Annual Statements Open main menu

UWHARRIE CAPITAL CORP - Quarter Report: 2010 June (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 June 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.    x  Yes    ¨  No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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    x  No

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 August 6, 2010.

 

 

 


Table of Contents

Table of Contents

 

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

Consolidated Balance Sheets June 30, 2010 and December 31, 2009

   3
 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009

   4
 

Consolidated Statements of Changes in Shareholders’ Equity Six Months Ended June 30, 2010

   5
 

Consolidated Statements of Cash Flows Six Months Ended June 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    27
Item 4T -   Controls and Procedures    27
Part II.   OTHER INFORMATION   
Item 1 -   Legal Proceedings    28
Item 1A -   Risk Factors    28
Item 2 -   Unregistered Sales of Equity Securities and Use of Proceeds    28
Item 3 -   Defaults Upon Senior Securities    29
Item 4 -   Reserved    29
Item 5 -   Other Information    29
Item 6 -   Exhibits    30
  Exhibit Index    32

 

-2-


Table of Contents

Uwharrie Capital Corp and Subsidiaries

Consolidated Balance Sheets

 

Part I. FINANCIAL INFORMATION

Item 1 - Financial Statements

 

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

ASSETS

    

Cash and due from banks

   $ 7,500      $ 7,521   

Interest-earning deposits with banks

     3,777        3,338   

Securities available for sale, at fair value

     94,994        76,317   

Loans held for sale

     1,991        2,628   

Loans:

    

Loans held for investment

     372,821        353,729   

Less allowance for loan losses

     (5,635     (5,276
                

Net loans held for investment

     367,186        348,453   
                

Premises and equipment, net

     14,127        13,646   

Interest receivable

     2,416        2,077   

Federal Home Loan Bank stock

     3,330        3,201   

Bank owned life insurance

     5,835        5,714   

Goodwill

     987        987   

Other real estate owned

     3,281        3,419   

Prepaid assets

     2,679        2,617   

Other assets

     6,933        7,928   
                

Total assets

   $ 515,036      $ 477,846   
                

LIABILITIES

    

Deposits:

    

Demand noninterest-bearing

   $ 50,651      $ 44,924   

Interest checking and money market accounts

     167,874        137,708   

Savings deposits

     36,586        32,120   

Time deposits, $100,000 and over

     64,283        64,736   

Other time deposits

     90,494        97,286   
                

Total deposits

     409,888        376,774   
                

Short-term borrowed funds

     22,515        26,940   

Long-term debt

     33,589        26,643   

Interest payable

     389        396   

Other liabilities

     2,424        3,069   
                

Total liabilities

     468,805        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

     (350     (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

     (629     (667

Undivided profits

     10,603        10,056   

Accumulated other comprehensive income

     2,583        1,013   
                

Total shareholders’ equity

     46,231        44,024   
                

Total liabilities and shareholders’ equity

   $ 515,036      $ 477,846   
                

 

(*) Derived from audited consolidated financial statements

See accompanying notes

 

-3-


Table of Contents

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Operations (Unaudited)

 

 

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

Interest Income

        

Loans, including fees

   $ 5,492      $ 5,218      $ 10,794      $ 10,593   

Investment securities

        

US Treasury

     131        —          159        —     

US Government agencies and corporations

     546        769        1,170        1,550   

State and political subdivisions

     79        176        171        365   

Interest-earning deposits with banks and federal funds sold

     10        19        18        43   
                                

Total interest income

     6,258        6,182        12,312        12,551   
                                

Interest Expense

        

Interest checking and money market accounts

     241        199        478        397   

Savings deposits

     82        69        152        123   

Time deposits, $100,000 and over

     295        534        604        1,092   

Other time deposits

     430        755        898        1,553   

Short-term borrowed funds

     157        71        298        186   

Long-term debt

     281        368        548        732   
                                

Total interest expense

     1,486        1,996        2,978        4,083   
                                

Net interest income

     4,772        4,186        9,334        8,468   

Provision for loan losses

     830        196        1,043        568   
                                

Net interest income after provision for loan losses

     3,942        3,990        8,291        7,900   
                                

Noninterest Income

        

