Reserve Bank.

The Company and its subsidiary banks are subject to federal regulatory risk-based capital guidelines for banks and bank holding companies. Each must meet specific capital guidelines that involve quantitative measure of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices which measure Total and Tier 1 Capital to risk-weighted assets and Tier 1 Capital to average assets. Quantitative measures established by regulation to ensure capital adequacy and the Company’s consolidated capital ratios are set forth in the table below. The Company expects to meet or exceed these minimums without altering current operations or strategy.

 

     Actual     Minimum
For Capital
Requirement
    Minimum to Be Well
Capitalized Under
Prompt Corrective
Action Provisions
 
     Amount    Ratio     Amount    Ratio     Amount    Ratio  
    

(Dollars in thousands)

            

December 31, 2009

               

Total Capital to Risk

               

Weighted Assets:

               

Consolidated

   $ 54,052    14.0   $ 30,908    8.0   $ 38,635    10.0

Bank of Stanly

     32,980    12.9     20,413    8.0     25,516    10.0

Anson Bank and Trust

     5,278    13.3     3,165    8.0     3,956    10.0

Cabarrus Bank and Trust

     12,260    13.8     7,120    8.0     8,901    10.0

Tier I Capital to Risk

               

Weighted Assets:

               

Consolidated

     42,024    10.9     15,454    4.0     23,181    6.0

Bank of Stanly

     29,782    11.7     10,206    4.0     15,310    6.0

Anson Bank and Trust

     4,795    12.1     1,582    4.0     2,374    6.0

Cabarrus Bank and Trust

     11,332    12.7     3,560    4.0     5,340    6.0

Tier I Capital to

               

Average Assets:

               

Consolidated

     42,204    8.8     19,086    4.0     23,857    5.0

Bank of Stanly

     29,782    9.4     12,709    4.0     15,887    5.0

Anson Bank and Trust

     4,795    8.8     2,171    4.0     2,714    5.0

Cabarrus Bank and Trust

     11,322    10.9     4,161    4.0     5,201    5.0

 

63


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

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

 

December 31, 2008

               

Total Capital to Risk

               

Weighted Assets:

               

Consolidated

   $ 53,368    14.4   $ 29,626    8.0   $ 37,033    10.0

Bank of Stanly

     33,357    13.1     20,349    8.0     25,436    10.0

Anson Bank and Trust

     4,477    12.5     2,864    8.0     3,580    10.0

Cabarrus Bank and Trust

     12,170    15.4     6,327    8.0     7,908    10.0

Tier I Capital to Risk

               

Weighted Assets:

               

Consolidated

     41,736    11.3     14,813    4.0     22,220    6.0

Bank of Stanly

     30,176    11.9     10,174    4.0     15,261    6.0

Anson Bank and Trust

     4,061    11.3     1,432    4.0     2,148    6.0

Cabarrus Bank and Trust

     11,554    14.6     3,163    4.0     4,745    6.0

Tier I Capital to

               

Average Assets:

               

Consolidated

     41,736    9.5     17,519    4.0     21,899    5.0

Bank of Stanly

     30,176    10.1     11,901    4.0     14,876    5.0

Anson Bank and Trust

     4,061    8.6     1,892    4.0     2,365    5.0

Cabarrus Bank and Trust

     11,554    13.3     3,471    4.0     4,339    5.0

As of December 31, 2009, the most recent notification from the Federal Deposit Insurance Corporation categorized all subsidiary banks as being well capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events since such notification that management believes would have changed the categorizations.

On December 23, 2008, the Company entered into a letter agreement with the United States Department of Treasury to sell 10,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Senior Preferred”) with a redemption value of $10.0 million. The Company also issued a warrant to the Treasury that was immediately exercised for 500 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Warrant Preferred”) with redemption value of $500,000. Combined proceeds received for the issuance of both the Senior Preferred and the Warrant Preferred was $10.0 million, resulting in a net discount that has been allocated between the two issues based upon their relative fair values. As a condition of the Cumulative Perpetual Preferred Stock, the Company must obtain consent from the United States Department of the Treasury to repurchase its common stock or to pay a cash dividend. Furthermore, the Company has agreed to certain restrictions on executive compensation.

