10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2010

OR

 

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

For the transition period from              to             .

COMMISSION FILE NUMBER 000-22062

 

 

UWHARRIE CAPITAL CORP

(Exact name of registrant as specified in its charter)

 

 

 

NORTH CAROLINA   56-1814206

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

132 NORTH FIRST STREET

ALBEMARLE, NORTH CAROLINA

  28001
(Address of Principal Executive Offices)   (Zip Code)

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

N/A

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

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

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

Indicate the number of shares outstanding of each of the classes of common stock issuer’s as of the latest practicable date: 7,593,929 shares of common stock outstanding as of November 8, 2010.

 

 

 


Table of Contents

 

Table of Contents

 

         Page No.  
Part I.   FINANCIAL INFORMATION   
Item 1 -   Financial Statements (Unaudited)   
 

Consolidated Balance Sheets

September 30, 2010 and December 31, 2009

     3   
 

Consolidated Statements of Operations for the Three and Nine Months

Ended September 30, 2010 and 2009

     4   
 

Consolidated Statements of Changes in Shareholders’ Equity

Nine Months Ended September 30, 2010

     5   
 

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2010 and 2009

     6   
 

Notes to Consolidated Financial Statements

     7   
Item 2 -   Management’s Discussion and Analysis of Financial Condition and Results of Operations      18   
Item 3 -   Quantitative and Qualitative Disclosures about Market Risk      28   
Item 4 -   Controls and Procedures      28   
Part II.   OTHER INFORMATION   
Item 1 -   Legal Proceedings      29   
Item 1A -   Risk Factors      29   
Item 2 -   Unregistered Sales of Equity Securities and Use of Proceeds      29   
Item 3 -   Defaults Upon Senior Securities      29   
Item 4 -   Reserved      29   
Item 5 -   Other Information      29   
Item 6 -   Exhibits      30   
  Exhibit Index      32   

 

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Table of Contents

 

Uwharrie Capital Corp and Subsidiaries

Consolidated Balance Sheets

 

Part I. FINANCIAL INFORMATION

Item 1 - Financial Statements

 

     September 30,
2010
(Unaudited)
    December 31,
2009*
 
     (dollars in thousands)  

ASSETS

    

Cash and due from banks

   $ 7,580      $ 7,521   

Interest-earning deposits with banks

     8,925        3,338   

Securities available for sale, at fair value

     90,983        76,317   

Loans held for sale

     3,096        2,628   

Loans:

    

Loans held for investment

     385,843        353,729   

Less allowance for loan losses

     (7,462     (5,276
                

Net loans held for investment

     378,381        348,453   
                

Premises and equipment, net

     14,546        13,646   

Interest receivable

     2,179        2,077   

Federal Home Loan Bank stock

     3,379        3,201   

Bank owned life insurance

     5,902        5,714   

Goodwill

     987        987   

Other real estate owned

     3,887        3,419   

Prepaid assets

     2,493        2,617   

Other assets

     7,008        7,928   
                

Total assets

   $ 529,346      $ 477,846   
                

LIABILITIES

    

Deposits:

    

Demand noninterest-bearing

   $ 48,085      $ 44,924   

Interest checking and money market accounts

     182,052        137,708   

Savings deposits

     36,783        32,120   

Time deposits, $100,000 and over

     67,367        64,736   

Other time deposits

     91,262        97,286   
                

Total deposits

     425,549        376,774   
                

Short-term borrowed funds

     22,010        26,940   

Long-term debt

     32,587        26,643   

Interest payable

     380        396   

Other liabilities

     2,616        3,069   
                

Total liabilities

     483,142        433,822   
                

Off balance sheet items, commitments and contingencies (Note 6)

    

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

     (325     (400

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

     14,032        14,030   

Unearned ESOP compensation

     (711     (667

Undivided profits

     10,939        10,056   

Accumulated other comprehensive income

     2,277        1,013   
                

Total shareholders’ equity

     46,204        44,024   
                

Total liabilities and shareholders’ equity

   $ 529,346      $ 477,846   
                

 

(*) Derived from audited consolidated financial statements

See accompanying notes

 

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Table of Contents

 

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Operations (Unaudited)

 

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  
     (in thousands, except share and per share data)  

Interest Income

        

Loans, including fees

   $ 5,393      $ 5,281      $ 16,187      $ 15,874   

Investment securities

        

US Treasury

     168        1        327        1   

US Government agencies and corporations

     482        785        1,652        2,335   

State and political subdivisions

     72        145        243        510   

Interest-earning deposits with banks and federal funds sold

     9        14        27        57   
                                

Total interest income

     6,124        6,226        18,436        18,777   
                                

Interest Expense

        

Interest checking and money market accounts

     245        211        723        608   

Savings deposits

     87        67        239        190   

Time deposits, $100,000 and over

     297        505        901        1,597   

Other time deposits

     406        708        1,304        2,261   

Short-term borrowed funds

     176        64        474        250   

Long-term debt

     267        374        815        1,106   
                                

Total interest expense

     1,478        1,929        4,456        6,012   
                                

Net interest income

     4,646        4,297        13,980        12,765   

Provision for loan losses

     2,053        295        3,096        863   
                                

Net interest income after provision for loan losses

     2,593        4,002        10,884        11,902   
                                

Noninterest Income

        

Service charges on deposit accounts

     583        616        1,712        1,751   

Other service fees and commissions

     782        595        2,211        1,627   

Gain on sale of securities, net

     1,520        124        1,484        104   

Loss on nonmarketable securities

     —          —          —          (172

Total other-than-temporary impairment (loss)

     —          —          —          (1,782

Portion of loss recognized in other comprehensive income

     —          (183     —          1,395   
                                

Net impairment recognized in earnings

     —          (183     —          (387

Gain (loss) fixed assets/other assets

     (1     (18     (61     (38

Income from mortgage loan sales

     880        364        1,616        2,931   

Other income

     173        135        401        319   
                                

Total noninterest income

     3,937        1,633        7,363        6,135   
                                

Noninterest Expense

        

Salaries and employee benefits

     2,975        2,822        8,689        8,581   

Net occupancy expense

     322        302        860        789   

Equipment expense

     210        186        568        547   

Data processing costs

     212        203        623        592   

Professional fees and services

     297        298        928        713   

Marketing and donations

     243        176        625        509   

Electronic banking expense

     211        184        588        539   

Software amortization and maintenance

     129        118        359        341   

FDIC insurance

     195        384        547        732   

Other noninterest expense

     1,012        642        2,406        2,132   
                                

Total noninterest expense

     5,806        5,315        16,193        15,475   
                                

Income before income taxes

     724        320        2,054        2,562   

Income taxes

     227        30        687        744   
                                

Net income

   $ 497      $ 290      $ 1,367      $ 1,818   
                                

Net Income

   $ 497        290        1,367        1,818   

Dividends – preferred stock

     (161     (160     (484     (481
                                

Net income available to common shareholders

   $ 336      $ 130      $ 883      $ 1,337   
                                

Net income per common share

        

Basic

   $ 0.04      $ 0.02      $ 0.12      $ 0.18   
                                

Diluted

   $ 0.04      $ 0.02      $ 0.12      $ 0.18   
                                

Weighted average shares outstanding

        