Service charges on deposit accounts

     563        567        1,129        1,135   

Other service fees and commissions

     768        575        1,429        1,032   

Gain (loss) on sale of securities

     62        20        (36     (20

Loss on nonmarketable securities

     —          —          —          (172

Total other-than-temporary impairment loss

     —          (1,855     —          (1,855

Portion of loss recognized in other comprehensive income

     —          1,651        —          1,651   
                                

Net impairment recognized in earnings

     —          (204     —          (204

Loss fixed assets/other assets

     (60     (20     (60     (20

Income from mortgage loan sales

     390        1,131        736        2,567   

Other income

     100        104        228        184   
                                

Total noninterest income

     1,823        2,173        3,426        4,502   
                                

Noninterest Expense

        

Salaries and employee benefits

     2,886        2,886        5,714        5,759   

Net occupancy expense

     272        242        538        487   

Equipment expense

     176        180        358        361   

Data processing costs

     209        198        411        389   

Professional fees and services

     283        237        631        415   

Marketing and donations

     196        169        382        333   

Electronic banking expense

     193        178        377        355   

Software amortization and maintenance

     123        107        230        223   

FDIC insurance

     179        281        352        348   

Other noninterest expense

     698        803        1,394        1,490   
                                

Total noninterest expense

     5,215        5,281        10,387        10,160   
                                

Income before income taxes

     550        882        1,330        2,242   

Income taxes

     219        259        460        714   
                                

Net income

   $ 331      $ 623      $ 870      $ 1,528   
                                

Net Income

   $ 331        623        870        1,528   

Dividends – preferred stock

     (161     (160     (323     (322
                                

Net income available to common shareholders

   $ 170      $ 463      $ 547      $ 1,206   
                                

Net income per common share

        

Basic

   $ 0.02      $ 0.06      $ 0.07      $ 0.16   
                                

Diluted

   $ 0.02      $ 0.06      $ 0.07      $ 0.16   
                                

Weighted average shares outstanding

        

Basic

     7,488,781        7,472,003        7,486,695        7,469,905   

Diluted

     7,488,781        7,472,003        7,486,695        7,469,905   

See accompanying note

 

-4-


Table of Contents

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

   —        —        —        —          —        —        —          870        —        870   

Other comprehensive income

   —        —        —        —          —        —        —          —          1,570      1,570   

Release of ESOP shares

   —        —        —        —          —        —        38        —          —        38   

Stock compensation expense

   —        —        —        —          —        2      —          —          —        2   

Record preferred stock dividend and discount accretion

   —        —        —        50        —        —        —          (323     —        (273
                                                                        

Balance, June 30, 2010

   7,593,929    $ 10,000    $ 500    $ (350   $ 9,492    $ 14,032    $ (629   $ 10,603      $ 2,583    $ 46,231   
                                                                        

 

-5-


Table of Contents

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 

 

     Six Months Ended
June 30,
 
     2010     2009  
     (dollars in thousands)  

Cash flows from operating activities

    

Net income

   $ 870      $ 1,528   

Adjustments to reconcile net income to net cash

    

Provided by operating activities:

    

Depreciation

     384        387   

Net amortization of security premiums/discounts

     170        43   

Impairment of securities available for sale

     —          204   

Net amortization of mortgage servicing rights

     325        656   

Impairment of foreclosed real estate

     —          34   

Provision for loan losses

     1,043        568   

Stock compensation

     2        9   

Net realized loss on sales / calls available for sales securities

     36        20   

Income from mortgage loan sales

     (736     (2,567

Proceeds from sales of loans held for sale

     28,609        106,574   

Origination of loans held for sale

     (27,545     (105,337

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

     9        (1

Loss on nonmarketable securities

     —          172   

Increase in cash surrender value of life insurance

     (121     (97

Loss on sales of foreclosed real estate

     51        21   

Release of ESOP shares

     38        35   

Net change in interest receivable

     (339     40   

Net change in other assets

     (1,328     (1,738

Net change in interest payable

     (7     (15

Net change in other liabilities

     (645     696   
                

Net cash provided by operating activities

     816        1,232   
                

Cash flows from investing activities

    