The Senior Preferred qualifies as Tier 1 capital and will pay cumulative dividends at a rate of 5% per year, for the first five years, and 9% per year thereafter. Under the terms of the agreement, the Senior Preferred may be redeemed with prior approval from the Federal Reserve in the first three years with the proceeds from the issuance of certain qualifying Tier 1 capital or after three years at par value plus accrued and unpaid dividends.

The Warrant Preferred also qualifies as Tier 1 capital and will pay cumulative dividends at a rate of 9% per year. Under the terms of the agreement, the Warrant Preferred may be redeemed after the Senior Preferred has been completely redeemed, at par value plus accrued and unpaid dividends. It is the Company’s intention to redeem both issues of preferred stock no later than the fifth anniversary of its issuance. Accordingly, the net discount of $500,000 is going to be amortized over five years. At December 31, 2009 the remaining discount was $400,000.

 

64


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

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

On December 31, 2008, the Company entered into agreements with its subsidiary banks to sell Fixed Rate Noncumulative Perpetual Preferred Stock to the Company to provide an avenue for pushing portions of the funds received from Company’s issuance of preferred stock down to the subsidiary bank level. At December 31, 2009, Uwharrie Capital Corp had invested $3.0 million in Stanly, $1.0 million in Anson and $3.0 million in Cabarrus.

All of the Company’s aforementioned investments in its subsidiary banks qualify for Tier 1 capital treatment and are included as such in their respective year end capital ratios.

For the reserve maintenance period in effect at December 31, 2009, the subsidiary banks were required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank in the aggregate amount of $1.1 million as reserves on deposit liabilities.

Note 15 – Stock Matters

During 1996, the Company adopted the 1996 Incentive Stock Option Plan (“SOP”) and the Employee Stock Purchase Plan (“SPP”), under which options to purchase shares of the Company’s common stock may be granted to officers and eligible employees. Options granted under the SOP are exercisable in established increments according to vesting schedules, generally three to five years, and will expire if not exercised within ten years of the date of grant. Options granted under the SPP are fully vested at the date of grant and expire if not exercised within two years of the grant date. Both of these plans expired in 2006. At December 31, 2009, the SOP had 268,355 shares still outstanding and the SPP had no options outstanding.

During 2006, the Company adopted the 2006 Incentive Stock Option Plan (“SOP II”) and the Employee Stock Purchase Plan (“SPP II”), under which options to purchase shares of the Company’s common stock may be granted to officers and eligible employees. Options granted under the SOP II are exercisable in established increments according to vesting schedules, generally three to five years, and will expire if not exercised within ten years of the date of grant. Options granted under the SPP II are fully vested at the date of grant and expire if not exercised within two years of the grant date. At December 31, 2009, the SOP II had 12,360 shares outstanding and the SPP II had no options outstanding.

Employee Stock Plans

Activity under all option plans, reflecting the effects of the 3% stock dividends issued in 2008 and 2007, are as follows:

 

     2009    2008    2007
     Number
of Shares
    Weighted
Average
Exercise
Price
   Number
of Shares
    Weighted
Average
Exercise
Price
   Number
of Shares
    Weighted
Average
Exercise
Price

Options outstanding at the beginning of the year

   459,856      $ 4.54    519,328      $ 4.47    551,613      $ 4.46

Options granted

   —          —      12,360        5.34    —          —  

Options exercised

   —          —      (71,824     4.19    (13,538     2.66

Forfeitures

   (179,141     4.22    (8     4.28    (18,747     5.30
                                      

Options outstanding at the end of the year

   280,715      $ 4.75    459,856      $ 4.54    519,328      $ 4.48
                                      

Options exercisable at the end of the year

   270,827      $ 4.73    431,470      $ 4.49    487,281      $ 4.42
                                      

 