Basic

     7,490,196        7,476,197        7,487,875        7,472,033   

Diluted

     7,490,196        7,476,197        7,487,875        7,472,033   

 

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Uwharrie Capital Corp and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

 

 

     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, 2009

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

Net income

     —           —           —           —          —           —           —          1,367        —           1,367   

Other comprehensive income

     —           —           —           —          —           —           —          —          1,264         1,264   

Release of ESOP shares

     —           —           —           —          —           —           56        —          —           56   

Increase in ESOP receivable

     —           —           —           —          —           —           (100     —          —           (100

Stock compensation expense

     —           —           —           —          —           2         —          —          —           2   

Record preferred stock dividend and discount accretion

     —           —           —           75        —           —           —          (484     —           (409
                                                                                      

Balance, September 30, 2010

     7,593,929       $ 10,000       $ 500       $ (325   $ 9,492       $ 14,032       $ (711   $ 10,939      $ 2,277       $ 46,204   
                                                                                      

 

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Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 

 

     Nine Months Ended
September 30,
 
     2010     2009  
     (dollars in thousands)  

Cash flows from operating activities

  

Net income

   $ 1,367      $ 1,818   

Adjustments to reconcile net income to net cash Provided by operating activities:

    

Depreciation

     595        583   

Net amortization of security premiums/discounts

     265        84   

Impairment of securities available for sale

     —          387   

Net amortization of mortgage servicing rights

     537        864   

Impairment of foreclosed real estate

     76        34   

Provision for loan losses

     3,096        863   

Stock compensation

     2        10   

Net realized gain on available for sales securities

     (1,484     (104

Income from mortgage loan sales

     (1,616     (2,931

Proceeds from sales of loans held for sale

     56,388        123,462   

Origination of loans held for sale

     (55,823     (120,426

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

     10        (1

Loss on nonmarketable securities

     —          172   

Increase in cash surrender value of life insurance

     (188     (141

(Gain) loss on sales of foreclosed real estate

     51        39   

Release of ESOP shares

     56        53   

Net change in interest receivable

     (102     (147

Net change in other assets

     (982     (1,426

Net change in interest payable

     (16     (46

Net change in other liabilities

     (453     452   
                

Net cash provided by operating activities

     1,779        3,599   
                

Cash flows from investing activities

    

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

     52,070        22,272   

Purchase of securities available for sale

     (61,964     (36,208

Net increase in loans

     (34,419     (12,378

Proceeds from sale of premises, equipment and other assets

     —          1   

Purchase of premises and equipment

     (1,505     (2,935

Proceeds from sales of foreclosed real estate

     799        1,138   

Investment in other assets

     (216     (1,076

Net change in Federal Home Loan Bank stock

     (178     (917
                

Net cash used by investing activities

     (45,413     (30,103
                

Cash flows from financing activities

    

Net increase in deposit accounts

     48,775        17,860   

Net increase (decrease) in short-term borrowed funds

     (4,930     7,567   

Net increase (decrease) in long-term debt

     5,944        (854

Repurchase of common stock

     —          —     

Net proceeds from issuance of common stock

     —          —     

Increase in ESOP note receivable

     (100     —     

Dividend on preferred stock

     (409     (406
                

Net cash provided by financing activities

     49,280        24,167   
                

Increase (decrease) in cash and cash equivalents

     5,646        (2,337

Cash and cash equivalents, beginning of period

     10,859        13,284   
                

Cash and cash equivalents, end of period

   $ 16,505      $ 10,947   
                

See accompanying notes

 

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UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Basis of Presentation

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

The information contained in the consolidated financial statements is unaudited. In the opinion of management, the consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and material adjustments necessary for a fair presentation of results of interim periods, all of which are of a normal recurring nature, have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for an entire year. Management is not aware of economic events, outside influences or changes in concentrations of business that would require additional clarification or disclosure in the consolidated financial statements.

The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to consolidated financial statements filed as part of the Company’s 2009 Annual Report on Form 10-K. This Quarterly report should be read in conjunction with such Annual Report.

Note 2 – Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  
     (in thousands)  

Net Income

   $ 497      $ 290      $ 1,367      $ 1,818   
                                

Other comprehensive loss

        

Unrealized gain (losses) on available for sale securities

     1,022        1,704        3,541        2,590   

Related tax effect

     (394     (648     (1,365     (982

Reclassification of loss (gains) recognized in net income

     (1,520     (124     (1,484        (104

Related tax effect

     586        48        572        40   

Reclassification of losses for which credit-related portion was recognized in net income

     —          183        —          387   

Related tax effect

     —          (71     —          (149
                                

Total other comprehensive gain (loss)

     (306     1,092        1,264        1,782   
                                

Comprehensive income

   $ 191      $ 1,382      $ 2,631      $ 3,600   
                                

 

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Note 3 – Per Share Data

Basic and diluted net income per common share is computed based on the weighted average number of shares outstanding during each period after retroactively adjusting for stock dividends. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income of the Company. For the three and nine periods ended September 30, 2010 and 2009, the Company had 180,571 and 459,856 stock options outstanding, respectively. They did not have a dilutive effect on per share results because the exercise prices exceeded the average share values for each period.

Basic and diluted net income per common share have been computed based upon net income available to common shareholders as presented in the accompanying consolidated statements of operations divided by the weighted average number of common shares outstanding or assumed to be outstanding. The computation of basic and dilutive earnings per share is summarized below:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Weighted average number of common shares outstanding

     7,593,929        7,593,929        7,593,929        7,593,929   

Effect of ESOP shares

     (103,733     (117,732     (106,054     (121,926
                                

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

     7,490,196        7,476,197        7,487,875        7,472,033   

Effect of dilutive stock options

     —          —          —          —     
                                

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

     7,490,196        7,476,197        7,487,875        7,472,033   
                                

Note 4 – Investment Securities

Amortized cost and fair value of securities available for sale are summarized below:

 

September 30, 2010

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

U.S. Treasury

   $ 51,724       $ 1,645       $ 98       $ 53,271   

U.S. Government agencies

     19,183         1,021         —           20,204   

Mortgage-backed securities and CMO’s

     9,400         471         —           9,871   

State and political subdivisions

     7,181         456         —           7,637   
                                   

Total securities available for sale

   $ 87,488       $ 3,593       $ 98       $ 90,983   
                                   

 

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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   
                                   

At September 30, 2010 and December 31, 2009 the Company owned Federal Reserve stock reported at cost of $779,000 and included in other assets. Also at September 30, 2010 and December 31, 2009, the Company owned Federal Home Loan Bank Stock (FHLB) of $3.4 million and $3.2 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. These investments are carried at cost since there is no ready market and historically redemption has been made at par value. The Company estimated that the fair value approximated cost and that these investments were not impaired at September 30, 2010.