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

     19,709        13,202   

Purchase of securities available for sale

     (34,516     (18,175

Net increase in loans

     (20,489     (4,532

Proceeds from sale of premises, equipment and other assets

     —          1   

Purchase of premises and equipment

     (874     (2,122

Proceeds from sales of foreclosed real estate

     799        708   

Investment in other assets

     (260     (602

Net increase in Federal Home Loan Bank stock

     (129     (863
                

Net cash used by investing activities

     (35,760     (12,383
                

Cash flows from financing activities

    

Net increase in deposit accounts

     33,114        18,157   

Net decrease in short-term borrowed funds

     (4,425     (7,607

Net increase (decrease) in long-term debt

     6,946        (1,854

Dividends on preferred stock

     (273     (272
                

Net cash provided by financing activities

     35,362        8,424   
                

Increase (decrease) in cash and cash equivalents

     418        (2,727

Cash and cash equivalents, beginning of period

     10,859        13,284   
                

Cash and cash equivalents, end of period

   $ 11,277      $ 10,557   
                

See accompanying notes

 

-6-


Table of Contents

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
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  
     (in thousands)  

Net Income

   $ 331      $ 623      $ 870      $ 1,528   
                                

Other comprehensive loss

        

Unrealized gain (losses) on available for sale securities

     2,201        (360     2,358        886   

Related tax effect

     (758     138        (810     (333

Reclassification of loss (gains) recognized in net income

     (62     (20     36        20   

Related tax effect

     24        (8     (14     (8

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

     —          204        —          204   

Related tax effect

     —          (71     —          (78
                                

Total other comprehensive gain (loss)

     1,405        (117     1,570        691   
                                

Comprehensive income

   $ 1,736      $ 506      $ 2,440      $ 2,219   
                                

 

-7-


Table of Contents

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 six periods ended June 30, 2010 and 2009, the Company had 213,190 and 459,856 stock options outstanding, respectfully. 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
June 30,
    Six Months Ended
June 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

   (105,148   (121,926   (107,234   (124,024
                        

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

   7,488,781      7,472,003      7,486,695      7,469,905   

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

   7,488,781      7,472,003      7,486,695      7,469,905   
                        

Note 4 – Investment Securities

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

 

June 30, 2010

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

U.S. Treasury

   $ 24,289    $ 873    $ —      $ 25,162

U.S. Government agencies

     30,284      1,394      —        31,678

Mortgage-backed securities and CMO’s

     29,213      1,415      7      30,621

State and political subdivisions

     7,188      345      —        7,533
                           

Total securities available for sale

   $ 90,974    $ 4,027    $ 7    $ 94,994
                           

 

-8-


Table of Contents

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 June 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 June 30, 2010 and December 31, 2009, the Company owned Federal Home Loan Bank Stock (FHLB) of $3.3 and $3.2 million, respectfully. 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 June 30, 2010.

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

 

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

Gross proceeds from sales

   $ 9,461      $ 1,020   
                

Realized gains from sales

   $ 215      $ 20   

Realized losses from sales

     (153     —     
                

Net realized gains

   $ 62      $ 20   
                
     Six Months Ended
June 30,
 
     2010     2009  
     (dollars in thousands)  

Gross proceeds from sales

   $ 12,431      $ 2,701   
                

Realized gains from sales

   $ 224      $ 73   

Realized losses from sales

     (260     (93
                

Net realized losses

   $ (36   $ (20
                

At June 30, 2010 and December 31, 2009 securities available for sale with a carrying amount of $39.1 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 June 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 June 30, 2010 the unrealized losses related to one mortgage backed security. 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.

 

-9-


Table of Contents
     Less than 12 Months    12 Months or More    Total

June 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. Gov’t agencies

   $ 3,052    $ 7    $ —      $ —      $ 3,052    $ 7
                                         
   $ 3,052    $ 7    $ —      $ —      $ 3,052    $ 7
                                         
     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 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 other-than-temporary impairment and also has the ability and the intent to hold the securities within its investment portfolio.