65


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 15 – Stock Matters (Continued)

At December 31, 2009, total options outstanding at December 31, 2009 included 280,715 options exercisable at a range of $4.21 to $5.35 per share with a weighted average expected term of 2.92 years. Exercisable options at December 31, 2009 included 270,827 options exercisable at a range of $4.21 to $5.35 per share. At December 31, 2009, authorized shares of common stock reserved for future grants of options totaled 154,971 under the SOP II, and 103,234 under the SPP II.

The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. There were no shares granted during the twelve months ended December 31, 2009 under the SOP II. There were 12,360 shares granted in 2008.

The following is a summary of stock option activity for the year ended December 31, 2009:

 

     Shares     Weighted
Average
Exercise
Price
   Aggregate
Intrinsic Value
(in thousands)

Outstanding at December 31, 2008

   459,856      $ 4.54   

Granted

   —          

Exercised

   —          

Forfeited

   (179,141     4.22   
           

Outstanding at December 31, 2009

   280,715        4.75    $ —  
           

Options exercisable at December 31, 2009

   270,827        4.73      —  
           

A summary of the status of the Company’s non-vested stock options as of December 31, 2009, and changes during the year then ended is presented below:

 

     Shares     Weighted
Average
Grant Date
Fair Value

Non-vested December 31, 2008

   28,386      $ 1.49

Granted

   —          —  

Vested

   (18,498     1.43

Forfeited

   —          —  
        

Non-vested December 31, 2009

   9,888        1.60
        

The grant date fair value of stock options vested over the twelve months ended December 31, 2009, 2008 and 2007 was $26,438, $22,478 and $42,231 respectively.

As of December 31, 2009, there was $11,590 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all of the Company’s stock benefit plans. That cost is expected to be recognized over a weighted-average period of 3.3 years.

The Company funds the option shares from authorized but unissued shares. The Company does not typically purchase shares to fulfill the obligations of the stock benefit plans. Company policy does allow option holders to exercise options with seasoned shares.

For the twelve months ended December 31, 2008 and 2007 the intrinsic value of options exercised was $74,409 and $38,055, respectively. There were no options exercised in 2009.

 

66


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 15 – Stock Matters (Continued)

Stock Repurchase Program

On February 21, 1995, the Company’s Board of Directors authorized and approved a Stock Repurchase Program, to be reaffirmed annually, pursuant to which the Company may repurchase shares of the Company’s common stock for the primary purpose of providing liquidity to its shareholders. Pursuant to stock repurchase authorizations and limitations, the Company purchased 111,258 shares during 2008 at an aggregate purchase price of $570,839. There were no shares repurchased during 2009.

Note 16 – Employee and Director Benefit Plans

Employees’ Savings Plus and Profit Sharing Plan

The Company has established an associate tax deferred savings plan under Section 401(k) of the Internal Revenue Code of 1986. All associates who are scheduled to work 500 hours or more are eligible to participate upon completion of six months of employment.

The Company’s annual contribution to the plan was $210,884 in 2009, $206,478 in 2008 and $192,776 in 2007, determined as follows:

 

   

A matching contribution equivalent to 50% of the first 6% of each associate’s compensation contributed to the plan.

 

   

A discretionary contribution, subject to approval by the Board of Directors, limited to an amount not to exceed the maximum amount deductible for income tax purposes.

Directors’ Deferred Compensation Plan

On March 1, 1994, the Company established a Directors’ Deferred Compensation Plan in accordance with the laws of the State of North Carolina under which each Director could elect to defer receipt for services rendered to the Company as a Director during the term of his or her service by entering into a written deferred compensation election. This plan was closed to new participants in 2001; subsequently, only two directors continued to defer receipt of fees in 2007 and one director continued in 2008. The balance in deferred directors’ compensation, not yet disbursed, was $165,487 at December 31, 2008. The plan has now been terminated and all funds have been disbursed. Expense for the years ended December 31, 2009, 2008 and 2007 was $12,078, $12,298 and $12,956, respectively.