Results from sales of securities available for sale for the three and nine month periods ended September 30, 2010 and September 30, 2009 are as follows:

 

     Three Months Ended
September 30,
 
     2010     2009  
     (dollars in thousands)  

Gross proceeds from sales

   $ 29,875      $ 3,628   
                

Realized gains from sales

   $ 1,733      $ 124   

Realized losses from sales

     (213     —     
                

Net realized gains

   $ 1,520      $ 124   
                
     Nine Months Ended
September 30,
 
     2010     2009  
     (dollars in thousands)  

Gross proceeds from sales

   $ 42,306      $ 6,171   
                

Realized gains from sales

   $ 1,957      $ 198   

Realized losses from sales

     (473     (94
                

Net realized gains

   $ 1,484      $ 104   
                

At September 30, 2010 and December 31, 2009 securities available for sale with a carrying amount of $41.4 million and $11.4 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2010 and December 31, 2009. 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, and a volatile market and are in no way a reflection of the quality of the investments. At September 30, 2010 the unrealized losses related to six U.S. Treasury notes. 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 CMOs.

 

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     Less than 12 Months      12 Months or More      Total  

September 30, 2010

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

Securities available for sale temporary impairment

                 

U.S. Treasury

   $ 27,350       $ 98       $ —         $ —         $ 27,350       $ 98   
                                                     
   $ 27,350       $ 98       $ —         $ —         $ 27,350       $ 98   
                                                     
     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   
                                                     
   $ 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       $ —     
                                                     

The Company routinely reviews interest rates, issuer ratings and any underlying collateral to identify and evaluate each investment security to determine whether other-than-temporary impairment (“OTTI”) has occurred. The Company’s OTTI problems have all centered around its private label collateralized mortgage obligations portfolio. The entire portfolio was sold during the first quarter if 2010 realizing a loss of $107,000. At this time the Company does not have any securities with OTTI and also has the ability and the intent to hold the securities within its investment portfolio.

Based on these evaluations, the Company did have OTTI on four private label collateralized mortgage obligations (“CMOs”) at September 30, 2009. An other-than-temporary charge of $387,000 due to the credit-related factors was recognized in earnings during the quarter ending September 30, 2009 and $1.4 million was determined to relate to other non-credit-related factors in the market place. The difference between total unrealized losses and estimated credit losses on these securities was charged against equity, net of deferred taxes, as a component of Other Comprehensive Income.

The following table for the nine months ended September 30, 2010 and 2009, shows a roll forward of the amount related to credit losses recognized on debt securities held by the Company for a portion of an other-than-temporary impairment was recognized in other comprehensive income. There were no losses for the period ended September 30, 2010.

 

     September 30,
2009
     September 30,
2010
 
     (in thousands)  

Balance of credit losses on debt securities at the beginning of the period

   $ 204       $ —     

Increase related to credit loss for which an other-than-temporary impairment was recognized

     183         107   

Realized loss from sales

     —           (107
                 

Balance of credit losses on debt securities at the end of the period

   $ 387       $ —     
                 

 

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The aggregate amortized cost and fair value of the available for sale securities portfolio at September 30, 2010 and December 31, 2009 by remaining contractual maturity are as follows:

 

     September 30, 2010  
     Amortized
Cost
     Estimated
Fair Value
 
     (dollars in thousands)  

Securities available for sale

     

U.S. Treasury

     

Due within one year

     1,000         1,007   

Due after one but within five years

     2,020         2,082   

Due after five but within ten years

     48,704         50,182   
                 
     51,724         53,271   
                 

U.S. Government agencies

     

Due after one but within five years

     19,183         20,204   
                 
     19,183         20,204   
                 

Mortgage-backed securities

     

Due after five but within ten year

     2,122         2,244   

Due after ten years

     7,278         7,627   
                 
     9,400         9,871   
                 

State and political

     

Due within one year

     578         581   

Due after one but within five years

     3,290         3,490   

Due after five but within ten year

     1,310         1,447   

Due after ten years

     2,003         2,119   
                 
     7,181         7,637   
                 

Total Securities available for sale

     

Due within one year

     1,578         1,588   

Due after one but within five years

     24,493         25,776   

Due after five but within ten year

     52,136         53,873   

Due after ten years

     9,281         9,746   
                 
   $ 87,488       $ 90,983   
                 
     December 31, 2009  
     Amortized
Cost
     Estimated
Fair Value
 
     (dollars in thousands)  

Securities available for sale

     

U.S. Treasury

     

Due after one but within five years

     3,024         3,019   
                 

U.S. Government agencies

     

Due after one but within five years

     15,485         15,722   

Due after five but within ten years

     5,251         5,249   
                 
     20,736         20,971   
                 

Mortgage-backed securities

     

Due after one year but within five years

     265         269   

Due after five but within ten year

     8,311         8,676   

Due after ten years

     25,610         26,297   
                 
     34,186         35,242   
                 

Private label CMO’s

     

Due after ten years

     7,468         7,500   
                 

State and political

     

Due within one year

     576         577   

Due after one but within five years

     3,886         4,024   

Due after five but within ten year

     2,113         2,213   

Due after ten years

     2,701         2,771   
                 
     9,276         9,585   
                 

Total Securities available for sale

     

Due within one year

     576         577   

Due after one but within five years

     22,660         23,034   

Due after five but within ten year

     15,675         16,138   

Due after ten years

     35,779         36,568   
                 
   $ 74,690       $ 76,317   
                 

 

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Note 5 – Loans

 

     September 30,
2010
     December 31,
2009
 
     (in thousands)  

Loans outstanding at period end:

     

Commercial

   $ 51,059       $ 51,723   

Real estate-construction

     56,828         44,976   

Real estate-residential

     159,897         144,292   

Real estate-commercial

     100,713         95,938   

Consumer loans

     16,628         16,628   

All other loans

     718         172   
                 

Total

   $ 385,843       $ 353,729   
                 

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  
     (in thousands)  

Analysis of the allowance for loan losses

        

Balance at beginning of period

   $ 5,635      $ 4,732      $ 5,276      $ 4,361   

Provision charged to operations

     2,053        295        3,096        863   

Charge-offs

     (246     (207     (947     (448

Recoveries

     20        8        37        52   
                                

Net (charge-offs)

     (226     (199     (910     (396
                                

Balance at end of period

   $ 7,462      $ 4,828      $ 7,462      $ 4,828   
                                

Note 6 – Commitments and Contingencies

The subsidiary banks are party 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 banks’ risk of loss with the unfunded loans and lines of credit or standby letters of credit is represented by the contractual amount of these instruments. The 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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are unsecured. At September 30, 2010, outstanding financial instruments whose contract amounts represent credit risk were approximately:

 

(in thousands)       

Commitments to extend credit

   $ 93,518   

Credit card commitments

     9,286   

Standby letters of credit

     1,331   
        

Total commitments

   $ 104,135   
        

Note 7 – Fair Value Disclosures

Accounting Standards Codification (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

 

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practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.

ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which those assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. Fair values determined using Level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on Level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities for which identical or similar assets and liabilities are not actively traded in observable markets are based on Level 3 inputs, which are considered to be unobservable.

Among the Company’s assets and liabilities, investment securities available for sale 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.