Based on these evaluations, the Company did have an other-than-temporary impairment on four private label collateralized mortgage obligations (“CMOs”) at June 30, 2009. An other-than-temporary charge of $204,000 due to the credit-related factors was recognized in earnings during the quarter ending June 30, 2009 and $1.7 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, as of June 30, 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 June 30, 2010

 

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

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

   $ —      $ —     

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

     204      107   

Realized loss from sales

     —        (107
               

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

   $ 204    $ —     
               

 

-10-


Table of Contents

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

 

     June 30, 2010
     Amortized
Cost
   Estimated
Fair Value
     (dollars in thousands)
Securities available for sale      

U.S. Treasury

     

Due after one but within five years

     3,021      3,075

Due after five but within ten years

     21,268      22,087
             
     24,289      25,162
             

U.S. Government agencies

     

Due after one but within five years

     22,403      23,230

Due after five but within ten years

     7,881      8,448
             
     30,284      31,678
             

Mortgage-backed securities

     

Due after five but within ten year

     6,350      6,771

Due after ten years

     22,863      23,850
             
     29,213      30,621
             

State and political

     

Due within one year

     579      585

Due after one but within five years

     3,295      3,480

Due after five but within ten year

     1,311      1,402

Due after ten years

     2,003      2,066
             
     7,188      7,533
             

Total Securities available for sale

     

Due within one year

     579      585

Due after one but within five years

     28,719      29,785

Due after five but within ten year

     36,810      38,708

Due after ten years

     24,866      25,916
             
   $ 90,974    $ 94,994
             
     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
             

 

-11-


Table of Contents

Note 5 – Loans

 

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

Loans outstanding at period end:

     

Commercial

   $ 51,650    $ 51,723

Real estate-construction

     51,549      44,976

Real estate-residential

     152,557      144,292

Real estate-commercial

     100,337      95,938

Consumer loans

     16,572      16,628

All other loans

     156      172
             

Total

   $ 372,821    $ 353,729
             

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  
           (in thousands)        

Analysis of the allowance for loan losses

        

Balance at beginning of period

   $ 5,401      $ 4,573      $ 5,276      $ 4,361   

Provision charged to operations

     830        196        1,043        568   

Charge-offs

     (609     (46     (701     (241

Recoveries

     13        9        17        44   
                                

Net (charge-offs)

     (596     (37     (684     (197
                                

Balance at end of period

   $ 5,635      $ 4,732      $ 5,635      $ 4,732   
                                

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 June 30, 2010, outstanding financial instruments whose contract amounts represent credit risk were approximately:

(in thousands)

 

Commitments to extend credit

   $ 93,349

Credit card commitments

     9,581

Standby letters of credit

     1,167
      

Total commitments

   $ 104,097
      

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

 

-12-


Table of Contents

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 June 30, 2010 and December 31, 2009:

 

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

Securities available for sale:

           

US Treasury

   $ 25,162    $ 25,162    $ —      $ —  

US Government agencies

     31,678      31,678      —        —  

Mortgage-backed securities and CMO’s

     30,621      —        30,621      —  

State and political subdivisions

     7,533      —        7,533      —  
                           

Total assets at fair value

   $ 94,994    $ 56,840    $ 38,154    $ —  
                           

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

   $ —      $ —      $ —      $ —  
                           

 

-13-


Table of Contents

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 June 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

 

-14-


Table of Contents

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 June 30, 2010 and December 31, 2009:

 

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

Impaired loans

   $ 14,184    $ —      $ —      $ 14,184

Other real estate owned

     1,395      —        1,202      193
                           

Total assets at fair value

   $ 15,579    $ —      $ 1,202    $ 14,377
                           

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

   $ —      $ —      $ —      $ —  
                           

 

-15-


Table of Contents

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 June 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 an asset could be sold at or the price a liability could be settled for. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following table do not represent market values of all assets and liabilities of the Company and should not be interpreted to represent the underlying value of the Company. The following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of June 30, 2010 and December 31, 2009:

 

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

Financial Assets

           

Cash and cash equivalents

   $ 11,277    $ 11,300    $ 10,859    $ 10,896

Securities available for sale

     94,994      94,994      76,317      76,317

Loans held for investment, net

     367,186      380,256      348,453      363,619

Loans held for sale

     1,991      1,995      2,628      2,634

FHLB and FRB Stock

     4,109      4,109      3,980      3,980

Bank-owned life insurance

     5,835      5,835      5,714      5,714

Mortgage servicing rights

     1,874      2,196      1,890      2,193

Accrued interest receivables

     2,416      2,416      2,077      2,077

Financial Liabilities

           

Deposits

   $ 409,888    $ 411,221    $ 376,774    $ 400,997

Short-term borrowings

     22,515      22,515      26,940      26,940

Long-term debt

     33,589      37,342      26,643      28,173

Accrued interest payable

     389      389      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 effect the valuation.