Employee Stock Ownership Plan

The Company established an Employee Stock Ownership Plan (“ESOP”) to benefit all qualified employees. The ESOP purchased 293,216 dividend adjusted shares of common stock in 1999 with proceeds received from a loan of $1.2 million from the Company. The loan is to be repaid over eighteen years with interest at 8%. The loan may be prepaid without penalty. The unallocated shares of stock held by the ESOP are pledged as collateral for the loan. The ESOP is funded by contributions made by the Company and its subsidiaries in amounts sufficient to retire the debt. At December 31, 2009, the outstanding balance of the loan is $666,636 and is presented as a reduction of shareholders’ equity.

 

67


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 16 – Employee and Director Benefit Plans (Continued)

Shares released as the debt is repaid and earnings from the common stock held by the ESOP are allocated among active participants on the basis of compensation in the year of allocation. Benefits vest 100% as they are allocated to participants. Dividends on unallocated shares may be used by the ESOP to repay the loan to the Company and are not reported as dividends in the financial statements. Dividends on allocated or committed to be allocated shares are credited to the accounts of the participants and reported as dividends in the consolidated financial statements.

Expenses of $350,068, $326,633 and $317,256 during the years ended December 31, 2009, 2008 and 2007, respectively, have been incurred in connection with the ESOP. At December 31, 2009, 333,353 shares held by the ESOP, including additional shares purchased, have been released or committed to be released to the ESOP’s participants for purposes of computing earnings per share. The fair value of the unallocated shares amounted to approximately $525,676 at December 31, 2009.

Supplemental Executive Retirement Plan

The Company has implemented a non-qualifying deferred compensation plan for certain executive officers. Certain of the plan benefits will accrue and vest during the period of employment, and will be paid in fixed monthly benefit payments for up to ten years commencing with the officer’s retirement at any time after attainment of the age specified in the officer’s plan agreement. The plan also provides for payment of death benefits and for payment of disability benefits in the event the officer becomes permanently disabled prior to attainment of retirement age.

Effective December 31, 2008, this plan was amended and restated to comply with Section 409A of the Internal Revenue Code. The participants’ account liability balances as of December 31, 2008 could be transferred into a trust fund, where investments will be participant-directed. The plan is structured as a defined contribution plan and the Company’s expected annual funding contribution for the participants has been calculated through the participant’s expected retirement date. Under terms of the agreement, the Company has reserved the absolute right, at its sole discretion, to either fund or refrain from funding the plan. The plan also provides for payment of death benefits and for payment of disability benefits in the event the officer becomes permanently disabled prior to attainment of retirement age.

During 2009, 2008 and 2007 a provision of $500,800, $383,800 and $199,328, respectively, was expensed for future benefits to be provided under the plan. The liability accrued for compensation deferred under the plan amounts to $2.0 million and $1.5 million at December 31, 2009 and 2008, respectively.

Split-Dollar Life Insurance

The Company has entered into Life Insurance Endorsement Method Split-Dollar Agreements with certain officers. Under these agreements, upon death of the officer, the Company first recovers the cash surrender value of the contract and then shares the remaining death benefits from insurance contracts, which are written with different carriers, with the designated beneficiaries of the officers. The death benefit to the officers’ beneficiaries is a multiple of base salary at the time of the agreements. The Company, as owner of the policies, retains an interest in the life insurance proceeds and a 100% interest in the cash surrender value of the policies. During 2009 and 2008, the expense associated with these policies was $35,829 and $64,130, respectively.

 

68


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 17 – Fair Values of Financial Instruments and Interest Rate Risk

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 below are made at December 31, 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 a liability could be settled for. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following table do not represent market values of all assets and liabilities of the Company and should not be interpreted to represent the underlying value of the Company. The following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of December 31, 2009 and 2008.