For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of September 30, 2010 and December 31, 2009:

 

     September 30, 2010  
     (dollars in thousands)  
     Total      Level 1      Level 2      Level 3  

Securities available for sale:

           

US Treasury

   $ 53,271       $ 53,271       $ —         $ —     

US Government agencies

     20,204         20,204         —           —     

Mortgage-backed securities and CMO’s

     9,871         —           9,871         —     

State and political subdivisions

     7,637         —           7,637         —     
                                   

Total assets at fair value

   $ 90,983       $ 73,475       $ 17,508       $ —     
                                   

Total liabilities at fair value

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

Securities available for sale:

           

US Treasury

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

US Government agencies

     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

   $ —         $         $ —         $ —     
                                   

 

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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 all other non-marketable investments are determined based on various assumptions that are not observable. The fair values for these investment securities are shown in the ‘Level 3 input’ column. Non-marketable investment securities, which are carried at their purchase price, include those that may only be redeemed by the issuer. The changes in securities between Level 1 and Level 2 were related to the purchase and sale of several securities and not transfers of securities.

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 September 30, 2010, 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.

Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charged to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset 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 foreclosed asset as nonrecurring Level 3.

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.

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.

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

 

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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 September 30, 2010 and December 31, 2009:

 

     September 30, 2010  
     (dollars in thousands)  
     Total      Level 1      Level 2      Level 3  

Impaired loans

   $ 13,217       $ —         $ —         $ 13,217   

Other real estate owned

     1,154         —           1,154         —     
                                   

Total assets at fair value

   $ 14,371       $ —         $ 1,154       $ 13,217   
                                   

Total liabilities at fair value

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

Impaired loans

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

Other real estate owned

     1,724         —           1,724         —     
                                   

Total assets at fair value

   $ 15,243       $ —         $ 1,724       $ 13,519   
                                   

Total liabilities at fair value

   $ —         $ —         $ —         $ —     
                                   

 

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Note 8 – 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 at September 30, 2010 and December 31, 2009, are based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or the price for which 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 September 30, 2010 and December 31, 2009:

 

     September 30, 2010      December 31, 2009  
     Carrying
Amount
     Estimated
Fair Value
     Carrying
Amount
     Estimated
Fair Value
 
     (dollars in thousands)  

Financial Assets

           

Cash and cash equivalents

   $ 16,505       $ 16,518       $ 10,859       $ 10,896   

Securities available for sale

     90,983         90,983         76,317         76,317   

Loans held for investment, net

     378,381         392,751         348,453         363,619   

Loans held for sale

     3,096         3,127         2,628         2,634   

FHLB and FRB Stock

     4,158         4,158         3,980         3,980   

Bank-owned life insurance

     5,902         5,902         5,714         5,714   

Mortgage servicing rights

     1,936         2,079         1,890         2,193   

Accrued interest receivables

     2,179         2,179         2,077         2,077   

Financial Liabilities

           

Deposits

   $ 425,549       $ 429,974       $ 376,774       $ 400,997   

Short-term borrowings

     22,010         22,010         26,940         26,940   

Long-term debt

     32,587         33,860         26,643         28,173   

Accrued interest payable

     380         380         396         396   

The carrying amount of cash and cash equivalents, which, includes $1.5 million in time deposits with other institutions 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. It is not practicable to determine fair value of Federal Home Loan Bank and Federal Reserve Bank stock due to restrictions placed on its transferability and it is presented at its carrying value. The carrying amount of bank-owned life insurance is the current cash surrender value. Fair value for mortgage servicing assets is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions.

The following methods and assumptions were used by the Company in estimating the fair value of 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 does not consider the lack of liquidity and uncertainty in the market that would affect the valuation.

 

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Deposits – The fair value of checking, savings and money market deposits 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. The fair value of deposits does not consider any customer related intangibles.

 

   

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 September 30, 2010, 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 6.

Note 9 – Recent Accounting Pronouncements

In June 2009, the FASB issued ASU 2009-16, an update to ASC 860-10, “Transfers and Servicing,” and ASU 2009-17, an update to ASC 810-10, “Consolidation.” These updates are effective for the first interim reporting period of 2010. The update to ASC 860-10 amends the guidance to eliminate the concept of a QSPE and changes some of the requirements for derecognizing financial assets. The amendments to ASC 810-10: (a) eliminate the exemption for existing QSPEs from U.S. GAAP, (b) shift the determination of which enterprise should consolidate a VIE to a current control approach, such that an entity that has both the power to make decisions and right to receive benefits or absorb losses that could potentially be significant to the VIE will consolidate a VIE, and (c) change when it is necessary to reassess who should consolidate a VIE. The Company adopted this ASU and it had no impact on the financial statements.

In January 2010, the FASB issued ASU 2010-06, an update to ASC 820-10, “Fair Value Measurements.” This update adds a new requirement to disclose transfers in and out of Level 1 and Level 2, along with the reasons for the transfers, and requires a gross presentation of purchases and sales of Level 3 activities. Additionally, the update clarifies that entities provide fair value measurement disclosures for each class of assets and liabilities and that entities provide enhanced disclosures around Level 2 valuation techniques and inputs. The Company adopted the disclosure requirements for Level 1 and Level 2 transfers and the expanded fair value measurement and valuation disclosures effective January 1, 2010. The disclosure requirements for Level 3 activities are effective for the Company on January 1, 2011. The adoption of the disclosure requirements for Level 1 and Level 2 transfers and the expanded qualitative disclosures, had no impact on the Company’s financial position, results of operations, and EPS. The Company does not expect the adoption of the Level 3 disclosure requirements to have an impact on its financial position, results of operations, and EPS.

In July 2010, the FASB issued an Accounting Standards update (ASU No. 2010-20) entitled “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which amends ASC 820-10. The update requires companies to provide more information in their disclosures about the credit quality of their financing receivables and the credit reserves held against them. The amendments that require disclosures as of the end of a reporting period are effective for the periods ending on or after December 15, 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for the periods beginning on or after December 15, 2010. The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

 

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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.

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

This Quarterly Report on Form 10-Q may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. Any use of “we” or “our” in the following discussion refers to the Company.

Comparison of Financial Condition at September 30, 2010 and December 31, 2009.

During the nine months ended September 30, 2010, the Company’s total assets increased $51.5 million, from $477.8 million to $529.3 million. During the same period, loans held for investment also increased $32.1 million, while securities available for sale increased $14.7 million.

Cash and cash equivalents increased $5.6 million during the nine months ended September 30, 2010. Cash and due from banks increased $59,000, while interest-earning deposits with banks increased $5.6 million.

Investment securities increased from $76.3 million to $91.0 million for the nine months ended September 30, 2010. At December 31, 2009 the Company owned $7.5 million in private label CMOs. With the continued erosion in the underlying collateral, management made the decision to sell the entire private label CMO portfolio during the first quarter of 2010 resulting in a realized loss of $107,000. During the third quarter of 2010 as the Company’s loan demand continued to grow along with the need to fund outstanding construction loan commitments, the Company recognized the need to increase its liquidity. Also, at this time of the year deposit growth typically slows on a seasonal basis. The Company made the decision to sell $29.9 million in investments realizing gains of $1.5 million. A portion of these proceeds were reinvested in U.S. Treasury notes with the remainder staying in interest-bearing bank deposits. During the first nine months of 2010, the Company also had additional sales of several small pools of mortgage backed securities and calls on state and political subdivision securities totaling $5.0 million and generating net gains of $71,000. On September 30, 2010, the Company had net unrealized gains of $3.5 million. During the nine month period, the Company purchased a total $62.0 million in new securities reinvesting the proceeds from the aforementioned sales and calls and the influx of cash from the increase in deposits during the period.