 

-16-


Table of Contents
   

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 June 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.

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.

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

 

-17-


Table of Contents

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 June 30, 2010 and December 31, 2009.

During the six months ended June 30, 2010, the Company’s total assets increased $37.2 million, from $477.8 million to $515.0 million. During the same period, loans held for investment also increased $19.1 million, while securities available for sale increased $18.7 million.

Cash and cash equivalents increased $418,000 during the six months ended June 30, 2010. Cash and due from banks decreased $21,000, while interest-earning deposits with banks increased $439,000.

Investment securities increased from $76.3 million to $95.0 million for the six months ended June 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 first six 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 June 30, 2010, the Company had net unrealized gains of $4.0 million. During the six month period, the Company purchased $34.5 million in new securities leveraging 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 $372.8 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 5.8% or $8.3 million. A portion of this increase is related to funding on existing commitments related to construction loans. Loans held for sale decreased 24.2% or $637,000 during the period. The allowance for loan losses was $5.6 million at June 30, 2010, which represents 1.51% of the loan portfolio. Refer to the Asset Quality discussion on page 25 for further information.

Other changes in our consolidated assets are related to premises and equipment, interest receivable, Federal Home Loan Bank stock, bank owned life insurance, other real estate owned, prepaid assets and other assets. Premises and equipment, interest receivable, bank owned life insurance and prepaid assets increased $481,000, $339,000, $121,000 and $62,000, respectively. Other real estate owned declined $138,000. Federal Home Loan Bank stock increased $129,000 because member institutions are required to increase their ownership as they increase their utilization of FHLB borrowings.

 

-18-


Table of Contents

Customer deposits, our primary funding source, experienced a $33.1 million increase during the six months ended June 30, 2010, increasing from $376.8 million to $409.9 million. Demand noninterest bearing checking increased $5.7 million, while interest checking and money market accounts increased $30.2 million for the period. This increase is attributed to approximately $15.0 million in new public funds from one relationship and also from a shift from time deposits to money market accounts. Savings deposits grew $4.5 million. Time deposits over $100,000 experienced a decline of $453,000, while other time deposits declined $6.8 million during the first six months of 2010.

Total borrowings increased $2.5 million for the period which consist of both short-term and long-term borrowed funds primarily from the Federal Home Loan Bank. At June 30, 2010, $40.0 million of the total borrowings of $56.1 million were comprised of Federal Home Loan Bank advances.

Other liabilities decreased from $3.1 million at December 31, 2009 to $2.4 million at June 30, 2010, a decrease of $645,000.

At June 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 $870,000. Unrealized gains on investment securities, net of tax improved $1.6 million. These increases were offset as the Company also recorded $273,000 in dividends on the series A and B preferred stock for the six months period. At June 30, 2010, the Company and its subsidiary banks exceeded all applicable regulatory capital requirements.

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

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $331,000 for the three months ended June 30, 2010, as compared to $623,000 for the three months ended June 30, 2009, a decrease of $292,000. Net income available to common shareholders was $170,000 or $0.02 per common share at June 30, 2010, compared to $463,000 or $0.06 per common share at June 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

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 June 30, 2010 was $4.8 million as compared with $4.2 million during the three months ending June 30, 2009, resulting in an increase of $586,000, or 14.0%. During the quarter ending June 30, 2010 our growth in the volume of interest-earning assets outpaced the growth in interest-bearing liabilities by $309,000. The average yield on our interest–earning assets decreased 40 basis points to 5.47%, while the

 

-19-


Table of Contents

average rate we paid for our interest-bearing liabilities decreased 67 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 27 basis points in our interest rate spread, from 3.74% in 2009 to 4.01% in 2010. Our net interest margin was 4.19% and 4.02% 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 June 30, 2010 and 2009:

Average Balance Sheet and Net Interest Income Analysis

For the Three Months Ended June 30,

(in thousands)

 

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

Interest-earning assets:

                

Taxable securities

   $ 79,760    $ 62,238    $ 677    $ 772    3.40   4.98

Nontaxable securities (1)

     8,092      15,582      79      173    6.46   7.26

Short-term investments

     7,254      8,124      10      19    0.55   0.94

Taxable loans

     363,983      340,424      5,431      5,173    5.98   6.10

Non-taxable loans (1)

     6,431      5,071      61      45    6.18   5.74
                                        

Total interest-earning assets

     465,520      431,439      6,258      6,182    5.47   5.87

Interest-bearing liabilities:

                

Interest-bearing deposits

     351,312      323,611      1,048      1,557    1.20   1.93

Short-term borrowed funds

     22,963      21,262      157      71    2.74   1.34

Long-term debt

     34,892      30,494      281      368    3.23   4.84
                                        

Total interest bearing liabilities

     409,167      375,367      1,486      1,996    1.46   2.13
                                        

Net interest spread

   $ 56,353    $ 56,072    $ 4,772    $ 4,186    4.01   3.74
                                        

Net interest margin (1)

                

(% of earning assets)

               4.19   4.02
                        

 

(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 $830,000 for the three months ending June 30, 2010 compared to $196,000 for the same period in 2009. There were net loan charge-offs of $596,000 for the three months ended June 30, 2010 as compared with net loan charge-offs of $37,000 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 decreased $350,000 for the three month period ending June 30, 2010 as compared to the same period in 2009. Income from mortgage loan sales decreased $741,000 from $1.1 million for the quarter ended June 30, 2009 to $390,000 for the same period in 2010. The decline in interest rates late in 2008 and during first quarter of 2009 lead to a wave of mortgage refinancing, as customers were able to refinance again at a lower rate. The volume of refinanced loans was much lower in the second quarter of 2010. Service charges on deposit accounts produced earnings of $563,000 for the three months ended June 30, 2010. Other service fees and commissions experienced a 33.6% increase for the comparable three month period. This is due in part to a reduction in the write-down of servicing

 

-20-


Table of Contents

assets due to the refinanced mortgage loans. Income generated from brokerage commissions and asset management fees increased $85,000. The Company realized income on the sale of investments in the amount of $62,000 in the second quarter of 2010, as compared to $20,000 for the same period in 2009.

Noninterest Expense

Noninterest expense for the quarter ended June 30, 2010 was $5.2 million compared to $5.3 million for the same period of 2009, a decrease of $66,000. Salaries and employee benefits, the largest component of noninterest expense, was $2.9 million for both for the quarters ending June 30, 2010 and 2009. Net occupancy expense and equipment expense had a combined increase of $26,000. Professional fees and services increased $46,000, primarily related to an increase in legal fees, attributed to loan foreclosures. FDIC assessment costs decreased $102,000 due to a special assessment charged by FDIC to all FDIC-insured financial institutions during the second quarter of 2009. Other noninterest expense decreased $105,000 for the comparable three month periods. The table below reflects the composition of other noninterest expense.

Other noninterest expense

 

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

Office supplies and printing

   $ 89    $ 83

Postage

     49      53

Telephone and data lines

     51      56

Loan collection expense

     61      105

Foreclosed loan expense

     77      50

Shareholder relations expense

     43      56

Dues and subscriptions

     41      42

Other

     287      358
             

Total

   $ 698    $ 803
             

Income Tax Expense

The Company had income tax expense of $219,000 for the three months ended June 30, 2010 resulting in an effective tax rate of 39.8% compared to income tax expense of $259,000 and an effective rate of 29.4% 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. The Company had approximately $6.0 million in state municipal securities that had call features 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.