 

     2009    2008
     Carrying
Amount
   Estimated
Fair Value
   Carrying
Amount
   Estimated
Fair Value
    

(dollars in thousands)

Financial Assets

           

Cash and cash equivalents

   $ 10,859    $ 10,896    $ 13,284    $ 13,284

Securities available for sale

     76,317      76,317      68,835      68,835

Loans held for investment, net

     348,453      363,619      336,469      354,083

Loans held for sale

     2,628      2,634      2,691      2,691

FHLB Stock

     3,201      3,201      2,284      2,284

Bank-owned life insurance

     5,714      5,714      5,511      5,511

Accrued interest receivables

     2,077      2,077      2,027      2,027

Financial Liabilities

           

Deposits

   $ 376,774    $ 400,997    $ 353,627    $ 354,589

Short-term borrowings

     26,940      26,940      22,249      22,249

Long-term debt

     26,643      28,173      32,502      33,306

Accrued interest payable

     396      396      502      502

The carrying amount of cash and cash equivalents and accrued interest approximate their fair values due to the short period of time until their expected realization. Securities available for sale are carried at fair value based on quoted market prices. See Note 2. The carrying amount of bank-owned life insurance is the current cash value. It is not practicable to determine fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability and it is presented at its carrying value.

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

 

   

Loans – The fair value of loans is estimated based on discounted expected cash flows using the current interest rates at which similar loans would be made. Loans held for sale, which represent current mortgage production forward sales not yet delivered, are valued based on current market prices. The fair value of loans held for investment does not consider the lack of liquidity and uncertainty in the market that would affect the valuation under ASC 820.

 

69


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 17 – Fair Values of Financial Instruments and Interest Rate Risk (Continued)

 

   

Deposits – The fair value of checking, savings and money market deposit is deemed equal to the amount payable on demand. The fair value of certificates of deposit is estimated based on discounted cash flow analyses using offered market rates.

 

   

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. The estimated fair value for long-term borrowings are estimated based on discounted cash flow analyses using offered market rates.

At December 31, 2009, the subsidiary banks 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, they were deemed to have no current fair value. See Note 12.

The following table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 and 2008:

 

     December 31, 2009
(dollars in thousands)
     Total    Level 1    Level 2    Level 3

Securities available for sale:

           

US Treasury

   $ 3,019    $ 3,019    $ —      $ —  

US Gov’t

     20,971      20,971      —        —  

Mortgage-backed securities and CMO’s

     35,242      —        35,242      —  

Private label CMO’s

     7,500      —        7,500      —  

State and political subdivisions

     9,585      —        9,585      —  
                           

Total assets at fair value

   $ 76,317    $ 23,990    $ 52,327    $ —  
                           

Total liabilities at fair value

   $ —      $ —      $ —      $ —  
                           

 

     December 31, 2008
(dollars in thousands)
     Total    Level 1    Level 2    Level 3

Securities available for sale:

           

US Gov’t

   $ 10,643    $ 10,643    $ —      $ —  

Mortgage-backed securities and CMO’s

     33,615      —        33,615      —  

Private label CMO’s

     7,781      —        7,593      188

State and political subdivisions

     16,796      —        16,796      —  
                           

Total assets at fair value

   $ 68,835    $ 10,643    $ 58,004    $ 188
                           

Total liabilities at fair value

   $ —      $ —      $ —      $ —  
                           

 

70


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 17 – Fair Values of Financial Instruments and Interest Rate Risk (Continued)

The following table provides reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) during 2009:

(dollars in thousands)

 

Balance December 31, 2008

   $ 188   

Total realized losses included in earnings

     (94

Sales

     (94

Transfers into level 3

     3,667   

Write-down to market value

     (1,682

Transfers into level 2

     (1,985
        

Balance at December 31, 2009

   $ —     
        

Investment securities available for sale having a Level 3 value of $188,111 at December 31, 2008 were disposed of during the first quarter of 2009 with an additional loss of $93,714.