Loans held for investment increased from $353.7 million to $385.8 million. The Company experienced positive growth trends in all areas of its real estate loan portfolio. Real estate one to four dwelling experienced the largest growth increasing 10.9% or $15.7 million. A portion of this increase is related to funding on existing commitments related to construction loans. While real estate lending has been increasing during the period, it has been offset by a decrease of $664,000 in commercial lending. Loans held for sale increased 17.8% or $468,000 during the

 

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period. The allowance for loan losses was $7.5 million at September 30, 2010, which represents 1.93% of the loan portfolio. Refer to the Asset Quality discussion on page 24 for further information.

Other real estate owned increased $468,000 to $3.9 million during the first nine months of 2010. There were additional properties added during the nine months totaling $1.4 million. These additions however, have been offset by sales of $851,000 and impairments of $76,000. The sales resulted in realized losses of $51,000 for the nine month period.

Other changes in our consolidated assets are related to premises and equipment, interest receivable, Federal Home Loan Bank stock, bank owned life insurance, prepaid assets and other assets. Premises and equipment, interest receivable and bank owned life insurance increased $900,000, $102,000 and $188,000, respectively. Federal Home Loan Bank stock increased $178,000 because member institutions are required to increase their ownership as they increase their utilization of FHLB borrowings.

Customer deposits, our primary funding source, experienced a $48.7 million increase during the nine months ended September 30, 2010, increasing from $376.8 million to $425.5 million. Demand noninterest bearing checking increased $3.2 million, while interest checking and money market accounts increased $44.3 million for the period. This increase is attributed to approximately $18.0 million in new public funds from one relationship and also from a shift from time deposits to money market accounts. Savings deposits grew $4.7 million. Time deposits over $100,000 experienced growth of $2.6 million, while other time deposits declined $6.0 million during the first nine months of 2010.

Total borrowings increased $1.0 million for the period and consisted of both short-term and long-term borrowed funds primarily from the Federal Home Loan Bank. At September 30, 2010, $39.0 million of the total borrowings of $54.6 million were comprised of Federal Home Loan Bank advances.

Other liabilities decreased from $3.1 million at December 31, 2009 to $2.6 million at September 30, 2010, a decrease of $453,000.

At September 30, 2010, total shareholders’ equity was $46.2 million, an increase of $2.2 million from December 31, 2009. Net income for the period was $1.4 million. Unrealized gains on investment securities, net of tax improved $1.3 million. These increases were offset by a net increase in unearned ESOP compensation of $44,000. The ESOP trust setup a new line of credit with the Company to be used to purchase shares for the ESOP. The aforementioned increases were also offset as the Company recorded $484,000 in dividends on the series A and B preferred stock for the nine months period. At September 30, 2010, the Company and its subsidiary banks exceeded all applicable regulatory capital requirements.

Comparison of Results of Operations For the Three Months Ended September 30, 2010 and 2009.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $497,000 for the three months ended September 30, 2010, as compared to $290,000 for the three months ended September 30, 2009, an increase of $207,000. Net income available to common shareholders was $336,000 or $0.04 per common share at September 30, 2010, compared to $130,000 or $0.02 per common share at September 30, 2009. Net income available to common shareholders is net income less any dividends on preferred stock related to the $10.0 million of capital received from the United States Department of the Treasury under the Capital Purchase Program in December 2008.

 

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Net Interest Income

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

Net interest income for the three months ended September 30, 2010 was $4.6 million as compared with $4.3 million during the three months ending September 30, 2009, resulting in an increase of $349,000, or 8.1%. During the quarter ending September 30, 2010 our growth in the volume of interest-earning assets outpaced the growth in interest-bearing liabilities by $435,000. The average yield on our interest–earning assets decreased 71 basis points to 5.12%, while the average rate we paid for our interest-bearing liabilities decreased 63 basis points. The Company’s assets that are interest rate sensitive adjust at the time the Federal Reserve adjusts interest rates, while interest-bearing time deposits adjust at the time of maturity. The aforementioned decreases resulted in a decrease of 8 basis points in our interest rate spread, from 3.81% in 2009 to 3.73% in 2010. Our net interest margin was 3.90% and 4.06% for the comparable three month periods in 2010 and 2009 respectively.

The following table presents average balance sheets and a net interest income analysis for the three months ended September 30, 2010 and 2009:

Average Balance Sheet and Net Interest Income Analysis

For the Three Months Ended September 30,

(in thousands)

 

     Average Balance      Income/Expenses      Rate/Yield  
     2010      2009      2010      2009      2010     2009  

Interest-earning assets:

                

Taxable securities

   $ 84,066       $ 63,860       $ 650       $ 788         3.07     4.90

Nontaxable securities (1)

     7,606         12,806         72         143         6.09     7.20

Short-term investments

     7,804         7,218         9         14         0.46     0.77

Taxable loans

     375,681         342,610         5,335         5,217         5.63     6.04

Non-taxable loans (1)

     6,110         6,302         58         64         6.17     6.61
                                                    

Total interest-earning assets

     481,267         432,796         6,124         6,226         5.12     5.83

Interest-bearing liabilities:

                

Interest-bearing deposits

     364,212         330,285         1,035         1,491         1.13     1.79

Short-term borrowed funds

     22,639         17,157         176         64         3.08     1.48

Long-term debt

     35,885         31,435         267         374         2.95     4.72
                                                    

Total interest bearing liabilities

     422,736         378,877         1,478         1,929         1.39     2.02
                                                    

Net interest spread

   $ 58,531       $ 53,919       $ 4,646       $ 4,297         3.73     3.81
                                                    

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

                 3.90     4.06
                            

 

(1) Yields related to securities and loans exempt from income taxes are stated on a fully tax-equivalent basis, assuming a 38.55% tax rate.

 

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Provision and Allowance for Loan Losses

The provision for loan losses was $2.1 million for the three months ending September 30, 2010 compared to $295,000 for the same period in 2009. There were net loan charge-offs of $226,000 for the three months ended September 30, 2010 as compared with net loan charge-offs of $199,000 during the same period of 2009. Refer to the Asset Quality discussion on page 24 for further information.

Noninterest Income

The Company generates most of its revenue from net interest income; however, like all financial institutions, diversification of our earnings base is of major importance in our long term success. Total noninterest income increased $2.3 million for the three month period ending September 30, 2010 as compared to the same period in 2009. Income from mortgage loan sales increased $516,000 from $364,000 for the quarter ended September 30, 2009 to $880,000 for the same period in 2010. Late during the second quarter of 2010, interest rates began to decrease enabling many customers to refinance. The volume of mortgage activity continued to increase during the third quarter. Service charges on deposit accounts produced earnings of $583,000 for the three months ended September 30, 2010. Other service fees and commissions experienced a 31.4% increase for the comparable three month period. This is due in part to a reduction in the write-down of servicing assets and income generated from brokerage commissions and asset management fees that increased $71,000. The Company realized income on the sale of investments in the amount of $1.5 million in the third quarter of 2010, as compared to $124,000 for the same period in 2009.