Comparison of Results of Operations For the Six Months Ended June 30, 2010 and 2009.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $870,000 for the six months ended June 30, 2010, as compared to $1.5 million for the six months ended June 30, 2009, a decrease of $658,000. Net income available to common shareholders was $547,000 or $0.07 per common share at June 30, 2010, compared at $1.2 million or $0.16 per common share at June 30, 2009. Net income available to common shareholders is net income less any dividends on preferred

 

-21-


Table of Contents

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 six months ended June 30, 2010 was $9.3 million as compared with $8.5 million during the six months ended June 30, 2009, resulting in an increase of $866,000, or 10.2%. During the quarter ending June 30, 2010 our growth in the volume of interest-earning assets outpaced the growth in interest-bearing liabilities by $420,000. The average yield on our interest–earning assets decreased 41 basis points to 5.58%, while the average rate we paid for our interest-bearing liabilities decreased 68 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 27 basis points in our interest rate spread, from 3.80% in 2009 to 4.07% in 2010. Our net interest margin was 4.25% and 4.09% for the comparable six 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 attributed to the improved interest margin, however, this feature could hurt the margin in a rising rate environment.

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

Average Balance Sheet and Net Interest Income Analysis

For the Six Months Ended June 30,

(in thousands)

 

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

Interest-earning assets:

                

Taxable securities

   $ 72,842    $ 60,475    $ 1,330    $ 1,556    3.68   5.19

Nontaxable securities (1)

     8,650      16,103      170      359    6.46   7.32

Short-term investments

     5,062      7,224      18      43    0.72   1.20

Taxable loans

     358,379      343,380      10,672      10,499    6.01   6.17

Non-taxable loans (1)

     6,487      4,793      122      94    6.18   6.40
                                        

Total interest-earning assets

     451,420      431,975      12,312      12,551    5.58   5.99

Interest-bearing liabilities:

                

Interest-bearing deposits

     340,293      315,987      2,132      3,165    1.26   2.02

Short-term borrowed funds

     25,346      29,015      298      186    2.37   1.29

Long-term debt

     31,038      30,707      548      732    3.56   4.81
                                        

Total interest bearing liabilities

     396,677      375,709      2,978      4,083    1.51   2.19
                                        

Net interest spread

   $ 54,743    $ 56,266    $ 9,334    $ 8,468    4.07   3.80
                                        

Net interest margin (1)

                

(% of earning assets)

               4.25   4.09
                        

 

(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 $1.0 million for the six months ending June 30, 2010 compared to $568,000 for the same period in 2009. There were net loan charge-offs of $684,000 for the six months ended June 30, 2010 as compared with net loan charge-offs of $197,000 during the same period of 2009. Refer to the Asset Quality discussion on page 24 for further information.

 

-22-


Table of Contents

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 decreased $1.1 million for the six month period ending June 30, 2010 as compared to the same period in 2009. Income from mortgage loan sales decreased $1.8 million from $2.6 million for the six months ended June 30, 2009 to $736,000 for the same period in 2010. The decline in interest rates late in 2008 and during first quarter of 2009 lead to a wave of mortgage refinancing, as customers were able to refinance again at a lower rate. The volume of refinanced loans was much lower in the first six months of 2010. Service charges on deposit accounts produced earnings of $1.1 million for the six months ended June 30, 2010. Other service fees and commissions experienced a 38.5% increase for the comparable six 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 $175,000. The Company realized losses on the sale of investments in the amount of $36,000 in the first six months of 2010, as compared to $20,000 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 $204,000 during the second quarter of 2009.

Noninterest Expense

Noninterest expense for the quarter ended June 30, 2010 was $10.4 million compared to $10.2 million for the same period of 2009, an increase of $227,000. Salaries and employee benefits, the largest component of noninterest expense, decreased $45,000 to $5.7 million for the period ending June 30, 2010. Net occupancy expense and equipment expense had a combined increase of $48,000. Professional fees and services increased $216,000, primarily related to an increase in legal fees, attributed to loan collections. Other noninterest expense decreased $96,000 for the comparable six month periods. The table below reflects the composition of other noninterest expense.