Prices for US Treasury and government agency securities are readily available in the active markets in which those securities are traded, and the resulting fair values are shown in the ‘Level 1 input’ column. Prices for mortgage-backed securities and for state, county and municipal securities are obtained for similar securities, and the resulting fair values are shown in the ‘Level 2 input’ column. Prices for 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 3 input’ column. Non-marketable investment securities, which are carried at their purchase price, include those that may only be redeemed by the issuer.

 

71


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 17 – Fair Values of Financial Instruments and Interest Rate Risk (Continued)

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of December 31, 2009 and December 31, 2008:

 

     December 31, 2009
(dollars in thousands)
     Total    Level 1    Level 2    Level 3

Loans

   $ 13,519    $ —      $ 13,519    $ —  

Loans held for sale

     2,628      —        2,628      —  

Other real estate owned

     3,419      —        3,419      —  

Mortgage servicing rights

     1,890      —        —        1,890
                           

Total assets at fair value

   $ 21,456    $ —      $ 19,566    $ 1,890
                           

Total liabilities at fair value

   $ —      $ —      $ —      $ —  
                           

 

     December 31, 2008
(dollars in thousands)
     Total    Level 1    Level 2    Level 3

Loans

   $ 6,688    $ —      $ 6,688    $ —  

Loans held for sale

     2,691      —        2,691      —  

Mortgage servicing rights

     1,293      —        —        1,293
                           

Total assets at fair value

   $ 10,672    $ —      $ 9,379    $ 1,293
                           

Total liabilities at fair value

   $ —      $ —      $ —      $ —  
                           

ASC 825 allows an entity to elect to measure certain financial assets and liabilities at fair value with changes in fair value recognized in the income statement each period. The statement also requires additional disclosures to identify the effects of an entity’s fair value election on its earnings. Upon the adoption of ASC 825, the Company did not elect to report any assets and liabilities at fair value.

Interest Rate Risk

The Company assumes interest rate risk (the risk that general interest rate levels will change) in the course of its normal operations. As a result, fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are more likely to prepay in a falling rate environment and less likely to prepay in a rising rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

 

72


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 18 – Parent Company Financial Data

The following is a summary of the condensed financial statements of Uwharrie Capital Corp:

Condensed Balance Sheets

 

     December 31,
     2009    2008
     (dollars in thousands)

Assets

     

Cash and demand deposits with bank subsidiaries

   $ 408    $ 3,297

Interest-earning deposits with bank subsidiaries

     12,030      10,157

Investments in:

     

Bank subsidiaries

     47,908      45,348

Nonbank subsidiaries

     358      331

Other assets

     2,556      1,387
             

Total assets

   $ 63,260    $ 60,520
             

Liabilities and shareholders’ equity

     

Master notes

   $ 11,482    $ 8,903

Long-term debt

     —        2,600

Junior subordinated debentures

     7,419      7,419

Other liabilities

     335      365

Shareholders’ equity

     44,024      41,233
             

Total liabilities and shareholders’ equity

   $ 63,260    $ 60,520
             

Condensed Statement of Operations

 

     2009     2008     2007  
     (dollars in thousands)  

Equity in earnings of subsidiaries

   $ 1,260      $ 2,738      $ 3,734   

Interest income

     113        133        493   

Management and service fees

     5,468        4,464        4,227   

Other income

     91        94        119   

Interest expense

     (533     (535     (1,029

Other operating expense

     (6,122     (5,230     (4,978

Income tax benefit

     413        365        393   
                        

Net income

   $ 690      $ 2,029      $ 2,959   
                        

 

73


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 18 – Parent Company Financial Data (Continued)

Condensed Statements of Cash Flows

 

     2009     2008     2007  
     (dollars in thousands)  

Cash flows from operating activities

      