Noninterest Expense

Noninterest expense for the quarter ended September 30, 2010 was $5.8 million compared to $5.3 million for the same period of 2009, a increase of $491,000. Salaries and employee benefits, the largest component of noninterest expense, was $3.0 million for the three months ending September 30, 2010 compared to $2.8 million for the same period in 2009. Net occupancy expense and equipment expense had a combined increase of $44,000. FDIC assessment costs decreased $189,000, compared to the same quarter in 2009 due to a decline in FDIC premiums. Other noninterest expense increased $370,000 for the comparable three month periods. The major contributor to this increase was loan collection and foreclosed loan expenses that increased $157,000 for the three month period. The table below reflects the composition of other noninterest expense.

Other noninterest expense

 

     Three Months Ended
September 30,
 
     2010      2009  
     (in thousands)  

Office supplies and printing

   $ 91       $ 66   

Postage

     61         51   

Telephone and data lines

     60         55   

Loan collection expense

     94         (19

Foreclosed loan expense

     112         68   

Shareholder relations expense

     43         51   

Dues and subscriptions

     48         37   

Other

     503         333   
                 

Total

   $ 1,012       $ 642   
                 

 

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Income Tax Expense

The Company had income tax expense of $227,000 for the three months ended September 30, 2010 resulting in an effective tax rate of 31.4% compared to income tax expense of $30,000 and an effective rate of 9.4% in the 2009 period. Income taxes computed at the statutory rate are reduced primarily by the eligible amount of interest earned on state and municipal securities, tax free municipal loans and income earned on bank owned life insurance.

Comparison of Results of Operations For the Nine Months Ended September 30, 2010 and 2009.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $1.4 million for the nine months ended September 30, 2010, as compared to $1.8 million for the nine months ended September 30, 2009, a decrease of $451,000. Net income available to common shareholders was $883,000 or $0.12 per common share, for the nine months ended September 30, 2010, compared to $1.3 million or $0.18 per common share, for the nine months ended September 30, 2009. Net income available to common shareholders is net income less any dividends on preferred stock related to the $10.0 million of capital received from the United States Department of the Treasury under the Capital Purchase Program in December 2008.

Net Interest Income

Net interest income for the nine months ended September 30, 2010 was $14.0 million as compared with $12.8 million during the nine months ended September 30, 2009, resulting in an increase of $1.2 million, or 9.4%. During the nine months ending September 30, 2010 our growth in the volume of interest-earning assets outpaced the growth in interest-bearing liabilities by $870,000. The average yield on our interest–earning assets decreased 52 basis points to 5.42%, while the average rate we paid for our interest-bearing liabilities decreased 66 basis points. The Company’s assets that are interest rate sensitive adjust at the time the Federal Reserve adjusts interest rates, while interest-bearing time deposits adjust at the time of maturity. The aforementioned decreases resulted in an increase of 15 basis points in our interest rate spread, from 3.80% in 2009 to 3.95% in 2010. Our net interest margin was 4.13% and 4.08% for the comparable nine month periods in 2010 and 2009 respectively. A portion of the Company’s loan portfolio has interest rate floors in place on the loans. This feature has contributed to an improved interest margin in the current interest rate environment; however, this feature could result in compressed margins in a rising rate environment where interest rates on assets do not rise with interest rates on liabilities because they remain below contractual floors.

The following table presents average balance sheets and a net interest income analysis for the nine months ended September 30, 2010 and 2009:

 

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Average Balance Sheet and Net Interest Income Analysis

For the Nine Months Ended September 30,

(in thousands)

 

     Average Balance      Income/Expenses      Rate/Yield  
     2010      2009      2010      2009      2010     2009  

Interest-earning assets:

                

Taxable securities

   $ 76,625       $ 61,616       $ 1,980       $ 2,344         3.45     5.09

Nontaxable securities (1)

     8,298         14,992         242         502         6.35     7.28

Short-term investments

     5,986         7,222         27         57         0.60     1.06

Taxable loans

     364,210         343,121         16,006         15,713         5.88     6.12

Non-taxable loans (1)

     6,360         5,302         181         162         6.18     6.63
                                                    

Total interest-earning assets

     461,479         432,253         18,436         18,778         5.42     5.94

Interest-bearing liabilities:

                

Interest-bearing deposits

     348,354         320,805         3,167         4,656         1.22     1.94

Short-term borrowed funds

     24,434         25,019         474         250         2.59     1.34

Long-term debt

     32,671         30,952         815         1,106         3.34     4.78
                                                    

Total interest bearing liabilities

     405,459         376,776         4,456         6,012         1.47     2.13
                                                    

Net interest spread

   $ 56,020       $ 55,477       $ 13,980       $ 12,766         3.95     3.80
                                                    

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

                 4.13     4.08
                            

 

(1) Yields related to securities and loans exempt from income taxes are stated on a fully tax-equivalent basis, assuming a 38.55% tax rate.

Provision and Allowance for Loan Losses

The provision for loan losses was $3.1 million for the nine months ending September 30, 2010 compared to $863,000 for the same period in 2009. There were net loan charge-offs of $910,000 for the nine months ended September 30, 2010 as compared with net loan charge-offs of $396,000 during the same period of 2009. Refer to the Asset Quality discussion on page 24 for further information.

Noninterest Income

The Company generates most of its revenue from net interest income; however, like all financial institutions, diversification of our earnings base is of major importance in our long term success. Total noninterest income increased $1.2 million for the nine month period ending September 30, 2010 as compared to the same period in 2009. Income from mortgage loan sales decreased $1.3 million from $2.9 million for the nine months ended September 30, 2009 to $1.6 million for the same period in 2010. The decline in interest rates late in 2008 and during the first quarter of 2009 lead to a wave of mortgage refinancing, as customers were able to refinance at a lower rate. While the volume of refinanced loans was much lower in the first nine months of 2010 activity has increased during the third quarter due to a reduction in mortgage interest rates. Service charges on deposit accounts produced earnings of $1.7 million for the nine months ended September 30, 2010. Other service fees and commissions experienced a 35.9% increase for the comparable nine month period. This is due in part to a reduction in the write-down of servicing assets due to the refinanced mortgage loans. Income generated from brokerage commissions and asset management fees increased $200,000. The Company realized gains on the sale of investments in the amount of $1.5 million in the first nine months of 2010, compared to gains of $104,000 for the same period in 2009. The Company had an investment in Silverton Bank stock that was a nonmarketable security which was written off as of March 31, 2009. The Company also recognized other-than-temporary impairment of $387,000 during the first nine months of 2009.

 

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Noninterest Expense

Noninterest expense for the quarter ended September 30, 2010 was $16.2 million compared to $15.5 million for the same period of 2009, an increase of $718,000. Salaries and employee benefits, the largest component of noninterest expense, increased $108,000 to $8.7 million for the period ending September 30, 2010. Net occupancy expense and equipment expense had a combined increase of $92,000. Professional fees and services increased $215,000, primarily related to an increase in legal fees, attributed to loan collections. Other noninterest expense increased $274,000 for the comparable nine month periods. The table below reflects the composition of other noninterest expense.