Other noninterest expense

 

     Six Months Ended
June 30,
     2010    2009
     (in thousands)

Office supplies and printing

   $ 177    $ 160

Postage

     101      102

Telephone and data lines

     113      111

Loan collection expense

     96      190

Foreclosed loan expense

     131      68

Shareholder relations expense

     93      100

Dues and subscriptions

     90      85

Other

     593      674
             

Total

   $ 1,394    $ 1,490
             

Income Tax Expense

The Company had income tax expense of $460,000 for the six months ended June 30, 2010 resulting in an effective tax rate of 34.59% compared to income tax expense of $714,000 and

 

-23-


Table of Contents

an effective rate of 31.85% 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, 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

 

-24-


Table of Contents

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 $1.0 million for the six months ended June 30, 2010 as compared to $568,000 for the same period in 2009. During the first six 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 $40.6 million compared to $24.1 million at December 31, 2009, an increase of $16.5 million. The increase in the level of impaired loans resulted from nine customer relationships totaling $16.8 million that are included in impaired loans. 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 $8.9 million at June 30, 2010. The Company had net loan charge-offs for the first six months of 2010 of $684,000 compared to net loan charge-offs of $197,000 for the same period in 2009.

The allowance expressed as a percentage of gross loans held for investment increased 2 basis points from 1.49% at December 31, 2009 to 1.51% at June 30, 2010. FAS 5 allowance as a percentage of non-impaired loans decreased from 0.71% at December 31, 2009 to 0.66% at June 30, 2010, a decrease of five basis points. One of the factors attributing to this decrease was a drop in the unemployment rates that is one of the components in the FAS 5 calculation in the model. Another factor related to this decrease was the increase in nonaccruals loans. Once a relationship is nonaccrual, the relationship is pulled out of the FAS 5 calculation and evaluated under FAS 114 for impairment. Not all relationships evaluated under FAS 114 have impairment and this can result in a decrease in the overall allowance for loan loss. Nonperforming loans, which consist solely of nonaccrual loans, to total loans increased from 1.59% at December 31, 2009, to 2.41% at June 30, 2010. During the period the Company had a decrease in other real estate owned of $138,000. Even in these difficult economic times, management believes the current level of the allowance for loan losses to be adequate at this time.

The following nonperforming loan table shows the comparison for the six months ended June 30, 2010 to December 31, 2009:

Nonperforming Assets

(dollars in thousands)

 

     June 30,
2010
    December 31,
2009
 

Nonperforming assets:

    

Nonaccrual loans

   $ 8,973      $ 5,630   

Other real estate owned

     3,281        3,419   
                

Total nonperforming assets

   $ 12,254      $ 9,049   
                

Accruing loans past due 90 days or more

   $ 312      $ 17   

Allowance for loans losses

     5,635        5,276   

Nonperforming loans to total loans

     2.41     1.59

 

-25-


Table of Contents

Allowance for loan losses to total loans

   1.51   1.49

Nonperforming assets to total loans and other real estate

   3.29   2.56

Nonperforming assets to total assets

   2.38   1.89

Allowance for loan losses to nonperforming loans

   62.80   93.71

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 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 June 30, 2010, with available credit of $18.8 million, established borrowing relationships with the Federal Home Loan Bank, with available credit of $35.3 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 $56.1 million at June 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. At this time the Company does not have any brokered deposits.

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 June 30, 2010, the total risk based for the Company and each subsidiary was as follows; the Company 13.94%, Bank of Stanly 12.96%, Anson Bank and Trust 14.02% and Cabarrus Bank and Trust 13.02%. The Company expects to continue to exceed minimum capital requirements without altering current operations or strategy. The Company completed a private placement of 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. At June 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.

 

-26-


Table of Contents

Accounting and Regulatory Matters

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. However, 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, among other things, (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 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 is unsure and cannot know with certainty what the impact of the Act on the Company’s and its bank subsidiaries’ business, financial condition and results of operations will be and expect that some provisions of the Act may have adverse effects, such as the cost of complying with the numerous new regulations and reporting requirements mandated by the Act, a potential increase in competition for deposits resulting from the rise in 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 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

 

-27-


Table of Contents

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.

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 second 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.

 

-28-


Table of Contents

Item 3. Defaults Upon Senior Securities

None

Item 4. Reserved

Item 5. Other Information

None

 

-29-


Table of Contents

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.

 

-30-


Table of Contents

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: August 12, 2010   By:  

/s/ Roger L. Dick

    Roger L. Dick
    President and Chief Executive Officer
Date: August 12, 2010     By:  

/s/ Robert O. Bratton

    Robert O. Bratton
    Principal Financial Officer

 

-31-


Table of Contents

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

 

-32-