Net income

   $ 690      $ 2,029      $ 2,959   

Adjustments to reconcile net income to net cash

      

Provided (used) by operating activities:

      

Equity in earnings of subsidiaries

     (1,260     (2,738     (3,734

(Increase) decrease in other assets

     (753     (2,012     618   

Increase (decrease) in other liabilities

     (30     (72     304   
                        

Net cash provided (used) by operating activities

     (1,353     (2,793     147   
                        

Cash flows from investing activities

      

Dividends received from subsidiaries

     900        200        1,800   
                        

Net cash provided by investing activities

     900        200        1,800   
                        

Cash flows from financing activities

      

Net increase (decrease) in master notes

     2,579        (727     3,022   

Net increase (decrease) in long-term debt

     (2,600     (4,000     4,600   

Net decrease in subordinated debentures

     —          —          (5,155

Net proceeds from issuance of junior subordinated debentures

     —          7,419        —     

Repurchase of common stock

     —          (571     (1,404

Net proceeds from issuance of preferred stock

     —          10,500        —     

Proceeds from issuance of common stock

     —          301        36   

Preferred stock purchased from bank subsidiaries

     —          (7,000     —     

Dividends on preferred stock

     (542     (13     —     

Tax benefit of stock options exercised

     —          26        3   

Cash paid for fractional shares

     —          (7     (9
                        

Net cash provided (used) by financing activities

     (563     5,928        1,093   
                        

Net increase (decrease) in cash and cash equivalents

     (1,016     3,335        3,040   

Cash and cash equivalents at beginning of period

     13,454        10,119        7,079   
                        

Cash and cash equivalents at end of period

   $ 12,438      $ 13,454      $ 10,119   
                        

 

74


UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Note 19 – Quarterly Financial Data

 

     First     Second     Third     Fourth  
     (in thousands, except per share data)  

2009

        

Interest income

   $ 6,374      $ 6,182      $ 6,226      $ 6,280   

Interest expense

     (2,087     (1,996     (1,929     (1,685
                                

Net interest income

     4,287        4,186        4,297        4,595   

Provision for loan losses

     (372     (196     (295     (869
                                

Net interest income after provision for loan losses

     3,915        3,990        4,002        3,726   

Noninterest income

     2,324        2,173        1,633        (306

Noninterest expense

     (4,879     (5,281     (5,315     (5,455
                                

Income before taxes

     1,360        882        320        (2,035

Income taxes

     455        259        30        (907
                                

Net income (loss)

   $ 905      $ 623      $ 290      $ (1,128
                                

Dividends on preferred stock

     (162     (160     (159     (161
                                

Net income (loss) available to common Shareholders

   $ 743      $ 463      $ 131      $ (1,289
                                

Net income (loss) per common share

        

Basic

   $ 0.10      $ 0.06      $ 0.02      $ (0.17
                                

Diluted

   $ 0.10      $ 0.06      $ 0.02      $ (0.17
                                

 

     First     Second     Third     Fourth  
     (in thousands, except per share data)  

2008

        

Interest income

   $ 6,697      $ 6,382      $ 6,267      $ 6,218   

Interest expense

     (2,804     (2,429     (2,347     (2,248
                                

Net interest income

     3,893        3,953        3,920        3,970   

Provision for loan losses

     (86     (171     (529     (183
                                

Net interest income after provision for loan losses

     3,807        3,782        3,391        3,787   

Noninterest income

     1,865        1,895        1,650        1,345   

Noninterest expense

     (4,523     (4,532     (4,542     (5,092
                                

Income before taxes

     1,149        1,145        499        40   

Income taxes

     374        373        156        (99
                                

Net income

   $ 775      $ 772      $ 343      $ 139   
                                

Dividends on preferred stock

     —          —          —          (13
                                

Net income available to common Shareholders

   $ 775      $ 772      $ 343      $ 126   
                                

Net income per common share

        

Basic

   $ 0.10      $ 0.10      $ 0.05