Other noninterest expense

 

     Nine Months Ended
September 30,
 
     2010      2009  
     (in thousands)  

Office supplies and printing

   $ 268       $ 226   

Postage

     162         153   

Telephone and data lines

     173         166   

Loan collection expense

     190         171   

Foreclosed loan expense

     243         136   

Shareholder relations expense

     136         151   

Dues and subscriptions

     138         122   

Other

     1,096         1,007   
                 

Total

   $ 2,406       $ 2,132   
                 

Income Tax Expense

The Company had income tax expense of $687,000 for the nine months ended September 30, 2010 resulting in an effective tax rate of 33.45% compared to income tax expense of $744,000 and an effective rate of 29.0% in the 2009 period. Income taxes computed at the statutory rate are reduced primarily by the eligible amount of interest earned on state and municipal securities, tax free municipal loans and income earned on bank owned life insurance. The Company had approximately $6.0 million in state municipal securities that were called during the second half of 2009. The increase in the effective tax rate resulted primarily from the decrease in the level of such tax free income as a percentage of income before income taxes in the current year quarter compared to the 2009 quarter.

Asset Quality

The Company’s allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. The allowance is increased by provisions charged to operations and by recoveries of amounts previously charged off, and reduced by loans charged off. Management continuously evaluates the adequacy of the allowance for loan loss. In evaluating the adequacy of the allowance, management considers the following: the growth, composition and industry diversification of the portfolio; historical loan loss experience; current delinquency levels; adverse situations that may affect a borrower’s ability to repay; estimated value of any underlying collateral; prevailing economic conditions and other relevant factors. The Company’s credit administration function, through a review process, validates the accuracy of the initial risk grade assessment. In addition, as a given loan’s credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrower’s risk grade accordingly. For loans determined to be impaired, the allowance is based either on discounted cash flows using the loan’s initial effective interest rate or on the fair value of the collateral for certain collateral dependent loans. This evaluation is inherently subjective,

 

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as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans, which may be susceptible to significant change. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require additions for estimated losses based upon judgments different from those of management.

Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and the adequacy of the allowance for loan losses. In this program, risk grades are initially assigned by loan officers and reviewed and monitored by credit administration. The Company strives to maintain its loan portfolio in accordance with conservative loan underwriting policies that result in loans specifically tailored to the needs of its market area. Every effort is made to identify and minimize the credit risks associated with such lending strategies. The Company has no foreign loans and does not engage in significant lease financing or highly leveraged transactions. The Company follows a loan review program designed to evaluate the credit risk in the loan portfolio. This process includes the maintenance of an internally classified watch list that is designed to help management assess the overall quality of the loan portfolio and the adequacy of the allowance for loan losses. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower’s ability to repay, the borrower’s payment history and the current delinquent status. As a result of this process, certain loans are categorized as substandard, doubtful or loss and reserves are allocated based on management’s judgment and historical experience.

The allowance for loan losses represents management’s best estimate of an appropriate amount to provide for inherent risk in the loan portfolio in the normal course of business. While management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that regulators, in reviewing the Company’s portfolio, will not require an adjustment to the allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary, should the quality of any loans deteriorate as a result of the factors discussed herein. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition and results of operations.

The provision for loan losses was $3.1 million for the nine months ended September 30, 2010 as compared to $863,000 for the same period in 2009. During the first nine months of 2010 the levels of our impaired loans, which includes all loans in nonaccrual status and other loans deemed by management to be impaired, were $42.7 million compared to $24.1 million at December 31, 2009, an increase of $18.6 million. The increase in the level of impaired loans resulted from nine customer relationships totaling $16.8 million. These relationships are deemed impaired from a cashflow standpoint; however, we believe they are more than adequately collateralized. At this time the collateral appears to be the primary source for the repayment. Total nonaccrual loans, which are a component of impaired loans, increased from $5.6 million at December 31, 2009 to $16.4 million at September 30, 2010. The Company had net loan charge-offs for the first nine months of 2010 of $910,000 compared to net loan charge-offs of $396,000 for the same period in 2009.

The allowance expressed as a percentage of gross loans held for investment increased 44 basis points from 1.49% at December 31, 2009 to 1.93% at September 30, 2010. The general allowance as a percentage of non-impaired loans increased from 0.71% at December 31, 2009 to 1.19% at September 30, 2010, an increase of 48 basis points. Given the continued declines in the credit quality metrics relating to nonperforming loans since December 31, 2009, the increase in the reserve was warranted. During the quarter we upgraded our allowance for loan

 

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loss model to capture not only the mean loss of individual loans but also the rare event of severe loss that can occur within the loan portfolio. The changes were made in the part of the model used to compute the general reserves. Specifically, the Company began calculating probable losses on loans by computing a probability of loss and expected loss scenario by call codes. Together, these components created from Ordinary Least Squares (OLS) Regression of historical losses against multiple Macro-Economic factors make up the basis of the new allowance model. The loans that are impaired and included in the specific reserve are excluded from these new calculations. The continued deteriorating credit metrics as evaluated in our updated allowance model resulted in $2.1 million in loan loss provisions during the third quarter. Nonperforming loans, which consist of nonaccrual loans and loan 90 days and still accruing, to total loans increased from 1.60% at December 31, 2009, to 4.43% at September 30, 2010. During the period the Company had an increase in other real estate owned of $468,000. Management believes the current level of the allowance for loan losses is appropriate in light of the risk inherent in the loan portfolio.

The following nonperforming assets table shows the comparison of the nine months ended September 30, 2010 to December 31, 2009:

Nonperforming Assets

(dollars in thousands)

 

     September 30,
2010
    December 31,
2009
 

Nonperforming assets:

    

Accruing loans past due 90 days or more

   $ 688      $ 17   

Nonaccrual loans

     16,418        5,630   

Other real estate owned

     3,887        3,419   
                

Total nonperforming assets

   $ 20,993      $ 9,066   
                

Allowance for loans losses

     7,462        5,276   

Nonperforming loans to total loans

     4.43     1.60

Allowance for loan losses to total loans

     1.93     1.49

Nonperforming assets to total loans and other real estate

     5.44     2.56

Nonperforming assets to total assets

     3.97     1.90

Allowance for loan losses to nonperforming loans

     43.62     93.44

Liquidity and Capital Resources

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

The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flow generated by investments. Growth in deposits is typically the primary source of funds for loan growth. The

 

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Company and its subsidiary banks have multiple funding sources in addition to deposits that can be used to increase liquidity and provide additional financial flexibility. These sources are the subsidiary banks’ established federal funds lines with correspondent banks aggregating $18.8 million at September 30, 2010, with available credit of $18.8 million, established borrowing relationships with the Federal Home Loan Bank, with available credit of $32.1 million, access to borrowings from the Federal Reserve Bank discount window, with available credit of $16.1 million and the issuance of commercial paper. Total debt from these sources aggregated $54.6 million at September 30, 2010, compared to $53.6 million at December 31, 2009. The Company also has access to out of the market brokered deposits as long as they maintain a “well-capitalized” position. The Company’s bank subsidiaries do not have any brokered deposits at this time.

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

Regulatory guidelines require a minimum of total capital to risk-adjusted assets ratio of 8 percent and a Tier 1 leverage ratio of 4 percent. Banks, which meet or exceed a Tier 1 risk-based capital ratio of 6 percent, a total risked-based capital ratio of 10 percent and a leverage ratio of 5 percent are considered “well capitalized” by regulatory standards. Financial institutions are expected to maintain a level of capital commensurate with the risk profile assigned to their assets in accordance with those guidelines.

The Company and its subsidiary banks have each maintained capital levels exceeding minimum levels for “well capitalized” banks and bank holding companies. At September 30, 2010, the total risk based capital for the Company and each subsidiary was as follows; the Company 13.88%, Bank of Stanly 12.92%, Anson Bank and Trust 14.13% and Cabarrus Bank and Trust 13.58%. The Company expects to continue to exceed minimum capital requirements without altering current operations or strategy. The Company completed a private placement of junior subordinated debt during 2008 that qualifies as regulatory capital. This subordinated debt has a seven year maturity. The first two years the entire amount is included in regulatory capital and then is reduced by 20 percent a year until its maturity. The first 20 percent reduction occurred in the third quarter of 2010, reducing capital $1.5 million. At September 30, 2010, the Company had $7.4 million in outstanding subordinated debt and $10.0 million in preferred stock issued and outstanding to the United States Department of the Treasury.

Accounting and Regulatory Matters

Except as described below, management is not aware of any known trends, events, uncertainties or current recommendations by regulatory authorities that will have or that are reasonably likely to have a material effect on the Company’s liquidity, capital resources, or other operations. On July 21, 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Act, was signed into legislation. The Act substantially rewrites the rules governing financial service providers and products, and implementation of the Act will require new mandatory and discretionary rulemakings by numerous federal regulatory agencies over the next several years. Key provisions of the Act include (i) a new risk-based approach to financial services regulation giving federal bank regulatory agencies new authority to monitor the systemic safety of the financial system, take proactive steps to reduce or eliminate risks, impose strict controls on large bank holding companies and significant non-bank financial companies and take direct control of troubled financial companies; (ii) new regulation of systemically risky institutions by putting into place several new entities and a statutory liquidation process; (iii) increased bank supervision through establishment of the equivalent of a prompt corrective action program for large bank holding companies, requiring capital requirements for holding companies that are at least as strict as the capital requirements for

 

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depository institutions and direction to federal bank regulators to develop specific capital requirements for holding companies and depository institutions that address activities that pose risk to the financial system; (iv) establishment of a new independent federal regulatory body for consumer protection known as the Bureau of Consumer Financial Protection that will assume responsibility for most consumer protection laws; and, (v) placement of certain restrictions on investment and other activities by depository institutions, holding companies and affiliates including significant increases in the regulation of mortgage lending and servicing by banks and non-banks.

The Company can offer no assurances as to the potential impact of the Act on the Company’s and its bank subsidiaries’ business, financial condition and results of operations. The Company expects, however, that certain provisions of the Act may have adverse effects on the Company’s business or that of its banking subsidiaries, included but not limited to, the cost of compliance with the numerous new regulations and reporting requirements mandated by the Act, a potential increase in competition for deposits resulting from the elimination of interstate branching restrictions and the rise in the cost of funding using non-deposit liabilities which will now be subject to Federal Deposit Insurance Corporation assessments and the potential loss of interchange fee income from debit and credit card transactions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s primary market risk is interest rate risk. Interest rate risk is the result of differing maturities or repricing intervals of interest-earning assets and interest-bearing liabilities and the fact that rates on these financial instruments do not change uniformly. These conditions may impact the earnings generated by the Company’s interest earning assets or the cost of its interest-bearing liabilities, thus directly impacting the Company’s overall earnings. The Company’s management actively monitors and manages interest rate risk. One way this is accomplished is through the development of and adherence to the Company’s asset/liability policy. This policy sets forth management’s strategy for matching the risk characteristics of the Company’s interest-earning assets and liabilities so as to mitigate the effect of changes in the rate environment. In management’s opinion, the Company’s market risk profile has not changed significantly since December 31, 2009.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act (“Exchange Act”) Rule 13a-15.

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

 

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Changes in Internal Control over Financial Reporting

Management of the Company has evaluated, with the participation of the Company’s principal executive officer and principal financial officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a - 15(f) and 15d – 15(f) of the Exchange Act) during the third quarter of 2010. In connection with such evaluation, the Company has determined that there were no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal control over financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensuring that the Company’s systems evolve with its business.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Not applicable for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Trades of the Company’s stock occur in the Over-the-Counter marketplace from time to time. The Company also has in place a Stock Repurchase Plan that provides liquidity to its shareholders in the event a willing buyer is not available to purchase shares that are offered for sale. The Company is under no obligation to purchase shares offered; however, it will accommodate such offers as its Stock Repurchase Plan allows. This plan was initially adopted in 1995 and is approved annually by resolution of the Board of Directors or the Executive Committee of the Board.

Pursuant to the terms of the United States Department of the Treasury’s investment in the Company’s preferred stock under the Capital Purchase Program (“CPP”), the Company must obtain the prior consent of the United States Department of the Treasury to repurchase its common stock under the Stock Purchase Plan or otherwise or to pay a cash dividend.

Item 3. Defaults Upon Senior Securities

None

Item 4. Reserved

Item 5. Other Information

None

 

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Item 6. Exhibits

 

Exhibit
Number

  

Description of Exhibit

  3.1    Registrant’s Articles of Incorporation *
  3.2    Registrant’s By-laws *****
  4    Form of stock certificate *
10.1    Incentive Stock Option Plan, as amended *
10.2    Employee Stock Ownership Plan and Trust **
10.3    2006 Incentive Stock Option Plan ***
10.4    2006 Employee Stock Purchase Plan ***
10.5    Amendment to the Employee Stock Ownership Plan and Trust ****
31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

* Incorporated by reference from exhibits to Registrant’s Registration Statement on Form S-4 (Reg. No. 33-58882).
** Incorporated by reference to Registrant’s Annual Report on Form 10-KSB for the Fiscal year ended 1999.
*** Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2007.
**** Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2008.
***** Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2009.

 

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Signatures

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

 

   UWHARRIE CAPITAL CORP
   (Registrant)
Date: November 12, 2010    By:   /s/ Roger L. Dick
   Roger L. Dick
   President and Chief Executive Officer
Date: November 12, 2010    By:   /s/ Robert O. Bratton
   Robert O. Bratton
   Principal Financial Officer

 

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EXHIBIT INDEX

 

Exhibit
Number

  

Description of Exhibit

  3.1    Registrant’s Articles of Incorporation *
  3.2    Registrant’s By-laws *
  4    Form of stock certificate *
10.1    Incentive Stock Option Plan, as amended *
10.2    Employee Stock Ownership Plan and Trust *
10.3    2006 Incentive Stock Option Plan *
10.4    2006 Employee Stock Purchase Plan *
10.5    Amendment to the Employee Stock Ownership Plan and Trust *
31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)**
31.2    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)**
32    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)**

 

* Incorporated by reference
** Filed here within this report

 

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